3.Acquisitions

Entegra — On December 12, 2013, Headwaters acquired 80% of the equity interests of Roof Tile Acquisition, LLC, a privately-held Florida-based company in the building products industry, which sells its products primarily under the Entegra brand. Entegra’s results of operations have been included with Headwaters’ consolidated results beginning December 13, 2013.

Entegra is a leading manufacturer of concrete roof tiles and accessories which are sold primarily into Florida. The acquisition of Entegra provides additional product offerings to Headwaters’ current roofing products portfolio. Headwaters believes the strategic location of Entegra’s centralized manufacturing plant in Florida, the quality of its contractor/customer relationships, and the scope of its products and services provide a competitive advantage. Many of its customers are currently customers of Headwaters, and provide Headwaters the opportunity to expand existing sales and distribution within Florida, which is one of the fastest growing states in the U.S. in terms of population.

Total consideration paid for Entegra was approximately $57.5 million, all of which was cash. Direct acquisition costs, consisting primarily of fees for legal services, totaled approximately $0.4 million and were included in selling, general and administrative expense in the statement of operations for fiscal 2014. Headwaters has the right, but not the obligation, to acquire the non-controlling 20% equity interest in Entegra for a stipulated multiple of EBITDA adjusted for certain prescribed items. This call right is exercisable at any time after five years following the date of acquisition, unless certain defined events occur prior to that time, in which case the right is exercisable earlier. The non-controlling owners have the right, but not the obligation, to require Headwaters to acquire the non-controlling 20% equity interest, again for a stipulated multiple of EBITDA adjusted for certain prescribed items. This put right became exercisable in June 2015.

The Entegra acquisition has been accounted for as a business combination in accordance with the requirements of ASC 805 Business Combinations. The following table sets forth the estimated fair values of assets acquired and liabilities assumed as of the acquisition date:

	(in thousands)

Current assets	$	8,261
Current liabilities	(3,422		)
Property, plant and equipment	10,589
Intangible assets:
Customer relationships (15 year life)	20,600
Trade name (indefinite life)	6,600
Goodwill	28,156


Net assets acquired	70,784

Less redeemable non-controlling interest	(13,252		)


Net assets attributable to Headwaters	$	57,532

Entegra’s future growth attributable to new customers, geographic presence and assembled workforce are additional assets that are not separable and which contributed to recorded goodwill, most of which is tax deductible over 15 years.

Gerard — On May 16, 2014, Headwaters acquired certain assets and assumed certain liabilities of the roofing products business of Metals USA Building Products, L.P., which products are sold under the Gerard and Allmet brands. Gerard’s results of operations are being reported within the building products segment and have been included with Headwaters’ consolidated results beginning May 16, 2014.

Gerard is one of the largest manufacturers of stone coated metal roofing materials in the U.S. and sells niche roofing products that combine profiles resembling tile, shake, or slate with a fire proof material and a low lifetime installed cost. The acquisition of Gerard increases the number of specialty niche roofing products that Headwaters provides to its core customers and is an area of focus for Headwaters. With the addition of Gerard, Headwaters now has three product categories in niche roofing, including resin-based composite, concrete, and metal, which could increase opportunities for cross selling. Besides broadening the niche roofing product lines, Gerard also expands Headwaters geographic footprint in the roofing category.

Total consideration paid for Gerard was approximately $27.6 million, all of which was cash. Direct acquisition costs, consisting primarily of fees for legal services, totaled approximately $0.3 million and were included in selling, general and administrative expense in the statement of operations for fiscal 2014.

The Gerard acquisition has been accounted for as a business combination in accordance with the requirements of ASC 805 Business Combinations. The following table sets forth the estimated fair values of assets acquired and liabilities assumed as of the acquisition date.

	(in thousands)

Current assets	$	9,236
Current liabilities	(1,691		)
Property, plant and equipment	8,314
Intangible assets:
Customer relationships (15 year life)	4,000
Trade name (indefinite life)	3,900
Goodwill	7,719
Long-term liabilities	(3,906		)

Net assets acquired	$	27,572

Gerard’s future growth attributable to new customers, geographic presence and assembled workforce are additional assets that are not separable and which contributed to recorded goodwill, most of which is tax deductible over 15 years.

Other — During the March 2014 quarter, Headwaters acquired the assets of a company in the construction materials industry located in the Northeast U.S. for initial cash consideration of approximately $3.1 million. This acquisition increased Headwaters’ supply of fly ash and bottom ash, improving its competitive position in that region. During the September 2014 quarter, Headwaters acquired the assets of another company in the construction materials industry located in the Southeast U.S. for cash consideration of approximately $7.4 million. This acquisition increased Headwaters’ supply of ash products produced by industrial boilers and has strengthened the ability to meet customers’ needs along the Gulf Coast.

Investments in entities in which Headwaters has a significant influence over operating and financial decisions are accounted for using the equity method of accounting. Headwaters acquired 100% of one such equity method investee in the December 2014 quarter for a cash payment of approximately $1.2 million. As a result of Headwaters obtaining a controlling financial interest, the investee has been consolidated within the building products segment.

Redeemable Non-controlling Interest in Consolidated Subsidiary — As described above, Headwaters acquired 80% of the equity interests of Entegra, and the non-controlling owners have the right to require Headwaters to acquire the non-controlling 20% equity interest. This put right is not deemed to be a freestanding financial instrument and because it is not solely within the control of Headwaters, the non-controlling interest does not qualify as permanent equity and has been reported outside the stockholders’ equity section of the balance sheet as temporary, or mezzanine, equity. The value of the non-controlling interest was affected by the lack of control as well as the estimated fair values of the put and call rights.

Because there is no fixed redemption date for the put right, Headwaters compares quarterly the carrying value of the non-controlling interest to its estimated redemption value. The estimated redemption value is calculated based on the EBITDA formula described previously to determine the price that would be paid if the put right were to have been exercised at the end of the reporting period. If applicable, the carrying amount is increased, but not decreased, to the estimated redemption value. The following table summarizes the changes in carrying value of the non-controlling interest during the nine months ended June 30, 2015:

	(in thousands)

Balance as of September 30, 2014	$	13,252
Net income attributable to non-controlling interest	695
Dividends paid to non-controlling interest	(1,184		)

Balance as of June 30, 2015	$	12,763