BROADWIND, INC. - Quarter Report: 2011 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to         

 

Commission file number 0-31313

 

 

BROADWIND ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

 

47 East Chicago Avenue, Suite 332, Naperville, IL 60540

(Address of principal executive offices)

 

(630) 637-0315

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Number of shares of registrant’s common stock, par value $0.001, outstanding as of October 31, 2011: 139,734,197.

 

 

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

 

INDEX

 

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Removed and Reserved	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39

 

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PART I.      FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

		September 30,			December 31,
		2011			2010
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	12,975		$	15,331
Restricted cash		1,446			170
Accounts receivable, net of allowance for doubtful accounts of $1,018 and $489 as of September 30, 2011 and December 31, 2010, respectively		23,471			21,427
Inventories, net		31,283			17,739
Prepaid expenses and other current assets		4,558			3,476
Assets held for sale		8,000			6,847
Total current assets		81,733			64,990
Property and equipment, net		90,599			106,317
Intangible assets, net		9,429			10,073
Other assets		1,111			2,126
TOTAL ASSETS		$	182,872		$	183,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Lines of credit and notes payable		$	1,687		$	140
Current maturities of long-term debt		522			1,437
Current portions of capital lease obligations		985			966
Accounts payable		23,193			22,342
Accrued liabilities		5,358			6,515
Customer deposits		15,705			8,881
Liabilities held for sale		5,083			4,221
Total current liabilities		52,533			44,502
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities		5,208			9,671
Long-term capital lease obligations, net of current portions		1,109			1,802
Other		909			1,335
Total long-term liabilities		7,226			12,808
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.001 par value; 150,000,000 shares authorized; 139,725,520 and 107,112,817 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		140			107
Additional paid-in capital		369,653			356,545
Accumulated deficit		(246,680		)	(230,456		)
Total stockholders’ equity		123,113			126,196
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	182,872		$	183,506

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
Revenues		$	47,899		$	34,022		$	130,761		$	89,345
Cost of sales		47,098			34,243			124,449			92,848
Restructuring costs		89			—			89			—
Gross profit (loss)		712			(221		)	6,223			(3,503		)
OPERATING EXPENSES:
Selling, general and administrative		6,442			6,722			19,807			21,434
Impairment charges		—			—			—			4,561
Intangible amortization		214			855			644			2,564
Restructuring costs		300			—			300			—
Total operating expenses		6,956			7,577			20,751			28,559
Operating loss		(6,244		)	(7,798		)	(14,528		)	(32,062		)
OTHER (EXPENSE) INCOME, net:
Interest expense, net		(276		)	(275		)	(845		)	(837		)
Other, net		127			377			559			109
Restructuring costs		(202		)	—			(202		)	—
Total other (expense) income, net		(351		)	102			(488		)	(728		)
Net loss from continuing operations before (benefit) provision for income taxes		(6,595		)	(7,696		)	(15,016		)	(32,790		)
(Benefit) provision for income taxes		(9		)	(436		)	24			(339		)
LOSS FROM CONTINUING OPERATIONS		(6,586		)	(7,260		)	(15,040		)	(32,451		)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX		—			(1,039		)	(1,184		)	(4,153		)
NET LOSS		$	(6,586	)	$	(8,299	)	$	(16,224	)	$	(36,604	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED:
Loss from continuing operations		$	(0.06	)	$	(0.07	)	$	(0.14	)	$	(0.31	)
Loss from discontinued operations		—			(0.01		)	(0.01		)	(0.04		)
Net loss		$	(0.06	)	$	(0.08	)	$	(0.15	)	$	(0.35	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and diluted		110,369			106,900			108,222			106,019

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

		Nine Months Ended September 30,
		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(16,224	)	$	(36,604	)
Loss from discontinued operations		1,184			4,153
Loss from continuing operations		(15,040		)	(32,451		)
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense		10,910			12,626
Impairment charges		—			4,561
Change in fair value of interest rate swap agreements		—			(253		)
Deferred income taxes		—			(1,138		)
Stock-based compensation		1,395			1,247
Loss on disposal of assets		390			70
Changes in operating assets and liabilities:
Accounts receivable		(2,044		)	(465		)
Inventories		(13,544		)	(7,135		)
Prepaid expenses and other current assets		(411		)	630
Accounts payable		806			4,510
Accrued liabilities		(1,112		)	(266		)
Customer deposits		6,822			(2,801		)
Other non-current assets and liabilities		186			842
Net cash used in operating activities of continuing operations		(11,642		)	(20,023		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of logistics business		761			—
Purchases of available for sale securities		—			(922		)
Purchases of property and equipment		(4,134		)	(5,421		)
Proceeds from disposals of property and equipment		1,850			9
Decrease in restricted cash		(1,276		)	2,010
Net cash used in investing activities of continuing operations		(2,799		)	(4,324		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock		11,739			53,347
Common stock issued under defined contribution 401(k) plan		150			499
Payments on lines of credit and notes payable		(1,055		)	(20,785		)
Proceeds from lines of credit and notes payable		2,307			—
Principal payments on capital leases		(674		)	(637		)
Net cash provided by financing activities of continuing operations		12,467			32,424
DISCONTINUED OPERATIONS:
Operating cash flows		(829		)	(2,335		)
Investing cash flows		—			(69		)
Financing cash flows		(83		)	(1,076		)
Net cash used in discontinued operations		(912		)	(3,480		)
Add: Cash balance of discontinued operations, beginning of period		530			127
Less: Cash balance of discontinued operations, end of period		—			(60		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(2,356		)	4,784
CASH AND CASH EQUIVALENTS, beginning of the period		15,331			4,701
CASH AND CASH EQUIVALENTS, end of the period		$	12,975		$	9,485
Supplemental cash flow information:
Interest paid, net of capitalized interest		$	757		$	974
Income taxes paid		$	34		$	38
Non-cash investing and financing activities:
Issuance of restricted stock grants		$	633		$	611
Common stock issued under defined contribution 401(k) plan		$	150		$	499

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands, except share and per share data)

 

NOTE 1 — BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2011. The December 31, 2010 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. This financial information should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind Energy, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. Additionally, certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

 

There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2011 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Broadwind,” and the “Company” refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Naperville, Illinois, and its wholly owned subsidiaries.

 

Broadwind provides technologically advanced high-value products and services to customers in the energy, mining and infrastructure sectors, primarily in the United States. Its most significant presence is within the U.S. wind industry, where its product and service portfolio provides its customers, including wind turbine manufacturers, wind farm developers and wind farm operators, with access to a broad array of component and service offerings. Broadwind is increasingly diversifying outside of the wind industry, where the Company participates in the oil and gas, mining and infrastructure markets, particularly with its gearing and specialty weldments product offerings.

 

Liquidity

 

The Company has a limited history of operations and has incurred operating losses since inception. The Company recently raised $11,739 through the sale of 32.5 million shares of its common stock. The Company anticipates that current cash resources and cash to be generated from operations over the next twelve months will be adequate to meet the Company’s liquidity needs for at least the next twelve months. As discussed further in Note 8, “Debt and Credit Agreements” of these consolidated financial statements, the Company is obligated to make principal payments on outstanding debt totaling $2,209 during the next twelve months, and is obligated to make purchases totaling $991 during the same period under the purchase commitments described in Note 16, “Commitments and Contingencies” of these consolidated financial statements.

 

In addition, please refer to Note 18, “Restructuring” of these consolidated financial statements for a discussion of the Company’s restructuring plan through 2012 which the Company initiated in the third quarter of 2011. The Company expects that a total of approximately $13,200 of expenses will be incurred to implement this restructuring plan. Of the total projected expenses, the Company anticipates that $3,700 will be non-cash expenditures. The Company anticipates that the remaining cash expenditures will be funded substantially by net proceeds from asset sales of $7,700, as well as anticipated cash flow savings of $5,500 annually from the restructuring efforts.

 

If assumptions regarding the Company’s restructuring efforts, sales and subsequent collections from several of the Company’s large customers, as well as revenues generated from new customer orders, are not materially consistent with management’s expectations, the Company may encounter cash flow and liquidity issues. Additional funding may not be available when needed or on terms acceptable to the Company, which could affect its overall operations. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, will likely require financial covenants or other restrictions on the Company. Additionally, the Company has a limited number of shares of common stock authorized for issuance under its certificate of incorporation following its recent common stock offering; accordingly, the Company’s ability to raise capital through future equity issuances may be restricted unless the Company increases the number of authorized shares of common stock, which would

 

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require the approval of holders of a majority of its outstanding shares. While the Company believes that it will continue to have sufficient cash flows to operate its businesses and meet its financial debt covenants, there can be no assurances that its operations will generate sufficient cash or that credit facilities will be available in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs.

 

NOTE 2 — EARNINGS PER SHARE

 

The following table presents a reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010, as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
Basic earnings per share calculation:
Net loss to common stockholders		$	(6,586	)	$	(8,299	)	$	(16,224	)	$	(36,604	)
Weighted average number of common shares outstanding		110,369,489			106,900,143			108,222,210			106,019,147
Basic net loss per share		$	(0.06	)	$	(0.08	)	$	(0.15	)	$	(0.35	)
Diluted earnings per share calculation:
Net loss to common stockholders		$	(6,586	)	$	(8,299	)	$	(16,224	)	$	(36,604	)
Weighted average number of common shares outstanding		110,369,489			106,900,143			108,222,210			106,019,147
Common stock equivalents:
Stock options and unvested restricted stock units (1)		—			—			—			—
Weighted average number of common shares outstanding		110,369,489			106,900,143			108,222,210			106,019,147
Diluted net loss per share		$	(0.06	)	$	(0.08	)	$	(0.15	)	$	(0.35	)

 

(1)          Stock options and unvested restricted stock units granted and outstanding of 2,929,261 and 1,462,500 as of September 30, 2011 and 2010, respectively, are excluded from the computation of diluted earnings per share due to the anti-dilutive effect as a result of the Company’s net loss for these respective periods.

 

NOTE 3 — DISCONTINUED OPERATIONS

 

In March 2011, the Company completed the sale of its logistics business, through the sale of its wholly owned subsidiary Badger Transport, Inc. (“Badger”) to BTI Logistics, LLC (“BTI Logistics”). Proceeds from the sale included approximately $800 in cash, a $1,500 secured promissory note payable in quarterly installments of $125 beginning September 30, 2011, and 100,000 shares of Broadwind common stock held by the buyer. The purchase price is subject to final working capital adjustments and certain contingencies and indemnifications. In addition, BTI Logistics assumed approximately $2,600 of debt and capital leases, plus approximately $1,600 of operating lease obligations.

 

As of December 31, 2010 the assets and related liabilities of Badger are reflected as held for sale. These balances were eliminated as of the end of the first quarter of 2011 in conjunction with the Badger sale. Results of operations for Badger, which are reflected as discontinued operations in the Company’s consolidated statements of income for the three and nine months ended September 30, 2011 and 2010, were as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
Revenues		$	—		$	4,175		$	435		$	7,650
Loss before benefit for income taxes		—			(1,117		)	(1,182		)	(4,279		)
Income tax provision (benefit)		—			(78		)	2			(126		)
Loss from discontinued operations		$	—		$	(1,039	)	$	(1,184	)	$	(4,153	)

 

NOTE 4 — CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

 

Cash and cash equivalents comprise cash balances and readily marketable investments with original maturities of three months or less, such as money market funds, short-term government bonds, Treasury bills, marketable securities and commercial paper.

 

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The Company’s treasury policy is to invest excess cash in money market funds or other short-term investments, which are generally of a short-term duration based upon operating requirements. Income earned on these investments is recorded to interest income in the Company’s condensed consolidated statements of operations. As of September 30, 2011 and December 31, 2010, cash and cash equivalents totaled $12,975 and $15,331, respectively. These amounts consisted of cash balances, certificates of deposit and investments in municipal bonds with original maturities of three months or less. As of September 30, 2011, the Company also had $1,446 in restricted cash which is related primarily to proceeds from the New Markets Tax Credit Agreement discussed further in Note 17, “New Markets Tax Credit” of these consolidated financial statements.

 

Cash and cash equivalents consisted of the following as of September 30, 2011 and December 31, 2010:

 

		September 30,			December 31,
		2011			2010
Cash		$	4,900		$	12,816
Certificates of deposit		704			—
Municipal bonds		7,371			2,515
Total cash and cash equivalents		$	12,975		$	15,331

 

NOTE 5 — INVENTORIES

 

The components of inventories as of September 30, 2011 and December 31, 2010 are summarized as follows:

 

		September 30,			December 31,
		2011			2010
Raw materials		$	20,599		$	9,359
Work-in-process		8,659			5,869
Finished goods		3,074			3,481
		32,332			18,709
Less: Reserve for excess and obsolete inventory		(1,049		)	(970		)
Net inventories		$	31,283		$	17,739

 

Inventory increased a significant 76% when compared to December 31, 2010 levels, with raw materials more than doubling. Inventories generally rose due to increased sales and order activity in the Company’s Gearing and Services segments expected to be fulfilled in future periods. The Company’s Towers segment experienced the majority of the inventory increase. The Tower segment inventory increase was due to a decrease in the number of fabrication-only tower orders where steel is customer supplied when compared to the prior year.  In addition, there were production delays as of the end of the current period that resulted in a higher amount of inventory on hand when compared to the December 31, 2010 levels.

 

NOTE 6 — INTANGIBLE ASSETS

 

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of acquisitions completed by the Company during 2007 and 2008. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 8 to 20 years. The Company tests intangible assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. During the third quarter of 2011, the Company identified triggering events associated with the Company’s current period operating loss combined with its history of continued

 

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operating losses. As a result, the Company evaluated the recoverability of certain of its identifiable intangible assets. Based upon the Company’s assessment, no additional impairment to these assets was identified as of September 30, 2011.

 

As of September 30, 2011 and December 31, 2010, the cost basis, accumulated amortization, impairment charge and net book value of intangible assets were as follows:

 

		September 30, 2011												December 31, 2010
											Net												Net
		Cost			Accumulated			Impairment			Book			Cost			Accumulated			Impairment			Book
		Basis			Amortization			Charge			Value			Basis			Amortization			Charge			Value
Intangible assets:
Customer relationships		$	3,979		$	(969	)	$	—		$	3,010		$	28,679		$	(7,529	)	$	(17,796	)	$	3,354
Trade names		7,999			(1,580		)	—			6,419			9,789			(1,530		)	(1,540		)	6,719
Intangible assets		$	11,978		$	(2,549	)	$	—		$	9,429		$	38,468		$	(9,059	)	$	(19,336	)	$	10,073

 

As of September 30, 2011, estimated future amortization expense is as follows:

 

2011		$	215
2012		859
2013		859
2014		859
2015		859
2016 and thereafter		5,778
Total		$	9,429

 

NOTE 7 — ACCRUED LIABILITIES

 

Accrued liabilities as of September 30, 2011 and December 31, 2010 consisted of the following:

 

		September 30,			December 31,
		2011			2010
Accrued payroll and benefits		$	2,379		$	2,845
Accrued property taxes		461			387
Income taxes payable		261			401
Accrued professional fees		543			211
Accrued warranty liability		863			1,071
Accrued environmental reserve		—			675
Accrued other		851			925
Total accrued liabilities		$	5,358		$	6,515

 

NOTE 8 — DEBT AND CREDIT AGREEMENTS

 

The Company’s outstanding debt balances as of September 30, 2011 and December 31, 2010 consisted of the following:

 

		September 30,			December 31,
		2011			2010
Term loans and notes payable		$	7,417		$	11,248
Less: Current maturities		(2,209		)	(1,577		)
Long-term debt, net of current maturities		$	5,208		$	9,671

 

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Credit Facilities

 

Broadwind Towers

 

Investors Community Bank Notes

 

On April 7, 2008, the Company’s wholly owned subsidiary R.B.A. Inc. (“RBA”) executed four (4) promissory notes (the “ICB Notes”) with Investors Community Bank (“ICB”) in the aggregate principal amount of approximately $3,781, as follows: (i) a term note in the maximum principal amount of approximately $421, bearing interest at a per annum rate of 6.85%, with a maturity date of October 5, 2012; (ii) a term note in the maximum principal amount of $700, bearing interest at a per annum rate of 5.65%, with a maturity date of April 25, 2013; (iii) a term note in the maximum principal amount of $928, bearing interest at a per annum rate of 5.65%, with a maturity date of April 25, 2013; and (iv) a line of credit note in the maximum principal amount of $1,732, bearing interest at a per annum rate of 4.48% until May 1, 2008 and thereafter at the London Interbank Offered Rate (“LIBOR”) plus 1.75%, with a maturity date of April 5, 2009 (the “Line of Credit Note”). The Line of Credit Note was subsequently modified on March 13, 2009 to extend the maturity date to March 13, 2010 and to change the interest rate to the greater of (A) 5% or (B) prime. The ICB Notes provide for multiple advances, and were secured by substantially all of the assets of RBA.

 

Pursuant to the merger of RBA into the Company’s wholly owned subsidiary Broadwind Towers, Inc. (f/k/a Tower Tech Systems Inc.) (“Broadwind Towers”) on December 31, 2009, Broadwind Towers became the successor by merger to RBA’s interest in the loans from ICB to RBA evidenced by the ICB Notes (other than the Line of Credit Note, which was repaid in full in January 2010). Pursuant to a Master Amendment dated as of December 30, 2009 among ICB, Broadwind Towers and the Company (as guarantor) (the “Master Amendment”), Broadwind Towers agreed to maintain a minimum debt service coverage ratio, in addition to certain other requirements. The Master Amendment was amended as of December 30, 2010, (i) to delete the requirements that Broadwind Towers maintain a collateral account as security for the obligations under the ICB Notes and that no additional loans or leases would be entered into by Broadwind Towers without the prior approval of ICB, and (ii) to replace the requirement that Broadwind Towers maintain its primary deposit accounts with ICB with the requirement that Broadwind Towers maintain with ICB a depository relationship of not less than $700. The Master Amendment was further amended as of May 31, 2011, to delete the covenant related to loans from affiliates and intercompany loan balances. As of September 30, 2011, (i) the total amount of outstanding indebtedness under the remaining ICB Notes was $1,170, (ii) the effective per annum interest rate under the remaining ICB Notes was 5.77%, and (iii) Broadwind Towers was in compliance with all covenants under its credit facilities with ICB.

 

Great Western Bank Loan

 

On April 28, 2009, Broadwind Towers entered into a Construction Loan Agreement with Great Western Bank (“GWB”), pursuant to which GWB agreed to provide up to $10,000 in financing (the “GWB Construction Loan”) to fund construction of Broadwind Towers’ wind tower manufacturing facility in Brandon, South Dakota (the “Facility”). Pursuant to a Change in Terms Agreement dated April 5, 2010 between GWB and Broadwind Towers, the GWB Construction Loan was converted to a term loan (the “GWB Term Loan”) providing for monthly payments of principal plus interest, extending the maturity date to November 5, 2016, reducing the principal amount to $6,500, and changing the per annum interest rate to 8.5%. Broadwind Towers was required to pay a 1.0% origination fee upon the conversion.

 

The GWB Term Loan is secured by a first mortgage on the Facility and all fixtures and proceeds relating thereto, pursuant to a Mortgage and a Commercial Security Agreement, each between Broadwind Towers and GWB, and by a Commercial Guaranty from the Company. In addition, the Company has agreed to subordinate all intercompany debt with Broadwind Towers to the GWB Term Loan. The GWB Term Loan contains representations, warranties and covenants that are customary for a term financing arrangement and contains no financial covenants. As of September 30, 2011, the total outstanding indebtedness under the GWB Term Loan was $5,083. In conjunction with the Company’s third quarter 2011 decision to sell the Facility referenced in Note 18, “Restructuring” of these consolidated financial statements, the GWB Term Loan balance is classified as held for sale as of September 30, 2011.

 

Wells Fargo Asset Purchase Agreements

 

On September 29, 2010, the Company’s domestic subsidiaries (the “Subsidiaries”) entered into account purchase agreements (the “AP Agreements”) with Wells Fargo Business Credit, a division of Wells Fargo Bank, N.A. (“Wells Fargo”). Under the AP Agreements, when requested by the Company, Wells Fargo will advance funds against certain receivables arising from sales of the Subsidiaries’ products and services. In connection with the entry into the AP Agreements, the Company and each Subsidiary executed guaranties (including cross-guaranties) in favor of Wells Fargo. With respect to the Subsidiaries, the AP Agreements contain provisions providing for cross-defaults and cross-collateralization. In addition, each Subsidiary has granted to Wells Fargo a security interest in all financed receivables and related collateral.

 

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Under the terms of the AP Agreements, when requested by the Company, Wells Fargo will advance approximately 80% of the face value of eligible receivables to the Subsidiaries. Wells Fargo will have full recourse to the Subsidiaries for collection of the financed receivables. The aggregate facility limit of the AP Agreements is $10,000. For Wells Fargo’s services under the AP Agreements, the Subsidiaries have agreed to pay Wells Fargo (i) a floating discount fee of the then-prevailing LIBOR plus 3.75% per annum on the sum of outstanding financed accounts, (ii) an annual facility fee of 1% of the aggregate facility limit, and (iii) an annual unused line fee of 0.042% on the portion of the credit facility which is unused. The initial term of the AP Agreements ends on September 29, 2013. If the AP Agreements are terminated prior to that date, an early termination fee of up to 3% of the aggregate facility limit may apply.

 

During the third quarter of 2011 the Company financed approximately $169 of accounts receivable with Wells Fargo within the Company’s Gearing segment. At September 30, 2011, $123 of financed receivables remained outstanding, and the Subsidiaries had the ability to borrow up to $9,877, subject to maintaining a month-end minimum total cash balance of $5,000.

 

In connection with the sale of Badger to BTI Logistics on March 4, 2011, the AP Agreement between Badger and Wells Fargo and the guaranty provided by Badger to Wells Fargo with respect to the other AP Agreements were each terminated, pursuant to an Omnibus Amendment to Account Purchase Agreements and Guaranties dated as of March 4, 2011, by and among the Company, the Subsidiaries and Wells Fargo.

 

On October 19, 2011 the AP Agreements were amended pursuant to the Second Amendment to the Account Purchase Agreements to modify the month-end minimum total cash balance requirement from $5,000 to the greater of $2,000 or the outstanding purchased amount, not to exceed $5,000.

 

Selling Shareholder Notes

 

On May 26, 2009, the Company entered into a settlement agreement (the “Settlement Agreement”) with the former owners of the Company’s wholly-owned subsidiary Brad Foote Gear Works, Inc. (“Brad Foote”), including J. Cameron Drecoll, who served as the Company’s Chief Executive Officer and a member of its Board of Directors until December 1, 2010. The Settlement Agreement related to the post-closing escrow established in connection with the Company’s acquisition of Brad Foote. Under the terms of the Settlement Agreement, among other terms, the Company issued three promissory notes to the former owners in the aggregate principal amount of $3,000 (the “Selling Shareholder Notes”). The Selling Shareholder Notes issued to the former owners other than Mr. Drecoll mature on May 28, 2012 and bear interest at a rate of 7% per annum, with interest payments due quarterly. The Selling Shareholder Note issued to Mr. Drecoll in the principal amount of $2,320 pursuant to the terms of the Settlement Agreement (the “Drecoll Note”) also was originally scheduled to mature on May 28, 2012 and bore interest at a rate of 7% per annum, with interest payments due quarterly; however, effective as of July 1, 2011, the Drecoll Note was amended and restated to effect the following modifications:  (i) the maturity date was changed to January 10, 2014; (ii) the interest rate was changed to 9% per annum; and (iii) the payment schedule was changed to quarterly payments of principal and interest, such that the Drecoll Note is now self-amortizing with payments commencing in the fourth quarter of 2011. The Company agreed to pay Mr. Drecoll a restructuring fee in the amount of $10 in connection with the restructuring of the Drecoll Note. As of September 30, 2011, principal of $3,000 and accrued interest of $64 were outstanding under the Selling Shareholder Notes.

 

Other

 

Included in Long Term Debt, Net of Current Maturities is $2,280 associated with the New Markets Tax Credit Agreement described further in described in Note 17, “New Markets Tax Credit” of these consolidated financial statements.

 

NOTE 9 — STOCKHOLDERS’ EQUITY

 

On September 21, 2011, the Company completed a public offering of its common stock, par value $0.001 per share, at an offering price of $0.40 per share. In the offering, the Company sold 32,500,000 newly issued shares of its common stock for approximately $12,155 in proceeds, after deducting underwriting discounts, but before deducting other offering related costs. In connection with the offering, the Company incurred $416 in costs associated with professional and other offering related expenses, which have been netted against the proceeds received in additional paid-in capital in the Company’s consolidated balance sheets as of September 30, 2011.

 

NOTE 10 — FAIR VALUE MEASUREMENTS

 

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair

 

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value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:

 

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

 

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

 

Fair value of financial instruments

 

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and customer deposits approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.

 

Assets measured at fair value on a nonrecurring basis

 

The fair value measurement approach for long-lived assets utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, projections of the Company’s future operating results, the implied fair value of these assets using an income approach by preparing a discounted cash flow analysis and a market-based approach based on the Company’s market capitalization, and other subjective assumptions. During the third quarter of 2011, the Company identified triggering events associated with the Company’s current period operating loss combined with its history of continued operating losses. As a result, the Company evaluated the recoverability of certain of its identifiable intangible assets and certain property and equipment assets. Based upon the Company’s assessment, no additional impairment to these assets was identified as of September 30, 2011.

 

NOTE 11 — INCOME TAXES

 

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of September 30, 2011, the Company had no net deferred income taxes due to the full recorded valuation allowance. During the three months ended September 30, 2011, the Company recorded a benefit from income taxes of $9 from continuing operations compared to a benefit from income taxes of $436 from continuing operations during the three months ended September 30, 2010. The decrease in income tax benefit during the three months ended September 30, 2011 was primarily attributable to the one-time tax benefit realized in the third quarter of 2010 related to the reversal of deferred income tax liabilities associated with indefinite-lived assets. During the nine months ended September 30, 2011, the Company recorded a provision for income taxes of $24 from continuing operations compared to a benefit from income taxes of $339 from continuing operations during the nine months ended September 30, 2010. The decrease in income tax benefit and increase in income tax provision during the nine months ended September 30, 2011 was primarily attributable to the accrual of state minimum taxes in 2011and the one-time tax benefit realized in the third quarter of 2010 related to the reversal of deferred income tax liabilities associated with indefinite-lived assets.

 

The Company files income tax returns in U.S. federal and state jurisdictions. As of September 2011, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. The Company recently settled an audit related to its federal income tax returns for the periods ended December 31, 2008 and 2009. As a result of the audit, the Company increased its net operating loss carryforward and valuation allowance both by $705.

 

The Company does not anticipate that there will be a material change in the total amount of its unrecognized tax benefits within the next twelve months. However, the Company has also considered the effect of U.S. Internal Revenue Code (IRC) Section 382 on its ability to utilize existing net operating losses. Under IRC Section 382, the use of net operating loss carryforwards and other tax credit carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Company’s shares owned by its five percent shareholders a change of ownership has occurred under the provisions of IRC Section 382, the Company’s net operating loss carryforwards could be subject to significant limitations. While application of Section 382 is

 

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complex and continues to be fully evaluated, the Company’s current net operating loss carryforwards may be subject to significant future limitation due to IRC Section 382.

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2011 and December 31, 2010, the Company had accrued interest or penalties related to uncertain tax positions totaling $26 and $32, respectively.

 

NOTE 12 — SHARE-BASED COMPENSATION

 

Overview of Share-Based Compensation Plan

 

The Company grants incentive stock options and other equity awards pursuant to the Broadwind Energy, Inc. 2007 Equity Incentive Plan (the “EIP”), which was approved by the Company’s Board of Directors in October 2007 and by the Company’s stockholders in June 2008. The EIP has been amended periodically since its original approval. Specifically, the EIP was amended by the Company’s stockholders in June 2009 to increase the number of shares of common stock authorized for issuance under the EIP, and the EIP was further amended and restated in March 2011 by the Company’s Board of Directors to limit share recycling under the EIP, to include a minimum vesting period for time-vesting restricted stock awards and restricted stock units and to add a clawback provision. As amended and restated, the EIP reserves 5,500,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large degree. As of September 30, 2011, the Company had reserved 1,281,315 shares for the exercise of stock options outstanding, 1,647,946 shares for restricted stock unit awards outstanding and 2,107,949 additional shares for future stock awards under the EIP. As of September 30, 2011, 462,790 shares of common stock reserved for stock options and restricted stock unit awards under the EIP have been issued in the form of common stock.

 

Stock Options.   The exercise price of stock options granted under the EIP is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Stock options expire ten years after the date of grant. If a plan participant’s employment is terminated during the vesting period, he or she forfeits the right to any unvested stock option awards.

 

Restricted Stock Units.   The granting of restricted stock units is provided for under the EIP. Restricted stock units generally vest on the anniversary of the grant date, with vesting terms that range from immediate vesting to five years from the date of grant. The fair value of each unit granted is equal to the closing price of the Company’s common stock on the date of grant and is expensed ratably over the vesting term of the restricted stock unit award. If a plan participant’s employment is terminated during the vesting period, he or she forfeits the right to any unvested portion of the restricted stock units.

 

The following table summarizes stock option activity during the nine months ended September 30, 2011 under the EIP, as follows:

 

		Options		Weighted Average Exercise Price
Outstanding as of December 31, 2010		917,193		$	8.75
Granted		447,255		$	1.36
Exercised		—		$	—
Forfeited		(83,133	)	$	10.92
Expired		—		$	—
Outstanding as of September 30, 2011		1,281,315		$	6.03
Exercisable as of September 30, 2011		320,296		$	11.78

 

The following table summarizes restricted stock unit activity during the nine months ended September 30, 2011 under the EIP, as follows:

 

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		Number of Units		Weighted Average Grant-Date Fair Value Per Unit
Outstanding as of December 31, 2010		712,902		$	4.09
Granted		1,156,277		$	1.35
Vested		(132,704	)	$	4.39
Forfeited		(88,529	)	$	4.62
Outstanding as of September 30, 2011		1,647,946		$	2.12

 

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the expected life of the awards and actual and projected stock option exercise behavior. The weighted average fair value per share of stock option awards granted during the nine months ended September 30, 2011 and 2010, and assumptions used to value the stock options, are as follows:

 

		Nine Months Ended September 30,
		2011			2010
Dividend yield		—			—
Risk-free interest rate		2.6		%	3.1		%
Weighted average volatility		96.1		%	85.9		%
Expected life (in years)		6.3			6.3
Weighted average grant date fair value per share of options granted		$	1.07		$	3.96

 

Dividend yield is zero as the Company currently does not pay a dividend.

 

Risk-free rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life of the award.

 

During the nine months ended September 30, 2011 and 2010, the Company utilized a standard volatility assumption of 96.1% and 85.9%, respectively, for estimating the fair value of stock options awarded based on comparable volatility averages for the energy-related sector.

 

The expected life of each stock option award granted is derived using the “simplified method” for estimating the expected term of a “plain-vanilla-option” in accordance with Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment,” as amended by SAB No. 110, “Share-Based Payment.” The fair value of each restricted stock unit is equal to the fair market value of the Company’s common stock as of the date of grant.

 

During the nine months ended September 30, 2011 and 2010, the Company utilized a forfeiture rate of 25% for estimating the forfeitures of stock options granted.

 

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2011 and 2010, as follows:

 

		Nine Months Ended September 30,
		2011			2010
Share-based compensation expense:
Selling, general and administrative		$	1,395		$	1,196
Income tax benefit (1)		—			—
Net effect of share-based compensation expense on net loss		$	1,395		$	1,196
Reduction in earnings per share:
Basic and diluted earnings per share (2)		$	0.01		$	0.01

 

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(1) Income tax benefit is not illustrated because the Company is currently operating at a loss and an actual income tax benefit was not realized for the nine months ended September 30, 2011 and 2010. The result of the loss situation creates a timing difference, resulting in a deferred tax asset, which is fully reserved for in the Company’s valuation allowance.

 

(2) Diluted earnings per share for the nine months ended September 30, 2011 and 2010 does not include common stock equivalents due to their anti-dilutive nature as a result of the Company’s net losses for these respective periods. Accordingly, basic earnings per share and diluted earnings per share are identical for all periods presented.

 

As of September 30, 2011, the Company estimates that pre-tax compensation expense for all unvested share-based awards, including both stock options and restricted stock units, in the amount of approximately $3,933 will be recognized through the year 2015. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.

 

NOTE 13 — LEGAL PROCEEDINGS

 

Shareholder Lawsuits

 

On February 11, 2011, a putative class action was filed in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and certain of its current or former officers and directors. The lawsuit is purportedly brought on behalf of purchasers of the Company’s common stock between March 17, 2009 and August 9, 2010. A lead plaintiff has been appointed and an amended complaint was filed on September 13, 2011. The amended complaint names as additional defendants certain of the Company’s current and former directors, certain Tontine entities, and Jeffrey Gendell, a principal of Tontine. The complaint seeks to allege that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Rule 10b-5 promulgated thereunder, and/or Section 20(a) of the Exchange Act by issuing or causing to be issued a series of allegedly false and/or misleading statements concerning the Company’s financial results, operations, and prospects, including with respect to the January 2010 secondary public offering of the Company’s common stock. The plaintiffs allege that the Company’s statements were false and misleading because, among other things, the Company’s reported financial results during the class period allegedly violated generally accepted accounting principles because they failed to reflect the impairment of goodwill and other intangible assets, and the Company allegedly failed to disclose known trends and other information regarding certain customer relationships at Brad Foote. In support of their claims, the plaintiffs rely in part upon six alleged confidential informants, all of whom are alleged to be former employees of the Company. The Company’s motion to dismiss is due by November 18, 2011. Between February 15, 2011 and March 30, 2011, three putative shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Illinois, Eastern Division, and four putative shareholder derivative lawsuits were filed in the Circuit Court of Cook County, Illinois, Chancery Division, against certain of the Company’s current and former officers and directors, and certain Tontine entities, seeking to challenge alleged breaches of fiduciary duty, waste of corporate assets, and unjust enrichment, including in connection with the January 2010 secondary public offering of the Company’s common stock. One of the lawsuits also alleges that certain directors violated Section 14(a) of the Exchange Act in connection with the Company’s Proxy Statement for its 2010 Annual Meeting of Stockholders. Two of the matters pending in the federal court have been consolidated and the Company filed a motion to dismiss these matters on September 19, 2011. Also, on September 19, 2011, the four derivative lawsuits filed in state court were dismissed following oral argument on the Company’s motion to dismiss the actions as duplicative of the federal derivative actions. The Company has received a request from the Tontine defendants for indemnification in the derivative suits and the class action lawsuit and may receive additional requests for indemnification from Tontine and/or Mr. Gendell pursuant to various agreements related to shares owned by Tontine. The Company maintains directors and officers liability insurance, however, the costs of indemnification for Mr. Gendell and/or Tontine would not be covered by any Company insurance policy. Because of the preliminary nature of these lawsuits, the Company is not able to estimate a loss or range of loss at this time.

 

SEC Inquiry

 

In August 2011, the Company received a subpoena from the United States Securities and Exchange Commission (“SEC”) seeking documents and other records related to certain accounting practices at Brad Foote. The subpoena was issued in connection with an informal inquiry that the Company received from the SEC in November 2010 arising out of a whistleblower complaint received by the SEC related to revenue recognition, cost accounting and intangible and fixed asset valuations at Brad Foote. The Company has been voluntarily providing information to the SEC as a part of that inquiry and is in the process of responding to the subpoena with respect to the outstanding requests. The Company cannot currently predict the outcome of this investigation.

 

Environmental

 

The Company is aware of an investigation commenced by the United States Attorney’s Office, Northern District of Illinois, for potential violation of federal environmental laws. On February 15, 2011, pursuant to a search warrant, officials from the United States Environmental Protection Agency (‘‘USEPA’’) entered and conducted a search of one of Brad Foote’s facilities in Cicero,

 

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Illinois, in connection with the alleged improper disposal of industrial wastewater to the sewer. Also on or about February 11, 2011, in connection with the same matter, the Company received a grand jury subpoena requesting testimony and the production of certain documents relating to the facility’s past compliance with certain environmental laws and regulations relating to the generation, discharge and disposal of wastewater from certain of its processes between 2004 and the present. On or about February 23, 2011, the Company received another grand jury subpoena relating to the same investigation, requesting testimony and the production of certain other documents relating to certain of the facility’s employees, environmental and manufacturing processes, and disposal practices. The Company has produced tens of thousands of documents in response to these subpoenas. The Company has also voluntarily instituted corrective measures at the facility, including changes to its wastewater disposal practices. There can be no assurances that the conclusion of the investigation will not result in a determination that the Company has violated applicable environmental, health and safety laws and regulations. Any violations found, or any criminal or civil fines, penalties and/or other sanctions imposed could be substantial and materially and adversely affect the Company. The Company had recorded a liability of $675 at December 31, 2010, which represented the low end of its estimate of remediation-related costs and expenses; as of September 30, 2011, those initial costs have been incurred. No additional remediation related expenses are anticipated or have been accrued; however, the outcome of the investigation, the liability in connection therewith, and the impact to the Company’s operations cannot be predicted at this time.

 

The Company is also a party to additional claims and legal proceedings arising in the ordinary course of business. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial position or liquidity. It is possible that if one or more of the matters described above were decided against the Company, the effects could be material to its results of operations in the period in which it would be required to record or adjust the related liability and could also be material to its cash flows in the period in which it would be required to pay such liability.

 

NOTE 14 — RECENT ACCOUNTING PRONOUNCEMENTS

 

The following is a listing of recent accounting standards issued by the Financial Accounting Standards Board (the “FASB”) and their effect on the Company.

 

In July 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 requires increased disclosures about the credit quality of financing receivables and allowances for credit losses, including disclosures about credit quality indicators, past due information and modifications of financing receivables. The Company has adopted this standard as of January 1, 2011 and it had no material impact on the Company’s consolidated financial condition, results of operations or cash flows.

 

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). ASU 2010-06 provides additional disclosure requirements related to fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Disclosure requirements applicable to Level 3 transactions are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years, with early adoption permitted. The Company has adopted this standard as of January 1, 2011 and it had no material impact on the Company’s consolidated financial condition, results of operations or cash flows.

 

In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605). ASU 2009-13 provides additional guidance related to the accounting for multiple-deliverable arrangements to account for products or services (deliverables) separately rather than as a combined unit and eliminates the residual method of allocation. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after September 15, 2010, with early adoption permitted. The Company has adopted this standard as of January 1, 2011 and it had no material impact on the Company’s consolidated financial condition, results of operations or cash flows.

 

NOTE 15 — SEGMENT REPORTING

 

The Company’s segments and their product and service offerings are summarized below:

 

Towers

 

The Company fabricates specialty weldments for wind, oil and gas, mining and other industrial applications, specializing in the production of wind turbine towers. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. wind resource regions. The two facilities have a combined annual tower production capacity of approximately 500 towers, sufficient to support turbines generating more than 1,200 megawatts (MW) of power. This product segment also encompasses the manufacture of specialty fabrications and heavy weldments for wind energy and other industrial customers.

 

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Gearing

 

The Company engineers, builds and remanufactures precision gears and gearing systems for wind, oil and gas, mining and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

 

Services

 

The Company remanufactures complex wind turbine components, including gearboxes and blades. The Company also offers comprehensive installation support and operations and maintenance services to the wind industry. The Company’s primary service locations are in Illinois, California, South Dakota and Texas. In February 2011, the Company put into operation its dedicated drivetrain service center in Abilene, Texas, which is focused on servicing the growing installed base of MW wind turbines as they come off warranty.

 

Corporate and Other

 

“Corporate and Other” is comprised of adjustments to reconcile segment results to consolidated results, which primarily includes corporate administrative expenses and intercompany eliminations.

 

Summary financial information by reportable segment for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

		Revenues						Operating (Loss) Profit
		For the Three Months Ended September 30,						For the Three Months Ended September 30,
		2011			2010			2011			2010
Segments:
Towers		$	29,684		$	17,294		$	(35	)	$	(284	)
Gearing		12,634			13,140			(3,281		)	(3,511		)
Services		6,615			3,631			(413		)	(2,128		)
Corporate and Other (1)		(1,034		)	(43		)	(2,515		)	(1,875		)
		$	47,899		$	34,022		$	(6,244	)	$	(7,798	)

 

		Depreciation and Amortization						Capital Expenditures
		For the Three Months Ended September 30,						For the Three Months Ended September 30,
		2011			2010			2011			2010
Segments:
Towers		$	872		$	855		$	178		$	89
Gearing		2,469			2,511			268			(427		)
Services		263			860			822			1,775
Corporate and Other (1)		43			41			16			63
		$	3,647		$	4,267		$	1,284		$	1,500

 

		Revenues						Operating (Loss) Profit
		For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
		2011			2010			2011			2010
Segments:
Towers		$	82,350		$	45,854		$	5,159		$	(2,157	)
Gearing		38,696			35,133			(8,523		)	(11,461		)
Services		10,810			8,546			(3,862		)	(11,053		)
Corporate and Other (1)		(1,095		)	(188		)	(7,302		)	(7,391		)
		$	130,761		$	89,345		$	(14,528	)	$	(32,062	)

 

		Depreciation and Amortization						Capital Expenditures
		For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
		2011			2010			2011			2010
Segments:
Towers		$	2,638		$	2,553		$	367		$	1,937
Gearing		7,497			7,436			(30		)	811
Services		645			2,513			3,743			2,593
Corporate and Other (1)		130			124			54			80
		$	10,910		$	12,626		$	4,134		$	5,421

 

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