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, 2015


			Non-				Eliminations
	Guarantor		guarantor		Parent		and		Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Reclassifications		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	25,819	$	3,577	$	113,201	$	—	$	142,597
Trade receivables, net		129,095		5,289		—		—		134,384
Inventories		52,699		2,375		—		—		55,074
Current income taxes		—		—		143,305		(142,976)		329
Other		10,666		144		1,017		—		11,827
Total current assets		218,279		11,385		257,523		(142,976)		344,211
Property, plant and equipment, net		164,413		9,978		11,327		—		185,718
Other assets:
Goodwill		147,330		30,869		—		—		178,199
Intangible assets, net		116,479		27,239		—		—		143,718
Investments in subsidiaries		55,844		—		372,864		(428,708)		—
Intercompany accounts and notes		57,793		—		637,046		(694,839)		—
Deferred income taxes		—		25,204		79,763		(12,115)		92,852
Other		11,243		2,291		20,787		—		34,321
Total other assets		388,689		85,603		1,110,460		(1,135,662)		449,090
Total assets	$	771,381	$	106,966	$	1,379,310	$	(1,278,638)	$	979,019
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,619	$	1,114	$	573	$	—	$	25,306
Accrued personnel costs		14,542		501		37,501		—		52,544
Accrued interest		—		—		2,295		—		2,295
Current income taxes		137,502		5,474		—		(142,976)		—
Other accrued liabilities		39,604		6,380		3,502		—		49,486
Current portion of long-term debt		—		—		4,250		—		4,250
Total current liabilities		215,267		13,469		48,121		(142,976)		133,881
Long-term liabilities:
Long-term debt, net		—		—		558,080		—		558,080
Income taxes		15,091		—		3,614		(12,115)		6,590
Intercompany accounts and notes		—		178,179		516,660		(694,839)		—
Other		1,481		13,897		14,808		—		30,186
Total long-term liabilities		16,572		192,076		1,093,162		(706,954)		594,856
Total liabilities		231,839		205,545		1,141,283		(849,930)		728,737
Redeemable non-controlling interest in consolidated subsidiary		—		12,431		—		—		12,431
Stockholders’ equity:
Common stock		—		—		74		—		74
Capital in excess of par value		486,069		54,470		728,843		(540,715)		728,667
Retained earnings (accumulated deficit)		53,473		(165,480)		(489,889)		112,007		(489,889)
Treasury stock		—		—		(1,001)		—		(1,001)
Total stockholders’ equity		539,542		(111,010)		238,027		(428,708)		237,851
Total liabilities and stockholders’ equity	$	771,381	$	106,966	$	1,379,310	$	(1,278,638)	$	979,019

CONDENSED CONSOLIDATING BALANCE SHEET — March 31, 2016


			Non-				Eliminations
	Guarantor		guarantor		Parent		and		Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Reclassifications		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	15,989	$	3,192	$	39,310	$	—	$	58,491
Trade receivables, net		99,911		6,241		—		—		106,152
Inventories		62,367		3,713		—		—		66,080
Current income taxes		—		—		155,502		(153,072)		2,430
Other		10,089		266		807		—		11,162
Total current assets		188,356		13,412		195,619		(153,072)		244,315
Property, plant and equipment, net		171,457		10,179		12,741		—		194,377
Other assets:
Goodwill		204,301		41,866		—		—		246,167
Intangible assets, net		124,403		37,359		—		—		161,762
Investments in subsidiaries		—		—		441,624		(441,624)		—
Intercompany accounts and notes		97,656		—		621,480		(719,136)		—
Deferred income taxes		—		25,045		76,746		(18,165)		83,626
Other		12,937		2,396		25,074		—		40,407
Total other assets		439,297		106,666		1,164,924		(1,178,925)		531,962
Total assets	$	799,110	$	130,257	$	1,373,284	$	(1,331,997)	$	970,654
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,568	$	1,240	$	209	$	—	$	20,017
Accrued personnel costs		11,604		241		23,544		—		35,389
Accrued interest		—		—		2,241		—		2,241
Current income taxes		146,927		6,145		—		(153,072)		—
Other accrued liabilities		45,967		3,778		2,363		—		52,108
Current portion of long-term debt		—		—		4,250		—		4,250
Total current liabilities		223,066		11,404		32,607		(153,072)		114,005
Long-term liabilities:
Long-term debt, net		—		—		553,330		—		553,330
Income taxes		21,090		5		—		(18,165)		2,930
Intercompany accounts and notes		—		202,476		516,660		(719,136)		—
Other		1,033		16,570		16,657		—		34,260
Total long-term liabilities		22,123		219,051		1,086,647		(737,301)		590,520
Total liabilities		245,189		230,455		1,119,254		(890,373)		704,525
Redeemable non-controlling interest in consolidated subsidiary		—		12,275		—		—		12,275
Stockholders’ equity:
Common stock		—		—		74		—		74
Capital in excess of par value		471,779		52,029		730,525		(523,984)		730,349
Retained earnings (accumulated deficit)		82,142		(164,502)		(475,363)		82,360		(475,363)
Treasury stock		—		—		(1,206)		—		(1,206)
Total stockholders’ equity		553,921		(112,473)		254,030		(441,624)		253,854
Total liabilities and stockholders’ equity	$	799,110	$	130,257	$	1,373,284	$	(1,331,997)	$	970,654

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2015


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Revenue:
Building products	$	95,935	$	10,471	$	—	$	—	$	106,406
Construction materials		67,498		—		—		—		67,498
Energy technology		5,821		—		—		—		5,821
Total revenue		169,254		10,471		—		—		179,725
Cost of revenue:
Building products		72,416		7,065		—		—		79,481
Construction materials		50,738		—		—		—		50,738
Energy technology		2,365		—		—		—		2,365
Total cost of revenue		125,519		7,065		—		—		132,584
Gross profit		43,735		3,406		—		—		47,141
Operating expenses:
Selling, general and administrative		26,636		1,618		6,097		—		34,351
Amortization		4,191		369		—		—		4,560
Total operating expenses		30,827		1,987		6,097		—		38,911
Operating income (loss)		12,908		1,419		(6,097)		—		8,230
Other income (expense):
Net interest expense		(60)		—		(35,905)		—		(35,965)
Equity in earnings of subsidiaries		—		—		12,325		(12,325)		—
Other, net		(62)		29		—		—		(33)
Total other income (expense), net		(122)		29		(23,580)		(12,325)		(35,998)
Income from continuing operations before income taxes		12,786		1,448		(29,677)		(12,325)		(27,768)
Income tax benefit (provision)		(1,300)		(140)		4,220		—		2,780
Income from continuing operations		11,486		1,308		(25,457)		(12,325)		(24,988)
Loss from discontinued operations, net of income taxes		—		(210)		—		—		(210)
Net income		11,486		1,098		(25,457)		(12,325)		(25,198)
Net income attributable to non-controlling interest		—		(259)		—		—		(259)
Net income attributable to Headwaters Incorporated	$	11,486	$	839	$	(25,457)	$	(12,325)	$	(25,457)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2016


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Revenue:
Building products	$	116,782	$	12,413	$	—	$	—	$	129,195
Construction materials		71,755		—		—		—		71,755
Energy technology		1,382		—		—		—		1,382
Total revenue		189,919		12,413		—		—		202,332
Cost of revenue:
Building products		84,482		8,692		—		—		93,174
Construction materials		53,812		—		—		—		53,812
Energy technology		469		—		—		—		469
Total cost of revenue		138,763		8,692		—		—		147,455
Gross profit		51,156		3,721		—		—		54,877
Operating expenses:
Selling, general and administrative		29,331		1,859		6,692		—		37,882
Amortization		4,446		369		—		—		4,815
Total operating expenses		33,777		2,228		6,692		—		42,697
Operating income (loss)		17,379		1,493		(6,692)		—		12,180
Other income (expense):
Net interest expense		5		(3)		(8,058)		—		(8,056)
Equity in earnings of subsidiaries		—		—		11,021		(11,021)		—
Other, net		(82)		70		—		—		(12)
Total other income (expense), net		(77)		67		2,963		(11,021)		(8,068)
Income (loss) from continuing operations before income taxes		17,302		1,560		(3,729)		(11,021)		4,112
Income tax benefit (provision)		(6,720)		(610)		5,830		—		(1,500)
Income from continuing operations		10,582		950		2,101		(11,021)		2,612
Loss from discontinued operations, net of income taxes		—		(228)		—		—		(228)
Net income		10,582		722		2,101		(11,021)		2,384
Net income attributable to non-controlling interest		—		(283)		—		—		(283)
Net income attributable to Headwaters Incorporated	$	10,582	$	439	$	2,101	$	(11,021)	$	2,101

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended March 31, 2015


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Revenue:
Building products	$	202,328	$	21,612	$	—	$	—	$	223,940
Construction materials		148,902		—		—		—		148,902
Energy technology		6,480		—		—		—		6,480
Total revenue		357,710		21,612		—		—		379,322
Cost of revenue:
Building products		148,934		14,739		—		—		163,673
Construction materials		110,249		—		—		—		110,249
Energy technology		2,572		—		—		—		2,572
Total cost of revenue		261,755		14,739		—		—		276,494
Gross profit		95,955		6,873		—		—		102,828
Operating expenses:
Selling, general and administrative		52,438		3,192		10,750		—		66,380
Amortization		8,309		737		—		—		9,046
Total operating expenses		60,747		3,929		10,750		—		75,426
Operating income (loss)		35,208		2,944		(10,750)		—		27,402
Other income (expense):
Net interest expense		(104)		—		(47,813)		—		(47,917)
Equity in earnings of subsidiaries		—		—		34,125		(34,125)		—
Other, net		(142)		(160)		—		—		(302)
Total other income (expense), net		(246)		(160)		(13,688)		(34,125)		(48,219)
Income from continuing operations before income taxes		34,962		2,784		(24,438)		(34,125)		(20,817)
Income tax benefit (provision)		(2,570)		(270)		5,820		—		2,980
Income from continuing operations		32,392		2,514		(18,618)		(34,125)		(17,837)
Loss from discontinued operations, net of income taxes		(67)		(210)		—		—		(277)
Net Income		32,325		2,304		(18,618)		(34,125)		(18,114)
Net income attributable to non-controlling interest		—		(504)		—		—		(504)
Net income attributable to Headwaters Incorporated	$	32,325	$	1,800	$	(18,618)	$	(34,125)	$	(18,618)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended March 31, 2016


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Revenue:
Building products	$	236,427	$	24,613	$	—	$	—	$	261,040
Construction materials		157,753		—		—		—		157,753
Energy technology		1,957		—		—		—		1,957
Total revenue		396,137		24,613		—		—		420,750
Cost of revenue:
Building products		169,076		17,257		—		—		186,333
Construction materials		114,482		—		—		—		114,482
Energy technology		787		—		—		—		787
Total cost of revenue		284,345		17,257		—		—		301,602
Gross profit		111,792		7,356		—		—		119,148
Operating expenses:
Selling, general and administrative		57,025		3,553		12,186		—		72,764
Amortization		8,644		737		—		—		9,381
Total operating expenses		65,669		4,290		12,186		—		82,145
Operating income (loss)		46,123		3,066		(12,186)		—		37,003
Other income (expense):
Net interest expense		(95)		(3)		(16,175)		—		(16,273)
Equity in earnings of subsidiaries		—		—		29,647		(29,647)		—
Other, net		(125)		44		—		—		(81)
Total other income (expense), net		(220)		41		13,472		(29,647)		(16,354)
Income from continuing operations before income taxes		45,903		3,107		1,286		(29,647)		20,649
Income tax benefit (provision)		(17,130)		(1,210)		13,240		—		(5,100)
Income from continuing operations		28,773		1,897		14,526		(29,647)		15,549
Loss from discontinued operations, net of income taxes		—		(444)		—		—		(444)
Net Income		28,773		1,453		14,526		(29,647)		15,105
Net income attributable to non-controlling interest		—		(579)		—		—		(579)
Net income attributable to Headwaters Incorporated	$	28,773	$	874	$	14,526	$	(29,647)	$	14,526

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended March 31, 2015


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Cash flows from operating activities:
Net income	$	32,325	$	2,304	$	(18,618)	$	(34,125)	$	(18,114)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		24,223		1,421		212		—		25,856
Interest expense related to amortization of debt issue costs and debt discount		—		—		5,042		—		5,042
Stock-based compensation		496		—		843		—		1,339
Deferred income taxes		295		182		—		—		477
Net loss on disposition of property, plant and equipment		112		1		—		—		113
Gain on sale of discontinued operations, net of income taxes		45		196		—		—		241
Net loss of unconsolidated joint ventures		—		234		—		—		234
Equity in earnings of subsidiaries		—		—		(34,125)		34,125		0
Decrease (increase) in trade receivables		28,597		(250)		—		—		28,347
Decrease (increase) in inventories		(10,071)		(557)		—		—		(10,628)
Increase (decrease) in accounts payable and accrued liabilities		(23,170)		2,248		(26,658)		—		(47,580)
Other changes in operating assets and liabilities, net		2,554		(7,521)		(3,802)		—		(8,769)
Net cash provided by (used in) operating activities		55,406		(1,742)		(77,106)		—		(23,442)
Cash flows from investing activities:
Business acquisitions		(1,200)		—		—		—		(1,200)
Investments in unconsolidated joint ventures		(125)		—		—		—		(125)
Purchase of property, plant and equipment		(14,496)		(259)		(2,719)		—		(17,474)
Proceeds from disposition of property, plant and equipment		640		—		—		—		640
Net decrease in long-term receivables and deposits		2,584		—		1,066		—		3,650
Net change in other assets		(437)		—		93		—		(344)
Net cash used in investing activities		(13,034)		(259)		(1,560)		—		(14,853)
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		—		(927)		—		—		(927)
Employee stock purchases		342		16		106		—		464
Intercompany transfers		(39,633)		123		39,510		—		0
Net cash provided by (used in) financing activities		(39,291)		(788)		5,555		—		(34,524)
Net increase (decrease) in cash and cash equivalents		3,081		(2,789)		(73,111)		—		(72,819)
Cash and cash equivalents, beginning of year		33,552		5,764		113,226		—		152,542
Cash and cash equivalents, end of year	$	36,633	$	2,975	$	40,115	$	—	$	79,723

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended March 31, 2016


			Non-
	Guarantor		guarantor		Parent				Headwaters
(in thousands)	Subsidiaries		Subsidiaries		Company		Eliminations		Consolidated
Cash flows from operating activities:
Net income	$	28,773	$	1,453	$	14,526	$	(29,647)	$	15,105
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		26,084		1,503		310		—		27,897
Interest expense related to amortization of debt issue costs and debt discount		—		—		1,184		—		1,184
Stock-based compensation		537		—		984		—		1,521
Deferred income taxes		6,809		159		1,675		—		8,643
Tax benefit from exercise of stock appreciation rights and vesting of restricted stock		(95)		—		(2)		—		(97)
Net loss (gain) on disposition of property, plant and equipment		(49)		3		—		—		(46)
Loss on sale of discontinued operations, net of income taxes		—		3,040		—		—		3,040
Net loss of unconsolidated joint ventures		—		26		—		—		26
Equity in earnings of subsidiaries		—		—		(29,647)		29,647		0
Decrease (increase) in trade receivables		34,198		(660)		—		—		33,538
Increase in inventories		(3,097)		(969)		—		—		(4,066)
Increase (decrease) in accounts payable and accrued liabilities		(17,680)		(3,178)		(15,514)		—		(36,372)
Other changes in operating assets and liabilities, net		(9,522)		69		3,428		—		(6,025)
Net cash provided by (used in) operating activities		65,958		1,446		(23,056)		—		44,348
Cash flows from investing activities:
Business acquisitions		(73,800)		(22,657)		—		—		(96,457)
Purchase of property, plant and equipment		(18,856)		(268)		(1,758)		—		(20,882)
Proceeds from disposition of property, plant and equipment		404		—		—		—		404
Net decrease in long-term receivables and deposits		(1,546)		(22)		(161)		—		(1,729)
Net change in other assets		(1,443)		(109)		(2,265)		—		(3,817)
Net cash used in investing activities		(95,241)		(23,056)		(4,184)		—		(122,481)
Cash flows from financing activities:
Payments on long-term debt		—		—		(5,874)		—		(5,874)
Dividends paid to non-controlling interest in consolidated subsidiary		—		(735)		—		—		(735)
Employee stock purchases		390		20		129		—		539
Tax benefit from exercise of stock appreciation rights and vesting of restricted stock		95		—		2		—		97
Intercompany transfers		18,968		21,940		(40,908)		—		0
Net cash provided by (used in) financing activities		19,453		21,225		(46,651)		—		(5,973)
Net decrease in cash and cash equivalents		(9,830)		(385)		(73,891)		—		(84,106)
Cash and cash equivalents, beginning of year		25,819		3,577		113,201		—		142,597
Cash and cash equivalents, end of year	$	15,989	$	3,192	$	39,310	$	—	$	58,491