Condensed Consolidating Financial Information

9 Months Ended

Jun. 30, 2015

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

13.  Condensed Consolidating Financial Information

Headwaters’ borrowings under the Term Loan Facility and the 7¼% senior notes are jointly and severally, fully and unconditionally guaranteed by Headwaters Incorporated and by substantially all of Headwaters’ 100%-owned domestic subsidiaries. Separate stand-alone financial statements and disclosures for Headwaters Incorporated and each of the guarantor subsidiaries are not presented because the guarantees are full and unconditional and the guarantor subsidiaries have joint and several liability.

There are no significant restrictions on the ability of Headwaters Incorporated to obtain funds from the guarantor subsidiaries nor on the ability of the guarantor subsidiaries to obtain funds from Headwaters Incorporated or other guarantor subsidiaries. Non-guaranteeing entities include subsidiaries that are not 100% owned, foreign subsidiaries and joint ventures in which Headwaters has a non-controlling ownership interest.

CONDENSED CONSOLIDATING BALANCE SHEET — September 30, 2014

	Guarantor			Non- guarantor		Parent			Eliminations and			Headwaters
(in thousands)	Subsidiaries			Subsidiaries		Company			Reclassifications			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	33,552		$	5,764	$	113,226		$	—		$	152,542
Trade receivables, net	113,940			5,390								119,330
Inventories	48,482			2,151								50,633
Deferred income taxes	15,509			289		18,427			(23,149		)	11,076
Other	9,286			168		1,082						10,536
Total current assets	220,769			13,762		132,735			(23,149		)	344,117
Property, plant and equipment, net	162,458			11,674		7,979			—			182,111
Other assets:
Goodwill	145,068			30,518								175,586
Intangible assets, net	131,150			28,713								159,863
Investments in subsidiaries						406,327			(406,327		)	—
Intercompany accounts and notes						637,046			(637,046		)	—
Deferred income taxes	41,658					22,928			(64,586		)	—
Other	14,388			1,381		18,860						34,629
Total other assets	332,264			60,612		1,085,161			(1,107,959		)	370,078
Total assets	$	715,491		$	86,048	$	1,225,875		$	(1,131,108	)	$	896,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,643		$	956	$	427		$	—		$	27,026
Accrued personnel costs	13,483			418		35,001						48,902
Accrued interest						18,273						18,273
Current income taxes	23,198			319					(23,149		)	368
Other accrued liabilities	36,811			3,006		1,940						41,757
Total current liabilities	99,135			4,699		55,641			(23,149		)	136,326
Long-term liabilities:
Long-term debt, net						592,458						592,458
Income taxes	65,133			893		21,802			(64,586		)	23,242
Intercompany accounts and notes	191,274			4,061		441,711			(637,046		)	—
Other	16,167			774		11,645						28,586
Total long-term liabilities	272,574			5,728		1,067,616			(701,632		)	644,286
Total liabilities	371,709			10,427		1,123,257			(724,781		)	780,612
Redeemable non-controlling interest in consolidated subsidiary				13,252								13,252
Stockholders’ equity:
Common stock						74						74
Capital in excess of par value	458,498			60,453		723,824			(519,127		)	723,648
Retained earnings (accumulated deficit)	(114,716		)	1,916		(620,688		)	112,800			(620,688		)
Treasury stock						(592		)				(592		)
Total stockholders’ equity	343,782			62,369		102,618			(406,327		)	102,442
Total liabilities and stockholders’ equity	$	715,491		$	86,048	$	1,225,875		$	(1,131,108	)	$	896,306

CONDENSED CONSOLIDATING BALANCE SHEET — June 30, 2015

	Guarantor		Non- guarantor			Parent			Eliminations and			Headwaters
(in thousands)	Subsidiaries		Subsidiaries			Company			Reclassifications			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	58,535	$	4,319		$	36,561		$	—		$	99,415
Trade receivables, net	113,926		5,281									119,207
Inventories	59,551		2,565									62,116
Current and deferred income taxes	9,295		28,071			42,435			(67,893		)	11,908
Other	12,057		86			1,259						13,402
Total current assets	253,364		40,322			80,255			(67,893		)	306,048
Property, plant and equipment, net	161,029		10,346			10,499			—			181,874
Other assets:
Goodwill	144,643		30,869									175,512
Intangible assets, net	120,668		27,608									148,276
Investments in subsidiaries						498,272			(498,272		)	—
Intercompany accounts and notes	52,614					641,487			(694,101		)	—
Deferred income taxes	44,706					23,339			(68,045		)	—
Other	10,869		2,227			21,735			(81		)	34,750
Total other assets	373,500		60,704			1,184,833			(1,260,499		)	358,538
Total assets	$	787,893	$	111,372		$	1,275,587		$	(1,328,392	)	$	846,460
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,108	$	1,021		$	821		$	—		$	24,950
Accrued personnel costs	9,885		354			25,633						35,872
Accrued interest						5,014						5,014
Current income taxes	52,137					15,756			(67,893		)	—
Other accrued liabilities	35,028		6,238			3,272						44,538
Current portion of long-term debt						4,250						4,250
Total current liabilities	120,158		7,613			54,746			(67,893		)	114,624
Long-term liabilities:
Long-term debt, net						558,605						558,605
Income taxes	61,221		7,512			20,255			(68,045		)	20,943
Intercompany accounts and notes			177,441			516,660			(694,101		)	—
Other			14,461			15,802			(81		)	30,182
Total long-term liabilities	61,221		199,414			1,111,322			(762,227		)	609,730
Total liabilities	181,379		207,027			1,166,068			(830,120		)	724,354
Redeemable non-controlling interest in consolidated subsidiary			12,763									12,763
Stockholders’ equity:
Common stock						74						74
Capital in excess of par value	486,069		56,194			726,812			(542,439		)	726,636
Retained earnings (accumulated deficit)	120,445		(164,612		)	(616,489		)	44,167			(616,489		)
Treasury stock						(878		)				(878		)
Total stockholders’ equity	606,514		(108,418		)	109,519			(498,272		)	109,343
Total liabilities and stockholders’ equity	$	787,893	$	111,372		$	1,275,587		$	(1,328,392	)	$	846,460

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended June 30, 2014

	Guarantor			Non- guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Revenue:
Building products	$	129,085		$	11,487		$	—		$	—		$	140,572
Construction materials	80,636												80,636
Energy technology	2,191												2,191
Total revenue	211,912			11,487			—			—			223,399
Cost of revenue:
Building products	89,948			7,725									97,673
Construction materials	57,070												57,070
Energy technology	984												984
Total cost of revenue	148,002			7,725			—			—			155,727
Gross profit	63,910			3,762			—			—			67,672
Operating expenses:
Amortization	5,165			312									5,477
Selling, general and administrative	28,837			1,409			6,258						36,504
Total operating expenses	34,002			1,721			6,258			—			41,981
Operating income (loss)	29,908			2,041			(6,258		)	—			25,691
Other income (expense):
Net interest expense	(125		)	(2		)	(11,994		)				(12,121		)
Equity in earnings of subsidiaries							23,446			(23,446		)	—
Other, net	25			(61		)							(36		)
Total other income (expense), net	(100		)	(63		)	11,452			(23,446		)	(12,157		)
Income from continuing operations before income taxes	29,808			1,978			5,194			(23,446		)	13,534
Income tax benefit (provision)	(7,250		)	(470		)	5,310						(2,410		)
Income from continuing operations	22,558			1,508			10,504			(23,446		)	11,124
Loss from discontinued operations, net of income taxes	(231		)										(231		)
Net income	22,327			1,508			10,504			(23,446		)	10,893
Net income attributable to non-controlling interest				(389		)							(389		)
Net income attributable to Headwaters Incorporated	$	22,327		$	1,119		$	10,504		$	(23,446	)	$	10,504

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended June 30, 2015

	Guarantor			Non- guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Revenue:
Building products	$	136,117		$	11,713		$	—		$	—		$	147,830
Construction materials	91,900												91,900
Energy technology	3,564												3,564
Total revenue	231,581			11,713			—			—			243,294
Cost of revenue:
Building products	92,288			8,513									100,801
Construction materials	63,850												63,850
Energy technology	1,881												1,881
Total cost of revenue	158,019			8,513			—			—			166,532
Gross profit	73,562			3,200			—			—			76,762
Operating expenses:
Amortization	4,189			368									4,557
Selling, general and administrative	30,296			1,637			6,973						38,906
Total operating expenses	34,485			2,005			6,973			—			43,463
Operating income (loss)	39,077			1,195			(6,973		)	—			33,299
Other income (expense):
Net interest expense	(25		)				(8,058		)				(8,083		)
Equity in earnings of subsidiaries							34,508			(34,508		)	—
Other, net	130			(8		)							122
Total other income (expense), net	105			(8		)	26,450			(34,508		)	(7,961		)
Income from continuing operations before income taxes	39,182			1,187			19,477			(34,508		)	25,338
Income tax benefit (provision)	(5,430		)	(130		)	3,340						(2,220		)
Income from continuing operations	33,752			1,057			22,817			(34,508		)	23,118
Loss from discontinued operations, net of income taxes				(110		)							(110		)
Net income	33,752			947			22,817			(34,508		)	23,008
Net income attributable to non-controlling interest				(191		)							(191		)
Net income attributable to Headwaters Incorporated	$	33,752		$	756		$	22,817		$	(34,508	)	$	22,817

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months Ended June 30, 2014

	Guarantor			Non- guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Revenue:
Building products	$	305,530		$	22,193		$	—		$	—		$	327,723
Construction materials	211,250												211,250
Energy technology	6,553												6,553
Total revenue	523,333			22,193			—			—			545,526
Cost of revenue:
Building products	222,275			15,564									237,839
Construction materials	157,504												157,504
Energy technology	3,067												3,067
Total cost of revenue	382,846			15,564			—			—			398,410
Gross profit	140,487			6,629			—			—			147,116
Operating expenses:
Amortization	15,394			674									16,068
Selling, general and administrative	77,248			2,804			17,196						97,248
Total operating expenses	92,642			3,478			17,196			—			113,316
Operating income (loss)	47,845			3,151			(17,196		)	—			33,800
Other income (expense):
Net interest expense	(292		)	(2		)	(34,117		)				(34,411		)
Equity in earnings of subsidiaries							38,671			(38,671		)	—
Other, net	99			(155		)							(56		)
Total other income (expense), net	(193		)	(157		)	4,554			(38,671		)	(34,467		)
Income (loss) from continuing operations before income taxes	47,652			2,994			(12,642		)	(38,671		)	(667		)
Income tax benefit (provision)	(10,600		)	(650		)	11,400						150
Income (loss) from continuing operations	37,052			2,344			(1,242		)	(38,671		)	(517		)
Loss from discontinued operations, net of income taxes	(106		)										(106		)
Net income (loss)	36,946			2,344			(1,242		)	(38,671		)	(623		)
Net income attributable to non-controlling interest				(619		)							(619		)
Net income (loss) attributable to Headwaters Incorporated	$	36,946		$	1,725		$	(1,242	)	$	(38,671	)	$	(1,242	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months Ended June 30, 2015

	Guarantor			Non- guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Revenue:
Building products	$	338,445		$	33,325		$	—		$	—		$	371,770
Construction materials	240,802												240,802
Energy technology	10,044												10,044
Total revenue	589,291			33,325			—			—			622,616
Cost of revenue:
Building products	241,222			23,252									264,474
Construction materials	174,099												174,099
Energy technology	4,453												4,453
Total cost of revenue	419,774			23,252			—			—			443,026
Gross profit	169,517			10,073			—			—			179,590
Operating expenses:
Amortization	12,498			1,105									13,603
Selling, general and administrative	82,734			4,829			17,723						105,286
Total operating expenses	95,232			5,934			17,723			—			118,889
Operating income (loss)	74,285			4,139			(17,723		)	—			60,701
Other income (expense):
Net interest expense	(129		)				(55,871		)				(56,000		)
Equity in earnings of subsidiaries							68,633			(68,633		)	—
Other, net	(12		)	(168		)							(180		)
Total other income (expense), net	(141		)	(168		)	12,762			(68,633		)	(56,180		)
Income (loss) from continuing operations before income taxes	74,144			3,971			(4,961		)	(68,633		)	4,521
Income tax benefit (provision)	(8,000		)	(400		)	9,160						760
Income from continuing operations	66,144			3,571			4,199			(68,633		)	5,281
Loss from discontinued operations, net of income taxes	(67		)	(320		)							(387		)
Net income	66,077			3,251			4,199			(68,633		)	4,894
Net income attributable to non-controlling interest				(695		)							(695		)
Net income attributable to Headwaters Incorporated	$	66,077		$	2,556		$	4,199		$	(68,633	)	$	4,199

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended June 30, 2014

				Non-
	Guarantor			guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	36,946		$	2,344		$	(1,242	)	$	(38,671	)	$	(623	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	39,130			1,388			196						40,714
Interest expense related to amortization of debt issue costs and debt discount							1,699						1,699
Stock-based compensation	618						958						1,576
Deferred income taxes	429												429
Net loss (gain) on disposition of property, plant and equipment	(135		)	5			46						(84		)
Gain on sale of discontinued operations, net of income taxes	(3,032		)										(3,032		)
Asset impairments	1,466												1,466
Net loss of unconsolidated joint ventures				286									286
Equity in earnings of subsidiaries							(38,671		)	38,671			0
Decrease in trade receivables	2,609			922									3,531
Decrease (increase) in inventories	(9,521		)	882									(8,639		)
Increase (decrease) in accounts payable and accrued liabilities	(26,725		)	1,240			(1,731		)				(27,216		)
Other changes in operating assets and liabilities, net	5,258			529			(10,697		)				(4,910		)
Net cash provided by (used in) operating activities	47,043			7,596			(49,442		)	—			5,197
Cash flows from investing activities:
Payments for acquisitions	(3,100		)				(85,479		)				(88,579		)
Payments for investments in unconsolidated joint ventures				(1,450		)							(1,450		)
Purchase of property, plant and equipment	(22,163		)	(685		)	(2,519		)				(25,367		)
Proceeds from disposition of property, plant and equipment	864												864
Proceeds from sale of discontinued operations	4,666												4,666
Net decrease in long-term receivables and deposits	7,373						300						7,673
Net change in other assets	(2,864		)	(318		)	306						(2,876		)
Net cash used in investing activities	(15,224		)	(2,453		)	(87,392		)	—			(105,069		)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt							146,200						146,200
Payments on long-term debt							(7,792		)				(7,792		)
Employee stock purchases	465						147						612
Net cash provided by financing activities	465			—			138,555			—			139,020
Net increase in cash and cash equivalents	32,284			5,143			1,721			—			39,148
Cash and cash equivalents, beginning of period	70,713			34			4,569						75,316
Cash and cash equivalents, end of period	$	102,997		$	5,177		$	6,290		$	—		$	114,464

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended June 30, 2015

				Non-
	Guarantor			guarantor			Parent						Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	66,077		$	3,251		$	4,199		$	(68,633	)	$	4,894
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	37,270			2,153			370						39,793
Interest expense related to amortization of debt issue costs and debt discount							5,611						5,611
Stock-based compensation	759						1,310						2,069
Deferred income taxes	591			363									954
Net loss on disposition of property, plant and equipment	94			1									95
Loss on sale of discontinued operations, net of income taxes	45			174									219
Net loss of unconsolidated joint ventures				247									247
Equity in earnings of subsidiaries							(68,633		)	68,633			0
Decrease in trade receivables	397			109									506
Increase in inventories	(8,513		)	(414		)							(8,927		)
Increase (decrease) in accounts payable and accrued liabilities	(10,650		)	3,231			(22,060		)				(29,479		)
Other changes in operating assets and liabilities, net	(339		)	(8,519		)	(1,930		)				(10,788		)
Net cash provided by (used in) operating activities	85,731			596			(81,133		)	—			5,194
Cash flows from investing activities:
Business acquisition	(1,200		)										(1,200		)
Investments in unconsolidated joint venture	(125		)										(125		)
Purchase of property, plant and equipment	(21,768		)	(614		)	(4,142		)				(26,524		)
Proceeds from disposition of property, plant and equipment	716												716
Net decrease in long-term receivables and deposits	2,781						1,066						3,847
Net change in other assets	(587		)				164						(423		)
Net cash used in investing activities	(20,183		)	(614		)	(2,912		)	—			(23,709		)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt							414,675						414,675
Payments on long-term debt							(448,736		)				(448,736		)
Dividends paid to non-controlling interest in consolidated subsidiary				(1,184		)							(1,184		)
Employee stock purchases	464			28			141						633
Intercompany transfers	(41,029		)	(271		)	41,300						0
Net cash provided by (used in) financing activities	(40,565		)	(1,427		)	7,380			—			(34,612		)
Net increase (decrease) in cash and cash equivalents	24,983			(1,445		)	(76,665		)	—			(53,127		)
Cash and cash equivalents, beginning of period	33,552			5,764			113,226						152,542
Cash and cash equivalents, end of period	$	58,535		$	4,319		$	36,561		$	—		$	99,415