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Long-Lived Assets

12 Months Ended

Sep. 30, 2011

6.	*Long-Lived Assets*

Property, Plant and Equipment—Property, plant and equipment consisted of the following at September 30:


*(in thousands)*	Estimated useful lives		2010			2011
Land and improvements		15 - 40 years	$	11,584		$	11,402
Coal rights		—		14,032			0
Buildings and improvements		2 - 40 years		104,910			58,702
Equipment and vehicles		2 - 30 years		229,324			187,689
Dies and molds		2 - 20 years		75,968			76,701
Construction in progress		—		11,751			4,907

				447,569			339,401
Less accumulated depreciation				(178,919	)		(174,692	)

Net property, plant and equipment			$	268,650		$	164,709

Depreciation expense was approximately $42.7 million, $38.2 million and $41.9 million in 2009, 2010 and 2011, respectively.

In 2010 and 2011, Headwaters recorded asset impairments totaling approximately $38.0 million and $75.4 million, respectively. In 2010, the asset impairments consisted of approximately $34.5 million in the energy technology segment related to coal cleaning facilities and $3.5 million in the heavy construction materials segment related to a CCP loading facility that was not being utilized for fly ash shipments as originally planned. In 2011, the asset impairments consisted of approximately $72.0 million in the energy technology segment, all related to Headwaters' coal cleaning business, and $3.4 million of restructuring costs in the light building products segment (see Note 13).

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 non-cash impairment charge of $37.0 million in the March 2011 quarter. Finally, in September 2011, in connection with the commitment to sell the coal cleaning facilities, another non-cash impairment charge of $35.0 million was recorded to reduce the carrying value of the assets to fair value less estimated selling costs.

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 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.

Intangible Assets—All of Headwaters' identified intangible assets are being amortized. The following table summarizes the gross carrying amounts and related accumulated amortization of intangible assets as of September 30:


	Estimated useful lives		2010				2011
*(in thousands)*	Estimated useful lives		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
CCP contracts		8 - 20 years	$	117,690	$	51,912	$	117,690	$	58,643
Customer relationships		5 - 15 years		77,603		32,537		77,914		38,454
Trade names		5 - 20 years		67,425		20,114		67,890		23,608
Patents and patented technologies		4 - 19 years		53,426		31,044		54,736		36,296
Other		2 - 17 years		5,661		2,827		4,985		1,993

			$	321,805	$	138,434	$	323,215	$	158,994

Total amortization expense related to intangible assets was approximately $23.4 million, $22.2 million and $22.4 million in 2009, 2010 and 2011, respectively. Total estimated annual amortization expense for 2012 through 2016 is shown in the following table.


Year ending September 30:	*(in thousands)*
2012	$	20,640
2013		19,685
2014		19,161
2015		15,042
2016		14,785

Goodwill—Changes in the carrying amount of goodwill, by segment, are as follows for the two-year period ended September 30, 2011.


*(in thousands)*	Light building products		Heavy construction materials		Total
Balances as of September 30, 2009 and 2010	$	0	$	115,999	$	115,999
Finalization of purchase price		242				242
Goodwill related to 2011 acquisitions		430				430

Balances as of September 30, 2011	$	672	$	115,999	$	116,671

The adjustment reflected above represents the finalization of accounting for an acquisition that occurred in late 2010. In accordance with the requirements of ASC Topic 350 Intangibles–Goodwill and Other, Headwaters does not amortize goodwill, all of which relates to acquisitions. Under the requirements of ASC Topic 350, Headwaters is required to periodically test for goodwill impairment, at least annually, or sooner if indicators of possible impairment arise. Headwaters performs its annual impairment testing as of June 30, using a two-step process that begins with an estimation of the fair values of the reporting units that have goodwill. For all periods presented, Headwaters' reporting units for purposes of testing for goodwill impairment are the same as its operating segments.

Step 1 of impairment testing consists of determining and comparing the fair value of a reporting unit, calculated primarily using discounted expected future cash flows, to the carrying value of the reporting unit. If step 1 is failed for a reporting unit, indicating a potential impairment, Headwaters is required to complete step 2, which is a more detailed test to calculate the implied fair value of goodwill, and compare that value to the carrying value of the goodwill. If the carrying value of goodwill exceeds its implied fair value, an impairment loss is required to be recorded.

Due to the decline in the new housing and residential repair and remodeling markets, the continued downward revisions by market analysts of near-term projections in these markets, the collapse of the credit markets in 2009 and the significant decline in Headwaters' stock price during the six months ended March 31, 2009, management determined that indicators of goodwill impairment in the light building products reporting unit existed. In addition, the significant declines in coal and oil prices and in Headwaters' stock price indicated potential goodwill impairment in the energy technology reporting unit as well. Accordingly, Headwaters performed goodwill impairment tests for both the light building products and energy technology reporting units during the quarter ended March 31, 2009. Upon completion of the impairment tests, Headwaters wrote off all remaining goodwill in the light building products and energy technology reporting units, totaling approximately $465.7 million. None of the impairment charges affected Headwaters' cash position, cash flow from operating activities or senior debt covenant compliance. Changes in the credit markets in 2009 increased Headwaters' borrowing rate, which borrowing rate directly affected the discount rate used in the goodwill impairment calculations. This increase in the discount rate led to the majority of the goodwill impairment.

In connection with the goodwill impairment testing for the light building products and energy technology reporting units in 2009, Headwaters also performed an analysis for potential impairments of other long-lived assets in those reporting units, including all intangible assets and property, plant and equipment. The results of this analysis did not result in any significant impairment of any other long-lived assets.

Step 1 of the goodwill impairment test was not failed for the heavy construction materials reporting unit for any test date, and accordingly, step 2 testing was not required to be performed and no impairment charges were necessary.