BROADWIND, INC. - FORM 10-Q - October 30, 2014

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EX-31.1 - EX-31.1 - BROADWIND, INC.	a14-19899_1ex31d1.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

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

For the transition period from to

Commission file number 001-34278

BROADWIND ENERGY, INC.

(Exact name of registrant as specified in its charter)

Delaware		88-0409160
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3240 S. Central Avenue, Cicero, IL 60804

(Address of principal executive offices)

(708) 780-4800

(Registrant’s telephone number, including area code)

Not applicable

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

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

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

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

(Do not check if a smaller reporting company)

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

Number of shares of registrant’s common stock, par value $0.001, outstanding as of October 22, 2014: 14,821,468.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

INDEX

		Page No.

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statement	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
Signatures		32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	17,026		$	24,936
Short-term investments	10,833			1,143
Restricted cash	83			83
Accounts receivable, net of allowance for doubtful accounts of $114 and $17 as of September 30, 2014 and December 31, 2013, respectively	24,316			18,735
Inventories, net	32,833			37,143
Prepaid expenses and other current assets	2,138			2,325
Assets held for sale	1,182			1,970
Total current assets	88,411			86,335
Property and equipment, net	64,300			69,077
Intangible assets, net	5,570			5,903
Other assets	515			2,379
TOTAL ASSETS	$	158,796		$	163,694

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	149		$	201
Current portions of capital lease obligations	700			933
Accounts payable	25,036			27,537
Accrued liabilities	10,061			8,115
Customer deposits	20,573			22,993
Liabilities held for sale	361			749
Total current liabilities	56,880			60,528

LONG-TERM LIABILITIES:
Long-term debt, net of current maturities	2,608			2,755
Long-term capital lease obligations, net of current portions	731			1,193
Other	3,556			3,888
Total long-term liabilities	6,895			7,836

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value; 30,000,000 shares authorized; 14,821,468 and 14,627,990 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively	15			15
Additional paid-in capital	376,813			376,125
Accumulated deficit	(281,807		)	(280,810		)
Total stockholders’ equity	95,021			95,330
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	158,796		$	163,694

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013

Revenues	$	60,289		$	60,862		$	187,470		$	159,313
Cost of sales	56,267			55,147			168,936			146,366
Restructuring	164			1,097			952			2,758
Gross profit	3,858			4,618			17,582			10,189

OPERATING EXPENSES:
Selling, general and administrative	4,629			5,216			16,166			15,721
Intangible amortization	111			111			333			1,441
Regulatory settlement	816			1,500			1,566			1,500
Restructuring	113			79			222			787
Total operating expenses	5,669			6,906			18,287			19,449
Operating loss	(1,811		)	(2,288		)	(705		)	(9,260		)

OTHER (EXPENSE) INCOME, net:
Interest expense, net	(177		)	(177		)	(521		)	(795		)
Other, net	29			(4		)	149			511
Gain (loss) on sale of assets and restructuring	119			(1		)	119			2,965
Total other (expense) income, net	(29		)	(182		)	(253		)	2,681

Net loss from continuing operations before provision for income taxes	(1,840		)	(2,470		)	(958		)	(6,579		)
Provision (benefit) for income taxes	(26		)	28			39			64
LOSS FROM CONTINUING OPERATIONS	(1,814		)	(2,498		)	(997		)	(6,643		)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX	—			100			—			(110		)
NET LOSS	$	(1,814	)	$	(2,398	)	$	(997	)	$	(6,753	)

NET LOSS PER COMMON SHARE - BASIC AND DILUTED:
Loss from continuing operations	$	(0.12	)	$	(0.18	)	$	(0.07	)	$	(0.46	)
Loss from discontinued operations	—			0.01			—			(0.01		)
Net loss	$	(0.12	)	$	(0.17	)	$	(0.07	)	$	(0.47	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED	14,792			14,525			14,728			14,405

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)

	Common Stock
	Shares Issued and Outstanding	Issued Amount		Additional Paid-in Capital		Accumulated Deficit			Total
BALANCE, December 31, 2012	14,197,792	$	14	$	373,605	$	(270,311	)	$	103,308

Stock issued for restricted stock	258,284	1		—		—			1
Stock issued under stock option plans	5,400	—		18		—			18
Stock issued under defined contribution 401(k) retirement savings plan	166,514	—		681		—			681
Share-based compensation	—	—		1,821		—			1,821
Net loss	—	—		—		(10,499		)	(10,499		)
BALANCE, December 31, 2013	14,627,990	$	15	$	376,125	$	(280,810	)	$	95,330

Stock issued for restricted stock	173,369	—		—		—			—
Stock issued under stock option plans	2,863	—		9		—			9
Stock issued under defined contribution 401(k) retirement savings plan	17,246	—		163		—			163
Share-based compensation	—	—		516		—			516
Net loss	—	—		—		(997		)	(997		)
BALANCE, September 30, 2014	14,821,468	$	15	$	376,813	$	(281,807	)	$	95,021

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(997	)	$	(6,753	)

Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense	9,576			11,412
Impairment charges	—			288
Stock-based compensation	515			1,438
Allowance for doubtful accounts	98			(274		)
Common stock issued under defined contribution 401(k) plan	163			499
Loss (gain) on disposal of assets	(99		)	(3,576		)
Changes in operating assets and liabilities:
Accounts receivable	(5,659		)	(1,463		)
Inventories	4,310			(10,868		)
Prepaid expenses and other current assets	1,956			1,228
Accounts payable	(1,981		)	11,399
Accrued liabilities	1,945			1,123
Customer deposits	(2,367		)	17,419
Other non-current assets and liabilities	(371		)	(365		)
Net cash provided by operating activities	7,089			21,507

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of logistics business and related note receivable	—			250
Purchases of available for sale securities	(13,340		)	(867		)
Sales of available for sale securities	994			—
Maturities of available for sale securities	2,655			—
Purchases of property and equipment	(5,560		)	(4,357		)
Proceeds from disposals of property and equipment	1,045			12,533
(Increase) decrease in restricted cash	—			(1		)
Net cash (used) provided by investing activities	(14,206		)	7,558

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock	9			—
Payments on lines of credit and notes payable	(59		)	(80,233		)
Proceeds from lines of credit and notes payable	—			75,208
Principal payments on capital leases	(743		)	(1,730		)
Net cash used in financing activities	(793		)	(6,755		)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(7,910		)	22,310
CASH AND CASH EQUIVALENTS, beginning of the period	24,936			516
CASH AND CASH EQUIVALENTS, end of the period	$	17,026		$	22,826

Supplemental cash flow information:
Interest paid	$	434		$	672
Income taxes paid	$	32		$	19
Non-cash investing and financing activities:
Issuance of restricted stock grants	$	338		$	1,025

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands, except share and per share data)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2014. The December 31, 2013 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. This financial information should be read in conjunction with the condensed consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind Energy, Inc. and its wholly-owned subsidiaries Broadwind Towers, Inc. (“Broadwind Towers”), Brad Foote Gear Works, Inc. (“Brad Foote”) and Broadwind Services, LLC (“Broadwind Services”) (collectively, “Subsidiaries”). All intercompany transactions and balances have been eliminated.

There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2014 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Company Description

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

Broadwind provides technologically advanced high-value products and services to energy, mining and infrastructure sector customers, primarily in the U.S. The Company’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve its capacity utilization and reduce its exposure to uncertainty related to favorable governmental policies currently supporting the U.S. wind energy industry. For the first nine months of 2014, 76% of the Company’s revenue was derived from sales associated with new wind turbine installations.

The Company’s product and service portfolio provides its wind energy customers, including wind turbine manufacturers, wind farm developers and wind farm operators, with access to a broad array of component and service offerings. 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, mining and other industrial applications.

Liquidity

As of September 30, 2014, cash and cash equivalents and short-term investments totaled $27,859, an increase of $1,780 from December 31, 2013. Total debt and capital lease obligations at September 30, 2014 totaled $4,188 and the Company is obligated to make principal payments under the outstanding debt totaling $149 over the next twelve months. The Company also has access to a $20 million credit facility established in 2011 (the “Credit Facility”) with AloStar Bank of Commerce (“AloStar”) which is currently undrawn. 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. At September 30, 2014, the Credit Facility was undrawn and the Company was in compliance with all applicable covenants.

Since its inception, the Company has continuously incurred 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 advances and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash

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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, will 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.

Please refer to Note 17, “Restructuring” of these condensed consolidated financial statements for a discussion of the restructuring plan which the Company initiated in the third quarter of 2011. To date, the Company has incurred $13,200 of net costs in conjunction with its restructuring plan. Including costs incurred to date, the Company expects that a total of approximately $13,600 of net costs will be incurred to implement this restructuring plan. Since the restructuring activities are substantially complete, the Company believes this no longer represents a material use of financial resources.

NOTE 2 — EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Basic earnings per share calculation:

Net loss	$	(1,814	)	$	(2,398	)	$	(997	)	$	(6,753	)

Weighted average number of common shares outstanding	14,791,811			14,524,522			14,728,379			14,405,498
Basic net loss per share	$	(0.12	)	$	(0.17	)	$	(0.07	)	$	(0.47	)

Diluted earnings per share calculation:

Net loss	$	(1,814	)	$	(2,398	)	$	(997	)	$	(6,753	)

Weighted average number of common shares outstanding	14,791,811			14,524,522			14,728,379			14,405,498
Common stock equivalents:
Stock options and unvested restricted stock units	—			—			—			—
Weighted average number of common shares outstanding	14,791,811			14,524,522			14,728,379			14,405,498
Diluted net loss per share	$	(0.12	)	$	(0.17	)	$	(0.07	)	$	(0.47	)

NOTE 3 — DISCONTINUED OPERATIONS

In December 2010, the Company’s Board of Directors (the “Board”) approved a plan to divest the Company’s wholly-owned subsidiary Badger Transport, Inc. (“Badger”), which formerly comprised the Company’s Logistics segment. In March 2011, the Company completed the sale of Badger to BTI Logistics, LLC. As a component of the proceeds from the sale, the Company received a $1,500 secured promissory note payable from the purchaser. There is a balance of $860 outstanding on the note receivable, all of which is considered past due. As a result of the uncertainty related to any future expected payments from the purchaser, the note is fully reserved for at September 30, 2014.

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NOTE 4 — 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 condensed consolidated statements of operations. As of September 30, 2014 and December 31, 2013, cash and cash equivalents totaled $17,026 and $24,936, respectively, and short-term investments totaled $10,833 and $1,143, respectively. The components of cash and cash equivalents and short-term investments as of September 30, 2014 and December 31, 2013 are summarized as follows:

	September 30,		December 31,
	2014		2013
Cash and cash equivalents:
Cash	$	9,544	$	12,021
Money market funds	4,570		7,423
Municipal bonds	2,912		5,492
Total cash and cash equivalents	17,026		24,936

Short-term investments (available-for-sale):
Municipal bonds	10,833		1,143

Total cash and cash equivalents and short-term investments	$	27,859	$	26,079

NOTE 5 — INVENTORIES

The components of inventories as of September 30, 2014 and December 31, 2013 are summarized as follows:

	September 30,			December 31,
	2014			2013

Raw materials	$	17,324		$	21,859
Work-in-process	10,108			11,212
Finished goods	7,973			6,381
	35,405			39,452
Less: Reserve for excess and obsolete inventory	(2,572		)	(2,309		)
Net inventories	$	32,833		$	37,143

NOTE 6 — INTANGIBLE ASSETS

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed during 2007. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 10 to 20 years. The Company tests intangible assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. During the third quarter of 2014, the Company identified triggering events associated with Brad Foote’s current period operating loss combined with its history of continued operating losses. As a result, the Company evaluated the recoverability of certain of its identifiable intangible assets. Based upon the Company’s assessment, the recoverable amount was in excess of the carrying amount of the intangible assets, and no impairment to these assets was indicated as of September 30, 2014.

As of September 30, 2014 and December 31, 2013, the cost basis, accumulated amortization and net book value of intangible assets were as follows:

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	September 30, 2014								December 31, 2013
								Weighted								Weighted
						Net		Average						Net		Average
	Cost		Accumulated			Book		Amortization	Cost		Accumulated			Book		Amortization
	Basis		Amortization			Value		Period	Basis		Amortization			Value		Period
Intangible assets:
Customer relationships	$	3,979	$	(3,628	)	$	351	7.2	$	3,979	$	(3,595	)	$	384	7.2
Trade names	7,999		(2,780		)	5,219		20.0	7,999		(2,480		)	5,519		20.0

Intangible assets	$	11,978	$	(6,408	)	$	5,570	15.8	$	11,978	$	(6,075	)	$	5,903	15.8

As of September 30, 2014, estimated future amortization expense is as follows:

2014	$	111
2015	444
2016	444
2017	444
2018	444
2019 and thereafter	3,683
Total	$	5,570

NOTE 7 — ACCRUED LIABILITIES

Accrued liabilities as of September 30, 2014 and December 31, 2013 consisted of the following:

	September 30,		December 31,
	2014		2013

Accrued payroll and benefits	$	4,150	$	5,144
Accrued property taxes	463		143
Income taxes payable	500		493
Accrued professional fees	129		36
Accrued warranty liability	773		457
Accrued regulatory settlement	2,066		—
Accrued environmental reserve	536		500
Accrued self-insurance reserve	1,048		803
Accrued other	396		539
Total accrued liabilities	$	10,061	$	8,115

The accrued regulatory settlement includes $500 for the current portion of the environmental settlement recorded in 2013 and $1,566 related to the estimated United States Securities and Exchange Commission (“SEC”) inquiry settlement recorded in the current-year period - see Note 12, “Legal Proceedings” of these condensed consolidated financial statements for a discussion of the inquiry. The increase in the accrued self-insurance reserve is due to the Company becoming self-insured for worker’s compensation effective January 1, 2014.

NOTE 8 — DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of September 30, 2014 and December 31, 2013 consisted of the following:

	September 30,			December 31,
	2014			2013

Term loans and notes payable	$	2,757		$	2,956
Less: Current portion	(149		)	(201		)
Long-term debt, net of current maturities	$	2,608		$	2,755

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Credit Facilities

AloStar Credit Facility

The Credit Facility is a secured three-year-asset based revolving credit facility, pursuant to which AloStar will advance funds when requested against a borrowing base consisting of approximately 85% of the face value of eligible accounts receivable 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 plus a margin of 4.25%, with a minimum interest rate of 5.25% per annum. 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. The Loan Agreement terminates on August 23, 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 and minimum monthly earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (“Adjusted EBITDA”), along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications.

The obligations under the Loan Agreement are secured by, subject to certain exclusions, (i) a first priority security interest in all of the accounts receivable, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working capital assets and stock or other equity interests in the Subsidiaries, and (ii) a first priority security interest in all of Brad Foote’s equipment.

As of September 30, 2014, there was no outstanding indebtedness under the Credit Facility, the Company had the ability to borrow up to $14,384 thereunder and the per annum interest rate would have been 5.25%. The Company was in compliance with all applicable covenants under the Loan Agreement as of September 30, 2014.

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 16, “New Markets Tax Credit Transaction” of these condensed consolidated financial statements. Additionally, the Company has approximately $157 of other term loans outstanding.

NOTE 9 — 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, we note that 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 the Clintonville, Wisconsin facility (the “Clintonville Facility”).

The following tables represent the fair values of the Company’s financial assets as of September 30, 2014 and December 31, 2013:

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	September 30, 2014
	Level 1		Level 2		Level 3		Total
Assets measured on a recurring basis:
Municipal bonds and money market funds	$	—	$	18,315	$	—	$	18,315
Assets measured on a nonrecurring basis:
Gearing equipment	—		—		361		361
Clintonville, WI facility	—		—		821		821
Gearing Cicero Ave. facility	—		—		560		560
Total assets at fair value	$	—	$	18,315	$	1,742	$	20,057

	December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets measured on a recurring basis:
Municipal bonds and money market funds	$	—	$	14,058	$	—	$	14,058
Assets measured on a nonrecurring basis:
Gearing equipment	—		—		1,149		1,149
Clintonville, WI facility	—		—		821		821
Gearing Cicero Ave. facility	—		—		560		560
Total assets at fair value	$	—	$	14,058	$	2,530	$	16,588

Fair value of financial instruments

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 a discounted cash flow analysis and a market-based approach based on the Company’s market capitalization, and other subjective assumptions. To the extent projections 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 within Brad Foote and Broadwind Services in the third quarter of 2014 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 September 30, 2014 assessment, the recoverable amount of undiscounted cash flows based upon the Company’s most recent projections substantially exceeded the carrying amount of invested capital for the Gearing and Services segments, respectively, and no impairment to these assets was indicated.

NOTE 10 — INCOME TAXES

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of September 30, 2014, the Company had no net deferred income taxes due to the full recorded valuation allowance. During the nine months ended September 30, 2014, the Company recorded a provision for income taxes of $39 compared to a provision for income taxes of $64 during the nine months ended September 30, 2013.

The Company files income tax returns in U.S. federal and state jurisdictions. As of September 30, 2014, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. As of December 31, 2013, the Company had net operating loss (“NOL”) carryforwards of $162,971expiring in various years through 2033.

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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 that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards 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 be if the Company were able to use NOL carryforwards and built-in losses without such limitation, which could result in lower profits and the loss of benefits from these attributes.

The Company announced on February 13, 2013, that the Board had 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 for a three-year period. 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. In connection with the adoption of 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 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 preferred share purchase rights unless they acquire additional shares. The Rights Plan was subsequently approved by the Company’s stockholders at the Company’s 2013 Annual Meeting of Stockholders.

As of September 30, 2014, the Company had $286 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 $32 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 $240 as of September 30, 2014. As of December 31, 2013, the Company had unrecognized tax benefits of $495, of which $209 represented accrued interest and penalties.

NOTE 11 — SHARE-BASED COMPENSATION

Overview of Share-Based Compensation Plans

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 September 30, 2014, the Company had reserved 58,283 shares for issuance upon the exercise of stock options outstanding and 47,607 shares for issuance upon the vesting of restricted stock unit (“RSU”) awards outstanding. As of September 30, 2014, 221,495 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;” together with the 2007 EIP, the “Equity Incentive Plans”), which was approved by the Board in March 2012 and by the Company’s stockholders in May 2012. The purposes of the 2012 EIP are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2012 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 2012 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.

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The 2012 EIP reserves 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 degree. As of September 30, 2014, the Company had reserved 100,935 shares for issuance upon the exercise of stock options outstanding and 504,161 shares for issuance upon the vesting of RSU awards outstanding. As of September 30, 2014, 309,514 shares of common stock reserved for stock options and RSU awards under the 2012 EIP have 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. 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.

The following table summarizes stock option activity during the nine months ended September 30, 2014 under the Equity Incentive Plans, as follows:

	Options		Weighted Average Exercise Price
Outstanding as of December 31, 2013	207,775		$	26.22
Granted	—		$	—
Exercised	(2,863	)	$	3.39
Forfeited	(9,624	)	$	5.12
Expired	(36,070	)	$	74.68
Outstanding as of September 30, 2014	159,218		$	16.93

Exercisable as of September 30, 2014	99,083		$	23.92

The following table summarizes RSU activity during the nine months ended September 30, 2014 under the Equity Incentive Plans, as follows:

	Number of RSU’s		Weighted Average Grant-Date Fair Value Per RSU
Outstanding as of December 31, 2013	670,338		$	4.47
Granted	196,442		$	9.17
Vested	(248,565	)	$	4.64
Forfeited	(66,447	)	$	5.32
Outstanding as of September 30, 2014	551,768		$	5.96

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 nine months ended September 30, 2014.

The Company utilized a forfeiture rate of 25% during the nine months ended September 30, 2014 and 2013 for estimating the forfeitures of stock compensation granted.

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2014 and 2013, as follows:

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	Nine Months Ended September 30,
	2014		2013
Share-based compensation expense:
Cost of Sales	$	98	$	136
Selling, general and administrative	418		1,302
Income tax benefit (1)	—		—
Net effect of share-based compensation expense on net loss	$	516	$	1,438

Reduction in earnings per share:
Basic and diluted earnings per share (2)	$	0.03	$	0.10

(1) Income tax benefit is not illustrated because the Company is currently in a full tax valuation allowance position and an actual income tax benefit was not realized for the nine months ended September 30, 2014 and 2013. The result of the loss situation creates a timing difference, resulting in a deferred tax asset, which is fully reserved for in the Company’s valuation allowance.

(2) Diluted earnings per share for the nine months ended September 30, 2014 and 2013 does not include common stock equivalents due to their anti-dilutive nature as a result of the Company’s net losses for these respective periods. Accordingly, basic earnings per share and diluted earnings per share are identical for all periods presented.

As of September 30, 2014, 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 $2,380 will be recognized through 2017. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.

NOTE 12 — LEGAL PROCEEDINGS

Shareholder Lawsuits

Between February 15, 2011 and March 30, 2011, three putative shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Illinois (the “USDC”) against certain of the Company’s current and former officers and directors, and certain Tontine entities, seeking to challenge alleged breaches of fiduciary duty, waste of corporate assets and unjust enrichment, including in connection with the January 2010 secondary public offering of the Company’s common stock (the “2010 Stock Offering”). One of the lawsuits also alleged that certain directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the Company’s Proxy Statement for its 2010 Annual Meeting of Stockholders. Two of the matters pending in the USDC were subsequently consolidated, and on May 15, 2012, the USDC granted the defendants’ motion to dismiss the consolidated cases and also entered an order dismissing the third case. On January 17, 2014, the Company and the plaintiffs from the consolidated derivative lawsuit filed a joint motion to reopen the derivative action and preliminarily approve a derivative settlement. The USDC subsequently reopened the derivative action and granted preliminary approval of the settlement on February 3, 2014. The settlement resolves outstanding shareholder derivative claims, including those raised in certain shareholder demand letters received by the Board. The terms of the settlement include the adoption by the Company of certain corporate governance reforms, along with other remedial measures. The settlement provides for the Company’s insurance carrier and/or the Company to pay plaintiffs’ counsel’s attorneys’ fees and expenses in the amount of $600. The USDC granted final approval of the settlement on April 3, 2014.

SEC Inquiry

In August 2011, the Company received a subpoena from the SEC seeking documents related to certain accounting practices at Brad Foote. The subpoena was issued following an informal inquiry that the Company received from the SEC in November 2010, which likely arose out of a whistleblower complaint that the SEC received related to revenue recognition, cost accounting and intangible and fixed asset valuations at Brad Foote. The Company produced documents responsive to the SEC’s subpoena. Following the issuance of subpoenas for testimony, the SEC deposed certain current and former Company employees.

On May 8, 2014, the Company, its Chief Financial Officer (“CFO”) and its former Chief Executive Officer and Director J. Cameron Drecoll (“Drecoll”) received Wells notices (the “Notices”) from the SEC’s Division of Enforcement in connection with its ongoing investigation of the Company. A Wells notice is not a formal allegation or a finding of wrongdoing, but is a preliminary determination by the SEC Enforcement Staff (the “Staff”) that the Staff may recommend to the SEC that a civil enforcement action or administrative proceeding be brought against the recipient. The Notices indicated that the Staff had made a preliminary determination

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to recommend that the SEC file an enforcement action alleging violations of the Securities Act of 1933, the Exchange Act, the Sarbanes-Oxley Act and certain SEC rules. The Company understands that the Notices to the CFO and Drecoll related only to an intangible valuation issue relating to events in 2009 and the 2010 Stock Offering, and the Notice to the Company related to that intangible valuation issue and certain revenue recognition issues relating to events in 2009. Under SEC procedures, a recipient of a Wells notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. On June 16, 2014, the Company submitted to the Staff a Wells submission to explain its views concerning such matters.

The Company has reached a settlement in principle with the Staff, subject to the SEC’s final approval, but there can be no assurance that the settlement will be approved or regarding the final amount of any such settlement. The Company has recorded a $816 charge in the third quarter of 2014, in addition to the $750 charge recorded in the second quarter of 2014, as an estimate of the amount required to settle the matter. Publicity surrounding the foregoing could have an adverse impact on the Company’s reputation, business, financial condition, results of operations or cash flows.

Environmental

On February 15, 2011, pursuant to a search warrant, officials from the United States Environmental Protection Agency (“USEPA”) entered and conducted a search of Brad Foote’s facility at 1309 Cicero Avenue in Cicero, Illinois (the “Cicero Avenue Facility”) in connection with the alleged improper disposal of industrial wastewater to the sewer. On September 24, 2013, the United States Attorney’s Office, Northern District of Illinois (“USAO”) commenced a criminal action in the USDC based on this investigation. Subsequently, Brad Foote entered into a plea agreement with the USAO (the “Plea Agreement”) with regard to this criminal action, pursuant to which Brad Foote agreed to plead guilty to one count of knowingly violating the Clean Water Act, Title 33, United States Code, Section 1319(c)(2)(A) and pay a $1,500 fine (payable in three annual installments of $500 within three years of the date of sentencing), subject to the USDC’s approval of the Plea Agreement. Brad Foote pled guilty pursuant to the Plea Agreement on November 13, 2013, and the USDC approved the Plea Agreement on February 19, 2014. By correspondence dated April 17, 2014, the USEPA advised that, due to the admitted violation of the Clean Water Act by Brad Foote, the Cicero Avenue Facility is statutorily debarred from receiving federal contracts or benefits if any of the work will be performed at the place where the offense occurred. Brad Foote is currently seeking to terminate the debarment. The action by the USEPA is expected to have minimal impact on the Company since the Cicero Avenue Facility is being closed and is scheduled to be sold as part of the Company’s restructuring program.

Other

The Company is also a party to additional claims and legal proceedings arising in the ordinary course of business, none of which is deemed to be individually significant at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial position or liquidity. It is possible that if one or more of the matters described above were decided against the Company, the effects could be material to 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 cash flows in the periods the Company would be required to pay such liability.

NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable to the Company, the Company has not identified any new standards that it believes merit further discussion, except as discussed below. The Company is currently evaluating the impact of the new standards on its condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which amends the guidance in former ASC 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 pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt the provisions of ASU 2014-09 for the fiscal year beginning January 1, 2017, and is currently evaluating the impact on its condensed consolidated financial statements.

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NOTE 14 — SEGMENT REPORTING

The Company is organized into reporting segments based on the nature of the products and services 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. The Company’s segments and their product and service 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 two megawatt (“MW”) and larger 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 1,200 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 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.

Services

The Company offers a comprehensive range of services, primarily to wind farm developers and operators. The Company specializes in non-routine maintenance services for both kilowatt and megawatt turbines. The Company also offers comprehensive field services to the wind energy industry. The Company is increasingly focusing its efforts on the identification and/or development of product and service offerings which will improve the reliability and efficiency of wind turbines, and therefore enhance the economic benefits to its customers. The Company provides wind services across the U.S., with primary service locations in South Dakota and Texas. The Company operates drivetrain service centers in these two locations, focused on servicing the growing installed base of MW wind turbines as they come off warranty and, to a limited extent, industrial gearboxes requiring precision repair and testing.

Corporate and Eliminations

“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.

Summary financial information by reportable segment for the three and nine months ended September 30, 2014 and 2013 is as follows:

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For the Three Months Ended September 30, 2014:	Towers and Weldments		Gearing			Services			Corporate			Eliminations			Consolidated

Revenues from external customers	$	45,027	$	10,267		$	4,995		$	—		$	—		$	60,289
Intersegment revenues	72		67			31			—			(170		)	—
Operating profit (loss)	3,351		(2,294		)	(732		)	(2,136		)	—			(1,811		)
Depreciation and amortization	1,061		1,906			312			33			—			3,312
Capital expenditures	552		358			50			57			—			1,017

For the Three Months Ended September 30, 2013:	Towers and Weldments		Gearing			Services			Corporate			Eliminations			Consolidated

Revenues from external customers	$	47,020	$	10,138		$	3,704		$	—		$	—		$	60,862
Intersegment revenues	64		251			—			—			(315		)	—
Operating profit (loss)	6,561		(5,375		)	(1,276		)	(2,220		)	22			(2,288		)
Depreciation and amortization	941		2,014			409			15			—			3,379
Capital expenditures	750		849			7			22			—			1,628

For the Nine Months Ended September 30, 2014:	Towers and Weldments		Gearing			Services			Corporate			Eliminations			Consolidated

Revenues from external customers	$	145,955	$	30,681		$	10,834		$	—		$	—		$	187,470
Intersegment revenues (1)	329		851			111			—			(1,291		)	—
Operating profit (loss)	17,523		(7,060		)	(3,390		)	(7,774		)	(4		)	(705		)
Depreciation and amortization	3,052		5,512			932			80			—			9,576
Capital expenditures	3,664		1,334			175			387			—			5,560

For the Nine Months Ended September 30, 2013:	Towers and Weldments		Gearing			Services			Corporate			Eliminations			Consolidated

Revenues from external customers	$	115,977	$	28,098		$	15,238		$	—		$	—		$	159,313
Intersegment revenues (1)	67		3,456			15			—			(3,538		)	—
Operating profit (loss)	13,779		(12,326		)	(3,239		)	(7,455		)	(19		)	(9,260		)
Depreciation and amortization	2,841		7,469			1,064			38			—			11,412
Capital expenditures	1,235		2,504			240			378			—			4,357

	Total Assets as of
	September 30,			December 31,
	2014			2013
Segments:
Towers and Weldments	$	49,795		$	51,934
Gearing	55,961			66,208
Services	16,100			14,800
Assets held for sale	1,182			1,970
Corporate	296,809			300,835
Eliminations	(261,051		)	(272,053		)
	$	158,796		$	163,694

(1) Intersegment revenues primarily consist of sales from Gearing to Services. Sales from Gearing to Services totaled $851 and $3,456 for the nine months ended September 30, 2014 and 2013, respectively.

NOTE 15 — COMMITMENTS AND CONTINGENCIES

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

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users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites. Refer to Note 12, “Legal Proceedings” of these consolidated financial statements for further discussion of environmental compliance and remediation liabilities.

In connection with the Company’s ongoing restructuring initiatives, during the third quarter of 2012, the Company identified a liability associated with the planned sale of 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 has 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 on the proposed site remediation plan. The Company is developing a response to those comments. The Company will continue to reevaluate its reserve balance associated with this matter as it gathers additional information. As of September 30, 2014, the accrual balance associated with this matter totaled $500.

Warranty Liability

The Company provides warranty terms that range from one to five years for various products and services supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable recovery from third parties for amounts paid to customers under warranty provisions. As of September 30, 2014 and 2013, estimated product warranty liability was $773 and $675, respectively, and is recorded within accrued liabilities in the Company’s condensed consolidated balance sheets.

The changes in the carrying amount of the Company’s total product warranty liability for the nine months ended September 30, 2014 and 2013 were as follows:

	For the Nine Months Ended September 30,
	2014			2013

Balance, beginning of period	$	457		$	707
Warranty expense	352			(25		)
Warranty claims	(36		)	(7		)
Balance, end of period	$	773		$	675

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to accounts receivable. 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 collectability of its accounts receivable. These factors include individual customer circumstances, history with the Company, the length of the time period during which the account receivable has been past due and other relevant criteria.

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 collectability of its accounts receivable, as noted above, or modifications to its credit standards, collection practices and other related policies may impact the Company’s allowance for doubtful accounts and its financial results. The activity in the accounts receivable allowance liability for the nine months ended September 30, 2014 and 2013 consisted of the following:

	For the Nine Months Ended September 30,
	2014			2013

Balance at beginning of period	$	17		$	453
Bad debt expense	110			(38		)
Write-offs	(5		)	(236		)
Other adjustments	(8		)	—
Balance at end of period	$	114		$	179

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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.

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/or dependent on actual losses sustained by the customer. The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations. There was no reserve for liquidated damages as of September 30, 2014.

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 September 30, 2014, the Company had $1,048 accrued for self-insured workers’ compensation.

Other

As of December 31, 2013, approximately 18% of the Company’s employees were covered by two collective bargaining agreements with local unions in Cicero, Illinois and Neville Island, Pennsylvania. The collective bargaining agreement with the Cicero union is expected to remain in effect through February 2018. The collective bargaining agreement with the Neville Island union is expected to remain in effect through October 2017.

See Note 16, “New Markets Tax Credit Transaction” of these consolidated financial statements related to a strategic financing transaction (the “NMTC Transaction”). The NMTC Transaction relates to the Company’s Abilene, Texas drivetrain service center facility (the “Gearbox Facility”), which is focused on servicing the growing installed base of MW wind turbines as they come off warranty and, to a limited extent, industrial gearboxes requiring precision repair and testing. Pursuant to the NMTC Transaction, the gross loan and investment in the 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 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.

NOTE 16 — 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 Broadwind Services 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 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 Gearbox Facility assets and operating costs, as permitted under the NMTC program.

The Gearbox Facility must operate and be in compliance with various regulations and restrictions through September 2018, the end of the seven year period, 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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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 September 30, 2014. 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 variable interest entities (“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 condensed consolidated balance sheet as of September 30, 2014. Incremental costs to maintain the transaction structure during the compliance period will be recognized as they are incurred.

NOTE 17 — RESTRUCTURING

The Company’s total net restructuring charges incurred to date are detailed below:

	2011		2012		2013			Q1 ’14		Q2 ’14		Q3 ’14		Total
	Actual		Actual		Actual			Actual		Actual		Actual		Incurred
Restructuring charges:
Capital expenditures	$	5	$	2,596	$	2,352		$	441	$	96	$	127	$	5,617
Gain on sale of Brandon, SD Facility	—		—		(3,585		)	—		—		—		(3,585		)
Accelerated depreciation	—		819		898			—		—		—		1,717
Severance	430		—		435			—		—		—		865
Impairment charges	—		—		2,365			—		—		—		2,365
Moving and other exit-related costs	439		1,677		3,085			329		568		158		6,256
Total	$	874	$	5,092	$	5,550		$	770	$	664	$	285	$	13,235

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During the third quarter of 2011, the Company conducted a review of its business strategies and product plans based on the outlook for the economy at large, the forecast for the industries it serves, and its business environment. The Company concluded that its manufacturing footprint and fixed cost base were too large and expensive for its medium-term needs and began restructuring its facility capacity and its management structure to consolidate and increase the efficiencies of its operations.

The Company is executing a plan to reduce its facility footprint by approximately 40% through the sale and/or closure through the end of 2014 of facilities comprising a total of approximately 600,000 square feet. The Company has so far closed or reduced its leased presence at six facilities and achieved a reduction of approximately 400,000 square feet. During 2013, the Company determined that the Clintonville Facility was no longer required in its operations and reclassified the property and equipment associated with the Clintonville Facility, as well as certain Gearing equipment, to Assets Held for Sale. The most significant remaining reduction relates to the anticipated closure and disposition of the Cicero Avenue Facility. The use of the Cicero Avenue Facility in the Company’s production was significantly curtailed at the end of 2013, and the Company recorded a related $1,732 impairment, primarily in cost of sales in the fourth quarter of 2013. The Company believes its remaining locations will be sufficient to support its Towers and Weldments, Gearing, Services and general corporate and administrative activities, while allowing for growth for the next several years.

In the third quarter of 2012, the Company identified a liability associated with the planned sale of the Cicero Avenue Facility. The liability is associated with environmental remediation costs that were originally identified while preparing the site for sale. The liability has been adjusted as needed since being originally identified and the expenses associated with this liability have been recorded as restructuring charges. As of September 30, 2014 the accrual balance remaining was $500.

Including costs incurred to date, the Company expects that a total of approximately $13,600 of net costs will be incurred to implement this restructuring initiative. To date, the Company has incurred approximately $13,200, or 98% of the total expected restructuring costs. 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 $4,700 consists of non-cash charges. Restructuring costs incurred to date include $900 of severance and $1,750 of accelerated depreciation of the Cicero Avenue Facility. The table below details the Company’s total net restructuring charges incurred to date and the total net expected restructuring charges as of September 30, 2014:

	2011		2012		2013			Q1 ’14		Q2 ’14		Q3 ’14			Total			Total
	Actual		Actual		Actual			Actual		Actual		Actual			Incurred			Projected
Capital expenditures:
Gearing	$	5	$	2,072	$	2,075		$	441	$	96	$	127		$	4,816		$	4,867
Corporate	—		524		277			—		—		—			801			801
Total capital expenditures	5		2,596		2,352			441		96		127			5,617			5,668

Cash expenses:
Cost of sales:
Gearing	131		308		2,176			269		519		164			3,567			3,835
Services	—		225		234			—		—		—			459			459
Total cost of sales	131		533		2,410			269		519		164			4,026			4,294

Selling, general, and administrative expenses:
Towers	—		130		176			18		7		15			346			346
Gearing	35		520		451			42		42		98			1,188			1,188
Services	—		40		—			—		—		—			40			40
Corporate	406		49		462			—		—		—			917			917
Total selling, general and administrative expenses	441		739		1,089			60		49		113			2,491			2,491

Other - Towers and Weldments gain on Brandon, SD Facility:	—		—		(3,585		)	—		—		—			(3,585		)	(3,585		)
Non-cash expenses:
Towers	—		—		291			—		—		—			291			291
Gearing	247		1,166		3,008			—		—		(119		)	4,302			4,302
Services	—		58		(15		)	—		—		—			43			43
Corporate	50		—		—			—		—		—			50			50
Total non-cash expenses	297		1,224		3,284			—		—		(119		)	4,686			4,686
Grand total	$	874	$	5,092	$	5,550		$	770	$	664	$	285		$	13,235		$	13,554

NOTE 18 – SUBSEQUENT EVENT

On October 29, 2014, the Company’s Board of Directors authorized a program to repurchase up to $10,000 of the Company’s outstanding common stock over the next six months. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. The common stock may be acquired in the open market at prices subject to certain pricing guidelines determined by management. The Company has no obligation to repurchase shares, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in Item 1, “Financial Statements,” of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including, but not limited to, those identified in “Cautionary Note Regarding Forward-Looking Statements” at the end of Item 2. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties.

(Dollars are presented in thousands except per share data or unless otherwise stated)

OUR BUSINESS

Third Quarter Overview

We recognized sales of $60,300 for the third quarter of 2014, a 1% decrease compared to $60,900 in the third quarter of 2013. The decrease reflects a decrease in our Towers and Weldments segment revenues, partially offset by improvements in our Services segment. We reported a net loss of $1,800 or $.12 per share in the third quarter of 2014, compared to a net loss of $2,400 or $.17 per share in the third quarter of 2013. The $.05 per share improvement was due to improvements in the Gearing and Services segments, partially offset by decreases in the Towers and Weldments segment. The 2013 quarter included an environmental regulatory settlement charge of $1,500; the 2014 quarter includes a settlement charge of $816 associated with the United States Securities and Exchange Commission (“SEC”) inquiry.

We booked $66,100 in net new orders in the third quarter of 2014, down from $87,000 in the prior-year third quarter. Towers and Weldments orders vary considerably from quarter to quarter; we received $51,700 in the current quarter as compared to $70,300 in the prior-year third quarter. Third quarter 2014 Services orders totaled $5,300, up significantly from the prior-year third quarter’s orders of $3,900. Gearing orders totaled $9,000, down from $12,800 in the prior-year quarter. At September 30, 2014, total backlog was $228,100.

In 2011, we concluded that our manufacturing footprint and fixed cost base were too large and expensive for our medium term needs. We are executing 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. Including costs incurred to date, we expect that a total of approximately $13,600 of net costs will be incurred to implement this restructuring initiative. To date, we have incurred approximately $13,200, or 98% of the total expected restructuring costs. Of the total restructuring costs incurred, a total of approximately $4,700 consists of non-cash charges.

We meet our short-term liquidity needs through our available cash balances and the use of a $20,000 secured credit facility with AloStar Bank of Commerce (“AloStar”), which was put in place on August 23, 2012 (the “Credit Facility”). During the third quarter, the Credit Facility was used from time to time, although the operating cash generated by the business was generally sufficient to allow us to meet all cash obligations. At September 30, 2014, cash and cash equivalents and short-term investments totaled $27,859 and we had the ability to borrow up to $14,384 under the Credit Facility.

Recent Developments

On October 29, 2014, our Board of Directors authorized a program to repurchase up to $10,000 of our outstanding common stock over the next six months. Our share repurchase program does not obligate us to acquire any specific number of shares. The common stock may be acquired in the open market at prices subject to certain pricing guidelines determined by management. We have no obligation to repurchase shares, and we may discontinue purchases at any time that management determines additional purchases are not warranted.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2014, Compared to Three Months Ended September 30, 2013

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 three months ended September 30, 2014, compared to the three months ended September 30, 2013.

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	Three Months Ended September 30,										2014 vs. 2013
	2014			% of Total Revenue		2013			% of Total Revenue		$ Change			% Change

Revenues	$	60,289		100.0	%	$	60,862		100.0	%	$	(573	)	-0.9	%
Cost of sales	56,267			93.3	%	55,147			90.6	%	1,120			2.0	%
Restructuring	164			0.3	%	1,097			1.8	%	(933		)	-85.1	%
Gross profit	3,858			6.4	%	4,618			7.6	%	(760		)	-16.5	%

Operating expenses
Selling, general and administrative expenses	4,629			7.7	%	5,216			8.6	%	(587		)	-11.3	%
Intangible amortization	111			0.2	%	111			0.2	%	—			N/A
Regulatory settlement	816			1.4	%	1,500			2.5	%	(684		)	-45.6	%
Restructuring	113			0.2	%	79			0.1	%	34			43.0	%
Total operating expenses	5,669			9.5	%	6,906			11.4	%	(1,237		)	-17.9	%

Operating loss	(1,811		)	-3.1	%	(2,288		)	-3.8	%	477			20.8	%

Other (expense) income
Interest expense, net	(177		)	-0.3	%	(177		)	-0.3	%	—			N/A
Other, net	29			0.0	%	(4		)	0.0	%	33			-825.0	%
Restructuring	119			0.2	%	(1		)	0.0	%	120			-12000.0	%
Total other (expense) income, net	(29		)	-0.1	%	(182		)	-0.3	%	153			-84.1	%

Net loss from continuing operations before provision for income taxes	(1,840		)	-3.2	%	(2,470		)	-4.1	%	630			-25.5	%
Provision (benefit) for income taxes	(26		)	0.0	%	28			0.0	%	(54		)	-192.9	%
Loss from continuing operations	(1,814		)	-3.2	%	(2,498		)	-4.1	%	684			27.4	%
Loss from discontinued operations, net of tax	—			0.0	%	100			0.2	%	(100		)	100.0	%
Net loss	$	(1,814	)	-3.2	%	$	(2,398	)	-3.9	%	$	584		-24.4	%

Consolidated

Revenues decreased by $573, from $60,862 during the three months ended September 30, 2013, to $60,289 during the three months ended September 30, 2014. The decrease reflects a decrease in our Towers and Weldments segment, partially offset by improvements in our Services segment. Towers and Weldments segment revenues decreased 4%; the number of towers sold decreased 14% from the prior-year third quarter. Weldments revenue for large industrial customers decreased $363 as compared to the prior-year quarter. Services segment revenue increased 36% as a result of strong demand for turbine blade repairs and other technician fieldwork services. Gearing segment revenues were flat despite a strong backlog, due to difficulties associated with a more complex product mix.

Gross profit decreased by $760, from $4,618 during the three months ended September 30, 2013, to $3,858 during the three months ended September 30, 2014. The decrease in gross profit was attributable to decreased Towers and Weldments volumes and margin due to a disruption of production in our Abilene, Texas facility and increased labor and overhead costs in the current-year quarter. Towers and Weldments also experienced increased warranty, insurance and maintenance cost in the current-year quarter as compared to the prior-year quarter. Towers and Weldments decreases were partially offset by improvements in the Gearing segment due to reduced restructuring expenses and improved operating margins in the current-year quarter, and improved volume and margins in the Services segment as compared to the prior-year quarter. As a result, our total gross margin decreased from 7.6% during the three months ended September 30, 2013, to 6.4% during the three months ended September 30, 2014.

Selling, general and administrative expenses decreased by $587, from $5,216 during the three months ended September 30, 2013, to $4,629 during the three months ended September 30, 2014. The decrease was primarily attributable to lower employee compensation, legal expenses and insurance expenses in the current-year quarter as compared to the prior-year quarter. Selling, general and administrative expenses as a percentage of sales decreased from 8.6% in the prior-year quarter to 7.7% in the current-year quarter.

Intangible amortization expense was $111 in each of the comparable quarters. In the current quarter, we recorded a $816 additional charge in Corporate And Other to bring the total estimate of the amount required to settle the long-standing SEC matter to

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$1,566 - See Note 12, “Legal Proceedings” of these condensed consolidated financial statements. The prior-year quarter Gearing segment included a $1,500 environmental regulatory settlement charge. Restructuring operating expenses increased slightly as we are near the completion of restructuring activities begun in 2011.

Net loss improved from $2,398 during the three months ended September 30, 2013, to $1,814 during the three months ended September 30, 2014, as a result of the favorable factors described above.

Towers and Weldments Segment

The following table summarizes the Towers and Weldments segment operating results for the three months ended September 30, 2014 and 2013:

	Three Months Ended
	September 30,
	2014			2013

Revenues	$	45,099		$	47,084
Operating income	3,351			6,561
Operating margin	7.4		%	13.9		%

Towers and Weldments segment revenues decreased by $1,985, from $47,084 during the three months ended September 30, 2013, to $45,099 during the three months ended September 30, 2014. Towers and Weldments segment revenues decreased 4%; the number of towers sold decreased 14% from the prior-year third quarter due to production issues at our Abilene, Texas facility. Weldments revenue decreased $363 as compared to the prior-year quarter, due to a customer-requested delay in producing some components in the mining sector.

Towers and Weldments segment operating income decreased by $3,210, from $6,561 during the three months ended September 30, 2013, to $3,351 during the three months ended September 30, 2014. The significant decrease was attributable to production ineffciencies in our Abilene, Texas facility, as we added additional shifts to increase production and as we added a new tower design that had never been manufacturered in this facility previously. This contributed to $2,096 in increased labor, increased overhead including increased maintenance expenses, increased warranty and insurance costs as compared to the prior-year quarter. Operating margin decreased from 13.9% during the three months ended September 30, 2013, to 7.4% during the three months ended September 30, 2014.

Gearing Segment

The following table summarizes the Gearing segment operating results for the three months ended September 30, 2014 and 2013:

	Three Months Ended
	September 30,
	2014			2013

Revenues	$	10,334		$	10,389
Operating loss	(2,294		)	(5,375		)
Operating margin	-22.2		%	-51.7		%

Gearing segment revenues of $10,334 were essentially flat during the three months ended September 30, 2014 and 2013. Total revenues were flat despite a strong backlog, due to unexpected production delays related to difficulties transitioning to a new production planning process, which increased past-due orders by $1,500 during the period.

Gearing segment operating loss decreased by $3,081, from $5,375 during the three months ended September 30, 2013, to $2,294 during the three months ended September 30, 2014. The decrease in operating loss was due to higher margin oil and gas revenues, $863 in lower restructuring costs, and the absence of the prior-year quarter environmental regulatory settlement charge of $1,500. As a result of the factors described above, operating margin improved from (51.7%) during the three months ended September 30, 2013, to (22.2%) during the three months ended September 30, 2014.

Services Segment

The following table summarizes the Services segment operating results for the three months ended September 30, 2014 and 2013:

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	Three Months Ended
	September 30,
	2014			2013

Revenues	$	5,026		$	3,704
Operating loss	(732		)	(1,276		)
Operating margin	-14.6		%	-34.4		%

Services segment revenues increased by $1,322, from $3,704 during the three months ended September 30, 2013, to $5,026 during the three months ended September 30, 2014. The 36% increase in revenue was due stronger demand for turbine blade repairs and other technician fieldwork services.

Services segment operating loss decreased by $544, from $1,276 during the three months ended September 30, 2013, to $732 during the three months ended September 30, 2014. The decrease in operating loss was due to increased revenues and improved technician utilization in the current-year quarter as compared to the prior-year quarter. The operating margin improved from (34.4%) during the three months ended September 30, 2013, to (14.6%) during the three months ended September 30, 2014.

Corporate and Other

Corporate and Other expenses decreased by $62, from $2,198 during the three months ended September 30, 2013, to $2,136 during the three months ended September 30, 2014. The decrease in expense was attributable to $511 in lower employee compensation expense, $212 in lower legal expense, and lower insurance expenses, offset by an additional estimated $816 provision to settle the SEC inquiry in the current-year quarter as compared to the prior-year quarter.

Nine Months Ended September 30, 2014, Compared to Nine Months Ended September 30, 2013

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 nine months ended September 30, 2014, compared to the nine months ended September 30, 2013.

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	Nine Months Ended September 30,										2014 vs. 2013
	2014			% of Total Revenue		2013			% of Total Revenue		$ Change			% Change

Revenues	$	187,470		100.0	%	$	159,313		100.0	%	$	28,157		17.7	%
Cost of sales	168,936			90.1	%	146,366			91.9	%	22,570			15.4	%
Restructuring	952			0.5	%	2,758			1.7	%	(1,806		)	-65.5	%
Gross profit	17,582			9.4	%	10,189			6.4	%	7,393			72.6	%

Operating expenses
Selling, general and administrative expenses	16,166			8.6	%	15,721			9.9	%	445			2.8	%
Intangible amortization	333			0.2	%	1,441			0.9	%	(1,108		)	-76.9	%
Regulatory settlement	1,566			0.8	%	1,500			0.9	%	66			4.4	%
Restructuring	222			0.1	%	787			0.5	%	(565		)	-71.8	%
Total operating expenses	18,287			9.7	%	19,449			12.2	%	(1,162		)	-6.0	%

Operating loss	(705		)	-0.3	%	(9,260		)	-5.8	%	8,555			92.4	%

Other (expense) income
Interest expense, net	(521		)	-0.3	%	(795		)	-0.5	%	274			34.5	%
Other, net	149			0.1	%	511			0.3	%	(362		)	-70.8	%
Restructuring	119			0.1	%	2,965			1.9	%	(2,846		)	-96.0	%
Total other (expense) income, net	(253		)	-0.1	%	2,681			1.7	%	(2,934		)	-109.4	%

Net loss from continuing operations before provision for income taxes	(958		)	-0.4	%	(6,579		)	-4.1	%	5,621			-85.4	%
Provision for income taxes	39			0.0	%	64			0.0	%	(25		)	-39.1	%
Loss from continuing operations	(997		)	-0.4	%	(6,643		)	-4.1	%	5,646			85.0	%
Loss from discontinued operations, net of tax	—			0.0	%	(110		)	-0.1	%	110			100.0	%
Net loss	$	(997	)	-0.4	%	$	(6,753	)	-4.2	%	$	5,756		-85.2	%

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Consolidated

Revenues increased by $28,157, from $159,313 during the nine months ended September 30, 2013, to $187,470 during the nine months ended September 30, 2014. We experienced a significant increase in Towers and Weldments revenue, partially offset by decreased Services revenue. Towers and Weldments segment revenues increased 26% due to increased customer demand and better operational throughput in our production facilities resulting in a 19% increase in towers sold during the current-year period as compared to the prior-year period. The prior-year period was weak as we began to ramp up production from the industry-wide slowdown at the end of 2012 due to the expiration of the federal Production Tax Credit. Weldments revenue for large industrial customers decreased $3,417 as compared to the prior-year period. Gearing revenue was flat, and Services experienced a 28% decrease in revenue due to the absence of a large industrial project completed in early 2013, partially offset by an improvement in blades revenue.

Gross profit increased by $7,393, from $10,189 during the nine months ended September 30, 2013, to $17,582 during the nine months ended September 30, 2014. The increase in gross profit was primarily attributable to increased Towers and Weldments volumes and higher margins on the current mix of towers, although we experienced production inefficiencies in our Abilene, Texas facility in the third quarter of 2014. As a result, our total gross margin increased from 6.4% during the nine months ended September 30, 2013, to 9.4% during the nine months ended September 30, 2014.

Selling, general and administrative expenses increased by $445 from $15,721 during the nine months ended September 30, 2013, to $16,166 during the nine months ended September 30, 2014. The increase was attributable to higher one-time professional expenses and higher employee compensation, partially offset by lower insurance and legal expenses in the current-year period. Selling, general and administrative expenses as a percentage of sales decreased from 9.9% in the prior-year quarter to 8.6% in the current-year quarter.

Intangible amortization expense decreased from $1,441 during the nine months ended September 30, 2013, to $333 during the nine months ended September 30, 2014. In the first half of 2013, we recorded $1,000 in accelerated amortization related to a customer relationship intangible asset. In 2014, we recorded a $1,566 charge as an estimate of the amount required to settle the long-standing SEC Inquiry - See Note 12, “Legal Proceedings” of these condensed consolidated financial statements. In 2013, we recorded a $1,500 environmental regulatory settlement charge. Restructuring operating expenses decreased from $787 during the nine months ended September 30, 2013, to $222 during the nine months ended September 30, 2014, reflecting the near completion of restructuring activities begun in 2011.

Net loss decreased from $6,753 during the nine months ended September 30, 2013, to $997 during the nine months ended September 30, 2014, as a result of the favorable factors described above, which more than offset a $3,586 gain on the sale of the Brandon, South Dakota facility in the prior-year period.

Towers and Weldments Segment

The following table summarizes the Towers and Weldments segment operating results for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended
	September 30,
	2014			2013

Revenues	$	146,284		$	116,044
Operating income	17,523			13,779
Operating margin	12.0		%	11.9		%

Towers and Weldments segment revenues increased by $30,240, from $116,044 during the nine months ended September 30, 2013, to $146,284 during the nine months ended September 30, 2014. Towers and Weldments segment revenues increased 26% due to increased customer demand and better operational throughput in our production facilities resulting in a 19% increase in towers sold during the current-year period as compared to the prior-year period. The prior-year period was weak as we began to ramp up production from the industry-wide slowdown at the end of 2012 due to the expiration of the federal Production Tax Credit. Weldments revenue for large industrial customers decreased $3,417 as compared to the prior-year period, due to a downturn in customer demand related to the weak mining industry.

Towers and Weldments segment operating income increased by $3,744, from $13,779 during the nine months ended September 30, 2013, to $17,523 during the nine months ended September 30, 2014. The significant increase was attributable to increased volumes and higher margins on the current mix of towers, partially offset by higher plant overhead, higher employee expenses, and $681 in one-time professional expenses in the current-year period related to resolution of the previously disclosed 2013

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accounting and internal control matters. In the third quarter of 2014, we experienced lower margins and higher costs attributable to a disruption of production in our Abilene, Texas facility due to a complex tower model changeover which led to increased labor and overhead costs in the third quarter of 2014. Operating margin increased from 11.9% during the nine months ended September 30, 2013, to 12.0% during the nine months ended September 30, 2014.

Gearing Segment

The following table summarizes the Gearing segment operating results for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended
	September 30,
	2014			2013

Revenues	$	31,532		$	31,554
Operating loss	(7,060		)	(12,326		)
Operating margin	-22.4		%	-39.1		%

Gearing segment revenues decreased by $22, from $31,554 during the nine months ended September 30, 2013, to $31,532 during the nine months ended September 30, 2014. Revenues were flat as we continue to experience production delays although order intake has increased somewhat in comparison to the first nine month of 2013.

Gearing segment operating loss decreased by $5,266, from $12,326 during the nine months ended September 30, 2013, to $7,060 during the nine months ended September 30, 2014. The decrease in operating loss was due to $1,370 lower non-cash charges, $1,550 lower restructuring expense, and lower labor costs, and the absence of the $1,500 environmental regulatory settlement charge recorded in the comparable 2013 period. As a result of the factors described above, operating margin improved from (39.1%) during the nine months ended September 30, 2013, to (22.4%) during the nine months ended September 30, 2014.

Services Segment

The following table summarizes the Services segment operating results for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended
	September 30,
	2014			2013

Revenues	$	10,945		$	15,253
Operating loss	(3,390		)	(3,239		)
Operating margin	-31.0		%	-21.2		%

Services segment revenues decreased by $4,308, from $15,253 during the nine months ended September 30, 2013, to $10,945 during the nine months ended September 30, 2014. The 28% decrease in revenue was due to the absence of a large industrial project completed in the prior-year period, partially offset by stronger demand for turbine blade repairs in 2014.

Services segment operating loss increased by $151, from $3,239 during the nine months ended September 30, 2013, to $3,390 during the nine months ended September 30, 2014. The increase in operating loss was due to lower revenues, partly offset by improved contribution margins, lower overhead spending and lower operating expenses. Operating margin worsened from (21.2%) during the nine months ended September 30, 2013, to (31.0%) during the nine months ended September 30, 2014.

Corporate and Other

Corporate and Other expenses increased by $304, from $7,474 during the nine months ended September 30, 2013, to $7,778 during the nine months ended September 30, 2014. The decrease in expense was attributable to $728 higher insurance allocations to operating units, $379 in lower legal expenses, and $462 in lower restructuring expenses offset by an estimated $1,566 provision to settle the SEC inquiry and a number of other small variances in the current-year period as compared to the prior-year period.

NON-GAAP FINANCIAL MEASURES

The following non-GAAP financial measure presented below relates to earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (“Adjusted EBITDA”) and is presented for illustrative purposes as an

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accompaniment to our unaudited financial results of operations for the three and nine months ended September 30, 2014 and 2013. Adjusted EBITDA should not be considered an alternative to, nor is there any implication that it is more meaningful than, any measure of performance or liquidity promulgated under accounting principles generally accepted in the United States (“GAAP”). We believe that Adjusted EBITDA is particularly meaningful due principally to the role acquisitions have played in our development and because of the significant restructuring program described above. Historically, our growth through acquisitions has resulted in significant non-cash depreciation and amortization expense, which was primarily attributable to a significant portion of the purchase price of our acquired businesses being allocated to depreciable fixed assets and definite-lived intangible assets. The following Adjusted EBITDA calculation is derived from our unaudited condensed consolidated financial results for the three and nine months ended September 30, 2014 and 2013, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)

Operating loss	$	(1,811	)	$	(2,288	)	$	(705	)	$	(9,260	)
Depreciation and amortization	3,312			3,178			9,576			10,826
Restructuring	277			1,176			1,174			3,545
Other (loss) income	29			(4		)	149			511
Share-based compensation and other stock payments	186			645			516			1,970
Adjusted EBITDA	$	1,993		$	2,707		$	10,710		$	7,592

SUMMARY OF CRITICAL ACCOUNTING POLICIES

We have identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. Our most critical accounting policies are related to the following areas: revenue recognition, warranty liability, inventories, intangible assets, long-lived assets, workers’ compensation reserves and income taxes. Details regarding our application of these policies and the related estimates are described fully in our Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any new standards that we believes merit further discussion, except as discussed below. We are currently evaluating the impact of the new standards on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which amends the guidance in former ASC 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 pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. We will adopt the provisions of ASU 2014-09 for the fiscal year beginning January 1, 2017, and are currently evaluating the impact on our condensed consolidated financial statements.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of September 30, 2014, cash and cash equivalents and short-term investments totaled $27,859, an increase of $1,780 from December 31, 2013. Total debt and capital lease obligations at September 30, 2014 totaled $4,188, and we had the ability to borrow up to $14,384 under the Credit Facility. 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 12 months primarily with current cash on hand and cash generated by operations.

In connection with the Credit Facility, AloStar will advance funds against our borrowing base, which consists of approximately 85% of eligible receivables and approximately 50% of eligible inventory. Under this borrowing structure, borrowings are continuous and all cash receipts are automatically applied to the outstanding borrowed balance. As a result of this structure, we

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anticipate that cash balances will remain at a minimum at all times when there are amounts outstanding under the Credit Facility. At September 30, 2014, the Credit Facility was undrawn and we were in compliance with all applicable covenants.

While we believe that we will continue to have sufficient cash flows to operate our businesses and 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 to us 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 nine months ended September 30, 2014 and 2013, net cash provided by operating activities totaled $7,089 and $21,507. The decrease in net cash provided by operating activities was primarily attributable to the timing of receipts of customer deposits, as well as a decrease in accounts payable balances due to shorter payment terms related to steel vendors. Partly offsetting was the absence of the inventory increase experienced in the prior year when tower production increased sharply.

Investing Cash Flows

During the nine months ended September 30, 2014, net cash used in investing activities totaled $14,206 compared to net cash provided by investing activities of $7,558 for the nine months ended September 30, 2013. The increase in net cash used in investing activities as compared to the prior-year period was primarily attributable to the purchase of available for sale securities in the current year and the prior year sale of the Brandon, South Dakota facility which resulted in gross proceeds of approximately $12,000.

Financing Cash Flows

During the nine months ended September 30, 2014 and 2013, net cash used in financing activities totaled $793 and $6,755, respectively. The decrease in net cash used in financing activities as compared to the prior-year period was due primarily to the prior-year period payments under the Credit Facility of credit and notes payable.

Cautionary Note Regarding Forward-Looking Statements

The preceding discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013. Portions of this Quarterly Report on Form 10-Q, including the discussion and analysis in this Item 2, contain “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 and 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. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Item 1A “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2013, that could cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects, and opportunities to differ materially from those expressed in, or implied by, these statements. Our forward-looking statements may include or relate to the following: (i) our plans to continue to grow our business through organic growth; (ii) our beliefs with respect to the sufficiency of our liquidity and our plans to evaluate alternate sources of funding if necessary; (iii) our plans and assumptions, including estimated costs and saving opportunities, regarding our ongoing restructuring efforts designed to improve our financial performance; (iv) 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 standards; (v) 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; (vi) our ability to realize revenue from customer orders and backlog; (vii) our plans with respect to the use of proceeds from financing activities and 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

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state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets; (x) our expectations relating to the impact of the inquiry by the U.S. Securities and Exchange Commission (“SEC”); and (xi) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the Internal Revenue Code. 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. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change in our exposure to market risk during the nine months ended September 30, 2014. For a discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk,” contained in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4. Controls and Procedures

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 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 quarter reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2014 because of the material weaknesses in internal control over financial reporting described below.

As more fully described in our Annual Report on Form 10-K for the year ended December 31, 2013, the following material weaknesses existed at December 31, 2013 and September 30, 2014:

· We did not maintain effective controls over the preparation, support, review and approval of journal entries. Specifically, effective controls were not in place to ensure proper segregation of duties between the preparation and approval of journal entries.

· We did not maintain effective control over the reconciliation of the accrual account for inventory items that have been received for which the related vendor invoice is pending. Specifically, the reconciliation was not properly designed to identify, investigate and resolve reconciling items on a timely basis.

· We did not maintain effective controls over ensuring our commitment to integrity and ethical values. Specifically, our controls over internal communications regarding the importance of maintaining effective internal control over financial reporting and a commitment to integrity and ethical values were not operating effectively.

· We did not maintain effective controls over the costing and valuation of inventory. Specifically, controls over standard cost updates, capitalization of variances into ending inventory, elimination of intercompany profits in inventory and valuation of inventory related reserves were not properly designed to prevent or detect material misstatements on a timely basis, that we concluded in the aggregate, constitute a material weakness.

· We did not maintain the requisite knowledge regarding the application of revenue recognition accounting guidance at our Towers and Weldments segment.

Management’s Remediation Plan

As part of our commitment to strengthening our internal control over financial reporting, we have implemented various personnel actions and will initiate other actions under the oversight of the Audit Committee of the Company’s Board of Directors, including:

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· Conducting comprehensive training of all appropriate management personnel regarding the importance of full and transparent communication and disclosure of matters that impact our internal controls and financial reporting and disclosure. This will include a program of continuous education for new managers and refresher courses for all managers on an ongoing basis.

· Enhancing separation of incompatible duties and controls surrounding preparation, review and approval of journal entries and account analysis.

· Revising the design of controls with respect to standard cost updates, capitalization of variances into ending inventory, elimination of intercompany profits in inventory and the calculation of our inventory reserves.

· Training existing staff in the specific requirements of GAAP related to inventory costing and valuation.

· Implementing formal revenue contract review controls covering all contracts and purchase orders related to sales of towers designed to identify and account for key terms affecting revenue recognition coupled with enhanced training in accounting for revenue recognition for relevant personnel.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weaknesses related to our internal controls over financial reporting, as described above. However, our remediation was not complete as of September 30, 2014. We can give no assurance that the measures we take will remediate the material weaknesses that we have identified or that any additional material weaknesses will not arise in the future. Other than the changes disclosed above, there were no changes in our internal control over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is incorporated herein by reference to Note 12, “Legal Proceedings” to the condensed consolidated financial staetments in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There are no material changes to our risk factors as previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits

The exhibits listed on the Exhibit Index following the signature page are filed as part of this Quarterly Report.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BROADWIND ENERGY, INC.


October 30, 2014	By:	/s/ Peter C. Duprey
		Peter C. Duprey
		President and Chief Executive Officer
		(Principal Executive Officer)

October 30, 2014	By:	/s/ Stephanie K. Kushner
		Stephanie K. Kushner
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2014

Exhibit Number		Exhibit
31.1		Rule 13a-14(a) Certification of Chief Executive Officer*
31.2		Rule 13a-14(a) Certification of Chief Financial Officer*
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer*
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer*

* Filed herewith.

Attached files

BROADWIND, INC. Reports

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