Discontinued Operations

12 Months Ended

Sep. 30, 2012

Discontinued Operations

Discontinued Operations

4. Discontinued Operations

        Headwaters assessed the strategic fit of its various operations and is pursuing divestiture of certain businesses in the energy technology segment which do not align with its long-term strategy. In September 2011, the Board of Directors committed to a plan to sell the coal cleaning business, which is part of the energy technology segment, and at that time the business met all the criteria for classification as held for sale and presentation as a discontinued operation. Accordingly, the assets and liabilities associated with the coal cleaning business have been reflected as held for sale in the accompanying consolidated balance sheets. The results of Headwaters' coal cleaning operations have been presented as discontinued operations for all periods.

        Certain summarized information for the discontinued coal cleaning business is presented in the following table.

(in thousands)	2010			2011			2012
Revenue	$	56,486		$	48,476		$	22,268
Loss from operations of discontinued operations before income taxes	$	(52,954	)	$	(91,615	)	$	(36,210	)
Gain on disposal		0			0			267
Income tax benefit (provision)		24,552			(4,374	)		124
Loss from discontinued operations, net of income taxes	$	(28,402	)	$	(95,989	)	$	(35,819	)

        During 2010, many of Headwaters' coal cleaning assets were idled or produced coal at low levels of capacity and were cash flow negative for these or other reasons. Using assumptions in a forecast of future cash flows that were based primarily on historical operating conditions, Headwaters determined that a coal cleaning asset impairment existed at September 30, 2010 and recorded a non-cash impairment charge of $34.5 million. During 2011, a number of Headwaters' coal cleaning assets remained idle or were producing coal at low levels. These low production levels resulted in a forecast of future cash flows that indicated a further impairment existed and Headwaters recorded an additional impairment charge of $37.0 million in the March 2011 quarter. In September 2011, in connection with the commitment to sell the coal cleaning facilities, another impairment charge of $35.0 million was recorded to reduce the carrying value of the assets to fair value less estimated selling costs. During 2012, Headwaters recorded an impairment of the coal cleaning assets totaling $13.0 million, which reduced the remaining book value for the coal cleaning assets, net of liabilities associated with those assets, to negative $(4.9) million.

        Current assets held for sale consist primarily of accounts receivable and inventory. Non-current assets held for sale consist of approximately $16.1 million and $1.9 million of property, plant and equipment and approximately $8.3 million and $5.9 million of other assets, as of September 30, 2011 and 2012, respectively, all of which are recorded at the lower of historical carrying amount or fair value. Liabilities associated with assets held for sale consist primarily of accrued liabilities.

        Management used its best efforts to reasonably estimate all of the fair value "Level 3" inputs in the cash flow models utilized to estimate the above-described impairments, including current and forecasted market prices of coal, inflation, useful lives of probable reserves, historical production levels, and offers of interest to acquire the assets from third parties. Materially different input estimates and assumptions, including the probabilities of differing potential outcomes, would necessarily result in materially different calculations of expected future cash flows and asset fair values and materially different impairment estimates. If assumptions regarding future cash flows from the sale of the coal cleaning assets prove to be incorrect, Headwaters may be required to record a loss or a gain when the remaining assets are sold.

        Headwaters sold one coal cleaning facility during 2012 for cash proceeds of $2.0 million plus potential future consideration, primarily in the form of production royalties, totaling approximately $8.4 million, which amount would be received over a number of years, depending upon future plant production levels. Subsequent to September 30, 2012, Headwaters sold two additional facilities for consideration to be received in the future, primarily in the form of production royalties, totaling an amount which could exceed $10.0 million, which amount would be received over a number of years, depending upon future plant production levels. The eight remaining facilities are under contract for sale with closing anticipated before the end of calendar 2012, subject to the satisfaction of certain material conditions.