Equity Method Investments

12 Months Ended

Sep. 30, 2012

Equity Method Investments

Equity Method Investments

13. Equity Method Investments

        Investments in entities in which Headwaters has a significant influence over operating and financial decisions are accounted for using the equity method of accounting. One such equity method investee was Blue Flint Ethanol LLC (Blue Flint). In 2012, Headwaters sold its interest in Blue Flint for approximately $18.5 million. Subsequent to Headwaters' initial investment in Blue Flint, equity earnings in excess of $15.0 million were recorded that increased Headwaters' carrying value of the investment to an amount that was more than the sales proceeds. As a result, a non-cash loss of approximately $6.3 million was recorded in other expense in the 2012 statement of operations.

        Headwaters entered into various joint ventures with Evonik Industries AG, an international chemical company based in Germany. One of these joint ventures purchased a hydrogen peroxide business located in South Korea for which Headwaters was at risk for payment of 50% of the joint venture's obligations, limited to Headwaters' investment in the joint venture. Headwaters sold its interest in this joint venture in 2010 and recognized a gain of approximately $3.9 million, recorded in other income in the 2010 consolidated statement of operations. Through the date of sale, Headwaters applied the equity method of accounting for its interest in this joint venture, and accordingly recorded its share of the joint venture's foreign currency transaction gains and losses. These gains and losses arose primarily because the joint venture's functional currency was the Korean Won, but it had significant debt obligations denominated in and repayable in the Euro. Headwaters' share of the joint venture's foreign currency transaction gains was approximately $2.1 million in 2010. Headwaters incurred a non-cash loss of approximately $3.2 million in 2012 related to another joint venture with Evonik. The loss was recorded in other expense in the statement of operations.