PART I
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements"—that is, statements related to future, not past, events—as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that reflect our current expectations regarding our future growth, results of operations, financial condition, cash flows, performance 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 this Annual Report on Form 10-K, 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 and integration of previous and future acquisitions; (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 wind energy industry, including the extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards; (v) our expectations relating to construction of new facilities, expansion and/or restructuring of existing facilities and sufficiency of our existing capacity to meet the demands of our customers and support expectations regarding our growth; (vi) our expectations with respect to our efforts to diversify our customer base and sector focus; (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 state of the wind energy market and other energy and industrial markets generally; and (x) our expectations relating to the impact of pending securities litigation, the inquiry by the U.S. Securities and Exchange Commission, and environmental compliance matters. 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 1. BUSINESS
As used in this Annual Report on Form 10-K, the terms "we," "us," "our," "Broadwind," "Broadwind Energy," and the "Company" refer to Broadwind Energy, Inc., a Delaware incorporated company headquartered in Naperville, Illinois, and its wholly-owned subsidiaries. Dollars are presented in thousands unless otherwise stated.
Business Overview
Broadwind provides technologically advanced high-value products and services to energy, mining and infrastructure sector customers, primarily in the U.S. Our most significant presence is within the U.S. wind industry, although we have increasingly diversified into other industrial markets in order to improve our capacity utilization and reduce our exposure to uncertainty related to the extension or renewal of tax incentives and other favorable governmental policies currently supporting the U.S. wind industry. Our product and service portfolio provides our 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 market, we provide precision gearing and specialty weldments to a broad range of industrial customers for oil and gas, mining and other industrial applications.
The market for new U.S. wind energy installations is affected by the following factors: (i) economic growth and the associated demand for new electricity generation, (ii) the cost of competing energy sources, primarily natural gas, (iii) federal and state-level wind development incentives, (iv) upgrades to existing transmission infrastructure and the proliferation of smart grid technology, and (v) improvements in wind energy cost competitiveness resulting from the maturation of technologies and services within the wind industry, including increased turbine efficiencies and improved focus on equipment maintenance and reliability.
In 2011, approximately 73% of our sales were associated with new wind turbine manufacturing and installations and 7% were related to servicing the installed fleet of wind turbines. The remaining 20% of our sales primarily consisted of gearing and specialty weldments for industrial customers. During this time we continued to execute our diversification strategy for our operations, focusing on increasing sales to industrial customers within our Gearing segment. Of our total company backlog at the end of 2011, 16% represents industrial customer demand, which is up from 8% in 2010.
Segments
In December 2009, we revised our reporting segment presentation into four reportable operating segments: Towers, Gearing, Technical and Engineering Services, and Logistics. Within our Logistics segment, we offered specialized transportation, permitting and logistics management to the wind industry for oversize and overweight machinery and equipment. In December 2010, our Board of Directors approved a plan to divest our Logistics business segment, and on March 4, 2011, we completed the disposition of our Logistics business to a third party purchaser. Consequently, this business unit is now reported as discontinued operations and we revised our segment presentation to include three reportable operating segments: Towers, Gearing and Services (previously Technical and Engineering Services). In conjunction with the preparation of our consolidated financial statements included in this Annual Report on Form 10-K, we have changed the name of our Towers segment to "Towers and Weldments" to better describe our offerings within this segment. All current and prior period financial results have been revised to reflect these changes. For additional financial information related to our segments, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 17 "Segment Reporting" in Item 15 in the notes to our consolidated financial statements for a discussion of summary financial information by segment.
The following is a description of products and services offered in each segment:
Towers and Weldments
The Towers and Weldments segment specializes in the production of wind turbine towers, and continues to diversify its customer base by expanding the portion of the business which fabricates specialty weldments for oil and gas, mining and other industrial applications. Our production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic energy and equipment manufacturing locations. We specialize in heavier "next generation" wind towers that are larger, more technically advanced towers, designed for two megawatt ("MW") and larger wind turbines. Since starting commercial production in 2005, we have produced approximately 1,100 towers for a wide variety of wind turbine manufacturers. The two facilities have a combined annual tower production capacity of approximately 500 towers, sufficient to support turbines generating more than 1,200 MW of power. However, pursuant to our diversification strategy, we are shifting a portion of this capacity to support an expansion of our specialty weldments business.
Our towers are predominantly sold to wind turbine manufacturers who utilize our products in the assembly of wind turbines. Due to the customized nature of our products, they are generally sold through our direct sales force following an evaluation, qualification and testing period, which may occur over a number of months. We compete based on product performance, quality, price, location and available capacity.
We are also applying our core competency in welding large structures to other industries, including the mining, heavy equipment and medical fields. We have production facilities to fabricate specialty weldments in Manitowoc, Wisconsin and Abilene, Texas, which provide large-scale sites, capacity and support equipment. Our capabilities include integrated blasting, cutting, beveling, rolling and welding capabilities. In addition, the Abilene facility offers the industry a large, modern blast booth and a large, modern paint booth.
Gearing
We engineer, build and remanufacture precision gears and gearing systems for wind, oil and gas, and mining applications. We use an integrated manufacturing process, which includes machining processes in Cicero, Illinois, heat treatment in Neville Island, Pennsylvania, and a finishing process in a second Cicero factory. We have announced our intention to consolidate the operations of the two Cicero facilities into one of the existing facilities in 2012.