Corporate Headquarters
Ameresco Inc.
111 Speen St., Suite 410
Framingham, MA 01701
508.661.2200
ameresco.com
Printed on recycled paper.
© 2014 Ameresco, Inc. Ameresco and the Ameresco logo, the orb symbol and the tagline
“Green. Clean. Sustainable.” are registered in the U.S. Patent and Trademark Office. All rights reserved.
FR-5940-00-0/14-03-06.5
2 0 1 3 A N N U AL R E P OR T
ameresco.com
or visit
866.AMERESCO
For more information, contact us at
Directors
George P. Sakellaris
David J. Anderson
David J. Corrsin
William M. Bulger
Chairman, President and Chief Executive Officer, Ameresco
Chairman, President and Chief Executive Officer
Executive Vice President, Business Development, Ameresco
Executive Vice President, Business Development
Executive Vice President, General Counsel and Secretary, Ameresco
Executive Vice President, General Counsel and Secretary
President (Retired), University of Massachusetts
Executive Vice President, Engineering and Operations
Executive Officers
George P. Sakellaris
David J. Anderson
David J. Corrsin
Joseph P. DeManche
Mario P. Iusi
President, Ameresco Canada
Louis P. Maltezos
Michael T. Bakas
Andrew B. Spence
Chief Executive Officer, Sutton Ventures Group
Senior Vice President, Renewable Energy
Partner (Retired), Wellington Management Company
Vice President, Chief Financial Officer and Treasurer
Executive Vice President and General Manager, Central Region
Douglas I. Foy
President, Serrafix Corporation
Michael E. Jesanis
Managing Director, Net Zero, LLC
Joseph W. Sutton
Frank V. Wisneski
Corporate Headquarters
Ameresco Inc.
111 Speen St.
Suite 410
508.661.2200
ameresco.com
Framingham, MA 01701
For more information, contact us at
General Information
Stock Listing
866.AMERESCO
or visit
ameresco.com
Ameresco Inc.
866.AMERESCO
info@ameresco.com
Shareholder Information
Copies of all SEC filings, including our 10-K, are available on our
website under the Investor Relations section.
Ameresco Investor Relations
ir@ameresco.com
Our common stock is traded on the New York Stock Exchange
under the symbol AMRC.
American Stock Transfer and Trust
Transfer Agent
New York, NY
FR-5940-00-0/14-03-06.5
“Green. Clean. Sustainable.” are registered in the U.S. Patent and Trademark Office. All rights reserved.
© 2014 Ameresco, Inc. Ameresco and the Ameresco logo, the orb symbol and the tagline
Printed on recycled paper.
2013 ANNUAL REPORT
ameresco.com
508.661.2200
Framingham, MA 01701
111 Speen St., Suite 410
Ameresco Inc.
Corporate Headquarters
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2013
OR
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: 001-34811
Ameresco, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
111 Speen Street, Suite 410
Framingham, Massachusetts
(Address of Principal Executive Offices)
04-3512838
(I.R.S. Employer
Identification No.)
01701
(Zip Code)
(508) 661-2200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock,
par value $0.0001 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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
No
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
No
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 during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual
Report on Form 10-K or any amendment to this Annual Report on Form 10-K.
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.
Large Accelerated Filer
Accelerated Filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
No
the common equity was last sold on the New York Stock Exchange on June 28, 2013, the last business day of the registrant’s most recently
completed second fiscal quarter, was $191,266,010.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
Class
Shares outstanding as of March 3, 2014
Class A Common Stock, $0.0001 par value per share
Class B Common Stock, $0.0001 par value per share
27,925,817
18,000,000
Portions of the definitive proxy statement for our 2014 annual meeting of stockholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
AMERESCO, INC.
TABLE OF CONTENTS
PART I
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MINE SAFETY DISCLOSURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . .
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
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NOTE ABOUT FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements, other than statements of historical fact,
including statements regarding our strategy, future operations, future financial position, future revenues, projected costs,
prospects, plans, objectives of management, expected market growth and other characterizations of future events or
circumstances are forward-looking statements. These statements are often, but not exclusively, identified by the use of words
such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “target,” “project,” “predict” or
“continue,” and similar expressions or variations. These forward-looking statements include, among other things, statements
about:
•
•
•
•
•
•
•
•
our expectations as to the future growth of our business and associated expenses;
our expectations as to revenue generation;
the expected future growth of the market for energy efficiency and renewable energy solutions;
our backlog, awarded projects and recurring revenue and the timing of such matters;
our expectations as to acquisition activity;
the uses of future earnings;
the expected energy and cost savings of our projects; and
the expected energy production capacity of our renewable energy plants.
These forward-looking statements are based on current expectations and assumptions that are subject to risks, uncertainties
and other factors that could cause actual results and the timing of certain events to differ materially and adversely from the
future results expressed or implied by such forward-looking statements. Risks, uncertainties and factors that could cause or
contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in
Item 1A of this Annual Report on Form 10-K and elsewhere in this report. The forward-looking statements in this Annual
Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. Subsequent events and
developments may cause our views to change. However, while we may elect to update these forward-looking statements at
some point in the future, we have no current intention of doing so and undertake no obligation to do so except to the extent
required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of
any date subsequent to the date of this Annual Report on Form 10-K.
Item 1. Business
Company Overview
PART I
Founded in 2000, Ameresco, Inc. is a leading independent provider of comprehensive services, energy efficiency,
infrastructure upgrades, asset sustainability and renewable energy solutions for facilities throughout North America.
Ameresco’s services include upgrades to a facility’s energy infrastructure and the development, construction and operation of
renewable energy plants. Ameresco has successfully completed energy saving, environmentally responsible projects with
federal, state and local governments, healthcare and educational institutions, housing authorities, and commercial and industrial
customers. With its corporate headquarters in Framingham, MA, Ameresco provides local expertise through its 70 offices in 33
states, five Canadian provinces and the United Kingdom. Ameresco has more than 900 employees.
Strategic acquisitions of complementary businesses and assets have been an important part of our historical development.
Since inception, we have completed numerous acquisitions, which have enabled us to broaden our service offerings and expand
our geographical reach. In 2013, our acquisition of Ennovate Corporation (“Ennovate”), in the first quarter increased our
footprint and penetration in the Rocky Mountain area; and our acquisition of energy management consulting companies The
Energy Services Partnership Limited and ESP Response Limited (together “ESP”), in the second quarter added a local presence
in the United Kingdom, expertise and seasoned energy industry professionals to support multi-national customers of our
enterprise energy management service offerings.
Our principal service is the development, design, engineering and installation of projects that reduce the energy and
operations and maintenance (“O&M”) costs of our customers’ facilities. These projects typically include a variety of measures
customized for the facility and designed to improve the efficiency of major building systems, such as heating, ventilation, air
conditioning and lighting systems. We typically commit to customers that our energy efficiency projects will satisfy agreed
upon performance standards upon installation or achieve specified increases in energy efficiency. In most cases, the forecasted
lifetime energy and operating cost savings of the energy efficiency measures we install will defray all or almost all of the cost
of such measures. In many cases, we assist customers in obtaining third-party financing for the cost of constructing the facility
improvements, resulting in little or no upfront capital expenditure by the customer. After a project is complete, we may operate,
maintain and repair the customer’s energy systems under a multi-year O&M contract, which provides us with recurring revenue
and visibility into the customer’s evolving needs.
We also serve certain customers by developing and building small-scale renewable energy plants located at or close to a
customer’s site. Depending upon the customer’s preference, we will either retain ownership of the completed plant or build it
for the customer. Most of our small-scale renewable energy plants to date have been constructed adjacent to landfills and use
landfill gas (“LFG”) to generate energy. Our largest renewable energy project for a customer uses biomass as the primary
source of energy. In the case of the plants that we own, the electricity, thermal energy or processed LFG generated by the plant
is sold under a long-term supply contract with the customer, which is typically a utility, municipality, industrial facility or other
purchaser of large amounts of energy.
As of December 31, 2013, we had backlog of approximately $362 million in expected future revenues under signed
customer contracts for the installation or construction of projects, which we sometimes refer to as fully-contracted backlog; and
we also had been awarded projects for which we do not yet have signed customer contracts, which we sometimes refer to as
awarded projects, with estimated total future revenues of an additional $993 million. As of December 31, 2012, we had backlog
of approximately $367 million in expected future revenues under signed customer contracts for the installation or construction
of projects; and we also had been awarded projects for which we do not yet have signed customer contracts, with estimated
total future revenues of an additional $1.1 billion. As of December 31, 2011, we had backlog of approximately $478 million in
future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded
projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $741 million.
The contracts reflected in our fully-contracted backlog typically have a construction period of 12 to 24 months and we typically
expect to recognize revenue for such contracts over the same period. Where we have been awarded a project, but have not yet
signed a customer contract for that project, we would not begin recognizing revenue unless a customer contract has been signed
and we treat the project as fully-contracted backlog. Recently, awarded projects typically have been taking 12 to 16 months to
result in a signed contract and thus convert to fully-contracted backlog. It may take longer, however, depending upon the size
and complexity of the project. Historically, approximately 90% of our awarded projects ultimately have resulted in a signed
contract.
1
See “We may not recognize all revenues from our backlog or receive all payments anticipated under awarded projects and
customer contracts” and “In order to secure contracts for new projects, we typically face a long and variable selling cycle that
requires significant resource commitments and requires a long lead time before we realize revenues” in Item 1A, Risk Factors
of this Annual Report on Form 10-K.
Revenues generated from backlog was $388 million, $457 million and $598 million in 2013, 2012 and 2011, respectively.
We also expect to realize recurring revenues both from long-term O&M contracts and energy supply contracts for
renewable energy plants that we own. In addition, we expect to generate revenues from solar products and services, consulting
services and enterprise energy management services. Revenues generated from O&M, energy supply contracts, solar products
and services, consulting services and enterprise energy management services were $186 million, $174 million and $130 million
in 2013, 2012 and 2011, respectively.
Ameresco’s Services and Products
Our principle service is energy efficiency projects, which entails the design, engineering and installation of, and the
arranging of financing for, equipment to improve the energy efficiency, and control the operation, of a building’s heating,
ventilation, cooling and lighting systems. In certain projects, we also design and construct a central plant or cogeneration
system providing power, heat and/or cooling to a building. Our projects generally range in size and scope from a one-month
project to design and retrofit a lighting system to a more complex 30-month project to design and install a central plant or
cogeneration system.
After an energy efficiency project is completed, we often provide ongoing O&M services under a multi-year contract.
These services include operating, maintaining and repairing facility energy systems such as boilers, chillers and building
controls, as well as central power plants. For larger projects, we often maintain staff on-site to perform these services.
Our service offering also includes the development, construction and operation of, and the arrangement of financing for,
small-scale renewable energy plants. Small-scale renewable energy projects can either be developed for the portfolio of assets
that we own and operate or designed and built for customers.
We have constructed and are currently designing and constructing a wide range of renewable energy plants using LFG,
wastewater treatment biogas, solar, wind, biomass, other bio-derived fuels and hydro sources of energy. Most of our renewable
energy projects to date have involved the generation of electricity from LFG or the sale of processed LFG. We purchase the
LFG that otherwise would be combusted or vented, process it, and either sell it or use it in our energy plants.
As of December 31, 2013, we owned and operated 41 small-scale renewable energy plants and solar photovoltaic (“PV”)
installations. Of the owned plants, 21 are renewable LFG plants, two are wastewater biogas plants, and 18 are solar PV
installations. The 41 small-scale renewable energy plants and solar PV installations that we own have the capacity to generate
electricity or deliver LFG producing an aggregate of more than 115 megawatt equivalents.
Customer Arrangements
For our energy efficiency projects, we typically enter into energy savings performance contracts (“ESPCs”), under which
we agree to develop, design, engineer and construct a project and also commit that the project will satisfy agreed upon
performance standards that vary from project to project. These performance commitments are typically based on the design,
capacity, efficiency or operation of the specific equipment and systems we install. Depending on the project, the measurement
and demonstration may be required only once, upon installation, based on an analysis of one or more sample installations, or
may be required to be repeated at agreed upon intervals generally over periods of up to 20 years.
Under our contracts, we typically do not take responsibility for a wide variety of factors outside our control and exclude or
adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather,
facility occupancy schedules, the amount of energy-using equipment in a facility, and the failure of the customer to operate or
maintain the project properly. Typically, our performance commitments apply to the aggregate overall performance of a project
rather than to individual energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be
offset by other measures that overperform during the same period. In the event that an energy efficiency project does not
perform according to the agreed upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or
modifying the installed equipment, installing additional measures to provide substitute energy savings, or paying the customer
for lost energy savings based on the assumed conditions specified in the agreement. Many of our equipment supply, local
design, and installation subcontracts contain provisions that enable us to seek recourse against our vendors or subcontractors if
2
there is a deficiency in our energy reduction commitment. See “We may have liability to our customers under our ESPCs if our
projects fail to deliver the energy use reductions to which we are committed under the contract” in Item 1A, Risk Factors.
The projects that we perform for governmental agencies are governed by particular qualification and contracting regimes.
Certain states require qualification with an appropriate state agency as a precondition to performing work or appearing as a
qualified energy service provider for state, county and local agencies within the state. Most of the work that we perform for the
federal government is performed under indefinite delivery, indefinite quantity (“IDIQ”) agreements between government
agencies and us or our subsidiaries. These IDIQ agreements allow us to contract with the relevant agencies to implement energy
projects, but no work may be performed unless we and the agency agree on a task order or delivery order governing the
provision of a specific project. The government agencies enter into contracts for specific projects on a competitive basis. We
and our subsidiaries and affiliates are currently party to an IDIQ agreement with the U.S. Department of Energy, expiring in
2019, with an aggregate maximum potential ordering amount of $5 billion. Payments by the federal government for energy
efficiency measures are based on the services provided and products installed, but are limited to the savings derived from such
measures, calculated in accordance with federal regulatory guidelines and the specific contract terms. The savings are typically
determined by comparing energy use and O&M costs before and after the installation of the energy efficiency measures,
adjusted for changes that affect energy use and O&M costs but are not caused by the energy efficiency measures.
Sales and Marketing
Our sales and marketing approach is to offer customers customized and comprehensive energy efficiency solutions tailored
to meet their economic, operational and technical needs. The sales, design and construction process for energy efficiency and
renewable energy projects recently has been averaging from 18 to 40 months. We identify project opportunities through
referrals, requests for proposals (“RFPs”), conferences, web searches, telemarketing and repeat business from existing
customers. Our direct sales force develops and follows up on customer leads and, in some cases, works with customers to
develop their RFPs. By working with customers prior to the issuance of an RFP, we can gain a deeper understanding of the
customers’ needs and the scope of the potential project. As of December 31, 2013, we had 143 employees in direct sales.
In preparation for a proposal, our team typically conducts a preliminary audit of the customer’s needs and requirements,
and identifies areas to enhance efficiencies and reduce costs. We read and analyze the customer’s utility bill and other energy-
related expenses. If the bills are complex or numerous, we often utilize Ameresco’s enterprise energy management software
tools to scan, compile and analyze the information. Our experienced engineers visit and assess the customer’s current energy
systems and infrastructure. Through our knowledge of the federal, state, local governmental and utility environment, we assess
the availability of energy, utility or environmental-based payments for usage reductions or renewable power generation, which
helps us optimize the economic benefits of a proposed project for a customer. Once awarded a project, we perform a more
detailed audit of the customer’s facilities, which serves as the basis for the final specifications of the project and final contract
terms.
For renewable energy plants that are not located on a customer’s site or use sources of energy not within the customer’s
control, the sales process also involves the identification of sites with attractive sources of renewable energy and obtaining
necessary rights and governmental permits to develop a plant on that site. For example, for LFG projects, we start with gaining
control of a LFG resource located close to the prospective customer. For solar and wind projects, we look for sites where
utilities are interested in purchasing renewable energy power at rates that are sufficient to make a project feasible. Where
governmental agencies control the site and resource, such as a landfill owned by a municipality, the customer may be required
to issue an RFP to use the site or resource. Once we believe we are likely to obtain the rights to the site and the resource, we
seek customers for the energy output of the potential project.
Customers
In 2013, we served more than 1,000 customers in 49 states in the United States, the District of Columbia, six Canadian
provinces, and the United Kingdom. Historically, including for the years ended December 31, 2013, 2012 and 2011 more than
80% of of our revenues have been derived from federal, state, provincial or local government entities, including public housing
authorities and public universities. Our federal customers include various divisions of the U.S. federal government. The U.S.
federal government, which is considered a single customer for reporting purposes, constituted 12.3%, 11.6% and 19.9% of our
consolidated revenues for the years ended December 31, 2013, 2012 and 2011, respectively. For the year ended December 31,
2013 our largest 20 customers accounted for approximately 36% of our total revenues.
3
Our 20 largest customers for the year ended December 31, 2013, by revenues, in alphabetical order, were:
Alameda Municipal Power (Alameda, California)
Arizona State University (Tempe, Arizona)
British Columbia Housing Authority (Burnaby, British Columbia)
Edmonton District School Board (Edmonton, Alberta)
Fall River Housing Authority (Fall River, Massachusetts)
Hamilton County (Cincinnati, Ohio)
Hazelwood School District (Saint Louis, Missouri)
Hoosier Energy (Bloomington, Indiana)
North Carolina State University (Raleigh, North Carolina)
Philadelphia Water Department (Philadelphia, Pennsylvania)
Rainbow District School Board (Sudbury, Ontario)
Town of Acton (Acton, Massachusetts)
Town of Dartmouth (Dartmouth, Massachusetts)
U.S. Architect of Capitol - U.S. Senate Building (Washington, D.C.)
U.S. Army - Adelphi Laboratory Center (Adelphi, Maryland)
U.S. Army - Tobyhanna Army Depot (Tobyhanna, Pennsylvania)
U.S. Department of Energy - Savannah River Site (Aiken, South Carolina)
U.S. General Services Administration (Washington, D.C.)
University City School District (University City, Missouri)
University of Illinois (Chicago, Illinois)
See “Provisions in our government contracts may harm our business, financial condition and operating results” in Item 1A,
Risk Factors for a discussion of special considerations applicable to government contracting.
Competition
While we face significant competition from a large number of companies, we believe few offer the full range of services
that we provide.
Our principal competitors include Chevron Energy Solutions, Constellation Energy, Honeywell, Johnson Controls,
NORESCO, Siemens Building Technologies, TAC Energy Solutions, and Trane. We compete primarily on the basis of our
comprehensive, independent offering of energy efficiency and renewable energy services and the breadth and depth of our
expertise.
For renewable energy plants, we compete primarily with many large independent power producers and utilities, as well as a
large number of developers of renewable energy projects. In the LFG market, our principal competitors include national project
developers and owners of landfills who self-develop projects using LFG from their landfills, such as Waste Management. For
the sale of solar energy products and systems, we face numerous competitors ranging from small web-based companies that sell
components to PV module manufacturers and other multi-national corporations that sell both products and systems. We
compete for renewable energy projects primarily on the basis of our experience, reputation and ability to identify and complete
high quality and cost-effective projects.
See “We operate in a highly competitive industry, and our current or future competitors may be able to compete more
effectively than we do, which could have a material adverse effect on our business, revenues, growth rates and market share” in
Item 1A, Risk Factors for further discussion of competition.
Regulatory
Various regulations affect the conduct of our business. Federal and state legislation and regulations enable us to enter into
ESPCs with government agencies in the United States. The applicable regulatory requirements for ESPCs differ in each state
and between agencies of the federal government.
4
Our projects must conform to all applicable electric reliability, building and safety, and environmental regulations and
codes, which vary from place to place and time to time. Various federal, state, provincial and local permits are required to
construct an energy efficiency project or renewable energy plant.
Renewable energy projects are also subject to specific governmental safety and economic regulation. States and the federal
government typically do not regulate the transportation or sale of LFG unless it is combined with and distributed with natural
gas, but this is not uniform among states and may change from time to time. States regulate the retail sale and distribution of
natural gas to end-users, although regulatory exemptions from regulation are available in some states for limited gas delivery
activities, such as sales only to a single customer. The sale and distribution of electricity at the retail level is subject to state and
provincial regulation, and the sale and transmission of electricity at the wholesale level is subject to federal regulation. While
we do not own or operate retail-level electric distribution systems or wholesale-level transmission systems, the prices for the
products we offer can be affected by the tariffs, rules and regulations applicable to such systems, as well as the prices that the
owners of such systems are able to charge. The construction of power generation projects typically is regulated at the state and
provincial levels, and the operation of these projects also may be subject to state and provincial regulation as “utilities.” At the
federal level, the ownership, operation, and sale of power generation facilities may be subject to regulation under Public Utility
Holding Company Act of 2005 (“PUHCA”), the Federal Power Act (“FPA”), and Public Utility Regulatory Policies Act of 1978
(“PURPA”). However, because all of the plants that we have constructed and operated to date are small power “qualifying
facilities” under PURPA, they are subject to less regulation by the FPA, PUHCA and related state utility laws than traditional
utilities.
If we pursue projects employing different technologies or with a single project electrical capacity greater than
20 megawatts, we could become subject to some of the regulatory schemes which do not apply to our current projects. In
addition, the state, provincial and federal regulations that govern qualifying facilities and other power sellers frequently change,
and the effect of these changes on our business cannot be predicted.
LFG power generation facilities require an air emissions permit, which may be difficult to obtain in certain jurisdictions.
See “Compliance with environmental laws could adversely affect our operating results” in Item 1A, Risk Factors. Renewable
energy projects may also be eligible for certain governmental or government-related incentives from time to time, including tax
credits, cash payments in lieu of tax credits, and the ability to sell associated environmental attributes, including carbon credits.
Government incentives and mandates typically vary by jurisdiction.
Some of the demand reduction services we provide for utilities and institutional clients are subject to regulatory tariffs
imposed under federal and state utility laws. In addition, the operation of, and electrical interconnection for, our renewable
energy projects are subject to federal, state or provincial interconnection and federal reliability standards also set forth in utility
tariffs. These tariffs specify rules, business practices and economic terms to which we are subject. The tariffs are drafted by the
utilities and approved by the utilities’ state, provincial or federal regulatory commissions.
Employees
As of December 31, 2013, we had a total of 976 employees in offices located in 33 states, five Canadian provinces and the
United Kingdom.
Seasonality
See “Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse
effect on our operating results” in Item 1A, Risk Factors and “Overview — Effects of Seasonality” in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of seasonality in our business.
Segments and Geographic Information
Financial information about our domestic and international operations and about our segments may be found in Notes 13
and 17, respectively, of “Notes to Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K,
which information is incorporated herein by reference.
Additional Information
Ameresco was incorporated in Delaware in 2000 and is headquartered in Framingham, Massachusetts.
Periodic reports, proxy statements and other information are available to the public, free of charge, on our website,
www.ameresco.com, as soon as reasonably practicable after they have been filed with the Securities and Exchange Commission
5
(“SEC”), and through the SEC’s website, www.sec.gov. We include our website address in this report only as an inactive textual
reference and do not intend it to be an active link to our website. None of the material on our website is part of this Annual
Report on Form 10-K.
Executive Officers
The following is a list of our executive officers, their ages as of March 3, 2014 and their principal positions.
Name
George P. Sakellaris . . . . . . . . . . . .
David J. Anderson. . . . . . . . . . . . . .
Michael T. Bakas. . . . . . . . . . . . . . .
David J. Corrsin . . . . . . . . . . . . . . .
Joseph P. DeManche . . . . . . . . . . . .
Mario Iusi . . . . . . . . . . . . . . . . . . . .
Louis P. Maltezos . . . . . . . . . . . . . .
Andrew B. Spence. . . . . . . . . . . . . .
Age
Position (s)
Senior Vice President, Renewable Energy
67 Chairman of the Board of Directors, President and Chief Executive Officer
53 Executive Vice President, Business Development and Director
45
55 Executive Vice President, General Counsel and Secretary and Director
57 Executive Vice President, Engineering and Operations
55
47 Executive Vice President and General Manager, Central Region
57 Vice President, Chief Financial Officer and Treasurer
President, Ameresco Canada
George P. Sakellaris: Mr. Sakellaris has served as chairman of our board of directors and our president and chief executive
officer since founding Ameresco in 2000.
David J. Anderson: Mr. Anderson has served as our executive vice president, business development, as well as a director,
since 2000.
Michael T. Bakas: Mr. Bakas has served as our senior vice president, renewable energy, since March 2010. From 2000 to
February 2010, he was our vice president, renewable energy.
David J. Corrsin: Mr. Corrsin has served as our executive vice president, general counsel and secretary, as well as a
director, since 2000.
Joseph P. DeManche: Mr. DeManche has served as our executive vice president, engineering and operations since 2002.
Mario Iusi: Mr. Iusi has served as president of Ameresco Canada since 2002.
Louis P. Maltezos: Mr. Maltezos has served as our executive vice president and general manager, central region, since April
2009. From 2004 until April 2009, Mr. Maltezos was our vice president and general manager, midwest region.
Andrew B. Spence: Mr. Spence has served as our vice president, chief financial officer and treasurer since 2002.
Item 1A. Risk Factors
Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause
our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings
with the SEC, press releases, communications with investors and oral statements. Any or all of our forward-looking statements
in this Annual Report on Form 10-K and in any other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in
the discussion below will be important in determining future results. Consequently, no forward-looking statement can be
guaranteed. Actual future results may differ materially from those anticipated in forward-looking statements. We undertake no
obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except
to the extent required by applicable law. You should, however, consult any further disclosure we make in our reports filed with
the SEC.
Risks Related to Our Business
If demand for our energy efficiency and renewable energy solutions does not develop as we expect, our revenues will suffer
and our business will be harmed.
We believe, and our growth plans assume, that the market for energy efficiency and renewable energy solutions will
continue to grow, that we will increase our penetration of this market and that our revenues from selling into this market will
6
continue to increase over time. If our expectations as to the size of this market and our ability to sell our products and services
in this market are not correct, our revenues will suffer and our business will be harmed.
In order to secure contracts for new projects, we typically face a long and variable selling cycle that requires significant
resource commitments and requires a long lead time before we realize revenues.
The sales, design and construction process for energy efficiency and renewable energy projects recently has been taking
from 18 to 40 months on average, with sales to federal government and housing authority customers tending to require the
longest sales processes. Our existing and potential customers generally follow extended budgeting and procurement processes,
and sometimes must engage in regulatory approval processes, related to our services. Beginning in 2012, we have observed
increased use of outside consultants and advisors by our customers, which has resulted in a lengthening of the sales cycle. Most
of our potential customers issue an RFP, as part of their consideration of alternatives for their proposed project. In preparation
for responding to an RFP, we typically conduct a preliminary audit of the customer’s needs and the opportunity to reduce its
energy costs. For projects involving a renewable energy plant that is not located on a customer’s site or that uses sources of
energy not within the customer’s control, the sales process also involves the identification of sites with attractive sources of
renewable energy, such as a landfill or a site with high winds, and it may involve obtaining necessary rights and governmental
permits to develop a project on that site. If we are awarded a project, we then perform a more detailed audit of the customer’s
facilities, which serves as the basis for the final specifications of the project. We then must negotiate and execute a contract with
the customer. In addition, we or the customer typically need to obtain financing for the project.
This extended sales process requires the dedication of significant time by our sales and management personnel and our use
of significant financial resources, with no certainty of success or recovery of our related expenses. A potential customer may go
through the entire sales process and not accept our proposal. All of these factors can contribute to fluctuations in our quarterly
financial performance and increase the likelihood that our operating results in a particular quarter will fall below investor
expectations. These factors could also adversely affect our business, financial condition and operating results due to increased
spending by us that is not offset by increased revenues.
We may not recognize all revenues from our backlog or receive all payments anticipated under awarded projects and
customer contracts.
As of December 31, 2013, we had backlog of approximately $362 million in expected future revenues under signed
customer contracts for the installation or construction of projects, which we sometimes refer to as fully-contracted backlog; and
we also had been awarded projects for which we do not yet have signed customer contracts, which we sometimes refer to as
awarded projects, with estimated total future revenues of an additional $993 million. As of December 31, 2012, we had fully-
contracted backlog of approximately $367 million; and we also had awarded projects for which we had not yet have signed
customer contracts with estimated total future revenues of an additional $1.1 billion. As of December 31, 2011, we had fully-
contracted backlog of approximately $478 million; and we also had been awarded projects for which we had not yet signed
customer contracts with estimated total future revenues of an additional $741 million.
Our customers have the right under some circumstances to terminate contracts or defer the timing of our services and their
payments to us. In addition, our government contracts are subject to the risks described below under “Provisions in government
contracts may harm our business, financial condition and operating results.” The payment estimates for projects that have been
awarded to us but for which we have not yet signed contracts have been prepared by management and are based upon a number
of assumptions, including that the size and scope of the awarded projects will not change prior to the signing of customer
contracts, that we or our customers will be able to obtain any necessary third-party financing for the awarded projects, and that
we and our customers will reach agreement on and execute contracts for the awarded projects. We are not always able to enter
into a contract for an awarded project on the terms proposed. As a result, we may not receive all of the revenues that we include
in the awarded projects component of our backlog or that we estimate we will receive under awarded projects. If we do not
receive all of the revenue we currently expect to receive, our future operating results will be adversely affected. In addition, a
delay in the receipt of revenues, even if such revenues are eventually received, may cause our operating results for a particular
quarter to fall below our expectations.
Our business depends in part on federal, state, provincial and local government support for energy efficiency and renewable
energy, and a decline in such support could harm our business.
We depend in part on legislation and government policies that support energy efficiency and renewable energy projects that
enhance the economic feasibility of our energy efficiency services and small-scale renewable energy projects. This support
includes legislation and regulations that authorize and regulate the manner in which certain governmental entities do business
7
with us; encourage or subsidize governmental procurement of our services; encourage or in some cases require other customers
to procure power from renewable or low-emission sources, to reduce their electricity use or otherwise to procure our services;
and provide us with tax and other incentives that reduce our costs or increase our revenues. Without this support, on which
projects frequently rely for economic feasibility, our ability to complete projects for existing customers and obtain project
commitments from new customers could be adversely affected.
A significant decline in the fiscal health of federal, state, provincial and local governments could reduce demand for our
energy efficiency and renewable energy projects.
Historically, including for the years ended December 31, 2013, 2012 and 2011, more than 80% of our revenues have been
derived from sales to federal, state, provincial or local governmental entities, including public housing authorities and public
universities. We expect revenues from this market sector to continue to comprise a significant percentage of our revenues for
the forseeable future. A significant decline in the fiscal health of these existing and potential customers may make it difficult for
them to enter into contracts for our services or to obtain financing necessary to fund such contracts, or may cause them to seek
to renegotiate or terminate existing agreements with us.
Provisions in our government contracts may harm our business, financial condition and operating results.
A significant majority of our fully-contracted backlog and awarded projects is attributable to customers that are
government entities. Our contracts with the federal government and its agencies, and with state, provincial and local
governments, customarily contain provisions that give the government substantial rights and remedies, many of which are not
typically found in commercial contracts, including provisions that allow the government to:
•
•
•
•
•
terminate existing contracts, in whole or in part, for any reason or no reason;
reduce or modify contracts or subcontracts;
decline to award future contracts if actual or apparent organizational conflicts of interest are discovered, or to impose
organizational conflict mitigation measures as a condition of eligibility for an award;
suspend or debar the contractor from doing business with the government or a specific government agency; and
pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions
unique to government contracting.
Under general principles of government contracting law, if the government terminates a contract for convenience, the
terminated company may recover only its incurred or committed costs, settlement expenses and profit on work completed prior
to the termination. If the government terminates a contract for default, the defaulting company is entitled to recover costs
incurred and associated profits on accepted items only and may be liable for excess costs incurred by the government in
procuring undelivered items from another source. In most of our contracts with the federal government, the government has
agreed to make a payment to us in the event that it terminates the agreement early. The termination payment is designed to
compensate us for the cost of construction plus financing costs and profit on the work completed.
In ESPCs for governmental entities, the methodologies for computing energy savings may be less favorable than for non-
governmental customers and may be modified during the contract period. We may be liable for price reductions if the projected
savings cannot be substantiated.
In addition to the right of the federal government to terminate its contracts with us, federal government contracts are
conditioned upon the continuing approval by Congress of the necessary spending to honor such contracts. Congress often
appropriates funds for a program on a September 30 fiscal-year basis even though contract performance may take more than
one year. Consequently, at the beginning of many major governmental programs, contracts often may not be fully funded, and
additional monies are then committed to the contract only if, as and when appropriations are made by Congress for future fiscal
years. Similar practices are likely to also affect the availability of funding for our contracts with Canadian, as well as state,
provincial and local, government entities. If one or more of our government contracts were terminated or reduced, or if
appropriations for the funding of one or more of our contracts is delayed or terminated, our business, financial condition and
operating results could be adversely affected.
8
Our credit facilities and debt instruments contain financial and operating restrictions that may limit our business activities
and our access to credit.
Provisions in our credit facilities and debt instruments impose customary restrictions on our and certain of our subsidiaries’
business activities and uses of cash and other collateral. These agreements also contain other customary covenants, including
covenants that require us to meet specified financial ratios and financial tests.
We have a $60 million revolving senior secured credit facility that matures in June 2016. This facility may not be
sufficient to meet our needs as our business grows, and we may be unable to expand it if necessary on acceptable terms, or at
all. Availability under the revolving credit facility has been based on 2.0 times our EBITDA for the preceding four quarters and
we are required to maintain a minimum EBITDA. EBITDA for purposes of the facility excludes the results of renewable energy
projects that we own and for which financing from others remains outstanding. In light of our recent 2013 results, we recently
amended the facility to waive the minimum EBITDA requirement for 2013 and to modify that minimum amount as well as
financial ratios related to EBITDA during 2014 to accommodate the lagged effect of 2013 results on those requirements.
Principally, the amendment:
•
•
reduces the required minimum EBITDA amount to $16.5 million for the four consecutive fiscal quarters ended March
31, 2014, $22.0 million for the four consecutive fiscal quarters ended June 30, 2014, $24.0 million for the four
consecutive fiscal quarters ended September 30, 2014, and $27.0 million for the four consecutive fiscal quarters ended
December 31, 2014 and thereafter; and
increases the maximum ratio of total funded debt to EBITDA as of the end of each fiscal quarter to 2.5 to 1.0 for
March 31, 2014 and 2.25 to 1.0 for June 30, 2014, returning to 2.0 to 1.0 for September 30, 2014 and thereafter.
Although we do not consider it likely that we will fail to comply with these covenants for the next twelve months, we
cannot assure that we will be able to do so. Our failure to comply with these covenants may result in the declaration of an event
of default and cause us to be unable to borrow under our credit facilities and debt instruments. In addition to preventing
additional borrowings under these agreements, an event of default, if not cured or waived, may result in the acceleration of the
maturity of indebtedness outstanding under these agreements, which would require us to pay all amounts outstanding. If an
event of default occurs, we may not be able to cure it within any applicable cure period, if at all. If the maturity of our
indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow
or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all.
The projects we undertake for our customers generally require significant capital, which our customers or we may finance
through third parties, and such financing may not be available to our customers or to us on favorable terms, if at all.
Our projects for customers are typically financed by third parties. For small-scale renewable energy plants that we own, we
typically rely on a combination of our working capital and debt to finance construction costs. If we or our customers are unable
to raise funds on acceptable terms when needed, we may be unable to secure customer contracts, the size of contracts we do
obtain may be smaller or we could be required to delay the development and construction of projects, reduce the scope of those
projects or otherwise restrict our operations. Any inability by us or our customers to raise the funds necessary to finance our
projects could materially harm our business, financial condition and operating results.
Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse effect
on our operating results.
We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather
during the winter months, such as the northern United States and Canada, or at educational institutions, where large projects are
typically carried out during summer months when their facilities are unoccupied. In addition, government customers, many of
which have fiscal years that do not coincide with ours, typically follow annual procurement cycles and appropriate funds on a
fiscal-year basis even though contract performance may take more than one year. Further, government contracting cycles can be
affected by the timing of, and delays in, the legislative process related to government programs and incentives that help drive
demand for energy efficiency and renewable energy projects. As a result, our revenues and operating income in the third quarter
are typically higher, and our revenues and operating income in the first quarter are typically lower, than in other quarters of the
year. As a result of such fluctuations, we may occasionally experience declines in revenue or earnings as compared to the
immediately preceding quarter, and comparisons of our operating results on a period-to-period basis may not be meaningful.
9
We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase
our income tax expense and reduce our net income.
Our provision for income taxes is subject to volatility and could be adversely affected by changes in tax laws or
regulations, particularly changes in tax incentives in support of energy efficiency. For example, certain deductions relating to
energy efficiency expired at the end of the year in 2013; and certain investment credits relating to energy efficiency are
scheduled to expire at the end of the year in 2016. Further, there are increasing calls for “comprehensive tax reform,” which
could significantly alter the existing tax code, including the removal of these credits prior to their scheduled expiration. If these
deductions are not reinstated, or these credits expire without being extended, or otherwise are eliminated, our effective tax rate
would increase, which could increase our income tax expense and reduce our net income.
In addition, like other companies, we may be subject to examination of our income tax returns by the U.S. Internal
Revenue Service and other tax authorities; our U.S. federal tax returns for 2009 through 2011 are currently under audit. Though
we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income
taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an
adverse effect on our net income.
Changes in the laws and regulations governing the public procurement of ESPCs could have a material impact on our
business.
We derive a significant amount of our revenue from ESPCs with our government customers. While federal, state and local
government rules governing such contracts vary, such rules may, for example, permit the funding of such projects through long-
term financing arrangements; permit long-term payback periods from the savings realized through such contracts; allow units of
government to exclude debt related to such projects from the calculation of their statutory debt limitation; allow for award of
contracts on a “best value” instead of “lowest cost” basis; and allow for the use of sole source providers. To the extent these
rules become more restrictive in the future, our business could be harmed.
Failure of third parties to manufacture quality products or provide reliable services in a timely manner could cause delays
in the delivery of our services and completion of our projects, which could damage our reputation, have a negative impact
on our relationships with our customers and adversely affect our growth.
Our success depends on our ability to provide services and complete projects in a timely manner, which in part depends on
the ability of third parties to provide us with timely and reliable products and services. In providing our services and completing
our projects, we rely on products that meet our design specifications and components manufactured and supplied by third
parties, as well as on services performed by subcontractors.We also rely on subcontractors to perform substantially all of the
construction and installation work related to our projects; and we often need to engage subcontractors with whom we have no
experience for our projects.
If any of our subcontractors are unable to provide services that meet or exceed our customers’ expectations or satisfy our
contractual commitments, our reputation, business and operating results could be harmed. In addition, if we are unable to avail
ourselves of warranty and other contractual protections with providers of products and services, we may incur liability to our
customers or additional costs related to the affected products and components, which could have a material adverse effect on
our business, financial condition and operating results. Moreover, any delays, malfunctions, inefficiencies or interruptions in
these products or services could adversely affect the quality and performance of our solutions and require considerable expense
to establish alternate sources for such products and services. This could cause us to experience difficulty retaining current
customers and attracting new customers, and could harm our brand, reputation and growth.
We may have liability to our customers under our ESPCs if our projects fail to deliver the energy use reductions to which we
are committed under the contract.
For our energy efficiency projects, we typically enter into ESPCs under which we commit that the projects will satisfy
agreed-upon performance standards appropriate to the project. These commitments are typically structured as guarantees of
increased energy efficiency that are based on the design, capacity, efficiency or operation of the specific equipment and systems
we install. Our commitments generally fall into three categories: pre-agreed, equipment-level and whole building-level. Under
a pre-agreed efficiency commitment, our customer reviews the project design in advance and agrees that, upon or shortly after
completion of installation of the specified equipment comprising the project, the pre-agreed increase in energy efficiency will
have been met. Under an equipment-level commitment, we commit to a level of increased energy efficiency based on the
difference in use measured first with the existing equipment and then with the replacement equipment upon completion of
10
installation. A whole building-level commitment requires measurement and verification of increased energy efficiency for a
whole building, often based on readings of the utility meter where usage is measured. Depending on the project, the
measurement and verification may be required only once, upon installation, based on an analysis of one or more sample
installations, or may be required to be repeated at agreed upon intervals generally over periods of up to 20 years.
Under our contracts, we typically do not take responsibility for a wide variety of factors outside our control and exclude or
adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather,
facility occupancy schedules, the amount of energy-using equipment in a facility, and failure of the customer to operate or
maintain the project properly. We rely in part on warranties from our equipment suppliers and subcontractors to back-stop the
warranties we provide to our customers and, where appropriate, pass on the warranties to our customers. However, the
warranties we provide to our customers are sometimes broader in scope or longer in duration than the corresponding warranties
we receive from our suppliers and subcontractors, and we bear the risk for any differences, as well as the risk of warranty
default by our suppliers and subcontractors.
Typically, our performance commitments apply to the aggregate overall performance of a project rather than to individual
energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be offset by other measures
that overperform during the same period. In the event that an energy efficiency project does not perform according to the
agreed-upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or modifying the installed
equipment, installing additional measures to provide substitute energy savings, or paying the customer for lost energy savings
based on the assumed conditions specified in the agreement. However, we may incur additional or increased liabilities or
expenses under our ESPCs in the future. Such liabilities or expenses could be substantial, and they could materially harm our
business, financial condition or operating results. In addition, any disputes with a customer over the extent to which we bear
responsibility to improve performance or make payments to the customer may diminish our prospects for future business from
that customer or damage our reputation in the marketplace.
We may assume responsibility under customer contracts for factors outside our control, including, in connection with some
customer projects, the risk that fuel prices will increase.
We typically do not take responsibility under our contracts for a wide variety of factors outside our control. We have,
however, in a limited number of contracts assumed some level of risk and responsibility for certain factors — sometimes only
to the extent that variations exceed specified thresholds — and may also do so under certain contracts in the future, particularly
in our contracts for renewable energy projects. For example, under a contract for the construction and operation of a
cogeneration facility at the U.S. Department of Energy Savannah River Site in South Carolina, a subsidiary of ours is exposed
to the risk that the price of the biomass that will be used to fuel the cogeneration facility may rise during the 19-year
performance period of the contract. Several provisions in that contract mitigate the price risk. In addition, although we typically
structure our contracts so that our obligation to supply a customer with LFG, electricity or steam, for example, does not exceed
the quantity produced by the production facility, in some circumstances we may commit to supply a customer with specified
minimum quantities based on our projections of the facility’s production capacity. In such circumstances, if we are unable to
meet such commitments, we may be required to incur additional costs or face penalties. Despite the steps we have taken to
mitigate risks under these and other contracts, such steps may not be sufficient to avoid the need to incur increased costs to
satisfy our commitments, and such costs could be material. Increased costs that we are unable to pass through to our customers
could have a material adverse effect on our operating results.
Our business depends on experienced and skilled personnel and substantial specialty subcontractor resources, and if we lose
key personnel or if we are unable to attract and integrate additional skilled personnel, it will be more difficult for us to
manage our business and complete projects.
The success of our business and construction projects depend in large part on the skill of our personnel and on trade labor
resources, including with certain specialty subcontractor skills. Competition for personnel, particularly those with expertise in
the energy services and renewable energy industries, is high. In the event we are unable to attract, hire and retain the requisite
personnel and subcontractors, we may experience delays in completing projects in accordance with project schedules and
budgets. Further, any increase in demand for personnel and specialty subcontractors may result in higher costs, causing us to
exceed the budget on a project. Either of these circumstances may have an adverse effect on our business, financial condition
and operating results, harm our reputation among and relationships with our customers and cause us to curtail our pursuit of
new projects.
11
Our future success is particularly dependent on the vision, skills, experience and effort of our senior management team,
including our executive officers and our founder, principal stockholder, president and chief executive officer, George P.
Sakellaris. If we were to lose the services of any of our executive officers or key employees, our ability to effectively manage
our operations and implement our strategy could be harmed and our business may suffer.
If we cannot obtain surety bonds and letters of credit, our ability to operate may be restricted.
Federal and state laws require us to secure the performance of certain long-term obligations through surety bonds and
letters of credit. In addition, we are occasionally required to provide bid bonds or performance bonds to secure our
performance under energy efficiency contracts. In the future, we may have difficulty procuring or maintaining surety bonds or
letters of credit, and obtaining them may become more expensive, require us to post cash collateral or otherwise involve
unfavorable terms. Because we are sometimes required to have performance bonds or letters of credit in place before projects
can commence or continue, our failure to obtain or maintain those bonds and letters of credit would adversely affect our ability
to begin and complete projects, and thus could have a material adverse effect on our business, financial condition and operating
results.
We operate in a highly competitive industry, and our current or future competitors may be able to compete more effectively
than we do, which could have a material adverse effect on our business, revenues, growth rates and market share.
Our industry is highly competitive, with many companies of varying size and business models, many of which have their
own proprietary technologies, competing for the same business as we do. Many of our competitors have longer operating
histories and greater resources than us, and could focus their substantial financial resources to develop a competitive advantage.
Our competitors may also offer energy solutions at prices below cost, devote significant sales forces to competing with us or
attempt to recruit our key personnel by increasing compensation, any of which could improve their competitive positions. Any
of these competitive factors could make it more difficult for us to attract and retain customers, cause us to lower our prices in
order to compete, and reduce our market share and revenues, any of which could have a material adverse effect on our financial
condition and operating results. We can provide no assurance that we will continue to effectively compete against our current
competitors or additional companies that may enter our markets.
In addition, we may also face competition based on technological developments that reduce demand for electricity, increase
power supplies through existing infrastructure or that otherwise compete with our products and services. We also encounter
competition in the form of potential customers electing to develop solutions or perform services internally rather than engaging
an outside provider such as us.
We may be unable to complete or operate our projects on a profitable basis or as we have committed to our customers.
Development, installation and construction of our energy efficiency and renewable energy projects, and operation of our
renewable energy projects, entails many risks, including:
•
•
•
•
•
•
•
•
failure to receive critical components and equipment that meet our design specifications and can be delivered on
schedule;
failure to obtain all necessary rights to land access and use;
failure to receive quality and timely performance of third-party services;
increases in the cost of labor, equipment and commodities needed to construct or operate projects;
permitting and other regulatory issues, license revocation and changes in legal requirements;
shortages of equipment or skilled labor;
unforeseen engineering problems;
failure of a customer to accept or pay for renewable energy that we supply;
• weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism; and
accidents involving personal injury or the loss of life;
•
labor disputes and work stoppages;
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• mishandling of hazardous substances and waste; and
•
other events outside of our control.
Any of these factors could give rise to construction delays and construction and other costs in excess of our expectations.
This could prevent us from completing construction of our projects, cause defaults under our financing agreements or under
contracts that require completion of project construction by a certain time, cause projects to be unprofitable for us, or otherwise
impair our business, financial condition and operating results.
Our small-scale renewable energy plants may not generate expected levels of output.
The small-scale renewable energy plants that we construct and own are subject to various operating risks that may cause
them to generate less than expected amounts of processed LFG, electricity or thermal energy. These risks include a failure or
degradation of our, our customers’ or utilities’ equipment; an inability to find suitable replacement equipment or parts; less than
expected supply of the plant’s source of renewable energy, such as LFG or biomass; or a faster than expected diminishment of
such supply. Any extended interruption in the plant’s operation, or failure of the plant for any reason to generate the expected
amount of output, could have a material adverse effect on our business and operating results. In addition, we have in the past,
and could in the future, incur material asset impairment charges if any of our renewable energy plants incurs operational issues
that indicate that our expected future cash flows from the plant are less than its carrying value. Any such impairment charge
could have a material adverse effect on our operating results in the period in which the charge is recorded.
We plan to expand our business in part through future acquisitions, but we may not be able to identify or complete suitable
acquisitions.
Historically, acquisitions have been a significant part of our growth strategy. We plan to continue to use acquisitions of
companies or assets to expand our project skill-sets and capabilities, expand our geographic markets, add experienced
management and increase our product and service offerings. However, we may be unable to implement this growth strategy if
we cannot identify suitable acquisition candidates, reach agreement with acquisition targets on acceptable terms or arrange
required financing for acquisitions on acceptable terms. In addition, the time and effort involved in attempting to identify
acquisition candidates and consummate acquisitions may divert members of our management from the operations of our
company.
Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our
business, financial condition or operating results.
If we are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including:
•
the purchase price we pay could significantly deplete our cash reserves or result in dilution to our existing
stockholders;
• we may find that the acquired company or assets do not improve our customer offerings or market position as planned;
• we may have difficulty integrating the operations and personnel of the acquired company;
•
key personnel and customers of the acquired company may terminate their relationships with the acquired company as
a result of the acquisition;
• we may experience additional financial and accounting challenges and complexities in areas such as tax planning and
financial reporting;
• we may incur additional costs and expenses related to complying with additional laws, rules or regulations in new
jurisdictions;
• we may assume or be held liable for risks and liabilities (including for environmental-related costs) as a result of our
acquisitions, some of which we may not discover during our due diligence or adequately adjust for in our acquisition
arrangements;
•
our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and
the complexity of managing geographically or culturally diverse enterprises;
• we may incur one-time write-offs or restructuring charges in connection with the acquisition;
13
• we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could
result in future charges to earnings; and
• we may not be able to realize the cost savings or other financial benefits we anticipated.
These factors could have a material adverse effect on our business, financial condition and operating results.
We need governmental approvals and permits, and we typically must meet specified qualifications, in order to undertake our
energy efficiency projects and construct, own and operate our small-scale renewable energy projects, and any failure to do
so would harm our business.
The design, construction and operation of our energy efficiency and small-scale renewable energy projects require various
governmental approvals and permits, and may be subject to the imposition of related conditions that vary by jurisdiction. In
some cases, these approvals and permits require periodic renewal. We cannot predict whether all permits required for a given
project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit essential
to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot
predict whether the permits will attract significant opposition or whether the permitting process will be lengthened due to
complexities and appeals. Delay in the review and permitting process for a project can impair or delay our ability to develop
that project or increase the cost so substantially that the project is no longer attractive to us. We have experienced delays in
developing our projects due to delays in obtaining permits and may experience delays in the future. If we were to commence
construction in anticipation of obtaining the final, non-appealable permits needed for that project, we would be subject to the
risk of being unable to complete the project if all the permits were not obtained. If this were to occur, we would likely lose a
significant portion of our investment in the project and could incur a loss as a result. Further, the continued operations of our
projects require continuous compliance with permit conditions. This compliance may require capital improvements or result in
reduced operations. Any failure to procure, maintain and comply with necessary permits would adversely affect ongoing
development, construction and continuing operation of our projects.
In addition, the projects we perform for governmental agencies are governed by particular qualification and contracting
regimes. Certain states require qualification with an appropriate state agency as a precondition to performing work or appearing
as a qualified energy service provider for state, county and local agencies within the state. For example, the Commonwealth of
Massachusetts and the states of Colorado and Washington pre-qualify energy service providers and provide contract documents
that serve as the starting point for negotiations with potential governmental clients. Most of the work that we perform for the
federal government is performed under IDIQ agreements between a government agency and us or a subsidiary. These IDIQ
agreements allow us to contract with the relevant agencies to implement energy projects, but no work may be performed unless
we and the agency agree on a task order or delivery order governing the provision of a specific project. The government
agencies enter into contracts for specific projects on a competitive basis. We and our subsidiaries and affiliates are currently
party to an IDIQ agreement with the U.S. Department of Energy that expires in 2019. If we are unable to maintain or renew our
IDIQ qualification under the U.S. Department of Energy program for ESPCs, or similar federal or state qualification regimes,
our business could be materially harmed.
Many of our small-scale renewable energy projects are, and other future projects may be, subject to or affected by U.S.
federal energy regulation or other regulations that govern the operation, ownership and sale of the facility, or the sale of
electricity from the facility.
PUHCA and the FPA regulate public utility holding companies and their subsidiaries and place constraints on the conduct
of their business. The FPA regulates wholesale sales of electricity and the transmission of electricity in interstate commerce by
public utilities. Under PURPA, all of our current small-scale renewable energy projects are small power “qualifying
facilities” (facilities meeting statutory size, fuel and ownership requirements) that are exempt from regulations under PUHCA,
most provisions of the FPA and state rate regulation. None of our renewable energy projects are currently subject to rate
regulation for wholesale power sales by the Federal Energy Regulatory Commission (“FERC”) under the FPA, but certain of
our projects that are under construction or development could become subject to such regulation in the future. Also, we may
acquire interests in or develop generating projects that are not qualifying facilities. Non-qualifying facility projects would be
fully subject to FERC corporate and rate regulation, and would be required to obtain FERC acceptance of their rate schedules
for wholesale sales of energy, capacity and ancillary services, which requires substantial disclosures to and discretionary
approvals from FERC. FERC may revoke or revise an entity’s authorization to make wholesale sales at negotiated, or market-
based, rates if FERC determines that we can exercise market power in transmission or generation, create barriers to entry or
engage in abusive affiliate transactions or market manipulation. In addition, many public utilities (including any non-qualifying
14
facility generator in which we may invest) are subject to FERC reporting requirements that impose administrative burdens and
that, if violated, can expose the company to civil penalties or other risks.
All of our wholesale electric power sales are subject to certain market behavior rules. These rules change from time to
time, by virtue of FERC rulemaking proceedings and FERC-ordered amendments to utilities’ FERC tariffs. If we are deemed to
have violated these rules, we will be subject to potential disgorgement of profits associated with the violation and/or suspension
or revocation of our market-based rate authority, as well as potential criminal and civil penalties. If we were to lose market-
based rate authority for any non-qualifying facility project we may acquire or develop in the future, we would be required to
obtain FERC’s acceptance of a cost-based rate schedule and could become subject to, among other things, the burdensome
accounting, record keeping and reporting requirements that are imposed on public utilities with cost-based rate schedules. This
could have an adverse effect on the rates we charge for power from our projects and our cost of regulatory compliance.
Wholesale electric power sales are subject to increasing regulation. The terms and conditions for power sales, and the right
to enter and remain in the wholesale electric sector, are subject to FERC oversight. Due to major regulatory restructuring
initiatives at the federal and state levels, the U.S. electric industry has undergone substantial changes over the past decade. We
cannot predict the future design of wholesale power markets or the ultimate effect ongoing regulatory changes will have on our
business. Other proposals to further regulate the sector may be made and legislative or other attention to the electric power
market restructuring process may delay or reverse the movement towards competitive markets.
If we become subject to additional regulation under PUHCA, FPA or other regulatory frameworks, if existing regulatory
requirements become more onerous, or if other material changes to the regulation of the electric power markets take place, our
business, financial condition and operating results could be adversely affected.
Compliance with environmental laws could adversely affect our operating results.
Costs of compliance with federal, state, provincial, local and other foreign existing and future environmental regulations
could adversely affect our cash flow and profitability. We are required to comply with numerous environmental laws and
regulations and to obtain numerous governmental permits in connection with energy efficiency and renewable energy projects,
and we may incur significant additional costs to comply with these requirements. If we fail to comply with these requirements,
we could be subject to civil or criminal liability, damages and fines. Existing environmental regulations could be revised or
reinterpreted and new laws and regulations could be adopted or become applicable to us or our projects, and future changes in
environmental laws and regulations could occur. These factors may materially increase the amount we must invest to bring our
projects into compliance and impose additional expense on our operations.
In addition, private lawsuits or enforcement actions by federal, state, provincial and/or foreign regulatory agencies may
materially increase our costs. Certain environmental laws make us potentially liable on a joint and several basis for the
remediation of contamination at or emanating from properties or facilities we currently or formerly owned or operated or
properties to which we arranged for the disposal of hazardous substances. Such liability is not limited to the cleanup of
contamination we actually caused. Although we seek to obtain indemnities against liabilities relating to historical contamination
at the facilities we own or operate, we cannot provide any assurance that we will not incur liability relating to the remediation
of contamination, including contamination we did not cause.
We may not be able to obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in
obtaining any required environmental regulatory approvals or failure to obtain and comply with them could adversely affect our
business and operating results.
International expansion is one of our growth strategies, and international operations will expose us to additional risks that
we do not face in the United States, which could have an adverse effect on our operating results.
We generate a significant portion of our revenues from operations in Canada, and although we are engaged in overseas
projects for the U.S. Department of Defense, we currently derive a small amount of revenues from outside of North America.
However, international expansion is one of our growth strategies, and we expect our revenues and operations outside of North
America will expand in the future. These operations will be subject to a variety of risks that we do not face in the United States,
and that we may face only to a limited degree in Canada, including:
•
building and managing highly experienced foreign workforces and overseeing and ensuring the performance of foreign
subcontractors;
•
increased travel, infrastructure and legal and compliance costs associated with multiple international locations;
15
•
•
•
•
•
•
•
additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or
investment;
imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from
those in the United States;
increased exposure to foreign currency exchange rate risk;
longer payment cycles for sales in some foreign countries and potential difficulties in enforcing contracts and
collecting accounts receivable;
difficulties in repatriating overseas earnings;
general economic conditions in the countries in which we operate; and
political unrest, war, incidents of terrorism, or responses to such events.
Our overall success in international markets will depend, in part, on our ability to succeed in differing legal, regulatory,
economic, social and political conditions. We may not be successful in developing and implementing policies and strategies that
will be effective in managing these risks in each country where we do business. Our failure to manage these risks successfully
could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our
business, financial condition and operating results.
We have identified a material weakness in our internal control over financial reporting. If we fail to remediate this material
weakness and maintain proper and effective internal controls, our ability to produce accurate and timely financial
statements could be impaired, which could adversely affect our operating results, our ability to operate our business and
investors’ and customers’ views of us.
In connection with our fiscal 2013 audit, we concluded that we did not have adequate processes to ensure timely
preparation and reviews necessary to provide reasonable assurance that financial statements and related disclosures could be
prepared in accordance with generally accepted accounting principles and recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms.
For a discussion of the material weakness and our remediation efforts during 2013 as well as ongoing remediation efforts,
see Item 9A, Controls and Procedures, of this Annual Report on Form 10-K.
We cannot assure you that our efforts to fully remediate this internal control weakness will be successful or that a similar
material weakness will not recur.
If we fail to maintain our internal control over financial reporting, we may be unable to report our financial results timely
and accurately, and we may be less likely to prevent fraud. In addition, such failure could increase our operating costs,
materially impair our ability to operate our business, result in SEC investigations and penalties and lead to the delisting of our
common stock from the New York Stock Exchange (“NYSE”). The resulting damage to our reputation in the marketplace and
our financial credibility could significantly impair our sales and marketing efforts with customers. Further, investors’
perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements could
adversely affect the market price of our Class A common stock.
Changes in utility regulation and tariffs could adversely affect our business.
Our business is affected by regulations and tariffs that govern the activities and rates of utilities. For example, utility
companies are commonly allowed by regulatory authorities to charge fees to some business customers for disconnecting from
the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase
the cost to our customers of taking advantage of our services and make them less desirable, thereby harming our business,
financial condition and operating results. Our current generating projects are all operated as qualifying facilities. FERC
regulations under the FPA confer upon these facilities key rights to interconnection with local utilities, and can entitle
qualifying facilities to enter into power purchase agreements with local utilities, from which the qualifying facilities benefit.
Changes to these federal laws and regulations could increase our regulatory burdens and costs, and could reduce our revenues.
State regulatory agencies could award renewable energy certificates or credits that our electric generation facilities produce to
our power purchasers, thereby reducing the power sales revenues we otherwise would earn. In addition, modifications to the
pricing policies of utilities could require renewable energy systems to charge lower prices in order to compete with the price of
electricity from the electric grid and may reduce the economic attractiveness of certain energy efficiency measures.
16
Some of the demand-reduction services we provide for utilities and institutional clients are subject to regulatory tariffs
imposed under federal and state utility laws. In addition, the operation of, and electrical interconnection for, our renewable
energy projects are subject to federal, state or provincial interconnection and federal reliability standards that are also set forth
in utility tariffs. These tariffs specify rules, business practices and economic terms to which we are subject. The tariffs are
drafted by the utilities and approved by the utilities’ state and federal regulatory commissions. These tariffs change frequently
and it is possible that future changes will increase our administrative burden or adversely affect the terms and conditions under
which we render service to our customers.
Our activities and operations are subject to numerous health and safety laws and regulations, and if we violate such
regulations, we could face penalties and fines.
We are subject to numerous health and safety laws and regulations in each of the jurisdictions in which we operate. These
laws and regulations require us to obtain and maintain permits and approvals and implement health and safety programs and
procedures to control risks associated with our projects. Compliance with those laws and regulations can require us to incur
substantial costs. Moreover, if our compliance programs are not successful, we could be subject to penalties or to revocation of
our permits, which may require us to curtail or cease operations of the affected projects. Violations of laws, regulations and
permit requirements may also result in criminal sanctions or injunctions.
Health and safety laws, regulations and permit requirements may change or become more stringent. Any such changes
could require us to incur materially higher costs than we currently have. Our costs of complying with current and future health
and safety laws, regulations and permit requirements, and any liabilities, fines or other sanctions resulting from violations of
them, could adversely affect our business, financial condition and operating results.
If our subsidiaries default on their obligations under their debt instruments, we may need to make payments to lenders to
prevent foreclosure on the collateral securing the debt.
We typically set up subsidiaries to own and finance our renewable energy projects. These subsidiaries incur various types
of debt which can be used to finance one or more projects. This debt is typically structured as non-recourse debt, which means
it is repayable solely from the revenues from the projects financed by the debt and is secured by such projects’ physical assets,
major contracts and cash accounts and a pledge of our equity interests in the subsidiaries involved in the projects. Although our
subsidiary debt is typically non-recourse to Ameresco, if a subsidiary of ours defaults on such obligations, or if one project out
of several financed by a particular subsidiary’s indebtedness encounters difficulties or is terminated, then we may from time to
time determine to provide financial support to the subsidiary in order to maintain rights to the project or otherwise avoid the
adverse consequences of a default. In the event a subsidiary defaults on its indebtedness, its creditors may foreclose on the
collateral securing the indebtedness, which may result in our losing our ownership interest in some or all of the subsidiary’s
assets. The loss of our ownership interest in a subsidiary or some or all of a subsidiary’s assets could have a material adverse
effect on our business, financial condition and operating results.
We are exposed to the credit risk of some of our customers.
Most of our revenues are derived under multi-year or long-term contracts with our customers, and our revenues are
therefore dependent to a large extent on the creditworthiness of our customers. During periods of economic downturn, our
exposure to credit risks from our customers increases, and our efforts to monitor and mitigate the associated risks may not be
effective in reducing our credit risks. In the event of non-payment by one or more of our customers, our business, financial
condition and operating results could be adversely affected.
Fluctuations in foreign currency exchange rates can impact our results.
A significant portion of our total revenues are generated by our Canadian subsidiary, Ameresco Canada. Changes in
exchange rates between the Canadian dollar and the U.S. dollar may adversely affect our operating results.
We may be liable for duties on certain solar products imported from the People’s Republic of China (“PRC”).
On October 10, 2012, the U.S. Department of Commerce, or Commerce, announced its final determination to impose anti-
dumping and countervailing duties of 249.96%, as applied to us, and 15.24%, respectively, on the value of imports of solar cells
manufactured in the PRC, including solar modules containing such cells. Under Commerce’s determination, the anti-dumping
and countervailing duties both were to apply retroactively 90 days from the respective date each first was published to February
25, 2012 and December 21, 2011, respectively. We estimate that we have received shipments of solar modules subject to these
duties with an aggregate value of approximately $3.4 million, comprising approximately $2.2 million relating to shipments
17
received during the 90-day anti-dumping retroactive period and $1.2 million relating to shipments received since May 25, 2012.
On November 7, 2012, the International Trade Commission announced its final determination upholding the duties, but
eliminating the retroactive periods. There remain procedural avenues for seeking a separate and reduced anti-dumping duty rate,
several of which have been granted at a rate of approximately 26%.
As of July 2012, we have ceased imports of solar modules containing PRC solar cells, and have arranged for production of
modules utilizing non-PRC cells, thus eliminating the imposition of these duties on further shipments. In addition, we are
monitoring and evaluating our alternatives for obtaining a separate and reduced anti-dumping duty rate for solar modules
previously imported, though we can provide no assurance that we will obtain such a reduced rate. Depending on whether the
maximum anti-dumping duty rate of 249.96% or some lower rate applies, we may be liable for combined duties of up to
approximately $3.3 million.
Risks Related to Ownership of Our Class A Common Stock
The trading price of our Class A common stock is volatile.
The trading price of our Class A common stock is volatile and could be subject to wide fluctuations. In addition, if the
stock market in general experiences a significant decline, the trading price of our Class A common stock could decline for
reasons unrelated to our business, financial condition or operating results. Some companies that have had volatile market prices
for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or
outcome, it would likely result in substantial costs and divert management’s attention and resources. This could have a material
adverse effect on our business, operating results and financial condition.
Holders of our Class A common stock are entitled to one vote per share, and holders of our Class B common stock are
entitled to five votes per share. The lower voting power of our Class A common stock may negatively affect the attractiveness
of our Class A common stock to investors and, as a result, its market value.
We have two classes of common stock: Class A common stock, which is listed on the NYSE and which is entitled to one
vote per share, and Class B common stock, which is not listed on the any security exchange and is entitled to five votes per
share. The difference in the voting power of our Class A and Class B common stock could diminish the market value of our
Class A common stock because of the superior voting rights of our Class B common stock and the power those rights confer.
For the foreseeable future, Mr. Sakellaris or his affiliates will be able to control the selection of all members of our board of
directors, as well as virtually every other matter that requires stockholder approval, which will severely limit the ability of
other stockholders to influence corporate matters.
Except in certain limited circumstances required by applicable law, holders of Class A and Class B common stock vote
together as a single class on all matters to be voted on by our stockholders. Mr. Sakellaris, our founder, principal stockholder,
president and chief executive officer, owns all of our Class B common stock, which, together with his Class A common stock,
represents approximately 79% of the combined voting power of our outstanding Class A and Class B common stock. Under our
restated certificate of incorporation, holders of shares of Class B common stock may generally transfer those shares to family
members, including spouses and descendants or the spouses of such descendants, as well as to affiliated entities, without having
the shares automatically convert into shares of Class A common stock. Therefore, Mr. Sakellaris, his affiliates, and his family
members and descendants will, for the foreseeable future, be able to control the outcome of the voting on virtually all matters
requiring stockholder approval, including the election of directors and significant corporate transactions such as an acquisition
of our company, even if they come to own, in the aggregate, as little as 20% of the economic interest of the outstanding shares
of our Class A and Class B common stock. Moreover, these persons may take actions in their own interests that you or our
other stockholders do not view as beneficial.
18
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Framingham, Massachusetts, where we occupy approximately 23,000 square feet
under a lease expiring on June 30, 2017. We occupy ten regional offices in Tempe, Arizona; Islandia, New York; Oak Brook,
Illinois; Columbia, Maryland; Charlotte, North Carolina; Knoxville, Tennessee; Tomball, Texas; Spokane, Washington; North
York, Ontario and Burlington, Ontario, each less than 25,000 square feet, under lease or sublease agreements. In addition, we
lease space, typically less space, for 60 field offices throughout North America. We also own 41 small-scale renewable energy
plants throughout North America, which are located on leased sites or sites provided by customers. We expect to add new
facilities and expand existing facilities as we continue to add employees and expand our business into new geographic areas.
Item 3. Legal Proceedings
In the ordinary conduct of our business we are subject to periodic lawsuits, investigations and claims. Although we cannot
predict with certainty the ultimate resolution of such lawsuits, investigations and claims against us, we do not believe that any
currently pending or threatened legal proceedings to which we are a party will have a material adverse effect on our business,
results of operations or financial condition.
For additional information about certain proceedings, please refer to Note 12, Commitments and Contingencies, to our
consolidated financial statements included in this report, which is incorporated into this item by reference.
Item 4. Mine Safety Disclosures
Not applicable.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Class A common stock trades on the New York Stock Exchange under the symbol “AMRC.” The following table sets
forth, for the fiscal quarters indicated, the high and low sale prices per share of our Class A common stock.
2013
2012
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9.98
9.65
10.19
10.76
$
6.70
7.04
8.31
8.46
$
14.73
13.95
13.03
12.12
12.55
10.51
10.63
8.29
The closing sale price of our Class A common stock was $9.99 on March 3, 2014, and according to the records of our
transfer agent, there were 18 shareholders of record of our Class A common stock on that date. A substantially greater number
of holders of our Class A common stock are “street name” or beneficial holders, whose shares are held of record by banks,
brokers, and other financial institutions.
Our Class B common stock is not publicly traded and is held of record by George P. Sakellaris, our founder, principal
stockholder, president and chief executive officer, and the Ameresco 2010 Annuity Trust, of which Mr. Sakellaris is trustee and
the sole beneficiary.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to
finance the growth and development of our business and do not expect to pay any cash dividends for the foreseeable future. Our
revolving senior secured credit facility contains provisions that limit our ability to declare and pay cash dividends during the
term of that agreement. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend
on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing
instruments, provisions of applicable law and other factors our board of directors deems relevant.
Stock Performance Graph
The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with
the SEC or subject to Regulations 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act,
except to the extent that Ameresco specifically requests that such information be treated as soliciting material or specifically
incorporates it by reference into a filing under the Securities Act or the Exchange Act.
The following graph compares the cumulative 41-month total return attained by shareholders on our Class A common stock
relative to the cumulative total returns of the Russell 2000 index and the NASDAQ Clean Edge Green Energy index. An
investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock on July 22,
2010, and in each of the indexes on June 30, 2010 and its relative performance is tracked through December 31, 2013.
20
COMPARISON OF 41 MONTH CUMULATIVE TOTAL RETURN*
Among Ameresco, Inc., the Russell 2000 Index
and the NASDAQ Clean Edge Green Energy Index
*$100 invested on July 22, 2010 in our Class A common stock or June 30, 2010 in respective index, including reinvestment of
dividends. Fiscal year ending December 31, 2013.
Ameresco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Clean Edge Green Energy Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7/22/2010
$100.00
12/31/2011
$134.91
12/31/2012
$96.46
12/31/2013
$94.99
$100.00
$123.98
$144.25
$200.24
$100.00
$79.56
$77.91
$145.27
Shareholder returns over the indicated period should not be considered indicative of future shareholder returns.
21
Item 6. Selected Financial Data
You should read the following selected consolidated financial data in conjunction with Item 7 “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes
appearing in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
We derived the consolidated statements of income data for the years ended December 31, 2013, 2012, and 2011 and the
consolidated balance sheet data at December 31, 2013 and 2012 from our audited consolidated financial statements appearing
in Item 8 of this Annual Report on Form 10-K. We derived the consolidated statements of income data for the years ended
December 31, 2010 and 2009, and the consolidated balance sheet data at December 31, 2011, 2010, and 2009, from our audited
consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not
necessarily indicative of the results to be expected in any future period.
Consolidated Statements of Income Data:
Revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Other expenses (income), net . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . .
Income tax provision. . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share attributable to common
shareholders:
Basic(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding:
Basic(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Operating Data:
Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . . .
2013
Year Ended December 31,
2010
2011
2012
(In thousands, except share and per share data)
2009
$
574,171
$
631,171
$
728,200
$
618,226
$
428,517
470,846
103,325
96,693
—
6,632
3,873
2,759
345
503,024
128,147
98,474
1,016
28,657
4,050
24,607
6,247
593,154
135,046
84,360
—
50,686
6,506
44,180
10,767
507,524
110,702
64,710
—
45,992
6,293
39,699
12,186
2,414
$
18,360
$
33,413
$
27,513
$
348,817
79,700
54,406
—
25,294
(1,563)
26,857
6,950
19,907
0.05
0.05
$
$
0.41
0.40
$
$
0.78
0.75
$
$
1.07
0.66
$
$
1.99
0.61
$
$
$
45,560,078
44,649,275
42,587,818
25,728,314
9,991,912
46,419,199
45,995,463
44,707,132
41,513,482
32,705,617
$
29,906
$
52,364
$
67,560
$
59,910
$
35,097
22
2013
2012
As of December 31,
2011
(In thousands)
2010
2009
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . .
Federal ESPC liabilities(4) . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . .
$
17,171
$
63,348
$
26,277
$
44,691
$
47,928
249,832
604,660
131,201
103,222
44,297
—
297,843
675,472
148,889
109,079
92,843
—
283,062
645,597
148,268
86,754
109,648
—
211,710
584,407
142,587
43,417
158,992
—
171,772
375,545
132,330
69,396
33,411
2,999
$
276,805
$
261,819
$
236,421
$
195,052
$
102,770
(1) “Revenues” for 2011 reflects approximately $8.9 million and $27.8 million attributable to our acquisitions in the third
quarter of 2011 of AEG and Ameresco Southwest, respectively.
(2) “Net income per share attributable to common shareholders - basic” and “weighted average number of common shares
outstanding - basic” for 2010 reflect (i) our issuance of 405,286 shares of Common Stock upon the June 2010 exercise
of a warrant at an exercise price of $0.005 per share, (ii) the reclassification of all outstanding shares of our Common
Stock as Class A common stock, (iii) the conversion of all shares of our Series A Preferred Stock, other than those held
by Mr. Sakellaris, into shares of our Class A common stock, (iv) the conversion of all other outstanding shares of our
Series A Preferred Stock into shares of our Class B common stock, (v) the issuance of 932,500 shares of our Class A
common stock upon the exercise of vested stock options by certain selling stockholders in connection with our initial
public offering in July 2010 at a weighted-average exercise price of $1.94, and (vi) the issuance of an aggregate of
6,342,889 shares of our Class A common stock in connection with our initial public offering in July 2010.
(3) We define adjusted EBITDA as operating income before depreciation, amortization of intangible assets, impairment of
goodwill and share-based compensation expense. Adjusted EBITDA is a non-GAAP financial measure and should not
be considered as an alternative to operating income or any other measure of financial performance calculated and
presented in accordance with GAAP. For additional information and a reconciliation to the most directly comparable
financial measure prepared in accordance with GAAP, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations Overview — Non-GAAP Financial Measures” in Item 7.
(4) Federal ESPC liabilities represent the advances received from third-party investors under agreements to finance certain
energy savings performance contract projects with various federal government agencies. Upon completion and
acceptance of the project by the government, typically within 24 months of construction commencement, the ESPC
receivable from the government and corresponding related ESPC liability is eliminated from our consolidated balance
sheet. Until recourse to us for the ESPC receivables transferred to the investor ceases upon final acceptance of the
work by the government customer, we remain the primary obligor for financing received.
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with
our consolidated financial statements and the related notes and other financial information included in Item 8 of this Annual
Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report,
including information with respect to our plans and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should review the “Risk Factors” included in Item 1A of this Annual Report
on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Ameresco is a leading provider of energy efficiency solutions for facilities throughout North America. We provide
solutions that enable customers to reduce their energy consumption, lower their operating and maintenance costs and realize
environmental benefits. Our comprehensive set of services includes upgrades to a facility’s energy infrastructure and the
construction and operation of small-scale renewable energy plants.
In addition to organic growth, strategic acquisitions of complementary businesses and assets have been an important part of
our historical development. Since inception, we have completed numerous acquisitions, which have enabled us to broaden our
service offerings and expand our geographical reach. Our acquisition of the energy services business of Duke Energy in 2002
expanded our geographical reach into Canada and the southeastern United States and enabled us to penetrate the federal
government market for energy efficiency projects. The acquisition of the energy services business of Exelon in 2004 expanded
our geographical reach into the Midwest. Our acquisition of the energy services business of Northeast Utilities in 2006
substantially grew our capability to provide services for the federal market and in Europe. Our acquisition of Southwestern
Photovoltaic in 2007 significantly expanded our offering of solar energy products and services. Our acquisition of energy
services company Quantum in 2010 expanded our geographical reach into the northwest U.S.
We made three acquisitions in 2011. Our acquisition of energy efficiency and demand side management consulting services
provider Applied Energy Group, Inc. (“AEG”), expanded our service offering to utility customers. Our acquisition of APS
Energy Services Company, Inc., which we renamed Ameresco Southwest, a company that provides a full range of integrated
energy efficiency and renewable energy solutions, strengthened our geographical position in the southwest U.S. Our acquisition
of the xChangePoint® and energy projects businesses from Energy and Power Solutions, Inc. (“EPS”), which we operate as
Ameresco Intelligent Systems (“AIS”), expanded our service offerings to private sector commercial and industrial customers.
AIS offers energy efficiency solutions to customers across North America encompassing the food and beverage, meat, dairy,
paper, aerospace, oil and gas and REIT industries.
Our acquisition of infrastructure asset management solutions provider FAME Facility Software Solutions Inc. (“FAME”) in
2012 expanded our asset planning consulting and software services offerings and our geographical position in western Canada.
Our acquisition of the business of Ennovate in the first quarter of 2013 increased our footprint and penetration in the Rocky
Mountain area. Our acquisition of energy management consultant ESP in the second quarter of 2013 added a local presence in
the United Kingdom, expertise and seasoned energy industry professionals to support multi-national customers of our enterprise
energy management service offerings.
Energy Savings Performance and Energy Supply Contracts
For our energy efficiency projects, we typically enter into ESPCs, under which we agree to develop, design, engineer and
construct a project and also commit that the project will satisfy agreed-upon performance standards that vary from project to
project. These performance commitments are typically based on the design, capacity, efficiency or operation of the specific
equipment and systems we install. Our commitments generally fall into three categories: pre-agreed, equipment-level and whole
building-level. Under a pre-agreed energy reduction commitment, our customer reviews the project design in advance and
agrees that, upon or shortly after completion of installation of the specified equipment comprising the project, the commitment
will have been met. Under an equipment-level commitment, we commit to a level of energy use reduction based on the
difference in use measured first with the existing equipment and then with the replacement equipment. A whole building-level
commitment requires demonstration of energy usage reduction for a whole building, often based on readings of the utility meter
where usage is measured. Depending on the project, the measurement and demonstration may be required only once, upon
installation, based on an analysis of one or more sample installations, or may be required to be repeated at agreed upon intervals
generally over up to 20 years.
24
Under our contracts, we typically do not take responsibility for a wide variety of factors outside our control and exclude or
adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather,
facility occupancy schedules, the amount of energy-using equipment in a facility, and the failure of the customer to operate or
maintain the project properly. Typically, our performance commitments apply to the aggregate overall performance of a project
rather than to individual energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be
offset by other measures that overperform during the same period. In the event that an energy efficiency project does not
perform according to the agreed-upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or
modifying the installed equipment, installing additional measures to provide substitute energy savings, or paying the customer
for lost energy savings based on the assumed conditions specified in the agreement. Many of our equipment supply, local
design, and installation subcontracts contain provisions that enable us to seek recourse against our vendors or subcontractors if
there is a deficiency in our energy reduction commitment. See “We may have liability to our customers under our ESPCs if our
projects fail to deliver the energy use reductions to which we are committed under the contract” in Item 1A, Risk Factors in this
Annual Report on Form 10-K.
Payments by the federal government for energy efficiency measures are based on the services provided and the products
installed, but are limited to the savings derived from such measures, calculated in accordance with federal regulatory guidelines
and the specific contract’s terms. The savings are typically determined by comparing energy use and other costs before and after
the installation of the energy efficiency measures, adjusted for changes that affect energy use and other costs but are not caused
by the energy efficiency measures.
For projects involving the construction of a small-scale renewable energy plant that we own and operate, we enter into
long-term contracts to supply the electricity, processed LFG, heat or cooling generated by the plant to the customer, which is
typically a utility, municipality, industrial facility or other large purchaser of energy. The rights to use the site for the plant and
purchase of renewable fuel for the plant are also obtained by us under long-term agreements with terms at least as long as the
associated output supply agreement. Our supply agreements typically provide for fixed prices or prices that escalate at a fixed
rate or vary based on a market benchmark. See “We may assume responsibility under customer contracts for factors outside our
control, including, in connection with some customer projects, the risk that fuel prices will increase” in Item 1A, Risk Factors
in this Annual Report on Form 10-K.
Project Financing
To finance projects with federal governmental agencies, we typically sell to third-party lenders our right to receive a
portion of the long-term payments from the customer arising out of the project for a purchase price reflecting a discount to the
aggregate amount due from the customer. The purchase price is generally advanced to us over the implementation period based
on completed work or a schedule predetermined to coincide with the construction of the project. Under the terms of these
financing arrangements, we are required to complete the construction or installation of the project in accordance with the
contract with our customer, and the liability remains on our consolidated balance sheet until the completed project is accepted
by the customer. Once the completed project is accepted by the customer, the financing is treated as a true sale and the related
receivable and financing liability are removed from our consolidated balance sheet.
Institutional customers, such as state, provincial and local governments, schools and public housing authorities, typically
finance their energy efficiency and renewable energy projects through either tax-exempt leases or issuances of municipal bonds.
We assist in the structuring of such third-party financing.
In some instances, customers prefer that we retain ownership of the renewable energy plants and related project assets that
we construct for them. In these projects, we typically enter into a long-term supply agreement to furnish electricity, gas, heat or
cooling to the customer’s facility. To finance the significant upfront capital costs required to develop and construct the plant, we
rely either on our internal cash flow or, in some cases, third-party debt. For project financing by third-party lenders, we
typically establish a separate subsidiary, usually a limited liability company, to own the project assets and related contracts. The
subsidiary contracts with us for construction and operation of the project and enters into a financing agreement directly with the
lenders. Additionally, we will provide assurance to the lender that the project will achieve commercial operation. Although the
financing is secured by the assets of the subsidiary and a pledge of our equity interests in the subsidiary, and is non-recourse to
Ameresco, Inc., we may from time to time determine to provide financial support to the subsidiary in order to maintain rights to
the project or otherwise avoid the adverse consequences of a default. The amount of such financing is included on our
consolidated balance sheet.
25
Effects of Seasonality
We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather
during the winter months, such as the northern United States and Canada, or at educational institutions, where large projects are
typically carried out during summer months when their facilities are unoccupied. In addition, government customers, many of
which have fiscal years that do not coincide with ours, typically follow annual procurement cycles and appropriate funds on a
fiscal-year basis even though contract performance may take more than one year. Further, government contracting cycles can be
affected by the timing of, and delays in, the legislative process related to government programs and incentives that help drive
demand for energy efficiency and renewable energy projects. As a result, our revenues and operating income in the third and
fourth quarter are typically higher, and our revenues and operating income in the first quarter are typically lower, than in other
quarters of the year. As a result of such fluctuations, we may occasionally experience declines in revenues or earnings as
compared to the immediately preceding quarter, and comparisons of our operating results on a period-to-period basis may not
be meaningful.
Our annual and quarterly financial results are also subject to significant fluctuations as a result of other factors, many of
which are outside our control. See “Our operating results may fluctuate significantly from quarter to quarter and may fall below
expectations in any particular fiscal quarter” in Item 1A, Risk Factors in this Annual Report on Form 10-K.
Backlog and Awarded Projects
Total construction backlog represents projects that are active within our ESPC sales cycle. Our sales cycle begins with the
initial contact with the customer and ends, when successful, with a signed contract, also referred to as fully-contracted backlog.
Our sales cycle recently has been averaging 18 to 40 months. Awarded backlog is created when a potential customer awards a
project to Ameresco following a request for proposal. Once a project is awarded but not yet contracted, we typically conduct a
detailed energy audit to determine the scope of the project as well as identify the savings that may be expected to be generated
from upgrading the customer’s energy infrastructure. At this point, we also determine the sub-contractor, what equipment will
be used, and assist in arranging for third party financing, as applicable. Recently, awarded projects have been taking 12 to 16
months to result in a signed contract and thus convert to fully-contracted backlog. It may take longer, however, depending upon
the size and complexity of the project. Historically, approximately 90% of our awarded projects ultimately have resulted in a
signed contract. After the customer and Ameresco agree to the terms of the contract and the contract for the project is executed,
the project moves to fully-contracted backlog. The contracts reflected in our fully-contracted backlog typically have a
construction period of 12 to 24 months and we typically expect to recognize revenue for such contracts over the same period.
Fully-contracted backlog begins converting into revenues generated from backlog on a percentage-of-completion basis once
construction has commenced. See “We may not recognize all revenues from our backlog or receive all payments anticipated
under awarded projects and customer contracts” and “In order to secure contracts for new projects, we typically face a long and
variable selling cycle that requires significant resource commitments and requires a long lead time before we realize revenues”
in Item 1A, Risk Factors in this Annual Report on Form 10-K.
As of December 31, 2013, we had backlog of approximately $361.9 million in expected future revenues under signed
customer contracts for the installation or construction of projects, which we sometimes refer to as fully-contracted backlog; and
we also had been awarded projects for which we do not yet have signed customer contracts with estimated total future revenues
of an additional $993.0 million. As of December 31, 2012, we had fully-contracted backlog of approximately $367.0 million in
future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded
projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $1.1 billion.
Financial Operations Overview
Revenues
We derive revenues from energy efficiency and renewable energy products and services. Our energy efficiency products
and services include the design, engineering and installation of equipment and other measures to improve the efficiency and
control the operation of a facility’s energy infrastructure. Our renewable energy products and services include the construction
of small-scale plants that produce electricity, gas, heat or cooling from renewable sources of energy, the sale of such electricity,
processed LFG, heat or cooling from plants that we own, which, for those plants that we own and operate, we refer to
collectively as small-scale infrastructure; and the sale and installation of photovoltaic solar energy products and systems
(“integrated-PV”).
26
Historically, including for the years ended December 31, 2013, 2012 and 2011, more than 80% of of our revenues have
been derived from federal, state, provincial or local government entities, including public housing authorities and public
universities.
Cost of Revenues and Gross Margin
Cost of revenues include the cost of labor, materials, equipment, subcontracting and outside engineering that are required
for the development and installation of our projects, as well as preconstruction costs, sales incentives, associated travel,
inventory obsolescence charges, amortization of intangible assets related to customer contracts, and, if applicable, costs of
procuring financing. A majority of our contracts have fixed price terms; however, in some cases we negotiate protections, such
as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.
Cost of revenues also include costs for the small-scale renewable energy plants that we own, including the cost of fuel (if
any) and depreciation charges.
As a result of certain acquisitions, we have intangible assets related to customer contracts; these are amortized over a
period of approximately one to five years from the respective date of acquisition. This amortization is recorded as a cost of
revenues in the consolidated statements of income. Amortization expense for the years ended December 31, 2013 and 2012
related to customer contracts was $1.6 million and $2.5 million, respectively.
Gross margin, which is gross profit as a percent of revenues, is affected by a number of factors, including the type of
services performed. Renewable energy projects that we own and operate typically have higher margins than energy efficiency
projects, and sales in the United States typically have higher margins than in Canada due to the typical mix of products and
services that we sell there.
In addition, gross margin frequently varies across the construction period of a project. Our expected gross margin on, and
expected revenues for, a project are based on budgeted costs. From time to time, a portion of the contingencies reflected in
budgeted costs are not incurred due to strong execution performance. In that case, and generally at project completion, we
recognize revenues for which there is no further corresponding cost of revenues. As a result, gross margin tends to be back-
loaded for projects with strong execution performance; this explains the gross margin improvement that occurs from time to
time at project closeout. We refer to this gross margin improvement at the time of project completion as a project closeout.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and benefits, project development costs, and general and
administrative expenses not directly related to the development or installation of projects.
Salaries and benefits. Salaries and benefits consist primarily of expenses for personnel not directly engaged in specific
project or revenue generating activity. These expenses include the time of executive management, legal, finance, accounting,
human resources, information technology and other staff not utilized in a particular project. We employ a comprehensive time
card system which creates a contemporaneous record of the actual time by employees on project activity.
Project development costs. Project development costs consist primarily of sales, engineering, legal, finance and third-party
expenses directly related to the development of a specific customer opportunity. This also includes associated travel and
marketing expenses.
General and administrative expenses. These expenses consist primarily of rents and occupancy, professional services,
insurance, unallocated travel expenses, telecommunications, office expenses and amortization of intangible assets not related to
customer contracts. Professional services consist principally of recruiting costs, external legal, audit, tax and other consulting
services. For the years ended December 31, 2013 and 2012, we recorded amortization expense of $3.3 million and $2.8 million,
respectively, related to customer relationships, non-compete agreements, technology and trade names. Amortization expense
related to these intangible assets is included in selling, general and administrative expenses in the consolidated statements of
income. For the year ended December 31, 2013 we recorded $1.1 million related to the release of a contingent liability
associated with a prior year acquisition. For the year ended December 31, 2012, we recorded $0.8 million relating to a gain on
sale of an asset.
Goodwill Impairment
We conducted our annual goodwill impairment test as of December 31, 2013, 2012 and 2011 for all reporting units and
noted no impairment as of the 2013 and 2011 testing dates. The testing performed for the year ended December 31, 2012, which
27
was based on our most recent cash flow forecast, indicated that the goodwill of our Canada reporting unit related to our 2009
acquisition of Byrne Engineering, Inc. (“Byrne”), was likely impaired as the carrying value of the reporting unit exceeded its
estimated fair value. Accordingly, we recorded a non-cash, non-tax deductible goodwill impairment charge of $1.0 million
during the year ended December 31, 2012.
Other Expenses, Net
Other expenses, net consists primarily of interest income on cash balances, interest expense on borrowings and
amortization of deferred financing costs, and unrealized gains and losses on derivatives not accounted for as hedges or the
ineffective portion of those that are accounted for as hedges. Interest expense will vary periodically depending on the amounts
drawn on our revolving senior secured credit facility and the prevailing short-term interest rates.
Provision for Income Taxes
The provision for income taxes is based on various rates set by federal and local authorities and is affected by permanent
and temporary differences between financial accounting and tax reporting requirements.
Non-GAAP Financial Measures
We use the non-GAAP financial measures defined and discussed below to provide investors and others with useful
supplemental information to our financial results prepared in accordance with GAAP. These non-GAAP financial measures
should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with
GAAP. The tables below provide a reconciliation of these non-GAAP measures to the most directly comparable financial
measures prepared in accordance with GAAP.
We understand that, although measures similar to these non-GAAP financial measures are frequently used by investors and
securities analysts in their evaluation of companies, they have limitations as analytical tools, and investors should not consider
them in isolation or as a substitute for the most directly comparable GAAP financial measures or an analysis of our results of
operations as reported under GAAP. To properly and prudently evaluate our business, we encourage investors to review our
GAAP financial statements included above, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA
We define adjusted EBITDA as operating income before depreciation, amortization of intangible assets, impairment of
goodwill and share-based compensation expense. We believe adjusted EBITDA is useful to investors in evaluating our
operating performance for the following reasons: adjusted EBITDA and similar non-GAAP measures are widely used by
investors to measure a company's operating performance without regard to items that can vary substantially from company to
company depending upon financing and accounting methods, book values of assets, capital structures and the methods by
which assets were acquired; securities analysts often use adjusted EBITDA and similar non-GAAP measures as supplemental
measures to evaluate the overall operating performance of companies; and by comparing our adjusted EBITDA in different
historical periods, investors can evaluate our operating results without the additional variations of depreciation and amortization
expense, goodwill impairment and share-based compensation expense.
Our management uses adjusted EBITDA: as a measure of operating performance, because it does not include the impact of
items that we do not consider indicative of our core operating performance; for planning purposes, including the preparation of
our annual operating budget; to allocate resources to enhance the financial performance of the business; to evaluate the
effectiveness of our business strategies; and in communications with the board of directors and investors concerning our
financial performance.
Adjusted Free Cash Flow
We define adjusted free cash flow as net cash (used in) provided by operating activities, less purchases of property and
equipment, plus proceeds from Federal ESPC projects. Cash received in payment of Federal ESPC projects is treated as a
financing cash flow under GAAP due to the unusual financing structure for these projects. These cash flows, however,
correspond to the revenue generated by these projects. Thus we believe that adjusting operating cash flow to include the cash
generated by our Federal ESPC projects and to give effect for purchases of property and equipment provides investors with a
useful measure for evaluating the cash generating ability of our core operating business. Our management uses adjusted free
cash flow as a measure of liquidity because it captures all sources of cash associated with our revenue generated by operations.
28
Reconciliations
The following table presents a reconciliation of adjusted EBITDA to operating income, the most comparable GAAP
measure:
(in $’000s)
2013
Year Ended December 31,
2012
2011
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation, amortization of intangible assets and impairment . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,632
$
28,657
$
20,475
2,799
20,356
3,351
29,906
$
52,364
$
50,686
14,008
2,866
67,560
The following table presents a reconciliation of adjusted free cash flow to cash (used in) provided by operating activities,
the most comparable GAAP measure:
Cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . $
Less: purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . .
Plus: proceeds from federal ESPC projects . . . . . . . . . . . . . . . . . . . . . . .
Adjusted free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(60,609) $
(2,331)
40,010
(22,930) $
Critical Accounting Policies and Estimates
(in $’000s)
2013
Year Ended December 31,
2012
$
42,209
(5,061)
30,203
2011
(108,767)
(3,450)
133,776
67,351
$
21,559
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expense and related disclosures. The most significant estimates with regard to
these consolidated financial statements relate to estimates of final contract profit in accordance with long-term contracts, project
development costs, project assets, impairment of goodwill, impairment of long-lived assets, fair value of derivative financial
instruments, income taxes and stock-based compensation expense. Such estimates and assumptions are based on historical
experience and on various other factors that management believes to be reasonable under the circumstances. Estimates and
assumptions are made on an ongoing basis, and accordingly, the actual results may differ from these estimates under different
assumptions or conditions.
The following are critical accounting policies that, among others, affect our more significant judgments and estimates used
in the preparation of our consolidated financial statements.
Revenue Recognition
For each arrangement we have with a customer, we typically provide a combination of one or more of the following
services or products:
•
•
•
installation or construction of energy efficiency measures, facility upgrades and/or a renewable energy plant to be
owned by the customer;
sale and delivery, under long-term agreements, of electricity, gas, heat, chilled water or other output of a renewable
energy or central plant that we own and operate;
sale and delivery of PV equipment and other renewable energy products for which we are a distributor, whether under
our own brand name or for others;
• O&M services provided under long-term O&M agreements, as well as consulting services; and
•
enterprise energy management services.
29
Often, we will sell a combination of these services and products in a bundled arrangement. We divide bundled
arrangements into separate deliverables and revenue is allocated to each deliverable based on the relative selling price. The
relative selling price is determined using third party evidence or management’s best estimate of selling price.
We recognize revenues from the installation or construction of a project on a percentage-of-completion basis. The
percentage-of-completion for each project is determined on an actual cost-to-estimated final cost basis. In accordance with
industry practice, we include in current assets and liabilities the amounts of receivables related to construction projects that are
payable over a period in excess of one year. We recognize revenues associated with contract change orders only when the
authorization for the change order has been properly executed and the work has been performed.
When the estimate on a contract indicates a loss, or claims against costs incurred reduce the likelihood of recoverability of
such costs, our policy is to record the entire expected loss immediately, regardless of the percentage of completion.
Deferred revenue represents circumstances where (i) there has been a receipt of cash from the customer for work or
services that have yet to be performed, (ii) receipt of cash where the product or service may not have been accepted by the
customer or (iii) when all other revenue recognition criteria have been met, but an estimate of the final total cost cannot be
determined. Deferred revenue will vary depending on the timing and amount of cash receipts from customers and can vary
significantly depending on specific contractual terms. As a result, deferred revenue is likely to fluctuate from period to period.
Unbilled revenue, presented as costs and estimated earnings in excess of billings, represent amounts earned and billable that
were not invoiced at the end of the fiscal period.
We recognize revenues from the sale and delivery of products, including the output of our renewable energy plants, when
produced and delivered to the customer, in accordance with the specific contract terms, provided that persuasive evidence of an
arrangement exists, our price to the customer is fixed or determinable and collectability is reasonably assured.
We recognize revenues from O&M contracts, consulting services and enterprise energy management services as the related
services are performed.
For a limited number of contracts under which we receive additional revenue based on a share of energy savings, we
recognize such additional revenue as energy savings are generated.
Project Development Costs
We capitalize as project development costs only those costs incurred in connection with the development of energy
efficiency and renewable energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal
fees and associated travel, if incurred after a point in time when the realization of related revenue becomes probable. Project
development costs incurred prior to the probable realization of revenues are expensed as incurred.
Project Assets
We capitalize interest costs relating to construction financing during the period of construction. The interest capitalized is
included in the total cost of the project at completion. The amount of interest capitalized for the years ended December 31,
2013, 2012 and 2011 was $1.8 million, $2.1 million and $0.4 million, respectively.
Routine maintenance costs are expensed in the current year’s consolidated statements of income to the extent that they do
not extend the life of the asset. Major maintenance, upgrades and overhauls are required for certain components of our assets. In
these instances, the costs associated with these upgrades are capitalized and are depreciated over the shorter of the life of the
asset or until the next required major maintenance or overhaul period. Gains or losses on disposal of property and equipment
are reflected in selling, general and administrative expenses in the consolidated statements of income.
We evaluate our long-lived assets for impairment as events or changes in circumstances indicate the carrying value of these
assets may not be fully recoverable. We evaluate recoverability of long-lived assets to be held and used by estimating the
undiscounted future cash flows before interest associated with the expected uses and eventual disposition of those assets. When
these comparisons indicate that the carrying value of those assets is greater than the undiscounted cash flows, we recognize an
impairment loss for the amount that the carrying value exceeds the fair value.
Impairment of Goodwill and Intangible Assets
We apply accounting standards codification (“ASC”) 350, Intangibles-Goodwill and Other, in accounting for the valuation
of goodwill and identifiable intangible assets. We have selected December 31 as our annual goodwill impairment review date.
During our annual goodwill impairment tests at December 31, 2013 and 2011, we determined that the fair value of the
30
enterprise value (equity value plus debt less cash) exceeded the carrying value of the enterprise value for all reporting units, and
therefore goodwill and intangible assets were not impaired. During our annual goodwill impairment test at December 31, 2012,
we determined that the fair value of our Canada reporting unit did not exceed the carrying value of its enterprise value, and
therefore goodwill was impaired and an impairment charge of $1.0 million was recorded against the goodwill of our Canada
reporting unit on December 31, 2012; we also determined that the remainder of our goodwill and intangible assets were not
impaired as of December 31, 2012. Based on our goodwill impairment assessment, all of our reporting units with goodwill had
estimated fair values as of December 31, 2013 that exceeded their carrying values by greater than 39% except for our Canada
and Solar reporting units which had estimated fair values in excess of their carrying values of 11% and 18%, respectively. The
carrying value of goodwill assigned to the Canada and Solar reporting units were $4.1 million and $7.6 million, respectively.
Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets of businesses
acquired. We assess the impairment of goodwill and intangible assets with indefinite lives on an annual basis and whenever
events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We would record an
impairment charge if such an assessment were to indicate that, more likely than not, the fair value of such assets was less than
their carrying values. Judgment is required in determining whether an event has occurred that may impair the value of
goodwill or identifiable intangible assets. Factors that could indicate that an impairment may exist include significant
underperformance relative to plan or long-term projections, significant changes in business strategy, significant negative
industry or economic trends or a significant decline in the base stock price of our public competitors for a sustained period of
time. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units
affected based on their relative fair values.
The first step, or Step 1, of the goodwill impairment test, used to identify potential impairment, compares the fair value of
the equity with its carrying amount, including goodwill. If the fair value of the equity exceeds its carrying amount, goodwill
of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying
amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to
measure the amount of impairment loss, if any. We performed a Step 1 test at our December 31, 2013, 2012 and 2011 annual
testing dates and determined, with the exception of our Canada reporting unit as of December 31, 2012, that the fair value of
the enterprise value exceeded the carrying value of the enterprise value, and therefore that goodwill was not impaired.
We completed the Step 1 test using both an income approach and a market approach. The discounted cash flow method
was used to measure the fair value of our equity under the income approach. A terminal value utilizing a constant growth rate
of cash flows was used to calculate a terminal value after the explicit projection period. Determining the fair value using a
discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of
cash flows, market conditions and appropriate discount rates. Our judgments are based upon historical experience, current
market trends, pipeline for future sales and other information. While we believe that the estimates and assumptions underlying
the valuation methodology are reasonable, different estimates and assumptions could result in a different outcome. In
estimating future cash flows, we rely on internally generated projections for a defined time period for sales and operating
profits, including capital expenditures, changes in net working capital and adjustments for non-cash items to arrive at the free
cash flow available to invested capital.
Under the market approach, we estimate the fair value based on market multiples of revenue and earnings of comparable
publicly traded companies and comparable transactions of similar companies. The estimates and assumptions used in our
calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash
flows, expected tax rates and an estimated discount rate to determine present value of expected cash flows. These estimates
are based on historical experiences, our projections of future operating activity and our weighted-average cost of capital.
Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. We annually
assess whether a change in the life over which our intangible assets are amortized is necessary or more frequently if events or
circumstances warrant. We review all amortizable intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined
by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. If
the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down
first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
If we determine that an impairment has occurred, we will record a write-down of the carrying value and charge the
impairment as an operating expense in the period the determination is made. Although we believe goodwill and intangible
31
assets are appropriately stated in our consolidated financial statements, changes in strategy or market conditions could
significantly impact these judgments and require an adjustment to the recorded balance.
As previously described, for the year ended December 31, 2012, during the course of our valuation analysis it was
determined that the fair value of our Canada segment was less than the carrying amount of this segment. This determination
prompted the performance of the Step 2 test as prescribed under ASC 350, recognizing and measuring the amount of the
impairment loss, if any. Step 2 of the goodwill impairment test compares the implied fair value of the reporting unit’s
goodwill with carrying amount of the goodwill. The fair value of this goodwill can only be measured as a residual after the
entity assigns the fair value of the reporting unit to all the assets and liabilities of that reporting unit, including any
unrecognized intangible assets as if the reporting unit had been acquired in a business combination. The carrying amount of
the goodwill of our Canada segment exceeded the implied fair value of that goodwill and an impairment charge of $1.0
million was recorded against this goodwill in the fourth quarter of 2012.
Impairment of Long-Lived Assets
We use the guidance prescribed in ASC 360, Property, Plant and Equipment, for the proper testing and valuation
methodology to ensure we record any impairment when the carrying amount of a long-lived asset is not recoverable
equivalent to an amount equal to its fair market value.
We review long-lived asset groups for potential impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer
appropriate. Examples of such triggering events applicable to our asset groups include a significant decrease in the market
price of a long-lived asset group or a current-period operating or cash flow loss combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group.
Should an asset group be identified as potentially impaired based on the defined criteria, an impairment test is performed
that includes a comparison of the estimated undiscounted cash flows of the asset as compared to the recorded value of the
asset. During the twelve months ended December 31, 2013, no asset group was identified as being potentially impaired. If
these estimates or their related assumptions change in the future, an impairment charge may be required against these assets in
the reporting period in which the impairment is determined.
Derivative Financial Instruments
We account for our interest rate swaps as derivative financial instruments in accordance with the related guidance. Under
this guidance, derivatives are carried on our consolidated balance sheets at fair value. The fair value of our interest rate swaps is
determined based on observable market data in combination with expected cash flows for each instrument.
We follow the guidance which expands the disclosure requirements for derivative instruments and hedging activities.
In the normal course of business, we utilize derivative contracts as part of our risk management strategy to manage
exposure to market fluctuations in interest rates. These instruments are subject to various credit and market risks. Controls and
monitoring procedures for these instruments have been established and are routinely reevaluated. Credit risk represents the
potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The
measure of credit exposure is the replacement cost of contracts with a positive fair value. We seek to manage credit risk by
entering into financial instrument transactions only through counterparties that we believe to be creditworthy. Market risk
represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest
rates. We seek to manage market risk by establishing and monitoring limits on the types and degree of risk that may be
undertaken. As a matter of policy, we do not use derivatives for speculative purposes.
We are exposed to interest rate risk through our borrowing activities. A portion of our project financing includes five credit
facilities, both project related and corporate, that utilize a variable rate swap instrument.
•
Prior to December 31, 2009, we entered into two 15-year interest rate swap contracts under which we agreed to pay an
amount equal to a specified fixed rate of interest times a notional principal amount, and to, in turn, receive an amount
equal to a specified variable rate of interest times the same notional principal amount.
• During the year ended December 31, 2010, we entered into a 14-year interest rate swap contract under which we
agreed to pay an amount equal to a specified fixed rate of interest times a notional principal amount, and to in turn
receive an amount equal to a specified variable rate of interest times the same notional principal amount.
32
•
•
•
In July 2011, we entered into a five-year interest rate swap contract under which we agreed to pay an amount equal to
a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable
rate of interest times the same notional principal amount. The 2011 swap covers an initial notional amount of $38.6
million variable rate note at a fixed interest rate of 1.965% and expires in June 2016.
In October 2012, and in connection with a construction and term loan, we entered into two eight-year interest rate
swap contracts under which we agreed to pay an amount equal to a specified fixed rate of interest times a notional
principal amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional
principal amount. The swaps have an initial notional amount of $16.8 million, which increased to $42.2 million on
September 30, 2013, at a fixed rate of 1.71%, and expires in March 2020.
In October 2012, we also entered into two eight-year forward starting interest rate swap contracts under which the
Company agreed to pay an amount equal to specified fixed rate of interest times a notional amount, and to in turn
receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swaps
cover an initial notional amount of $25.4 million variable rate note at a fixed interest rate of 3.70%, with an effective
date of March 31, 2020, and expires in June 2028.
We entered into each of the interest rate swap contracts as an economic hedge.
We recognize all derivatives in our consolidated financial statements at fair value.
The interest rate swaps that we entered into prior to December 31, 2009 qualified, but were not designated as cash flow
hedges until April 1, 2010. Accordingly, any changes in fair value through March 31, 2010 were reported in other expenses, net
in our consolidated statements of income at fair value, and in the consolidated statements of comprehensive income (loss)
thereafter. Cash flows from these derivative instruments are reported as operating activities on the consolidated statements of
cash flows.
The interest rate swap that we entered into in March 2010 was a floating-to-fixed interest rate swap. Effective March 29,
2013, we have designated this interest rate swap as a cash flow hedge using the “long-haul” method.
The interest rate swaps that we entered into during 2011 and 2012 qualify, and have been designated, as cash flow hedges.
We recognize the fair value of derivative instruments designated as hedges in our consolidated balance sheets and any
changes in the fair value are recorded as adjustments to other comprehensive income (loss).
Income Taxes
We provide for income taxes based on the liability method. We provide for deferred income taxes based on the expected
future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated
using the enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax
positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law,
the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to
audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate uncertain tax positions on a
quarterly basis and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the
uncertain positions. Our liabilities for an uncertain tax position can be relieved only if the contingency becomes legally
extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the
benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled
through the examination process. We consider matters to be effectively settled once: the taxing authority has completed all of its
required or expected examination procedures, including all appeals and administrative reviews; we have no plans to appeal or
litigate any aspect of the tax position; and we believe that it is highly unlikely that the taxing authority would examine or re-
examine the related tax position. We also accrue for potential interest and penalties, related to unrecognized tax benefits in
income tax expense.
33
Stock-Based Compensation Expense
Our stock-based compensation expense results from the issuances of shares of restricted common stock and grants of stock
options to employees, directors, outside consultants and others. We recognize the costs associated with option grants using the
fair value recognition provisions of ASC 718, Compensation — Stock Compensation. Generally, ASC 718 requires the value of
all stock-based payments to be recognized in the statement of operations based on their estimated fair value at date of grant
amortized over the grants’ respective vesting periods. For the years ended December 31, 2013, 2012 and 2011, we recorded
stock-based compensation expense of approximately $2.8 million, $3.4 million, and $2.9 million, respectively, in connection
with stock-based payment awards. The compensation expense is allocated between cost of revenues and selling, general and
administrative expenses in the accompanying consolidated statements of income based on the salaries and work assignments of
the employees holding the options.
Stock Option Grants
We have granted stock options to certain employees and directors under our 2000 stock incentive plan; however, we will
grant no further stock options or restricted stock awards under that plan. We have also granted stock options to certain
employees and directors under our 2010 stock incentive plan. At December 31, 2013, 8,535,127 shares were available for grant
under that plan.
Under the terms of our 2000 and 2010 stock incentive plans, all options expire if not exercised within ten years after the
grant date. Historically, options generally provided for vesting over five years, with 20% vesting at the end of the first year and
five percent vesting every three months beginning one year after the grant date. During 2011, we began awarding options
generally providing for vesting over five years, with 20% vesting on each of the first five anniversaries of the grant date. If the
employee ceases to be employed for any reason before vested options have been exercised, the employee generally has three
months to exercise vested options or they are forfeited.
We follow the fair value recognition provisions of ASC 718 requiring that all stock-based payments to employees,
including grants of employee stock options and modifications to existing stock options, be recognized in the consolidated
statements of income based on their fair values, using the prospective-transition method.
We use the Black-Scholes option pricing model to determine the weighted-average fair value of options granted and record
stock-based compensation expense utilizing the straight-line method.
The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the
stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected
dividends. The following table sets forth the significant assumptions used in the model during 2013, 2012 and 2011:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
—%
Year Ended December 31,
2012
—%
2011
—%
1.03%-2.18%
0.82%-1.25%
1.35%-2.58%
34%-52%
32%
32%-33%
6.0-6.5 years
6.5 years
6.0-6.5 years
We will continue to use our judgment in evaluating the expected term, volatility and forfeiture rate related to our own
stock-based compensation on a prospective basis, and incorporating these factors into the Black-Scholes pricing model. Higher
volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant.
In addition, any changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation
expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period that the forfeiture
estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that
will result in a decrease to the stock-based compensation expense recognized in our consolidated financial statements. If a
revised forfeiture rate is lower than the previously estimated rate, an adjustment is made that will result in an increase to the
stock-based compensation expense recognized in our consolidated financial statements. These expenses will affect our cost of
revenues as well as our selling, general and administrative expenses.
As of December 31, 2013, we had $6.0 million of total unrecognized stock-based compensation cost related to employee
and director stock options. We expect to recognize this cost over a weighted-average period of 2.9 years after December 31,
34
2013. The allocation of this expense between cost of revenues and selling, general and administrative expenses will depend on
the salaries and work assignments of the personnel holding these options.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit when
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB
Emerging Issues Task Force) (“ASU” 2013-11). The amendments in this ASU provide guidance on the financial statement
presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax
asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case
such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do
not require new recurring disclosures and are effective for fiscal years, and interim periods within those years, beginning after
December 15, 2013. We are currently assessing the impact of this ASU on our consolidated financial statements.
Results of Operations
The following table sets forth certain financial data from the consolidated statements of income expressed as a percentage
of revenues for the periods indicated:
2013
Year Ended December 31,
2012
2011
(in $’000s)
Dollar
Amount
% of
Revenues
Dollar
Amount
% of
Revenues
Dollar
Amount
% of
Revenues
100.0% $ 631,171
100.0% $ 728,200
100.0%
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574,171
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . .
470,846
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses .
Goodwill impairment . . . . . . . . . . . . . . . . . . .
Operating income. . . . . . . . . . . . . . . . . . . .
Other expenses, net. . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes.
Income tax provision . . . . . . . . . . . . . . . . . . .
103,325
96,693
6,632
3,873
2,759
345
—
82.0%
18.0%
16.8%
—%
1.2%
0.7%
0.5%
0.1%
503,024
128,147
98,474
1,016
28,657
4,050
24,607
6,247
79.7%
20.3%
15.6%
0.2%
4.5%
0.6%
3.9%
1.0%
593,154
135,046
84,360
—
50,686
6,506
44,180
10,767
81.5%
18.5%
11.6%
—%
7.0%
0.9%
6.1%
1.5%
4.6%
Net income . . . . . . . . . . . . . . . . . . . . . . . . $
2,414
0.4% $
18,360
2.9% $
33,413
Revenues
The following table sets forth a comparison of our revenues for the periods indicated:
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
574,171
$
631,171
$
(57,000)
(9.0)%
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
631,171
$
728,200
$
(97,029)
(13.3)%
(in $’000s)
Year Ended December 31,
2011
2012
Dollar
Change
Percentage
Change
We derive our revenues primarily from energy efficiency products and services, which accounted for approximately 64.4%,
71.1% and 75.7% of total revenues in 2013, 2012 and 2011, respectively. Total revenues decreased by $57.0 million, or 9.0%,
from 2012 to 2013 primarily due to an $81.3 million decrease in energy efficiency revenues, partially offset by a $14.1 million
increase in renewable energy revenues, a $5.7 million increase in O&M revenue and a $4.5 million increase in other revenues.
The decrease in energy efficiency revenues was primarily due to the lagged effect of delays in converting awarded projects to
signed contracts, a trend continued from 2012 and that we expect to continue into 2014.
35
Total revenues decreased by $97.0 million, or 13.3%, from 2011 to 2012 due to lower energy efficiency revenues, partly
offset by higher renewable energy revenues. Total revenues were down from 2011 to 2012 as we experienced a sustained
lengthening of conversion times from awarded projects to signed contracts. Continued U.S. federal fiscal uncertainty not only
contributed to a lengthening of our sales cycle for U.S. federal projects, but also adversely affected both municipal and
commercial customers across most geographic regions. We observed among our existing and prospective customer base
increased scrutiny of decisions about spending and about incurring debt to finance projects. For example, we observed
increased use of outside consultants and advisors, as well as adoption of additional approval steps, by many of our customers,
which resulted in a lengthening of the sales cycle. As a result, during 2012 we experienced a sustained market disruption that
affected all geographic regions and all levels of government.
Cost of Revenues and Gross Margin
The following table sets forth a comparison of our cost of revenues and gross profit for the periods indicated:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin % . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in $’000s)
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin % . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in $’000s)
Year Ended December 31,
2012
2013
503,024
470,846
$
18.0%
20.3%
Year Ended December 31,
2011
2012
593,154
503,024
$
20.3%
18.5%
$
$
Dollar
Change
Percentage
Change
(32,178)
(6.4)%
Dollar
Change
Percentage
Change
(90,130)
(15.2)%
Cost of revenues. The majority of our expenses are incurred in connection with energy efficiency projects for which
expenses represented approximately 81.3%, 79.0%, and 81.1% of energy efficiency revenue in 2013, 2012 and 2011,
respectively. Total cost of revenues decreased by $32.2 million, or 6.4%, from 2012 to 2013 due primarily to the decrease in
revenues year-over-year. Total cost of revenues decreased by $90.1 million, or 15.2%, from 2011 to 2012 due primarily to the
decrease in energy efficiency revenues, partially offset by improved gross margin for both energy efficiency and renewable
energy.
Gross margin. Gross margin decreased from 20.3% in 2012 to 18.0% in 2013. The decrease was driven primarily by a
proportional increase in lower margin projects as a percentage of total revenues as well as fewer project closeout adjustments in
2013. Gross margin increased from 18.5% in 2011 to 20.3% in 2012. The increase was driven by higher margin projects across
a number of U.S. regions, project closeouts, which contribute revenues for which all related cost of revenues previously have
been incurred, renewable energy gross margin increases primarily related to small-scale infrastructure and integrated-PV and
contributions from our higher gross margin offerings attributable to our acquisitions of AEG and AIS in the second half of 2011.
Selling, General and Administrative Expenses
The following table sets forth a comparison of our selling, general and administrative expenses for the periods indicated:
Selling, general and administrative expenses . . . . . . . $
96,693
$
98,474
$
(1,781)
(1.8)%
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Selling, general and administrative expenses . . . . . . . $
98,474
$
84,360
$
14,114
16.7 %
(in $’000s)
Year Ended December 31,
2011
2012
Dollar
Change
Percentage
Change
Selling, general and administrative expenses decreased $1.8 million, or 1.8%, from 2012 to 2013 to $96.7 million primarily
due to a decrease in salaries and benefits of $6.7 million, resulting from improved utilization rates (that is, an increase in
employee time spent on specific project or revenue generating activity) partially offset by a $2.3 million increase in
professional fees, a $1.1 million increase in information technology expenses, a $0.5 million increase in insurance expense and
a $0.7 million increase in depreciation and amortization expense.
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Selling, general and administrative expenses increased $14.1 million or 16.7% to $98.5 million from 2011 to 2012
primarily due to an increase in salaries and benefits of $10.5 million, resulting from increased headcount due to the full year
effect of acquisitions during 2011 and from opening six new offices during 2012, an increase of $2.8 million due primarily to
the costs necessary to support our continued growth, including expenses attributable to being a public company, such as
auditing, compliance and insurance costs, and $2.4 million of incremental intangible asset amortization expense attributable to
our acquisitions in the second half of 2011 and in 2012.
Goodwill Impairment
We conducted our annual goodwill impairment test as of December 31, 2013, 2012 and 2011 for all reporting units and
noted no impairment of goodwill as of the 2013 and 2011 test dates. The 2012 test, which was based on our then most recent
cash flow forecast, indicated that the goodwill of our Canada reporting unit related to our 2009 Byrne acquisition was impaired,
as the carrying value exceeded its estimated fair value. Accordingly, we recorded a non-cash, non-tax deductible goodwill
impairment charge of $1.0 million during the year ended December 31, 2012.
Other Expenses, Net
The following table shows the activity in other expenses, net for the periods indicated:
(in $’000s)
2013
Year Ended December 31,
2012
2011
Unrealized (gain) loss from derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense, net of interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs, net . . . . . . . . . . . . . . . . . . . . .
Other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1,459) $
4,600
732
98
$
3,496
456
3,873
$
4,050
$
1,314
4,130
1,062
6,506
Other expenses, net decreased from 2012 to 2013 by $0.2 million primarily due to the unrealized gain from derivatives.
Other expenses, net decreased from 2011 to 2012 by $2.5 million primarily due to a decrease in unrealized loss from derivatives
of $1.3 million which was market related, a decrease in interest expense, net of $0.6 million reflecting lower net borrowings
and higher capitalization of interest for 2012, and the remainder relates to a decrease in amortization of deferred financing costs
of $0.3 million.
Income Before Taxes
Income before taxes decreased from 2012 to 2013 by $21.8 million, or 88.8%, primarily due to lower revenues and a
decrease in gross margin, both as described above. Income before taxes decreased from 2011 to 2012 by $19.6 million, or
44.3%, primarily due to lower revenues and an increase in operating expenses, both as described above.
Provision for Income Taxes
The provision for income taxes is based on various rates set by federal, state, provincial and local authorities and is affected
by permanent and temporary differences between financial accounting and tax reporting requirements. Our statutory rate, which
is a combined federal and state rate, has ranged between 38.1% and 39.8%. During 2013, we recognized income taxes of $0.3
million, or 12.5% of pretax income. The principal difference between the statutory rate and the effective rate was due to
deductions permitted under Section 179D of the Code, which relate to the installation of certain energy efficiency equipment in
federal, state, provincial and local government-owned buildings, as well as production tax credits to which we are entitled from
the electricity generated by certain plants that we own. These energy efficiency tax benefits accounted for a $3.6 million
reduction in the 2013 provision, or a reduction of 128.9 percentage points in the effective rate.
During 2012, we recognized income taxes of $6.2 million, or 25.4% of pretax income. The principal difference between the
statutory rate and the effective rate was due to deductions permitted under Section 179D of the Code, which relate to the
installation of certain energy efficiency equipment in federal, state, provincial and local government-owned buildings, as well
as production tax credits to which we are entitled from the electricity generated by certain plants that we own. These energy
efficiency tax benefits accounted for a $7.0 million reduction in the 2012 provision, or a reduction of 28.6 percentage points in
the effective rate.
During 2011, we recognized income taxes of $10.8 million, or 24.4% of pretax income. The principal difference between
the statutory rate and the effective rate was due to deductions permitted under Section 179D of the Code, which relate to the
37
installation of certain energy efficiency equipment in federal, state, provincial and local government-owned buildings, as well
as production tax credits to which we are entitled from the electricity generated by certain plants that we own. These energy
efficiency tax benefits accounted for a $6.2 million reduction in the 2011 provision, or a reduction of 14.1 percentage points in
the effective rate.
Net Income
As a result of the 2013 outcomes discussed above net income decreased in 2013 by $15.9 million, or 86.9%. Earnings per
share in 2013 was $0.05 per basic share, representing a decrease of $0.36, or 87.8%, and $0.05 per diluted share, representing a
decrease of $0.35, or 87.5%. The weighted-average number of basic and diluted shares increased in 2013 by 2.0% and 0.9%,
respectively. The exercise of incentive stock options accounted for the increase in basic shares, while the awarding of new stock
options contributed to an increase in diluted shares.
As a result of the 2012 outcomes discussed above net income decreased in 2012 by $15.1 million, or 45.1%. Earnings per
share in 2012 was $0.41 per basic share, representing a decrease of $0.37, or 47.4%, and $0.40 per diluted share, representing a
decrease of $0.35, or 46.7%. The weighted-average number of basic and diluted shares increased in 2012 by 4.8% and 2.9%,
respectively. The exercise of incentive stock options accounted for the increase in basic shares, while the awarding of new stock
options contributed to an increase in diluted shares.
As a result of the 2011 outcomes discussed above net income increased in 2011 by $5.9 million, or 21.4%. Earnings per
share in 2011 was $0.78 per basic share, representing a decrease of $0.29, or 27.1%, and $0.75 per diluted share, representing
an increase of $0.09, or 13.6%. The weighted-average number of basic and diluted shares increased in 2011 by 65.5% and
7.7%, respectively. The increase in our basic shares was due mainly to the conversion of 3.2 million shares of Series A preferred
stock into 1.3 million shares of Class A common stock and 18.0 million shares of Class B common stock in connection with our
initial public offering and the exercise of 2.2 million options and warrants for shares of Class A common stock. The issuance
and sale of 6.3 million shares of Class A common stock in our initial public offering contributed to the increase in both. The
increase in the weighted-average number of diluted shares outstanding also was the result of the grant of new stock options and
the increase in the market price of our stock.
Business Segment Analysis
We report results under ASC 280, Segment Reporting. Our reportable segments for the year ended December 31, 2013 are
U.S. Regions, Federal, Canada and Small-Scale Infrastructure. Our U.S. Regions, U.S. Federal and Canada segments offer
energy efficiency products and services, which include: the design, engineering and installation of equipment and other
measures to improve the efficiency and control the operation of a facility’s energy infrastructure; renewable energy products
and services, which include the construction of small-scale plants for customers that produce electricity, gas, heat or cooling
from renewable sources of energy; and O&M services. Our Small-Scale Infrastructure segment sells electricity, processed LFG,
heat or cooling, produced from renewable sources of energy and generated by small-scale plants that we own. The “All Other”
category offers enterprise energy management services, consulting services and integrated-PV. These segments do not include
results of other activities, such as corporate operating expenses not specifically allocated to the segments.
U.S. Regions
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
314,339
22,408
$
$
382,118
44,361
(in $’000s)
Year Ended December 31,
2012
2013
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
382,118
44,361
$
$
379,529
42,029
(in $’000s)
Year Ended December 31,
2011
2012
Dollar
Change
(67,779)
(21,953)
Percentage
Change
(17.7)%
(49.5)%
Dollar
Change
Percentage
Change
2,589
2,332
0.7 %
5.5 %
$
$
$
$
Total revenues for the U.S. Regions segment decreased from 2012 to 2013 by $67.8 million, or 17.7%, to $314.3 million
primarily due to an $81.8 million decrease in energy efficiency revenues, partially offset by a $14.3 million increase in
renewable energy revenues and a $3.3 million increase in O&M revenue. The decrease in energy efficiency revenues was
38
primarily due to the lagged effect of delays in converting awarded projects to signed contracts, a trend continued from 2012 and
that we expect to continue into 2014.
Total revenues for the U.S. Regions segment increased from 2011 to 2012 by $0.3 million, or 0.1%, to $382.1 million
primarily due to a $4.1 million increase in O&M revenue, partially offset by decreases in revenues across the segment primarily
due to a lengthening of conversion times from awarded projects to signed contracts.
Income before taxes for the U.S. Regions segment decreased from 2012 to 2013 by $22.0 million, or 49.5%, to $22.4
million. The decrease was primarily due to the decrease in revenues, a proportional increase in lower margin projects as a
percentage of total revenues as well as fewer project closeout adjustments in 2013.
Income before taxes for the U.S. Regions segment increased from 2011 to 2012 by $2.3 million, or 5.5%, to $44.4 million.
The increase was primarily due to higher margin projects across a number of U.S. regions and project closeouts, which
contribute revenues for which all related cost of revenues previously have been incurred.
U.S. Federal
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
70,452
6,430
$
$
73,469
2,263
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
73,469
2,263
$
$
145,199
19,252
(in $’000s)
Year Ended December 31,
2011
2012
$
$
$
$
(3,017)
4,167
Dollar
Change
(71,730)
(16,989)
(4.1)%
184.1 %
Percentage
Change
(49.4)%
(88.2)%
Total revenues for the U.S. Federal segment decreased from 2012 to 2013 by $3.0 million, or 4.1%, to $70.5 million
primarily due to the U.S. federal government sequestration during 2013 resulting in a delay in the conversion of project backlog
to revenues.
Total revenues for the U.S. Federal segment decreased from 2011 to 2012 by $71.7 million, or 49.4%, to $73.5 million
primarily due to a $42.5 million decline in revenues from the Savannah River project, which was completed in the fourth
quarter of 2011 and transitioned to its O&M phase, and the effects of fewer projects entering the construction phase during
2011 and the first half of 2012. We experienced delays during 2011 and continuing through 2012 in converting awarded
projects to signed contracts, arising, we believe, initially from implementation and adoption of new enhanced competition rules
for federal ESPCs released in the second quarter of 2011, and, beginning in 2012, from additional diligence steps in response to
pressure from respective committees responsible for approving energy efficiency projects.
Income before taxes for the U.S. Federal segment increased from 2012 to 2013 by $4.2 million, or 184.1%, to $6.4 million.
The increase was primarily due to an improvement in profit margins due to project mix and a $1.3 million decrease in selling,
general and administrative expenses as a result of improved utilization rates.
Income before taxes for the U.S. Federal segment decreased from 2011 to 2012 by $17.0 million, or 88.2%, to $2.3 million.
The decrease was primarily due to decreased revenues as described above and a greater portion of lower margin projects within
the segment’s revenue mix.
39
Canada
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
68,797
$
(3,043) $
60,564
$
(4,179) $
8,233
1,136
13.6 %
27.2 %
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(Loss) income before taxes. . . . . . . . . . . . . . . . . . . . . $
$
60,564
(4,179) $
110,211
1,976
$
$
(49,647)
(6,155)
(45.0)%
(311.5)%
(in $’000s)
Year Ended December 31,
2011
2012
Dollar
Change
Percentage
Change
Total revenues for the Canada segment increased from 2012 to 2013 by $8.2 million, or 13.6%, to $68.8 million, primarily
due to an increase in new customer contracts and the full year impact of the 2012 FAME acquisition.
Total revenues for the Canada segment decreased from 2011 to 2012 by $49.6 million, or 45.0%, to $60.6 million primarily
due to the effects of fewer projects entering the construction phase and delays in converting both proposals to awarded projects
and awarded projects to signed contracts arising from what we believe was continued government and municipal customer
uncertainty related to the consequences of election outcomes.
Loss before taxes for the Canada segment decreased from 2012 to 2013 by $1.1 million, or 27.2%, to a loss of $3.0 million.
The improvement is primarily due to an increase in gross profit and a decrease in selling, general and administrative expenses
related to improved operating efficiencies.
Income (loss) before taxes for the Canada segment decreased from 2011 to 2012 by $6.2 million, or 311.5%, to a loss of
$4.2 million. The decrease is primarily due to decreased revenues as described above.
Small-Scale Infrastructure
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
40,388
4,365
$
$
37,979
2,031
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $
37,979
2,031
$
$
35,441
424
(in $’000s)
Year Ended December 31,
2011
2012
$
$
$
$
2,409
2,334
6.3%
114.9%
Dollar
Change
Percentage
Change
2,538
1,607
7.2%
379.0%
Total revenues for the Small-Scale Infrastructure segment increased from 2012 to 2013 by $2.4 million, or 6.3%, to $40.4
million primarily due to an increase in the number of plants fully operational during 2013, as well as a $0.8 million increase in
revenue recognized from the sale of renewable energy certificates.
Total revenues for the Small-Scale Infrastructure segment increased from 2011 to 2012 by $2.5 million, or 7.2%, to $38.0
million primarily due to an increase in the number of plants fully operational during 2012, as well as a $1.7 million increase in
revenue recognized from the sale of renewable energy certificates.
Income before taxes for the Small-Scale Infrastructure segment increased from 2012 to 2013 by $2.3 million, or 114.9%, to
$4.4 million. The increase was primarily due to the increase in revenues described above, a decrease in maintenance expense
and a $1.4 million gain on the ineffective portion of our interest rate swaps, partially offset by an increase in depreciation
expense.
Income before taxes for the Small-Scale Infrastructure segment increased from 2011 to 2012 by $1.6 million, or 379.0%, to
$2.0 million. The increase was primarily due to the increase in revenues described above and a $1.3 million loss on the
ineffective portion of our interest rate swaps for the year ended December 31, 2011.
40
All Other & Unallocated Corporate Activity
(in $’000s)
Year Ended December 31,
2012
2013
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(Loss) income before taxes. . . . . . . . . . . . . . . . . . . . . $
Unallocated corporate activity . . . . . . . . . . . . . . . . . . $
80,195
$
(1,282) $
(26,120) $
77,041
$
$
1,321
(21,191) $
3,154
(2,603)
(4,929)
4.1 %
(197.0)%
23.3 %
(in $’000s)
Year Ended December 31,
2011
2012
Dollar
Change
Percentage
Change
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . $
Unallocated corporate activity . . . . . . . . . . . . . . . . . . $
77,041
$
1,321
$
(21,191) $
57,822
$
(713) $
(18,788) $
19,219
2,034
(2,403)
33.2 %
285.3 %
12.8 %
Total revenues not allocated to segments and presented as all other, increased from 2012 to 2013 by $3.2 million, or 4.1%,
to $80.2 million primarily due to a $3.6 million increase in integrated-PV sales.
Total revenues not allocated to segments and presented as all other, increased from 2011 to 2012 by $19.2 million, or
33.2%, to $77.0 million primarily due to incremental revenues from our acquisitions of AEG and AIS in 2011, which
contributed $17.7 million.
Income (loss) before taxes not allocated to segments and presented as all other, decreased from 2012 to 2013 by $2.6
million, or 197.0%, to a loss of $1.3 million primarily due to investments made in new products and service offerings that are
not yet generating meaningful revenues, partially offset by the increase in revenues described above.
Income (loss) before taxes not allocated to segments and presented as all other, increased from 2011 to 2012 by $2.0
million, or 285.3%, to $1.3 million primarily due to the increase in revenues as described above.
Unallocated corporate activity includes all corporate level selling, general and administrative expenses and other expenses
not allocated to the segments. We do not allocate any indirect expenses to the segments.
Unallocated corporate activity increased from 2012 to 2013 by $4.9 million, or 23.3%, to $26.1million primarily due to an
increase in salary and benefit expenses related to an increase in headcount and increased professional fees.
Unallocated corporate activity not allocated to segments increased from 2011 to 2012 by $2.4 million, or 12.8%, to $21.2
million primarily due to the costs necessary to support our continued growth, including expenses attributable to being a public
company, such as auditing, compliance and insurance costs.
Liquidity and Capital Resources
Sources of liquidity. Since inception, we have funded operations primarily through existing net cash available, cash flow
from operations and various forms of debt.
We consider the difference between cash and cash equivalents and the book overdraft to represent the net cash available to
meet our liquidity requirements. Those amounts were as follows as of December 31, 2013, 2012 and 2011:
(in $’000s)
2013
As of December 31,
2012
2011
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
17,171
—
17,171
$
$
63,348
—
63,348
$
$
44,691
(7,297)
37,394
At December 31, 2011, we recorded a book overdraft which represents certain checks issued on a disbursement bank
account but not yet paid by that bank. Accounting conventions require that the book overdraft be presented as a current liability.
There were no book overdrafts as of December 31, 2013 or 2012. We presented the book overdraft as a financing activity in the
consolidated statements of cash flows.
41
The changes in cash and cash equivalents for the years ended December 31, 2013, 2012 and 2011 were as follows:
(in $’000s)
2013
Year Ended December 31,
2012
(Revised)
2011
(Revised)
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . $
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents. . . . . . . . . . . . . . . . $
(60,609) $
(29,937)
43,190
1,179
(46,177) $
$
42,209
(48,953)
43,486
328
37,070
$
(108,767)
(105,601)
196,989
(1,035)
(18,414)
We believe that cash and cash equivalents, and availability under our revolving senior secured credit facility, combined
with our access to the credit markets, will be sufficient to fund our operations through 2014 and thereafter.
Proceeds from our Federal ESPC projects are generally received through agreements to sell the ESPC receivables related to
certain ESPC contracts to third-party investors. We use the advances from the investors under these agreements to finance the
projects. Until recourse to us for the ESPC receivables transferred to the investor ceases upon final acceptance of the work by
the government customer, we are the primary obligor for financing received. The transfers of receivables under these
agreements do not qualify for sales accounting until final customer acceptance of the work, so the advances from the investors
are not classified as operating cash flows. Cash draws that we receive under these ESPC agreements are recorded as financing
cash inflows. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows.
Due to the manner in which the ESPC contracts with the third-party investors are structured, our reported operating cash flows
are materially impacted by the fact that operating cash flows only reflect the ESPC contract expenditure outflows and do not
reflect any inflows from the corresponding contract revenues. Upon acceptance of the project by the federal customer the
ESPC receivable and corresponding ESPC liability are removed from our consolidated balance sheet as a non-cash transaction.
See Note 2 to our consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K.
Our service offering also includes the development, construction and operation of small-scale renewable energy plants.
Small-scale renewable energy projects, or project assets, can either be developed for the portfolio of assets that we own and
operate or designed and built for customers. Expenditures related to projects that we own are recorded as cash outflows from
investing activities. Expenditures related to projects that we build for customers are recorded as cash outflows from operating
activities as cost of revenues.
Capital expenditures. Our total capital expenditures were $23.6 million in 2013, $44.9 million in 2012, and $45.2 million
in 2011. The 2013, 2012 and 2011 capital expenditures were net of Section 1603 rebates received of $3.3 million, $7.3 million,
and $6.7 million, respectively. Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 authorized the
U.S. Department of the Treasury to make payments to eligible persons who place in service specified energy property. This
property would have been eligible for production tax credits under the Code, but we elected to forgo such tax credits in
exchange for the payment made under Section 1603. Additionally, in 2013, 2012 and 2011 we invested $9.8 million, $4.0
million and $66.2 million in acquisitions, respectively. We currently plan to make capital expenditures of approximately
$15.0 million in 2014, principally for new renewable energy plants.
Cash flows from operating activities. Operating activities used $60.6 million of net cash during 2013. In 2013, we had net
income of $2.4 million, which is net of non-cash compensation, depreciation, amortization, gains on contingent liabilities and
sales of assets, deferred income taxes and other non-cash items totaling $1.2 million. Net increases in accounts receivable
including retainage, inventory, net costs and estimated earnings in excess of billings, project development costs, other assets,
and decreases in accounts payable and accrued expenses and income taxes payable used $28.9 million, partially offset by
decreases in prepaid expenses and increases in other liabilities which provided $5.7 million. Federal ESPC receivables used
$41.0 million. As described above, Federal ESPC operating cash flows only reflect the ESPC contract expenditure outflows and
do not reflect any inflows from the corresponding contract revenues, which are recorded as cash inflows from financing
activities due to the timing of the receipt of cash related to the assignment of the ESPC receivables to the third-party investors.
Operating activities provided $42.2 million of net cash during 2012. In 2012, we had net income of $18.4 million, which is
net of non-cash compensation, depreciation, amortization, gains on sales of assets, deferred income taxes and other non-cash
items totaling $19.5 million. Net decreases in accounts receivable including retainage, net costs and estimated earnings in
excess of billings, and increases in accounts payable and accrued expenses, other liabilities and income taxes payable provided
42
$54.1 million. However, increases in restricted cash, project development costs, inventory, prepaid expenses and other current
assets used $21.1 million. Federal ESPC receivables used $28.7 million.
Operating activities used $108.8 million of net cash during 2011. In 2011, we had net income of $33.4 million, which is
net of non-cash compensation, depreciation, amortization, gains on sales of assets, deferred income taxes and other non-cash
items totaling $35.9 million. Net increases in restricted cash, accounts receivable including retainage, inventory, net costs and
estimated earnings in excess of billings, prepaid expenses and other current assets and decreases in accounts payable and
accrued expenses, other liabilities and income taxes payable used $80.7 million. However, net decreases in project development
costs and other assets provided $2.4 million in cash. Federal ESPC receivables used $99.8 million.
Cash flows from investing activities. Cash used for investing activities totaled $29.9 million during 2013 and consisted of
capital investments of $24.5 million related to the development of renewable energy plants; $2.3 million related to purchases of
other property and equipment; and $9.8 million for the acquisitions of Ennovate and ESP. Offsetting these amounts were, the
sale of assets of $3.5 million and $3.3 million of Section 1603 and other rebates received during the period.
Cash used for investing activities totaled $49.0 million during 2012 and consisted of capital investments of $47.2 million
related to the development of renewable energy plants; $5.1 million related to purchases of other property and equipment; and
$4.0 million primarily for the acquisition of FAME. Offsetting these amounts were $7.3 million of Section 1603 and other
rebates received during the period.
Cash used for investing activities totaled $105.6 million during 2011 and consisted of capital investments of $48.5 million
related to the development of renewable energy plants; $3.4 million related to purchases of other property and equipment; $66.2
million for the acquisitions of AEG, Ameresco Southwest and two businesses of EPS; and $2.0 million for acquisition related
costs for the 2010 acquisition of Quantum. Offsetting these amounts were $6.7 million of Section 1603 rebates received during
the period and proceeds from sales of assets of $7.8 million.
Cash flows from financing activities. Net cash used in financing activities totaled $43.2 million during 2013 and included
repayments of $14.7 million on long-term debt and payments of $0.5 million relating to financing fees. These uses of financing
cash were offset by the release of $1.6 million from restricted cash accounts, proceeds from long-term debt financing of $9.4
million and exercises of options provided $2.1 million. Proceeds from Federal ESPC projects provided $40.0 million in cash.
Net cash used in financing activities totaled $43.5 million during 2012 and included repayments of $9.3 million on our
senior secured credit facility, repayments of $5.6 million on other long-term debt, payments of $3.2 million relating to financing
fees, payments of $2.7 million into restricted cash accounts, and the book overdraft of $7.3 million. These were offset by
proceeds from long-term debt financing of $37.7 million and exercises of options which provided $3.5 million. Proceeds from
Federal ESPC projects provided $30.2 million in cash.
Net cash provided by financing activities totaled $197.0 million during 2011. Most of this was due to the $40.0 million
term loan portion of our senior secured credit facility, book overdraft of $7.3 million as well as proceeds from long-term debt
financing of $7.9 million net of payments. Exercises of options provided $6.4 million. These were partially offset by reductions
in restricted cash of $2.7 million. Proceeds from Federal ESPC projects provided $133.8 million in cash.
Senior Secured Credit Facility — Revolver and Term Loan
We have a credit and security agreement with two banks. The credit facility consists of a $60.0 million revolving credit
facility and an initial $40.0 million term loan. At December 31, 2013, no amounts were outstanding under the revolving credit
facility and $25.7 million was outstanding under the term loan. The term loan requires quarterly principal payments of $1.4
million, with the balance due at maturity. Ameresco, Inc. is the sole borrower under the credit facility. The credit facility is
secured by a lien on all of our assets other than renewable energy projects that we own and for which financing from others
remains outstanding, and limits our ability to enter into other financing arrangements. Availability under the revolving credit
facility is based on two times our EBITDA for the preceding four quarters, and we are required to maintain a minimum
EBITDA amount on a rolling four-quarter basis. EBITDA for purposes of the facility excludes the results of renewable energy
projects that we own and for which financing from others remains outstanding. The credit facility matures on June 30, 2016,
when all amounts will be due and payable in full.
We recently amended the senior credit facility to:
•
increase the margins over the applicable benchmark rate in determining the interest rate by 25 basis points;
• waive compliance with the minimum EBITDA covenant for the four consecutive fiscal quarters ended December 31,
2013;
43
•
•
•
reduce the required minimum EBITDA amount to $16.5 million for the four consecutive fiscal quarters ended March
31, 2014, $22.0 million for the four consecutive fiscal quarters ended June 30, 2014, $24.0 million for the four
consecutive fiscal quarters ended September 30, 2014, and $27.0 million for the four consecutive fiscal quarters ended
December 31, 2014 and thereafter;
increase the maximum ratio of total funded debt to EBITDA as of the end of each fiscal quarter to 2.5 to 1.0 for March
31, 2014 and 2.25 to 1.0 for June 30, 2014, returning to 2.0 to 1.0 for September 30, 2014 and thereafter; and
reduce the minimum ratio of cash flow to debt service to 1.25 to 1.0 for the four fiscal quarters ended March 31, 2014,
returning to 1.5 to 1.0 for the four fiscal quarters ended June 30, 2014 and thereafter.
As of December 31, 2013 we were in compliance with all of the financial and operational covenants in the senior credit facility.
In addition, we do not consider it likely that we will fail to comply with these covenants for the next twelve months.
Project Financing
Construction and Term Loans. We have entered into a number of construction and term loan agreements for the purpose of
constructing and owning certain renewable energy plants. The physical assets and the operating agreements related to the
renewable energy plants are owned by wholly owned, single member special purpose subsidiaries. These construction and term
loans are structured as project financings made directly to a subsidiary, and upon acceptance of a project, the related
construction loan converts into a term loan. While we are required under generally accepted accounting principles to reflect
these loans as liabilities on our consolidated balance sheet, they are generally nonrecourse and not direct obligations of
Ameresco, Inc. As of December 31, 2013, we had outstanding $90.5 million in aggregate principal amount under these loans,
bearing interest at rates ranging from 6.1% to 8.7% and maturing at various dates from 2015 to 2028. One loan, with an
outstanding balance as of December 31, 2013 of $4.3 million, does require Ameresco, Inc. to provide assurance to the lender of
the project performance. A second loan, entered into during 2012, with an outstanding balance at December 31, 2013 of $45.3
million, requires Ameresco, Inc. to provide assurance to the lender of construction completion with respect to those projects still
in construction and of reimbursement upon any recapture of certain renewable energy government cash grants upon the
occurrence of events that cause the recapture of such grants. As of December 31, 2012, we had outstanding $88.6 million in
aggregate principal amount under these loans, bearing interest at rates ranging from 6.1% to 8.7% and maturing at various dates
from 2013 to 2028. As of December 31, 2011, we had outstanding $56.2 million in aggregate principal amount under these
loans, bearing interest at rates ranging from 6.1% to 8.7% and maturing at various dates from 2013 to 2024.
Federal ESPC liabilities. We have arrangements with certain lenders to provide advances to us during the construction or
installation of projects for certain customers, typically federal governmental entities, in exchange for our assignment to the
lenders of our rights to the long-term receivables arising from the ESPCs related to such projects. These financings totaled
$44.3 million and $92.8 million in principal amounts at December 31, 2013 and 2012, respectively. Under the terms of these
financing arrangements, we are required to complete the construction or installation of the project in accordance with the
contract with our customer, and the debt remains on our consolidated balance sheet until the completed project is accepted by
the customer.
These construction and term loan agreements require us to comply with a variety of financial and operational covenants. As
of December 31, 2013 we were in compliance with all of these financial and operational covenants. In addition, we do not
consider it likely that we will fail to comply with these covenants during the term of these agreements.
44
Contractual Obligations
The following table summarizes our significant contractual obligations and commitments as of December 31, 2013:
(in $’000s)
Total
Less than
One Year
Payments due by Period
One to
Three Years
Three to
Five Years
More than
Five Years
Senior Secured Credit Facility:
Revolver . . . . . . . . . . . . . . . . . . . . . . . . . .
Term Loan . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
— $
— $
25,714
5,714
20,000
— $
—
—
—
Project Financing:
Construction and term loans . . . . . . . . . . .
Federal ESPC liabilities(1) . . . . . . . . . . . .
Interest obligations(2). . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,481
44,297
38,200
10,954
7,259
—
5,402
3,049
14,734
44,297
9,212
4,829
13,645
—
7,032
2,647
54,843
—
16,554
429
$
209,646
$
21,424
$
93,072
$
23,324
$
71,826
(1)
Federal ESPC arrangements relate to the installation and construction of projects for certain customers, typically
federal governmental entities, where we assign to third-party lenders our right to customer receivables. We are
relieved of the liability when the project is completed and accepted by the customer. We typically expect to be
relieved of the liability between one and three years from the date of project construction commencement. The table
does not include, for our federal ESPC liability arrangements, the difference between the aggregate amount of the
long-term customer receivables sold by us to the lender and the amount received by us from the lender for such sale.
(2)
For both the revolving and term loan portions of our senior secured credit facility, the table above assumes that the
variable interest rate in effect at December 31, 2013 remains constant for the term of the facility.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined
under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as
structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not
required to be reflected on our balance sheet.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations
through fixed and variable rate debt instruments and denominate our transactions in U.S. and Canadian dollars. Changes in
these rates may have an impact on future cash flows and earnings. We manage these risks through normal operating and
financing activities and, when deemed appropriate, through the use of derivative financial instruments.
Interest Rate Risk
We had cash and cash equivalents totaling $17.2 million as of December 31, 2013 and $63.3 million as of December 31,
2012. Our exposure to interest rate risk primarily relates to the interest expense paid on our senior secured credit facility.
Derivative Instruments
We do not enter into financial instruments for trading or speculative purposes. However, through our subsidiaries we do
enter into derivative instruments for purposes other than trading purposes. Certain of the term loans that we use to finance our
renewable energy projects bear variable interest rates that are indexed to short-term market rates. We have entered into interest
rate swaps in connection with these term loans in order to seek to hedge our exposure to adverse changes in the applicable
short-term market rate. In some instances, the conditions of our renewable energy project term loans require us to enter into
interest rate swap agreements in order to mitigate our exposure to adverse movements in market interest rates. The interest rate
swaps that we have entered into qualify and have been designated as fair value hedges. See Note 2 of “Notes to Consolidated
Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
45
By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative
instruments is determined by using valuation models whose inputs are derived using market observable inputs, including
interest rate yield curves, and reflects the asset or liability position as of the end of each reporting period. When the fair value
of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to
counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize
counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit
rating.
Our exposure to market interest rate risk is not hedged in a manner that completely eliminates the effects of changing
market conditions on earnings or cash flow.
Foreign Currency Risk
We have revenues, expenses, assets and liabilities that are denominated in foreign currencies, principally the Canadian
dollar and beginning in June of 2013 in British pounds (“GBP”). Also, a significant number of employees are located in Canada
and the United Kingdom (“U.K.”), and the companies transact business in those respective currencies. As a result, we have
designated the Canadian dollar as the functional currency for Canadian operations. Similarly, the GBP has been designated as
the functional currency for our operations in the U.K. When we consolidate the operations of these foreign subsidiaries into our
financial results, because we report our results in U.S. dollars, we are required to translate the financial results and position of
our foreign subsidiaries from their respective functional currencies into U.S. dollars. We translate the revenues, expenses, gains,
and losses from our Canadian and U.K. subsidiaries into U.S. dollars using a weighted average exchange rate for the applicable
fiscal period. We translate the assets and liabilities of our Canadian and U.K. subsidiaries into U.S. dollars at the exchange rate
in effect at the applicable balance sheet date. Translation adjustments are not included in determining net income for the period
but are disclosed and accumulated in a separate component of consolidated equity until sale or until a complete or substantially
complete liquidation of the net investment in our foreign subsidiary takes place. Changes in the values of these items from one
period to the next which result from exchange rate fluctuations are recorded in our consolidated statements of changes in
stockholders’ equity as accumulated other comprehensive income. For the year ended December 31, 2013, due to the
strengthening of the U.S. dollar versus both the Canadian dollar and the GBP, our foreign currency translation resulted in a loss
of $1.0 million which we recorded as a decrease in accumulated other comprehensive income. For the year ended
December 31, 2012, due to changes in the U.S.-Canadian exchange rate that were favorable to the value of the Canadian dollar
versus the U.S. dollar, our foreign currency translation resulted in a gain of $0.7 million, which we recorded as a increase in
accumulated other comprehensive income.
As a consequence, gross profit, operating results, profitability and cash flows are impacted by relative changes in the value
of the Canadian dollar and GBP. We have not repatriated earnings from our foreign subsidiaries, but have elected to invest in
new business opportunities there. See Note 8 to our consolidated financial statements appearing in Item 8 of this Annual Report
on Form 10-K. We do not hedge our exposure to foreign currency exchange risk.
46
Item 8. Financial Statements and Supplementary Data
AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable retainage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal ESPC receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
17,170,736
$
63,347,645
15,496,829
86,008,308
21,018,816
71,204,421
10,256,415
10,176,880
3,970,726
4,842,635
9,686,354
26,358,908
84,124,627
23,197,784
62,096,284
9,502,289
9,600,619
5,385,242
5,190,718
9,038,725
249,832,120
297,842,841
44,297,275
8,699,048
91,854,808
9,387,218
210,744,176
207,274,982
5,319,642
53,074,362
10,253,181
5,746,177
48,968,390
9,742,878
4,654,709
$ 675,472,003
22,439,759
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 604,659,563
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of cost and estimated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal ESPC liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 12)
12,973,591
$
12,452,678
88,733,043
11,947,022
16,932,639
615,063
101,007,455
13,157,024
22,271,655
—
131,201,358
148,888,812
103,221,845
109,079,009
44,297,304
11,318,406
8,163,368
29,652,488
92,843,163
24,888,229
7,590,730
30,362,869
The accompanying notes are an integral part of these consolidated financial statements.
47
AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS — (Continued)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and
outstanding at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 27,869,317
shares issued and outstanding at December 31, 2013, 32,019,982 shares issued and
27,186,698 outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000
shares issued and outstanding at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less — treasury stock, at cost, no shares at December 31, 2013 and 4,833,284 shares at
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
276,804,794
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 604,659,563
December 31,
2013
2012
— $
—
2,787
1,800
102,586,666
171,093,577
3,112,442
7,522
—
3,202
1,800
93,141,432
177,169,717
713,194
(27,583)
(9,182,571)
261,819,191
$ 675,472,003
The accompanying notes are an integral part of these consolidated financial statements.
48
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
2013
Year Ended December 31,
2012
$ 631,170,565
2011
$ 728,200,318
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574,171,249
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
470,846,710
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses, net (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income per share attributable to common shareholders:
103,324,539
96,693,028
3,872,643
6,631,511
2,758,868
2,414,187
344,681
—
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.05
0.05
Weighted average common shares outstanding:
503,023,288
593,154,171
128,147,277
135,046,147
98,473,950
1,016,325
28,657,002
4,050,116
24,606,886
6,246,753
18,360,133
0.41
0.40
$
$
$
84,360,323
—
50,685,824
6,505,719
44,180,105
10,767,172
33,412,933
0.78
0.75
$
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,560,078
46,419,199
44,649,275
45,995,463
42,587,818
44,707,132
The accompanying notes are an integral part of these consolidated financial statements.
49
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
Unrealized gain (loss) from interest rate hedge, net of tax effect of
$614,203, $0 and $0, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
2,414,187
Year Ended December 31,
2012
2011
$
18,360,133
$
33,412,933
3,426,903
(1,027,655)
2,399,248
(666,563)
722,072
55,509
4,813,435
$
18,415,642
$
(3,135,402)
(970,884)
(4,106,286)
29,306,647
The accompanying notes are an integral part of these consolidated financial statements.
50
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.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation of project assets . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property and equipment . . . . . . . . . . . . . . . . .
Amortization of deferred financing fees . . . . . . . . . . . . . . . . .
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for bad debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on contingent liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (gain) loss on interest rate swaps . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation
arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable retainage. . . . . . . . . . . . . . . . . . . . . .
Federal ESPC receivable. . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . .
Project development costs. . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in:
2013
Year Ended December 31,
2012
(Revised, see Note 2)
2011
(Revised, see Note 2)
2,414,187
$
18,360,133
$
33,412,933
12,594,590
11,229,380
3,077,902
1,091,349
4,802,021
—
502,067
(1,075,112)
(631,917)
(1,459,058)
2,799,403
(15,261,027)
2,828,540
456,305
5,282,170
1,016,325
148,773
—
(800,000)
98,026
3,351,142
(3,849,798)
9,701,399
2,554,867
1,061,782
1,752,472
—
24,374
—
(514,828)
1,313,587
2,865,706
19,842,638
(5,264,433)
(259,890)
(2,725,533)
(1,525,937)
(2,608,985)
2,108,487
(40,998,471)
(94,076)
(8,739,855)
371,082
(652,234)
(6,862,822)
(11,089,100)
25,624,181
3,055,300
(28,650,513)
(858,895)
7,225,107
(446,600)
(3,009,937)
(790,597)
(428,052)
(22,861,989)
(7,786,995)
(99,781,156)
(1,808,348)
(22,452,016)
(542,485)
1,816,884
569,954
Accounts payable, accrued expenses and other current
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of cost and estimated earnings . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities . . . $
(13,281,139)
(4,309,877)
5,369,736
7,024,913
(60,609,206) $
10,678,911
(4,943,161)
2,975,301
4,578,300
42,209,403
$
(13,480,285)
(452,802)
(3,537,261)
(7,311,938)
(108,767,092)
The accompanying notes are an integral part of these consolidated financial statements.
52
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
2013
Year Ended December 31,
2012
(Revised, see Note 2)
2011
(Revised, see Note 2)
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . $
Purchases of project assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant awards and rebates received on project assets . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash received. . . . . . . . . . . . . . . . . . . . . . . . .
Additional purchase price paid on 2010 acquisition (Note 3). . . .
Net cash used in investing activities . . . . . . . . . . . . . .
(2,331,004) $
(24,540,875)
3,262,463
(5,060,751) $
(47,190,597)
7,310,767
3,510,500
(9,837,740)
—
(29,936,656)
—
(4,012,459)
—
(48,953,040)
(3,449,940)
(48,457,910)
6,695,711
7,800,000
(66,232,848)
(1,956,366)
(105,601,353)
Cash flows from financing activities:
Excess tax benefits from stock-based compensation
arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercises of options. . . . . . . . . . . . . . . . . . . . . . . .
(Payments of) proceeds from senior secured credit facility . . . . .
Proceeds from long-term debt financing. . . . . . . . . . . . . . . . . . . .
Proceeds from federal ESPC projects . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . .
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . $
Supplemental disclosures of cash flow information:
Cash paid during the year for:
5,264,433
$
—
(511,038)
2,073,227
—
9,434,434
40,010,145
35,105
1,553,115
(14,669,171)
43,190,250
1,178,703
(46,176,909)
63,347,645
$
259,890
(7,297,122)
(3,207,790)
3,462,679
(9,285,713)
37,713,158
30,202,956
(91,197)
(2,683,559)
(5,587,186)
43,486,116
327,800
37,070,279
26,277,366
2,725,533
7,297,122
(644,288)
6,407,804
42,142,858
12,981,691
133,776,216
63,614
(2,686,713)
(5,074,411)
196,989,426
(1,034,636)
(18,413,655)
44,691,021
17,170,736
$
63,347,645
$
26,277,366
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncash ESPC receivable financing. . . . . . . . . . . . . . . . . . . . . . . $
7,185,364
3,831,050
88,556,004
$
$
$
6,171,351
1,562,356
47,007,891
$
$
$
4,723,960
7,550,269
183,120,465
The accompanying notes are an integral part of these consolidated financial statements.
53
AMERESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Ameresco, Inc. (including its subsidiaries, the “Company”) was organized as a Delaware corporation on April 25, 2000.
The Company is a provider of energy efficiency solutions for facilities throughout North America. The Company provides
solutions, both products and services, that enable customers to reduce their energy consumption, lower their operating and
maintenance costs and realize environmental benefits. The Company’s comprehensive set of services includes upgrades to a
facility’s energy infrastructure and the construction and operation of small-scale renewable energy plants. It also sells certain
photovoltaic (“PV”) equipment worldwide. The Company operates in the United States, Canada and Europe.
The Company is compensated through a variety of methods, including: 1) direct payments based on fee-for-services
contracts (utilizing lump-sum or cost-plus pricing methodologies); 2) the sale of energy from the Company’s generating assets;
and 3) direct payment for photovoltaic equipment and systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification
During the fourth quarter of 2013 the Company changed the manner in which advances received from third-party investors
under agreements to finance certain energy savings performance contract (“ESPC”) projects with various federal government
agencies were classified in the consolidated statements of cash flows. The Company concluded that as the transfers of
receivables under these agreements do not qualify for sales accounting under accounting standards codification (“ASC”) 860
until final customer acceptance of the work, the advances from the investors would be better classified as financing cash flows
rather than operating cash flows where they had been previously presented. The use of the cash received under these
arrangements to pay project costs will continue to be classified as operating cash flows. Due to the manner in which the energy
savings performance contracts with the investors are structured, operating cash flows now only reflect the ESPC contract
expenditure outflows and do not reflect any inflows from the corresponding contract revenues. Upon acceptance of the project
by the federal customer the ESPC receivable and corresponding ESPC liability are removed from the Company’s consolidated
balance sheet as a non-cash transaction.
The following is a summary of the impact of the change on the previously reported amounts in the consolidated statements
of cash flows:
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . $
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . $
$
87,528,378
(48,953,040) $
(1,832,859) $
As Reported
Year Ended December 31,
2012
Adjustment
(45,318,975) $
— $
45,318,975
$
Revised
42,209,403
(48,953,040)
43,486,116
Year Ended December 31,
2011
Adjustment
Revised
As Reported
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . $
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (105,601,353) $
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . $
30,146,323
58,076,011
$ (138,913,415) $ (108,767,092)
— $ (105,601,353)
$ 196,989,426
$ 138,913,415
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Ameresco, Inc., its wholly owned subsidiaries
and one subsidiary for which there is a minority shareholder. All significant intercompany accounts and transactions have been
eliminated. Gains and losses from the translation of all foreign currency financial statements are recorded in the accumulated
other comprehensive income account within stockholders’ equity. The Company prepares the financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”).
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
Use of Estimates
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The most significant estimates and assumptions used in these consolidated financial
statements relate to the estimation of final construction contract profit in accordance with accounting for long-term contracts,
allowance for doubtful accounts, inventory reserves, project development costs, fair value of derivative financial instruments
and stock-based awards, impairment of long lived assets, income taxes and potential liability in conjunction with certain
commitments and contingencies. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash includes cash on deposit, overnight repurchase agreements and amounts invested in highly liquid money market
funds. Cash equivalents consist of short term investments with original maturities of three months or less. The Company
maintains accounts with financial institutions and the balances in such accounts, at times, exceed federally insured limits. This
credit risk is divided among a number of financial institutions that management believes to be of high quality. The carrying
amount of cash and cash equivalents approximates their fair value.
A book overdraft, representing certain checks issued in the normal course of business on a disbursement bank account but
not yet paid by that bank, totaled $7,297,122 as of December 31, 2011. GAAP requires that the book overdraft be classified as a
current liability on the accompanying consolidated balance sheet. The book overdraft was funded through normal collections of
funds or transfers from bank balances at other financial institutions, or from draws under the Company’s revolving line of
credit. Under the terms of the senior secured credit facility with the bank, the respective financial institution is not legally
obligated to honor the book overdraft balance as of December 31, 2011, or such balances on any given date. For purposes of
reporting cash flows, the Company reports the book overdraft as a financing activity. There were no book overdrafts as of
December 31, 2013 or 2012.
Restricted Cash
Restricted cash consists of cash held in an escrow account in association with construction draws for ESPCs, construction
of project assets, cash collateralized letter of credit and operations and maintenance reserve accounts, as well as cash required
under term loans to be maintained in debt service reserve accounts until all obligations have been indefeasibly paid in full.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for
doubtful accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and
management’s evaluation of outstanding accounts receivable. Bad debts are written off against the allowance when identified.
Changes in the allowance for doubtful accounts are as follows:
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charges to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account write-offs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts Receivable Retainage
2013
1,174,458
502,067
(157,437)
1,519,088
$
Year Ended December 31,
2012
1,135,391
148,773
(109,706)
1,174,458
$
$
$
2011
1,677,278
24,374
(566,261)
1,135,391
Accounts receivable retainage represents amounts due from customers, but where payments are withheld contractually
until certain construction milestones are met. Amounts retained typically range from five percent to ten percent of the total
invoice.
Inventory
Inventories, which consist primarily of PV solar panels, batteries and related accessories, are stated at the lower of cost
(“first-in, first-out” method) or market (determined on the basis of estimated net realizable values). Provisions have been made
to reduce the carrying value of inventory to the net realizable value.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
Prepaid Expenses
Prepaid expenses consist primarily of short-term prepaid expenditures that will amortize within one year.
Federal ESPC Receivable
Federal ESPC receivable represents the amount to be paid by various federal government agencies for work performed and
earned by the Company under specific ESPCs. The Company assigns certain of its rights to receive those payments to third-
party lenders that provide construction and permanent financing for such contracts. The receivable is recognized as revenue as
each project is constructed. Upon completion and acceptance of the project by the government, typically within 24 months of
construction commencement, the assigned ESPC receivable and corresponding related ESPC liability is eliminated from the
Company’s consolidated financial statements.
Project Development Costs
The Company capitalizes as project development costs only those costs incurred in connection with the development of
energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and travel, if
incurred after a point in time where the realization of related revenue becomes probable. Project development costs incurred
prior to the probable realization of revenues are expensed as incurred. The Company classifies as a current asset those project
development efforts that are expected to proceed to construction activity in the twelve months that follow. The Company
periodically reviews these balances and writes off any amounts where the realization of the related revenue is no longer
probable.
Property and Equipment
Property and equipment consists primarily of office and computer equipment, and is recorded at cost. Major additions and
improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and
repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation and amortization
of property and equipment are computed on a straight-line basis over the following estimated useful lives:
Estimated Useful Life
Asset Classification
Five years
Furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . .
Five years
Computer equipment and software costs. . . . . . . . . . . . . . . . .
Lesser of term of lease or five years
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unlimited
Project Assets
Project assets consist of costs of materials, direct labor, interest costs, outside contract services and project development
costs incurred in connection with the construction of small-scale renewable energy plants that the Company owns and the
implementation of energy savings contracts. These amounts are capitalized and amortized over the lives of the related assets or
the terms of the related contracts.
The Company capitalizes interest costs relating to construction financing during the period of construction. The interest
capitalized is included in the total cost of the project at completion. The amount of interest capitalized for the years ended
December 31, 2013, 2012 and 2011 was $1,824,941, $2,104,206 and $442,699, respectively.
Routine maintenance costs are expensed in the current year’s consolidated statements of income to the extent that they do
not extend the life of the asset. Major maintenance, upgrades and overhauls are required for certain components of the
Company’s assets. In these instances, the costs associated with these upgrades are capitalized and are depreciated over the
shorter of the remaining life of the asset or the period until the next required major maintenance or overhaul. Gains or losses on
disposal of property and equipment are reflected in selling, general and administrative expenses in the consolidated statements
of income.
The Company evaluates its long-lived assets for impairment as events or changes in circumstances indicate the carrying
value of these assets may not be fully recoverable. The Company evaluates recoverability of long-lived assets to be held and
used by estimating the undiscounted future cash flows before interest associated with the expected uses and eventual
disposition of those assets. When these comparisons indicate that the carrying value of those assets is greater than the
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
undiscounted cash flows, the Company recognizes an impairment loss for the amount that the carrying value exceeds the fair
value.
From time to time, the Company applies for and receives cash grant awards from the U.S. Treasury Department (the
“Treasury”) under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the “Act”). The Act authorized the
Treasury to make payments to eligible persons who place in service qualifying renewable energy projects. The grants are paid
in lieu of investment tax credits. All of the cash proceeds from the grants were used and recorded as a reduction in the cost
basis of the applicable project assets. If the Company disposes of the property, or the property ceases to qualify as specified
energy property, within five years from the date the property is placed in service, then a prorated portion of the Section 1603
payment must be repaid.
The Company received $3,262,463, $6,023,767 and $6,695,711 in Section 1603 grants during the years ended
December 31, 2013, 2012 and 2011, respectively.
For tax purposes, the Section 1603 payments are not included in federal and certain state taxable income and the basis of
the property is reduced by 50% of the payment received. Deferred grant income of $8,163,368 and $7,590,730 in the
accompanying consolidated balance sheets at December 31, 2013 and 2012, respectively, represents the benefit of the basis
difference to be amortized to income tax expense over the life of the related property.
The Company has received cash rebates from a utility company, which were accounted for as reductions in the book value
of the related project assets. The rebates were one-time payments based on the cost and efficiency of the installed units, and are
earned upon installation and inspection by the utility. The payments are not related to or subject to adjustment based on future
operating performance. The rebates were payable from the utility to the Company and are applied against the cost of
construction, thereby reducing the book value of the corresponding project assets and have been treated as an investing activity
in the accompanying consolidated statements of cash flows. No rebates were received by the Company during the year ended
December 31, 2013. The Company received a rebate of $1,287,000 during the year ended December 31, 2012.
Deferred Financing Fees
Deferred financing fees relate to the external costs incurred to obtain financing for the Company. All deferred financing
fees are amortized over the respective term of the financing using the effective interest method.
Goodwill and Intangible Assets
The Company has classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes)
of companies acquired in purchase transactions. The Company has recorded intangible assets related to customer contracts,
customer relationships, non-compete agreements, trade names and technology, each with defined useful lives. The Company
assesses the impairment of goodwill and intangible assets that have indefinite lives on an annual basis (December 31st) and
whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The
Company would record an impairment charge if such an assessment were to indicate that the fair value of such assets was less
than their carrying values. Judgment is required in determining whether an event has occurred that may impair the value of
goodwill or identifiable intangible assets.
Factors that could indicate that an impairment may exist include significant under-performance relative to plan or long-
term projections, significant changes in business strategy, significant negative industry or economic trends or a significant
decline in the base price of the Company’s publicly traded stock for a sustained period of time. Although the Company believes
goodwill and intangible assets are appropriately stated in the accompanying consolidated financial statements, changes in
strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance.
The Company recorded a goodwill impairment charge of $1,016,325 for the year ended December 31, 2012. See Note 4 for
additional disclosure.
During the second quarter of 2013, the Company entered into a stock purchase agreement to acquire, through a wholly
owned subsidiary, 100% of the capital stock of The Energy Services Partnership Limited and ESP Response Limited (together,
“ESP”). During the first quarter of 2013, the Company acquired substantially all of the assets of Ennovate Corporation
(“Ennovate”). The net purchase price for each acquisition has been allocated to the net identified assets acquired based on the
respective fair values of such acquired assets at the dates of each acquisition. The residual amounts were allocated to goodwill.
The acquisition of ESP resulted in the Company recording goodwill totaling $2,631,562. The acquisition of Ennovate resulted
in the Company recording goodwill totaling $1,050,303.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
During the third quarter of 2012, the Company’s wholly owned subsidiary Ameresco Canada Inc. entered into a stock
purchase agreement to acquire 100% of the capital stock of FAME Facility Software Solutions, Inc. (“FAME”). During the
third quarter of 2011, the Company entered into two separate stock purchase agreements to acquire 100% of the capital stock of
each of Applied Energy Group (“AEG”) and APS Energy Services, Inc. (now known as “Ameresco Southwest”). During the
fourth quarter of 2011, the Company entered into an asset purchase agreement to acquire the xChangePoint® and energy
projects businesses of Energy and Power Solutions, Inc., (“EPS”) (now known as “Ameresco Intelligent Systems”, or “AIS”).
The net purchase price for each acquisition has been allocated to the net identified assets acquired based on the respective fair
values of such acquired assets at the dates of each acquisition. The residual amounts were allocated to goodwill. The acquisition
of FAME resulted in the Company recording goodwill totaling $1,886,945. The acquisition of AEG resulted in the Company
recording goodwill totaling $8,728,169. For the acquisition of Ameresco Southwest, the Company recorded goodwill of
$16,545,434. And for the acquisition of AIS, the Company recorded goodwill of $1,549,467.
Acquired intangible assets other than goodwill that are subject to amortization include customer contracts and customer
relationships, as well as software/technology, trade names and non-compete agreements. The intangible assets are amortized
over periods ranging from one to fourteen years from their respective acquisition dates.
See Notes 3 and 4 for additional disclosures.
During April 2011, the Company made an additional payment of approximately $1,956,366 in accordance with certain
provisions of the stock purchase agreement with the former shareholders of Quantum Engineering and Development, Inc.
(“Quantum”). The payment has been reflected retrospectively as additional goodwill in the accompanying consolidated balance
sheets in accordance with ASC 805, Business Combinations.
Other Assets
Other assets consist primarily of notes and contracts receivable due to the Company from various customers and non-
current restricted cash. Other assets also include the fair value of derivatives and the non-current portion of project
development costs.
Asset Retirement Obligations
The Company recognizes a liability for the fair value of required asset retirement obligations (“AROs”) when such
obligations are incurred. The liability is estimated on a number of assumptions requiring management’s judgment, including
equipment removal costs, site restoration costs, salvage costs, cost inflation rates and discount rates and is credited to its
projected future value over time. The capitalized asset is depreciated using the convention of depreciation of plant assets. Upon
satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement cost incurred is
recognized as an operating gain or loss in the consolidated statements of income. As of December 31, 2013, 2012 and 2011, the
Company had no AROs.
Federal ESPC Liabilities
Federal ESPC liabilities represent the advances received from third-party investors under agreements to finance certain
energy savings performance contract projects with various federal government agencies. Upon completion and acceptance of
the project by the government, typically within 24 months of construction commencement, the ESPC receivable from the
government and corresponding related ESPC liability is eliminated from the Company’s consolidated balance sheet. Until
recourse to the Company for the ESPC receivables transferred to the investor ceases upon final acceptance of the work by the
government customer, the Company remains the primary obligor for financing received.
Other Liabilities
Other liabilities consist primarily of deferred revenue related to multi-year operation and maintenance contracts which
expire as late as 2031. Other liabilities also include the fair value of derivatives. See Note 16 for additional disclosures.
Revenue Recognition
The Company derives revenues from energy efficiency and renewable energy products and services. Energy efficiency
products and services include the design, engineering, and installation of equipment and other measures to improve the
efficiency, and control the operation, of a facility’s energy infrastructure. Renewable energy products and services include the
construction of small-scale plants that produce electricity, gas, heat or cooling from renewable sources of energy, the sale of
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
such electricity, gas, heat or cooling from plants that the Company owns, and the sale and installation of solar energy products
and systems.
Revenue from the installation or construction of projects is recognized on a percentage-of-completion basis. The
percentage-of-completion for each project is determined on an actual cost-to-estimated final cost basis. Maintenance revenue is
recognized as related services are performed. In accordance with industry practice, the Company includes in current assets and
liabilities the amounts of receivables related to construction projects realizable and payable over a period in excess of one year.
The revenue associated with contract change orders is recognized only when the authorization for the change order has been
properly executed and the work has been performed.
When the estimate on a contract indicates a loss, or claims against costs incurred reduce the likelihood of recoverability of
such costs, the Company records the entire expected loss immediately, regardless of the percentage of completion.
For the years ended December 31, 2013 and 2012, billings in excess of cost and estimated earnings represents advanced
billings on certain construction contracts. Costs and estimated earnings in excess of billings represent certain amounts under
customer contracts that were earned and billable but not invoiced.
The Company sells certain products and services in bundled arrangements, where multiple products and/or services are
involved. The Company divides bundled arrangements into separate deliverables and revenue is allocated to each deliverable
based on the relative selling price. The relative selling price is determined using third party evidence or management’s best
estimate of selling price.
The Company recognizes revenues from the sale and delivery of products, including the output from renewable energy
plants, when produced and delivered to the customer, in accordance with specific contract terms, provided that persuasive
evidence of an arrangement exists, the Company’s price to the customer is fixed or determinable and collectability is
reasonably assured.
The Company recognizes revenue from operations and maintenance (“O&M”) contracts, consulting services and enterprise
energy management services as the related services are performed.
For a limited number of contracts under which the Company receives additional revenue based on a share of energy
savings, such additional revenue is recognized as energy savings are generated.
Cost of Revenues
Cost of revenues include the cost of labor, materials, equipment, subcontracting and outside engineering that are required
for the development and installation of projects, as well as preconstruction costs, sales incentives, associated travel, inventory
obsolescence charges, amortization of intangible assets related to customer contracts, and, if applicable, costs of procuring
financing. A majority of the Company’s contracts have fixed price terms; however, in some cases the Company negotiates
protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.
Cost of revenues also include the costs of maintaining and operating the small-scale renewable energy plants that the
Company owns, including the cost of fuel (if any) and depreciation charges.
Income Taxes
The Company provides for income taxes based on the liability method. The Company provides for deferred income taxes
based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets
and liabilities calculated using the enacted tax rates in effect for the year in which the differences are expected to be reflected in
the tax return.
The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving
uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes
in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters
subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates
uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant
facts surrounding the uncertain positions.
The Company’s liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished
through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the
examination process.
The Company considers matters to be effectively settled once the taxing authority has completed all of its required or
expected examination procedures, including all appeals and administrative reviews; the Company has no plans to appeal or
litigate any aspect of the tax position; and the Company believes that it is highly unlikely that the taxing authority would
examine or re-examine the related tax position. The Company also accrues for potential interest and penalties, related to
unrecognized tax benefits in income tax expense. See Note 8 for additional information on the Company’s income taxes.
Foreign Currency
The local currency of the Company’s foreign operations is considered the functional currency of such operations. All assets
and liabilities of the Company’s foreign operations are translated into U.S. dollars at year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the year. Translation adjustments are accumulated as a
separate component of stockholders’ equity. Foreign currency transaction gains and losses are reported in the consolidated
statements of income.
Financial Instruments
Financial instruments consist of cash and cash equivalents, restricted cash, accounts and notes receivable, long-term
contract receivables, accounts payable, accrued expenses, equity-based liabilities, short- and long-term debt and interest rate
swaps. The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable, long-term contract
receivables and accounts payable approximates their carrying value. See below for fair value measurements of long-term debt.
See Note 15 for fair value measurement of interest rate swaps.
Stock-Based Compensation Expense
Stock-based compensation expense results from the issuances of shares of restricted common stock and grants of stock
options to employees, directors, outside consultants and others. The Company recognizes the costs associated with restricted
stock and option grants using the fair value recognition provisions of ASC 718, Compensation - Stock Compensation on a
straight-line basis over the vesting period of the awards.
Stock-based compensation expense is recognized based on the grant-date fair value. The Company estimates the fair value
of the stock-based awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value
of stock-based awards requires the use of highly subjective assumptions, including the fair value of the common stock
underlying the award, the expected term of the award and expected stock price volatility.
The assumptions used in determining the fair value of stock-based awards represent management’s estimates, which
involve inherent uncertainties and the application of management judgment. As a result, if factors change, and different
assumptions are employed, the stock-based compensation could be materially different in the future. The risk-free interest rates
are based on the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected life of the
stock options.
The Company has no history of paying dividends. Additionally, as of each of the grant dates, there was no expectation that
the Company would pay dividends over the expected life of the options. The expected life of the awards is estimated using
historical data and management’s expectations. Because there was no public market for the Company’s common stock prior to
the Company’s initial public offering, management lacked company-specific historical and implied volatility information.
Therefore, estimates of expected stock volatility were based on that of publicly traded peer companies, and it is expected that
the Company will continue to use this methodology until such time as there is adequate historical data regarding the volatility
of the Company’s publicly traded stock price.
The Company is required to recognize compensation expense for only the portion of options that are expected to vest.
Actual historical forfeiture rate of options is based on employee terminations and the number of shares forfeited. This data and
other qualitative factors are considered by the Company in determining the forfeiture rate used in recognizing stock
compensation expense. If the actual forfeiture rate varies from historical rates and estimates, additional adjustments to
compensation expense may be required in future periods. If there are any modifications or cancellations of the underlying
unvested securities or the terms of the stock option, it may be necessary to accelerate, increase or cancel any remaining
unamortized stock-based compensation expense.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The Company also accounts for equity instruments issued to non-employee directors and consultants at fair value. All
transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more
reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the
counterparty’s performance is complete. No awards to individuals who were not either an employee or director of the Company
occurred during the years ended December 31, 2013, 2012 and 2011.
Fair Value Measurements
The Company follows the guidance related to fair value measurements for all of its non-financial assets and non-financial
liabilities, except for those recognized at fair value in the financial statements at least annually. These assets include goodwill
and long-lived assets measured at fair value for impairment assessments, and non-financial assets and liabilities initially
measured at fair value in a business combination.
The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts and notes receivable,
long-term contract receivables, interest rate swaps, accounts payable, accrued expenses, equity-based liabilities and short- and
long-term borrowings. Because of their short maturity, the carrying amounts of cash and cash equivalents, restricted cash,
accounts and notes receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value. The
carrying value of long-term variable-rate debt approximates fair value. As of December 31, 2013, the carrying value of the
Company’s fixed-rate long-term debt exceeds its fair value by approximately $1,419,592. This is based on quoted market prices
or on rates available to the Company for debt with similar terms and maturities.
The Company accounts for its interest rate swaps as derivative financial instruments in accordance with the related
guidance. Under this guidance, derivatives are carried on the Company’s consolidated balance sheets at fair value. The fair
value of the Company’s interest rate swaps are determined based on observable market data in combination with expected cash
flows for each instrument.
Derivative Financial Instruments
In the normal course of business, the Company utilizes derivatives contracts as part of its risk management strategy to
manage exposure to market fluctuations in interest rates. These instruments are subject to various credit and market risks.
Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. Credit risk
represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the
contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. The Company seeks to
manage credit risk by entering into financial instrument transactions only through counterparties that the Company believes to
be creditworthy.
Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by
changes in interest rates. The Company seeks to manage market risk by establishing and monitoring limits on the types and
degree of risk that may be undertaken. As a matter of policy, the Company does not use derivatives for speculative purposes.
The Company considers the use of derivatives with all financing transactions to mitigate risk.
During 2007, the Company entered into two fifteen-year interest rate swap contracts under which the Company agreed to
pay an amount equal to a specified fixed rate of interest times a notional principal amount, and to in turn receive an amount
equal to a specified variable rate of interest times the same notional principal amount. The swaps cover initial notional amounts
of $13,080,607 and $3,256,395, each a variable rate note at fixed interest rates of 5.4% and 5.3%, respectively, and expire in
March 2024 and February 2021, respectively. These interest rate swaps qualified, but were not designated, as cash flow hedges
until April 1, 2010. Since April 2010, they have been designated as hedges. Accordingly, the Company recognized the change
in fair value of these derivatives in the consolidated statements of income prior to April 1, 2010, and in the consolidated
statements of comprehensive income (loss) thereafter. Cash flows from derivative instruments were reported as operating
activities in the consolidated statements of cash flows.
In March 2010, the Company entered into a fourteen-year interest rate swap contract under which the Company agreed to
pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a
specified variable rate of interest times the same notional principal amount. The swap covers an initial notional amount of
approximately $27,900,000 variable rate note at a fixed interest rate of 6.99% and expires in December 2024. As of December
31, 2012 this swap had not been designated as a hedge. For the years ended December 31, 2013, 2012 and 2011, the Company
has recorded an unrealized (gain) loss in earnings of $(266,414), $98,026 and $1,313,587, respectively, as other expenses, net
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
in the consolidated statements of income. Effective March 29, 2013, the Company has designated the March 2010 interest rate
swap as a hedge using the “long-haul” method. As of the March 2013 effective date the Company recognizes the change in fair
value of this derivative in the consolidated statements of comprehensive income (loss).
In July 2011, the Company entered into a five-year interest rate swap contract under which the Company agreed to pay an
amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified
variable rate of interest times the same notional principal amount. The swap covers an initial notional amount of $38,571,429
variable rate note at a fixed interest rate of 1.965% and expires in June 2016. This interest rate swap has been designated as a
hedge since inception and the Company recognizes the change in fair value of this derivative in the consolidated statements of
comprehensive income (loss).
In October 2012, the Company entered into two eight-year interest rate swap contracts under which the Company agreed to
pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a
specified variable rate of interest times the same notional principal amount. The swaps cover an initial notional amount of
$16,750,000 variable rate note at a fixed interest rate of 1.71%. This notional amount increased to $42,247,327 on September
30, 2013 and expires in March 2020. This interest rate swap has been designated as a hedge since inception and the Company
recognizes the change in fair value of this derivative in the consolidated statements of comprehensive income (loss).
In October 2012, the Company also entered into two eight-year forward starting interest rate swap contracts under which
the Company agreed to pay an amount equal to specified fixed rate of interest times a notional amount, and to in turn receive an
amount equal to a specified variable rate of interest times the same notional principal amount. The swaps cover an initial
notional amount of $25,377,063 variable rate note at a fixed interest rate of 3.70%, with an effective date of March 31, 2020,
and expires in June 2028. This interest rate swap has been designated as a hedge since inception and the Company recognizes
the change in fair value of this derivative in the consolidated statements of comprehensive income (loss).
See Notes 14, 15 and 16 for additional information on the Company’s derivative instruments.
Earnings Per Share
Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares, including
vested restricted shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using: the weighted-
average outstanding common shares; the dilutive effect of convertible preferred stock, under the “if converted” method; and the
treasury stock method with regard to warrants and stock options; all as determined under the treasury stock method.
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities:
2013
2,414,187
Year Ended December 31,
2012
2011
$
18,360,133
$
33,412,933
45,560,078
44,649,275
42,587,818
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . .
859,121
46,419,199
1,346,188
45,995,463
2,119,314
44,707,132
For the years ended December 31, 2013, 2012 and 2011, 1,856,591, 681,688 and 88,688 shares of common stock,
respectively, related to stock options were excluded from the calculation of dilutive shares since the inclusion of such shares
would be anti-dilutive.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit when
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB
Emerging Issues Task Force). The amendments in this ASU provide guidance on the financial statement presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An
unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized
tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new
recurring disclosures and are effective for fiscal years, and interim periods within those years, beginning after December 15,
2013. The Company is currently assessing the impact of this ASU on its consolidated financial statements.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
3. BUSINESS ACQUISITIONS AND RELATED TRANSACTIONS
The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, Business
Combinations. The purchase price for each has been allocated to the assets based on their estimated fair values at the date of
each acquisition as set forth in the table below. The excess purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. Intangible assets identified have been recorded and are being amortized over periods
ranging from one to fourteen years. See Note 4 for additional information. The unaudited pro forma results of operations for the
current and prior periods are not presented due to the insignificant impact of the 2013 acquisitions on the Company’s
consolidated results of operations.
In June 2013, the Company acquired ESP, comprising two energy management consulting companies and located in
Castleford, United Kingdom. The Company paid $8,764,506 to acquire all of the outstanding stock of the ESP companies. The
purchase price is subject to post-closing adjustments for working capital and for certain indemnity obligations of the selling
stockholders. The Company deposited approximately $777,710 of the initial cash payment with a third-party escrow agent as
security for these matters.
In February 2013, the Company acquired substantially all of the assets of Ennovate, an energy service company active
throughout Colorado, Nebraska, Kansas, Montana and Wyoming, serving customers that include schools, higher education
facilities, municipalities and counties. The Company paid $1,765,556 to acquire these assets. The purchase price is subject to
post-closing adjustments for working capital and for certain indemnity obligations of the seller. The Company deposited
approximately $1,200,000 of the initial cash payment with a third-party escrow agent as security for these matters.
In July 2012, the Company’s wholly owned subsidiary Ameresco Canada Inc. acquired FAME, a privately held company
offering infrastructure asset management solutions serving both public and private sector customers primarily in western
Canada. The Company made a cash payment of $4,486,950 to acquire all of the outstanding stock of FAME. The Company
deposited approximately $900,000 of the purchase price with a third-party escrow agent as security for the selling stockholders’
indemnification obligations under the terms of the acquisition agreement.
In December 2011, the Company’s wholly owned subsidiary AIS acquired the xChange Point® and energy projects
businesses, including automated demand response, from EPS. The Company made an initial cash payment of $4,497,141 to
acquire these assets. The purchase price is subject to post-closing adjustments for pro-ration of certain revenue and expense
items and for certain indemnity obligations of EPS. The Company deposited approximately $900,000 of the initial cash
payment with a third-party escrow agent as security for these matters.
In August 2011, the Company acquired Ameresco Southwest (then known as APS Energy Services, Inc.) from Pinnacle
West Capital Corporation. The Company made a cash payment of $50,057,113 to acquire all of the outstanding stock of
Ameresco Southwest.
In July 2011, the Company acquired all of the outstanding capital stock of AEG for an initial cash payment of $11,993,236.
The Company deposited $1,000,000 of the purchase price with a third-party escrow agent as security for the selling
stockholders’ indemnity obligations under the terms of the acquisition agreement. The former stockholders of AEG, all of
whom are now employees of the Company, may be entitled to receive up to $5,000,000 in additional consideration if AEG
meets certain financial performance milestones. The fair value of the additional consideration was estimated to be $1,652,000,
and is included in other liabilities in the purchase allocation table below. As of December 31, 2012 the Company recorded
$1,075,112 to accrue for the valuation of the current commitment. As of December 31, 2013 no amount was accrued for the
valuation of the current commitment.
In August 2010, the Company acquired Quantum Engineering and Development Inc. (“Quantum”) for an initial cash
payment of $6,150,000. During April 2011, the Company made an additional payment of $1,956,366 in accordance with certain
provisions of the stock purchase agreement with the former shareholders of Quantum. The payment has been reflected
retrospectively as additional goodwill in the accompanying consolidated balance sheets in accordance with ASC 805, Business
Combinations.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
A summary of the cumulative consideration paid and the allocation of the purchase price of all of the acquisitions in each
respective year is as follows:
Cash . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . .
Costs and estimated earnings
in excess of billings . . . . . . .
Inventory. . . . . . . . . . . . . . . .
Prepaid expenses and other
current assets. . . . . . . . . . . . .
Project development costs . .
Property and equipment and
project assets. . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . .
Intangible assets(1) . . . . . . . .
Other assets. . . . . . . . . . . . . .
Accounts payable . . . . . . . . .
Accrued liabilities. . . . . . . . .
Billings in excess of cost and
estimated earnings . . . . . . . .
Deferred taxes and other
liabilities . . . . . . . . . . . . . . . .
Purchase price . . . . . . . . .
Total, net of cash
received . . . . . . . . . . . . . .
Total fair value of
consideration . . . . . . . . . .
2013
2012
ESP
$ 1,291,697
$
Ennovate
— $
FAME
809,557
$
AEG
314,642
$
2011
Ameresco
Southwest
— $
360,924
411,128
320,997
4,138,015
14,149,703
AIS
—
—
—
—
— 11,269,294
—
—
163,340
47,193
107,715
—
62,345
—
33,329
—
—
130,044
546,608
117,468
—
1,166,565
—
75,054
2,631,562
4,504,496
—
—
1,710
—
595,000
—
(47,625)
(365,060)
(606,938)
—
62,897
43,115
7,301
6,447,299
1,050,303
1,886,945
8,728,169
16,545,434
2,099,990
100
(5,713)
(617,731)
4,904,000
52,062
(1,610,734)
(1,011,032)
7,019,000
—
(1,992,748)
(3,414,198)
—
(107,890)
(158,025)
—
(1,157,837)
—
$ 8,764,506
$ 1,765,556
— (3,591,532)
$11,993,236
$ 4,486,950
—
—
$50,057,113
$ 4,497,141
$ 7,472,809
$ 1,765,556
$ 3,677,393
$11,678,594
$50,057,113
$ 4,497,141
$ 8,764,506
$ 1,765,556
$ 4,486,950
$11,993,236
$50,057,113
$ 4,497,141
216,297
1,549,467
2,557,000
—
—
(65,627)
(100,573)
—
(1) Intangible assets acquired in 2013 consisted of customer contracts, customer relationships and non-compete assets of
$5,099,496 and were assigned a weighted average useful life of 5.9 years.
The allocation of the purchase price for the 2013 acquisitions are preliminary, based on management’s current best
estimates and subject to revision.
The results of the acquired companies since the dates of the acquisitions have been included in the Company’s operations
as presented in the accompanying consolidated statements of income, consolidated statements of comprehensive income (loss)
and consolidated statements of cash flows.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
4. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying value of goodwill attributable to each reportable segment are as follows:
U.S. Regions
Balance, December 31, 2011 . . . . . . $23,708,555
—
Goodwill acquired during the year .
—
Goodwill impairment . . . . . . . . . . . .
Currency effects . . . . . . . . . . . . . . . .
—
Balance, December 31, 2012 . . . . . .
Goodwill acquired during the year .
Currency effects . . . . . . . . . . . . . . . .
—
Balance, December 31, 2013 . . . . . . $24,758,858
Accumulated Goodwill Impairment
Balance, December 31, 2012 . . . . . . $
Accumulated Goodwill Impairment
Balance, December 31, 2013 . . . . . . $
23,708,555
1,050,303
U.S. Federal
$ 3,374,967
Canada
$ 2,874,383
Small-Scale
Infrastructure
$
Other
— $17,923,441
Total
$47,881,346
—
1,886,945
— (1,016,325)
82,109
—
—
—
—
134,315
2,021,260
— (1,016,325)
82,109
—
3,374,967
3,827,112
— 18,057,756
48,968,390
—
—
—
296,622
—
—
2,631,562
3,681,865
127,485
424,107
$ 3,374,967
$ 4,123,734
$
— $20,816,803
$53,074,362
— $
— $
— $ (1,016,325) $
— $
— $ (1,016,325)
— $ (1,016,325) $
— $
— $ (1,016,325)
The measurement periods for purchase price allocations end as soon as information on the facts and circumstances
becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a recasting of the
amounts allocated to goodwill retroactively to the periods in which the acquisitions occurred.
In accordance with ASC 350, goodwill was tested for impairment as of December 31, 2013, 2012 and 2011 at the reporting
unit level using a discounted cash flow method under the income approach and with a peer-based, risk-adjusted weighted
average cost of capital. No instances of impairment were identified in the December 31, 2013 or 2011 assessments. Based on
the Company’s goodwill impairment assessment, all of the Company’s reporting units with goodwill had estimated fair values
as of December 31, 2013 that exceeded their carrying values by greater than 11%.
Upon completion of the annual step 1 assessment for the year ended December 31, 2012, Canada goodwill related to the
Byrne acquisition (acquired in November 2009), was determined to be likely impaired. The impairment was the result of its
fair value at the measurement date being less than its carrying amount. As the annual assessment indicated that Byrne’s
carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test (“Step 2”) was performed
specific to Byrne. Under Step 2, the fair value of all Byrne’s assets and liabilities were estimated, including tangible and
intangible assets. The implied fair value of the goodwill being a residual was then compared to the recorded goodwill to
determine the amount of impairment. As a result of this analysis a $1,016,325 goodwill impairment charge was recorded in the
Company’s consolidated statement of income for the year ended December 31, 2012.
Customer contracts are amortized ratably over the period of the acquired customer contracts ranging in periods from
approximately one to five years. All other intangible assets are amortized over periods ranging from approximately four to
fourteen years, as defined by the nature of the respective intangible asset.
Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. The Company
annually assesses whether a change in the life over which the Company’s assets are amortized is necessary or more frequently
if events or circumstances warrant. No changes to useful lives were made during the years ended December 31, 2013, 2012 and
2011.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The gross carrying amount and accumulated amortization of intangible assets are as follows:
Gross Carrying Amount
Customer contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Customer relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Amortization
Customer contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
2012
7,683,845
$
5,757,720
8,200,132
3,229,520
2,385,652
556,515
5,642,815
2,386,124
2,429,362
561,499
22,055,664
16,777,520
5,349,464
2,923,485
1,871,587
1,298,860
359,087
3,814,621
1,282,035
945,829
756,566
235,591
11,802,483
7,034,642
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,253,181
$
9,742,878
Amortization expense related to customer contracts is included in cost of revenues in the consolidated statements of
income. Amortization expense related to customer relationships, non-compete agreements, technology and trade names is
included in selling, general and administrative expenses in the consolidated statements of income. Amortization expense for
the years ended December 31, 2013, 2012 and 2011 is as follows:
Customer contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Customer relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
1,550,247
Year Ended December 31,
2012
2,450,178
$
$
1,642,892
1,265,106
967,646
517,151
124,085
723,626
670,654
172,606
2011
1,364,443
16,929
222,203
85,912
62,985
4,802,021
$
5,282,170
$
1,752,472
Estimated amortization expense for existing intangible assets for the next five succeeding fiscal years is as follows:
2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Amortization
Included in Cost of
Revenues
$
1,568,124
Included in Selling,
General and
Administrative Expenses
2,576,896
$
544,315
226,837
38,668
—
1,990,205
1,189,781
859,411
590,485
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Computer equipment and software costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less - accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31,
2013
5,001,936 $
15,969,900
2,559,688
1,054,708
520,379
25,106,611
(16,407,563)
8,699,048 $
2012
3,899,585
15,289,647
2,460,314
952,438
520,379
23,122,363
(13,735,145)
9,387,218
Depreciation expense on property and equipment for the years ended December 31, 2013, 2012 and 2011 was $3,077,902,
$2,828,540 and $2,554,867, respectively, and is included in selling, general and administrative expenses in the accompanying
consolidated statements of income.
6. PROJECT ASSETS
Project assets consist of the following:
Project assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,418,446 $ 253,699,036
(46,424,054)
Less - accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 210,744,176 $ 207,274,982
(59,674,270)
December 31,
2013
2012
In 2013, 2012 and 2011, the Company received $3,262,463, $6,023,767 and $6,695,711, respectively, in grant awards from
the Treasury under Section 1603 of the 2009 American Recovery and Reinvestment Act. The Act authorizes the Treasury to
make payments to eligible persons who place in service qualifying renewable energy projects. The grants are paid in lieu of
investment tax credits. All of the cash proceeds from the grants were used and recorded as a reduction in the cost basis of the
applicable project assets. If the Company disposes of the property, or the property ceases to qualify as a specified energy
property, within five years from the date the property is placed in service, then a prorated portion of the Section 1603 payment
must be repaid. For tax purposes, the Section 1603 payments are not included in federal and certain state taxable income and
the basis of the property is reduced by 50% of the payment received. Deferred grant income of $8,163,368 and $7,590,730 in
the accompanying consolidated balance sheets at December 31, 2013 and 2012, respectively, represents the benefit of the basis
difference to be amortized to income tax expense over the life of the related property.
The Company has received cash rebates from a utility company, which were accounted for as reductions in the book value
of the related project assets. The rebates were one-time payments based on the cost and efficiency of the installed units, and are
earned upon installation and inspection by the utility. The payments are not related to, or subject to adjustment based on, future
operating performance. The rebates were payable from the utility to the Company and are applied against the cost of
construction, thereby reducing the book value of the corresponding project assets and have been treated as an investing activity
in the accompanying consolidated statements of cash flows. No rebates were received during the years ended December 31,
2013 and 2011. The Company received rebates of $1,287,000 during the year ended and December 31, 2012.
Depreciation and amortization expense on the above project assets for the years ended December 31, 2013, 2012 and 2011
was $12,594,590, $11,229,380 and $9,701,399, respectively, and is included in cost of revenues in the accompanying
consolidated statements of income.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
7. LONG-TERM DEBT
Long-term debt comprised the following:
Senior secured credit facility, due June 2016, interest at varying rates monthly in arrears. . $
7.299% term note payable in semi-annual installments through March 2013 . . . . . . . . . . . .
8.673% term loan payable in quarterly installments through December 2015 . . . . . . . . . . .
6.345% term loan payable in semi-annual installments through February 2021 . . . . . . . . . .
6.345% term loan payable in semi-annual installments through June 2024 . . . . . . . . . . . . .
Variable rate construction to term loan payable in quarterly installments through
December 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.500% term loan payable in monthly installments through October 2017. . . . . . . . . . . . . .
7.250% term loan payable in quarterly installments through March 2021 . . . . . . . . . . . . . .
6.110% term loan payable in monthly installments through June 2028. . . . . . . . . . . . . . . . .
Variable rate construction to term loan payable in quarterly installments through June
2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
25,714,285 $
32,857,143
—
1,665,649
2,192,065
638,000
2,535,649
2,395,034
11,059,196
11,596,312
18,557,635
20,517,563
459,491
4,257,772
7,028,145
553,462
4,745,850
7,778,390
45,261,198
37,800,000
—
114,284
116,195,436
121,531,687
Less - current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,452,678
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,221,845 $ 109,079,009
12,973,591
Aggregate maturities of long-term debt for the years ended December 31, are as follows:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,973,591
13,286,916
21,447,444
6,921,164
6,723,431
54,842,890
$ 116,195,436
Senior Secured Credit Facility - Revolver and Term Loan
On June 30, 2011, the Company amended and restated the credit and security agreement and continues as the sole
borrower under the agreement. The amended and restated facility extends and expands the Company’s prior facility. The
facility consists of a $60,000,000 revolving credit facility and a $40,000,000 term loan. The revolving credit facility may be
increased up to an additional $25,000,000 at the Company’s option, if the lenders agree. The facility matures on June 30, 2016,
and all remaining unpaid amounts outstanding under the facility will be due at that time. At December 31, 2013 and 2012, no
amounts were outstanding under the revolving credit facility and $25,714,285 and $32,857,143, respectively, was outstanding
under the term loan. Payments on the term loan are due in quarterly installments of $1,428,571 together with accrued but
unpaid interest, with all remaining unpaid principal amounts due June 30, 2016. The obligations under the facility are
guaranteed by certain of the Company’s subsidiaries and are secured by a lien on all of the assets of the Company other than
renewable energy projects that the Company owns and that are financed by others. The agreement contains certain financial
covenants. In November 2013, the Company amended the senior credit facility to reduce the trailing four quarters minimum
required EBITDA amount to $30.0 million from $40.0 million. At December 31, 2012 the Company was in compliance with all
financial covenants. Subsequent to December 31, 2013, the Company further amended the credit and security agreement. See
Note 18 for additional details.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
7.299% Term Loan
The Company had a term loan with a bank with an original principal amount of $10,000,000. The notes evidencing the
loan bear interest at a rate of 7.299% per annum. The principal payments were due in semi-annual installments ranging from
$597,000 to $638,500, plus interest. The remaining principal balance and unpaid interest were paid prior to March 31, 2013.
8.673% Term Loan
The Company has a construction and term loan agreement with a finance company with a total commitment amount of
$7,250,000. The notes evidencing the construction portion of the loan bear interest at a variable rate based on LIBOR. In
February 2007, the Company converted the construction loan into a term loan in accordance with the loan agreement. The
original balance of the term loan was equal to the commitment amount and bears interest at a fixed rate of 8.673% per annum.
The principal payments are due in quarterly installments of $217,500, plus interest, with remaining principal balances and
unpaid interest due December 31, 2015.
As of December 31, 2013 and 2012, $1,665,649 and $2,535,649, respectively, was outstanding under the term loan.
In the event a payment is defaulted on, the payee has the option to accelerate payment terms and make due the remaining
principal and accrued interest balance.
Variable-Rate Construction and 6.345% Term Loans
On January 30, 2006, the Company entered into a master construction and term loan facility with a bank for use in
providing limited recourse financing for certain of its landfill gas (“LFG”) to energy projects. The total loan commitment is
$17,156,395, and is comprised initially of two tranches, but structured for the addition of subsequent projects that meet lender
credit requirements.
The first loan has an original balance of $3,239,734, and bears an interest rate of 6.345% per annum. The remaining
principal payments are due in semi-annual installments ranging from $95,909 to $275,461, plus interest, with the remaining
principal and unpaid interest due February 26, 2021.
The second loan was originated on September 28, 2007. Prior to 2010, the Company had made draws as construction loans
and had converted the construction loans into a term loan for a total term loan balance of $13,080,607. The loan bears interest
at a variable rate, with interest payments due in quarterly installments. The remaining principal amounts are due in semi-
annual installments ranging from $226,705 to $1,178,885, with principal and unpaid interest due on June 30, 2024. The interest
rate at December 31, 2013 was 1.998%.
As of December 31, 2013 and 2012, $13,251,261 and $13,991,346, respectively, was collectively outstanding under this
facility.
In the event a payment is defaulted on, the payee has the option to accelerate payment terms and make due the remaining
principal and accrued interest balance.
Variable-Rate Construction and Term Loans
In February 2009, the Company entered into a construction and term loan financing agreement with a bank for use in
providing limited recourse financing for certain of its LFG to energy projects. The total loan commitment under the agreement
is $37,905,983, and bears interest at a variable rate. Prior to and during March 2010, the Company had construction draws
totaling $27,867,627. During March 2010, the Company converted all of the construction loans to a single term loan balance of
$27,867,627. The loan bears interest at a variable rate, with interest payments due in quarterly installments. The remaining
principal amounts are due in quarterly installments ranging from $206,211 to $1,239,133, after an initial payment of
$2,424,302 paid on March 31, 2010, with principal and unpaid interest due on December 31, 2024. As of December 31, 2013
and 2012, the outstanding balance under the term loan was $18,557,635 and $20,517,563, respectively. The rate at
December 31, 2013 was 3.498%.
6.500% Term Loan
The Company has a term loan agreement with a finance company with a total loan amount of $754,587. The note
evidencing the loan bears interest at a fixed rate of 6.500% per annum. Principal and interest payments are due in monthly
installments of $11,312, with the final payment being due October 1, 2017.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
As of December 31, 2013 and 2012, $459,491 and $553,462, respectively, was outstanding under the term loan. In the
event a payment is defaulted on, the payee has the option to accelerate payment terms and make due the remaining principal
and accrued interest balance.
7.250% Term Loan
On March 31, 2011, the Company entered into a term loan with a bank with an original principal amount of $5,500,089.
The note evidencing the loan bears interest at a rate of 7.25% per annum. The remaining principal amounts are due in quarterly
installments ranging from $126,127 to $170,891, plus interest, with remaining principal balances and unpaid interest due
March 31, 2021. In the event a payment is defaulted on, the payee has the option to accelerate payment terms and make due
the remaining principal and accrued interest balance. At December 31, 2013 and 2012, $4,257,772 and $4,745,850,
respectively, was outstanding under the term loan.
6.110% Construction and Term Loan
On October 3, 2011, the Company entered into a construction and term loan with a syndication group with an original
principal amount of $7,380,068. The note evidencing the loan bears interest at a rate of 6.11% per annum. Monthly interest
only payments were due from November 1, 2011 to June 1, 2013. The remaining principal amounts were due starting on June
1, 2013 in monthly installments ranging from $0 to $87,983, plus interest, with remaining principal balances and unpaid
interest due June 1, 2028. At December 31, 2013 and 2012, $7,028,145 and $7,778,390, respectively, was outstanding under the
term loan.
Variable-Rate Construction and Term Loans -
In October 2012, the Company entered into a credit and guaranty agreement with two banks for use in providing limited
recourse financing for certain of its LFG to energy and solar PV projects. The credit and guaranty agreement provides for a
$47,200,000 construction-to-term loan credit facility and bears interest at a variable rate. At December 31, 2013 and 2012,
$45,261,198 and $37,800,000 was outstanding under construction loans. The rate at December 31, 2013 was 3.250%.
8. INCOME TAXES
The components of income before income taxes are as follows:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2012
2013
7,704,867 $
(4,945,999)
2,758,868 $
29,400,084 $
(4,793,198)
24,606,886 $
2011
43,255,574
924,531
44,180,105
The components of the provision (benefit) for income taxes are as follows:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
Year Ended December 31,
2012
2011
10,113,618 $
9,135,447 $
3,499,649
370,837
732,514
177,713
13,984,104
10,045,674
(10,073,322)
(273,221)
(277,157)
(10,623,700)
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,315,323)
(2,098,983)
(1,225,117)
(13,639,423)
$
344,681 $
(2,586,080)
85,387
(1,298,228)
(3,798,921)
6,246,753 $
18,724,198
1,826,239
840,435
21,390,872
10,767,172
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The Company’s deferred tax assets and liabilities result primarily from temporary differences between financial reporting
and tax recognition of depreciation, reserves, and certain accrued liabilities.
Deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Compensation accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contract refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31,
2013
2012
3,121,734 $
2,151,789
3,110,186
2,343,662
345,350
1,073,383
9,524,077
1,623,608
2,603,512
1,302,684
267,996
3,125,847
1,225,197
1,336,827
21,142,000
(1,952,761)
19,189,239
$
12,013,852
(2,827,444)
9,186,408
(23,504,155) $
(709,773)
(443,666)
(765,090)
(242,326)
(25,665,010)
(6,475,771) $
(26,839,863)
(725,328)
(949,850)
—
(368,878)
(28,883,919)
(19,697,511)
The Company recorded a valuation allowance in the amount of $1,952,761 and $2,827,444 as of December 31, 2013 and
2012, respectively, related to the following items. The Company recorded a deferred tax asset relating to interest rate swaps in
the amount of $1,687,586 and $2,559,448 as of December 31, 2013 and 2012, respectively. The deferred tax asset represents a
future capital loss which can only be recognized for income tax purposes to the extent of capital gain income. Although the
Company anticipates sufficient future taxable income, it is more likely than not, it will not be of the appropriate character to
allow for the recognition of the future capital loss. The Company recorded a deferred tax asset relating to a state net operating
loss of $265,175 and $267,996 at one of its subsidiaries as of December 31, 2013 and 2012, respectively. It is more likely than
not that the Company will not generate sufficient taxable income at the subsidiary level to utilize the net operating loss.
The provision for income taxes is based on the various rates set by federal and local authorities and is affected by
permanent and temporary differences between financial accounting and tax reporting requirements.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The following is a reconciliation of the effective tax rates:
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Federal statutory tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . .
Net state impact of deferred rate change . . . . . . . . . . . . . . . . . . . . . .
Non deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . .
Energy efficiency preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign items and rate differential. . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2,758,868
Year Ended December 31,
2012
2011
$ 24,606,886
$ 44,180,105
965,604
$
8,612,410
$ 15,463,037
200,981
(69,342)
2,007,657
373,398
817,901
1,553,018
—
(259,339)
2,611,576
336,564
115,629
240,557
(3,556,074)
(7,032,798)
(6,247,283)
348,891
73,566
557,104
343,996
239,692
(338,139)
$
344,681
$
6,246,753
$ 10,767,172
Effective tax rate:
Federal statutory rate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . .
Net state impact of deferred rate change . . . . . . . . . . . . . . . . . . . . . .
Non deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . .
Energy efficiency preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign items and rate differential. . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0 %
7.3 %
(2.5)%
72.8 %
13.5 %
(128.9)%
12.6 %
2.7 %
12.5 %
35.0 %
3.3 %
— %
10.6 %
1.4 %
(28.6)%
2.3 %
1.4 %
25.4 %
35.0 %
3.5 %
(0.6)%
0.3 %
0.5 %
(14.1)%
0.5 %
(0.7)%
24.4 %
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for prior year tax positions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements paid to tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions of prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2012
2013
1,400,000
4,900,000 $
3,500,000
4,300,000
—
—
—
—
4,900,000
9,200,000 $
At December 31, 2013 and 2012, the Company had approximately $9,200,000 and $4,900,000, respectively, of total gross
unrecognized tax benefits. The current year increase in unrecognized tax benefits relates primarily to identification of non
deductible expenses. Of the total gross unrecognized tax benefits as of December 31, 2013 and 2012, $5,500,000 and
$3,400,000, respectively, (both net of the federal benefit on state amounts) represent the amount of unrecognized tax benefits
that, if recognized, would favorably affect the effective income tax rate in any future periods.
At December 31, 2013 the Company had state net operating loss carryforwards of approximately $8,500,000, which will
expire from 2014 through 2031. The portion of the state net operating loss relating to excess stock option deductions is
approximately $100,000. Any tax benefit resulting from excess stock option deductions is recorded as an adjustment to
additional paid in capital when realized.
The Company does not accrue U.S. tax for foreign earnings that it considers to be permanently reinvested outside the
United States. Consequently, the Company has not provided any U.S. tax on the unremitted earnings of its foreign subsidiaries.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
As of December 31, 2013, the amount of earnings for which no repatriation tax has been provided was $24,400,000. It is not
practicable to estimate the amount of additional tax that might be payable on those earnings if repatriated.
At December 31, 2013 the company had a federal tax credit carryforward of approximately $5,400,000 which will expire
at various times through 2033. The portion of the federal tax credit relating to excess stock option deductions is approximately
$5,000,000, the tax benefit of which will be recorded as an adjustment to additional paid in capital when realized.
The tax years 2007 through 2013 remain open to examination by major taxing jurisdictions. The Company accounts for
interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. The (decrease)
increase included in tax expense for the years end December 31, 2013, 2012 and 2011 were $(100,000), $300,000 and
$(900,000), respectively.
9. STOCKHOLDERS’ EQUITY
The Company has authorized 500,000,000 shares of Class A common stock, par value $0.0001 per share, 144,000,000
shares of Class B common stock, par value $0.0001 per share, and 5,000,000 shares of Preferred Stock, par value $0.0001 per
share. The rights of the holders of the Company’s Class A common stock and Class B common stock are identical, except with
respect to voting and conversion. Each share of the Company’s Class A common stock is entitled to one vote per share and is
not convertible into any other shares of the Company’s capital stock. Each share of the Company’s Class B common stock is
entitled to five votes per share, is convertible at any time into one share of Class A common stock at the option of the holder of
such share and will automatically convert into one share of Class A common stock upon the occurrence of certain specified
events, including a transfer of such shares (other than to such holder’s family members, descendants or certain affiliated
persons or entities). The Company’s Board of Directors is authorized to fix the rights and terms for any series of preferred stock
without additional shareholder approval.
During the fourth quarter of the year ended December 31, 2013 the Company retired 4,833,284 shares of Class A common
stock previously recorded as treasury shares.
10. STOCK INCENTIVE PLAN
In 2000, the Company’s Board of Directors approved the Company’s 2000 Stock Incentive Plan (the “2000 Plan”) and
between 2000 and 2010 authorized the Company to reserve a total of 28,500,000 shares of its then authorized common stock,
par value $0.0001 per share (”Common Stock”) for issuance under the 2000 Plan. The 2000 Plan provided for the issuance of
restricted stock grants, incentive stock options and nonqualified stock options. The Company will grant no further stock
options or restricted awards under the 2000 Plan.
The Company’s 2010 Stock Incentive Plan (the “2010 Plan”), was adopted by the Company’s Board of Directors in May
2010 and approved by its stockholders in June 2010. The 2010 Plan provides for the grant of incentive stock options, non-
statutory stock options, restricted stock awards and other stock-based awards. Upon its effectiveness, 10,000,000 shares of the
Company’s Class A common stock were reserved for issuance under the 2010 Plan. As of December 31, 2013, the Company
had granted options to purchase 1,562,504 shares of Class A common stock under the 2010 Plan. The 2013 options were
granted at a weighted average exercise price of $9.10 per share.
Stock Option Grants
The Company has granted stock options to certain employees and directors, including its principal and controlling
stockholder, under the 2000 Plan. The Company has also granted stock options to certain employees and directors under the
2010 Plan. At December 31, 2013, 8,535,127 shares were available for grant under the 2010 Plan.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The following table summarizes the collective activity under the 2000 Plan and the 2010 Plan:
Number of
Options
Weighted-Average
Exercise Price
Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected to vest at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,274,000
$
257,500
(2,790,188)
(316,700)
5,424,612
706,644
(1,306,145)
(46,968)
4,778,143
598,360
(682,619)
(120,506)
4,573,378
3,067,015
1,492,239
$
$
$
3,309,722 $
4.177
12.520
2.305
10.787
5.151
11.782
2.651
2.749
6.794
9.101
3.037
11.691
7.528
6.074
10.489
4.986
(1) Grants are related to the 2010 Plan.
The weighted-average remaining contractual life of options expected to vest at December 31, 2013 was 8.36. The total
intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $4,224,406, $12,829,917,
and $31,757,430, respectively.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The following table summarizes information about stock options outstanding at December 31, 2013:
Outstanding Options
Exercisable Options
Related Plan
2000 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2000 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
2010 Plan . . . . . . . . . . . . . . . . . .
Exercise Price
$
2.750
3.000
3.250
3.410
4.220
6.055
7.150
8.390
8.480
8.860
9.450
10.690
10.750
10.950
11.630
11.980
13.045
14.810
16.290
Number
Outstanding
324,231
13,600
580,044
442,462
210,050
966,400
30,000
50,000
100,000
24,360
374,000
20,000
50,000
140,000
155,093
446,450
558,000
60,000
28,688
4,573,378
Weighted-
Average
Remaining
Term
0.49
1.07
2.19
3.05
3.66
5.50
9.31
9.41
9.69
9.44
9.56
9.81
8.41
7.71
8.46
8.32
6.32
7.40
7.07
Weighted-
Average
Exercise Price
$
2.750
3.000
3.250
3.410
4.220
6.055
7.150
8.390
8.480
8.860
9.450
10.690
10.750
10.950
11.630
11.980
13.045
14.810
16.290
Number
Exercisable
Weighted-
Average
Exercise Price
2.750
3.000
3.250
3.410
4.220
6.055
7.150
8.390
8.480
8.860
9.450
10.690
10.750
10.950
11.630
11.980
13.045
14.810
16.290
324,231 $
13,600
580,044
442,462
210,050
839,100
—
—
—
—
—
—
10,000
72,000
36,028
89,930
414,100
24,000
11,470
3,067,015
During the year ended December 31, 2013, a total of 682,619 shares were issued upon the exercise of options under the
2000 Plan at an average price of $3.037 per share. Cash received from option exercises under all stock-based payment
arrangements, net, for the years ended December 31, 2013, 2012 and 2011 was $2,073,227, $3,462,679 and $6,407,804,
respectively.
Under the 2000 Plan and the 2010 Plan, all options expire if not exercised within ten years after the grant date. Historically,
options generally provided for vesting over five years, with 20% vesting on the first anniversary of the grant date and 5%
vesting every three months thereafter. During 2011, the Company began awarding options generally providing for vesting over
five years, with 20% vesting on each of the first five anniversaries of the grant date. From time to time, the Company awards
options providing for vesting over three years, with one-third vesting on each of the first three anniversaries of the grant date. If
the employee ceases to be employed by the Company for any reason before vested options have been exercised, the employee
has 90 days to exercise options that have vested as of the date of such employee’s termination or they are forfeited.
The Company uses the Black-Scholes option pricing model to determine the weighted-average fair value of options
granted. The Company will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting
period of the award.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the
stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected
dividends. The following table sets forth the significant assumptions used in the model during 2013, 2012 and 2011:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
—%
1.03%-2.18%
34%-52%
6.0-6.5 years
2012
—%
2011
—%
0.82%-1.25% 1.35%-2.58%
32%
6.5 years
32%-33%
6.0-6.5 years
The Company will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to the
stock-based compensation on a prospective basis, and incorporating these factors into the Black-Scholes pricing model. Higher
volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant.
In addition, any changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation
expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period that the forfeiture
estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made
that will result in a decrease to the stock-based compensation expense recognized in the accompanying consolidated financial
statements. If a revised forfeiture rate is lower than the previously estimated rate, an adjustment is made that will result in an
increase to the stock-based compensation expense recognized in the accompanying consolidated financial statements. These
expenses will affect the cost of revenues, salaries and benefits and project development costs expenses.
The weighted-average fair value of stock options granted during the years ended December 31, 2013, 2012 and 2011,
under the Black-Scholes option pricing model was $3.66, $4.03 and $5.59, respectively, per share. For the years ended
December 31, 2013, 2012 and 2011, the Company recorded stock-based compensation expense of approximately $2,799,403,
$3,351,142, and $2,865,706, respectively, in connection with stock-based payment awards. The compensation expense is
allocated between cost of revenues and selling, general and administrative expenses in the accompanying consolidated
statements of income based on the salaries and work assignments of the employees holding the options. As of December 31,
2013, there was approximately $5,984,747 of unrecognized compensation expense related to non-vested stock option awards
that is expected to be recognized over a weighted-average period of 2.88 years.
11. EMPLOYEE BENEFITS
The Company has salary reduction/profit sharing plans under the provisions of Section 401(k) of the Internal Revenue
Code. The plans cover all employees who have completed the minimum service requirement, as defined by the plans. The plans
require the Company to contribute 100% of the first six percent of base compensation that a participant contributes to the plans.
Matching contributions made by the Company were $4,524,062, $3,604,741 and $2,859,197 for the years ended December 31,
2013, 2012 and 2011, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain administrative offices. The leases are long-term noncancelable real estate lease agreements,
expiring at various dates through fiscal 2018. The agreements generally provide for fixed minimum rental payments and the
payment of utilities, real estate taxes, insurance and repairs. Rent and related expenses for the years ended December 31, 2013,
2012 and 2011 was $4,946,567, $5,030,781 and $4,286,991 respectively.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
The Company’s estimated minimum future lease obligations under operating leases are as follows:
Year ended December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,049,107
2,715,146
2,114,250
1,874,978
771,542
428,707
Total minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,953,730
Operating Leases
Legal Proceedings
The Company also is involved in a variety of claims and other legal proceedings generally incidental to its normal business
activities. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the
ultimate resolution of any of these existing matters would have a material adverse effect on its financial condition or results of
operations.
Solar Tariff Contingency
In October 2012, the U.S. Department of Commerce (“Commerce”) announced its final determination in the anti-dumping
and countervailing duty investigations of imports of solar cells manufactured in the People’s Republic of China (“PRC”),
including solar modules containing such cells. Commerce’s final determination confirmed its previously published anti-
dumping duty of 249.96%, in the case of the Company, and increased its countervailing duty from 3.61% to 15.24%; both
duties are applied to the value of imports of solar modules containing PRC cells. Under Commerce’s determination, the anti-
dumping and countervailing duties both were to apply retroactively 90 days from the date each preliminary decision was
published to February 25, 2012 and December 21, 2011, respectively. On November 7, 2012, the International Trade
Commission announced its final determination upholding the duties, but eliminating the retroactive periods. Since early 2012,
the Company has been importing solar modules containing PRC cells, though it ceased doing so in July 2012 in response to
these duties. The Company is monitoring and evaluating its alternatives for obtaining a separate and reduced anti-dumping duty
rate. Depending on whether the maximum anti-dumping duty rate of 249.96% or some lower rate applies, the Company may be
liable for combined duties of up to approximately $3.3 million.
The Company has established a reserve reflecting its current estimate of its ultimate exposure to these assessments.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
13. GEOGRAPHIC INFORMATION
The Company attributes revenues to customers based on the location of the customer. Information as to the Company’s
operations in different geographical areas is as follows:
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,025,592 $ 198,485,075
18,143,844
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,281
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219,443,224 $ 216,662,200
18,324,383
93,249
December 31,
2013
2012
Revenues:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 501,557,629
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,797,187
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,816,433
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574,171,249
$ 563,746,226
60,589,842
$ 615,583,995
110,594,062
6,834,497
2,022,261
$ 631,170,565
$ 728,200,318
2013
Year Ended December 31,
2012
2011
14. OTHER EXPENSES, NET
The components of other expenses, net, are as follows:
Unrealized (gain) loss from derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense, net of interest income. . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing fees, net . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2012
2013
(1,459,058) $
4,600,012
731,689
98,027
$
3,495,784
456,305
2011
1,313,587
4,130,350
1,061,782
Other expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,872,643
$
4,050,116
$
6,505,719
Estimated amortization expense for existing deferred financing fees for the next five succeeding fiscal years is as follows:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Amortization
$
1,081,291
967,680
817,701
699,780
632,940
15. FAIR VALUE MEASUREMENT
The Company recognizes its financial assets and liabilities at fair value on a recurring basis (at least annually). Fair value
is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Three levels of inputs that may be used to measure fair value are as follows:
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques
that include option pricing models, discounted cash flow models, and similar techniques.
The following table presents the input level used to determine the fair values of the Company’s financial instruments
measured at fair value on a recurring basis:
Level
2013
2012
Fair Value as of December 31,
Assets:
Interest rate swap instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Interest rate swap instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2
3
$
$
$
1,553,224
4,267,644
—
4,267,644
$
$
$
—
8,214,582
1,147,408
9,361,990
The fair value of the Company’s interest rate swaps was determined using cash flow analysis on the expected cash flow of
the contract in combination with observable market-based inputs, including interest rate curves and implied volatilities. As part
of this valuation, the Company considered the credit ratings of the counterparties to the interest rate swaps to determine if a
credit risk adjustment was required.
The fair value of the contingent consideration was estimated using probability assessments of expected future cash flows
over the period in which the obligation is to be settled and applied a discount rate that appropriately captures a market
participant’s view of the risk associated with the obligation. The fair value of the contingent consideration is adjusted based on
an updated assessment of the probability of achievement of the performance metrics and the discount factor reflecting the
passage of time.
The fair value of financial instruments is determined by reference to observable market data and other valuation
techniques, as appropriate. The only category of financial instruments where the difference between fair value and recorded
book value is notable is long-term debt. At December 31, 2013 and 2012, the fair value of the Company’s long-term debt was
estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types
of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two for
the years ended December 31, 2013 and 2012. Based on the analysis performed, the fair value and the carrying value of the
Company’s long-term debt are as follows:
Long-term debt value . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,775,844
Fair Value
Carrying Value
$ 116,195,436
Fair Value
$66,817,614
Carrying Value
$ 70,539,701
As of December 31, 2013
As of December 31, 2012
The Company is also required periodically to measure certain other assets at fair value on a nonrecurring basis, including
long-lived assets, goodwill and other intangible assets. The Company determined the fair value used in its annual goodwill
impairment analysis with its own discounted cash flow analysis. The Company has determined the inputs used in such analysis
as Level 3 inputs. The Company recorded an impairment charge on goodwill of $1,016,325 for the year ended December 31,
2012 (see Note 4). The Company did not record any impairment charges on goodwill or other intangible assets as no significant
events requiring non-financial assets and liabilities to be measured at fair value occurred for the years ended December 31,
2013 or 2011.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
At December 31, 2013 and 2012, the following table presents information about the fair value amounts of the Company’s
derivative instruments:
Derivatives as of December 31,
2013
2012
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts . . . . . . . . . . . . . . . . . . Other assets
$
Interest rate swap contracts . . . . . . . . . . . . . . . . . . Other liabilities $
1,553,224 Other assets
$
—
4,267,644 Other liabilities $
5,590,519
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts . . . . . . . . . . . . . . . . . . Other liabilities
$
— Other liabilities
$
2,624,063
All but one derivative were designated as hedging instruments prior to March 29, 2013. All were designated as hedging
instruments for the remainder of the year ended December 31, 2013. All but one derivative were designated as hedging
instruments for the year ended December 31, 2012.
The following tables present information about the effects of the Company’s derivative instruments on the consolidated
statements of income and consolidated statements of comprehensive income (loss):
Location of (Gain)
Loss Recognized in
Income on Derivative
Amount of (Gain) Loss Recognized in Income on
Derivative for the Year Ended December 31,
2011
2012
2013
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts . . . . . . . . . . . . . . . . . . . Other expenses, net
$ (1,192,644) $
— $
—
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts . . . . . . . . . . . . . . . . . . . Other expenses, net
$
(266,414) $
98,026
$
1,313,587
As of December 31, 2013
Loss Recognized in
Accumulated Other
Comprehensive Income
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,426,903
17. BUSINESS SEGMENT INFORMATION
The Company reports results under ASC 280, Segment Reporting. The Company’s reportable segments for the year ended
December 31, 2013 are U.S. Regions, U.S. Federal, Canada and Small-Scale Infrastructure. The Company’s U.S. Regions, U.S.
Federal and Canada segments offer energy efficiency products and services which include the design, engineering and
installation of equipment and other measures to improve the efficiency and control the operation of a facility’s energy
infrastructure, renewable energy products and services which include the construction of small-scale plants for customers that
produce electricity, gas, heat or cooling from renewable sources of energy and O&M services. The Company’s Small-Scale
Infrastructure segment sells electricity, processed LFG, heat or cooling, produced from renewable sources of energy, from
small-scale plants that the Company owns. The “All Other” category offers enterprise energy management services, consulting
services and the sale and installation of solar PV energy products and systems. These segments do not include results of other
activities, such as corporate operating expenses not specifically allocated to the segments. For the years ended December 31,
2013, 2012 and 2011 unallocated corporate expenses were $26,119,511, $21,190,884 and $18,788,406, respectively. The
accounting policies are the same as those described in the summary of significant accounting policies. See Note 2.
For the years ended December 31, 2013, 2012 and 2011 more than 80% of the Company’s revenues have been derived
from federal, state, provincial or local government entities, including public housing authorities and public universities. The
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
U.S. federal government, which is considered a single customer for reporting purposes, constituted 12.3%, 11.6% and 19.9% of
the Company’s consolidated revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Revenues from the
U.S. federal government are included in the Company’s U.S. Federal segment.
The reports of the Company’s chief operating decision maker do not include assets at the operating segment level.
An analysis of the Company’s business segment information and reconciliation to the consolidated financial statements is
as follows:
U.S. Regions
U.S. Federal
Canada
Infrastructure
All Other
Small-Scale
Total
Consolidated
2013
Revenues . . . . . . . . . . . . . . . . . . . . . $314,339,385
Interest income. . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Depreciation and amortization of
intangible assets . . . . . . . . . . . . . . . .
Unallocated corporate activity . . . . .
Income (loss) before taxes . . . . . . . .
22,407,888
2,071,345
—
—
—
$ 70,451,614
$ 68,797,187
$ 40,388,023
$ 80,195,040
$574,171,249
—
—
45,837
65,334
1,366,774
2,044,647
2,343
58
113,514
3,411,479
1,053,387
1,687,232
10,478,221
3,145,154
18,435,339
—
—
—
— (26,119,511)
6,430,448
(3,042,971)
4,364,975
(1,281,961)
28,878,379
2012
Revenues . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Depreciation and amortization of
intangible assets . . . . . . . . . . . . . . . .
Unallocated corporate activity . . . . .
Income (loss) before taxes . . . . . . . .
2011
Revenues . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Depreciation and amortization of
intangible assets . . . . . . . . . . . . . . . .
Unallocated corporate activity . . . . .
Income (loss) before taxes . . . . . . . .
382,118,235
73,469,139
60,563,724
37,978,732
77,040,735
631,170,565
309
—
121,747
7,898
1,410
323
131,687
—
719,155
3,429,362
36,120
4,184,637
3,908,734
991,083
1,133,356
9,033,370
2,721,956
17,788,499
—
—
—
—
— (21,190,884)
44,361,239
2,263,079
(4,178,699)
2,030,936
1,321,215
45,797,770
379,528,898
145,198,723
110,210,632
35,440,522
57,821,543
728,200,318
—
—
—
—
15,785
128,483
2,106
3,248,415
—
107
17,891
3,377,005
1,788,806
225,620
835,739
9,096,725
720,781
12,667,671
—
—
—
—
— (18,788,406)
42,028,808
19,251,539
1,976,421
424,351
(712,608)
62,968,511
Information as to the Company's revenues by service and product lines is as follows:
2013
Year Ended December 31,
2012
2011
Revenues:
Energy efficiency projects(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 369,510,858
204,660,391
Renewable energy(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574,171,249
$ 448,983,992
$ 551,323,840
182,186,573
176,876,478
$ 631,170,565
$ 728,200,318
(1) Includes products and services related to the design, engineering and installation of equipment and other measures to
improve the efficiency and control the operation of a facility’s energy infrastructure.
(2) Includes the construction of small-scale plants that produce electricity, gas, heat or cooling from renewable sources
of energy, the sale of such electricity, processed LFG, heat or cooling from plants that the Company owns and the sale
and installation of PV solar energy products and systems, or integrated-PV.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AMERESCO, INC.
18. SUBSEQUENT EVENTS
On March 12, 2014, the Company amended the senior secured credit facility as follows: (i) to increase the margins added
to Bank of America’s prime rate or the one-, two- three- or six-month London interbank deposit rate (“LIBOR”), as applicable,
in determining the interest rate by 25 basis points to 0.50% and 2.00%, respectively; (ii) to waive compliance with the
minimum EBITDA covenant for the four consecutive fiscal quarters ended December 31, 2013; (iii) to reduce the required
minimum EBITDA amount to $16.5 million for the four consecutive fiscal quarters ended March 31, 2014, $22.0 million for
the four consecutive fiscal quarters ended June 30, 2014, $24.0 million for the four consecutive fiscal quarters ended September
30, 2014, and $27.0 million for the four consecutive fiscal quarters ended December 31, 2014 and thereafter; (iv) to increase
the maximum ratio of total funded debt to EBITDA as of the end of each fiscal quarter to 2.5 to 1.0 for March 31, 2014 and
2.25 to 1.0 for June 30, 2014, returning to 2.0 to 1.0 for September 30, 2014 and thereafter; and (v) to reduce the minimum
ratio of cash flow to debt service to 1.25 to 1.0 for the four fiscal quarters ended March 31, 2014, returning to 1.5 to 1.0 for the
four fiscal quarters ended June 30, 2014 and thereafter.
For purposes of the Company’s senior secured facility: EBITDA excludes the results of certain renewable energy projects
that the Company owns and for which financing from others remains outstanding; total funded debt includes amounts
outstanding under both the term loan and revolver portions of the senior secured credit facility plus other indebtedness, but
excludes non-recourse indebtedness of project company subsidiaries; cash flow is based on EBITDA as used in the facility, less
capital expenditures (other than by project company subsidiaries that are not guarantors under the facility), certain taxes, and
dividends and other distributions; and debt service includes principal and interest payments on the indebtedness included in
total funded debt other than principal payments on the revolver portion of the facility.
The Company has evaluated subsequent events through the date of this filing. Except as noted above, there were no other
subsequent events to report.
19. QUARTERLY INFORMATION (Unaudited)
The following tables set forth selected unaudited condensed consolidated statement of income data for each of the most
recent eight quarters ended December 31, 2013. Operating results for any quarter are not necessarily indicative of results for
any future period.
Quarter Ended
2013
March 31
June 30
September 30
December 31
(in thousands, except share and per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
110,136
$
126,253
$
161,649
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,519
23,383
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1,924) $
(1,781) $
Net (loss) income per share attributable to common shareholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.04)
(0.04)
(0.04)
(0.04)
30,064
4,545
0.10
0.10
$
$
176,134
28,359
1,574
0.03
0.03
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,327,237
45,465,529
45,621,552
45,819,906
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,220,748
45,465,529
46,605,360
46,649,171
2012
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
146,573
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income per share attributable to common shareholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
29,224
1,735
0.04
0.04
$
$
$
$
164,100
31,158
4,819
0.11
0.10
$
$
$
$
163,906
34,802
6,712
0.15
0.15
$
$
$
$
156,591
32,963
5,094
0.11
0.11
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,145,093
44,541,025
44,788,160
45,116,164
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,128,417
46,359,323
46,247,239
46,508,767
82
To the Board of Directors and Shareholders of Ameresco, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Ameresco, Inc. and Subsidiaries as of December 31, 2013
and 2012, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Ameresco, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted
accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Ameresco, Inc and Subsidiaries' internal control over financial reporting as of December 31, 2013, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 1992. Our report dated March 17, 2014 expressed an opinion that Ameresco, Inc. and Subsidiaries had not
maintained effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.
/s/ McGladrey LLP
Boston, MA
March 17, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Ameresco, Inc. and Subsidiaries
We have audited Ameresco, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 1992. Ameresco, Inc. and Subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
83
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded, Energy
Services Partnership Limited and ESP Response Limited (together “ESP”) from its assessment of internal control over financial
reporting as of December 31, 2013, because ESP was acquired by the Company in a purchase business combination during the
second quarter of the year ended December 31, 2013. ESP’s total assets and total revenues represented 2% and less than 1%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2013.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis. The following material weakness has been identified and included in management's
assessment. As of December 31, 2013, there was a material weakness in the Company's internal control over financial reporting
due to the fact that the Company’s internal controls over financial reporting did not allow for the timely prevention or detection
of financial statement misstatements necessary to provide reasonable assurance that financial statements and related disclosures
could be prepared in accordance with generally accepted accounting principles. This material weakness was considered in
determining the nature, timing, and extent of audit tests applied in our audit of the 2013 financial statements, and this report
does not affect our report dated March 17, 2014, on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the
control criteria, Ameresco, Inc. and Subsidiaries has not maintained effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 1992.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of Ameresco, Inc. and Subsidiaries and our report dated March 17, 2014 expressed an
unqualified opinion.
/s/ McGladrey LLP
Boston, MA
March 17, 2014
84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of the end of the period covered by this annual report, or the evaluation date. Disclosure controls and procedures are
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-
benefit relationship of possible controls and procedures. Our management, after evaluating the effectiveness of our disclosure
controls and procedures as of the evaluation date, concluded that as of the evaluation date, our disclosure controls and
procedures were not effective at the reasonable assurance level due to a material weakness in our internal control over financial
reporting as discussed below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for
establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal
financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with GAAP. Our internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control - Integrated Framework (1992). Management excluded ESP from its assessment of
internal control over financial reporting as of December 31, 2013, because ESP was acquired by us in a purchase business
combination during the second quarter of the year ended December 31, 2013. ESP’s total assets and total revenues represented
less than 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended
December 31, 2013.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis by our internal controls.
As of December 31, 2013, we identified a material weakness in our internal control over financial reporting. Specifically,
we did not have adequate processes to ensure timely preparation and reviews necessary to provide reasonable assurance that
financial statements and related disclosures could be prepared in accordance with generally accepted accounting principles and
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
As a result of this material weakness, our management concluded that, as of December 31, 2013, our internal control over
financial reporting was not effective.
85
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by McGladrey
LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8.
Material Weakness Discussion and Remediation
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on
March 18, 2013, we identified two material weaknesses in our internal control over financial reporting:
•
•
insufficient personnel in place for an adequate amount of time and ineffectively operating internal control procedures
to ensure timely and accurate reviews necessary to provide reasonable assurance that financial statements and related
disclosures could be prepared in accordance with generally accepted accounting principles; and
inadequate and ineffective controls for reviewing and analyzing the quarterly and annual tax provision calculations,
which creates the potential for misstatement of our income tax expense, income tax receivable and income tax payable
accounts.
In an effort to remediate these material weaknesses in 2013, we made changes that materially effected our internal controls
over financial reporting, including several that occurred during the quarter ended December 31, 2013. We implemented the
following changes in our internal control over financial reporting during 2013 that contributed to partially remediating the
previously disclosed and continuing material weaknesses described above:
• we hired three regional controllers to facilitate the internal flow of financial information and improve supervision of
operations and other business activity;
• we conducted a more comprehensive risk assessment, as a result of which we implemented a number of new controls
over financial reporting and accounting for revenue and inventory;
• we provided training to project managers regarding review of budgets and job cost details to more timely capture
complete and accurate financial information;
• we conducted a control design effectiveness assessment and identified opportunities to improve the adequacy of
supporting documentation for reconciliations;
• we established a corporate controller and chief accounting officer role with increased oversight responsibility and
operating authority and we hired a new vice president to fill that role in the third quarter of 2013;
• we performed operating effectiveness testing sufficiently in advance to afford adequate time for any further
remediation implementation;
• we implemented procedures for the determination, review and documentation of income tax liabilities and deferred
income tax assets and liabilities as well as for preparing income tax provision calculations; and increased the level of
review of all quarterly and annual tax accounts and calculations;
• we implemented a financial close management calendar and checklist which allows us to track progress against
closing tasks, task completion and ownership, due dates for close procedures, and process integration;
• we increased utilization of outside accounting and finance professionals to assist in the preparation, review and
reconciliation of our accounts and financial statements;
• we initiated a process to require that all unusual, complex or significant accounting transactions be thoroughly
analyzed and consistently documented; and implemented procedures for the timely preparation of memoranda to
support all non-routine transactions;
• we enhanced our existing pre-quarter planning meetings to include a formal planning and financial review process,
and have extended attendance at those meetings to a broader group of senior financial management and staff; and
• we enhanced our existing policies and procedures relating to the preparation and review of general ledger account
reconciliations, including establishment of a formal escalation method to notify senior financial management of
accounts that have un-reconciled or unadjusted variances.
Although significant steps have been taken, many of the changes made to our controls were implemented late in the year.
In addition, further work is required to develop appropriate controls in some aspects of our financial statement preparation and
review process to provide reasonable assurance that controls are designed in the most effective and efficient manner possible.
86
Therefore, while we believe these changes reduce the risk of financial statement misstatement, there continues to be additional
work required for us to conclude that reasonable assurance has been obtained that all controls are operating effectively and in a
timely manner.
During 2014, we expect to undertake the following additional actions to remediate the continuing material weakness
identified:
• we will continue to act upon the enhancements to our internal controls implemented as described above; and
• we plan to improve the quality and timing of our accounting close process and financial reporting to allow for an
increase in time for review.
The Audit Committee is monitoring management’s continuing development and implementation of its plan for undertaking
the foregoing remedial measures. In addition, under the direction of the Audit Committee, management will continue to review
and make necessary changes to the overall design of our internal control environment, as well as policies and procedures to
improve the overall effectiveness of internal control over financial reporting.
Management is committed to continuous improvement of our internal control processes and will continue to diligently
review our reporting controls and procedures. As management continues to evaluate and work to improve internal control over
financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in
appropriate circumstances not to complete, certain of the remediation measures described above. We expect that our
remediation efforts will continue throughout 2014.
For the near-term future, the matter identified above will continue to constitute a material weakness in our internal control
over financial reporting that could result in material misstatements in our financial statements not being prevented or detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, other than those stated above, during our most
recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information concerning our executive officers is set forth under the heading “Executive Officers” at the end of Item 1
in Part I of this report.
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees,
including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons
performing similar functions. A copy of the code of business conduct and ethics is posted on the Investor Relations section of
our website, which is located at www.ameresco.com. In addition, we intend to post on our website all disclosures that are
required by law or applicable NYSE listing standards concerning any amendments to, or waivers from, any provision of the
code. We include our website address in this report only as an inactive textual reference and do not intend it to be an active link
to our website. None of the material on our website is part of this Annual Report on Form 10-K.
The response to the remainder of this item is incorporated by reference from the discussion responsive thereto in the
sections titled “Corporate Governance” and “Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance”
contained in the definitive proxy statement for our 2013 annual meeting of stockholders.
Item 11. Executive Compensation
The response to this item is incorporated by reference from the discussion responsive thereto in the sections titled
“Executive Compensation and Related Information” and “Corporate Governance” contained in the definitive proxy statement
for our 2014 annual meeting of stockholders.
87
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table provides information about the securities authorized for issuance under our equity compensation plans
as of December 31, 2013:
Equity Compensation Plan Information
(a)
(b)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
4,573,378
—
4,573,378
$
$
7.528
—
7.528
8,535,127
—
8,535,127
Plan category
Equity compensation plans approved by
security holders (1)(2). . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Consists of our 2000 stock incentive plan and our 2010 stock incentive plan.
(2) All securities remaining available for future issuance are under our 2010 stock incentive plan. In addition to being
available for future issuance upon exercise of options that may be granted after December 31, 2013, shares under our
2010 stock incentive plan may instead be issued in the form of stock appreciation rights, restricted stock, restricted
stock units and other stock-based awards.
The response to the remainder of this item is incorporated by reference from the discussion responsive thereto in the section
titled “Stock Ownership” contained in the definitive proxy statement for our 2013 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The response to this item is incorporated by reference from the discussion responsive thereto in the sections titled “Certain
Relationships and Related Person Transactions” and “Corporate Governance” contained in the definitive proxy statement for
our 2014 annual meeting of stockholders.
Item 14. Principal Accountant Fees and Services
The response to this item is incorporated by reference from the discussion responsive thereto in the section titled
“Proposal 2 - Ratification of the Selection of our Independent Registered Public Accounting Firm” contained in the definitive
proxy statement for our 2014 annual meeting of stockholders.
88
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements.
PART IV
The following consolidated financial statements of Ameresco, Inc. are filed in Item 8 of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2013, December 31, 2012 and December 31,
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, December 31,
2012 and December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2013,
December 31, 2012 and December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2013, December 31, 2012 and
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
49
50
51
52
54
83
(2) Financial Statement Schedules.
Schedules are omitted because they are not applicable, or are not required, or because the information is included in
the consolidated financial statements and notes thereto.
(3) Exhibits.
The exhibits filed or furnished with this report or that are incorporated herein by reference are set forth in the Exhibit
Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference.
89
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 17, 2014
AMERESCO, INC.
By:
/s/ George P. Sakellaris
George P. Sakellaris
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ George P. Sakellaris
George P. Sakellaris
/s/ Andrew B. Spence
Andrew B. Spence
/s/ John R. Granara
John R. Granara
/s/ David J. Anderson
David J. Anderson
/s/ David J. Corrsin
David J. Corrsin
/s/ William M. Bulger
William M. Bulger
/s/ Douglas I. Foy
Douglas I. Foy
/s/ Michael E. Jesanis
Michael E. Jesanis
/s/ Joseph W. Sutton
Joseph W. Sutton
/s/ Frank V. Wisneski
Frank V. Wisneski
Title
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date
March 17, 2014
Vice President and Chief Financial Officer
(Principal Financial Officer)
March 17, 2014
Vice President, Corporate Controller and Chief
Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
90
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
Exhibit Index
Exhibit
Number
3.1
3.2
4.1
10.1.1
10.1.2
10.1.3
10.1.4
10.1.5
10.1.6
10.1.7
10.2.1
10.2.2
Description
Amended and Restated Certificate of Incorporation of Ameresco, Inc. Filed as Exhibit 3.1 to our
Current Report on Form 8-K dated July 27, 2010 and filed with the Commission on July 30, 2010
(file no. 011-34811) and incorporated herein by reference.
Amended and Restated By-Laws of Ameresco, Inc. Filed as Exhibit 3.3 to our Registration
Statement on Form S-1 (pre-effective amendment no. 4; reg. no. 333-165821) and incorporated
herein by reference.
Specimen Certificate evidencing shares of Class A common stock. Filed as Exhibit 4.1 to our
Registration Statement on Form S-1 (pre-effective amendment no. 4; reg. no. 333-165821) and
incorporated herein by reference.
Lease dated November 20, 2000 between Ameresco, Inc. and BCIA New England Holdings, LLC.
Filed as Exhibit 10.1 to our Registration Statement on Form S-1 (reg. no. 333-165821) and
incorporated herein by reference.
First Amendment to Lease dated November 2001 by and between Ameresco, Inc. and BCIA New
England Holdings, LLC. Filed as Exhibit 10.2 to our Registration Statement on Form S-1 (reg.
no. 333-165821) and incorporated herein by reference.
Second Amendment to Lease and Extension Agreement dated April 8, 2005 by and between
Ameresco, Inc. and BCIA New England Holdings, LLC. Filed as Exhibit 10.3 to our Registration
Statement on Form S-1 (reg. no. 333-165821) and incorporated herein by reference.
Third Amendment to Lease dated April 17, 2007 by and between RREEF America REIT III-Z1
LLC and Ameresco, Inc. Filed as Exhibit 10.4 to our Registration Statement on Form S-1 (reg.
no. 333-165821) and incorporated herein by reference.
Fourth Amendment to Lease dated January 1, 2010 by and between RREEF America REIT III-Z1
LLC and Ameresco, Inc. Filed as Exhibit 10.17 to our Registration Statement on Form S-1 (pre-
effective amendment no. 3; reg. no. 333-165821) and incorporated herein by reference.
Fifth Amendment to Lease dated August 31, 2011 by and between RREEF America REIT III-Z1
LLC and Ameresco, Inc. Filed as Exhibit 10.1.6 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2012 and filed with the Commission on March 15, 2012 (file no.
011-34811) and incorporated herein by reference.
Sixth Amendment to Lease dated June 18, 2103 by and between 111 MPA LLC and Ameresco,
Inc. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2013 and filed with the Commission on August 9, 2013 (file no. 011-34811) and incorporated
herein by reference.
Second Amended and Restated Credit and Security Agreement dated June 30, 2011 among
Ameresco, Inc., certain guarantors party thereto, certain lenders party thereto from time to time
and Bank of America, N.A. as Administrative Agent. Filed as Exhibit 10.1 to our Current Report
on Form 8-K dated June 30, 2011 and filed with the Commission on July 7, 2011 (file no.
011-34811) and incorporated herein by reference.
Amendment No. 1 to Second Amended and Restated Credit and Security Agreement dated
November 4, 2011 among Ameresco, Inc., certain guarantors party thereto, certain lenders party
thereto from time to time and Bank of America, N.A. as Administrative Agent. Filed as Exhibit
10.2.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and filed
with the Commission on March 15, 2012 (file no. 011-34811) and incorporated herein by
reference.
91
Exhibit
Number
10.2.3
10.2.4
10.2.5
10.2.6
10.2.7*
10.3.1+
10.3.2+
10.3.3+
10.4.1+
10.4.2+
10.4.3+
10.6.1+
10.6.2+
Description
Amendment No. 2 to Second Amended and Restated Credit and Security Agreement dated
January 30, 2013 among Ameresco, Inc., certain guarantors party thereto, certain lenders party
thereto from time to time and Bank of America, N.A. as Administrative Agent.
Amendment No. 3 to Second Amended and Restated Credit and Security Agreement dated April
22, 2013 among Ameresco, Inc., certain guarantors party thereto, certain lenders party thereto
from time to time and Bank of America, N.A. as Administrative Agent. Filed as Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 and filed with the
Commission on August 9, 2013 (file no. 011-34811) and incorporated herein by reference.
Amendment No. 4 to Second Amended and Restated Credit and Security Agreement dated June
24, 2013 among Ameresco, Inc., certain guarantors party thereto, certain lenders party thereto
from time to time and Bank of America, N.A. as Administrative Agent. Filed as Exhibit 10.2 to
our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 and filed with the
Commission on August 9, 2013 (file no. 011-34811) and incorporated herein by reference.
Amendment No. 5 to Second Amended and Restated Credit and Security Agreement dated August
28, 2013 among Ameresco, Inc., certain guarantors party thereto, certain lenders party thereto
from time to time and Bank of America, N.A. as Administrative Agent. Filed as Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 and filed
with the Commission on November 8, 2013 (file no. 011-34811) and incorporated herein by
reference.
Amendment No. 6 to Second Amended and Restated Credit and Security Agreement dated
November 6, 2013 among Ameresco, Inc., certain guarantors party thereto, certain lenders party
thereto from time to time and Bank of America, N.A. as Administrative Agent.
Ameresco, Inc. 2000 Stock Incentive Plan. Filed as Exhibit 10.6 to our Registration Statement on
Form S-1 (reg. no. 333-165821) and incorporated herein by reference.
Form of Incentive Stock Option Agreement granted under Ameresco, Inc. 2000 Stock Incentive
Plan. Filed as Exhibit 10.7 to our Registration Statement on Form S-1 (reg. no. 333-165821) and
incorporated herein by reference.
Form of Non-Qualified Stock Option Agreement granted under Ameresco, Inc. 2000 Stock
Incentive Plan. Filed as Exhibit 10.8 to our Registration Statement on Form S-1 (reg. no.
333-165821) and incorporated herein by reference.
Ameresco, Inc. 2010 Stock Incentive Plan. Filed as Exhibit 10.10 to our Registration Statement
on Form S-1 (pre-effective amendment no. 4; reg. no. 333-165821) and incorporated herein by
reference.
Form of Incentive Stock Option Agreement granted under Ameresco, Inc. 2010 Stock Incentive
Plan. Filed as Exhibit 10.11 to our Registration Statement on Form S-1 (pre-effective amendment
no. 4; reg. no. 333-165821) and incorporated herein by reference.
Form of Director Stock Option Agreement granted under Ameresco, Inc. 2010 Stock Incentive
Plan. Filed as Exhibit 10.12 to our Registration Statement on Form S-1 (pre-effective amendment
no. 4; reg. no. 333-165821) and incorporated herein by reference.
Form of Indemnification Agreement entered into between Ameresco, Inc. and each non-employee
director. Filed as Exhibit 10.6.2 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 and filed with the Commission on March 31, 2011 (file no. 011-34811) and
incorporated herein by reference.
Form of Indemnification Agreement entered into between Ameresco, Inc. and each employee
director. Filed as Exhibit 10.6.2 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 and filed with the Commission on March 31, 2011 (file no. 011-34811) and
incorporated herein by reference.
92
Exhibit
Number
21.1*
23.1*
31.1*
31.2*
32.1**
101
Subsidiaries of Ameresco, Inc.
Consent of McGladrey LLP.
Description
Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Principal Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
The following condensed consolidated financial statements from Ameresco, Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business
Reporting Language): (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income,
(iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statement of
Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to
Condensed Consolidated Financial Statements.
* Filed herewith.
** Furnished herewith.
+
Identifies a management contract or compensatory plan or arrangement in which an executive officer or director
of Ameresco participates.
++ Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with
the Securities and Exchange Commission.
93
Directors
Executive Officers
George P. Sakellaris
Chairman, President and Chief Executive Officer, Ameresco
George P. Sakellaris
Chairman, President and Chief Executive Officer
David J. Anderson
Executive Vice President, Business Development, Ameresco
David J. Anderson
Executive Vice President, Business Development
David J. Corrsin
Executive Vice President, General Counsel and Secretary, Ameresco
David J. Corrsin
Executive Vice President, General Counsel and Secretary
William M. Bulger
President (Retired), University of Massachusetts
Joseph P. DeManche
Executive Vice President, Engineering and Operations
Douglas I. Foy
President, Serrafix Corporation
Michael E. Jesanis
Managing Director, Net Zero, LLC
Mario P. Iusi
President, Ameresco Canada
Louis P. Maltezos
Executive Vice President and General Manager, Central Region
Joseph W. Sutton
Chief Executive Officer, Sutton Ventures Group
Michael T. Bakas
Senior Vice President, Renewable Energy
Frank V. Wisneski
Partner (Retired), Wellington Management Company
Andrew B. Spence
Vice President, Chief Financial Officer and Treasurer
Corporate Headquarters
Ameresco Inc.
111 Speen St.
Suite 410
Framingham, MA 01701
508.661.2200
ameresco.com
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Ameresco Inc.
866.AMERESCO
info@ameresco.com
Shareholder Information
Copies of all SEC filings, including our 10-K, are available on our
website under the Investor Relations section.
Ameresco Investor Relations
ir@ameresco.com
Our common stock is traded on the New York Stock Exchange
under the symbol AMRC.
Transfer Agent
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New York, NY
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Ameresco Inc.
111 Speen St., Suite 410
Framingham, MA 01701
508.661.2200
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