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JUHL > SEC Filings for JUHL > Form 10-Q on 15-Nov-2012All Recent SEC Filings

Show all filings for JUHL WIND, INC

Form 10-Q for JUHL WIND, INC


15-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors.

Forward-Looking Statements

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this report. Important factors that may cause actual results to differ from projections include, but are not limited to, for example: adverse economic conditions, inability to raise sufficient additional capital to operate our business, delays, cancellations or cost overruns involving the development or construction of our wind farms, the vulnerability of our wind farms to adverse meteorological and atmospheric conditions, unexpected costs, lower than expected sales and revenues, and operating defects, adverse results of any legal proceedings, the volatility of our operating results and financial condition, inability to attract or retain qualified senior management personnel, expiration of certain governmental tax and economic incentives, and other specific risks that may be referred to in this report. It is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement. All statements, other than statements of historical facts, included in this report regarding our expectations, objectives, assumptions, strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this report, the words "will," "may," "believe," "anticipate," "intend," "estimate," "expect," "project," "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Definitions

"We," "Our," "us" and similar expressions refer to the Company and its
subsidiaries as the context requires as follows:
Juhl Wind or the Company             Juhl Wind, Inc., a Delaware
                                     corporation (formerly MH & SC
                                     Incorporated)
Juhl Energy Development              Juhl Energy Development, Inc., a
                                     Minnesota corporation
Juhl Energy Services                 Juhl Energy Services, Inc.,
                                     a Minnesota corporation (formerly
                                     known as DanMar and Associates,
                                     Inc.)
                                     Juhl Energy Development and July
                                     Energy Services are referred to
                                     separately prior to our share
                                     exchange transaction on June 24,
                                     2008, in which Juhl Energy
                                     Development and Juhl Energy Services
                                     became wholly-owned subsidiaries and
                                     Juhl Wind became successor to the
                                     business of Juhl Energy Development
                                     and Juhl Energy Services, after
                                     giving effect to the share exchange
                                     transaction
NextGen                              Next Generation Power Systems, Inc.,
                                     a South Dakota corporation , which
                                     we acquired on October 31, 2008 and
                                     which is now our wholly-owned
                                     subsidiary
Juhl Renewable Assets                Juhl Renewable Assets, Inc.,
                                     a Delaware corporation (formerly
                                     known as Juhl Wind Asset Investment,
                                     Inc. and Juhl Wind Project Lending,
                                     Inc.), our wholly-owned subsidiary
                                     formed on May 19, 2010
Juhl Renewable Energy Systems        Juhl Renewable Energy Systems, Inc.,
                                     a Delaware corporation, our
                                     wholly-owned subsidiary formed on
                                     February 2, 2012
Valley View                          Valley View Transmission, LLC,
                                     a Minnesota limited liability
                                     company, of which Juhl Renewable
                                     Assets, Inc. indirectly holds a
                                     32.6% interest
Woodstock Hills                      Woodstock Hills, LLC,
                                     a Delaware limited liability
                                     company, of which we acquired a
                                     99.9% interest on April 28, 2011,
                                     and which is now a subsidiary of
                                     Juhl Renewable Assets, Inc.
Winona Wind                          Winona Wind Holdings, LLC,
                                     a Minnesota limited liability
                                     company which we acquired on October
                                     13, 2011, and which is now a
                                     wholly-owned subsidiary of Juhl
                                     Renewable Assets, Inc. and which
                                     owns 100% of Winona County Wind,
                                     LLC, the operator of the wind farm
PEC                                  Power Engineers Collaborative, LLC,
                                     an Illinois limited liability
                                     company, which we acquired on April
                                     30, 2012 and which is now our
                                     wholly-owned subsidiary


                         ELECTRICAL POWER ABBREVIATIONS

kW                                   kilowatt or 1,000 watts of
                                     electrical power
MW                                   megawatt or 1,000 kW of electrical
                                     power
GW                                   gigawatt or 1,000 MW of electrical
                                     power
TW                                   terawatt or 1,000 GW of electrical
                                     power;
kWh                                  An hour during which 1kW, MW, GW or
MWh                                  TW, as applicable, of electrical
GWh                                  power has been continuously
TWh                                  produced.
Capacity                             Rated capacity
NCF                                  Net capacity factor, or the measure
                                     of a wind energy project's actual
                                     production expressed as a percentage
                                     of the amount of power the wind
                                     energy project could have produced
                                     running at full capacity for a
                                     particular period of time
PTC                                  Production tax credit under the
                                     American Recovery and Reinvestment
                                     Act
REC                                  renewable energy certificate or
                                     other renewable energy attribute, as
                                     the context requires

Overview of Our Business

Juhl Wind is an established leader in community wind power development and management, focused historically on wind farm projects throughout the United States. We handle all aspects of wind project development, through our operating subsidiaries, including full development and ownership of wind farms, general consultation on wind projects, construction management of wind farm projects and system operations and maintenance for completed wind farms, which results in multiple revenue streams. Our primary focus has been to build 5 MW to 80 MW wind farms that are jointly owned by local communities, farm owners, environmentally-concerned investors, and our Company. The wind farms are connected to the general utility electric grid to produce clean, environmentally-sound wind power. Our development of community wind power systems generally results in landowners owning a portion of the long term equity in the wind farm that resides on their land. We pioneered community wind power systems in developing the currently accepted financial, operational and legal structure providing local ownership of medium to large scale wind farms. Since 1999, we have completed 21 wind farm projects, accounting for approximately 195 megawatts of wind power that currently operate in the Midwest region of the United States, and we provide operation management and oversight to wind generation facilities generating approximately 107 megawatts, through our subsidiary, Juhl Energy Services. We are presently engaged in various aspects of the development of approximately 25 new wind farm projects in the United States totaling approximately 400 megawatts of wind power. In the second quarter of 2012, we acquired, through Juhl Energy Development, the assets of two early stage development wind farms located in Ohio, representing approximately 7.6 megawatts of wind power.

Historically, our wind power projects are based on the formation of partnerships with the local owners upon whose land the wind turbines are installed. Over the years, this type of wind power has been labeled "community wind power" because the systems are locally owned by the landowners (often farmers). Community wind power is a specialized sector in the wind energy industry that differs from the large, utility-owned wind power systems that are also being built in the United States. Community wind power is a form of community-based energy development (C-BED). Various states, including Minnesota and Nebraska (where we have projects in development), have enacted C-BED initiatives, which include mechanisms to support community wind power and are intended to make it easier for community wind power projects to be successful without putting an excessive burden on utilities. Therefore, community wind power is both environmentally sustainable and provides an economic stimulus for the rural areas that it encompasses.

Our business and operating strategy, among other things, is to continue to leverage our portfolio of existing community wind power projects, develop new wind farm projects located in the United States, and take equity ownership positions in existing community-based wind farms. We take projects where the following important conditions exist for successful developments: acceptable wind resources, suitable transmission access, and an appropriate regulatory framework providing acceptable power purchase agreements and long-term utility agreements. Based on our pipeline of projects, we believe that we will continue to develop projects and will grow the number of wind farms for which we are providing operational oversight. We expect that the continued growth in our project pipeline will act as a key competitive advantage as the community wind power industry grows throughout the United States. However, there will be volatility in the wind industry for reasons expressed below under Factors Affecting Our Operating Results. Further, we believe that there are existing wind farms that are or will become available for sale by equity owners who have fully utilized the tax attributes or no longer have the desire to continue ownership.

We continue to evolve our strategy and increase our portfolio capacity through acquisitions that complement and support our core business and take advantage of the growth occurring in the wind industry, including wind farm management and turbine maintenance services, as well as related business services, such as engineering and consulting services. In 2011, as part of our acquisition strategy, we acquired ownership of existing wind farms, through our wind farm ownership and operations subsidiary, Juhl Renewable Assets, that fit our distributed generation model and the size of projects that we typically develop. We believe that the ownership of community wind farms (in part or in whole) will provide an ability to expand our services to wind farm operations and to create recurring annual revenue streams for our business.


During the second quarter of 2012, we continued our strategy of acquiring complementary businesses by acquiring an engineering firm, Power Engineers Collaborative, LLC ("PEC") which is now our wholly-owned subsidiary, and expanded our professional service offerings. Our acquisition of PEC brings experience, significant expansion of our base business and opportunity to offer increased capabilities beyond wind and into the full range of clean energy sectors including natural gas, biomass, waste-to-energy, medium-to-large on-site solar, and support to larger wind farm construction. PEC also provides us with cross-selling opportunities that we believe will lead to additional growth across our subsidiaries.

As part of our strategy, we will use our position in the renewable energy space to advance conservation technologies focused on smaller scale wind and solar systems, through our subsidiary, Juhl Renewable Energy Systems, to consumers and agricultural-related businesses, directly and through a dealer network.

Our evolving business and operating strategy will rely heavily on the expertise of our management team. Our Chairman and Principal Executive Officer, Daniel J. Juhl, was one of the creators of community wind power in the United States. In addition to Mr. Juhl's expertise in the wind power field developed during the course of his activity in the industry since 1978, John Mitola, our President, is also considered an expert in the energy field having focused his career on energy efficiency, demand side management and independent power development. Mr. Mitola has significant experience in the energy industry and electric industry regulation, oversight and governmental policy. The visibility of Mr. Juhl and Mr. Mitola in the wind industry will maximize the quantity and quality of projects available for consideration.

OVERVIEW OF OPERATING SUBSIDIARIES

As discussed in detail throughout this filing, we provide the following portfolio of services and products, as part of the following operating subsidiaries, which allows us to diversify our offerings and benefit from tiered revenue streams:

Juhl Renewable Assets - Renewable Assets Ownership

Through Juhl Renewable Assets, we acquire ownership positions in wind farms, and invest in other related industries that meet our renewable energy criteria. We utilize our unique knowledge base to acquire new and existing wind farms, thus building an asset base with a predictable revenue stream. As discussed herein, Juhl Renewable Assets has taken an ownership position in the following wind farms: the 10 MW Valley View wind farm (February 2011), the 10.2 MW Woodstock Hills wind farm (April 2011), and the 1.5 MW Winona wind farm (October 2011).

In this subsidiary, we also look to revenue contribution through acquisition of related business services that provide strong operating margins, such as engineering, consulting and related facilities.

We expect to raise funds to purchase such wind and related assets through the selling of preferred stock in Juhl Renewable Assets. We are currently in the due diligence phase with an investment banking firm in connection with this raise.

Juhl Energy Development - Wind Farm Development

Through Juhl Energy Development, we provide full development services for community wind farms, including the following: initial feasibility studies and project design; formation of required land rights agreements to accommodate turbine placement on each project's specific farm land, assisting in applying for applicable environmental, zoning and building permits for the project; studies, design and agreements with utilities; turbine selection and delivery coordination; negotiation and execution of power purchase agreements; access and consultation regarding construction financing; coordination of vendor terms, including vendor financing; introduction to equity and debt project financing services; construction oversight and balance of plant construction services; and project commissioning. Revenue is recognized on a completed contract basis.

Since 1999, we have completed 21 wind farm projects, accounting for approximately 195 megawatts of wind power currently operating in the Midwest region of the United States. We are presently engaged in various aspects of the development of approximately 25 new wind farm projects in the United States totaling approximately 400 megawatts of wind power. In the second quarter of 2012, we acquired, through Juhl Energy Development, the assets of two early stage development wind farms located in Ohio, representing approximately 7.6 megawatts of wind power. In the third quarter of 2012, we acquired the assets of a 20 MW early stage development project located in Illinois.

Juhl Energy Services - Wind Farm Operations and Maintenance Services

Through Juhl Energy Services, we earn revenue through administrative, management and maintenance services agreements with wind generation facilities, and such revenues are recognized as the in-field services are provided. We can either provide services to wind farms that we have developed, or contract with existing wind farms that we have not developed. Currently, Juhl Energy Services provides operation management and oversight to wind generation facilities generating approximately 107 megawatts.


Juhl Renewable Energy Systems - Small Scale Renewables

Through Juhl Renewable Energy Systems, we specialize in advanced conservation technologies focused on smaller scale wind and solar energy systems. Juhl Renewable Energy Systems is focused on the sales and installation of our on-site renewable energy systems, including Solarbank™, a proven on-site solar system; Powerbank™, a simple onsite backup power system, and a newly designed wind turbine in prototype stage, which we consider one of the industry's most advanced medium scale wind turbines at approximately 35 kW. Juhl Renewable Energy Systems handles projects from start to finish, including design, sales, assembly and service. Juhl Renewable Energy Systems plans to provide several financing structures including its ongoing system ownership at customer sites while delivering guaranteed operations and savings to end-user customers.

Next Generation Power Systems - Refurbished Turbines and Maintenance Support

Next Generation Power Systems is in the business of refurbishing turbines and maintaining this fleet. We do not expect to sell additional refurbished turbines but periodically we are requested to perform work on turbines previously sold to customers.

Power Engineers Collaborative - Engineering Services Through our most recently acquired wholly-owned subsidiary, Power Engineers Collaborative, we provide engineering services to clients, which include electric utilities, independent power producers, and industry and building systems. PEC's core business includes aiding clients in site selection, environmental permitting, equipment studies, preparation of contract documents, bid evaluation, contract awards, preparation of detailed construction documents, design of auxiliary facilities, engineering services during construction, and training of operating and maintenance personnel. The Building Systems Engineering Division ("BSE") extends these capabilities and focuses them toward the Mechanical, Electrical, Plumbing ("MEP"), Fire Protection, and energy-related needs of the commercial, residential and institutional sectors. PEC's MEP work experience ranges from interior developments to high-rise new construction. Business sectors include commercial, retail, data and communication, K-12 and higher educational, food service, high-rise development, hotel, multi-family residential, industrial, geothermal heat pump systems, power, municipal, public works, and parking facilities. PEC offers clients services in all phases of an MEP project including permitting, conceptual design, project management and detailed design and construction commissioning start-up.

Factors Affecting Our Operating Results

Demand

Political factors have stressed the importance of renewable energy and U.S. energy independence, causing the demand for wind power in the United States to grow rapidly over the last several years. We expect that the growth of wind power developments will be hampered over the next two years due to uncertainty over the direction of U.S. energy policies and low natural gas prices. At the date of this report, Congress has not extended programs such as the production tax credit (PTC) or cash grant program. These programs, which expire at the end of 2012, provide material incentives to develop wind energy generation facilities. The uncertainty with respect to extension of these credits and incentives has placed the wind industry in a tentative position. The development of wind energy projects requires extensive lead time, and the failure of Congress to extend or renew these incentives beyond the current 2012 expiration dates has already interrupted potential wind energy installations planned for 2013, as developers are shelving plans for wind projects. We expect that further Congressional delay on action to renew or extend these incentives will likely result in additional deferral of wind energy generation facility development and will likewise negatively impact the demand for wind turbines, towers, and related components. As a result, the continued Congressional delay or failure to extend or renew these or similar incentives in the future could have a material adverse impact on our business, results of operation, financial performance and future development efforts of wind energy projects.

Although development of wind farms has been incentivized over the past 20 years by the PTCs and that the PTC's are now set to expire, we believe there still is impetus in the United States to increase its generation of electrical power through renewable energy means. We believe that the market for community wind power and distributed generation projects will be maintained as a model for ongoing installations of wind power given the constraints of transmission capacity and utility power purchases that are currently affecting the growth of larger scale projects.


Growth in wind power is being driven by several environmental, socio-economic and energy policy factors that include:

· ongoing increases in electricity demand due to population growth and growth in energy consuming devices such as computers, televisions and air conditioning systems, as coal and oil resources need replacing;

· the fluctuating costs of the predominant fuels required to drive the existing fleet of conventional electric generation such as coal, natural gas, nuclear and oil, especially as recent low (subsidized) wind prices are roughly competitive with natural gas;

· existing and growing legislative and regulatory mandates for "cleaner" forms of electric generation, including state renewable portfolio standards and the U.S. federal tax incentives for wind and solar generation, including the Recovery and Reinvestment Act enacted in February 2009 (although PTCs are set to expire at December 31, 2012, unless extended by Congress) ;

· the expectancy that the Environmental Protection Agency will enact regulations and standards accelerating the retirement of aging coal plants and impacting the life of natural gas plants, thus increasing the need for replacement of resources;

· uncertainty surrounding the growth potential of nuclear power plants;

· wind projects have shorter development timeframe than natural gas plants and have greater flexibility to adapt to changing conditions;

· worldwide concern over greenhouse gas emissions and calls to reduce global warming due to the carbon dioxide produced by conventional electric generation; and

· newer wind turbine models are becoming more efficient (such as advances in wind turbine blade aerodynamics, development of variable speed generators, advances in remote operation and monitoring systems, improvements in wind monitoring and forecasting tools and advances in turbine maintenance) and offer improved capacity factors, and together with cost competition among suppliers, wind power systems have become more competitive with coal and gas on a dollar-per-megawatt-hour basis.

We can provide full-scale development of wind farms across the range of required steps including performing initial feasibility studies, assisting in power purchase agreement negotiations, arranging equity and debt project financing, providing equipment and construction services, and managing operations. Further, we will continue to develop our capabilities in the renewable energy space with development of distributed generation projects, such as wind facilities that can be utilized by large corporations interesting in being green, or solar projects. Thus, we believe it is necessary to evolve and diversify in our asset, product and service portfolio to 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.

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