Exhibit 99.1
BADGER TRANSPORT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
| | Page |
| | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2 |
| | |
FINANCIAL STATEMENTS: | |
| | |
| Consolidated Balance Sheet as of December 31, 2007 | F-3 |
| | |
| Consolidated Statement of Income – Year ended December 31, 2007 | F-4 |
| | |
| Consolidated Statement of Stockholder’s Equity – Year ended December 31, 2007 | F-5 |
| | |
| Consolidated Statement of Cash Flows – Year ended December 31, 2007 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
| | | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Badger Transport, Inc.
We have audited the accompanying consolidated balance sheet of Badger Transport, Inc. (the “Company” or “Badger”) as of December 31, 2007, and the related consolidated statements of income, stockholder’s equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Badger Transport, Inc. as of December 31, 2007, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, the Company adopted the provisions of Financial Interpretation 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 as of January 1, 2007.
GRANT THORNTON LLP
Milwaukee, Wisconsin
November 13, 2008
F-2
BADGER TRANSPORT, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash | | $ | 2,449 | |
Accounts receivable (net of $202,425 allowance for doubtful accounts) | | 2,232,147 | |
Prepaid expenses and other current assets | | 101,641 | |
Total current assets | | 2,336,237 | |
| | | |
PROPERTY AND EQUIPMENT, AT COST: | | | |
Furniture and fixtures | | 11,553 | |
Machinery and equipment | | 234,765 | |
Vehicles | | 8,736,659 | |
Less accumulated depreciation and amortization | | (2,575,806 | ) |
Property and equipment, net | | 6,407,171 | |
| | | |
TOTAL ASSETS | | $ | 8,743,408 | |
| | | |
LIABILITIES AND STOCKHOLDER’S EQUITY | | | |
CURRENT LIABILITIES: | | | |
Cash overdraft | | $ | 64,567 | |
Accounts payable | | 350,268 | |
Line of credit | | 467,500 | |
Short-term note payable | | 160,000 | |
Accrued liabilities | | 297,241 | |
Liability for amounts owed to owner operators | | 890,757 | |
Current portion of long-term notes payable | | 537,077 | |
Current portion of long-term capital lease obligations | | 636,766 | |
Total current liabilities | | 3,404,176 | |
Notes payable, less current maturities | | 1,830,151 | |
Capital lease obligations, less current maturities | | 510,454 | |
Deferred income taxes payable | | 707,857 | |
Total liabilities | | 6,452,638 | |
| | | |
COMMITMENTS AND CONTINGENCIES | | | |
| | | |
STOCKHOLDER’S EQUITY | | | |
Common stock - $1 par value; 56,000 shares authorized, 500 shares issued and outstanding | | 500 | |
Retained earnings | | 2,454,022 | |
Minority interest | | (163,752 | ) |
Total stockholder’s equity | | 2,290,770 | |
| | | |
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | | $ | 8,743,408 | |
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-3
BADGER TRANSPORT, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007
Net sales | | $ | 15,571,159 | |
| | | |
Cost of goods sold | | 11,706,800 | |
| | | |
Gross profit | | 3,864,359 | |
| | | |
Operating costs and expenses | | | |
Selling and administrative expenses | | 1,768,066 | |
| | | |
Operating income | | 2,096,293 | |
| | | |
Other income (expense) | | | |
Gain on sale of property and equipment | | 14,656 | |
Interest expense | | (391,403 | ) |
Interest income | | 3,140 | |
Other, net | | (3,282 | ) |
Total other income (expense), net | | (376,889 | ) |
| | | |
Income before provision for income taxes and minority interest | | 1,719,404 | |
| | | |
Income tax expense | | | |
Current income tax | | 374,142 | |
Deferred income tax | | 298,142 | |
Income with minority interest | | 1,047,120 | |
Minority interest share of income | | 163,752 | |
| | | |
Net income | | $ | 1,210,872 | |
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-4
BADGER TRANSPORT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2007
| | Common | | Retained | | Minority | | | |
| | Stock | | Earnings | | Interest | | Total | |
Stockholder’s equity at January 1, 2007 | | $ | 500 | | $ | 1,243,150 | | $ | — | | $ | 1,243,650 | |
| | | | | | | | | |
Net income (loss) | | — | | 1,210,872 | | (163,752 | ) | 1,047,120 | |
| | | | | | | | | |
Stockholder’s equity at December 31, 2007 | | $ | 500 | | $ | 2,454,022 | | $ | (163,752 | ) | $ | 2,290,770 | |
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-5
BADGER TRANSPORT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2007
Cash flows from operating activities: | | | |
Net income | | $ | 1,210,872 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | | 1,260,383 | |
Gain on sale of property and equipment | | (14,656 | ) |
Deferred income taxes | | 298,142 | |
Minority interest | | (163,752 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | | (382,629 | ) |
Prepaid expenses and other current assets | | 29,571 | |
Accounts payable | | 206,761 | |
Accrued liabilities | | 226,550 | |
Cash overdraft | | (19,380 | ) |
Other liabilities | | (182,150 | ) |
Net cash provided by operating activities | | 2,469,712 | |
| | | |
Cash flows from investing activities: | | | |
Proceeds from sale of property and equipment | | 249,355 | |
Purchases of property and equipment | | (2,786,711 | ) |
Net cash used in investing activities | | (2,537,356 | ) |
| | | |
Cash flows from financing activities: | | | |
Proceeds from line of credit | | 100,000 | |
Payments on line of credit | | (100,000 | ) |
Payments on long-term debt and capital lease obligations | | (962,694 | ) |
Proceeds from long-term debt | | 1,032,787 | |
Net cash provided by financing activities | | 70,093 | |
| | | |
NET INCREASE IN CASH | | 2,449 | |
| | | |
CASH - BEGINNING | | — | |
| | | |
CASH - ENDING | | $ | 2,449 | |
| | | |
Supplemental cash flow information: | | | |
Cash paid for interest | | $ | 384,652 | |
Cash paid for taxes | | $ | 439,000 | |
| | | |
Non-cash investing and financing activities: | | | |
Equipment obtained in exchange for capital lease obligations | | $ | 447,465 | |
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-6
Badger Transport, Inc.
Notes to Consolidated Financial Statements
December 31, 2007
Note 1 – Nature of business and summary of significant accounting policies
Organization
On June 4, 2008, Broadwind Energy, Inc. (“Broadwind”) acquired all of the outstanding shares of Badger Transport, Inc. (“Badger”, or the “Company”). Badger is primarily engaged in the transportation of wind energy components. Badger is headquartered in Clintonville, Wisconsin, and does business throughout North America.
Basis of presentation
The consolidated financial statements include the accounts of Badger, and Badger Specialty Trailer, LLC and BTI Logistics, LLC (combined the “LLC’s). The LLC’s are deemed Variable Interest Entities. All significant intercompany balances and transactions have been eliminated.
Badger applies Financial Accounting Standards Board (“FASB”) interpretation No. 46 (revised 2003) Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51 (“FIN 46(R)”) when determining whether to consolidate a Variable Interest Entity (“VIE”). FIN 46(R) requires that an equity investor in a VIE have significant equity at risk (generally a minimum of 10%) and hold a controlling interest, evidenced by voting rights, and absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected returns, or both. If the equity investor is unable to evidence these characteristics, the entity that retains these ownership characteristics will be required to consolidate the VIE. Refer to Note 8, “Consolidation of variable interest entities” for further information on the consolidated VIEs.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Accounts receivable
Accounts receivable are disclosed in the financial statements net of related allowances for doubtful accounts. Badger typically extends credit on terms of net 30 days. The allowance for doubtful accounts is estimated through historical trending of bad debt based on the percentage of sales method. Bad debt expense totaled $510,155 in 2007.
Customer concentrations
For the year ended December 31, 2007, sales to Badger’s largest customer accounted for approximately 77% of net sales. This customer also accounted for 80% of accounts receivable at December 31, 2007.
Property and equipment
Property and equipment are stated at cost. Expenditures for additions and improvements are capitalized while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Properties sold or otherwise disposed of are removed from the property accounts, with gains or losses on disposal credited or charged to other income on the statement of income.
Depreciation is included within cost of goods sold on the statement of income and is calculated on a straight-line basis over the estimated useful lives of the respective assets as follows:
Furniture and fixtures | | 5 to 20 years | |
Machinery and equipment | | 6 to 10 years | |
Vehicles | | 5 to 7 years | |
F-7
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
Long-lived assets
Badger periodically evaluates the carrying value of long-lived assets to be held and used, including but not limited to, capital assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. As of December 31, 2007, the Company has not recorded an impairment of long-lived assets.
Income taxes
Badger accounts for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes, which provides for an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets and liabilities are recognized for deductible temporary differences, and operating loss and tax credit carry forwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of the tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.
The components of the provision for income taxes for 2007 are as follows:
Current: | | | |
Federal | | $ | 259,828 | |
State and local | | 114,314 | |
Total Current | | 374,142 | |
Deferred | | 298,142 | |
Total income tax expense | | $ | 672,284 | |
The 2007 effective tax rate differs from the statutory federal income tax rate for the following reasons:
Statutory federal income tax rate | | 34.0 | % |
State and local income taxes (net of federal benefit) | | 2.3 | % |
Increase in FIN 48 unrecognized tax benefits | | 3.2 | % |
Permanent differences | | 0.4 | % |
Other | | (0.8 | )% |
Effective income tax rate | | 39.1 | % |
Deferred tax assets and liabilities as of December 31, 2007 consist of $707,857 of deferred tax liability primarily related to depreciation differences from noncurrent assets with financial basis greater than tax basis.
Badger Specialty Trailer, LLC and BTI Logistics, LLC are limited liability companies, as such no provision for income taxes are recorded.
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting treatment (recognition and measurement) for an income tax position taken in a tax return and recognized in a company’s financial statements. The new standard also contains guidance on “derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.” The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Badger has adopted the provisions of FIN 48 as of January 1, 2007 and has determined there is no material impact to the 2007 consolidated financial statements.
F-8
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized tax benefits at January 1, 2007 | | $ | 74,869 | |
Increase in tax positions for prior years | | — | |
Increase in tax positions for current year | | 54,956 | |
Settlements | | — | |
Lapse in statute of limitations | | — | |
Unrecognized tax benefits at December 31, 2007 | | $ | 129,825 | |
Badger’s accounting policy is to recognize interest and penalties related to uncertain tax position in income tax expense. As of December 31, 2007, Badger had no accrued interest or penalties related to uncertain tax positions.
Badger files income tax returns in the U.S. federal and state jurisdictions. As of December 31, 2007, open tax years in the federal and some state jurisdictions date back to 1998 due to the taxing authorities’ ability to adjust operating loss carry forwards.
Badger does not anticipate there will be a material change in the total amount of unrecognized tax benefits within the next 12 months.
Revenue recognition
Revenue is recognized when all of the following criteria have been met: (i) evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed and determinable and (iv) collectability is reasonably assured. For Badger, this generally occurs when a delivery has been made to the customer.
Fair value of financial instruments
The respective carrying value of certain on-balance sheet financial instruments approximates their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, and long-term debt. Management believes that Badger is not exposed to significant interest, credit, or currency risks arising from these financial instruments.
Effect of recently issued accounting standards
In February 2007, the FASB issued Statement of Financial Accounting Standards Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The effects of this standard are not expected to have a material impact on the financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.
In February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”), which delayed the effective date by which companies must adopt the provisions of SFAS 157. FSP 157-2 defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this standard is not anticipated to have a material impact on Badger’s financial position, results of operations, or cash flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (“SFAS 141R”), which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. SFAS 141R is to be
F-9
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
applied prospectively to business combinations for which the acquisition date is on or after the first reporting period beginning on or after December 15, 2008.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Badger has evaluated the effect of the adoption of SFAS 160, but does not presently anticipate it will have a material effect on its consolidated financial position or results of operations, as all subsidiaries are 100% owned.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). This statement is intended to enhance required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Badger is currently evaluating the effect of adoption of SFAS 161, but does not presently believe that it will have a material effect on its consolidated financial position or results of operations.
Note 2 – Line of credit
Badger has a line of credit which accrues interest at a rate of prime plus 1.0% (effectively 8.5% at December 31, 2007), is collateralized by substantially all of Badger’s assets, including a personal guarantee by the Company’s owner. The line of credit requires monthly interest payments, and expires on June 20, 2009. The ability to access this credit facility is subject to compliance with the terms and conditions of the credit facility.
The amount available and outstanding under the line of credit was $467,500 at December 31, 2007.
Note 3 – Short-term note payable
Badger has a short-term note which accrues interest at a rate of prime plus 0.5%, (effectively 8.0% at December 31, 2007) and is collateralized by substantially all of Badger’s assets. There are no covenants in this loan agreement which is due November 19, 2008. The amount available and outstanding under the note was $160,000 at December 31, 2007.
F-10
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
Note 4 – Long-term debt and capital lease obligations
In the normal course of business, Badger secures long-term debt and enters into capital lease obligations with varying interest rates and terms to acquire capital assets. Substantially all of Badger’s assets, except for transportation equipment subject to the capital leases described in Note 5, below, serve as collateral for these loans.
Long-term debt and capital lease obligations at December 31, 2007 consisted of the following:
7.90% fixed note payable, $468 monthly payment, due 2010 | | $ | 11,543 | |
7.90% fixed note payable, $588 monthly payment, due 2010 | | 14,519 | |
8.49% fixed note payable, $524 monthly payment, due 2011 | | 18,192 | |
9.29% fixed note payable, $547 monthly payment due 2012 | | 22,066 | |
9.29% fixed note payable, $549 monthly payment, due 2012 | | 22,321 | |
7.99% fixed note payable, $262 monthly payment due 2008 | | 9,555 | |
8.49% fixed note payable, $551 monthly payment, due 2012 | | 24,270 | |
8.14% fixed note payable $538 monthly payment, due 2012 | | 25,717 | |
8.14% fixed note payable $552 monthly payment, due 2012 | | 26,407 | |
8.14% fixed note payable $568 monthly payment, due 2012 | | 27,146 | |
9.25% fixed note payable, $2,818 monthly payment, due 2011 | | 94,302 | |
8.99% fixed note payable, $3,055 monthly payment, due 2013 | | 164,157 | |
7.74% fixed note payable, $5,897 monthly payment, due 2012 | | 242,768 | |
7.73% fixed note payable, $5,895 monthly payment, due 2012 | | 242,711 | |
7.93% fixed note payable, $11,845 monthly payment, due 2011 | | 468,521 | |
7.76% fixed note payable, $7,778 monthly payment, due 2011 | | 314,382 | |
7.93% fixed note payable, $883 monthly payment, due 2012 | | 38,739 | |
8.11% fixed note payable, $5,391 monthly payment, due 2012 | | 250,635 | |
7.97% fixed note payable, $9,760 monthly payment, due 2011 | | 349,277 | |
Total notes payable | | 2,367,228 | |
16.30% capital lease, $2,384 monthly payment, due 2008 | | 18,019 | |
17.00% capital lease, $3,418 monthly payment, due 2012 | | 22,608 | |
7.00% capital lease, $4,714 monthly payment, due 2010 | | 144,941 | |
8.00% capital lease, $5,238 monthly payment, due 2012 | | 255,283 | |
8.37% capital lease, $2,585 monthly payment, due 2012 | | 134,793 | |
14.70% capital lease, $10,110 monthly payment, due 2008 | | 112,191 | |
14.70% capital lease, $15,574 monthly payment, due 2009 | | 199,251 | |
14.70% capital lease, $9,143 monthly payment, due 2009 | | 116,972 | |
15.54% capital lease, $9,964 monthly payment, due 2009 | | 143,162 | |
Total capital leases | | 1,147,220 | |
Total long-term debt and capital lease obligations | | 3,514,448 | |
Less current maturities of long-term debt and capital lease obligations | | (1,173,843 | ) |
Total long-term debt and capital lease obligations, less current maturities | | $ | 2,340,605 | |
F-11
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
Future maturities of long-term debt are as follows:
2008 | | $ | 537,077 | |
2009 | | 571,541 | |
2010 | | 609,497 | |
2011 | | 524,895 | |
2012 | | 92,258 | |
Thereafter | | 31,960 | |
Total | | $ | 2,367,228 | |
Note 5 – Capital leases
Badger leases certain transportation equipment from a leasing company pursuant to capital leases. The economic substance of the lease is that Badger is financing the acquisition of the assets through the lease. Amortization of the capital leases has been included in depreciation and amortization expense, a component of cost of goods sold. The following is an analysis of the leased assets included in property and equipment at December 31, 2007:
Equipment and vehicles | | $ | 2,093,908 | |
Less accumulated depreciation | | (650,213 | ) |
| | | |
Net equipment and vehicles | | $ | 1,443,695 | |
Future minimum rental payments, including interest, due under capitalized leases:
2008 | | $ | 729,692 | |
2009 | | 239,060 | |
2010 | | 140,918 | |
2011 | | 93,881 | |
2012 | | 105,037 | |
Thereafter | | — | |
Total minimum lease payments | | 1,308,588 | |
Less: amounts representing interest | | (161,368 | ) |
Present value of future minimum lease payments | | 1,147,220 | |
Less: current portion | | (636,766 | ) |
Capital lease obligations, noncurrent | | $ | 510,454 | |
F-12
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
Note 6 – Operating leases
Badger leases transportation equipment under operating lease agreements with varying terms. Rental expense attributed to operating leases was $136,895 for the year ended December 31, 2007.
Following is a schedule of future minimum rental payments required under the leases as of December 31, 2007:
Year ending | | | |
December 31, | | | |
2008 | | $ | 194,953 | |
2009 | | 97,076 | |
Thereafter | | — | |
Total minimum required lease payments | | $ | 292,029 | |
Note 7 – Employee benefits
401(k) plan
Badger sponsors a defined contribution savings plan covering substantially all of its employees. Badger can provide a discretionary match and/or profit sharing contribution each year. In 2007, Badger provided a matching contribution based on 100% of the first 4% of the eligible compensation of each employee. Badger’s matching contributions for the year ended December 31, 2007 totaled $26,635.
Badger provided a one-time contribution of 25% of base salary totaling $220,431 for all eligible employees as of December 31, 2007. The amount is included in other current liabilities of the consolidated balance sheet.
Note 8 – Consolidation of variable interest entities
FASB Interpretation No. 46 provides a framework for identifying variable interest entities (“VIEs”) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements.
In general, a VIE is a corporation, partnership, limited liability company, trust, or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.
FIN 46(R) requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (“a variable interest holder”) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary of the VIE. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. FIN 46 also requires disclosures about VIEs that the variable interest holder is not required to consolidate but in which it has a significant variable interest.
In 2007, Badger managed the operations of Badger Specialty Trailer, LLC and BTI Logistics, LLC (combined the “LLCs”). These entities engaged in certain activities related to the building and leasing of trailers, and managing logistical permitting operations. As defined by FIN 46, the LLCs are deemed VIEs, and Badger is considered the primary beneficiary. Badger has therefore consolidated the assets and liabilities of the LLCs as of December 31, 2007.
During 2007, Badger recognized pre-tax losses of $163,752 related to the consolidation of the LLCs.
F-13
Badger Transport, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2007
Note 9 – Subsequent events
On June 4, 2008, Broadwind acquired all of Badger’s outstanding capital stock for aggregate purchase price of $11,811,000 exclusive of $184,000 of transaction-related acquisition costs. Immediately prior to this acquisition, the assets of the LLC’s were contributed to Badger. The purchase price consisted of $5,811,000 of cash and 581,959 unregistered shares of Broadwind common stock at a price per share of $10.31. Broadwind entered into a registration rights agreement with the former owner of Badger that provides the former owner with limited piggyback registration rights.
In connection with the Badger acquisition, Broadwind was required to fund approximately $4,500,000 of equipment purchases that Badger had on order for expansion. Broadwind had funded $4,383,733 of this commitment as of November 3, 2008.
F-14
