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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, 201 5
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- 34278
BROADWIND ENERGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State of or other jurisdiction of
incorporation or organization)
3240 S. Central Avenue
Cicero, Illinois
(Address of principal executive offices)
88-0409160
(I.R.S. Employer
Identification No.)
60804
(Zip code)
Registrant’s telephone number, including area code: (708) 780-4800
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to I tem 405 of Regulation S-K ( § 229. 405) 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 Form 10-K or
any amendment to this 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 the 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 ☐
(Do not check if a smaller reporting company)
Smaller reporting company ☒
Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b ‑2 of the Exchange Act. Yes ☐ No ☒
As of June 30, 201 5 the aggregate market value of the Registrant’s voting common stock held by non ‑affiliates of the Registrant was
approximately $4 5, 108 ,000 , base d upon the $4 . 24 per share closing sale price of the Registrant’s common stock as reported on the NASDAQ Capital
Market. For purposes of this calculation, the Registrant’s directors and exec utive officers and holders of 5 % or more of the Registrant’s outstanding shares
of voting common stock have been assumed to be affiliates, with such affiliates holding an aggregate of 4 , 043 ,000 shares of the Registrant’s voting
common stock on June 30, 201 5 .
The number of shares of the Registrant’s common stock, par value $0.001, outsta nding as of February 1 8 , 2016 , was 1 5 , 012 , 789 .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 201 6 Annual Meeting of Stockholders are incorporated by reference in Part III
of this Form 10-K.
Table of Contents
BROADWIND ENERGY, INC.
FORM 10 ‑‑K
TABLE OF CONTENTS
BUSINESS
PART I
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
PROPERTIES
LEGAL PROCEEDINGS
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Cautionary Note Regarding Forward ‑‑Looking Statements
PART I
This Annual Report on Form 10 ‑K (“Annual Report”) contains “forward ‑looking statements”—that is, statements related
to future, not past, events—as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that
reflect our current expectations regarding our future growth, results of operations, financial condition, cash flows, performance,
business prospects and opportunities, as well as assumptions made by, and information currently available to, our management.
Forward ‑looking statements include any statement that does not directly relate to a current or historical fact. We have tried to
identify forward ‑looking statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “may,”
“plan” and similar expressions, but these words are not the exclusive means of identifying forward ‑looking statements. Our
forward ‑looking statements may include or relate to the following: (i) our expectations relating to state, local and federal
regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension,
continuation or renewal of federal tax incentives and grants and state renewable portfolio standard s (“RPS’s”); (ii) our
expectations with respect to our customer relationships and efforts to diversify our customer base and sector focus and leverage
customer relationships across business units; (iii) our plans to continue to grow our business organically; (iv) our beliefs with
respect to the sufficiency of our liquidity and our plans to evaluate alternate sources of funding if necessary; (v) our plans and
assumptions, including estimated costs and saving opportunities, regarding our restructuring efforts; (vi) our ability to realize
revenue from customer orders and backlog; (vii) our ability to operate our business efficiently, manage capital expenditures and
costs effectively, and generate cash flow; (viii) our beliefs and expectations relating to the economy and the potential impact it may
have on our business, including our customers; (ix) our beliefs regarding the state of the wind energy market and other energy and
industrial markets generally and the impact of competition and economic volatility in those markets; and (x) our beliefs and
expectations relating to the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas
and other commodities; (xi) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the
Internal Revenue Code of 1986, as amended (the “IRC”). These statements are based on information currently available to us and
are subject to various risks, uncertainties and other factors that could cause our actual growth, results of operations, financial
condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by,
these statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or
potentially inaccurate assumptions that could cause our current expectations or beliefs to change. We are under no duty to update
any of the forward ‑looking statements after the date of this Annual Report to conform such statements to actual results.
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
ITEM 1. BUSINES S
As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind” and the “Company” refer to Broadwind
Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its wholly ‑owned subsidiaries (the “Subsidiaries”).
Dollars are presented in thousands unless otherwise stated.
Business Overview
We provide technologically advanced high ‑value products to energy, mining and infrastructure sector customers, primarily
in the United States of America (the “U.S.”). Our most significant presence is within the U.S. wind energy industry, although we
have diversified into other industrial markets in order to improve our capacity utilization and reduce our exposure to uncertainty
related to favorable governmental policies currently supporting the U.S. wind energy industry. The recent multi-year extension of the
federal Production Tax Credit (the “PTC”) for new wind energy development projects is expected to help stabilize wind energy
markets. Within the U.S. wind energy industry, we provide products primarily to wind turbine manufacturers. Outside of the wind
energy market, we provide precision gearing and specialty weldments to a broad range of industrial customers for oil and gas
(“O&G”), mining, steel and other industrial applications. The market for O&G equipment and mining equipment was extremely
weak in 2015 and is not expected to recover in the near term.
In September 2015, our Board of Directors (the “Board”) approved a plan to divest or otherwise exit our Services segment.
The divestiture was substantially completed in December 2015; consequently, this segment is now reported as a discontinued
operation and we have revised our segment presentation to include two reportable operating segments: Towers and Weldments, and
Gearing. All current and prior period financial results have been revised to reflect these changes.
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In 2015, 84% of our sales were linked to new wind energy installations, predominantly for towers used for new wind
turbines. The market for new U.S. wind energy installations is affected by a number of factors, including: (i) economic growth and
the associated demand for new electricity generation; (ii) the cost of competing energy sources, primarily natural gas; (iii) federal
and state ‑level wind energy development incentives; (iv) available transmission infrastructure and the proliferation of smart grid
technology; (v) improvements in wind energy cost competitiveness resulting from the maturation of technologies and services within
the wind energy industry; and (vi) state and federal government actions relating to regulation of carbon emissions.
The highest impact development incentive has been the PTC for new wind energy projects. Legislative support for the PTC
has been intermittent in the past, which has caused volatility in the demand for new wind energy projects. For example, after the PTC
was allowed to expire briefly in 2013, new installations at wind farms fell 92%, causing significant disruption in the industry. In
December 2015, the PTC was extended for an additional five-year period, which is expected to help stabilize wind energy markets
and attract new investment. The 2015 extension phases-out the amount of the credit allowed over time based on the year when
construction of the wind project is started. The phase-out schedule provides for: 100% extension of the credit for projects
commenced in 2015 and 2016, 80% in 2017, 60% in 2018 and 40% in 2019. Although the clearer investment horizon provided by
the long-term extension is expected to stabilize the market for our products, it may also attract new competition in our industry. The
new PTC extension also provides a longer time period to begin construction of qualifying wind projects than the previous legislation,
which has caused some short-term delay in the commencement of wind farm development projects.
The market for wind towers is broadly correlated to the demand for new wind turbines. However, demand for our products
is also reflective of the level of market competition, the strength of our customer relationships and the proximity of our plants to
wind farm development sites, as well as other factors. During 2015, sales of our wind towers were strong because of a number of
factors: several domestic competitors exited the market in 2012, the 2013 PTC extension was in place to support new wind energy
installations, foreign competition from China and Vietnam was limited by U.S. Department of Commerce (“USDOC”) antidumping
and countervailing duty orders, and we continued working with large customers representing a significant portion of the U.S. market.
Outside of the market for new wind energy installations, we serve a number of other industrial markets, including O&G
exploration and extraction, mining, compressed natural gas (“CNG”) distribution and steel production, as well as gearing for the
installed wind energy base. The market for O&G equipment and mining equipment was extremely weak in 2015 and is not expected
to recover in the near-term. We have reduced our workforce and other costs, and are selling excess gear cutting and grinding
equipment in order to further scale back production capacity and costs in response to these depressed market conditions. Our
products sold into these markets include gearboxes (both new and rebuilt), loose gearing and large industrial weldments, including
CNG equipment. The following table details the percentage of our revenue generated in each sector for the past two years:
New Wind Installations
Wind Installed Base Support
Industrial Gearing & Weldments
Total
Business and Operating Strategy
Annual
Revenue
2015
2014
84 %
4 %
12 %
78 %
3 %
19 %
100 % 100 %
We intend to capitalize on the markets in wind energy, O&G, mining, CNG distribution and other industrial verticals in
North America by leveraging our core competencies in large precision gearing and drivetrains and industrial welding. Our strategic
objectives include the following:
·
·
Improve our commercial efforts and expand and diversify our customer base. In 2015, sales derived from our top
five customers represented 92 % of total sales , up from 91% in 2014. To reduce the concentration of sales and our
wind energy industry concentration, we have focused our market research activities and our sales force in support of
expanding and diversifying our customer base. We began producing CNG equipment for several customers in 2015 and
plan to expand our presence in this market in 2016.
Improve capacity utilization and profitability. We are working to improve our capacity utilization and financial
results by leveraging our existing manufacturing capacity and adjusting capacity where we can, in
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response to changing market conditions. Tower and gear manufacturing and drivetrain remanufacturing all require significant capital
investments. As a result of significant capital expenditures made in 2008 and 2009, we have manufacturing capacity available that
may allow us to significantly increase our annual revenues. We seek to broaden our wind tower customer base, and in January 2016,
we booked an order with a wind tower customer for whom we last produced towers in 2013. We still have unsold 2016 capacity in
our wind tower operations, and believe that the recent PTC extension will facilitate improved utilization. In our Gearing segment, we
have reduced our workforce and are selling excess gear cutting and grinding equipment in order to further scale back production
capacity and costs in response to the depressed market conditions.
·
Improve production technology and operational efficiency. We believe that the proper coordination and integration
of the supply chain plus “Continuous Improvement” initiatives are key factors that enable high operating efficiencies,
increased reliability, better delivery and lower costs. As customer specifications have become increasingly stringent,
the supply chain has globalized and the tower industry has matured, we have experienced difficulties maintaining
consistent output in our manufacturing facilities. We are developing better supply chain expertise, working with lean
enterprise resources, upgrading and improving systems utilization and investing capital to help enhance our operational
efficiency and flexibility. These investments are expected to correct the significant operating problems and reduce or
eliminate the associated costs we experienced in 2015. We have staffed our operations with Continuous Improvement
experts in order to optimize our production processes to increase output, leverage our scale and lower our costs while
maintaining product quality.
Restructuring Activities
In 2011, we concluded that our manufacturing footprint and fixed cost base were too large and expensive for our medium
term needs. We executed a plan to reduce our facility footprint by approximately 40% through the sale and/or closure of facilities
comprising a total of approximately 600,000 square feet. Of the $14,200 total restructuring costs incurred, approximately $4,800
were non-cash charges.
As a result of recent weakness in some of our markets as described above and in addition to discontinuing our Services
segment, we took a number of cost reduction actions in 2015. These actions included idling two facilities, reducing headcount and
eliminating positions totaling approximately 10% of our workforce. We have also consolidated our industrial weldment production
into our Abilene, Texas facility, and have reduced capital and discretionary spending in all areas to conserve cash. We continue to
monitor these markets and our spending.
COMPANY HISTORY
We were incorporated in 1996 in Nevada as Blackfoot Enterprises, Inc., and through a series of subsequent transactions,
became Broadwind Energy, Inc., a Delaware corporation, in 2008. Through several acquisitions in 2007 and 2008, we focused on
expanding upon our core platform as a wind tower component manufacturer, established our Gearing segment, and developed our
industrial weldment capabilities.
SALES AND MARKETING
We market our towers, gearing and industrial weldments products primarily through our direct sales force (supplemented
with independent sales agents in our Gearing segment). Our sales and marketing strategy is to develop and maintain long ‑term
relationships with our energy and infrastructure sector customers. Within the wind energy industry, our customer base consists
primarily of wind turbine manufacturers who supply end ‑users and wind farm operators with wind turbines. Within the O&G and
mining industries, our customer base consists of manufacturers of hydraulic fracturing and mud pumps, mining equipment, CNG
equipment and off ‑highway vehicles. To support the efforts of our sales force, we utilize a number of marketing tactics to build our
brand and position and promote our products. Our efforts include participation in industry conferences, media relations, use of social
media and other channels and use of our website to connect with customers.
COMPETITION
Each of our businesses faces competition from both domestic and international companies. The recent extension of the PTC
may attract additional investment and competition in the wind energy industry. The industrial gearing industry has experienced
consolidation of producers and acquisitions by strategic buyers in response to strong international competition and reduced O&G and
mining demand.
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For our Towers and Weldments segment, the largest North American based competitor is Trinity Industries. Other
competitors include Vestas Wind Systems, which has periodically produced towers for third party customers in addition to meeting
its own captive tower requirements, and Marmen Industries, a Canadian manufacturer that has recently expanded into the U.S.
market. We also face competition from imported towers, primarily from Asian manufacturers. However, imports from China and
Vietnam have substantially ceased following a determination by the U.S. International Trade Commission in 2013 that wind towers
from those countries were being sold in the U.S. at less than fair value. As a result of the determination, the USDOC issued
antidumping and countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports of
towers from Vietnam. We continue to monitor wind tower imports.
In our Gearing segment, which is focused on the O&G, wind energy, mining and steel markets, our key competitors in a
fragmented market include Overton Chicago Gear, Cincinnati Gearing Systems, Merit Gear, Milwaukee Gear and Horsburgh &
Scott. In addition, we compete with the internal gear manufacturing capacity of relevant equipment manufacturers and face growing
competition from foreign competitors.
ENVIRONMENTAL REGULATION AND COMPLIANCE
Our operations are subject to numerous federal, state and local environmental laws and regulations. Although it is our
objective to maintain compliance with these laws and regulations, it may not be possible to quantify with certainty the potential
impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in
the future. Several of our facilities have a history of industrial operations, and contaminants have been detected at some of our
facilities.
BACKLOG
We sell our towers under either supply agreements or individual purchase orders, depending on the size and duration of the
purchase commitment. Under the supply agreements, we typically receive a purchase commitment for towers to be delivered in
future fiscal quarters, then receive purchase orders on a periodic basis based upon the customer’s forecast of production volume
requirements within the contract terms. For our Gearing segment, sales are generally based on individual purchase orders. As of
December 31, 2015, the dollar amount of our backlog believed to be firm under our supply agreements and purchas e orders awarded
was approximately $94 million. This represents a 53% decrease from the backlog at December 31, 2014, which reflected a surge in
tower orders related to a tight supply market and the timing of the PTC renewal and a decline in O&G and mining industry demand
for gearing and weldments.
SEASONALITY
The majority of our business is not affected by seasonality.
EMPLOYEES
We had 680 employees at December 31, 2015, of which 619 were in manufacturing related functions and 61 were in
administrative functions. As of December 31, 2015, approximately 14% of our employees were covered by collective bargaining
agreements with local unions in our Cicero, Illinois and Neville Island, Pennsylvania locations. The current collective bargaining
agreement with the Cicero union is expected to remain in effect through February 2018. The current collective bargaining agreement
with the Neville Island union is expected to remain in effect through October 2017. We believe that our relationship with our
employees is generally good.
RAW MATERIALS
The primary raw material used in the construction of wind towers and gearing products is steel in the form of plate, bar
stock, forgings or castings. The market for tower steel has become increasingly globalized. Although we are generally responsible
for procurement of the raw materials, our global tower customers often negotiate the prices and terms for steel purchases, and we
purchase under these agreements. We then pass the steel cost through to our end customer plus a conversion margin.
Outside of these “directed buys”, we operate a multiple supplier sourcing strategy and source our raw materials through
various suppliers located throughout the U.S. and abroad. We generally do not have long ‑term supply agreements with our raw
materials suppliers and closely match terms with those of our customers to limit our exposure to commodity price fluctuations. We
believe that we will be able to obtain an adequate supply of steel and other raw materials to meet our manufacturing requirements,
although from time to time we have faced shortages of specific grades of steel. Additionally, due to the globalization of the supply
chain for tower steel prompted by the increasing use of “directed buys”, we faced
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supply disruptions during 2015 associated with the West Coast port labor slowdowns. Such shortages have periodically limited our
ability to meet customer demand and caused manufacturing inefficiencies. We have made modifications to our supply chain
management practices to deal more effectively with disruptions arising from the practice of “directed buys”.
QUALITY CONTROL
We have a long ‑standing focus on processes for ensuring the manufacture of high ‑quality products. To achieve high
standards of production and operational quality, we implement strict and extensive quality control and inspections throughout our
production processes. We maintain internal quality controls over all core manufacturing processes and carry out quality assurance
inspections at the completion of each major manufacturing step to ensure the quality of our products. The manufacturing process at
our Gearing operation, for example, involves transforming forged steel into precision gears through cutting, heat treating, testing and
finishing. We inspect and test raw materials before they enter the assembly process, re ‑test the raw materials after rough machining,
test the functioning of gear teeth and cores after thermal treatment and accuracy test final outputs for compliance with product
specifications. We believe our investment in industry ‑leading heat treatment, high precision machining, specialized grinding
technologies and cutting ‑edge welding has contributed to our high product reliability and the consistent performance of our products
under varying operating conditions. Our Gearing segment is ISO 9001:2008 certified. Our tower manufacturing plants in Manitowoc,
Wisconsin and Abilene, Texas are ISO 9001:2010 certified. Our Abilene tower plant experienced operating inefficiencies, high labor
costs and inventory adjustments in 2015 related to difficulties experienced in meeting the quality specifications associated with one
significant tower order. We are making changes to our operating practices and our capital base to minimize future production
disruptions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further
discussion of the effects of the deficiencies.
CUSTOMERS
We manufacture products for a variety of customers in the wind energy, O&G, mining and other infrastructure industries.
The majority of our wind energy industry customer base consists of wind turbine manufacturers who supply wind farm operators and
wind farm developers with completed wind turbines. In the other industrial sectors, we sell our products through our trained sales
force or through manufacturers’ representatives to a wide variety of customers. The wind turbine market is very concentrated.
According to American Wind Energy Association 2015 industry data, the top three wind turbine manufacturers constituted
approximately 88% of the U.S. market. As a result, although we have historically produced towers for most of these global wind
turbine manufacturers, in any given year a limited number of customers have accounted for the majority of our revenues. Sales to
each of Siemens and General Electric represented greater than 10% of our consolidated revenues for the years ended December 31,
2015 and 2014. The loss of one of these customers could have a material adverse effect on our business. As a result, we are seeking
to diversify our customer base.
WORKING CAPITAL
Our primary customers are wind turbine manufacturers and wind farm operators. The industry has historically entered into
customized contracts with varying terms and conditions between suppliers and customers, depending on the specific objectives of
each party. As such, we produce to order rather than to stock. Our practices mirror this historical industry practice of negotiating
agreements on a case ‑by ‑case basis. As a result, working capital needs, including levels of accounts receivable (“A/R”), customer
deposits and inventory, can vary significantly from quarter to quarter based on the contractual terms associated with each quarter’s
sales, such as whether and when we are required to purchase and supply steel pursuant to such contractual terms.
In analyzing our liquidity, we focus on operating working capital in relationship to revenue. Operating working capital is
comprised of A/R and inventories, net of accounts payable (“A/P”) and customer deposits. Our operating working capital at
December 31, 2015 was $10,241 or 7% of trailing three months of sales annualized. This is an increase of $1,998 from December 31,
2014, when operating working capital was $8,243, or 4% of trailing three months of sales annualized. The increase reflects reduced
levels of A/P due in part to a shift in steel suppliers.
CORPORATE INFORMATION
Our principal executive office is located at 3240 South Central Avenue, Cicero, IL 60804. Our phone number is (708) 780
‑4800 and our website address is www.bwen.com.
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OTHER INFORMATION
On our website at www.bwen.com , we make available under the “Investors” menu selection, free of charge, our Annual
Reports on Form 10 ‑K, Quarterly Reports on Form 10 ‑Q, Current Reports on Form 8 ‑K, and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments
are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Materials that we file or furnish
to the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1 ‑800 ‑SEC ‑0330. Also, the
SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we
file electronically with the SEC.
ITEM 1A. RISK FACTOR S
The U.S. wind energy industry is significantly impacted by tax and other economic incentives and political and governmental
policies. A significant change in these incentives and policies could significantly impact our results of operations and growth.
We supply products to wind turbine manufacturers and owners and operators of wind energy generation facilities. The U.S.
wind energy industry is significantly impacted by federal tax incentives and state RPS’s. Despite recent reductions in the cost of
wind turbines, wind energy may not be economically viable in certain parts of the country absent such incentives.
These programs have provided material incentives to develop wind energy generation facilities and thereby impact the
demand for our products. The increased demand for our products that generally results from the credits and incentives could be
impacted by the expiration of these programs. Because of the long lead times necessary to develop wind energy projects, any failure
by the U.S. Congress to extend or renew these incentives could negatively impact potential wind energy installations and would
likely inhibit the development of wind energy generation facilities and the demand for wind turbines, towers, gearing and related
components in certain areas of the U.S.
One such federal government program, the PTC, provides economic incentives to the owners of wind energy facilities in
the form of a tax credit. The PTC has been extended several times since its initial introduction in 1992. On December 18, 2015, the
U.S. Congress voted to pass the 2016 federal budget, which includes a multi-year extension of the PTC. As a result, the PTC will
now be extended at full value for projects commenced in 2015 and 2016, and continue at 80% of present value for projects
commenced in 2017, 60% for projects commended in 2018, and 40% for projects commenced in 2019. As before, the rules will
allow developers of wind energy projects to qualify so long as they start construction before the end of the respective period.
State RPS’s generally require or encourage state ‑regulated electric utilities to supply a certain proportion of electricity
from renewable energy sources or devote a certain portion of their plant capacity to renewable energy generation. Typically, utilities
comply with such standards by qualifying for renewable energy credits evidencing the share of electricity that was produced from
renewable sources. Under many state standards, these renewable energy credits can be unbundled from their associated energy and
traded in a market system, allowing generators with insufficient credits to meet their applicable state mandate. These standards have
spurred significant growth in the wind energy industry and a corresponding increase in the demand for our products. Currently, the
majority of states have RPS’s in place and certain states have voluntary utility commitments to supply a specific percentage of their
electricity from renewable sources. The enactment of RPS’s in additional states or any changes to existing RPS’s (including changes
due to the failure to extend or renew the federal incentives described above), or the enactment of a federal RPS’s or imposition of
other greenhouse gas regulations, may impact the demand for our products. We cannot assure that government support for renewable
energy will continue. The elimination of, or reduction in, state or federal government policies that support renewable energy could
have a material adverse impact on our business, results of operations, financial performance and future development efforts.
Our financial and operating performance is subject to certain factors which are out of our control, including the state of the wind
energy market in North America.
As a supplier of products to wind turbine manufacturers and owners and operators of wind energy generation facilities, our
results of operations (like those of our customers) are subject to general economic conditions, and specifically to the state of the wind
energy market. In addition to the state and federal government policies supporting renewable energy
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described above, the growth and development of the larger wind energy market in North America is subject to a number of factors,
including, among other things:
·
·
·
·
·
·
·
·
·
·
the availability and cost of financing for the estimated pipeline of wind development projects;
the cost of electricity, which may be affected by a number of factors, including government regulation, power
transmission, seasonality, fluctuations in demand, and the cost and availability of fuel and particularly natural gas;
the general demand for electricity or “load growth”;
the development of new power generating technology or advances in existing technology or discovery of power
generating natural resources;
the development of electrical transmission infrastructure;
state and federal laws and regulations regarding avian protection plans and noise or turbine setback requirements;
state and federal laws and regulations, particularly those favoring low carbon energy generation alternatives;
administrative and legal challenges to proposed wind development projects;
the improvement in efficiency and cost of wind energy, as influenced by advances in turbine design and operating
efficiencies; and
public perception and localized community responses to wind energy projects.
In addition, while some of the factors listed above may only affect individual wind project developments or portions of the
market, in the aggregate they may have a significant effect on the successful development of the wind energy market as a whole, and
thus affect our operating and financial results.
We are substantially dependent on a few significant customers.
Historically, the majority of our revenues are highly concentrated with a limited number of customers. In 2015, two
customers—Siemens and General Electric—each accounted for more than 10% of our consolidated revenues, and our five largest
customers accounted for 92 % of our consolidated revenues. Certain of our customers periodically have expressed their intent to
scale back, delay or restructure existing customer agreements, which has led to reduced revenues from these customers. It is possible
that this may occur again in the future. As a result, our operating profits and gross margins have historically been negatively affected
by significant variability in production levels, which has created production volume inefficiencies in our operations and cost
structures.
Additionally, if our relationships with significant customers should change materially, it could be difficult for us to
immediately and profitably replace lost sales in a market with such concentration, which could have a material adverse effect on our
operating and financial results. We could be adversely impacted by decreased customer demand for our products due to (1) the
impact of current or future economic conditions on our customers, (2) our customers’ loss of market share to their competitors that
do not use our products, and (3) our loss of market share with our customers. We could lose market share with our customers to our
competitors or to our customers themselves, should they decide to become more vertically integrated and produce the products that
we currently provide.
In addition, even if our customers continue to do business with us, we could be adversely affected by a number of other
potential developments with our customers. For example:
·
The inability or failure of our customers to meet their contractual obligations could have a material adverse effect on
our business, financial position and results of operations.
· Certain customer contracts provide the customer with the opportunity to cancel a substantial portion of its volume
obligation by providing us with notice of such election prior to commencement of production. Such contracts generally
require the customer to pay a sliding cancelation fee based on how far in advance of commencement of production
such notice is provided.
·
If we are unable to deliver products to our customers in accordance with an agreed upon schedule we may become
subject to liquidated damages provisions in certain supply agreements for the period of time we are unable to deliver
finished products. Although the liquidated damages provisions are generally capped at
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certain levels, they can become significant and may have a negative impact on our profit margins and financial results.
· A material change in payment terms with a significant customer could have a material adverse effect on our short ‑term
cash flows.
Consolidation among wind turbine manufacturers could increase our customer concentration and/or disrupt our supply chain
relationships.
Wind turbine manufacturers are among our primary customers. There has been some consolidation among these
manufacturers, and more consolidation may occur in the future. Customer consolidation may result in pricing pressures, to which we
are subject, leading to downward pressure on our margins and profits, and may also disrupt our supply chain relationships. Even if
customers continue to consolidate, there can be no assurance that those customers would leverage our production capabilities by
concentrating their purchasing activity with us .
We have generated net losses since our inception.
We have experienced operating losses for each of the years during which we have operated, and losses may occur in the
foreseeable future. We have incurred significant costs in connection with the development of our businesses and because we have
operated at low capacity utilization in certain facilities, and there is no assurance that we will generate sufficient revenues to offset
anticipated operating costs. Although we anticipate deriving revenues from the sale of our products, no assurance can be given that
these products can be sold on a profitable basis. If we achieve profitability, we cannot give any assurance that we would be able to
sustain or increase profitability on a quarterly or annual basis in the future.
Disruptions in the supply of parts and raw materials, or changes in supplier relations, may negatively impact our operating
results.
We are dependent upon the supply of certain raw materials used in our production process, and these raw materials are
exposed to price fluctuations on the open market. Raw material costs for materials such as steel, our primary raw material, have
fluctuated significantly and may continue to fluctuate. To reduce price risk caused by market fluctuations, we have generally
matched raw material purchases to our sales contracts or incorporated price adjustment clauses in our contracts. However, limitations
on availability of raw materials or increases in the cost of raw materials (including steel), energy, transportation and other necessary
services may impact our operating results if our manufacturing businesses are not able to fully pass on the costs associated with such
increases to their respective customers. Alternatively, we will not realize material improvements from declines in steel prices as the
terms of our contracts generally require that we pass these cost savings through to our customers. In addition, we may encounter
supplier constraints, be unable to maintain favorable supplier arrangements and relations or be affected by disruptions in the supply
chain caused by events such as natural disasters, shipping delays, power outages and labor strikes. Additionally, our supply chain has
become more global in nature and, thus, more complex from a shipping and logistics perspective. In the event of significant
increases or decreases in the price of raw materials, particularly steel, our margins and profitability could be negatively impacted.
Our diversification outside of the wind energy market exposes us to business risks associated with the O&G and mining
industries, among others, which may slow our growth or penetration in these markets.
Although we have some experience in the O&G and mining markets through our gearing and specialty weldments
businesses, these markets have not been our primary focus. In further diversifying our business to serve these markets, we will face
competitors who may have more resources, longer operating histories and more well ‑established relationships than we do, and we
may not be able to successfully or profitably generate additional business opportunities in these industries. Moreover, if we are able
to successfully diversify into these markets, our businesses may be exposed to risks associated with these industries, which could
adversely affect our future earnings and growth. These risks include, among other things:
·
·
·
·
the prices and relative demand for oil, gas, minerals and other commodities;
domestic and global political and economic conditions affecting the O&G and mining industries;
changes in O&G and mining technology;
the price and availability of alternative fuels and energy sources, as well as changes in energy consumption or supply;
and
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·
federal, state and local regulations, including, among others, regulations relating to hydraulic fracturing and greenhouse
gas emissions.
Our customers may be significantly affected by disruptions and volatility in the economy and in the wind energy market.
Market disruptions and regular market volatility, including the recent sharp decrease in oil and commodity prices, may
adversely impact our customers’ ability to pay amounts due to us and could cause related increases in our working capital or
borrowing needs. In addition, our customers have in the past attempted and may attempt in the future to renegotiate the terms of
contracts or reduce the size of orders with us as a result of disruptions and volatility in the markets. We cannot predict with certainty
the amount of our backlog that we will ultimately ship to our customers.
Market disruptions and regular market volatility may also result in an increased likelihood of our customers asserting
warranty or remediation claims in connection with our products or services that they would not ordinarily assert in a more stable
economic environment. In the event of such a claim, we may incur costs if we decide to compensate the affected customer or to
engage in litigation with the affected customer regarding the claim. We maintain product liability insurance, but there can be no
guarantee that such insurance will be available or adequate to protect against such claims. A successful claim against us could have a
material adverse effect on our business.
We may have difficulty obtaining additional financing when needed or on acceptable terms, and there can be no assurance that
our operations will generate cash flows in an amount sufficient to enable us to pay our indebtedness.
We rely on banks and capital markets as a source of liquidity for capital requirements not satisfied by cash flows from
operations or asset sales. We have experienced operating losses for each of the years during which we have operated, and our
committed sources of liquidity may be inadequate to satisfy our operational needs. There can be no assurance that our recent
restructuring efforts will be successful in improving our profitability. If we are not able to access capital at competitive rates, the
ability to implement our business plans may be adversely affected. In the absence of access to capital resources, we could face
substantial liquidity problems and might be required to dispose of material assets or operations at times when the prices for such
assets or operations are depressed. In such event, we may not be able to consummate those dispositions. Furthermore, the proceeds
of any such dispositions may not be adequate to meet our debt service obligations when due.
Our plans for growth and diversification may not be successful, and could result in poor financial performance.
We have made a strategic decision to diversify our business further into O&G, mining and other industries, particularly
within our gearing and specialty weldments businesses. While we have historically participated in these lines of business, there is no
assurance that we will be able to grow our presence in these markets at a rate sufficient to compensate for a potentially weaker wind
energy market. Moreover, our participation in these markets may require additional investments in personnel, equipment and
operational infrastructure. If we are unable to further penetrate these markets, our plans to diversify our operations may not be
successful and our anticipated future growth may be adversely affected.
We may also grow our existing business through increased production levels at existing facilities. Such growth will require
coordinated efforts across the Company and continued enhancements to our current operating infrastructure, including management
and operations personnel, systems, equipment and property. Moreover, if our efforts do not adequately predict the demand of our
customers and our potential customers, our future earnings may be adversely affected.
We face competition from industry participants who may have greater resources than we do.
Our businesses are subject to risks associated with competition from new or existing industry participants who may have
more resources and better access to capital. Certain of our competitors and potential competitors may have substantially greater
financial, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. Among other things, these industry participants compete
with us based upon price, quality, location and available capacity. We cannot be sure that we will have the resources or expertise to
compete successfully in the future. Some of our competitors may also be able to provide customers with additional benefits at lower
overall costs to increase market share. We cannot be sure that we will be able to match cost reductions by our competitors or that we
will be able to succeed in the face of current or future competition. In addition, we may face competition from certain of our
customers as they seek to be more vertically integrated and offer full service packages.
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If our projections regarding the future market demand for our products are inaccurate, our operating results and our overall
business may be adversely affected.
We have previously made significant capital investments in anticipation of rapid growth in the U.S. wind energy market.
However, the growth in the U.S. wind energy market has not kept pace with the expectations we had when some of these capital
investments were made, and there can be no assurance that the U.S. wind energy market will grow and develop in a manner
consistent with our expectations, or that we will be able to fill our idle capacity through the further diversification of our operations.
Our internal manufacturing capabilities have required significant upfront fixed costs. If market demand for our products does not
increase at the pace we have anticipated and align with our manufacturing capacity, we may be unable to offset these costs and to
achieve economies of scale, and our operating results may continue to be adversely affected as a result of high fixed costs, reduced
margins and underutilization of capacity. In light of these considerations, we may be forced to temporarily idle existing capacity or
sell to third parties manufacturing capacity that we cannot utilize in the near term, in addition to the steps that we have already taken
to adjust our capacity more closely to demand. Alternatively, if we experience rapid demand for our products in excess of our
estimates, or we reduce our manufacturing capacity, our installed capital equipment and existing workforce may be insufficient to
support higher production volumes, which could adversely affect our customer relationships and overall reputation. In addition, we
may not be able to expand our workforce and operations in a timely manner, procure adequate resources or locate suitable third
‑party suppliers to respond effectively to changes in demand for our existing products or to the demand for new products requested
by our customers, and our business could be adversely affected. Our ability to meet such excess customer demand could also depend
on our ability to raise additional capital and effectively scale our manufacturing operations.
We rely on unionized labor, the loss of which could adversely affect our future success.
We depend on the services of unionized labor and have collective bargaining agreements with certain of our operations
workforce at our Cicero, Illinois and Neville Island, Pennsylvania Gearing facilities. The loss of the services of these and other
personnel, whether through terminations, attrition, labor strike or otherwise, or a material change in our collective bargaining
agreements, could have a material adverse impact on us and our future profitability. Collective bargaining agreements have been
ratified by the collective bargaining units in place at our Cicero and Neville Island facilities and are expected to expire in February
2018 and October 2017, respectively. As of December 31, 2015, our collective bargaining units represented approximately 14% of
our workforce.
We may need to hire additional qualified personnel, including management personnel, and the loss of our key personnel could
adversely affect our business.
Our future success will depend largely on the skills, efforts and motivation of our executive officers and other key
personnel. Our success also depends, in large part, upon our ability to attract and retain highly qualified management and other key
personnel throughout our organization. We face competition in the attraction and retention of personnel who possess the skill sets we
seek. In addition, key personnel may leave us and subsequently compete against us. The loss of the services of any of our key
personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could have a material
adverse effect on our business, results of operations or financial condition.
Our ability to comply with regulatory requirements is critical to our future success, and there can be no guarantee that our
businesses are in full compliance with all such requirements.
As a manufacturer and distributor of wind and other energy industry products we are subject to the requirements of federal,
state, local and foreign regulatory authorities. In addition, we are subject to a number of industry standard ‑setting authorities, such
as the American Gear Manufacturers Association and the American Welding Society. Changes in the standards and requirements
imposed by such authorities could have a material adverse effect on us. In the event we are unable to meet any such standards when
adopted, our businesses could be adversely affected. We may not be able to obtain all regulatory approvals, licenses and permits that
may be required in the future, or any necessary modifications to existing regulatory approvals, licenses and permits, or maintain all
required regulatory approvals, licenses and permits. There can be no guarantee that our businesses are in full compliance with such
standards and requirements.
Current or future litigation and regulatory actions could have a material adverse impact on us.
From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business. No
assurances can be given that the results of these matters will be favorable to us. An adverse resolution of lawsuits, investigations or
arbitrations could have a material adverse effect on our business, financial condition and results of
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operations. Defending ourselves in these matters may be time ‑consuming, expensive and disruptive to normal business operations
and may result in significant expense and a diversion of management’s time and attention from the operation of our business, which
could impede our ability to achieve our business objectives. Additionally, any amount that we may be required to pay to satisfy a
judgment or settlement may not be covered by insurance. Under our charter and the indemnification agreements that we have entered
into with our officers, directors and certain third parties, we are required to indemnify and advance expenses to them in connection
with their participation in certain proceedings. There can be no assurance that any of these payments will not be material.
We could incur substantial costs to comply with environmental, health and safety (“EHS”) laws and regulations and to address
violations of or liabilities under these requirements.
Our operations are subject to a variety of EHS laws and regulations in the jurisdictions in which we operate and sell
products governing, among other things, health, safety, pollution and protection of the environment and natural resources, including
the use, handling, transportation and disposal of non ‑hazardous and hazardous materials and wastes, as well as emissions and
discharges into the environment, including discharges to air, surface water, groundwater and soil, product content, performance and
packaging. We cannot guarantee that we have been, or will at all times be in compliance with such laws and regulations. Changes in
existing EHS laws and regulations, or their application, could cause us to incur additional or unexpected costs to achieve or maintain
compliance. Failure to comply with these laws and regulations, obtain the necessary permits to operate our business, or comply with
the terms and conditions of such permits may subject us to a variety of administrative, civil and criminal enforcement measures,
including the imposition of civil and criminal sanctions, monetary fines and penalties, remedial obligations, and the issuance of
compliance requirements limiting or preventing some or all of our operations. The assertion of claims relating to regulatory
compliance, on or off ‑site contamination, natural resource damage, the discovery of previously unknown environmental liabilities,
the imposition of criminal or civil fines or penalties and/or other sanctions, or the obligation to undertake investigation, remediation
or monitoring activities could result in potentially significant costs and expenditures to address contamination or resolve claims or
liabilities. Such costs and expenditures could have a material adverse effect on our business, financial condition or results of
operations. Under certain circumstances, violation of such environmental laws and regulations could result in us being disqualified
from eligibility to receive federal government contracts or subcontracts under the federal government’s debarment and suspension
system.
We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous
substances into the environment. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of currently
and formerly owned, leased or operated properties, or properties to which hazardous substances or wastes were sent by current or
former operators at our current or former facilities, regardless of whether we directly caused the contamination or violated any law at
the time of discharge or disposal. Several of our facilities have a history of industrial operations, and contaminants have been
detected at some of our facilities. The presence of contamination from hazardous substances or wastes could interfere with ongoing
operations or adversely affect our ability to sell, lease or use our properties as collateral for financing. We also could be held liable
under third ‑party claims for property damage, natural resource damage or personal injury and for penalties and other damages under
such environmental laws and regulations, which could have a material adverse effect on our business, financial condition and results
of operations.
Limitations on our ability to utilize our net operating losses (“NOLs”) may negatively affect our financial results.
We may not be able to utilize all of our NOLs. To the extent available, we will use any NOL carryforwards to reduce the
U.S. corporate income tax liability associated with our operations. However, if we do not achieve profitability prior to their
expiration, we will not be able to fully utilize our NOLs to offset income. For financial statement presentation, all benefits associated
with the NOL carryforwards have been reserved; therefore, this potential asset is not reflected on our balance sheet. Section 382 of
the IRC (“Section 382”) generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset
taxable income when a corporation has undergone certain changes in stock ownership. Our ability to utilize NOL carryforwards and
built ‑in losses may be limited, under Section 382 or otherwise, by our issuance of common stock or by other changes in stock
ownership. Upon completion of our analysis of Section 382, we have determined that aggregate changes in our stock ownership have
triggered an annual limitation of NOL carryforwards and built ‑in losses available for utilization. Although this event limits the
amount of pre ‑ownership change date NOLs and built ‑in losses we can utilize annually, it would not preclude us from fully
utilizing our current NOL carryforwards prior to their expiration. To the extent our use of NOL carryforwards and associated built
‑in losses is significantly limited in the future due to additional changes in stock ownership, our income could be subject to U.S.
corporate income tax earlier than it would if we were able to use NOL carryforwards and built ‑in losses without such annual
limitation, which could result in lower profits and the loss of benefits from these attributes. To address these concerns, in February
2013 we adopted a
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Section 382 Stockholder Rights Plan (the “Rights Plan”) designed to preserve our substantial tax assets associated with NOL
carryforwards under Section 382. The Rights Plan is intended to act as a deterrent to any person or group, together with our affiliates
and associates, being or becoming the beneficial owner of 4.9% or more of our common stock and thereby triggering a further
limitation of our available NOL carryforwards. Under the Rights Plan, the Board declared a non-taxable dividend of one preferred
share purchase right (a “Right”) for each outstanding share of our common stock to our stockholders of record as of the close of
business on February 22, 2013. Each Right entitles its holder to purchase from us one-thousandth of a share of our Series A Junior
Participating Preferred Stock at an exercise price of $14.00 per Right, subject to adjustment. As a result of the Rights Plan, any
person or group that acquires beneficial ownership of 4.9% or more our common stock without the approval of the Board would be
subject to significant dilution in the ownership interest of that person or group. Stockholders who own 4.9% or more of the
outstanding shares of our common stock as of February 12, 2013 will not trigger the Rights unless they acquire additional shares. We
announced on February 5, 2016 that our Board had approved an amendment extending the Rights Plan for three years. The
amendment is subject to approval by our stockholders at our 2016 Annual Meeting of Stockholders. There can be no assurance that
our stockholders will ratify the extension of the Rights Plan or that the Rights Plan will be effective in protecting our NOL
carryforwards.
If our estimates for warranty expenses differ materially from actual claims made, or if we are unable to reasonably estimate
future warranty expense for our products, our business and financial results could be adversely affected.
We provide warranty terms generally ranging between one and five years to our customers depending upon the specific
product and terms of the customer agreement. We reserve for warranty claims based on industry experience and estimates made by
management based upon a percentage of our sales revenues related to such products. From time to time, customers have submitted
warranty claims to us. However, we have a limited history on which to base our warranty estimates for certain of our manufactured
products. Our assumptions could materially differ from the actual performance of our products in the future and could exceed the
levels against which we have reserved. In some instances our customers have interpreted the scope and coverage of certain of our
warranty provisions differently from our interpretation of such provisions. The expenses associated with remediation activities in the
wind energy industry can be substantial, and if we are required to pay such costs in connection with a customer’s warranty claim, we
could be subject to additional unplanned cash expenditures. If our estimates prove materially incorrect, or if we are required to cover
remediation expenses in addition to our regular warranty coverage, we could be required to incur additional expenses and could face
a material unplanned cash expenditure, which could adversely affect our business, financial condition and results of operations.
We may be unable to keep pace with rapidly changing technology in wind turbine and other industrial component
manufacturing.
The global market for wind turbines, as well as for other industrial components we manufacture, is rapidly evolving
technologically. Our component manufacturing equipment and technology may not be suited for future generations of products being
developed by wind turbine companies. For example, some wind turbine manufacturers are using wind turbine towers made from
concrete instead of steel. Other wind turbine designs have reduced the use of gearing or eliminated the gearbox entirely through the
use of direct or compact drive technologies. To maintain a successful business in our field, we must keep pace with technological
developments and the changing standards of our customers and potential customers and meet their constantly evolving demands. If
we fail to adequately respond to the technological changes in our industry, or are not suited to provide components for new types of
wind turbines, our business, financial condition and operating results may be adversely affected.
If we are unable to produce, maintain and disseminate relevant and/or reliable data and information pertaining to our business
in an efficient, cost-effective, secure and well-controlled fashion and avoid security breaches affecting our information
technology systems, such inability may have significant negative impacts on confidentiality requirements and obligations, and
proprietary needs and expectations and, therefore, our future operations, profitability and competitive position.
Management relies on information technology infrastructure and architecture, including hardware, network, software,
people and processes, to provide useful and confidential information to conduct our business in the ordinary course, including
correspondence and commercial data and information interchange with customers, suppliers, consultants, advisors and governmental
agencies, and to support assessments and conclusions about future plans and initiatives pertaining to market demands, operating
performance and competitive positioning. In addition, any material failure, interruption of service, compromised data security or
cybersecurity threat could adversely affect our relations with suppliers and customers, place us in violation of confidentiality and
data protection laws, rules and regulations, and result in negative impacts to our market share, operations and profitability. Security
breaches in our information technology could result in
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theft, destruction, loss, misappropriation or release of confidential data or intellectual property which could adversely impact our
future results.
ITEM 1B. UNRESOLVED STAFF COMMENT S
None.
ITEM 2. PROPERTIE S
Our corporate headquarters is located in Cicero, Illinois, a suburb located west of Chicago, Illinois. In addition, the
Subsidiaries own or lease operating facilities, which are presented by operating segment as follows:
Operating Segment and Facility Type
Towers and Weldments
Tower Manufacturing
Tower Manufacturing
Weldments
Weldments
Weldments
Gearing and Corporate
Gearing System Manufacturing—Machining
Gearing System Manufacturing—Machining and Corporate Administration
Gearing System Manufacturing—Heat Treatment & Gearbox Repair
Location
Owned / Approximate
Leased Square Footage
Leased
Manitowoc, WI
Owned
Abilene, TX
Leased
Manitowoc, WI
Abilene, TX
Leased
Clintonville, WI-1 Owned
Owned
Cicero, IL-2
Cicero, IL
Leased
Neville Island, PA Owned
206,000
146,000
45,000
80,000
63,000
149,000
301,000
70,000
(1) The Clintonville , Wisconsin f acility is listed as Assets Held For Sale as of December 31, 201 5 in conjunction with
management’s determination that the property is no longer required in our operations.
(2) The use of the Cicero Avenue f acility in Cicero, Illinois in our production was significantly curtailed at the end of 2013 and we
recorded a related $1,732 impairment in the fourth quarter of 2013.
We consider our facilities to be in good condition and adequate for our present and future needs.
ITEM 3. LEGAL PROCEEDING S
We are party to a variety of legal proceedings that arise in the normal course of our business. While the results of these
legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have
a material adverse effect, individually or in the aggregate, on our results of operations, financial condition or cash flows. Due to the
inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a
material adverse effect on our results of operations, financial condition or cash flows. It is possible that if one or more of such
matters were decided against us, the effects could be material to our results of operations in the period in which we would be
required to record or adjust the related liability and could also be material to our financial condition and cash flows in the periods we
would be required to pay such liability.
ITEM 4. MINE SAFETY DISCLOSURE S
Not Applicable .
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(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
PART I I
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “BWEN.” The following
table sets forth the high and low bid prices of our common stock traded on the NASDAQ.
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2014
First quarter
Second quarter
Third quarter
Fourth quarter
Common Stock
High
Low
$ 5.80
5.12
3.93
3.19
$ 4.63
3.58
2.07
1.78
Common Stock
High
Low
$ 12.22
13.49
9.45
8.13
$ 8.15
8.77
7.49
5.33
The closing price for our common stock as of February 1 8 , 201 6 was $1 . 76 . As of February 1 8 , 201 6 , there were 45
holders of record of our common stock.
Dividends
We have never paid cash dividends on our common stock and have no current plan to do so in the foreseeable future. The
declaration and payment of dividends on our common stock are subject to the discretion of our Board and are further limited by our
credit agreements and other contractual agreements we may have in place from time to time. The decision of our Board to pay future
dividends will depend on general business conditions, the effect of a dividend payment on our financial condition, and other factors
our Board may consider relevant. The current policy of our Board is to reinvest cash generated in our operations to promote future
growth and to fund potential investments.
Repurchases
On October 29, 2014, our Board authorized a program to repurchase up to $10,000 of our outstanding common stock over
the ensuing six-month period , at which t ime t he program ended . Our share repurchase program did not obligate us to acquire any
specific number of shares. The common stock could be acquired in the open market at prices subject to certain pricing guidelines
determined by us. We had no obligation to repurchase shares, and we could discontinue purchases at any time that we determined
additional purchases were not warranted. During the repurchase program, we purchased $1,850 of our outstanding common stock.
There were no repurchases of our equity securities under the repurchase p rogram made during the year ended December
31, 2015.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities for the years ended December 31, 201 5 or 201 4 .
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” of this Annual Report for information as of December 31, 201 5 with respect to shares of our common stock that may be
issued under our existing share ‑based compensation plans.
ITEM 6. SELECTED FINANCIAL DAT A
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide
information under this item.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Company” refer to Broadwind
Energy, Inc. and its wholly ‑owned Subsidiaries.
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
In September 2015, our Board of Directors (the “Board”) approved a plan to divest or otherwise exit our Services
segment. In the fourth quarter of 2015 we sold or otherwise disposed of all Services segment fixed assets and the majority of the
segment’s inventory, and we currently estimate the associated total loss on disposal to be $3,600. Consequently, this segment is now
reported as a discontinued operation and we have revised our segment presentation to include two reportable operating segments:
Towers and Weldments, and Gearing. All current and prior period financial results have been revised to reflect these changes.
We recognized sales of $199,200 in 2015, a 12% decrease compared to $225,800 in 2014. The decrease reflects lower sales
in Towers and Weldments of $14,000, and in Gearing of $12,700. The Towers and Weldments segment revenues decrease of
$14,000 on slightly lower volumes was due to the absence of a greater mix of larger, more complex towers sold in 2014, and a
reduction in steel prices, which are generally passed through to the customer. Gearing revenues were down by $12,700 or 30%, with
a substantial portion of the decline driven by a 55% decrease in sales to O&G and mining industry customers, partially offset by
increased revenues from wind energy customers. We reported a net loss of $21,800 or $1.48 per share in 2015, compared to a net
loss of $6,200 or $.42 per share in 2014. The $1.06 per share increased loss was due to reduced operating income in Towers and
Weldments of $13,400, and increased net loss from discontinued operations of $5,200, partially offset by reduced losses in our
Gearing segment and lower corporate expenses. The reduced Towers and Weldments segment results were due to a lower margin
mix of tower sales, and 2015 operating inefficiency costs and inventory charges which resulted from a difficult contract at our
Abilene, Texas tower facility (the “Abilene Tower Facility”). Additionally, we recorded a $900 environmental charge in our Gearing
segment in 2015. These adverse factors were partly offset by lower Corporate expenses and the absence of a $1,600 regulatory
settlement charge in the prior-year third quarter.
We booked $94,000 in net new orders in 2015, down significantly from $120,500 in 2014. Towers and Weldments orders,
which vary considerably from quarter to quarter, totaled $69 , 1 00 in 2015, down from $77 , 6 00 in 2014 due to a reduction in steel
pricing passed through to customers and lower weldments orders in 2015. Gearing orders totaled $24.9 million in 2015, down from
$42.9 million in 2014 due to weaker demand from oil & gas and mining customer s. In December 2015, the federal Production Tax
Credit (the “PTC”) for new wind energy development projects was extended for an additional five-year period, which is expected to
help stabilize wind energy markets and attract new investment. The 2015 extension phases-out the amount of the credit allowed over
time based on the year when construction of the wind project is started. The phase-out schedule provides for 100% extension of the
credit in 2015 and 2016, 80% in 2017, 60% in 2018 and 40% in 2019. Although the clearer investment horizon provided by the long-
term extension is expected to stabilize the market for our products, it may also attract new competition in our industry. The new PTC
extension also provides a longer time period to begin construction of qualifying wind projects than the previous legislation, which
has caused some short-term delay in the commencement of wind farm development projects. A short-term result has been the delay
of some near-term wind farm development projects. At December 31, 2015, total backlog was $93,900, down 53% from $201,400 at
December 31, 2014.
As a result of recent weakness in some of our markets as described above, and in addition to discontinuing our Services
segment, we took a number of cost reduction actions in 2015. These actions included idling two facilities, reducing headcount and
eliminating positions totaling approximately 10% of our workforce. We have also consolidated our industrial weldment production
into our Abilene, Texas location, and have reduced capital and discretionary spending in all areas to conserve cash. We plan to
continue to actively monitor these markets and our spending.
We use our credit facility from time to time to fund temporary increases in working capital, and believe that our credit
facility, together with the operating cash generated by our businesses, is sufficient to meet all cash obligations over the next twelve
months. For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers
under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources” below.
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RESULTS OF OPERATIONS
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The summary of selected financial data table below should be referenced in connection with a review of the following
discussion of our results of operations for the year ended December 31, 2015 compared to the year ended December 31, 2014.
For the Year Ended December 31,
2015 vs. 2014
Revenues
Cost of sales
Restructuring costs
Gross profit
Operating expenses
Selling, general and administrative expenses
Intangible amortization
Regulatory settlement
Restructuring costs
Total operating expenses
Operating loss
Other expense
Interest expense, net
Other, net
Gain on sale of assets and restructuring
Total other expense, net
Net loss before benefit for income taxes
Benefit for income taxes
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Consolidated
% of Total
Revenue
% of Total
Revenue
2014
2015
$ 199,156
191,289
—
7,867
18,271
444
—
1,060
19,775
(11,908)
(799)
425
—
(374)
(12,282)
(36)
(12,246)
(9,561)
$ (21,807)
100 % $ 225,829
96.0 % 204,852
1,281
— %
19,696
4.0 %
9.2 %
0.2 %
— %
0.5 %
9.9 %
(5.9)%
(0.4)%
0.2 %
— %
(0.2)%
(6.1)%
— %
(6.1)%
(4.8)%
(10.9)% $
18,931
444
1,566
233
21,174
(1,478)
(656)
73
36
(547)
(2,025)
(232)
(1,793)
(4,375)
(6,168)
$ Change % Change
(11.8)%
(6.6)%
(100)%
(60.1)%
100 % $ (26,673)
90.7 % (13,563)
(1,281)
0.6 %
8.7 % (11,829)
(660)
8.4 %
—
0.2 %
(1,566)
0.7 %
827
0.1 %
9.4 %
(1,399)
(0.7)% (10,430)
(143)
(0.3)%
352
— %
(36)
— %
(0.3)%
173
(0.9)% (10,257)
(0.1)%
196
(0.8)% (10,453)
(1.9)%
(5,186)
(2.7)% $ (15,639)
(3.5)%
— %
(100)%
354.9 %
(6.6)%
(705.7)%
(21.8)%
482.2 %
(100)%
31.6 %
(506.5)%
(84.5)%
(583.0)%
(118.5)%
(253.6)%
Revenues decreased by $26,673, from $225,829 for the year ended December 31, 2014, to $199,156 for the year ended
December 31, 2015. The decrease reflects lower sales in Towers and Weldments of $13,985, and in Gearing of $12,665. The Towers
and Weldments segment revenues decrease on slightly lower volumes was due to the absence of a greater mix of larger, more
complex towers sold in 2014, and a reduction in steel prices, which are generally passed through to the customer. Weldments
revenue for large industrial customers decreased $3,355 as compared to the prior year due to weakness in the mining industry.
Gearing revenues were down by 30%, with a substantial portion of the decline driven by a 55% decrease in sales to O&G and mining
industry customers, partially offset by increased revenues from wind energy customers.
Gross profit decreased by $11,829, from $19,696 for the year ended December 31, 2014, to $7,867 for the year ended
December 31, 2015. The decrease in gross profit was primarily attributable to 2015 operating inefficiency costs and inventory
charges related to production difficulties which resulted from a difficult contract at the Abilene Tower Facility, partially offset by an
improvement in Gearing segment margins due to cost control efforts and the absence of a $1,280 restructuring charge to Gearing cost
of sales in 2014. As a result, our gross margin decreased from 8.7% for the year ended December 31, 2014, to 4.0% for the year
ended December 31, 2015.
Selling, general and administrative (“SG&A”) expenses decreased by $660, from $18,931 for the year ended December 31, 2014, to
$18,271 for the year ended December 31, 2015. The small decrease was attributable to the absence of a one-time professional fee
from 2014, partially offset by higher severance and legal fees in 2015. SG&A expenses as a percentage of sales increased from 8.4%
in the year ended December 31, 2014, to 9.2% in the year ended December 31, 2015, reflecting lower sales from continuing
operations in 2015.
Regulatory settlement expense decreased from $1,566 for the year ended December 31, 2014, to $0 for the year ended December 31,
2015 as no material regulatory issues were open.
Net loss increased from $6,168 for the year ended December 31, 2014, to $21,807 for the year ended December 31, 2015, as a result
of the factors described above, and a $5,186 increase in the net loss from discontinued operations.
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Towers and Weldments Segment
The following table summarizes the Towers and Weldments segment operating results for the years ended December 31,
2015 and 2014:
Orders
Revenues
Operating income
Operating margin
Twelve Months Ended
December 31,
2015
69,146
$
170,919
4,702
2014
77,570
$
184,904
18,065
2.8 %
9.8 %
Towers and Weldments segment revenues decreased by $13,985, from $184,904 for the year ended December 31, 2014, to $170,919
for the year ended December 31, 2015. The Towers and Weldments segment revenues decrease on slightly lower volumes was due
to the absence of a greater mix of larger, more complex towers sold in 2014, and a reduction in steel prices, which are generally
passed through to the customer. Weldments revenue for large industrial customers decreased $3,355 as compared to the prior year
due to weakness in the mining industry.
Towers and Weldments segment operating income decreased by $13,363, from $18,065 for the year ended December 31, 2014, to
$4,702 for the year ended December 31, 2015. We experienced $6,249 in decreased profits attributable to a lower margin mix of
tower sales and higher labor and overhead costs due to production difficulties in the Abilene Tower Facility . We also experienced
$3,083 in costs associated with damaged and scrapped materials, and $1,364 of increased logistics and contractor fees, primarily due
to a difficult tower contract and the associated need to re-schedule production multiple times, and ultimately move some production
from the Abilene Tower F acility to our Manitowoc tower facility. The contract was nearly completed in 2015, with a small amount
of remaining production obligation transferred to our Manitowoc, Wisconsin tower facility in December 2015 for completion in
early 2016. Additionally, we have experienced lower volumes and lower operating profitability of $1,703 in weldments. Operating
margin decreased from 9.8% during the year ended December 31, 2014, to 2.8% during the year ended December 31, 2015.
Gearing Segment
The following table summarizes the Gearing segment operating results for the years ended December 31, 2015 and 2014:
Orders
Revenues
Operating loss
Operating margin
Twelve Months Ended
December 31,
2015
$ 24,881
29,588
(8,235)
(27.8)%
2014
$ 42,910
42,253
(9,423)
(22.3)%
Gearing segment revenues decreased by $12,665, from $42,253 for the year ended December 31, 2014, to $29,588 for the year ended
December 31, 2015. Gearing revenues were down sharply by 30%, with a substantial portion of the decline driven by a 55%
decrease in sales to O&G and mining industry customers, partially offset by increased revenues from wind energy customers.
Gearing segment operating loss improved by $1,188, from $9,423 for the year ended December 31, 2014, to $8,235 for the year
ended December 31, 2015. The decrease in operating loss was the result of strong cost control efforts in response to sharply lower
revenues: $1,784 lower non-cash charges, $1,415 lower indirect labor costs, $593 lower restructuring expenses, partially offset by
the impact of lower sales volume. As a result of the factors described above, operating margin decreased from (22.3%) for the year
ended December 31, 2014, to (27.8%) for the year ended December 31, 2015.
Corporate and Other
Corporate and Other expenses improved by $1,745, from $10,083 for the year ended December 31, 2014, to $8,338 for the year
ended December 31, 2015. The primary driver of the decrease in expense was the absence of a $1,566 provision to settle the SEC
inquiry recorded in 2014. We also recorded separation cost of $1,154 in 2015 related to the departure of our former President and C
hief E xecutive O fficer , but this charge and higher l egal fees were offset by lower incentive compensation expense and lower
professional fees in 2015 as compared to 2014.
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SUMMARY OF CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on
the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated
financial statements. This section should also be read in conjunction with Note 1, “Description of Business and Summary of
Significant Accounting Policies” in the notes to our consolidated financial statements for further discussion of these and other
significant accounting policies.
Revenue Recognition
We recognize revenue when the earnings process is complete and when persuasive evidence of an arrangement exists,
transfer of title has occurred or services have been rendered, the selling price is fixed or determinable, collectability is reasonably
assured and delivery has occurred per the terms of the contract. Customer deposits and other receipts are deferred and recognized
when the revenue is realized and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be
classified as reductions of revenue in our statement of operations.
In some instances, typically within our Towers and Weldments segment, products are sold under terms included in bill and
hold sales arrangements that result in different timing for revenue recognition due to our customers’ preference to ship towers in
batches to support efficient construction of wind farms. We recognize revenue under these arrangements only when the buyer
requests the arrangement, title and risk of ownership has passed to the buyer, a fixed schedule for delivery exists, the ordered goods
are segregated from inventory and not available to fill other orders and the goods are complete and ready for shipment. Assuming
these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer
acceptance.
Warranty Liability
We provide warranty terms that generally range from one to five years for various products relating to workmanship and
materials supplied by us. In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third
parties for amounts paid to customers under warranty provisions. We estimate the warranty accrual based on various factors,
including historical warranty costs, current trends, product mix and sales.
Inventories
Inventories are stated at the lower of cost or market. We have recorded a reserve for excess of cost over market value in our
inventory allowance. Market value of inventory, and management’s judgment of the need for reserves, encompasses consideration of
other business factors including physical condition, inventory holding period, contract terms and usefulness. Inventories are valued
based either on actual cost or using a first ‑in, first out (“FIFO”) method.
Inventories consist of raw materials, work ‑in ‑process and finished goods. Raw materials consist of components and parts
for general production use. Work ‑in ‑process consists of labor and overhead, processing costs, purchased subcomponents, and
materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as
components manufactured by us that will be used to produce final customer products.
Intangible Assets
We review intangible assets for impairment whenever events or circumstances indicate that carrying amounts may not be
recoverable. If such events or changes in circumstances occur, we will recognize an impairment loss if the undiscounted future cash
flows expected to be generated by the assets are less than the carrying value of the related asset. The impairment loss would adjust
the asset to its fair value.
In evaluating the recoverability of definite ‑lived intangible assets, we must make assumptions regarding estimated future
cash flows and other factors to determine the fair value of such assets. If our fair value estimates or related assumptions change in the
future, we may be required to record impairment charges related to intangible assets. Asset recoverability is first measured by
comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the assets are impaired.
If such assets are considered to be impaired, the impairment recognized is measured based on the amount by which the carrying
amount of the assets exceeds the fair value.
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Due to the Gearing segment’s operating losses in each quarter of 2015 combined with its history of continued operating
losses, we continue to evaluate the recoverability of certain of our intangible assets associated with the Gearing segment. Based upon
our December 31, 2015 impairment assessment, the undiscounted cash flows based upon our most recent projections were less than
the carrying amount of relevant asset groups within the Gearing segment, and a possible impairment to these assets was indicated
under step one of ASC 360 testing. In step two of ASC 360 testing, we compared the long-lived assets’ estimated fair values with the
corresponding carrying amount of the assets. Under step two of ASC 360 testing, we assumed that the assets would be exchanged in
an orderly transaction between market participants and would represent the highest and best use of these assets. Based on the step
two analysis, we determined that no impairment to these assets was indicated as of December 31, 2015. To the extent the projections
used in our analysis are not achieved, there may be a negative effect on the valuation of these assets.
Long ‑‑Lived Assets
We review property and equipment and other long ‑lived assets for impairment whenever events or circumstances indicate
that their carrying amounts may not be recoverable. If such events or changes in circumstances occur, we will recognize an
impairment loss if the undiscounted future cash flows expected to be generated by the assets are less than the carrying value of the
related assets. The impairment loss would adjust the asset to its fair value.
In evaluating the recoverability of long ‑lived assets, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of such assets. If our cash flow estimates or related assumptions change in the future, we
may be required to record impairment charges related to property and equipment and other long ‑lived assets. Asset recoverability is
first measured by comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the
assets are impaired. If such assets are considered to be impaired, the impairment recognized is measured based on the amount by
which the carrying amount of the assets exceeds the fair value.
Due to the Gearing segment’s operating losses in each quarter of 2015 combined with its history of continued operating
losses, we continue to evaluate the recoverability of certain of the long ‑lived assets associated with the Gearing segment. Based
upon our December 31, 2015 impairment assessment, the undiscounted cash flows based upon our most recent projections were less
than the carrying amount of the related asset group, and a possible impairment to these assets was indicated under step one of ASC
360 testing. However, based on third-party appraisals and other estimates of the fair value of Gearing assets, we determined the fair
value of these assets is in excess of carrying amounts under step two of ASC 360 testing, and no impairment was indicated. The
appraised value of the assets was determined primarily using market value third-party appraisals. To the extent projections used in
our evaluations are not achieved, there may be a negative effect on the valuation of these assets.
During 2015, we took a $186 charge to adjust the carrying value of the Clintonville, Wisconsin facility assets to fair value
of this Assets Held for Sale to $554 as of December 31, 2015 based on negotiations that resulted in an executed sale contract
subsequent to the year-end. The Clintonville facility was originally classified as an Assets Held For Sale in 2013, and due to
depressed commercial real estate values we have recorded an additional impairment. We believe that the current classification
remains appropriate.
The Cicero Avenue facility in Cicero, Illinois was taken offline in 2014 in conjunction with our plant consolidation
completion. Due to ongoing environmental remediation, the Cicero Avenue facility is not immediately available for sale and it has
not been classified as Assets Held for Sale, however in 2013, it was substantially impaired to its current carrying value of $560.
Income Taxes
We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the
future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax
basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and
operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the
year that the change is enacted.
In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax
liability for each of the tax jurisdictions in which we operate. This process involves estimating our actual current income tax expense
and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting
and financial reporting purposes. We also recognize the expected future income tax benefits
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of net operating loss (“NOL”) carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax
assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of
the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be
implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation,
statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities
and could cause our income tax provision to vary significantly among financial reporting periods.
We also account for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or
expected to be taken in an income tax return. We follow the applicable pronouncement guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition related to the uncertainty in these income tax
positions.
Workers’ Compensation Reserves
At the beginning of the third quarter of 2013, we began to self ‑insur e for our workers’ compensation liability, including
reserves for self ‑retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk
transfer programs are used to determine required workers’ compensation reserves. We take into account claims incurred but not
reported when determining our workers’ compensation reserves. Workers’ compensation reserves are included in accrued liabilities.
While we believe that we have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts
recorded and additional losses may be incurred.
Health Insurance Reserves
At the beginning of the first quarter of 2014, we began to self ‑insure for our health insurance liabilities, including reserves
for self ‑retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer
programs are used to determine required health insurance reserves. We take into account claims incurred but not reported when
determining our health insurance reserves. Health insurance reserves are included in accrued liabilities. While we believe that we
have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional
losses may be incurred.
Recent Accounting Pronouncements
We review new accounting standards as issued. Although some of the accounting standards issued or effective in the
current fiscal year may be applicable to us, we have not identified any new standards that we believe merit further discussion, except
as discussed below.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014
‑09, Revenue from Contracts with Customers , which amends the guidance in former Accounting Standard Codification Topic 605,
Revenue Recognition , and provides a single, comprehensive revenue recognition model for all contracts with customers. This
standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized.
The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be
entitled to in exchange for those goods or services. This update permits companies to either apply the requirements retrospectively to
all prior periods presented, or apply the requirement in the year of adoption, through a cumulative adjustment. In August 2015, the
FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date , which amends the
previously issued ASU to provide for a one year deferral from the original effective date. This update is effective for public business
entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods.
Early adoption is permitted for annual reporting periods beginning on or after December 15, 2016, including interim periods within
that annual period. We will adopt the provisions of ASU 2014 ‑09 and ASU 2015-14 for the fiscal year beginning January 1, 2018,
and are currently evaluating the impact on our condensed consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred
income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a
classified balance sheet. This standard will become effective for fiscal years, and the interim periods within those years, beginning
after December 15, 2016, with early adoption allowed. During the fourth quarter of 2015, we elected to prospectively adopt this
standard. The prior reporting period was not retrospectively adjusted. Note 15 , “ Income Taxes ” of these condensed consolidated
financial statements contains additional information regarding the adoption of this standard.
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LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of December 31, 2015, cash and cash equivalents and short-term investments totaled $12,615, a decrease of $7,466 from
December 31, 2014. Total debt and capital lease obligations at December 31, 2015 totaled $5,846, and we had the ability to borrow
up to $9,500 under our Credit Facility (as defined below). We anticipate that we will be able to satisfy the cash requirements
associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next
twelve months primarily through cash generated from operations, available cash balances and our Credit Facility.
On August 23, 2012, we established a $20,000 secured revolving line of credit (the “Credit Facility”) with AloStar Bank of
Commerce (“AloStar”) pursuant to a Loan and Security Agreement dated August 23, 2012 (as amended, the “Loan Agreement”). On
June 29, 2015, the Credit Facility was amended to extend the maturity date, modify the applicable interest rate minimum quarterly
interest charges and convert $5,000 of the original Credit Facility amount into a term loan (the “Term Loan”). The Credit Facility
and the Term Loan each mature on August 31, 2016.
Under the terms of the Credit Facility, AloStar will advance funds when requested up to the level of our borrowing base,
which consists of approximately 85% of eligible receivables and approximately 50% of eligible inventory. Under the Credit Facility,
borrowings are continuous and all cash receipts are automatically applied to the outstanding borrowed balance.
The Loan Agreement contains customary representations and warranties. It also contains a requirement that we, on a
consolidated basis, maintain a minimum monthly fixed charge coverage ratio (the “Fixed Charge Coverage Ratio Covenant”) and
minimum monthly earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (“Adjusted
EBITDA Covenant”), along with other customary restrictive covenants, certain of which are subject to materiality thresholds,
baskets and customary exceptions and qualifications. As of September 30, 2015, we were not in compliance with the Adjusted
EBITDA Covenant. Consequently, an Eighth Amendment to Loan and Security Agreement and Waiver was executed on October
16, 2015, which waived our compliance with all covenants as of September 30, 2015, amended the Adjusted EBITDA Covenant
going forward and provided that the Fixed Charge Coverage Ratio Covenant would be recalculated for future periods commencing
with the quarter ending March 31, 2016.
We are considering renewal of the Credit Facility and also reviewing other financing alternatives in anticipation of the
scheduled expiration of the Credit Facility and the Term Loan on August 31, 2016. As of December 31, 2015, there was no
outstanding indebtedness under the Credit Facility, we had the ability to borrow up to $9,500 thereunder and the per annum interest
rate thereunder was 4.25%. Also as of December 31, 2015, there was $2, 799 in outstanding indebtedness under the Term Loan. As
of December 31, 2015, we were not in compliance with the Adjusted EBITDA Covenant. On February 23, 2016, we and AloStar
executed a Ninth Amendment to Loan and Security Agreement and Waiver (the “Ninth Amendment”) , which waived our
compliance with the Adjusted EBITDA Covenant as of December 31, 2015, amended the Adjusted EBITDA Covenant going
forward, provided that the Fixed Charge Coverage Ratio Covenant would be recalculated for future periods commencing with the
quarter ending June 30, 2016, reduced the amount of the Credit Facility to $ 10,000 , and extended the maturity date of the Credit
Facility to February 28, 2017. The Ninth Amendment also contains a liquidity requirement of $3,500 and establishes a reserve
against the borrowing base in an amount equal to the outstanding balance of the Term Loan at any given time .
While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial
obligations and debt covenants, there can be no assurances that our operations will generate sufficient cash, that we will be able to
comply with applicable loan covenants or that credit facilities will be available in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs.
Sources and Uses of Cash
Operating Cash Flows
During the year ended December 31, 2015 net cash used by operations was $5,512 compared to net cash provided by
operating activities totaled $6,115 for the year ended December 31, 2014 . The decrease in net cash provided by operating activities
was primarily attributable to the timing of receipt of customer deposits and a larger loss from continuing operations in 2015. Partly
offsetting this were lower accounts receivable and inventory and higher account payable levels.
Investing Cash Flows
During the year ended December 31, 2015, net cash provided by investing activities was $212 compared to net cash used in
investing activities of $12,169 for the year ended December 31, 2014. The increase in net cash provided by
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investing activities as compared to the prior ‑year period was primarily attributable to lower purchases of available for sale securities
and lower capital expenditures in 2015.
Financing Cash Flows
During the year ended December 31, 2015, net cash provided by financing activities was $2,052 compared to net cash used
in financing activities of $2,767 for the year ended December 31, 2014. The increase in net cash provided by financing activities as
compared to the prior ‑year period was due primarily to lower repurchases of common stock and proceeds from debt in 2015.
Other
Included in Long Term Debt, Net of Current Maturities is $2,600 associated with the New Markets Tax Credit transaction
described further in Note 19, “New Markets Tax Credit Transaction” in the notes to our consolidated financial statements.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and as such are not required to provide information under this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide
information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DAT A
The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES” of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURE S
(a) Evaluation of Disclosure Controls and Procedures
We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also
accumulated and communicated to management, including our Interim Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with
the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the most recent fiscal year reported on herein. Based on that evaluation, our CEO and CFO concluded
that our disclosure controls and procedures were not effective as of December 31, 2015 because of the material weaknesses in
internal control over financial reporting described below.
(b) Changes in Internal Control over Financial Reporting
We made one change in our internal control over financial reporting during our last fiscal year that has materially affected
or is reasonably likely to materially affect our internal control over financial reporting. As more fully described below, our inventory
cycle count procedures did not initially call for a complete count of inventory items with a low individual value (“C items”);
therefore, we updated our cycle count policy to require full annual coverage of all inventory items. We did not conduct these
complete cycle counts of C items in our Towers and Weldments segment in the last quarter of 2015.
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(c) Report of Management on Internal Control Over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as
of December 31, 2015. Management based this assessment on criteria for effective internal control over financial reporting described
in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management determined that, as of December 31, 2015, our internal control over financial
reporting was not effective because of the material weaknesses in internal control over financial reporting described below.
A material weakness is 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 consolidated financial statements will not be
prevented or detected on a timely basis.
Inventory Accounting
We did not maintain effective controls over the completeness, accuracy and existence of inventory during 2015.
Specifically, controls over completeness, accuracy and existence regarding one specific type of inventory in our Towers and
Weldments segment were not properly designed to prevent or detect material misstatements on a timely basis and, therefore,
constitute a material weakness. Transactions for towers internal inventory components were not always properly recorded in our
inventory records and these errors were not caught timely because our cycle count and annual count procedures did not require a
complete count of inventory items with a low individual value. We began conducting these complete cycle counts of C items in the
last quarter of the year. This material weakness resulted in inventory charges of $919 that were corrected prior to the issuance of this
Annual Report and give rise to a reasonable possibility that material misstatements of inventory in our annual or interim financial
statements will not be prevented or detected on a timely basis.
(d) Remediation Plan
As part of our commitment to strong internal controls over financial reporting, we (a) conducted an assessment of the root
causes of the related control deficiencies, (b) began complete counts of related inventory in connection with our year-end closing, (c)
made progress in remediating issues, and (d) will initiate other remedial actions under the oversight of the Board’s Audit Committee,
including:
Inventory Accounting
·
·
Reviewing and testing the revised design of controls with respect to the transaction processing of towers internal
inventory components to enhance timely and accurate inventory reporting, and
Fully implementing the revised design of controls with respect to annual cycle counting of inventory items with a low
individual value (“C items”) to ensure that transaction errors are detected, and that valuation of Company inventory
and related cost of goods sold are properly and timely reported.
We believe we have made substantial progress toward completing our remediation of the above-described material
weakness in the fourth quarter of 2015 and throughout our year-end closing process by performing a comprehensive count and
analysis of detailed internal inventory components, assessing the magnitude of potential out-of-period adjustments, and making
required adjustments to our financial statements. We will maintain and validate the effective operation of these controls in 2016,
before concluding that we have remediated this material weakness in inventory completeness, accuracy and existence controls.
We can give no assurance that the measures we take will remediate the material weaknesses that we identified or that any
additional material weaknesses will not arise in the future. We will continue to monitor the effectiveness of these and other
processes, procedures and controls and will make any further changes that management determines appropriate.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to include an
attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
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ITEM 9B. OTHER INFORMATIO N
On February 23, 2016, we and AloStar executed the Ninth Amendment, which waived our compliance with the Adjusted
EBITDA Covenant as of December 31, 2015, amended the Adjusted EBITDA Covenant going forward, provided that the Fixed
Charge Coverage Ratio Covenant would be recalculated for future periods commencing with the quarter ending June 30, 2016,
reduced the amount of the Credit Facility to $10,000, extended the maturity date of the Credit Facility to February 28, 2017. The
Ninth Amendment also contains a liquidity requirement of $3,500 and establishes a reserve against the borrowing base in an amount
equal to the outstanding balance of the Term Loan at any given time.
The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the Ninth
Amendment, which is attached hereto as Exhibit 10.49.
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PART II I
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANC E
With the exception of the description of our Code of Ethics and Business Conduct below, the information required by this
item is incorporated herein by reference from the discussion under the headings “Directors and Director Compensation,” “Corporate
Governance,” “Executive Officers” and “Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance” in our
definitive Proxy Statement to be filed in connection with our 201 6 Annual Meeting of Stockholders (the “201 6 Proxy Statement”).
Code of Ethics
We have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to all of our directors, executive officers
and senior financial officers (including our principal executive officer, principal financial officer, principal accounting officer,
controller, and any person performing similar functions). The Code is available on our website at www.bwen.com under the caption
“Investors” and is available in print, free of charge, to any stockholder who sends a request for a paper copy to Broadwind
Energy, Inc., Attn: Investor Relations, 3240 South Central Avenue, Cicero, IL 60804. We intend to include on our website any
amendment to, or waiver from, a provision of the Code that applies to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, that relates to any element of the code of ethics
definition enumerated in Item 406(b) of Regulation S ‑K.
ITEM 11. EXECUTIVE COMPENSATIO N
Information regarding director and executive compensation is incorporated by reference from the discussion under the
headings “Directors and Director Compensation” and “ Executive Officers ” in the 201 6 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Certain of the information required by this item is incorporated herein by reference from the discussion under the heading
“Security Ownership of Certain Beneficial Holders and Management” in the 201 6 Proxy Statement.
The following table provides information as of December 31, 201 5 , with respect to shares of our common stock that may
be issued under our existing equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION
(a)
(b)
(c)
Plan Category
Equity compensation plans approved by stockholders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted‑‑average
exercise price of
outstanding options,
warrants, and rights
8.49
8.49
522,007 (1)$
522,007 $
Number of securities
remaining available for
future issuances under
equity compensation
plans (excluding
securities reflected in
column (a))
1,114,534
1,114,534
(1)
Includes outstanding stock options to purchase shares of our common stock and outstanding restricted stock awards pursuant to
the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan, the Broadwind Energy, Inc. 2012 Equity
Incentive Plan , and the Broadwind Energy, Inc. 2015 Equity Incentive Plan . Each of these plans has been approved by our
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference from the discussion under the headings “Certain
Transactions and Business Relationships” and “Corporate Governance” in the 201 6 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference from the discussion under the heading
“Ratification of Appointment of Independent Registered Public Accounting Firm” in the 201 6 Proxy Statement.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART I V
The financial statements listed on the Index to Financial Statements (page 29 ) are filed as part of this Annual Report.
2. Financial Statement Schedules
These schedules have been omitted because the required information is included in the consolidated financial statements or
notes thereto or because they are not applicable or not required.
3. Exhibits
The exhibits listed on the Index to Exhibits (pages 64 through 67) are filed as part of this Annual Report.
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the Years Ended December 31, 201 5 and 201 4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the Year s Ended December 31, 2015 and 201 4
Notes to Consolidated Financial Statements
Page
30
31
32
33
34
35
29
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Broadwind Energy, Inc.:
We have audited the accompanying consolidated balance sheets of Broadwind Energy, Inc. and its subsidiaries as of December 31,
2015 and 2014, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in
the two - year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility i s to express an opinion on these consolidated 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 audit 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
Broadwind Energy, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows f
or each of the years in the two- year period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles .
/s/ KPMG LLP
Chicago, Illinois
February 26, 2016
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET S
(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments
Restricted cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Current assets held for sale
Total current assets
LONG-TERM ASSETS:
Property and equipment, net
Intangible assets, net
Other assets
Long-term assets held for sale
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
Current portions of capital lease obligations
Accounts payable
Accrued liabilities
Customer deposits
Current liabilities held for sale
Total current liabilities
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities
Long-term capital lease obligations, net of current portions
Other
Long-term liabilities held for sale
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
$
$
$
As of December 31,
2014
2015
6,436 $
6,179
83
9,784
24,219
1,530
4,403
52,634
12,057
8,024
83
17,043
31,144
1,587
7,805
77,743
51,906
5,016
351
—
109,907 $
58,529
5,459
413
4,473
146,617
$
2,799
447
13,822
8,134
9,940
1,613
36,755
2,600
—
3,060
—
5,660
118
767
17,547
9,260
22,397
1,579
51,668
2,646
426
3,467
30
6,569
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding
Common stock, $0.001 par value; 30,000,000 shares authorized; 15,012,789 and 14,844,307 shares
issued as of December 31, 2015, and 2014, respectively
Treasury stock, at cost, 273,937 shares at December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
—
—
15
(1,842)
378,104
(308,785)
67,492
109,907 $
15
(1,842)
377,185
(286,978)
88,380
146,617
$
The accompanying notes are an integral part of these consolidated financial statements.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION S
(In thousands, except per share data)
Revenues
Cost of sales
Restructuring
Gross profit
OPERATING EXPENSES:
Selling, general and administrative
Intangible amortization
Regulatory settlement
Restructuring
Total operating expenses
Operating loss
OTHER (EXPENSE) INCOME, net:
Interest expense, net
Other, net
Gain on sale of assets and restructuring
Total other expense, net
Net loss before benefit for income taxes
Benefit for income taxes
LOSS FROM CONTINUING OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
NET LOSS
NET LOSS PER COMMON SHARE—BASIC AND DILUTED:
Loss from continuing operations
Loss from discontinued operations
Net loss
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—Basic and diluted
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
32
For the Years Ended December 31,
2015
2014
$
199,156 $
191,289
—
7,867
225,829
204,852
1,281
19,696
18,271
444
—
1,060
19,775
(11,908)
(799)
425
—
(374)
(12,282)
(36)
(12,246)
(9,561)
(21,807) $
(0.83) $
(0.65)
(1.48) $
14,677
18,931
444
1,566
233
21,174
(1,478)
(656)
73
36
(547)
(2,025)
(232)
(1,793)
(4,375)
(6,168)
(0.12)
(0.30)
(0.42)
14,715
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUIT Y
(In thousands, except share data)
Common Stock
Treasury Stock
Shares
Issued
14,627,990 $
Issued
Amount
15
—
196,208
Issued
Additional
Shares
Amount Paid-in Capital
— $
—
— $
—
376,125 $
—
Accumulated
Deficit
(280,810) $ 95,330
—
Total
—
2,863
—
—
—
9
—
9
BALANCE, December 31, 2013
Stock issued for restricted stock
Stock issued under stock option
plans
Stock issued under defined
contribution 401(k) retirement
savings plan
Stock repurchases under
repurchase program
Share-based compensation
Net loss
17,246
—
—
—
—
—
—
—
15
—
—
—
15
—
—
163
—
163
(273,937)
—
—
(1,842)
—
—
(273,937) $ (1,842) $
—
—
—
—
—
—
(273,937) $ (1,842) $
—
888
—
377,185 $
—
919
—
378,104 $
—
—
(6,168)
(1,842)
888
(6,168)
(286,978) $ 88,380
—
—
919
—
(21,807)
(21,807)
(308,785) $ 67,492
BALANCE, December 31, 2014
14,844,307 $
Stock issued for restricted stock
Share-based compensation
Net loss
168,482
—
—
BALANCE, December 31, 2015
15,012,789 $
The accompanying notes are an integral part of these consolidated financial statements.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW S
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Loss from discontinued operations
Loss from continuing operations
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense
Impairment charges
Stock-based compensation
Allowance for doubtful accounts
Common stock issued under defined contribution 401(k) plan
Gain on disposal of assets
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Customer deposits
Other non-current assets and liabilities
Net cash (used in) provided by operating activities of continued operations
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities
Sales of available for sale securities
Maturities of available for sale securities
Purchases of property and equipment
Proceeds from disposals of property and equipment
Net cash provided by (used in) investing activities of continued operations
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock
Net proceeds used in repurchasing of common stock
Payments on lines of credit and notes payable
Proceeds from lines of credit and notes payable
Proceeds from long-term debt
Payments on long-term debt
Principal payments on capital leases
Net cash provided by (used in) financing activities of continued operations
DISCONTINUED OPERATIONS:
Operating cash flows
Investing cash flows
Financing cash flows
Net cash used in discontinued operations
Add: Cash balance of discontinued operations, beginning of period
Less: Cash balance of discontinued operations, end of period
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of the period
CASH AND CASH EQUIVALENTS, end of the period
Supplemental cash flow information:
Interest paid
Income taxes paid
Non-cash investing and financing activities:
Issuance of restricted stock grants
Common stock issued under defined contribution 401(k) plan
December 31,
2015
2014
$
$
(21,807)
(9,561)
(12,246)
9,179
183
919
35
—
(98)
7,223
6,925
(25)
(3,625)
(1,126)
(12,457)
(399)
(5,512)
(8,062)
5,082
4,825
(2,789)
1,156
212
—
—
(118,212)
118,212
5,000
(2,201)
(747)
2,052
(5,327)
2,864
(3)
(2,466)
93
—
(5,621)
12,057
6,436
652
48
$
$
$
$
919
— $
$
$
$
$
$
(6,168)
(4,375)
(1,793)
10,944
84
888
65
163
(157)
498
1,599
2,091
(8,872)
1,330
(253)
(472)
6,115
(15,088)
1,101
7,106
(6,297)
1,009
(12,169)
9
(1,842)
(15,850)
15,850
—
—
(934)
(2,767)
(3,613)
(151)
(201)
(3,965)
185
93
(12,694)
24,751
12,057
601
62
888
163
The accompanying notes are an integral part of these consolidated financial statements .
34
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(in thousands, except share and per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Broadwind Energy, Inc. (the “Company”) provides technologically advanced high ‑value products to energy, mining and
infrastructure sector customers, primarily in the United States of America (the “U.S.”). The Company’s most significant presence is
within the U.S. wind energy industry, although the Company has diversified into other industrial markets. Within the U.S. wind
energy industry, the Company provides products primarily to turbine manufacturers. Outside of the wind energy market, the
Company provides precision gearing and specialty weldments to a broad range of industrial customers for oil and gas (“O&G”),
mining, steel and other industrial applications. The Company has two reportable operating segments: Towers and Weldments, and
Gearing.
Towers and Weldments
The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for
multiple megawatt (“MW”) wind turbines. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated
in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined
annual tower production capacity of up to approximately 500 towers, sufficient to support turbines generating more than 1,000 MW
of power. This product segment also encompasses the manufacture of specialty fabrications and specialty weldments for mining and
other industrial customers.
Gearing
The Company engineers, builds and remanufactures precision gears and gearing systems for O&G, wind energy, mining,
steel and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and
finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.
Liquidity
The Company meets its short term liquidity needs through cash generated from operations, through its available cash
balances and through the Company’s secured revolving line of credit (the “Credit Facility”) with AloStar Bank of Commerce
(“AloStar”) . The Company uses the Credit Facility from time to time to fund temporary increases in working capital, and believes
the Credit Facility, together with the operating cash generated by the business, will be sufficient to meet all cash obligations for the
next twelve months.
On August 23, 2012, the Company established a $20,000 Credit Facility with AloStar pursuant to a Loan and Security
Agreement (as amended, the “Loan Agreement”). On June 29, 2015, the Credit Facility was amended to extend the maturity date,
modify the applicable interest rate minimum quarterly interest charges and convert $5,000 of the original Credit Facility amount into
a term loan (the “Term Loan”). The Credit Facility and the Term Loan each mature on August 31, 2016.
Under the terms of the Credit Facility, AloStar will advance funds when requested up to the level of the Company’s
borrowing base, which consists of approximately 85% of eligible receivables and approximately 50% of eligible inventory. Under
the Credit Facility, borrowings are continuous and all cash receipts are automatically applied to the outstanding borrowed balance.
As of December 31, 2015, cash and cash equivalents and short-term investments totaled $12,615, a decrease of $7,466 from
December 31, 2014, and $0 was outstanding under the Credit Facility. The Company had the ability to borrow up to $9,500 under
the Credit Facility as of December 31, 2015.
The Loan Agreement contains customary representations and warranties. It also contains a requirement that the Company,
on a consolidated basis, maintain a minimum monthly fixed charge coverage ratio (the “Fixed Charge Coverage Ratio Covenant”)
and minimum monthly earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (“Adjusted
EBITDA Covenant”), along with other customary restrictive covenants, certain of which are subject to materiality thresholds,
baskets and customary exceptions and qualifications. As of September 30, 2015, the Company was not in compliance with the
Adjusted EBITDA Covenant. Consequently, an Eighth Amendment to Loan and
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Security Agreement and Waiver was executed on October 16, 2015, which waived the Company’s compliance with all covenants as
of September 30, 2015, amended the Adjusted EBITDA Covenant going forward and provided that the Fixed Charge Coverage Ratio
Covenant would be recalculated for future periods commencing with the quarter ending March 31, 2016. As of December 31, 2015,
the Company was not in compliance with the Adjusted EBITDA Covenant. On February 23, 2016, the Company and AloStar
executed a Ninth Amendment to Loan and Security Agreement and Waiver (the “Ninth Amendment”), which waived the Company’s
compliance with the Adjusted EBITDA Covenant as of December 31, 2015, amended the Adjusted EBITDA Covenant going
forward, provided that the Fixed Charge Coverage Ratio Covenant would be recalculated for future periods commencing with the
quarter ending June 30, 2016, reduced the amount of the Credit Facility to $10,000 and extended the maturity date of the Credit
Facility to February 28, 2017. The Ninth Amendment also contains a liquidity requirement of $3,500 and establishes a reserve
against the borrowing base in an amount equal to the outstanding balance of the Term Loan at any given time.
The Company is considering renewal of the Credit Facility and other financing alternatives in anticipation of the scheduled
expiration of the Credit Facility and the Term Loan on August 31, 2016. As of December 31, 2015, there was no outstanding
indebtedness under the Credit Facility, the Company had the ability to borrow up to $9,515 thereunder and the per annum interest
rate thereunder was 4.25%. Also as of December 31, 2015, there was $2,799 in outstanding indebtedness under the Term Loan.
The reduction in cash and cash equivalents as of December 31, 2015, when compared to levels at December 31, 2014, was
due to the Company fulfilling customers’ orders for which the Company had previously received deposits, reducing customer
deposits by $12,457 since December 31, 2014. Upon fulfilling the orders, the Company was able to recognize the cash from the
deposits as revenue. The spike in inventory levels experienced early in 2015 has reversed; net inventory of $24,219 as of December
31, 2015 is $6,925 lower than at December 31, 2014.
Total debt and capital lease obligations at December 31, 2015 totaled $5,846, and the Company is obligated to make
principal payments under the outstanding debt totaling $3,246 over the next twelve months.
Since its inception, the Company has continuously incurred annual operating losses. The Company anticipates that current
cash resources, amounts available under the Credit Facility, and cash to be generated from operations will be adequate to meet the
Company’s liquidity needs for at least the next twelve months. If assumptions regarding the Company’s production, sales and
subsequent collections from several of the Company’s large customers, as well as customer deposits and revenues generated from
new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash
flow and liquidity issues. If the Company’s operational performance deteriorates significantly, it may be unable to comply with
existing financial covenants, and could lose access to the Credit Facility. This could limit the Company’s operational flexibility or
require a delay in making planned investments. Any additional equity financing, if available, may be dilutive to stockholders, and
additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company.
While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial
obligations and debt covenants, there can be no assurances that its operations will generate sufficient cash, or that credit facilities
will be available in an amount sufficient to enable the Company to meet these financial obligations.
Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
These consolidated financial statements include the accounts of the Company and entities in which it has a controlling
financial interest. All significant intercompany transactions and balances have been eliminated in consolidation. The Company
determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity
or a variable interest entity (“VIE”).
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is
deemed a VIE, and if the Company is deemed to be the primary beneficiary, in accordance with the accounting standard for the
consolidation of VIE’s. The accounting standard for the consolidation of VIE’s requires the Company to
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
qualitatively assess if the Company was the primary beneficiary of the VIE based on whether the Company had (i) the power to
direct those matters that most significantly impacted the activities of the VIE and (ii) the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant. Refer to Note 19, “New Markets Tax Credit Transaction” of these
consolidated financial statements for a description of two VIE’s included in the Company’s consolidated financial statements.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”)
requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during
the reported period. Significant estimates, among others, include revenue recognition, future tax rates, inventory reserves, warranty
reserves, impairment of long-lived assets, and allowance for doubtful accounts. Although these estimates are based upon
management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could
differ from these estimates.
Out-of -Period Adjustment
Include d in the results of operations for the year ended December 31, 2015, are out-of-period adjustments, which represent
corrections of prior-period errors relating to the inventory balance in the Company’s Towers & Weldments segment. During the
fourth quarter of 2015, the Company determined that the cost of certain component parts had not been properly assigned to
previously sold towers resulting in an overstatement of inventory and an understatement of previously reported cost of goods
sold. The out-of-period impact of the error recorded was approximately $231 related to periods prior to 2015. The correction of
these errors was not material to the year ended December 31, 2015 or any of the prior interim or annual periods.
Cash and Cash Equivalents and Short ‑Term Investments
Cash and cash equivalents typically comprise cash balances and readily marketable investments with original maturities of
three months or less, such as money market funds, short ‑term government bonds, Treasury bills, marketable securities and
commercial paper. Marketable investments with original maturities between three and twelve months are recorded as short ‑term
investments. The Company’s treasury policy is to invest excess cash in money market funds or other investments, which are
generally of a short ‑term duration based upon operating requirements. Income earned on these investments is recorded to interest
income in the Company’s consolidated statements of operations. As of December 31, 2015 and December 31, 2014, cash and cash
equivalents totaled $6,436 and $12,057, respectively, and short ‑term investments totaled $6,179 and $8,024, respectively. For the
years ended December 31, 2015 and 2014, interest income was $10 and $21, respectively.
Restricted Cash
Restricted cash balances relate primarily to provisions contained in certain vendor agreements. The Company anticipates
that all restricted cash balances will be used for current purposes. As of December 31, 2015 and 2014, the Company had restricted
cash in the amount of $83.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete and when persuasive evidence of an arrangement
exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable, collectability is
reasonably assured and delivery has occurred per the terms of the contract. Customer deposits, deferred revenue and other receipts
are deferred and recognized when the revenue is realized and earned. Cash payments to customers are presumed to be classified as
reductions of revenue in the Company’s statement of operations.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
In some instances, typically within the Company’s Towers and Weldments segment, products are sold under terms included
in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under
these arrangements only when the buyer requests the arrangement, a fixed schedule for delivery exists, the ordered goods are
segregated from inventory and not available to fill other orders and the goods are complete and ready for shipment. Assuming these
required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer
acceptance.
Cost of Sales
Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These
costs include operation, repair and maintenance of equipment, materials, direct and indirect labor and benefit costs, rent and utilities,
maintenance, insurance, equipment rentals, freight in and depreciation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all corporate and administrative functions such as sales and marketing,
legal, human resource management, finance, investor and public relations, information technology and senior management. These
functions serve to support the Company’s current and future operations and provide an infrastructure to support future growth. Major
expense items in this category include management and staff wages and benefits, share ‑based compensation and professional
services.
Accounts Receivable
The Company generally grants uncollateralized credit to customers on an individual basis based upon the customer’s
financial condition and credit history. Credit is typically on net 30 day terms and customer deposits are frequently required at various
stages of the production process to minimize credit risk.
Historically, the Company’s accounts receivable (“A/R”) are highly concentrated with a select number of customers.
During the year ended December 31, 2015, the Company’s five largest customers accounted for 92% of its consolidated revenues
and 71% of outstanding A/R balances, compared to the year ended December 31, 2014 when the Company’s five largest customers
accounted for 91% of its consolidated revenues and 91% of its outstanding A/R balances.
Allowance for Doubtful Accounts
Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to
A/R. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections
experience, the Company believes will have an impact on its credit risk and the realizability of its A/R. These factors include
individual customer circumstances, history with the Company and other relevant criteria. A/R balances that remain outstanding after
the Company has exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to
A/R.
The Company monitors its collections and write ‑off experience to assess whether or not adjustments to its allowance
estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the realizability of its A/R, as
noted above, or modifications to the Company’s credit standards, collection practices and other related policies may impact its
allowance for doubtful accounts and its financial results. Bad debt expense for the years ended December 31, 2015 and 2014 was $87
and $73, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined either based on the first ‑in, first ‑out (“FIFO”)
method, or on a standard cost basis that approximates the FIFO method. Market is determined based on net realizable value. Any
excess of cost over market value is included in the Company’s inventory allowance. Market value of
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
inventory, and management’s judgment of the need for reserves, encompasses consideration of other business factors including
physical condition, inventory holding period, contract terms and usefulness.
Inventories consist of raw materials, work ‑in ‑process and finished goods. Raw materials consist of components and parts
for general production use. Work ‑in ‑process consists of labor and overhead, processing costs, purchased subcomponents and
materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as
components manufactured by the Company that will be used to produce final customer products.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of
property and equipment is recognized using the straight ‑line method over the estimated useful lives of the related assets for financial
reporting purposes, and generally an accelerated method for income tax reporting purposes. Depreciation expense related to property
and equipment for the years ended December 31, 2015 and 2014 was $8,736 and $10,500, respectively. Expenditures for additions
and improvements are capitalized, while replacements, maintenance and repairs that do not improve or extend the useful lives of the
respective assets are expensed as incurred. The Company has in the past capitalized interest costs incurred on indebtedness used to
construct property and equipment. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the
asset’s estimated useful life. There was no interest cost capitalized during the years ended December 31, 2015 or 2014. Property or
equipment sold or disposed of is removed from the respective property accounts, with any corresponding gains and losses recorded
to other income or expense in the Company’s consolidated statement of operations.
Property and equipment and other long ‑lived assets are reviewed for impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. If such events or changes in circumstances occur, the Company will
recognize an impairment loss if the undiscounted future cash flows expected to be generated by the assets is less than the carrying
value of the related asset or asset group. The impairment loss would adjust the asset to its fair value.
In evaluating the recoverability of long ‑lived assets, the Company must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of such assets. If the Company’s fair value estimates or related assumptions
change in the future, the Company may be required to record impairment charges related to property and equipment and other long
‑lived assets. Asset recoverability is first measured by comparing the assets’ carrying amounts to their expected future undiscounted
net cash flows to determine if the assets are impaired. If such assets are considered to be impaired, the impairment recognized is
measured based on the amount by which the carrying amount of the assets exceeds the fair value. To the extent the projections used
in the Company’s analysis are not achieved, there may be a negative effect on the valuation of these assets.
Intangible Assets
The Company reviews intangible assets for impairment whenever events or circumstances indicate that carrying amounts
may not be recoverable. If such events or changes in circumstances occur an impairment loss is recognized if the undiscounted future
cash flows expected to be generated by the assets are less than the carrying value of the related asset or asset group. The impairment
loss would adjust the asset to its fair value.
In evaluating the recoverability of definite ‑lived intangible assets, the Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of such assets. If fair value estimates or related assumptions
change in the future, the Company may be required to record impairment charges related to intangible assets. Asset recoverability is
first measured by comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the
assets are impaired. If such assets are considered to be impaired, the impairment recognized is measured based on the amount by
which the carrying amount of the assets exceeds the fair value. To the extent the projections used in the Company’s analysis are not
achieved, there may be a negative effect on the valuation of these assets.
39
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Warranty Liability
BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
The Company provides warranty terms that generally range from one to five years for various products and services relating
to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that
would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Warranty
liability is recorded in accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based
on various factors, including historical warranty costs, current trends, product mix and sales. The changes in the carrying amount of
the Company’s total product warranty liability for the years ended December 31, 2015 and 2014 were as follows:
Balance, beginning of period
Addition to (reduction of) warranty reserve
Warranty claims
Balance, end of period
As of December 31,
2015
2014
1,054 $
(72)
(381)
601 $
396
745
(87)
1,054
$
$
As of December 31, 2015, the decrease in the warranty liabilities was due primarily to settlement of a $371 obligation to a specific
customer completed during 2015.
Income Taxes
The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities
represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities
versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary
differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is
recognized in the year that the change is enacted.
In connection with the preparation of its consolidated financial statements, the Company is required to estimate its income
tax liability for each of the tax jurisdictions in which the Company operates. This process involves estimating the Company’s actual
current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense
items for income tax reporting and financial reporting purposes. The Company also recognizes as deferred income tax assets the
expected future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of deferred income
tax assets associated with NOL carryforwards, the Company considers, among other things, expected future taxable income, the
expected timing of the reversals of existing temporary reporting differences and the expected impact of tax planning strategies that
may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax
legislation, statutory income tax rates or future taxable income levels could materially impact the Company’s valuation of income
tax assets and liabilities and could cause its income tax provision to vary significantly among financial reporting periods.
The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax
position taken or expected to be taken in an income tax return. The Company follows the applicable pronouncement guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty
in these income tax positions.
Share ‑Based Compensation
The Company grants incentive stock options and restricted stock units to certain officers, directors, and employees. The
Company accounts for share ‑based compensation related to these awards based on the estimated fair value of the equity award and
recognizes expense ratably over the vesting term of the award. See Note 16 “Share ‑Based Compensation” of these consolidated
financial statements for further discussion of the Company’s share ‑based compensation plans, the nature of share ‑based awards
issued and the Company’s accounting for share ‑based compensation.
40
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Net Loss Per Share
The Company presents both basic and diluted net loss per share. Basic net loss per share is based solely upon the weighted
average number of common shares outstanding and excludes any dilutive effects of options, warrants and convertible securities.
Diluted net loss per share is based upon the weighted average number of common shares and common ‑share equivalents
outstanding during the year excluding those common ‑share equivalents where the impact to basic net loss per share would be anti
‑dilutive.
2. EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2015
and 2014 as follows:
Basic earnings per share calculation:
Net loss
Weighted average number of common shares outstanding
Basic net loss per share
Diluted earnings per share calculation:
Net loss
Weighted average number of common shares outstanding
Common stock equivalents:
Stock options and non-vested stock awards
Weighted average number of common shares outstanding
Diluted net loss per share
For the Years Ended December 31,
2015
2014
$
$
$
$
(21,807)
14,677
(1.48)
(21,807)
14,677
—
14,677
(1.48)
$
$
$
$
(6,168)
14,715
(0.42)
(6,168)
14,715
—
14,715
(0.42)
(1) Stock options and restricted stock units (“RSU’s”) granted and outstanding of 522,007 and 673,756 as of December 31, 2015
and 2014, respectively, are excluded from the computation of diluted earnings due to the anti ‑dilutive effect as a result of the
Company’s net loss for these respective years.
3. DISCONTINUED OPERATIONS
The Company’s Services segment has had substantial continued operating losses for several years, due to operating issues
and an increasingly competitive environment due in part to increased in-sourcing of service functions by customers. In July, 2015 the
Company’s Board of Directors (the “Board”) directed management to evaluate potential strategic alternatives with respect to the
Services segment. In September, 2015 the Board authorized management to sell substantially all of the assets of the Services
segment to one or more third-party purchasers, and thereafter to liquidate or otherwise dispose of any such assets remaining unsold.
The Company began negotiations to sell substantially all the assets of the Services segment in the third quarter of 2015. The exit of
this business is a strategic shift that has had a major effect on the Company; therefore, the Company reclassified the related assets
and liabilities of the Services segment as held for sale. In connection with the divestiture, which was substantially completed in
December 2015, the Company sold $5,406 of net assets, resulting in a $2,096 loss. In addition, the Company recorded an asset
impairment charge of approximately $1,500 to reduce the carrying value of the remaining net assets held for sale to their estimated
fair value based on anticipated sales in the open market within the next 12 months. The impairment charge and loss on sale is
included in “Loss before benefit for income taxes” in “Results of Discontinued Operations.”
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Results of Discontinued Operations
Results of operations associated with Services segment, which are reflected as discontinued operations in the Company’s
condensed consolidated statements of income for the twelve months ended December 31, 2015 and 2014, were as follows:
Revenues
Cost of sales
Selling, general and administrative
Interest expense, net
Other income and expense items
Impairment of held for sale assets and liabilities and loss on sale of assets
Loss from discontinued operations before benefit for income taxes
Assets and Liabilities Held for Sales
Year Ended December 31,
2014
2015
10,486
(14,395)
(2,153)
(36)
133
(3,596)
(9,561)
$
$
15,560
(17,765)
(2,252)
(71)
153
—
(4,375)
$
$
Assets and liabilities classified as held for sale in the Company’s consolidated balance sheets as of December 31, 2015 and 2014
include the following:
Assets:
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Property and equipment, net
Other assets
Assets Held For Sale Related To Discontinued Operations
Impairment of discontinued assets held for sale
Total Assets Held For Sale Related To Discontinued Operations
Liabilities:
Current maturities of long-term debt
Accounts payable
Accrued liabilities
Customer deposits and other current obligations
Long-term debt, net of current maturities
Other long-term liabilities
Total Liabilities Held For Sale Related To Discontinued Operations
4. RECENT ACCOUNTING PRONOUNCEMENTS
December 31,
December 31,
2015
2014
$
$
$
$
2,119
2,118
606
—
—
4,843
(1,500)
3,343
—
367
433
49
—
17
866
$
$
$
$
2,969
3,777
321
4,423
50
11,540
—
11,540
140
914
293
232
5
25
1,609
The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective
in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on
its consolidated financial statements, except as discussed below.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014 09,
Revenue from Contracts with Customers, which amends the guidance in former Accounting Standard s Codification Topic 605,
Revenue Recognition, and provides a single, comprehensive revenue recognition model for all contracts with customers. This
standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized.
The entity will recognize revenue to reflect the transfer of goods or services to
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This update permits
companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirement in the year of
adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers (Topic 606) Deferral of the Effective Date, which amends the previously issued ASU to provide for a one year deferral
from the original effective date. This update is effective for public business entities for annual reporting periods beginning after
December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted for annual reporting
periods beginning on or after December 15, 2016, including interim periods within that annual period . The Company will adopt the
provisions of ASU 2014-09 for the fiscal year beginning January 1, 2018, and is currently evaluating the impact on its condensed
consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred
income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a
classified balance sheet. This standard will become effective for fiscal years, and the interim periods within those years, beginning
after December 15, 2016, with early adoption allowed. During the fourth quarter of 2015, the Company elected to prospectively
adopt this standard. The prior reporting period was not retrospectively adjusted. Note 15, “Income Taxes” of these condensed
consolidated financial statements contains additional information regarding the adoption of this standard.
5. CASH AND CASH EQUIVALENTS AND SHORT ‑‑TERM INVESTMENTS
The components of cash and cash equivalents and short ‑term investments as of December 31, 201 5 and December 31, 201
4 are summarized as follows:
Cash and cash equivalents:
Cash
Money market funds
Corporate & Municipal bonds
Total cash and cash equivalents
Short-term investments (available-for-sale):
Corporate & Municipal bonds
Total cash and cash equivalents and short-term investments
6. ALLOWANCE FOR DOUBTFUL ACCOUNTS
As of
December 31,
2015
2014
$
4,614 $
199
1,623
6,436
6,179
12,615 $
$
8,651
877
2,529
12,057
8,024
20,081
The activity in the A/R allowance from operations for the years ended December 31, 201 5 and 201 4 consists of the
following:
Balance at beginning of period
Bad debt expense
Write-offs
Other adjustments
Balance at end of period
For the Years Ended
December 31,
2015
2014
$
$
81
87
(11)
(73)
84
$
$
16
73
—
(8)
81
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
7. INVENTORIES
The components of inventories from operations as of December 31, 201 5 and 201 4 are summarized as follows:
Raw materials
Work-in-process
Finished goods
Less: Reserve for excess and obsolete inventory
Net inventories
8. PROPERTY AND EQUIPMENT
As of December 31,
2015
2014
14,868 $
8,540
2,661
26,069
(1,850)
24,219 $
21,385
8,554
2,971
32,910
(1,766)
31,144
$
$
The cost basis and estimated lives of property and equipment from continuing operations as of December 31, 2015 and
2014 are as follows:
Land
Buildings
Machinery and equipment
Office furniture and equipment
Leasehold improvements
Construction in progress
Less accumulated depreciation and amortization
As of December 31,
2014
2015
Life
1,982 $
20,874
95,546
3,446
8,169
993
131,010
(79,104)
51,906 $
39
2
3
1,982
20,873
98,218
3,126
8,003 Asset life or life of lease
1,403
133,605
(75,076)
58,529
$
$
years
-
-
10 years
7 years
During the fourth quarter of 2015, the Company continued to experience triggering events associated with the Gearing
segment’s current period operating losses combined with their history of continued operating losses. As a result, the Company
evaluated the recoverability of certain of its long ‑lived assets associated with the Gearing segment. Based upon the Company’s
December 31, 2015 impairment assessment, the undiscounted cash flows based upon the Company’s most recent projections were
less than the carrying amount of relevant asset groups within the Gearing segment, and a possible impairment to these assets was
indicated under step one of ASC 360. However, based on third-party appraisal s and other estimates of the fair value of the assets,
the Company determined that the fair value of these assets is in excess of their carrying amount under step two of ASC 360. The
Company assumed that the assets would be exchanged in an orderly transaction between market participants and would represent the
highest and best use of these assets. Based on the step two analysis, the Company determined that no impairment to these assets
was indicated as of December 31, 2015.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
9. INTANGIBLE ASSETS
As of December 31, 2015 and 2014, the cost basis, accumulated amortization and net book value of intangible assets were
as follows:
December 31, 2015
December 31, 2014
Net
Accumulated Book
Amortization Value
Cost
Basis
Weighted
Average
Amortization
Period
Net
Accumulated Book
Amortization Value
Cost
Basis
Weighted
Average
Amortization
Period
Intangible assets:
Customer relationships
Trade names
Intangible assets
$ 3,979 $
7,999
$ 11,978 $
(3,682) $
297
(3,280)
4,719
(6,962) $ 5,016
7.2 $ 3,979 $
20.0
15.8 $ 11,978 $
7,999
(3,639) $
340
(2,880)
5,119
(6,519) $ 5,459
7.2
20.0
15.8
During the fourth quarter of 2015, the Company continued to experience a triggering event associated with the Gearing
segment’s current period operating loss combined with its history of continued operating losses. As a result, the Company evaluated
the recoverability of certain of its intangible assets associated with the Gearing segment. Based upon the Company’s December 31,
2015 impairment assessment, the undiscounted cash flows based upon the Company’s most recent projections were less than the
carrying amount of the relevant asset groups within the Gearing segment, and a possible impairment to these assets was indicated
under step one of ASC 360. In step two of ASC 360 testing , the Company compared the long-lived assets’ estimated fair values with
the corresponding carrying amount of the assets. Under step two, the Company assumed that the assets would be exchanged in an
orderly transaction between market participants and would represent the highest and best use of these assets. Based on the step two
analysis, the Company determined that no impairment t o these assets was indicated as of December 31, 2015.
Intangible assets are amortized on a straight ‑line basis over their estimated useful lives, which range from 1 5 to 20 years.
Amortization expense was $444 for the years ended December 31, 2015 and 2014. As of December 31, 2015, estimated future
amortization expense is as follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
$
444
444
444
444
444
2,796
5,016
10. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 201 5 and 201 4 consisted of the following:
Accrued payroll and benefits
Accrued property taxes
Income taxes payable
Accrued professional fees
Accrued warranty liability
Accrued regulatory settlement
Accrued environmental reserve
Accrued self-insurance reserve
Accrued other
Total accrued liabilities
December 31,
2015
2014
3,675 $
128
155
74
601
500
1,300
1,464
237
8,134 $
3,213
86
199
126
1,054
2,066
513
1,411
592
9,260
$
$
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
11. DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of December 31, 2015 and 2014 consisted of the following:
Term loans and notes payable
Less: Current portion
Long-term debt, net of current maturities
December 31,
2015
2014
$
$
5,399 $
(2,799)
2,600 $
2,764
(118)
2,646
As of December 31, 2015, future annual principal payments on the Company’s outstanding debt obligations were as
follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total
Credit Facilities
AloStar Credit Facility
$
$
2,799
—
2,600
—
—
—
5,399
On August 23, 2012, the Company established the Credit Facility with AloStar in the original amount of $20,000 . On June
29, 2015, the Credit Facility was amended to extend the maturity date one additional year, modify the applicable interest rate and
minimum quarterly interest charges and convert $5,000 of the original Credit Facility amount into the Term Loan. The Credit
Facility and the Term Loan each mature on August 31, 2016.
Under the Credit Facility, AloStar will advance funds when requested against a borrowing base consisting of approximately
85% of the face value of eligible receivables of the Company and approximately 50% of the book value of eligible inventory of the
Company. Borrowings under the Credit Facility bear interest at a per annum rate equal to the one-month London Interbank Offered
Rate (“LIBOR”) plus a margin of 3.25% . The Company must also pay an unused facility fee to AloStar equal to 0.50% per annum
on the unused portion of the Credit Facility along with other standard fees.
AloStar funded the full amount of the Term Loan on June 30, 2015. Borrowings under the Term Loan bear interest at a per
annum rate equal to 3.50% plus the applicable daily weighted average LIBOR. The Term Loan payments are being amortized at
approximately $60 per month with a balloon payment of approximately $2,323 due in August 2016.
In connection with the Credit Facility, the Company entered into the Loan Agreement. The Loan Agreement contains
customary representations and warranties. It also contains a requirement that the Company, on a consolidated basis, comply with the
Fixed Charge Coverage Ratio Covenant and the Adjusted EBITDA Covenant, along with other customary restrictive covenants,
certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications. As of September 30,
2015, the Company was not in compliance with the Adjusted EBITDA Covenant. Consequently, an Eighth Amendment to Loan and
Security Agreement and Waiver was executed on October 16, 2015, which waived the Company’s compliance with all covenants as
of September 30, 2015, amended the Adjusted EBITDA Covenant going forward and provided that the Fixed Charge Coverage Ratio
Covenant would be recalculated for future periods commencing with the quarter ending March 31, 2016. As of December 31, 2015,
the Company was not in compliance with the Adjusted EBITDA Covenant. On February 23, 2016, the Company and AloStar
executed the Ninth Amendment, which waived the Company’s compliance with the Adjusted EBITDA Covenant as of December 31,
2015, amended the Adjusted EBITDA Covenant going forward, provided that the Fixed Charge Coverage Ratio Covenant would be
recalculated for future periods commencing with the quarter ending June 30, 2016, reduced the amount of the Credit Facility to
$10,000 and extended the maturity date of the Credit Facility to February 28, 2017. The Ninth Amendment also
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
contains a liquidity requirement of $3,500 and establishes a reserve against the borrowing base in an amount equal to the outstanding
balance of the Term Loan at any given time.
The obligations under the Loan Agreement are secured by, subject to certain exclusions, (i) a first priority security interest
in all of the A/R, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working capital assets and stock
or other equity interests in the Company’s subsidiaries, and (ii) a first priority security interest in all of the equipment of the
Company’s wholly-owned subsidiary Brad Foote Gear Works, Inc. (“Brad Foote”).
The Company is considering renewal of the Credit Facility and other financing alternatives in anticipation of the scheduled
expiration of the Credit Facility and the Term Loan on August 31, 2016. As of December 31, 2015, there was no outstanding
indebtedness under the Credit Facility. The Company had the ability to borrow up to $9,515 under the Credit Facility as of
December 31, 2015.
Other
Included in Long Term Debt, Net of Current Maturities is $2,600 associated with the New Markets Tax Credit transaction
described further in Note 19, “New Markets Tax Credit Transaction” of these condensed consolidated financial statements.
12. LEASES
The Company leases various property and equipment under operating lease arrangements. Lease terms generally range from
3 to 15 years with renewal options for extended terms. Certain leases contain rent escalation clauses that require additional rental
payments in the later years of the term. Rent expense for these types of leases is recognized on a straight ‑line basis over the
minimum lease term. Any lease concessions received by the Company are deferred and recognized as an adjustment to rent expense
ratably over the minimum lease term. The Company is required to make additional payments under certain property leases for taxes,
insurance and other operating expenses incurred during the operating lease period. Rental expense for the years ended December 31,
2015 and 2014 was $2,875 and $3,333 , respectively.
In addition, the Company has entered into capital lease arrangements to finance property and equipment and assumed
capital lease obligations in connection with certain acquisitions. The cost basis and accumulated depreciation of assets recorded
under capital leases, which are included in property and equipment, are as follows as of December 31, 2015 and 2014:
Cost
Accumulated depreciation
Net book value
December 31,
2015
2014
$
$
1,784 $
(503)
1,281 $
2,892
(1,081)
1,811
Depreciation expense recorded in connection with assets recorded under capital leases was $263 a nd $362 for the years
ended December 31, 2015 and 2014, respectively.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
As of December 31, 2015, future minimum lease payments under capital leases and operating leases were as follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total
Less—portion representing interest at a weighted
average annual rate of 5.0%
Principal
Less—current portion
Capital lease obligations, noncurrent portion
13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Capital
Leases
Operating
Leases
455 $
—
—
—
—
—
455 $
2,833 $
2,804
2,753
2,785
2,202
12,966
26,343 $
Total
3,288
2,804
2,753
2,785
2,202
12,966
26,798
(8)
447
(447)
—
$
$
From time to time, the Company is subject to legal proceedings or claims arising from its normal course of operations. The
Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. Except as otherwise
noted, as of December 31, 2015, the Company is not aware of any material pending legal proceedings or threatened litigation that
would have a material adverse effect on the Company’s financial condition or results of operations, although no assurance can be
given with respect to the ultimate outcome of pending actions. Refer to Note 22, “Legal Proceedings” of these consolidated financial
statements for further discussion of legal proceedings.
Environmental Compliance and Remediation Liabilities
The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions
in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use,
handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content,
performance and packaging. Also, certain environmental laws can impose the entire cost or a portion of the cost of investigating and
cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous
owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or
treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites
and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those
sites.
In connection with the Company’s restructuring initiatives, during the third quarter of 2012, the Company identified a
liability associated with the planned sale of one of Brad Foote’s facilities located in Cicero, Illinois (the “Cicero Avenue Facility”).
The liability is associated with environmental remediation costs that were identified while preparing the site for sale. During 2013,
the Company applied for and was accepted into the Illinois Environmental Protection Agency (“IEPA”) voluntary site remediation
program. In the first quarter of 2014, the Company completed a comprehensive review of remedial options for the Cicero Avenue
Facility and selected a preferred remediation technology. As part of the voluntary site remediation program, the Company submitted
a plan to the IEPA for approval to conduct a pilot study to test the effectiveness of the selected remediation technology. On July 23,
2014, the Company received comments from the IEPA regarding the proposed site remediation plan. The Company provided
additional information to the IEPA in response to those comments, and determined that no change to the remediation plan or the
financial reserve was needed at that time. In the third quarter of 2015, t he Company obtained additional information regarding
potential remediation options and
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
modified the remediation plan, which caused an increase in the estimated cost of remediation and resulted in the Company increasing
its reserve associated with this matter by $874 . The Company is currently reviewing these options and will continue to reevaluate its
remediation activities and the reserve balance associated with this matter as additional information is obtained . As of December 31,
2015, the accrual balance associated with this matter totaled $1,300 .
Collateral
In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral
on related payable or financing obligations.
Warranty Liability
The Company provides warranty terms that generally range from one to five years for various products and services relating
to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that
would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions.
Liquidated Damages
In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or
production delays. These damages are typically limited to a specific percentage of the value of the product in question and dependent
on actual losses sustained by the customer. When the damages are determined to be probable and estimable, the damages are
recorded as a reduction to revenue. During 2015, the Company incurred $1,489 of liquidated damages. There was $379 reserve for
liquidated damages as of December 31, 2015.
Workers’ Compensation Reserves
At the beginning of the third quarter of 2013, the Company began to self ‑insure for its workers’ compensation liabilities,
including reserves for self ‑retained losses. Historical loss experience combined with actuarial evaluation methods and the
application of risk transfer programs are used to determine required workers’ compensation reserves. The Company takes into
account claims incurred but not reported when determining its workers’ compensation reserves. Although the ultimate outcome of
these matters may exceed the amounts recorded and additional losses may be incurred, the Company does not believe that any
additional potential exposure for such liabilities will have a material adverse effect on the Company’s consolidated financial position
or results of operations. As of December 31, 2015, the Company had $1,464 accrued for self ‑insured workers’ compensation
liabilities.
Other
As of December 31, 2015, approximately 14% of the Company’s employees were covered by two collective bargaining
agreements with local unions at the Company’s Cicero, Illinois and Neville Island, Pennsylvania locations. The current collective
bargaining agreement with the Cicero union is expected to remain in effect through February 2018. The current collective bargaining
agreement with the Neville Island union is expected to remain in effect through October 2017.
See Note 19, “New Markets Tax Credit Transaction” of these consolidated financial statements for a discussion of a
strategic financing transaction (the “NMTC Transaction”) which originally related to the Company’s drivetrain service center in in
Abilene, Texas (the “Abilene Gearbox Facility”), and was amended in August 2015 to also include the activities of the Company’s
heavy industries business conducted in the same building in Abilene, Texas (the “Abilene Heavy Industries Facility”). The Abilene
Gearbox Facility focused on servicing the growing installed base of megawatt (“MW”) wind turbines as they come off warranty and,
to a limited extent, industrial gearboxes requiring precision repair and testing. The Abilene Heavy Industries Facility focuses on
heavy weldment fabrication for industries including those related to
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
compressed natural gas distribution. Pursuant to the NMTC Transaction, the gross loan and investment in the Abilene Heavy
Industries Facility and the Abilene Gearbox Facility of $10,000 is expected to generate $3,900 in tax credits over a period of seven
years, which the NMTC Transaction makes available to Capital One, National Association (“Capital One”). The Abilene Heavy
Industries Facility and the Abilene Gearbox Facility must operate and be in compliance with the terms and conditions of the NMTC
Transaction during the seven year compliance period, or the Company may be liable for the recapture of $3,900 in tax credits to
which Capital One is otherwise entitled. The Company does not anticipate any credit recaptures will be required in connection with
the NMTC Transaction.
14. FAIR VALUE MEASUREMENTS
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the
measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair
value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most
reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are
classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are
assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value
classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:
Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in
markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s municipal
bonds and money market funds, although quoted prices are available and used to value said assets, they are traded less frequently.
Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in
valuing the asset or liability at the measurement date. The Company used market negotiations to value its Gearing assets. The
Company used real estate appraisals to value its Clintonville, Wisconsin facility (the “Clintonville Facility”).
The following table represents the Company’s assets measured at fair values as of December 31, 2015 and 2014:
Assets measured on a recurring basis:
Corporate & municipal bonds and money market funds
$
— $
8,001 $
— $
8,001
December 31, 2015
Level 1
Level 2
Level 3
Total
Assets measured on a nonrecurring basis:
Gearing equipment
Clintonville, WI facility
Gearing Cicero Ave. facility
Services assets
Total assets at fair value
—
—
—
—
— $
—
—
—
—
8,001 $
506
554
560
3,343
4,963 $
506
554
560
3,343
12,964
$
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Assets measured on a recurring basis:
Municipal bonds and money market funds
Assets measured on a nonrecurring basis:
Clintonville, WI facility
Gearing Cicero Ave. facility
Services assets
Total assets at fair value
Fair value of financial instruments
December 31, 2014
Level 1
Level 2
Level 3
Total
$
— $
11,429 $
— $
11,429
—
—
—
— $
—
—
—
11,429 $
738
560
11,540
12,838 $
738
560
11,540
24,267
$
The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature
of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of
the Company’s long-term debt is approximately equal to its fair value.
Assets measured at fair value on a nonrecurring basis
The fair value measurement approach for long ‑lived assets utilizes a number of significant unobservable inputs or Level 3
assumptions. These assumptions include, among others, projections of the Company’s future operating results, the implied fair value
of these assets using an income approach by preparing an undiscounted cash flow analysis, a market ‑based approach based on the
Company’s market capitalization and market value third-party appraisal, and other subjective assumptions. To the extent
assumptions used in the Company’s evaluations are not achieved, there may be a negative effect on the valuation of these assets.
Due to the Company’s operating losses in 2015 combined with its history of continued operating losses, the Company
continues to evaluate the recoverability of certain of its identifiable intangible assets and certain property and equipment assets.
Based upon the Company’s December 31, 2015 assessment, the recoverable amount of undiscounted cash flows based upon the
Company’s most recent projections were less than the carrying amount of the relevant asset groups within the Gearing segment and
failed this step one of the impairment test. In step two, the Company compared the long-lived assets’ estimated fair values with the
corresponding carrying amount of the assets. Under step two, the Company assumed that the assets would be exchanged in an
orderly transaction between market participants and would represent the highest and best use of these assets. Based on the step two
analysis, the Company determined that no impairment to these assets was indicated.
During the first half of 2013, the Company took a $288 charge to adjust the carrying value of the Clintonville Facility assets
to fair value, and reclassified the resulting carrying value from property and equipment to Assets Held for Sale. This treatment was
due to the decision to list the Clintonville Facility for sale as a result of management’s determination that the Clintonville Facility
was no longer required in the Company’s operations. The Company also took a $345 charge to adjust the carrying value of certain
Gearing equipment to fair value, and reclassified the resulting carrying value to Assets Held for Sale as a result of a decision to sell
this equipment. Additionally, during the fourth quarter of 2013, the Company recorded a $1,732 charge to adjust the carrying value
of the Cicero Avenue Facility’s land and building down to fair value. This treatment was in response to the Cicero Avenue Facility
being taken substantially offline in conjunction with the Company’s plant consolidation initiative. As the Cicero Avenue Facility is
not immediately available for sale, it has not been classified as Assets Held for Sale. The three aforementioned impairment charges
were recorded as Restructuring expenses within the Statement of Operations. The Clintonville Facility remains as Assets Held For
Sale as of December 31, 2015 and due to depressed commercial real estate values, the Company recorded an additional impairment
of $186 in 2015 to value the property at its fair value based on negotiations that resulted in an executed sale contract subsequent to
the year-end.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Following the Board’s approval of a plan to divest the Company’s Services segment, the Company has been able to
evaluate the value of the segment’s assets on the open market; therefore, the Company has utilized this measurement to determine
the fair value of the Services segment assets.
15. INCOME TAXES
The provision for income taxes for the years ended December 31, 2015 and 2014 consists of the following:
Current provision
Federal
Foreign
State
Total current (benefit) provision
Deferred credit
Federal
State
Total deferred credit
Increase in deferred tax valuation allowance
Total provision (benefit) for income taxes
For the Years Ended December 31,
2015
2014
$
— $
—
(36)
(36)
(7,165)
(2,403)
(9,568)
9,568
$
(36) $
—
—
(232)
(232)
(278)
1,300
1,022
(1,022)
(232)
The (decrease) increase in the deferred tax valuation allowance was $9,568 and $(1,022) for the years ended December 31,
2015 and 2014, respectively. The changes in the deferred tax valuation allowances in 2015 and 2014 were primarily the result of
(decreases) increases to the deferred tax assets pertaining to federal and state NOLs.
The tax effects of the temporary differences and NOLs that give rise to significant portions of deferred tax assets and
liabilities are as follows:
Current deferred income tax assets:
Accrual and reserves
Total current deferred tax assets
Valuation allowance
Current deferred tax assets, net of valuation allowance
Noncurrent deferred income tax assets:
Net operating loss carryforwards
Intangible assets
Accrual and reserves
Other
Total noncurrent deferred tax assets
Valuation allowance
Noncurrent deferred tax assets, net of valuation allowance
Noncurrent deferred income tax liabilities:
Fixed assets
Intangible assets
Total noncurrent deferred tax liabilities
Net deferred income tax liability
As of December 31,
2015
2014
$
— $
—
—
—
81,221
22,886
5,919
75
110,101
(109,336)
765
(765)
—
(765)
$
— $
5,607
5,607
(5,607)
—
68,685
26,315
—
87
95,087
(94,161)
926
(926)
—
(926)
—
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred
income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a
classified balance sheet. This standard will become effective for fiscal years, and the interim periods within
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
those years, beginning after December 15, 2016, with early adoption allowed. As of December 31, 2014, the Company had deferred
taxes that were classified as current and noncurrent assets and noncurrent liabilities. During the fourth quarter of 2015, the Company
elected to prospectively adopt this standard, thus reclassifying $5,919 of current deferred tax assets to noncurrent within the deferred
tax assets and liabilities table. The prior reporting period was not retrospectively adjusted. Based on the Company’s valuation
allowance position, the adoption of this guidance had no impact on the Company’s consolidated balance sheet. The adoption of this
guidance had no impact on the Company’s consolidated statement s of operations.
Valuation allowances of $109,336 and $99,768 have been provided for deferred income tax assets for which realization is
uncertain as of December 31, 2015 and 2014, respectively. A reconciliation of the beginning and ending amounts of the valuation is
as follows:
Valuation allowance as of December 31, 2014
Gross increase for current year activity
Valuation allowance as of December 31, 2015
$
$
(99,768)
(9,568)
(109,336)
As of December 31, 2015, the Company had federal NOL carryforwards of approximately $202,107 expiring in various
years through 2035. The majority of the NOL carryforwards will expire in various years from 2028 through 2035.
As of December 31, 2015, the Company had unapportioned state NOLs in the aggregate of approximately $202,107 ,
expiring in various years from 2021 through 2035, based upon various NOL carryforward periods as designated by the different
taxing jurisdictions.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate is as
follows:
Statutory U.S. federal income tax rate
State and local income taxes, net of federal income tax benefit
Permanent differences
Change in valuation allowance
Change in uncertain tax positions
Other
Effective income tax rate
For the Year Ended
December 31,
2015
2014
34.0 %
4.6
(0.4)
(38.2)
0.2
—
0.2 %
34.0 %
1.5
(9.8)
(24.5)
2.7
(0.3)
3.6 %
The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition threshold for a tax
position taken, or expected to be taken, in a tax return that is required to be met before being recognized in the financial statements.
The changes in the Company’s uncertain income tax positions for the years ended December 31, 2015 and 2014 consisted of the
following:
Beginning balance
Tax positions related to current year:
Additions
Reductions
Tax positions related to prior years:
Additions
Reductions
Settlements
Lapses in statutes of limitations
Additions from current year acquisitions
For the Year
Ended
December 31,
2015
2014
$
81 $
286
—
—
—
—
—
—
(25)
—
(25)
56 $
—
—
—
—
—
(192)
(13)
—
(205)
81
Ending balance
$
The amount of unrecognized tax benefits at December 31, 2015 that would affect the effective tax rate if the tax benefits
were recognized was $92 .
It is the Company’s policy to include interest and penalties in tax expense. During the years ended December 31, 2015 and
2014, the Company recognized and accrued approximately $18 and $16 , respectively, of interest and penalties.
The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31, 2015, open tax years
in the federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust NOL carryforwards. The
Company’s 2008 and 2009 federal tax returns were examined in 2011 and no material adjustments were identified related to any of
the Company’s tax positions. Although these periods have been audited, they continue to remain open until all NOLs generated in
those tax years have either been utilized or expire.
Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the
amount of NOL carryforwards and associated built ‑in losses that may be used to offset taxable income when a corporation has
undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built ‑in losses may be
limited, under this section or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon
completion of the Company’s analysis of IRC Section 382, the Company has determined
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
that aggregate changes in stock ownership have triggered an annual limitation on NOL and built ‑in losses available for utilization.
To the extent the Company’s use of NOL carryforwards and associated built ‑in losses is significantly limited in the future due to
additional changes in stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would if
the Company were able to use NOL carryforwards and built ‑in losses without such annual limitation, which could result in lower
profits and the loss of benefits from these attributes.
In February 2013, the Company adopted a Stockholder Rights Plan (the “Rights Plan”) designed to preserve the Company’s
substantial tax assets associated with NOL carryforwards under IRC Section 382. The Rights Plan is intended to act as a deterrent to
any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the
Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. Pursuant to
the Rights Plan, the Board declared a non ‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding
share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013.
Each Right entitles its holder to purchase from the Company one ‑thousandth of a share of the Company’s Series A Junior
Participating Preferred Stock at an exercise price of $14.00 per Right, subject to adjustment. As a result of the Rights Plan, any
person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the
Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or
more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the Rights unless they
acquire additional shares. The Company announced on February 5, 2016, that its Board had approved an amendment extending the
Rights Plan for three years. The amendment is subject to approval by the Company’s stockholders at the Company’s 2016 Annual
Meeting of Stockholders.
As of December 31, 2015, the Company had $140 of unrecognized tax benefits, all of which would have a favorable impact
on income tax expense. It is reasonably possible that unrecognized tax benefits will decrease by up to approximately $77 as a result
of the expiration of the applicable statutes of limitations within the next twelve months. The Company recognizes interest and
penalties related to uncertain tax positions as income tax expense. The Company had accrued interest and penalties of $84 as of
December 31, 2015. As of December 31, 2014, the Company had unrecognized tax benefits of $199 , of which $118 represented
accrued interest and penalties.
16. SHARE ‑‑BASED COMPENSATION
Overview of Share ‑‑Based Compensation Plan
2007 Equity Incentive Plan
The Company has granted incentive stock options and other equity awards pursuant to the Amended and Restated
Broadwind Energy, Inc. 2007 Equity Incentive Plan (the “2007 EIP”), which was approved by the Board in October 2007 and by the
Company’s stockholders in June 2008. The 2007 EIP has been amended periodically since its original approval.
The 2007 EIP reserved 691,051 shares of the Company’s common stock for grants to officers, directors, employees,
consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. As of
December 31, 2015, the Company had reserved 57,783 shares for issuance upon the exercise of stock options outstanding and no
shares for issuance upon the vesting of RSU awards outstanding. As of December 31, 2015, 253,387 shares of common stock
reserved for stock options and RSU awards under the 2007 EIP have been issued in the form of common stock.
2012 Equity Incentive Plan
The Company has granted incentive stock options and other equity awards pursuant to the Broadwind Energy, Inc. 2012
Equity Incentive Plan (the “2012 EIP”), which was approved by the Board in March 2012 and by the Company’s stockholders in
May 2012.
The 2012 EIP reserved 1,200,000 shares of the Company’s common stock for grants to officers, directors, employees,
consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
degree. As of December 31, 2015, the Company had reserved 86,414 shares for issuance upon the exercise of stock options
outstanding and 212,005 shares for issuance upon the vesting of RSU awards outstanding. As of December 31, 2015, 468,857 shares
of common stock reserved for stock options and RSU awards under the 2012 EIP have been issued in the form of common stock.
2015 Equity Incentive Plan
The Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “2015 EIP;”
together with the 2007 EIP and the 2012 EIP, the “Equity Incentive Plans”), which was approved by the Board in February 2015 and
by the Company’s stockholders in April 2015. The purposes of the 2015 EIP are (i) to align the interests of the Company’s
stockholders and recipients of awards under the 2015 EIP by increasing the proprietary interest of such recipients in the Company’s
growth and success; (ii) to advance the interests of the Company by attracting and retaining officers, other employees, non-employee
directors and independent contractors; and (iii) to motivate such persons to act in the long-term best interests of the Company and its
stockholders. Under the 2015 EIP, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the
meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and RSUs; and (v) performance awards.
The 2015 EIP reserves 1,100,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants
and advisors upon whose efforts the success of the Company and its affiliates will depend to a large degree. As of December 31,
2015, the Company had reserved 165,805 shares for issuance upon the vesting of RSU awards outstanding. As of December 31,
2015, no shares of common stock reserved for RSU awards under the 2015 EIP had been issued in the form of common stock.
Stock Options. The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of
the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date,
with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the
date of grant. The fair value of stock options granted is expensed ratably over their vesting term.
Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally vest
on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. The fair value
of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed
ratably over the vesting term of the RSU award.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Stock option activity during the years ended December 31, 2015 and 2014 under the Equity Incentive Plans was as follows:
Weighted Average Aggregate Intrinsic
Outstanding as of December 31, 2014
Granted
Exercised
Forfeited
Cancelled
Outstanding as of December 31, 2015
Exercisable as of December 31, 2015
Options
158,718 $
—
—
(14,521)
—
144,197 $
133,483 $
Weighted Average
Exercise Price
Remaining
Contractual Term
Value
(in thousands)
16.64
—
—
3.39
—
17.98
19.15
2.95 $
2.68 $
—
—
The following table summarizes information with respect to all outstanding and exercisable stock options under the Equity
Incentive Plans as of December 31, 2015:
Options Outstanding
Options Exercisable
Weighted Average
Exercise Price or Range
$3.40
$14.20
$80.00
- $13.50
- $54.40
- $128.50
Number of options
outstanding
Weighted Average
Exercise Price
Remaining
Contractual Term
Number
Exercisable
Weighted Average
Exercise Price
101,324 $
29,073
13,800
144,197 $
4.88
24.26
100.92
17.98
3.52 years
1.21 years
2.49 years
2.95 years
90,610 $
29,073
13,800
133,483 $
5.06
24.26
100.92
19.15
The following table summarizes information with respect to outstanding RSU’s as of December 31, 2015 and 2014:
Outstanding as of December 31, 2014
Granted
Vested
Forfeited
Outstanding as of December 31, 2015
Number of Shares
Weighted Average
Grant-Date Fair Value
Per Share
515,038 $
332,946 $
(238,986) $
(231,188) $
377,810 $
5.78
4.44
5.54
5.57
4.87
The fair value of each stock option award is estimated on the date of grant using the Black ‑Scholes option pricing model.
The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as
assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the
Company’s expected stock price volatility over the expected life of the awards and actual and projected stock option exercise
behavior. There were no stock options granted during the twelve months ended December 31, 2015.
During the years ended December 31, 2015 and 2014, the Company utilized a forfeiture rate of 25% for estimating the
forfeitures of stock compensation granted.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
The following table summarizes share ‑based compensation expense, net of taxes withheld, included in the Company’s
consolidated statements of operations for the years ended December 31, 2015 and 2014 as follows:
Share-based compensation expense:
Cost of sales
Selling, general and administrative
Income tax benefit (1)
Net effect of share-based compensation expense on net loss
Reduction in earnings per share:
Basic and diluted earnings per share
For the Years Ended
December 31,
2015
2014
$
$
$
131 $
788
—
919 $
159
729
—
888
0.06 $
0.06
(1)
Income tax benefit is not illustrated because the Company is currently operating at a loss and an actual income tax benefit was
not realized for the years ended December 31, 2015 and 2014. The result of the loss situation creates a timing difference,
resulting in a deferred tax asset, which is fully reserved for in the valuation allowance.
(2) Diluted earnings per share for the years ended December 31, 2015 and 2014 does not include common stock equivalents due to
their anti ‑dilutive nature as a result of the Company’s net losses for these respective periods. Accordingly, basic earnings per
share and diluted earnings per share are identical for all periods presented.
As of December 31, 2015, the Company estimates that pre ‑tax compensation expense for all unvested share ‑based awards,
including both stock options and RSUs, in the amount of approximately $1,170 will be recognized through the year 2018. The
Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of
common stock.
17. SEGMENT REPORTING
The Company is organized into reporting segments based on the nature of the products offered and business activities from
which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the
Company’s chief operating decision maker. In September 2015, the Board approved a plan to divest or otherwise exit the Company’s
Services segment; consequently, this segment is now reported as a discontinued operation and the Company has revised its segment
presentation to include two reportable operating segments: Towers and Weldments, and Gearing. All current and prior period
financial results have been revised to reflect these changes. The Company’s segments and their product offerings are summarized
below:
Towers and Weldments
The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for
multiple MW wind turbines. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close
proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The facilities have a combined annual
tower production capacity of up to approximately 500 towers, sufficient to support turbines generating more than 1,000 MW of
power. This product segment also encompasses the manufacture of specialty weldments for mining and other industrial customers.
Gearing
The Company engineers, builds and remanufactures precision gears and gearing systems for oil and gas, wind, mining, steel
and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing
processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Corporate and Other
“Corporate” includes the assets and selling, general and administrative expenses of the Company’s corporate office.
“Eliminations” comprises adjustments to reconcile segment results to consolidated results.
The accounting policies of the reportable segments are the same as those referenced in Note 1, “Description of Business and
Summary of Significant Accounting Policies” of these consolidated financial statements. Summary financial information by
reportable segment is as follows:
Towers and
Weldments Gearing Corporate Eliminations Consolidated
2015
Revenues from external customers
Intersegment revenues (1)
Net revenues
Operating profit (loss)
Depreciation and amortization
Capital expenditures
Assets held for sale
Total assets
2014
Revenues from external customers
Intersegment revenues (1)
Net revenues
Operating profit (loss)
Depreciation and amortization
Capital expenditures
Assets held for sale
Total assets
$ 170,540 $ 28,616 $
379
170,919
4,702
3,954
2,096
554
38,622
972
29,588
(8,235)
5,031
583
506
39,735
— $
—
—
(8,378)
194
110
3,343
(1,351)
(1,351)
3
—
—
—
256,238 (224,688)
— $ 199,156
—
199,156
(11,908)
9,179
2,789
4,403
109,907
Towers and
Weldments Gearing Corporate Eliminations Consolidated
— $
—
—
$ 184,464 $ 41,365 $
440
184,904
18,065
3,993
4,118
738
51,429
888
42,253
(9,423)
6,816
1,814
—
50,238
(10,153)
135
365
11,540
273,699
— $ 225,829
—
225,829
(1,478)
10,944
6,297
12,278
146,617
(1,328)
(1,328)
33
—
—
—
(228,749)
(1)
Intersegment revenues primarily consist of sales from Gearing to Services. Sales from Gearing to Services totaled $972 and
$888 for the years ended December 31, 2015 and 2014, respectively.
The Company generates revenues entirely from transactions completed in the U.S. and its long ‑lived assets are all located
in the U.S. All intercompany revenue is eliminated in consolidation. During 2015 and 2014 , two customers each accounted for
more than 10% of total net revenues. These two customers accounted for revenues of $124,759 and $45,214 for fiscal year 2015 and
$124,263 and $53,955 for fiscal year 2014 were reported within the Towers and Weldments segment. During the years ended
December 31, 2015 and 2014, five customers accounted for 92% and 91% , respectively , of total net revenues.
18. EMPLOYEE BENEFIT PLANS
Retirement Savings and Profit Sharing Plans
Retirement Savings and Profit Sharing Plans
The Company offers a 401(k) retirement savings plan to all eligible employees who may elect to contribute a portion of
their salary on a pre ‑tax basis, subject to applicable statutory limitations. Participating non ‑union employees are eligible to receive
safe harbor matching contributions equal to 100% of the first 3% of the participant’s elective deferral contributions and 50% of the
next 2% of the participant’s elective deferral contributions. In accordance with the collective
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
bargaining agreements in place at its two union locations, the Company’s Illinois ‑based union employees are eligible to receive a
discretionary match in an amount up to 50% of each participant’s first 4% of elective deferral contributions, and the Company’s
Pennsylvania ‑based union employees are eligible to receive a discretionary match in an amount up to 100% of each participant’s
first 3% and 50% of the next 2% of elective deferral contributions. The Company has the discretion, subject to applicable statutory
requirements, to fund any matching contribution with a contribution to the plan of the Company’s common stock. Beginning with the
first quarter of 2012, the Company funded the matching contributions in the form of the Company’s common stock. Starting in the
first quarter of 2014, the Company resumed funding the matching contributions in cash. Under the plan, elective deferrals and basic
Company matching will be 100% vested at all times.
For the years ended December 31, 2015 and 2014, the Company recorded expense under these plans of approximately $876
and $701 , respectively.
Deferred Compensation Plan
The Company maintains a deferred compensation plan for certain key employees and nonemployee directors, whereby
certain wages earned, compensation for services rendered, and discretionary company ‑matching contributions may be deferred and
deemed to be invested in the Company’s common stock. Changes in the fair value of the plan liability are recorded as charges or
credits to compensation expense. Compensation expense associated with the deferred compensation plan recorded during the years
ended December 31, 2015 and 2014 was ($19) and ($23) , respectively. The fair value of the plan liability to the Company is
included in accrued liabilities in the Company’s consolidated balance sheets. As of December 31, 2015 and 2014, the fair value of
plan liability to the Company was $12 and $31 , respectively.
In addition to the employee benefit plans described above, the Company participates in certain customary employee
benefits plans, including those which provide health and life insurance benefits to employees.
19. NEW MARKETS TAX CREDIT TRANSACTION
On July 20, 2011, the Company executed the NMTC Transaction involving the following third parties: AMCREF Fund VII,
LLC (“AMCREF”), a registered community development entity; COCRF Investor VIII, LLC (“COCRF”); and Capital One. The
NMTC Transaction allows the Company to receive below market interest rate funds through the federal New Markets Tax Credit
(“NMTC”) program . The Company received $2,280 in proceeds via the NMTC Transaction. The NMTC Transaction qualifies
under the NMTC program and included a gross loan from AMCREF to the Company's wholly-owned subsidiary Broadwind
Services, LLC in the principal amount of $10,000 , with a term of fifteen years and interest payable at the rate of 1.4% per annum,
largely offset by a gross loan in the principal amount of $7,720 from the Company to COCRF, with a term of fifteen years and
interest payable at the rate of 2.5% per annum. The NMTC Transaction was amended on August 24, 2015; the amendment did not
change the financial terms of the NMTC Transaction, but did add the activities and assets of the Abilene Heavy Industries Facility to
the NMTC Transaction and allows for the sale of the Abilene Gearbox Facility assets provided that the proceeds of such sale are re-
invested in the Abilene Heavy Industries Facility.
The NMTC regulations permit taxpayers to claim credits against their federal income taxes for up to 39% of qualified
investments in the equity of community development entities. The NMTC Transaction could generate $3,900 in tax credits, which
the Company has made available under the structure by passing them through to Capital One. The proceeds have been applied to the
Company’s investment in the Abilene Gearbox Facility assets and operating costs and to the newly added assets of the Abilene
Heavy Industries Facility, as permitted under the amended terms of the NMTC Transaction .
The Abilene Heavy Industries Facility and the Abilene Gearbox Facility must operate and be in compliance with various
regulations and restrictions through September 2018, the end of the seven year period provided for in the IRC, to comply with the
terms of the NMTC Transaction, or the Company may be liable under its indemnification agreement with Capital One for the
recapture of tax credits. In the event the Company does not comply with these regulations and restrictions, the NMTC program tax
credits may be subject to 100% recapture for a period of seven years as provided in the IRC. The Company does not anticipate that
any tax credit recapture events will occur or that it will be required to make any payments to Capital One under the indemnification
agreement.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
The Capital One contribution, including a loan origination payment of $320 , has been included as other assets in the
Company’s condensed consolidated balance sheet as of December 31, 2015. The NMTC Transaction includes a put/call provision
whereby the Company may be obligated or entitled to repurchase Capital One’s interest in the third quarter of 2018. Capital One
may exercise an option to put its investment and receive $130 from the Company. If Capital One does not exercise its put option, the
Company can exercise a call option at the then fair market value of the call. The Company expects that Capital One will exercise the
put option at the end of the tax credit recapture period. The Capital One contribution other than the amount allocated to the put
obligation will be recognized as income only after the put/call is exercised and when Capital One has no ongoing interest. However,
there is no legal obligation for Capital One to exercise the put, and the Company has attributed only an insignificant value to the put
option included in this transaction structure.
The Company has determined that two pass ‑through financing entities created under this transaction structure are VIEs.
The ongoing activities of the VIEs—collecting and remitting interest and fees and complying with NMTC program requirements—
were considered in the initial design of the NMTC Transaction and are not expected to significantly affect economic performance
throughout the life of the VIEs. In making this determination, management also considered the contractual arrangements that
obligate the Company to deliver tax benefits and provide various other guarantees under the transaction structure, Capital One’s lack
of a material interest in the underlying economics of the project, and the fact that the Company is obligated to absorb losses of the
VIEs. The Company has concluded that it is required to consolidate the VIEs because the Company has both (i) the power to direct
those matters that most significantly impact the activities of each VIE, and (ii) the obligation to absorb losses or the right to receive
benefits of each VIE.
The $262 of issue costs paid to third parties in connection with the NMTC Transaction are recorded as prepaid expenses,
and are being amortized over the expected seven year term of the NMTC arrangement. Capital One’s net contribution of $2,600 is
included in Long Term Debt, Net of Current Maturities in the consolidated balance sheet. Incremental costs to maintain the
transaction structure during the compliance period will be recognized as they are incurred.
20. RESTRUCTURING
The Company’s total net restructuring charges are detailed below:
2012
2011
Actual Actual
2013
Actual
2014
Actual
2015
Actual
Total
Incurred
Restructuring charges:
Capital expenditures
Gain on sale of Brandon, SD Facility
Accelerated depreciation
Severance
Impairment charges
Moving and other exit-related costs
Total
$
5 $ 2,596 $
—
—
430
—
439
$ 874 $ 4,769 $
—
819
—
—
1,354
674 $
—
—
—
—
1,479
5,627
2,352 $
(3,585)
(3,585)
1,717
898
865
435
2,551
2,365
2,866
7,012
5,331 $ 2,153 $ 1,060 $ 14,187
— $
—
—
—
186
874
During the third quarter of 2011, the Company conducted a review of its business strategies and product plans based on the
business and industry outlook, and concluded that its manufacturing footprint and fixed cost base were excessive for its medium-
term needs. Accordingly, a plan was developed to reduce the Company’s facility footprint by approximately 40% through the sale
and/or closure of facilities comprising a total of approximately 600,000 square feet. To date, the Company has reduced its leased
presence at six facilities and achieved a reduction of approximately 400,000 square feet. Two remaining properties, the Clintonville
Facility and the Cicero Avenue Facility, have been vacated and are being marketed for sale. The Company believes its remaining
locations will be sufficient to support its current business activities, while allowing for growth for the next several years.
The Company recorded a liability associated with environmental remediation costs that were originally identified while
preparing the Cicero Avenue Facility for sale. See the “Environmental Compliance and Remediation Liabilities” section of Note 13,
“Commitments and Contingencies” of these consolidated financial statements. The Company further adjusted the liability by
recording an additional $352 liability associated with the planned sale of the Cicero Avenue Facility.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
The Company adjusted the liability in the fourth quarter of 2013 by recording an additional $258 charge in the fourth quarter of 2013
and an additional $874 in the current quarter ending September 30, 2015. The liability is associated with environmental remediation
costs that were originally identified while preparing the site for sale. The expenses associated with this liability have been recorded
as restructuring charges; as of December 31, 2015, the accrual balance remaining was $1,300.
As of December 31, 2014, the Company had completed the expenditures relating to its restructuring plan, with the
exception of the new information on the environmental remediation of the Cicero Avenue Facility that resulted in additional expense
of $874 recorded during the third quarter of 2015 and new information on the fair value on the Clintonville Facility that resulted in
additional impairment expense of $186 recorded during the fourth quarter of 2015 based on negotiations that resulted in the
execution of a sale contract subsequent to the year-end . The Company incurred total costs of approximately $14, 2 00, net of a
$3,585 gain on the sale of an idle tower plant in Brandon, South Dakota. The Company’s restructuring charges generally include
costs to close or exit facilities, costs to move equipment, the related costs of building infrastructure for moved equipment and
employee related costs. Of the total restructuring costs incurred, a total of approximately $4,800 consists of non ‑cash charges.
21. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following table provides a summary of selected financial results of operations by quarter for the years ended
December 31, 2015 and 2014 as follows:
2015
Revenues
Gross profit (loss)
Operating profit (loss)
(Loss) income from continuing operations, net of tax
Net (loss) income
(Loss) income from continuing operations per share:
Basic and Diluted
Net (loss) income per share:
Basic and Diluted
2014
Revenues
Gross profit (loss)
Operating profit (loss)
Loss from continuing operations, net of tax
Net loss
Loss from continuing operations per share:
Basic
Diluted
Net loss per share:
Basic
Diluted
22. LEGAL PROCEEDINGS
$
First
Second
Third
Fourth
49,229 $
2,745
(2,364)
(2,523)
(5,015)
62,563 $
8,499
3,616
3,387
1,615
49,791 $
2,831
(2,135)
(2,383)
(7,613)
37,573
(6,208)
(11,025)
(10,727)
(10,794)
(0.17)
0.23
(0.16)
(0.73)
$
(0.34) $
0.11 $
(0.52) $
(0.73)
First
Second
Third
Fourth
$
56,409 $
5,883
334
173
(1,042)
64,933 $
9,306
3,411
3,186
1,860
55,295 $
4,013
(1,086)
(1,099)
(1,814)
0.01
0.01
0.22
0.21
(0.07)
(0.07)
$
(0.07)
(0.07) $
0.13
0.12 $
(0.12)
(0.12) $
49,192
494
(4,137)
(4,053)
(5,172)
(0.28)
(0.28)
(0.35)
(0.35)
The Company is party to a variety of legal proceedings that arise in the normal course of its business. While the results of
these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not
have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash
flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. It is
possible that if one or more of such matters were decided against the
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 and 2014
(in thousands, except share and per share data)
Company, the effects could be material to the Company’s results of operations in the period in which the Company would be
required to record or adjust the related liability and could also be material to the Company’s financial condition and cash flows in the
periods the Company would be required to pay such liability.
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Exhibit
Number
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
INDEX TO EXHIBITS
Description
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s
Quarterly Report on Form 10 ‑Q for the quarterly period ended June 30, 2008)
Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8 ‑K filed August 23, 2012)
Second Amended and Restated Bylaws of the Company, adopted as of May 20, 2014 (incorporated by reference
to Exhibit 3.1 to the Company’s Current Report on Form 8 ‑K filed May 23, 2014)
Section 382 Rights Agreement dated as of February 12, 2013 between the Company and Wells Fargo Bank,
National Association, as rights agent, which includes the Form of Rights Certificate as Exhibit B thereto
(incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8 ‑A filed
February 13, 2013)
Certificate of Designation of Series A Junior Participating Preferred Stock of the Company (incorporated by
reference to Exhibit 2 to the Company’s Registration Statement on Form 8 ‑A filed February 13, 2013)
First Amendment to Section 382 Rights Agreement dated as of February 2, 2016 between the Company and
Wells Fargo Bank, National Association, as rights agent (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8 -K filed February 8, 2016)
Lease Agreement dated December 26, 2007 between Tower Tech Systems Inc. and City Centre, LLC
(incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10 ‑KSB for the fiscal year
ended December 31, 2007)
Amended and Restated Lease for Industrial/Manufacturing Space dated as of May 1, 2010 between Tower Tech
Systems Inc. and City Centre, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly
Report on Form 10 ‑Q for the quarterly period ended March 31, 2010)
Securities Purchase Agreement dated as of March 1, 2007 among the Company, Tontine Capital Partners, L.P.
and Tontine Capital Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8 ‑K filed March 5, 2007)
Securities Purchase Agreement dated as of August 22, 2007 among the Company, Tontine Capital Partners, L.P.
and Tontine Capital Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8 ‑K filed August 24, 2007)
Amended and Restated Securities Purchase Agreement dated as of January 3, 2008 among the Company,
Tontine Capital Partners, L.P., Tontine Partners, L.P. and Tontine 25 Overseas Master Fund, L.P. (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 ‑K filed January 4, 2008)
Securities Purchase Agreement dated as of April 22, 2008 among the Company, Tontine Capital Partners, L.P.,
Tontine Partners, L.P., Tontine Overseas Fund, Ltd. and Tontine 25 Overseas Master Fund, L.P. (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 ‑K filed April 28, 2008)
Securities Purchase Agreement dated as of April 22, 2008 between the Company and Charles H. Beynon
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8 ‑K filed April 28, 2008)
Amendment Agreement dated as of April 1, 2013, among the Company; Tontine Capital Management, L.L.C.,
Tontine Capital Overseas GP, L.L.C., Tontine Management, L.L.C., Tontine Overseas Associates, L.L.C.,
Tontine Capital Overseas Master Fund II, L.P., Tontine Power Partners, L.P., Tontine Associates, L.L.C.,
Tontine Partners, L.P., Tontine Capital Partners, L.P., Tontine Overseas Fund, Ltd., Tontine 25 Overseas Master
Fund, L.P., and Tontine Capital Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended March 31, 2013)
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10.9
10.10
10.11
10.12
10.13
Registration Rights Agreement dated as of March 1, 2007 among the Company, Tontine Capital Partners, L.P.
and Tontine Capital Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8 ‑K filed March 5, 2007)
Amendment to Registration Rights Agreement dated as of October 19, 2007 among the Company, Tontine
Capital Partners, L.P., Tontine Capital Overseas Master Fund, L.P., Tontine Partners, L.P., Tontine Overseas
Fund, Ltd. and Tontine 25 Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8 ‑K filed October 24, 2007)
Amendment No. 2 to Registration Rights Agreement dated as of July 18, 2008 among the Company, Tontine
Capital Partners L.P., Tontine Partners, L.P., Tontine Capital Overseas Master Fund, L.P., Tontine 25 Overseas
Master Fund, L.P. and Tontine Overseas Fund, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8 ‑K filed July 23, 2008)
Amendment No. 3 to Registration Rights Agreement dated as of September 12, 2008 among the Company,
Tontine Capital Partners L.P., Tontine Partners, L.P., Tontine Capital Overseas Master Fund, L.P., Tontine 25
Overseas Master Fund, L.P. and Tontine Overseas Fund, Ltd. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8 ‑K filed September 12, 2008)
Amendment No. 4 to Registration Rights Agreement dated as of October 31, 2008 among the Company, Tontine
Capital Partners, L.P., Tontine Partners, L.P., Tontine Capital Overseas Master Fund, L.P., Tontine Overseas
Fund, Ltd. and Tontine 25 Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8 ‑K filed November 4, 2008)
10.14 Waiver relating to Registration Rights Agreement, dated January 9, 2009 by Tontine Capital Partners, L.P.,
10.15
10.16
10.17
10.18
10.19†
10.20†
10.21†
10.22†
Tontine Partners, L.P., Tontine Capital Overseas Master Fund, L.P., Tontine Overseas Fund, Ltd. and Tontine 25
Overseas Master Fund, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8 ‑K filed January 15, 2009)
Registration Rights Agreement dated as of October 19, 2007 among the Company and the shareholders of Brad
Foote Gear Works, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8
‑K filed October 24, 2007)
Registration Rights Agreement dated as of January 16, 2008 among the Company and the members of Energy
Maintenance Service, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8 ‑K filed January 23, 2008)
Registration Rights Agreement dated as of April 24, 2008 between the Company and Charles H. Beynon
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8 ‑K filed April 28, 2008)
Registration Rights Agreement dated as of June 4, 2008 between the Company and the shareholders of Badger
Transport, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8 ‑K filed
June 10, 2008)
Amended and Restated Employment Agreement dated as of December 17, 2012 between the Company and Peter
C. Duprey (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 ‑K filed
December 1, 2015)
Amended and Restated Employment Agreement dated as of December 17, 2012 between the Company and
Stephanie K. Kushner (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8 ‑K
filed December 21, 2012)
Severance and Non ‑Competition Agreement, dated as of February 21, 2014 between the Company and David
W. Fell (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014)
Severance and Non ‑Competition Agreement, dated as of December 15, 2011 between the Company and Robert
R. Rogowski (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014)
65
Table of Contents
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
10.29†
10.30†
10.31†
10.32†
10.33†
10.34†
10.35†
10.36†
10.37†
10.38
10.39
10.40
Severance and Non ‑Competition Agreement, dated as of July 8, 2014 between the Company and Erik W. Jensen
(incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2014)
Separation Agreement dated as of November 30, 2015 between the Company and Peter C. Duprey (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 ‑K filed December 17, 2015)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly
Report on Form 10 ‑Q for the quarterly period ended March 31, 2010)
Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8 ‑K filed October 26, 2007)
Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended September 30,
2012)
Broadwind Energy, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10 ‑Q for the quarterly period ended September 30, 2012)
Broadwind Energy, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit A to the Company’s
Schedule 14A filed on March 12, 2015)
Form of Executive Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended June 30, 2010)
Form of Non ‑Employee Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1
to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended March 31, 2012)
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10 ‑Q for the quarterly period ended March 31, 2012)
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s
Quarterly Report on Form 10 ‑Q for the quarterly period ended March 31, 2012)
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report
on Form 10 ‑Q for the quarterly period ended March 31, 2012)
Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (filed herewith)
Form of Restricted Stock Unit Award Agreement (Extended Executive Team) (filed herewith)
Form of Restricted Stock Unit Award Agreement (filed herewith)
Loan and Security Agreement dated as of August 23, 2012 among the Company, Brad Foote Gear Works, Inc.,
Broadwind Towers, Inc., Broadwind Services, LLC and AloStar Bank of Commerce (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8 ‑K filed August 23, 2012)
First Amendment to Loan and Security Agreement and Waiver dated as of February 13, 2013 among the
Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.56 to the Company’s Annual Report on Form 10 ‑K for the fiscal year ended December 31, 2012)
Second Amendment to Loan and Security Agreement and Waiver dated as of September 30, 2013 among the
Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended September 30,
2013)
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Table of Contents
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
21.1
23.1
31.1
31.2
32.1
32.2
Third Amendment to Loan and Security Agreement and Waiver dated as of June 25, 2014 among the Company,
Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended June 30, 2014)
Fourth Amendment to Loan and Security Agreement and Waiver dated as of July 22, 2014 among the Company,
Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended June 30, 2014)
Fifth Amendment to Loan and Security Agreement and Waiver dated as of November 6, 2014 among the
Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.47 to the Company’s Annual Report on Form 10 ‑K for the fiscal year ended December 31, 2014)
Sixth Amendment to Loan and Security Agreement and Waiver dated as of March 27, 2015 among the
Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended March 31, 2015)
Seventh Amendment to Loan and Security Agreement and Waiver dated as of June 29, 2015 among the
Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.1 to the Company’s Annual Report on Form 8 ‑K filed July 2, 2015)
Term Loan Rider dated June 29, 2015 among the Company, Brad Foote Gear Works, Inc., Broadwind Services,
LLC, Broadwind Towers, Inc. and AloStar Bank of Commerce (incorporated by reference to Exhibit 10.2 to the
Company’s Annual Report on Form 8 ‑K filed July 2, 2015)
Term Note dated June 29, 2015 from the Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC,
and Broadwind Towers, Inc. to AloStar Bank of Commerce (incorporated by reference to Exhibit 10.3 to the
Company’s Annual Report on Form 8 ‑K filed July 2, 2015)
Eighth Amendment to Loan and Security Agreement and Waiver dated October 16, 2015 among the Company,
Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10 ‑Q for the quarterly period ended September 30,
2015)
Ninth Amendment to Loan and Security Agreement and Waiver dated February 23, 2015 among the Company,
Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc ., 1309 South Cicero
Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce (filed herewith)
Subsidiaries of the Registrant (filed herewith)
Consent of KPMG LLP (filed herewith)
Rule 13a ‑14(a) Certification of Chief Executive Officer (filed herewith)
Rule 13a ‑14(a) Certification of Chief Financial Officer (filed herewith)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes ‑Oxley Act of 2002 (filed herewith)
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes ‑Oxley Act of 2002 (filed herewith)
† Indicates management contract or compensation plan or arrangement.
67
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26
day of February, 2016.
th
BROADWIND ENERGY, INC.
By:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Interim President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Director and Chief Financial Officer
(Principal Financial Officer)
/s/ Robert R. Rogowski
Robert R. Rogowski
Vice President and Corporate Controller
(Principal Accounting Officer)
February 26, 201 6
February 26, 201 6
/s/ David P. Reiland
David P. Reiland
/s/ Terence P. Fox
Terence P. Fox
/s/ Charles H. Beynon
Charles H. Beynon
/s/ Thomas A. Wagner
Thomas A. Wagner
Director and Chairman of the Board
February 26, 201 6
Director
Director
Director
68
February 26, 201 6
February 26, 201 6
February 26, 201 6
EXHIBIT 10 . 35
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK UNIT AWARD NOTICE
[[FIRSTNAME]] [[LASTNAME]]
You have been awarded a restricted stock unit award with respect to shares of common stock of Broadwind Energy,
Inc., a Delaware corporation (the “Company”), pursuant to the terms and conditions of the Broadwind Energy, Inc. 2015 Equity
Incentive Plan (the “Plan”) and the Restricted Stock Unit Award Agreement attached hereto (together with this Award Notice, the
“Agreement”). Capitalized terms not defined herein shall have the meanings specified in the Plan or the Agreement, as
applicable .
Restricted Stock Units : You have been awarded a restricted stock unit award with respect to [[SHARESGRANTED]] shares of
Common Stock, par value $0.001 per share, subject to adjustment as provided in the Plan (the
“Award”).
Grant Date: [[GRANTDATE]] (“Grant Date”).
Vesting Sch edule: Except as otherwise provided in the Plan or the Agreement, th e Award shall vest on the first
anniversary of the Grant Date provided you continuously serve as a Non-Employee Director of the
Company through such vesting date.
BROADWIND ENERGY, INC.
By: /s/ STEPHANIE K. KUSHNER
Name: Stephanie K. Kushner
Title: Executive Vice President &
Chief Financial Officer
Acknowledgment, Acceptance and Agreement :
By electronically accepting this Award Notice, I hereby acknowledge receipt of the Agreement and the Plan, accept the Award
granted to me and agree to be bound by the terms and conditions of this Award Notice, the Agreement and the Plan.
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK UNIT AWARD AGREEMENT
Broadwind Energy, Inc., a Delaware corporation (the “ Company ”), hereby grants to the individual (the “ Holder ”) named in the
award notice attached hereto (the “ Award Notice ”) as of the date set forth in the Award Notice (the “ Grant Date ”), pursuant to
the terms and conditions of the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “ Plan ”), a restricted stock unit award
(the “ Award ”) with respect to the number of shares of the Company’s Common Stock, par value $0.001 per share (“ Stock ”), set
forth in the Award Notice, upon and subject to the restrictions, terms and conditions set forth in the Award Notice, the Plan and
this agreement (the “ Agreement ”).
1. Award Subject to Acceptance of Agreement . The Award shall be null and void unless the Holder electronically
accepts the Award Notice and this Agreement within the Holder’s stock plan account with the Company’s stock plan
administrator according to the procedures then in effect.
2. Rights as a Stockholder . The Holder shall not be entitled to any privileges of ownership with respect to the shares
of Stock subject to the Award unless and until, and only to the extent, such shares become vested pursuant to Article 3 and the
Holder becomes a stockholder of record with respect to such shares.
3. Restriction Period and Vesting .
3.1. Service-Based Vesting Condition . The Award shall vest in accordance with the vesting schedule set forth in the
Award Notice, provided the Holder continuously serves as a Non-Employee Director through the applicable vesting
date. The period of time prior to the vesting shall be referred to herein as the “ Restriction Period .”
3.2. Termination of Service .
3.2.1. Termination as a Result of Holder’s Death or Disability . If the Holder’s service as a Non-Employee
Director terminates prior to the end of the Restriction Period by reason of the Holder’s death or Disability, then
the Award shall be 100% vested upon such termination of service. For purposes of this Agreement,
“Disability” shall mean the Holder is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months.
3.2.2. Termination Other than for Death or Disability . If the Holder’s service as a Non-Employee Director with
the Company terminates prior to the end of the Restriction Period for any reason other than death or Disability,
the Award shall be immediately forfeited by the Holder and cancelled by the Company.
3.2.3. Change in Control . Upon a Change in Control (as defined in the Plan), the Restriction Period shall lapse and
the Award shall become fully vested and shall be subject to Section 5.8 of the Plan.
4. Settlement of Award . Subject to Article 6 , as soon as practicable (but not later than 30 days) after the vesting of the
Award, the Company shall issue or transfer to the Holder (or such other person as is acceptable to the Company and designated in
writing by the Holder) the number of shares of Stock underlying the vested Award. The Company may effect such issuance or
transfer either by the delivery of one or more stock certificates to the Holder or by making an appropriate entry on the books of
the Company or the transfer agent of the Company. The Company shall pay all original issue or transfer taxes and all fees and
expenses incident to such delivery or issuance. Prior to the issuance or transfer to the Holder of the shares of Stock subject to the
Award, the Holder shall have no direct or secured claim in any specific assets of the Company or in such shares of Stock, and will
have the status of a general unsecured creditor of the Company.
5. Transfer Restrictions and Investment Representation .
5.1. Nontransferability of Award . The Award may not be transferred by the Holder other than by will or the laws of
descent and distribution or pursuant to the designation of one or more beneficiaries on the form prescribed by the
Company. Except to the extent permitted by the foregoing sentence, the Award may not be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void.
5.2. Investment Representation . The Holder hereby represents and covenants that (a) any share of Stock acquired upon
the vesting of the Award will be acquired for investment and not with a view to the distribution thereof within the
meaning of the Securities Act of 1933, as amended (the “ Securities Act ”), unless such acquisition has been registered
under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be
made either pursuant to an effective registration statement under the Securities Act and any applicable state securities
laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if
requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the
effect that such representation (x) is true and correct as of the date of vesting of the Award with respect to any shares of
Stock hereunder or (y) is true and correct as of the date of any sale of any such share, as applicable. As a further
condition precedent to the issuance or transfer to the Holder of any shares of Stock subject to the Award, the Holder
shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the
issuance or transfer of the shares and, in connection therewith, shall execute any documents which the Board shall in its
sole discretion deem necessary or advisable.
6. Additional Terms and Conditions of Award .
6.1. Adjustment . In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation—Stock Compensation) that causes the per share value of
shares of Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an
extraordinary dividend, the number and class of securities subject to the Award shall be equitably adjusted by the
Committee. In the event of any other change in corporate capitalization, including a merger, consolidation,
reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing
sentence may be made as determined to be appropriate and equitable by the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the surviving corporation) to prevent dilution or
enlargement of rights of participants. If any adjustment would result in a fractional security being subject to the Award,
the Company shall pay the Holder in connection with the first settlement, in whole or part, occurring after such
adjustment, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the
Fair Market Value of such security on the settlement date as determined by the Committee. The decision of the
Committee regarding any such adjustment and the Fair Market Value of any fractional security shall be final, binding
and conclusive.
6.2. Compliance with Applicable Law . The Award is subject to the condition that if the listing, registration or
qualification of the shares of Stock subject to the Award upon any securities exchange or under any law, or the consent
or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in
connection with, the issuance or transfer of shares of Stock hereunder, the shares of Stock subject to the Award shall not
be issued or transferred, in whole or in part, unless such listing, registration, qualification, consent, approval or other
action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees
to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action.
6.3. Award Confers No Rights to Continued Service . In no event shall the granting of the Award or its acceptance by
the Holder, or any provision of the Agreement, give or be deemed to give the Holder any right to continued service as a
Non-Employee Director.
6.4. Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by the Holder or by the
Company forthwith to the Board for review. The resolution of such a dispute by the Board shall be final and binding on
all parties.
6.5. Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple
assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon the Holder and his or her heirs, executors,
administrators, successors and assigns.
6.6. Notices . All notices, requests or other communications provided for in this Agreement shall be made, if to the
Company, to Broadwind Energy, Inc., Attn: Legal Department, 3240 S. Central Avenue, Cicero, Illinois 60804, and if to
the Holder, to the last known mailing address of the Holder contained in the records of the Company. All notices,
requests or other communications provided for in this Agreement shall be made in writing either (a) by personal
delivery, (b) by facsimile or electronic mail with confirmation of receipt, (c) by mailing in the United States mails or (d)
by express courier service. The notice, request or other communication shall be deemed to be received upon personal
delivery, upon confirmation of receipt of facsimile or electronic mail transmission or upon receipt by the party entitled
thereto if by United States mail or express courier service; provided , however , that if a notice, request or other
communication sent to the Company is not received during regular business hours, it shall be deemed to be received on
the next succeeding business day of the Company.
6.7. Governing Law . This Agreement, the Award and all determinations made and actions taken pursuant hereto and
thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.
6.8. Entire Agreement . The Award Notice and the Plan are incorporated herein by reference. Capitalized terms not
defined herein shall have the meanings specified in the Plan. This Agreement, the Award Notice and the Plan constitute
the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be
modified if such modification is materially adverse to the Holder’s interest except by means of a writing signed by the
Company and the Holder.
6.9. Partial Invalidity . The invalidity or unenforceability of any particular provision of this Agreement shall not affect the
other provisions hereof and this Agreement shall be construed in all respects as if such invalid or unenforceable
provision was omitted.
6.10. Amendment and Waiver . The provisions of this Agreement may be amended or waived only by the written
agreement of the Company and the Holder, and no course of conduct or failure or delay in enforcing the provisions of
this Agreement shall affect the validity, binding effect or enforceability of this Agreement.
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD NOTICE
EXHIBIT 10 . 3 6
[[FIRSTNAME]] [[LASTNAME]]
You have been awarded a restricted stock unit award with respect to shares of common stock of Broadwind Energy,
Inc., a Delaware corporation (the “ Company ”), pursuant to the terms and conditions of the Broadwind Energy, Inc. 2015 Equity
Incentive Plan (the “ Plan ”) and the Restricted Stock Unit Award Agreement attached hereto (together with this Award Notice,
the “ Agreement ”). Capitalized terms not defined herein shall have the meanings specified in the Plan or the Agreement, as
applicable .
Restricted Stock Units : You have been awarded a restricted stock unit award with respect to [[SHARESGRANTED]] shares of
Common Stock, par value $0.001 per share, subject to adjustment as provided in the Plan (the “
Award ”).
Grant Date : [[GRANTDATE]] (“ Grant Date ”).
Vesting Sch edule : Except as otherwise provided in the Plan, the Agreement or any other agreement between you and the
Company, the Award shall vest in one-third increments on each of the first, second and third
anniversaries of the Grant Date, provided you remain continuously employed by the Company
through the applicable vesting date .
BROADWIND ENERGY, INC.
By: /s/ STEPHANIE K. KUSHNER
Name: Stephanie K. Kushner
Title: Executive Vice President &
Chief Financial Officer
Acknowledgment, Acceptance and Agreement :
By electronically accepting this Award Notice, I hereby acknowledge receipt of the Agreement and the Plan, accept the Award
granted to me and agree to be bound by the terms and conditions of this Award Notice, the Agreement and the Plan .
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Broadwind Energy, Inc., Inc., a Delaware corporation (the “ Company ”), hereby grants to the individual (the “ Holder ”) named
in the award notice attached hereto (the “ Award Notice ”) as of the date set forth in the Award Notice (the “ Grant Date ”),
pursuant to the terms and conditions of the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “ Plan ”), a restricted stock
unit award (the “Award”) with respect to the number of shares of the Company’s Common Stock, par value $0.001 per share
(“Stock”), set forth in the Award Notice, upon and subject to the restrictions, terms and conditions set forth in the Award Notice,
the Plan and this agreement (the “ Agreement ”).
1. Award Subject to Acceptance of Agreement . The Award shall be null and void unless the Holder electronically
accepts the Award Notice and this Agreement within the Holder’s stock plan account with the Company’s stock plan
administrator according to the procedures then in effect .
2. Rights as a Stockholder . The Holder shall not be entitled to any privileges of ownership with respect to the shares
of Stock subject to the Award unless and until, and only to the extent, such shares become vested pursuant to Article 3 and the
Holder becomes a stockholder of record with respect to such shares .
3. Restriction Period and Vesting .
3.1. Service-Based Vesting Condition . Except as otherwise provided in this Article 3, the Award shall vest in
accordance with the vesting schedule set forth in the Award Notice, provided the Holder remains continuously
employed by the Company through the applicable vesting date. The period of time prior to the vesting shall be
referred to herein as the “ Restriction Period .”
3.2. Termination of Service .
3.2.1. Termination as a Result of Holder’s Death or Disability . If the Holder’s service as a Non-Employee
Director terminates prior to the end of the Restriction Period by reason of the Holder’s death or Disability, then
the Award shall be 100% vested upon such termination of service. For purposes of this Agreement,
“Disability” shall mean the Holder is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months.
3.2.2. Termination for any Reason other than Death or Disability . Except as provided in Subsection 3.2.3 , if
the Holder’s employment with the Company terminates prior to the end of the Restriction Period for any reason
other than the Holder’s death or Disability, then the portion of the Award that was not vested immediately prior
to such termination of employment shall be immediately forfeited by the Holder and cancelled by the Company
.
3.2.3. Change in Control . Notwithstanding anything in the Plan or this Agreement to the contrary, if, upon or
within one year following a Change in Control (as defined in the Plan) and prior to the end of the Restriction
Period, the Company or a succeeding entity terminates the Holder’s employment for any reason other than for
Cause, then the Restriction Period shall lapse and the Award shall become fully vested and shall be subject to
Section 5.8 of the Plan.
3.2.4. Disability . For purposes of the Award, “ Disability ” shall have the meaning set forth in the employment
agreement, if any, between the Holder and the Company, provided that if the Holder is not a party to an
employment agreement that contains such definition, then “Disability” shall mean the Holder is unable to
engage in any substantial gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous period of not less
than 12 months.
3.3.5. Cause . For purposes of the Award, “Cause” shall have the meaning set forth in the employment agreement,
if any, between the Holder and the Company, provided that if the Holder is not a party to an employment
agreement that contains such definition, then “Cause” shall mean (i) embezzlement, misappropriation, theft or
other criminal conduct, of which the Holder is convicted, related to the property and assets of the Company, (ii)
the Holder’s conviction of a felony or (iii) the Holder’s willful refusal to perform or substantial disregard of the
Holder’s duties as assigned to the Holder by the Company, as determined by the Company in its sole and
absolute discretion
4. Settlement of Award . Subject to Article 6 , as soon as practicable (but not later than 30 days) after the vesting of the
Award, in whole or part, the Company shall issue or transfer to the Holder (or such other person as is acceptable to the
Company and designated in writing by the Holder) the number of shares of Stock underlying the vested portion of the
Award. The Company may effect such issuance or transfer either by the delivery of one or more stock certificates to the
Holder or by making an appropriate entry on the books of the Company or the transfer agent of the Company. Except as
otherwise provided in Section 6.1 , the Company shall pay all original issue or transfer taxes and all fees and expenses
incident to such delivery or issuance. Prior to the issuance or transfer to the Holder of the shares of Stock subject to the
Award, the Holder shall have no direct or secured claim in any specific assets of the Company or in such shares of
Stock, and will have the status of a general unsecured creditor of the Company .
5. Transfer Restrictions and Investment Representation .
5.1. Nontransferability of Award . The Award may not be transferred by the Holder other than by will or the laws of
descent and distribution or pursuant to the designation of one or more beneficiaries on the form prescribed by the
Company. Except to the extent permitted by the foregoing sentence, the Award may not be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void .
5.2. Investment Representation . The Holder hereby represents and covenants that (a) any share of Stock acquired upon
the vesting of the Award will be acquired for investment and not with a view to the distribution thereof within the
meaning of the Securities Act of 1933, as amended (the “ Securities Act ”), unless such acquisition has been registered
under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be
made either pursuant to an effective registration statement under the Securities Act and any applicable state securities
laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if
requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the
effect that such representation (x) is true and correct as of the date of vesting of the Award with respect to any shares of
Stock hereunder or (y) is true and correct as of the date of any sale of any such share, as applicable. As a further
condition precedent to the issuance or transfer to the Holder of any shares of Stock subject to the Award, the Holder
shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the
issuance or transfer of the shares and, in connection therewith, shall execute any documents which the Board shall in its
sole discretion deem necessary or advisable .
6. Additional Terms and Conditions of Award .
6.1. Withholding Taxes .
(a) As a condition precedent to the issuance or transfer of any shares of Stock upon the vesting of the Award, the
Holder shall, upon request by the Company, pay to the Company such amount as the Company may be
required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the “ Required Tax Payments ”) with respect to the issuance or transfer of
such shares of Stock. If the Holder shall fail to advance the Required Tax Payments after request by the
Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the
following means: (1) a check or cash payment to the Company, (2) delivery to the Company (either actual
delivery or by attestation procedures established by the Company) of previously owned whole shares of Stock
having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises
(the “ Tax Date ”), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares
of Stock which would otherwise be issued or transferred to the Holder having an aggregate Fair Market Value,
determined as of the Tax Date, equal to the Required Tax Payments or (4) any combination of (1), (2) and
(3). Shares of Stock to be delivered to the Company or withheld may not have a Fair Market Value in excess of
the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be
required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash
by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments
have been satisfied in full
6. 2 . Adjustment . In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation—Stock Compensation) that causes the per share value of
shares of Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an
extraordinary dividend, the number and class of securities subject to the Award shall be equitably adjusted by the
Committee. In the event of any other change in corporate capitalization, including a merger, consolidation,
reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing
sentence may be made as determined to be appropriate and equitable by the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the surviving corporation) to prevent dilution or
enlargement of rights of participants. If any adjustment would result in a fractional security being subject to the Award,
the Company shall pay the Holder in connection with the first settlement, in whole or part, occurring after such
adjustment, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the
Fair Market Value of such security on the settlement date as determined by the Committee. The decision of the
Committee regarding any such adjustment and the Fair Market Value of any fractional security shall be final, binding
and conclusive .
6. 3 . Compliance with Applicable Law . The Award is subject to the condition that if the listing, registration or
qualification of the shares of Stock subject to the Award upon any securities exchange or under any law, or the consent
or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in
connection with, the issuance or transfer of shares of Stock hereunder, the shares of Stock subject to the Award shall not
be issued or transferred, in whole or in part, unless such listing, registration, qualification, consent, approval or other
action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees
to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action .
6.4. Restrictive Covenants .
(a) During the period beginning on the Grant Date and ending on the date which is one year following the
termination of the Holder’s employment with, or service to, the Company, the Holder shall not, except with the
express prior written consent of the Company: (i) directly or indirectly, either for the Holder or on behalf of
any of the Company’s competitors (“ Competitors ”): (1) induce or attempt to induce any employee,
independent contractor or consultant of the Company to leave the employ of, or terminate its engagement with,
the Company; or (2) in any way interfere with the relationship between the Company and any employee,
independent contractor or consultant of the Company; or (ii) directly or indirectly, either for the Holder or on
behalf of any of the Competitors, solicit the business of any person or entity known to the Holder to be a
customer of the Company, where the Holder, or any person reporting to the Holder, had an ongoing business
relationship or had made substantial efforts with respect to such customer during the Holder’s employment
with, or service to, the Company.
(b) The Holder, by accepting the Award, agrees that the foregoing covenants are reasonable with respect to their
duration and scope. The Holder further acknowledges that the restrictions are reasonable and necessary for the
protection of the legitimate business interests of the Company, that they create no undue hardships, that any
violation of these restrictions would cause
substantial injury to the Company, and that such restrictions were a material inducement to the Company to
grant the Award. In the event of any violation or threatened violation of these restrictions, (i) the Holder shall
forfeit all restricted stock units subject to the Award which have not vested, (ii) the Award shall terminate as of
the date of the violation or threatened violation of these restrictions and (iii) any and all Award Proceeds (as
hereinafter defined) shall be immediately due and payable by the Holder to the Company. For purposes of this
Section, “Award Proceeds” shall mean, with respect to any portion of the Award which becomes vested, the
Fair Market Value of a share of Common Stock on the date such portion of the Award became vested,
multiplied by the number of shares of Common Stock that became vested. The remedy provided by this Section
shall be in addition to and not in lieu of any rights or remedies which the Company may have against the
Holder in respect of a breach by the Holder of any duty or obligation to the Company. The Holder agrees that
by accepting the Award the Holder authorizes the Company and its affiliates to deduct any amount or amounts
owed by the Holder pursuant to this Section 6.4 from any amounts payable by or on behalf of the Company or
any affiliate to the Holder, including, without limitation, any amount payable to the Holder as salary, wages,
vacation pay, bonus or the vesting or settlement of any stock-based award, in each case, subject to applicable
law. This right of setoff shall not be an exclusive remedy and the Company’s or an affiliate’s election not to
exercise this right of setoff with respect to any amount payable to the Holder shall not constitute a waiver of
this right of setoff with respect to any other amount payable to the Holder or any other remedy .
6. 5 . Award Confers No Rights to Continued Employment . In no event shall the granting of the Award or its
acceptance by the Holder, or any provision of this Agreement, give or be deemed to give the Holder any right to
continued employment by the Company or prevent or be deemed to prevent the Company from terminating the Holder’s
employment at any time, with or without Cause .
6. 6 . Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by the Holder or by
the Company forthwith to the Committee for review. The resolution of such a dispute by the Committee shall be final
and binding on all parties .
6. 7 . Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple
assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon the Holder and his or her heirs, executors,
administrators, successors and assigns .
6. 8 . Notices . All notices, requests or other communications provided for in this Agreement shall be made, if to the
Company, to Broadwind Energy, Inc., Attn: Legal Department, 3240 S. Central Avenue, Cicero, Illinois 60804, and if to
the Holder, to the last known mailing address of the Holder contained in the records of the Company. All notices,
requests or other communications provided for in this Agreement shall be made in writing either (a) by personal
delivery, (b) by facsimile or electronic mail with confirmation of receipt, (c) by mailing in the United States mails or (d)
by express courier service. The notice, request or other communication shall be deemed to be received upon personal
delivery, upon confirmation of receipt of facsimile or electronic mail transmission or upon receipt by the party entitled
thereto if by United States mail or express courier service; provided , however , that if a notice, request or other
communication sent to the Company is not received during regular business hours, it shall be deemed to be received on
the next succeeding business day of the Company .
6. 9 . Governing Law . This Agreement, the Award and all determinations made and actions taken pursuant hereto and
thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws .
6. 10 . Entire Agreement . The Award Notice and the Plan are incorporated herein by reference. Capitalized terms not
defined herein shall have the meanings specified in the Plan. This Agreement, the Award Notice and the Plan constitute
the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be
modified if such modification is materially adverse to the Holder’s interest except by means of a writing signed by the
Company and the Holder .
6. 1 1 . Partial Invalidity . The invalidity or unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof and this Agreement shall be construed in all respects as if such invalid or
unenforceable provision was omitted .
6.1 2 . Amendment and Waiver . The provisions of this Agreement may be amended or waived only by the written
agreement of the Company and the Holder, and no course of conduct or failure or delay in enforcing the provisions of
this Agreement shall affect the validity, binding effect or enforceability of this Agreement .
EXHIBIT 10 . 3 7
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD NOTICE
EXHIBIT 10 . 3 7
[[FIRSTNAME]] [[LASTNAME]]
You have been awarded a restricted stock unit award with respect to shares of common stock of Broadwind Energy,
Inc., a Delaware corporation (the “ Company ”), pursuant to the terms and conditions of the Broadwind Energy, Inc. 2015 Equity
Incentive Plan (the “ Plan ”) and the Restricted Stock Unit Award Agreement attached hereto (together with this Award Notice,
the “ Agreement ”). Capitalized terms not defined herein shall have the meanings specified in the Plan or the Agreement, as
applicable .
Restricted Stock Units : You have been awarded a restricted stock unit award with respect to [[SHARESGRANTED]] shares of
Common Stock, par value $0.001 per share, subject to adjustment as provided in the Plan (the “
Award ”).
Grant Date : [[GRANTDATE]] (“ Grant Date ”).
Vesting Sch edule : The Award shall vest in one-third increments on each of the first, second and third anniversaries of the
Grant Date, upon and subject to the terms and conditions set forth in the Agreement .
BROADWIND ENERGY, INC.
By: /s/ STEPHANIE K. KUSHNER
Name: Stephanie K. Kushner
Title: Executive Vice President &
Chief Financial Officer
Acknowledgment, Acceptance and Agreement :
By electronically accepting this Award Notice, I hereby acknowledge receipt of the Agreement and the Plan, accept the Award
granted to me and agree to be bound by the terms and conditions of this Award Notice, the Agreement and the Plan .
BROADWIND ENERGY, INC.
2015 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Broadwind Energy, Inc., a Delaware corporation (the “ Company ”), hereby grants to the individual (the “ Holder ”) named in the
award notice attached hereto (the “ Award Notice ”) as of the date set forth in the Award Notice (the “ Grant Date ”), pursuant to
the terms and conditions of the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “ Plan ”), a restricted stock unit award
(the “ Award ”) with respect to the number of shares of the Company’s Common Stock, par value $0.001 per share (“ Stock ”), set
forth in the Award Notice, upon and subject to the restrictions, terms and conditions set forth in the Award Notice, the Plan and
this agreement (the “ Agreement ”).
1. Award Subject to Acceptance of Agreement . The Award shall be null and void unless the Holder electronically
accepts the Award Notice and this Agreement within the Holder’s stock plan account with the Company’s stock plan
administrator according to the procedures then in effect .
2. Rights as a Stockholder . The Holder shall not be entitled to any privileges of ownership with respect to the shares
of Stock subject to the Award unless and until, and only to the extent, such shares become vested pursuant to Article 3 and the
Holder becomes a stockholder of record with respect to such shares .
3. Restriction Period and Vesting .
3.1. Service-Based Vesting Condition . The Award shall vest in accordance with the vesting schedule set forth in the
Award Notice, provided the Holder remains continuously employed by the Company through the applicable vesting
date. The period of time prior to the vesting shall be referred to herein as the “ Restriction Period .”
3.2. Termination of Employment. If the Holder’s employment with the Company terminates prior to the end of the
Restriction Period for any reason then the portion of the Award that was not vested immediately prior to such
termination of employment shall be immediately forfeited by the Holder and cancelled by the Company .
4. Settlement of Award . Subject to Article 6 , as soon as practicable (but not later than 30 days) after the vesting of the
Award, in whole or part, the Company shall issue or transfer to the Holder (or such other person as is acceptable to the Company
and designated in writing by the Holder) the number of shares of Stock underlying the vested portion of the Award. The
Company may effect such issuance or transfer either by the delivery of one or more stock certificates to the Holder or by making
an appropriate entry on the books of the Company or the transfer agent of the Company. The Company shall pay all original
issue or transfer taxes and all fees and expenses incident to such delivery or issuance. Prior to the issuance or transfer to the
Holder of the shares of Stock subject to the Award, the Holder shall have no direct or secured claim in any specific assets of the
Company or in such shares of Stock, and will have the status of a general unsecured creditor of the Company .
5. Transfer Restrictions and Investment Representation .
5.1. Nontransferability of Award . The Award may not be transferred by the Holder other than by will or the laws of
descent and distribution or pursuant to the designation of one or more beneficiaries on the form prescribed by the
Company. Except to the extent permitted by the foregoing sentence, the Award may not be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Award, the Award and all rights hereunder shall immediately become null and void .
5.2. Investment Representation . The Holder hereby represents and covenants that (a) any share of Stock acquired upon
the vesting of the Award will be acquired for investment and not with a view to the distribution thereof within the
meaning of the Securities Act of 1933, as amended (the “Securities Act”), unless such acquisition has been registered
under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be
made either pursuant to an effective registration statement under
the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the
Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date
of vesting of the Award with respect to any shares of Stock hereunder or (y) is true and correct as of the date of any sale
of any such share, as applicable. As a further condition precedent to the issuance or transfer to the Holder of any shares
of Stock subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority
having control of or supervision over the issuance or transfer of the shares and, in connection therewith, shall execute
any documents which the Board shall in its sole discretion deem necessary or advisable .
6. Additional Terms and Conditions of Award .
6.1. Withholding Taxes .
(a) As a condition precedent to the issuance or transfer of any shares of Stock upon the vesting of the Award, the
Holder shall, upon request by the Company, pay to the Company such amount as the Company may be
required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the “ Required Tax Payments ”) with respect to the issuance or transfer of
such shares of Stock. If the Holder shall fail to advance the Required Tax Payments after request by the
Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder .
(b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the
following means: (1) a check or cash payment to the Company, (2) delivery to the Company (either actual
delivery or by attestation procedures established by the Company) of previously owned whole shares of Stock
having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises
(the “Tax Date”), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares
of Stock which would otherwise be issued or transferred to the Holder having an aggregate Fair Market Value,
determined as of the Tax Date, equal to the Required Tax Payments or (4) any combination of (1), (2) and
(3). Shares of Stock to be delivered to the Company or withheld may not have a Fair Market Value in excess of
the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be
required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash
by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments
have been satisfied in full .
6. 2 . Adjustment . In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation—Stock Compensation) that causes the per share value of
shares of Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an
extraordinary dividend, the number and class of securities subject to the Award shall be equitably adjusted by the
Committee. In the event of any other change in corporate capitalization, including a merger, consolidation,
reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing
sentence may be made as determined to be appropriate and equitable by the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the surviving corporation) to prevent dilution or
enlargement of rights of participants. If any adjustment would result in a fractional security being subject to the Award,
the Company shall pay the Holder in connection with the first settlement, in whole or part, occurring after such
adjustment, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the
Fair Market Value of such security on the settlement date as determined by the Committee. The decision of the
Committee regarding any such adjustment and the Fair Market Value of any fractional security shall be final, binding
and conclusive .
6. 3 . Compliance with Applicable Law . The Award is subject to the condition that if the listing, registration or
qualification of the shares of Stock subject to the Award upon any securities exchange or under any law, or the consent
or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in
connection with, the issuance or transfer of shares of Stock hereunder, the shares of Stock subject to the Award shall not
be issued or transferred, in whole or in part, unless
such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any
conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such
listing, registration, qualification, consent, approval or other action .
6.4. Restrictive Covenants .
(a) During the period beginning on the Grant Date and ending on the date which is one year following the
termination of the Holder’s employment with, or service to, the Company, the Holder shall not, except with the
express prior written consent of the Company: (i) directly or indirectly, either for the Holder or on behalf of
any of the Company’s competitors (“ Competitors ”): (1) induce or attempt to induce any employee,
independent contractor or consultant of the Company to leave the employ of, or terminate its engagement with,
the Company; or (2) in any way interfere with the relationship between the Company and any employee,
independent contractor or consultant of the Company; or (ii) directly or indirectly, either for the Holder or on
behalf of any of the Competitors, solicit the business of any person or entity known to the Holder to be a
customer of the Company, where the Holder, or any person reporting to the Holder, had an ongoing business
relationship or had made substantial efforts with respect to such customer during the Holder’s employment
with, or service to, the Company .
(b) The Holder, by accepting the Award, agrees that the foregoing covenants are reasonable with respect to their
duration and scope. The Holder further acknowledges that the restrictions are reasonable and necessary for the
protection of the legitimate business interests of the Company, that they create no undue hardships, that any
violation of these restrictions would cause substantial injury to the Company, and that such restrictions were a
material inducement to the Company to grant the Award. In the event of any violation or threatened violation
of these restrictions, (i) the Holder shall forfeit all restricted stock units subject to the Award which have not
vested, (ii) the Award shall terminate as of the date of the violation or threatened violation of these restrictions
and (iii) any and all Award Proceeds (as hereinafter defined) shall be immediately due and payable by the
Holder to the Company. For purposes of this Section, “Award Proceeds” shall mean, with respect to any
portion of the Award which becomes vested, the Fair Market Value of a share of Common Stock on the date
such portion of the Award became vested, multiplied by the number of shares of Common Stock that became
vested. The remedy provided by this Section shall be in addition to and not in lieu of any rights or remedies
which the Company may have against the Holder in respect of a breach by the Holder of any duty or obligation
to the Company. The Holder agrees that by accepting the Award the Holder authorizes the Company and its
affiliates to deduct any amount or amounts owed by the Holder pursuant to this Section 6.4 from any amounts
payable by or on behalf of the Company or any affiliate to the Holder, including, without limitation, any
amount payable to the Holder as salary, wages, vacation pay, bonus or the vesting or settlement of any stock-
based award, in each case, subject to applicable law. This right of setoff shall not be an exclusive remedy and
the Company’s or an affiliate’s election not to exercise this right of setoff with respect to any amount payable
to the Holder shall not constitute a waiver of this right of setoff with respect to any other amount payable to the
Holder or any other remedy .
6. 5 . Award Confers No Rights to Continued Employment . In no event shall the granting of the Award or its
acceptance by the Holder, or any provision of this Agreement, give or be deemed to give the Holder any right to
continued employment by the Company or prevent or be deemed to prevent the Company from terminating the Holder’s
employment at any time, with or without Cause .
6. 6 . Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by the Holder or by
the Company forthwith to the Committee for review. The resolution of such a dispute by the Committee shall be final
and binding on all parties .
6. 7 . Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple
assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon the Holder and his or her heirs, executors,
administrators, successors and assigns .
6. 8 . Notices . All notices, requests or other communications provided for in this Agreement shall be made, if to the
Company, to Broadwind Energy, Inc., Attn: Legal Department, 3240 S. Central Avenue, Cicero, Illinois 60804, and if to
the Holder, to the last known mailing address of the Holder contained in the records of the Company. All notices,
requests or other communications provided for in this Agreement shall be made in writing either (a) by personal
delivery, (b) by facsimile or electronic mail with confirmation of receipt, (c) by mailing in the United States mails or (d)
by express courier service. The notice, request or other communication shall be deemed to be received upon personal
delivery, upon confirmation of receipt of facsimile or electronic mail transmission or upon receipt by the party entitled
thereto if by United States mail or express courier service; provided, however, that if a notice, request or other
communication sent to the Company is not received during regular business hours, it shall be deemed to be received on
the next succeeding business day of the Company .
6. 9 . Governing Law . This Agreement, the Award and all determinations made and actions taken pursuant hereto and
thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws .
6. 10 . Entire Agreement . The Award Notice and the Plan are incorporated herein by reference. Capitalized terms not
defined herein shall have the meanings specified in the Plan. This Agreement, the Award Notice and the Plan constitute
the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be
modified if such modification is materially adverse to the Holder’s interest except by means of a writing signed by the
Company and the Holder .
6. 1 1 . Partial Invalidity . The invalidity or unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof and this Agreement shall be construed in all respects as if such invalid or
unenforceable provision was omitted .
6.1 2 . Amendment and Waiver . The provisions of this Agreement may be amended or waived only by the written
agreement of the Company and the Holder, and no course of conduct or failure or delay in enforcing the provisions of
this Agreement shall affect the validity, binding effect or enforceability of this Agreement .
Exhibit 10. 49
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER
This NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER (this “ Amendment ”)
is entered into as of February 23, 2016, among BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD
FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND SERVICES, LLC, a Delaware
limited liability company (“ Broadwind Services ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Broadwind
Towers ” and, together with Parent, Brad Foote and Broadwind Services, each a “ Borrower ” and collectively the “
Borrowers ”), 1309 South Cicero Avenue, LLC, a Delaware limited liability company (“ South Cicero ”), 5100 Neville
Road, LLC, a Delaware limited liability company (“ Neville ” and, together with South Cicero, each a “ Guarantor ” and
collectively the “ Guarantors ”), and ALOSTAR BANK OF COMMERCE, a state banking institution incorporated or
otherwise organized under the laws of the State of Alabama (the “ Lender ”).
W I T N E S S E T H:
WHEREAS, the Borrowers and the Lender are parties to that certain Loan and Security Agreement dated August
23, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”; capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement),
pursuant to which the Lender has agreed to make the Commitments available to the Borrowers from time to time pursuant to
the terms and conditions thereof ;
WHEREAS, the Borrowers have requested that the Lender (a) waive for the nine consecutive calendar month
period ending December 31, 2015, the requirement that the Borrowers achieve EBITDA of $2,400,000 (the “ December
2015 Covenant ”) and (b) agree to amend certain terms and conditions of the Loan Agreement ; and
WHEREAS, subject to the satisfaction of the conditions set forth herein, the Lender is willing to (a) waive the
December 2015 Covenant and (b) amend the Loan Agreement as set forth herein .
NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows :
1. Amendments to the Loan Agreement . Subject to the satisfaction of the conditions to effectiveness set
forth in Section 4 hereof, the Loan Agreement is hereby amended as follows :
the defined term “Inventory Formula Amount” with the following :
1.1. Section 1.1 (Defined Terms) of the Loan Agreement is hereby amended by replacing
““ Inventory Formula Amount ” means, on any date of determination thereof, the lesser of (a) an amount
equal to the percentage set forth in Item 6(b) of the Terms Schedule of the Value or NOLV (as applicable under
Item 6 of the Terms Schedule) of Eligible Inventory on such date and (b) the Accounts Formula Amount on such
date .”
amended and restated in its entirety as follows :
1.2. Item 3 (Additional Specified Availability Reserves) of the Terms Schedule is hereby
“ Additional Specified Availability Reserves :
Dilution Reserve
At the sole discretion of Lender, a reserve in an amount equal to the outstanding principal amount of the
Term Loan”
amended by replacing the amount “$15,000,000” with the amount “$10,000,000”.
1.3. Item 7 (Maximum Revolver Facility Amount) of the Terms Schedule is hereby
1
restated in its entirety as follows :
1.4. Clause (a) of Item 8 (Interest Rates) of the Terms Schedule is hereby amended and
“(a) The Applicable Variable Rate shall be the Daily LIBOR Rate in effect from time to time.
“Daily LIBOR Rate” means, on any day, the greater of (a) the LIBOR Rate as shown in The Wall Street
Journal on such day for United States dollar deposits for the one monthly delivery of funds in amounts
approximately equal to the principal amount of the Loan for which such rate is being determined or, if such day is
not a Business Day, on the immediately preceding Business Day, and (b) 1.00%. If The Wall Street Journal for any
reason ceases to publish a LIBOR Rate, then the Daily LIBOR Rate shall be as published from time to time in any
other publication or reference source designated by Lender in its discretion. The Daily LIBOR Rate is a reference
rate and does not necessarily represent the best or lowest rate charged by Lender .
“August 31, 2016” with the date “February 28, 2017 ”.
1.5. Item 12 (Term) of the Terms Schedule is hereby amended by replacing the date
and restated in its entirety as follows :
1.6. Clause (a) of Item 16 (Financial Covenants) of the Terms Schedule is hereby amended
“(a) Fixed Charge Coverage Ratio . At the end of each fiscal quarter, commencing with the fiscal
quarter ending June 30, 2016, Parent shall have a Fixed Charge Coverage Ratio of not less than 1.2 to 1.0 for (i) the
six consecutive calendar month period ending June 30, 2016, (ii) the nine consecutive calendar month period
ending September 30, 2016 and (iii) the twelve consecutive calendar month period ending December 31, 2016 and
the twelve consecutive calendar month period ending each fiscal quarter end thereafter .”
and restated in its entirety as follows :
1.7. Clause (b) of Item 16 (Financial Covenants) of the Terms Schedule is hereby amended
“(b) Minimum Monthly EBITDA . Parent shall achieve EBITDA of at least (i) $900,000 during the
three consecutive calendar month period ending March 31, 2016, (ii) $3,375,000 during the six consecutive
calendar month period ending June 30, 2016, (iii) $6,100,000 during the nine consecutive calendar month period
ending September 30, 2016 and (iv) $6,700,000 during the twelve consecutive month period ending December 31,
2016 and during each subsequent twelve consecutive calendar month period ending each fiscal quarter end
thereafter .”
and restated in its entirety as follows :
1.8. Clause (c) of Item 16 (Financial Covenants) of the Terms Schedule is hereby amended
“(c) Capital Expenditures . Parent and its Subsidiaries shall not during any Fiscal Year make
Capital Expenditures in an amount exceeding $5,000,000 .”
adding the following new clause (d) at the end thereof :
1.9. Item 16 (Financial Covenants) of the Terms Schedule is hereby further amended by
“(d) Minimum Liquidity . Parent and its Subsidiaries shall have Availability plus cash
maintained in Deposit Accounts that are subject to a Deposit Account Control Agreement greater than or equal to $3,500,000
at all times .”
2. Waiver . Subject to the satisfaction of the conditions to effectiveness set forth in Section 4 hereof,
notwithstanding anything to the contrary contained in the Loan Agreement or the other Loan Documents, the Lender hereby
waives the December 2015 Covenant and such waiver shall be deemed effective as of December 31, 2015 .
3. No Other Amendments . Except as set forth herein, the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the Lender under the Loan Agreement or any of
the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or
2
any of the other Loan Documents. Except for the amendments set forth above, the text of the Loan Agreement and all other
Loan Documents shall remain unchanged and in full force and effect and each Borrower and each Guarantor hereby ratifies
and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any
of the other Loan Documents or a course of dealing with the Lender at variance with the Loan Agreement or the other Loan
Documents such as to require further notice by the Lender to require strict compliance with the terms of the Loan Agreement
and the other Loan Documents in the future, except as expressly set forth herein. Each Borrower and each Guarantor
acknowledges and expressly agrees that the Lender reserves the right to, and does in fact, require strict compliance with all
terms and provisions of the Loan Agreement and the other Loan Documents, as amended herein. No Borrower or Guarantor
has knowledge of any challenge to the Lender’s claims arising under the Loan Documents, or to the effectiveness of the
Loan Documents .
4 . Conditions Precedent to Effectiveness . The Amendment shall be effective as of the date first written above
upon the satisfaction of each of the following conditions precedent in a manner acceptable to the Lender in its sole and
absolute discretion :
4 .1. the Lender shall have received this Amendment, duly executed by each Borrower and each Guarantor, and the
same shall be in full force and effect;
4 .2. the Lender shall have received an amendment fee equal to $100,000; and
4.3. after giving effect to the waiver set forth herein, no Default or Event of Default shall exist under
the Loan Agreement or the other Loan Documents.
5 . Conditions Subsequent . Th e obligation of the Lender to make Loans is subject to the Lender’s receipt,
on or before March 31, 2016, of an updated Inventory appraisal, which such appraisal shall be reasonably satisfactory to the
Lender. The failure by the Borrowers to satisfy such condition shall constitute an Event of Default .
6 . Counterparts . This Amendment may be executed in multiple counterparts, each of which shall be
deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this
Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission
or by electronic mail transmission shall be deemed an original signature hereto .
7 . Reference to and Effect on the Loan Documents . Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Loan Agreement to “this Agreement”, “hereunder”, “hereof” or words of like
import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement”,
“thereunder”, “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as amended hereby .
8 . Entire Agreement . This Amendment and the other Loan Documents constitute the entire agreement and
understanding between the parties hereto with respect to the transactions contemplated hereby and thereby and supersede all
prior negotiations, understandings and agreements between such parties with respect to such transactions .
9 . GOVERNING LAW . THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF NEW YORK .
10 . Loan Document . This Amendment shall be deemed to be a Loan Document for all purposes .
[remainder of page intentionally left blank]
3
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year
first written above .
BORROWERS:
BROADWIND ENERGY, INC.
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Interim President and C E O
BRAD FOOTE GEAR WORKS, INC.
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Authorized Signatory
BROADWIND SERVICES, LLC
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Authorized Signatory
BROADWIND TOWERS, INC.
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Authorized Signatory
GUARANTORS:
1309 SOUTH CICERO AVENUE, LLC
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Authorized Signatory
5100 NEVILLE ROAD, LLC
By:
Name:
Title:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Authorized Signatory
4
LENDER:
ALOSTAR BANK OF COMMERCE
By:
Name:
Title:
/s/ Megan E. Enlow
Megan E. Enlow
Director
5
EXHIBIT 21.1
Subsidiaries
Brad Foote Gear Works, Inc.
Broadwind Services, LLC
Broadwind Towers, Inc.
Subsidiaries of the Registrant
Illinois
Delaware
Wisconsin
State of Incorporation/Formation
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
The Board of Directors
Broadwind Energy, Inc:
We consent to the incorporation by reference in the registration statements (Nos. 333 - 176066 and 333 - 159487) on Form S - 3
and (Nos. 333 - 160039, 333 - 181168, 333 - 181170, 333 - 181901, 333 - 190311, and 333 - 203736) on Form S - 8 of
Broadwind Energy, Inc. of our report dated February 26, 2016 with respect to the consolidated balance sheet of Broadwind
Energy, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the years in the two - year period ended December 31, 2015, which report appears in the December 31,
2015 annual report on Form 10 - K of Broadwind Energy , Inc .
/s/ KPMG LLP
Chicago, Illinois
February 26, 2016
EXHIBIT 31.1
I, Stephanie K. Kushner , certify that:
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10 ‑K of Broadwind Energy, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a ‑15(e) and 15d ‑15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a ‑15(f) and 15d ‑(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report, based on such evaluation; and
Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the
registrant ’ s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant ’ s
internal control over financial reporting; and
5.
The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s Board of Directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant ’ s internal control over financial reporting.
Date: February 26, 2016
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Interim President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, Stephanie K. Kushner, certify that:
CERTIFICATION OF CHIEF FINANCIAL OFFICER
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10 ‑K of Broadwind Energy, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a ‑15(e) and 15d ‑15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a ‑15(f) and 15d ‑(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such
evaluation; and
Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’
s fourth fiscal q uarter that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control
over financial reporting; and
5.
The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s Board of Directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s
internal control over financial reporting.
Date: February 26, 201 6
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES ‑‑OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10 ‑K of Broadwind Energy, Inc. (the “ Company ” ) for the year ended
December 31, 201 5 , as filed with the Securities and Exchange Commission (the “ Commission ” ) on the date hereof (the “
Report ” ), I, Stephanie K. Kushner , Interim President and Chief Executive Officer of the Company, certify, pursuant to
Section 906 of the Sarbanes ‑ Oxley Act of 2002 ( “ Section 906 ” ), that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the “ Exchange Act ” ); and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of, and for, the periods presented in the Report.
February 26, 201 6
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Interim President and Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for
purposes of Section 18 of the Exchange Act.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES ‑‑OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10 ‑K of Broadwind Energy, Inc. (the “ Company ” ) for the year ended
December 31, 201 5 , as filed with the Securities and Exchange Commission (the “ Commission ” ) on the date hereof (the “
Report ” ), I, Stephanie K. Kushner, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to
Section 906 of the Sarbanes ‑Oxley Act of 2002 ( “ Section 906 ” ), that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the “ Exchange Act ” ); and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of, and for, the periods presented in the Report.
February 26, 201 6
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Chief Financial Officer
(Principal Financial Officer)
This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for
purposes of Section 18 of the Exchange Act.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon request.