Edgar Filing: Ameresco, Inc.

AMRC 9.30.2011 10-Q/A Q3'11

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)



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

For the quarterly period ended September 30, 2011



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: 001-34811

Ameresco, Inc.

(Exact name of registrant as specified in its charter)



Delaware		04-3512838
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
111 Speen Street, Suite 410 Framingham, Massachusetts		01701
(Address of Principal Executive Offices)		(Zip Code)

(508) 661-2200

(Registrant's Telephone Number, Including Area Code)

N/A

(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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R 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 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R 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. (Check one):



Large Accelerated Filer o	Accelerated Filer o	Non-accelerated Filer þ (Do not check if a smaller reporting company)	Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.



Class	Shares outstanding as of November 4, 2011
Class A Common Stock, $0.0001 par value per share	25,360,711
Class B Common Stock, $0.0001 par value per share	18,000,000

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EXPLANATORY NOTE

Ameresco, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011 (the “Initial Form 10-Q”), as originally filed with the U.S. Securities and Exchange Commission (“SEC”) on November 14, 2011, for the sole purpose of correcting a typographical error identified by the Company. Specifically, the Company is filing this Amendment No. 1 to correct the reported pre-tax loss of AEG following its acquisition date as presented in Note 3 to the condensed consolidated financial statements on page 18, and also the title of the corresponding line of the table. The correct figure is $172,730 and the corresponding line in the table is titled “Pre-tax (loss) income”. This Amendment No. 1 does not restate any previously reported financial statements or, except as indicated above, change any other disclosures.

This Amendment No. 1 continues to speak as of the original filing date of the Initial Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date and, other than as expressly indicated in the immediately preceding paragraph, does not modify or update in any way disclosures made in the Initial Form 10-Q.

References to "Quarterly Report on Form 10-Q" in this Amendment No.1 refer to the Initial Form 10-Q as amended by this Amendment No. 1.

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AMERESCO, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

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		Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Consolidated Balance Sheets at December 31, 2010 and September 30, 2011 (Unaudited)		1

Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2010 and 2011 (Unaudited)		3

Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2010 and 2011 (Unaudited)		4

Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2011 (Unaudited)		5

Consolidated Statements of Cash Flows for the three months ended September 30, 2010 and 2011 (Unaudited)		6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2011 (Unaudited)		8

Notes to Condensed Consolidated Financial Statements (Unaudited)		10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		47

Item 4. Controls and Procedures		48

PART II - OTHER INFORMATION
Item 1. Legal Proceedings		49

Item 1A. Risk Factors		49

Item 6. Exhibits		49

Signatures		50

Exhibit Index		51

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AMERESCO, INC.

CONSOLIDATED BALANCE SHEETS



	December 31,		September 30,
	2010		2011
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	44,691,021	$	31,734,749
Restricted cash	9,197,447		12,687,929
Accounts receivable, net	68,584,304		143,856,513
Accounts receivable retainage	18,452,777		18,562,244
Costs and estimated earnings in excess of billings	35,556,425		55,093,772
Inventory, net	6,780,092		8,323,380
Prepaid expenses and other current assets	8,471,628		10,216,107
Income tax receivable	2,511,542		9,504,152
Deferred income taxes	9,908,240		12,668,142
Project development costs	7,556,345		8,170,697
Total current assets	211,709,821		310,817,685
Federal ESPC receivable	193,551,495		236,595,684
Property and equipment, net	5,406,387		6,684,625
Project assets, net	145,147,475		169,092,913
Deferred financing fees, net	3,412,186		3,722,968
Goodwill	20,580,995		41,907,853
Intangible assets, net	—		13,221,000
Other assets	4,598,980		6,390,885
	372,697,518		477,615,928
	$	584,407,339	$	788,433,613
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	4,722,118	$	11,115,586
Accounts payable	95,302,897		116,278,050
Accrued expenses and other current liabilities	12,517,671		12,260,683
Billings in excess of cost and estimated earnings	27,555,894		31,345,206
Income taxes payable	2,488,672		802,290
Total current liabilities	142,587,252		171,801,815
Long-term debt, less current portion	202,409,484		325,905,269
Deferred income taxes	12,013,799		24,125,829
Deferred grant income	4,200,929		6,109,406
Other liabilities	28,144,144		29,673,680
	$	246,768,356	$	385,814,184
Commitments and contingencies (Note 7)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS — (Continued)
	December 31,			September 30,
	2010			2011
				(Unaudited)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2010 and September 30, 2011	$	—		$	—
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 27,925,649 shares issued and 23,092,365 outstanding at December 31, 2010, 30,150,070 shares issued and 25,316,786 outstanding at September 30, 2011	2,793			3,015
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000 shares issued and outstanding at December 31, 2010 and September 30, 2011	1,800			1,800
Additional paid-in capital	74,069,087			86,725,095
Retained earnings	126,609,101			153,088,094
Accumulated other comprehensive income	3,551,521			182,181
Less — treasury stock, at cost, 4,833,284 shares	(9,182,571		)	(9,182,571		)
Total stockholders’ equity	195,051,731			230,817,614
	$	584,407,339		$	788,433,613



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

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AMERESCO, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



	Three Months Ended September 30,
	2010			2011
	(Unaudited)

Energy efficiency revenue	$	147,863,350		$	188,718,434
Renewable energy revenue	44,038,079			39,085,134
	191,901,429			227,803,568
Direct expenses:
Energy efficiency expenses	121,906,348			155,890,159
Renewable energy expenses	35,114,345			32,058,319
	157,020,693			187,948,478
Gross profit	34,880,736			39,855,090
Operating expenses:
Salaries and benefits	8,409,014			10,984,929
Project development costs	2,716,616			5,174,930
General, administrative and other	4,841,508			7,286,542
	15,967,138			23,446,401
Operating income	18,913,598			16,408,689
Other expenses, net (Note 10)	(2,010,030		)	(1,359,913		)
Income before provision for income taxes	16,903,568			15,048,776
Income tax provision	(4,862,651		)	(2,690,196		)
Net income	12,040,917			12,358,580
Other comprehensive income (loss):
Unrealized loss from interest rate hedge, net of tax	(746,087		)	(1,775,890		)
Foreign currency translation adjustment	879,842			(2,267,225		)
Comprehensive income	$	12,174,672		$	8,315,465
Net income per share attributable to common shareholders:
Basic	$	0.35		$	0.29
Diluted	$	0.28		$	0.27
Weighted average common shares outstanding:
Basic	34,434,352			43,116,861
Diluted	43,445,391			46,308,032

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

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AMERESCO, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



	Nine Months Ended September 30,
	2010			2011
	(Unaudited)
Revenue:
Energy efficiency revenue	$	323,578,578		$	418,697,750
Renewable energy revenue	115,305,944			121,007,530
	438,884,522			539,705,280
Direct expenses:
Energy efficiency expenses	267,495,450			344,499,360
Renewable energy expenses	91,955,471			95,216,122
	359,450,921			439,715,482
Gross profit	79,433,601			99,989,798
Operating expenses:
Salaries and benefits	21,893,756			29,232,330
Project development costs	7,893,558			14,839,723
General, administrative and other	16,156,553			17,848,103
	45,943,867			61,920,156
Operating income	33,489,734			38,069,642
Other expenses, net (Note 10)	(4,082,417		)	(3,248,919		)
Income before provision for income taxes	29,407,317			34,820,723
Income tax provision	(8,381,084		)	(8,341,730		)
Net income	21,026,233			26,478,993
Other comprehensive income (loss):
Unrealized loss from interest rate hedge, net of tax	(2,297,667		)	(1,991,877		)
Foreign currency translation adjustment	689,797			(1,377,463		)
Comprehensive income	$	19,418,363		$	23,109,653
Net income per share attributable to common shareholders:
Basic	$	1.02		$	0.63
Diluted	$	0.53		$	0.58
Weighted average common shares outstanding:
Basic	20,563,849			42,275,367
Diluted	39,513,507			45,377,104

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

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AMERESCO, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(Unaudited)



																		Accumulated
	Series A Preferred									Additional								Other			Total
	Stock			Class B Common Stock			Class A Common Stock			Paid-in		Retained		Treasury Stock				Comprehensive			Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount			Income			Equity
Balance, December 31, 2010	—	$	—	18,000,000	$	1,800	27,925,649	$	2,793	$	74,069,087	$	126,609,101	4,833,284	$	(9,182,571	)	$	3,551,521		$	195,051,731
Exercise of stock options, net	—	—		—	—		2,224,421	222		4,907,423		—		—	—			—			4,907,645
Stock-based compensation expense, including excess tax benefits of $5,721,385	—	—		—	—		—	—		7,748,585		—		—	—			—			7,748,585
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—	—			(1,377,463		)	(1,377,463		)
Unrealized loss from interest rate hedge, net of tax	—	—		—	—		—	—		—		—		—	—			(1,991,877		)	(1,991,877		)
Net income	—	—		—	—		—	—		—		26,478,993		—	—			—			26,478,993
Balance, September 30, 2011	—	$	—	18,000,000	$	1,800	30,150,070	$	3,015	$	86,725,095	$	153,088,094	4,833,284	$	(9,182,571	)	$	182,181		$	230,817,614
The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three Months Ended September 30,
	2010			2011
	(Unaudited)
Cash flows from operating activities:
Net income	$	12,040,917		$	12,358,580
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of project assets	4,206,992			2,676,004
Depreciation of property and equipment	589,029			845,947
Amortization of deferred financing fees	306,398			106,776
Amortization of intangible assets	—			501,000
Provision for bad debts	—			154
Stock-based compensation expense	651,352			432,624
Deferred income taxes	792,193			4,097,831
Excess tax benefits from stock-based compensation arrangements	—			(1,819,749		)
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash draws	53,185,373			20,465,804
Accounts receivable	(21,103,490		)	(45,257,456		)
Accounts receivable retainage	(5,204,217		)	(915,906		)
Federal ESPC receivable	(51,833,048		)	(21,910,697		)
Inventory	23,790			439,704
Costs and estimated earnings in excess of billings	(8,859,603		)	2,294,809
Prepaid expenses and other current assets	(1,817,278		)	(1,149,248		)
Project development costs	(872,942		)	(1,383,993		)
Other assets	4,560,707			(1,554,165		)
Increase (decrease) in:
Accounts payable, accrued expenses and other current liabilities	25,940,748			38,898,718
Billings in excess of cost and estimated earnings	(1,341,379		)	4,517,219
Other liabilities	337,826			(4,679,466		)
Income taxes payable	(2,541,814		)	1,352,618
Net cash provided by operating activities	9,061,554			10,317,108
Cash flows from investing activities:
Purchases of property and equipment	(877,781		)	(863,145		)
Purchases of project assets	(12,415,691		)	(16,837,529		)
Acquisitions, net of cash received	(6,138,941		)	(60,953,588		)
Net cash used in investing activities	$	(19,432,413	)	$	(78,654,262	)

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

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AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



	Three Months Ended September 30,
	2010			2011
	(Unaudited)
Cash flows from financing activities:
Excess tax benefits from stock-based compensation arrangements	$	—		$	1,819,749
Payments of financing fees	(402,625		)	(78,924		)
Proceeds from exercises of options and warrants, and issuance of stock	59,649,893			905,557
Proceeds from senior secured credit facility	(31,351,119		)	41,571,429
Restricted cash	(1,137,175		)	(1,136,862		)
Repayment of subordinated debt	(2,998,750		)	—
Payments on long-term debt	(5,755,902		)	(1,444,018		)
Net cash provided by financing activities	18,004,322			41,636,931
Effect of exchange rate changes on cash	498,142			(1,347,221		)
Net increase (decrease) in cash and cash equivalents	8,131,605			(28,047,444		)
Cash and cash equivalents, beginning of period	21,134,396			59,782,193
Cash and cash equivalents, end of period	$	29,266,001		$	31,734,749
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	710,265		$	1,246,530
Income taxes	$	3,652,142		$	1,764,698
Acquisitions, net of cash received:
Accounts receivable	$	8,354,669		$	18,287,718
Accounts receivable retainage	423,927			—
Costs and estimated earnings in excess of billings	1,947,639			11,269,294
Prepaid expenses and other current assets	33,922			95,674
Property and equipment	127,512			604,637
Project assets	—			6,970,185
Goodwill	2,539,561			21,262,668
Intangible assets	—			13,722,000
Other assets	18,551			52,062
Accounts payable and accrued expenses	(7,032,052		)	(7,175,650		)
Billings in excess of cost and estimated earnings	(274,788		)	—
Deferred income taxes	—			(2,500,000		)
Other liabilities	—			(1,635,000		)
	$	6,138,941		$	60,953,588

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

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AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended September 30,
	2010			2011
	(Unaudited)
Cash flows from operating activities:
Net income	$	21,026,233		$	26,478,993
Adjustments to reconcile net income to cash used in operating activities:
Depreciation of project assets	7,623,850			7,126,617
Depreciation of property and equipment	1,234,415			1,927,669
Amortization of deferred financing fees	474,403			312,431
Amortization of intangible assets	—			501,000
Provision for bad debts	—			24,374
Write-down of long-term receivable	2,111,000			—
Unrealized loss on interest rate swaps	133,591			—
Stock-based compensation expense	1,758,503			2,027,200
Deferred income taxes	—			7,243,425
Excess tax benefits from stock-based compensation arrangements	—			(5,721,385		)
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash draws	108,936,357			98,682,379
Accounts receivable	(24,037,153		)	(57,839,917		)
Accounts receivable retainage	(7,491,725		)	(580,598		)
Federal ESPC receivable	(110,522,731		)	(95,550,030		)
Inventory	(1,071,268		)	(1,543,288		)
Costs and estimated earnings in excess of billings	(16,660,465		)	(8,600,351		)
Prepaid expenses and other current assets	(5,518,403		)	(1,812,750		)
Project development costs	(790,904		)	(623,548		)
Other assets	6,582,019			(1,758,820		)
Increase (decrease) in:
Accounts payable, accrued expenses and other current liabilities	6,749,903			16,997,701
Billings in excess of cost and estimated earnings	2,311,175			4,189,191
Other liabilities	1,702,081			97,928
Income taxes payable	(946,361		)	(3,336,415		)
Net cash used in operating activities	(6,395,480		)	(11,758,194		)
Cash flows from investing activities:
Purchases of property and equipment	(1,361,876		)	(2,669,779		)
Purchases of project assets	(24,783,062		)	(31,558,420		)
Grant awards received on project assets	—			6,695,711
Acquisitions, net of cash received	(6,138,941		)	(60,953,588		)
Additional purchase price paid on 2010 acquisition (Note 3)	—			(1,956,366		)
Net cash used in investing activities	$	(32,283,879	)	$	(90,442,442	)

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

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AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



	Nine Months Ended September 30,
	2010			2011
	(Unaudited)
Cash flows from financing activities:
Excess tax benefits from stock-based compensation arrangements	$	—		$	5,721,385
Payments of financing fees	(1,300,058		)	(623,213		)
Proceeds from exercises of options and warrants, and issuance of stock	60,062,759			4,907,645
Repurchase of stock	(768,970		)	—
Proceeds from senior secured credit facility	(19,915,218		)	81,571,429
Proceeds from long-term debt financing	812,398			5,500,089
Restricted cash	(5,956,433		)	(2,812,428		)
Repayment of subordinated debt	(2,998,750		)	—
Payments on long-term debt	(10,548,598		)	(3,998,627		)
Net cash provided by financing activities	19,387,130			90,266,280
Effect of exchange rate changes on cash	630,690			(1,021,916		)
Net decrease in cash and cash equivalents	(18,661,539		)	(12,956,272		)
Cash and cash equivalents, beginning of year	47,927,540			44,691,021
Cash and cash equivalents, end of period	$	29,266,001		$	31,734,749
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	3,228,744		$	3,063,570
Income taxes	$	5,052,664		$	6,800,454
Acquisitions, net of cash received:
Accounts receivable	$	8,354,669		$	18,287,718
Accounts receivable retainage	423,927			—
Costs and estimated earnings in excess of billings	1,947,639			11,269,294
Prepaid expenses and other current assets	33,922			95,674
Property and equipment	127,512			604,637
Project assets	—			6,970,185
Goodwill	2,539,561			21,262,668
Intangible assets	—			13,722,000
Other assets	18,551			52,062
Accounts payable and accrued expenses	(7,032,052		)	(7,175,650		)
Billings in excess of cost and estimated earnings	(274,788		)	—
Deferred income taxes	—			(2,500,000		)
Other liabilities	—			(1,635,000		)
	$	6,138,941		$	60,953,588

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

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. DESCRIPTION OF BUSINESS

Ameresco, Inc. (including its subsidiaries, the "Company") was organized as a Delaware corporation on April 25, 2000. The Company is a provider of energy efficiency solutions for facilities throughout North America. The Company provides solutions, both products and services, that enable customers to reduce their energy consumption, lower their operating and maintenance costs and realize environmental benefits. The Company's comprehensive set of services includes upgrades to a facility's energy infrastructure and the construction and operation of small-scale renewable energy plants. It also sells certain photovoltaic equipment worldwide. The Company operates in the United States, Canada, and Europe.

The Company is compensated through a variety of methods, including: 1) direct payments based on fee-for-services contracts (utilizing lump-sum or cost-plus pricing methodologies); 2) the sale of energy from the Company's generating assets; and 3) direct payment for photovoltaic equipment and systems.

The condensed consolidated financial statements as of December 31, 2010 and September 30, 2011, and for the three and nine months ended September 30, 2010 and 2011, include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The condensed consolidated financial statements as of September 30, 2011, and for the three and nine months ended September 30, 2010 and 2011, are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted. The interim condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation in conformity with GAAP. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010, and notes thereto, included in the Company's annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 31, 2011. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Codification

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board ("FASB"). The FASB sets generally accepted accounting principles that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the condensed consolidated financial statements are to the FASB Accounting Standards Codification ("ASC").

A summary of the significant accounting policies consistently applied in the preparation of the accompanying condensed consolidated financial statements follows.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Ameresco, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Gains and losses from the translation of all foreign currency financial statements are recorded in the accumulated other comprehensive income (loss) account within stockholders' equity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates with regard to these condensed consolidated financial statements relate to the estimation of final construction contract profit in accordance with accounting for long-term contracts, allowance for doubtful accounts, inventory reserves, project development costs, fair value of derivative financial instruments and stock-based awards, impairment of long lived assets, income taxes and estimating potential liability in conjunction with certain commitments and contingencies. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash includes cash on deposit, overnight repurchase agreements and amounts invested in highly liquid money market funds. Cash equivalents consist of short term investments with original maturities of three months or less. The Company maintains accounts with financial institutions and the balances in such accounts, at times, exceed federally insured limits. This

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credit risk is divided among a number of financial institutions that management believes to be of high quality. The carrying amount of cash and cash equivalents approximates their fair value.

Restricted Cash

Restricted cash consists of cash held in an escrow account in association with construction draws for energy savings performance contracts ("ESPCs") and construction of project assets, as well as cash required under term loans to be maintained in debt service reserve accounts until all obligations have been indefeasibly paid in full.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and management's evaluation of outstanding accounts receivable at the end of the year. Bad debts are written off against the allowance when identified. Changes in the allowance for doubtful accounts for the nine months ended September 30, 2010 and 2011 are as follows:



	Nine Months Ended September 30,
	2010			2011
Balance, beginning of period	$	1,602,079		$	1,677,278
Charges to costs and expenses	—			24,374
Account write-offs and other	(17,006		)	4,915
Balance, end of period	$	1,585,073		$	1,706,567

At December 31, 2010 and at September 30, 2011, no customer accounted for more than 10% of the Company's total accounts receivable.

During the three months ended September 30, 2010 and for the three and nine months ended September 30, 2011, no customer accounted for more than 10% of the Company's total revenue.

During the nine months ended September 30, 2010 the Company had one customer that accounted for approximately 11.3% of the Company's total revenue.

Accounts Receivable Retainage

Accounts receivable retainage represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from five percent to ten percent of the total invoice.

Inventory

Inventories, which consist of photovoltaic solar panels, batteries and related accessories, are stated at the lower of cost ("first-in, first-out" method) or market (determined on the basis of estimated realizable values). Provisions have been made to reduce the carrying value to the realizable value.

Prepaid Expenses

Prepaid expenses consist primarily of short-term prepaid expenditures that will amortize within one year.

Federal ESPC Receivable

Federal ESPC receivable represents the amount to be paid by various federal government agencies for work performed and earned by the Company under specific ESPCs. The Company assigns certain of its rights to receive those payments to third-party lenders that provide construction and permanent financing for such contracts. The receivable is recognized as revenue as each project is constructed. Upon completion and acceptance of the project by the government, the assigned ESPC receivable and corresponding related project debt is eliminated from the Company's financial statements.

Project Development Costs

The Company capitalizes as project development costs only those costs incurred in connection with the development of energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and travel, if incurred after a point in time where the realization of related revenue becomes probable. Project development costs incurred

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prior to the probable realization of revenue are expensed as incurred. The Company classifies project development costs as a current asset as the development efforts are expected to proceed to construction activity in the twelve months that follow. The Company periodically reviews these balances and writes off any amounts where the realization of the related revenue is no longer probable.

Property and Equipment

Property and equipment consists primarily of office and computer equipment. These assets are recorded at cost. Major additions and improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation and amortization of property and equipment are computed on a straight-line basis over the following estimated useful lives:



Asset Classification		Estimated Useful Life
Furniture and office equipment		Five years
Computer equipment and software costs		Five years
Leasehold improvements		Lesser of term of lease or five years
Automobiles		Five years
Land		Unlimited

Project Assets

Project assets consist of costs of materials, direct labor, interest costs, outside contract services and project development costs incurred in connection with the construction of small-scale renewable energy plants that the Company owns and the implementation of energy savings contracts. These amounts are capitalized and amortized over the lives of the related assets or the terms of the related contracts.

The Company capitalizes interest costs relating to construction financing during the period of construction. The interest capitalized is included in the total cost of the project at completion. The amount of interest capitalized for the nine months ended September 30, 2010 was $252,113. No interest was capitalized for the three months ended September 30, 2010 or the three and nine months ended September 30, 2011.

Routine maintenance costs are expensed in the current year's condensed consolidated statements of income and comprehensive income to the extent that they do not extend the life of the asset. Major maintenance, upgrades and overhauls are required for certain components of the Company's assets. In these instances, the costs associated with these upgrades are capitalized and are depreciated over the shorter of the life of the asset or until the next required major maintenance or overhaul period. Gains or losses on disposal of property and equipment are reflected in general, administrative and other expenses in the condensed consolidated statements of income and comprehensive income.dd

The Company evaluates its long-lived assets for impairment as events or changes in circumstances indicate the carrying value of these assets may not be fully recoverable. The Company evaluates recoverability of long-lived assets to be held and used by estimating the undiscounted future cash flows before interest associated with the expected uses and eventual disposition of those assets. When these comparisons indicate that the carrying value of those assets is greater than the undiscounted cash flows, the Company recognizes an impairment loss for the amount that the carrying value exceeds the fair value. d

In February and March 2011, the Company received a total of $6,695,711 in grant awards from the U.S. Treasury Department (the "Treasury") under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the "Act"). The Act authorized the Treasury to make payments to eligible persons who place in service qualifying renewable energy projects. The grants are paid in lieu of investment tax credits. All of the proceeds from the grants were used and recorded as a reduction in the cost basis of the applicable project assets. If the Company disposes of the property, or the property ceases to qualify as specified energy property, within five years from the date the property is placed in service, then a prorated portion of the Section 1603 payment must be repaid. For tax purposes, the Section 1603 payments are not included in federal and certain state taxable income and the basis of the property is reduced by 50% of the payment received. Deferred grant income of $4,200,929 and $6,109,406 in the accompanying condensed consolidated balance sheets at December 31, 2010 and September 30, 2011, respectively, represents the benefit of the basis difference to be amortized to income tax expense over the life of the related property.

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Deferred Financing Fees

Deferred financing fees relate to the external costs incurred to obtain financing for the Company. All deferred financing fees are amortized over the respective term of the financing.

Goodwill and Intangible Assets

The Company has classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions. The Company assesses the impairment of goodwill and intangible assets that have indefinite lives on an annual basis (December 31^st) and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company would record an impairment charge if such an assessment were to indicate that the fair value of such assets was less than their carrying values. Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets.

Factors that could indicate that an impairment may exist include significant underperformance relative to plan or long-term projections, significant changes in business strategy, significant negative industry or economic trends or a significant decline in the base price of the Company's publicly traded stock for a sustained period of time. Although the Company believes goodwill and intangible assets are appropriately stated in the accompanying condensed consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance.

During April 2011, the Company made an additional payment of approximately $2,000,000 in accordance with certain provisions of the stock purchase agreement with the former shareholders of Quantum Engineering and Development, Inc. ("Quantum"). The payment has been reflected retrospectively as additional goodwill in the accompanying consolidated balance sheets in accordance with ASC 805, Business Combinations.

During the third quarter of 2011, the Company entered into two separate stock purchase agreements to acquire 100% of the capital stock of each of Applied Energy Group ("AEG") and APS Energy Services, Inc. (now known as "Ameresco Southwest"). The net purchase prices have been allocated to the net identified assets acquired based on fair values at the respective date of the acquisition with the residual amounts allocated to goodwill. The acquisition of AEG resulted in the Company recording an initial carrying value of goodwill totaling $5,170,508. For the acquisition of Ameresco Sourthwest, the Company recorded an initial carrying value of goodwill of $16,092,160. Acquired intangible assets other than goodwill that are subject to amortization include customer contracts and relationships as well as software and non-compete agreements. The intangible assets are amortized over a period of approximately five years from the respective date of acquisition. See Note 3 for more information.

Other Assets

Other assets consist primarily of notes and contracts receivable due to the Company.

Asset Retirement Obligations

The Company recognizes a liability for the fair value of required asset retirement obligations ("AROs") when such obligations are incurred. The liability is estimated on a number of assumptions requiring management's judgment, including equipment removal costs, site restoration costs, salvage costs, cost inflation rates and discount rates and is accredited to its projected future value over time. The capitalized asset is depreciated using the convention of depreciation of plant assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement cost incurred is recognized as an operating gain or loss in the condensed consolidated statements of income and comprehensive income. As of December 31, 2010 and September 30, 2011, the Company had no AROs.

Other Liabilities

Other liabilities consist primarily of deferred revenue related to multi-year operation and maintenance contracts which expire as late as 2031. Other liabilities also include the fair value of derivatives and deferred compensation relating to the 2010 and July 2011 acquisitions . See Note 3 and 7.

Revenue Recognition

The Company derives revenue from energy efficiency and renewable energy products and services. Energy efficiency products and services include the design, engineering, and installation of equipment and other measures to improve the efficiency, and control the operation, of a facility's energy infrastructure. Renewable energy products and services include the construction of small-scale plants that produce electricity, gas, heat or cooling from renewable sources of energy, the sale of

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such electricity, gas, heat or cooling from plants that the Company owns, and the sale and installation of solar energy products and systems.

Revenue from the installation or construction of projects is recognized on a percentage-of-completion basis. The percentage-of-completion for each project is determined on an actual cost-to-estimated final cost basis. Maintenance revenue is recognized as related services are performed. In accordance with industry practice, the Company includes in current assets and liabilities the amounts of receivables related to construction projects realizable and payable over a period in excess of one year. The revenue associated with contract change orders is recognized only when the authorization for the change order has been properly executed and the work has been performed and accepted by the customer.

When the estimate on a contract indicates a loss, or claims against costs incurred reduce the likelihood of recoverability of such costs, the Company records the entire expected loss immediately, regardless of the percentage of completion.

Billings in excess of cost and estimated earnings represents advanced billings on certain construction contracts. Costs and estimated earnings in excess of billings represent certain amounts under customer contracts that were earned and billable but not invoiced at December 31, 2010 and September 30, 2011.

The Company sells certain products and services in bundled arrangements, where multiple products and/or services are involved. The Company divides bundled arrangements into separate deliverables and revenue is allocated to each deliverable based on the relative selling price. The relative selling price is determined using vendor specific objective evidence, third party evidence or management's best estimate of selling price.

The Company recognizes revenue from the sale and delivery of products, including the output from renewable energy plants, when produced and delivered to the customer, in accordance with specific contract terms, provided that persuasive evidence of an arrangement exists, the Company's price to the customer is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenue from operations and maintenance ("O&M") contracts and consulting services as the related services are performed.

For a limited number of contracts under which the Company receives additional revenue based on a share of energy savings, such additional revenue is recognized as energy savings are generated.

Direct Expenses

Direct expenses include the cost of labor, materials, equipment, subcontracting and outside engineering that are required for the development and installation of projects, as well as preconstruction costs, sales incentives, associated travel, inventory obsolescence charges, and, if applicable, costs of procuring financing. A majority of the Company's contracts have fixed price terms; however, in some cases the Company negotiates protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.

Direct expenses also include the costs of maintaining and operating the small-scale renewable energy plants that the Company owns, including the cost of fuel (if any) and depreciation charges.

Income Taxes

The Company provides for income taxes based on the liability method. The Company provides for deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using the enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return.

The Company accounts for uncertain tax positions using a "more-likely-than-not" threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

The Company's liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the "more-likely-than-not" threshold or the liability becomes effectively settled through the

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examination process.

The Company considers matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews; the Company has no plans to appeal or litigate any aspect of the tax position; and the Company believes that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. The Company also accrues for potential interest and penalties, related to unrecognized tax benefits in income tax expense. See Note 5 for additional information on the Company's income taxes.

Foreign Currency Translation

The local currency of the Company's foreign operations is considered the functional currency of such operations. All assets and liabilities of the Company's foreign operations are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the year. Translation adjustments are accumulated as a separate component of stockholders' equity. Foreign currency translation gains and losses are reported in the condensed consolidated statements of income and comprehensive income.

Financial Instruments

Financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, long-term contract receivables, accounts payable, long-term debt and interest rate swaps. The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable, long-term contract receivables and accounts payable approximates their carrying value. See below for fair value measurements of long-term debt. See Note 11 for fair value of interest rate swaps.

Stock-Based Compensation Expense

Stock-based compensation expense results from the issuances of shares of restricted common stock and grants of stock options and warrants to employees, directors, outside consultants and others. The Company recognizes the costs associated with restricted stock, option and warrant grants using the fair value recognition provisions of ASC 718, Compensation - Stock Compensation on a straight-line basis over the vesting period of the awards.

Stock-based compensation expense is recognized based on the grant-date fair value. The Company estimates the fair value of the stock-based awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value of stock-based awards requires the use of highly subjective assumptions, including the fair value of the common stock underlying the award, the expected term of the award and expected stock price volatility.

The assumptions used in determining the fair value of stock-based awards represent management's estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors change, and different assumptions are employed, the stock-based compensation could be materially different in the future. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected life of the stock options.

The Company has no history of paying dividends. Additionally, as of each of the grant dates, there was no expectation to pay dividends over the expected life of the options. The expected life of the awards is estimated using historical data and management's expectations. Because there was no public market for the Company's common stock prior to the Company's initial public offering, management lacked company-specific historical and implied volatility information. Therefore, estimates of expected stock volatility were based on that of publicly-traded peer companies, and it is expected that the Company will continue to use this methodology until such time as there is adequate historical data regarding the volatility of the Company's publicly-traded stock price.

The Company is required to recognize compensation expense for only the portion of options that are expected to vest. Actual historical forfeiture rate of options is based on employee terminations and the number of shares forfeited. These data and other qualitative factors are considered by the Company in determining the forfeiture rate used in recognizing stock compensation expense. If the actual forfeiture rate varies from historical rates and estimates, additional adjustments to compensation expense may be required in future periods. If there are any modifications or cancellations of the underlying unvested securities or the terms of the stock option, it may be necessary to accelerate, increase or cancel any remaining unamortized stock-based compensation expense.

The Company also accounts for equity instruments issued to non-employee directors and consultants at fair value. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more

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reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty's performance is complete. No awards to individuals who were not either an employee or director of the Company occurred during the year ended December 31, 2010 or for the nine months ended September 30, 2011.

Fair Value Measurements

In 2009, the Company adopted fair value measurements for all of its non-financial assets and non-financial liabilities, except for those recognized at fair value in the financial statements at least annually. These assets include goodwill and long-lived assets measured at fair value for impairment assessments, and non-financial assets and liabilities initially measured at fair value in a business combination. The Company's adoption of this guidance did not have a material impact on its condensed consolidated financial statements.

The Company's financial instruments include cash and cash equivalents, accounts and notes receivable, interest rate swaps, accounts payable, accrued expenses, equity-based liabilities and short- and long-term borrowings. Because of their short maturity, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value. The carrying value of long-term variable-rate debt approximates fair value. As of September 30, 2011, the carrying value of the Company's fixed-rate long-term debt exceeds its fair value by approximately $1,181,464. This is based on quoted market prices or on rates available to the Company for debt with similar terms and maturities.

The Company accounts for its interest rate swaps as derivative financial instruments in accordance with the related guidance. Under this guidance, derivatives are carried on the Company's consolidated balance sheets at fair value. The fair value of the Company's interest rate swaps are determined based on observable market data in combination with expected cash flows for each instrument.

Derivative Financial Instruments

In the normal course of business, the Company utilizes derivatives contracts as part of its risk management strategy to manage exposure to market fluctuations in interest rates. These instruments are subject to various credit and market risks. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. The Company seeks to manage credit risk by entering into financial instrument transactions only through counterparties that the Company believes to be creditworthy.

Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates. The Company seeks to manage market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. As a matter of policy, the Company does not use derivatives for speculative purposes. The Company considers the use of derivatives with all financing transactions to mitigate risk.

A portion of the Company's project financing includes two projects that each utilize an interest rate swap instrument. During 2007, the Company entered into two fifteen-year interest rate swap contracts under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional principal amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swaps cover notional amounts of approximately $13,100,000 and $2,900,000, each a variable rate note at fixed interest rates of 5.4% and 5.3%, respectively, and expire in September 2023 and February 2021, respectively. These interest rate swaps qualified, but were not designated, as cash flow hedges until April 1, 2010. Since April 2010, they have been designated as hedges. Accordingly, the Company recognized the change in fair value of these derivatives in the consolidated statements of income prior to April 1, 2010, and in the consolidated statements of comprehensive income (loss) thereafter. Cash flows from derivative instruments were reported as operating activities in the consolidated statements of cash flows.

In March 2010, the Company entered into a fourteen-year interest rate swap contract under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swap covers a notional amount of approximately $27,900,000 variable rate note at a fixed interest rate of 6.99% and expires in December 2024.

As of April 1, 2010, and in accordance with accounting standards, all then existing swaps held by the Company have been designated as cash flow hedges. Accordingly, the Company recognizes the fair value of the swaps in its consolidated balance sheets and any changes in the fair value are recorded as adjustments to other comprehensive income (loss).

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In July 2011, the Company entered into a five-year interest rate swap contract under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swap covers a notional amount of $38,571,429 variable rate note at a fixed interest rate of 1.965% and expires in June 2016.

With respect to the Company's interest rate swaps that had been designated as cash flow hedges, the Company recorded an unrealized loss in earnings during the nine months ended September 30, 2010 of approximately $133,591, as other expenses, net in the condensed consolidated statements of income and comprehensive income. No unrealized gains (losses) were recorded during the three months ended September 30, 2010 or the three and nine months ended September 30, 2011.

See Note 12 for additional information on the Company's derivative instruments.

Earnings Per Share

Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares, including vested restricted shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using: the weighted-average outstanding common shares; the dilutive effect of convertible preferred stock, under the "if converted" method; and the treasury stock method with regard to warrants and stock options; all as determined under the treasury stock method.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2011		2010		2011
Basic and diluted net income	$	12,040,917	$	12,358,580	$	21,026,233	$	26,478,993
Basic weighted-average shares outstanding	34,434,352		43,116,861		20,563,849		42,275,367
Effect of dilutive securities:
Preferred stock	4,396,304		—		14,250,988		—
Stock options	4,614,735		3,191,171		4,698,670		3,101,737
Diluted weighted-average shares outstanding	43,445,391		46,308,032		39,513,507		45,377,104

For the three and nine months ended September 30, 2010, 856,000 shares of common stock were excluded from the calculation of dilutive shares as the effect would be anti-dilutive. For the three and nine months ended September 30, 2011, 694,688 and 88,688 shares of common stock, respectively, related to stock options were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

Business Segments

The Company reports four segments: U.S. federal, central U.S. region, other U.S. regions and Canada. Each segment provides customers with energy efficiency and renewable energy solutions. The other U.S. regions segment is an aggregation of four regions: northeast U.S., southeast U.S., southwest U.S. and northwest U.S. These regions have similar economic characteristics — in particular, expected and actual gross profit margins. In addition, they sell products and services of a similar nature, serve similar types of customers and use similar methods to distribute their products and services. Accordingly, these four regions meet the aggregation criteria set forth in ASC 280, Segment Reporting. The "all other" category includes activities, such as O&M and sales of renewable energy and certain other renewable energy products, that are managed centrally at the Company's corporate headquarters. It also includes all corporate operating expenses — salaries and benefits, project development costs and general, administrative and other — not specifically allocated to the segments. For the three months ended September 30, 2010 and 2011, unallocated corporate expenses were $7,712,229 and $10,259,457, respectively. Income before taxes and unallocated corporate expenses for all other for the three months ended September 30, 2010 and 2011, was $866,405 and $194,499, respectively. For the nine months ended September 30, 2010 and 2011, unallocated corporate expenses were $21,700,187 and $28,636,642, respectively. Income before taxes and unallocated corporate expenses for all other for the nine months ended September 30, 2010 and 2011 was $9,671,347 and $7,564,040, respectively. See Note 13.

3. BUSINESS ACQUISITIONS AND RELATED TRANSACTIONS

In August 2010, the Company acquired Quantum Engineering and Development Inc. ("Quantum") for an initial cash payment of $6,150,000. During April 2011, the Company made an additional payment of approximately $1,956,366 in accordance with certain provisions of the stock purchase agreement with the former shareholders of Quantum. The payment has been reflected retrospectively as additional goodwill in the accompanying consolidated balance sheets in accordance with AS 805, Business Combinations.

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In July 2011, the Company acquired AEG from its stockholders. The Company made an initial cash payment of $10,650,000 to acquire all of the outstanding stock of AEG. The purchase price is subject to a post-closing working capital adjustment that is expected to be completed in the fourth quarter of 2011. The former stockholders of AEG, all of whom are now employees of the Company, may be entitled to receive up to $5,000,000 in additional consideration if AEG meets certain financial performance milestones. The fair value of the additional consideration is estimated to be $1,635,000, and is included in other liabilities in the purchase allocation table below.

In August 2011, the Company acquired Ameresco Southwest (then known as APS Energy Services, Inc.) from Pinnacle West Capital Corporation. The Company made an initial cash payment of $50,618,230 to acquire all of the outstanding stock of Ameresco Southwest. The purchase price is subject to a post-closing working capital and certain other adjustments that are expected to be completed in the first quarter of 2012.

The Company's acquisitions in 2010 and 2011 were accounted for using the acquisition method in accordance with ASC-805, Business Combinations. The purchase price for each has been allocated to the assets based on their estimated fair values at the date of acquisitions as set forth in the table below. The excess purchase price over the estimated fair value of the next assets acquired has been recorded as goodwill. In the Quantum acquisition, identified intangible assets had de minimis value as the Company was primarily acquiring an assembled workforce in addition to the tangible net assets identified below.



	2010			2011
	Quantum			AEG			Ameresco Southwest
Cash	$	11,059		$	314,642		$	—
Accounts receivable	8,354,669			4,138,015			14,149,703
Accounts receivable retainage	423,927			—			—
Costs and estimated earnings in excess of billings	1,947,639			—			11,269,294
Prepaid expenses and other current assets	33,922			62,345			33,329
Property and equipment and project assets	127,512			7,301			7,567,521
Goodwill	4,495,927			5,170,508			16,092,160
Intangible assets	—			6,525,000			7,197,000
Other assets	18,551			52,062			—
Accounts payable	(6,374,371		)	(1,610,734		)	(3,007,748		)
Accrued liabilities	(657,681		)	125,861			(2,683,029		)
Billings in excess of cost and estimated earnings	(274,788		)	—			—
Deferred taxes and other liabilities	—			(4,135,000		)	—
Purchase price	$	8,106,366		$	10,650,000		$	50,618,230
Total, net of cash received	$	8,095,307		$	10,335,358		$	50,618,230
Total fair value of consideration	$	8,106,366		$	10,650,000		$	50,618,230

The allocation of the purchase price for the 2011 acquisitions are preliminary and based on management's current best estimates.

The results of the acquired companies since the dates of the acquisitions have been included in the Company's operations as presented in the accompanying consolidated statements of income and comprehensive income and consolidated statements of cash flows. The year-to-date revenue and pre-tax income (loss) of the acquisitions in 2011 following their corresponding acquisition dates, is as follows:



	2011
	AEG			Ameresco Southwest
Revenue	$	6,424,803		$	9,579,694
Pre-tax (loss) income	$	(172,730	)	$	766,329

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

The acquisition related information does not include any data related to the 2010 Quantum acquisition as this has been deemed immaterial to the Company. This supplemental pro forma information that follows has been prepared for informational purposes only and is intended to represent or be indicative of what would have occurred had the acquisitions been completed on January 1, 2010, and are not indicative of any future results. Financial information for the period prior to the dates of the acquisitions have been provided by the sellers for purposes of this pro forma presentation:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2011		2010		2011
Pro forma consolidated results:
Revenue	$	219,168,728	$	235,726,015	$	500,519,430	$	586,450,766
Income	$	14,152,507	$	11,927,395	$	22,840,097	$	27,312,934
Basic earnings per share	$	0.41	$	0.28	$	1.11	$	0.65
Diluted earnings per share	$	0.33	$	0.26	$	0.58	$	0.60

4. GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances included in total assets by segment. Goodwill consisted of the following at December 31, 2010 and September 30, 2011:



	December 31, 2010		Acquisitions		Foreign Currency Translation and Other Adjustments		September 30, 2011
U.S. Federal	$	3,374,967	$	—	$	—	$	3,374,967
Central U.S. Region	1,972,415		—		—		1,972,415
Other U.S. Regions	4,906,875		16,092,160		—		20,999,035
Canada	2,680,933		—		64,190		2,745,123
All Other	7,645,805		5,170,508		—		12,816,313
Total	$	20,580,995	$	21,262,668	$	64,190	$	41,907,853

Intangible assets recorded by the Company are amortized over a period of approximately five years from the dates of recognition. The following table presents intangible asset balances included in total assets by segment. Intangible assets, net, consisted of the following December 31, 2010 and September 30, 2011:



	December 31, 2010		Acquisitions		Accumulated Amortization			September 30, 2011
Other U.S. Regions:
Customer contracts and relationships	$	—	$	5,110,000	$	(145,000	)	$	4,965,000
Non-compete agreements	—		1,860,000		(47,000		)	1,813,000
Technology	—		227,000		(6,000		)	221,000
All Other:
Customer contracts and relationships	—		5,196,000		(236,000		)	4,960,000
Technology	—		491,000		(25,000		)	466,000
Non-compete agreements	—		448,000		(22,000		)	426,000
Trade names	—		390,000		(20,000		)	370,000
Total	$	—	$	13,722,000	$	(501,000	)	$	13,221,000

Amortization expense of intangible assets for both three and nine months ended September 30, 2011 was $501,000 and is included in general, administrative and other expenses in the condensed consolidated statements of income and comprehensive income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

5. INCOME TAXES

The provision for income taxes was $4,862,651 and $2,690,196, for the three months ended September 30, 2010 and 2011, respectively. The provision for income taxes was $8,381,084 and $8,341,730 for the nine months ended September 30, 2010 and 2011, respectively. The effective tax rate changed to 17.9% for the three months ended September 30, 2011 from 28.8% for the three months ended September 30, 2010. The effective tax rate changed to 24.0% for the nine months ended September 30, 2011 from 28.5% for the nine months ended September 30, 2010. The tax rate for the third quarter of 2011 included a net tax benefit of $936,389 relating to accrued interest on tax positions that were resolved during the quarter.

6. STOCK INCENTIVE PLAN

In 2000, the Company’s Board of Directors approved the Company’s 2000 Stock Incentive Plan (the “2000 Plan”) and authorized the Company to reserve 12,000,000 shares of its then authorized common stock, par value $0.0001 per share ("Common Stock") for issuance under the 2000 Plan. From 2001 to 2009, the Company’s Board of Directors authorized the Company to reserve an additional 16,500,000 shares of Common Stock for issuance under the 2000 Plan, bringing the total number of shares of Common Stock reserved under the 2000 Plan to 28,500,000. The 2000 Plan provided for the issuance of restricted stock grants, incentive stock options and nonqualified stock options. The Company will grant no further stock options or restricted stock awards under the 2000 Plan.

The Company’s 2010 Stock Incentive Plan (the “2010 Plan"), which became effective upon the closing of the Company’s initial public offering, was adopted by the Company’s Board of Directors in May 2010 and approved by its stockholders in June 2010. The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards. Upon its effectiveness, 10,000,000 shares of the Company’s Class A common stock were reserved for issuance under the 2010 Plan. As of December 31, 2010, no stock options had been granted under the 2010 Plan. During the nine months ended September 30, 2011, the Company granted options to purchase 228,688 shares of Class A common stock under the 2010 Plan. The options were granted at a weighted average exercise price of $12.63 per share.

Stock Option Grants

The Company has granted stock options to certain employees and directors, including its principal and controlling stockholder, under the 2000 Plan. The Company will grant no further stock options or restricted stock awards under the 2000 Plan. The Company has also granted stock options to certain employees and directors under the 2010 Plan. At September 30, 2011, 9,771,312 shares were available for grant under the 2010 Plan. The following table summarizes the collective activity under the 2000 Plan and the 2010 Plan:



	Number of Options		Weighted-Average Exercise Price
Outstanding at December 31, 2010	8,274,000		$	4.177
Granted (1)	228,688		12.633
Exercised	(2,226,421	)	(2.208		)
Forfeited	(305,700	)	(10.999		)
Outstanding at September 30, 2011	5,970,567		$	4.886
Options exercisable at September 30, 2011	4,387,929		$	3.593
Expected to vest at September 30, 2011	1,255,406		$	8.478
Options exercisable at December 31, 2010	6,066,750		$	2.956

(1) Grants are related to the 2010 Plan.

The weighted-average remaining contractual life of all options expected to vest at September 30, 2011 was 4.26 years. The total intrinsic value of options exercised during the nine months ended September 30, 2011 was $18,026,604.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

The following table summarizes information about stock options outstanding at September 30, 2011:



			Outstanding Options				Exercisable Options
Related Plan	Exercise Price		Number Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
2000 Plan	$	0.875	424,862	0.82	$	0.875	424,862	$	0.875
2000 Plan	1.500		20,000	1.33	1.500		20,000	1.500
2000 Plan	1.750		207,399	1.79	1.750		207,399	1.750
2000 Plan	1.875		112,500	2.04	1.875		112,500	1.875
2000 Plan	2.750		857,239	2.80	2.750		851,239	2.750
2000 Plan	3.000		50,500	3.33	3.000		50,500	3.000
2000 Plan	3.250		883,376	1.76	3.250		883,376	3.250
2000 Plan	3.410		1,010,150	1.79	3.410		887,900	3.410
2000 Plan	4.220		544,853	2.45	4.220		329,353	4.220
2000 Plan	6.055		1,025,000	4.22	6.055		441,800	6.055
2010 Plan	10.950		140,000	6.25	10.950		—	10.950
2000 Plan	13.045		606,000	4.93	13.045		179,000	13.045
2010 Plan	14.810		60,000	6.16	14.810		—	14.810
2010 Plan	16.290		28,688	5.82	16.290		—	16.290
			5,970,567				4,387,929

During the nine months ended September 30, 2011, a total of 2,226,421 shares were issued upon the exercise of options under the 2000 Plan at an average price of $2.208 per share. Cash received from option exercise under all stock-based payment arrangements for the nine months ended September 30, 2011 was $4,907,645.

Under the 2000 Plan and the 2010 Plan, all options expire if not exercised within ten years after the grant date. The options generally vest over five years at a rate of 20% after the first year, and at a rate of five percent every three months beginning one year after the grant date. If the employee ceases to be employed by the Company for any reason before vested options have been exercised, the employee has 90 days to exercise vested options or they are forfeited.

The Company uses the Black-Scholes option pricing model to determine the weighted-average fair value of options granted. The Company will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The following table sets forth the significant assumptions used in the model during 2010 and 2011:



	Year Ended December 31,	Nine Months Ended September 30,
	2010	2011
Future dividends	$ -	$ -
Risk-free interest rate	2.59%-3.11%	1.36%-2.58%
Expected volatility	57%-59%	42%-45%
Expected life	6.5 years	6-6.5 years

The Company will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to the stock-based compensation on a prospective basis, and incorporating these factors into the Black-Scholes pricing model. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant. In addition, any changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period that the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the accompanying condensed consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the accompanying condensed consolidated financial statements. These expenses will affect the direct expenses, salaries and benefits and project development costs expenses.

The weighted-average fair value of stock options granted during the nine months ended September 30, 2011, under the Black-Scholes option pricing model was $5.777 per share. For the three months ended September 30, 2010 and 2011, the Company recorded stock-based compensation expense of approximately $651,352 and $432,624, respectively, in connection with stock-based payment awards. For the nine months ended September 30, 2010 and 2011, the Company recorded stock-based compensation expense of approximately $1,758,503 and $2,027,200, respectively, in connection with stock-based payment awards. The compensation expense is allocated between direct expenses, salaries and benefits and project development costs in the accompanying consolidated statements of income and comprehensive income based on the salaries and work assignments of the employees holding the options. As of September 30, 2011, there was approximately $7,810,053 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 3.37 years.

7. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On February 27, 2009, the Company received notice of a default termination from a customer for which the Company was performing construction services. The dispute involves the customer's assertion of its understanding of the contractual scope of work involved and with the completion date of the project. The Company disputes the customer's assertion as it believes that the basis of the default arose from a delay due to the discovery of and need for remediation of previously undiscovered hazardous materials not identified by the customer during contract negotiations. In February 2010, the Company filed a motion for summary judgment as to a portion of the complaint. In March 2010, the customer filed its response. Discovery is currently ongoing. A hearing on the Company's motion is scheduled for July 1, 2012.

The Company did not record an additional accrual for this matter beyond the adjustments made to the Company's expected profit on this contract because the Company believes that the likelihood is remote that any additional liability would be incurred related to this matter. Based on the contract termination notice, the Company has adjusted its expected contract revenue and profit until such time as this contingency is resolved. The Company had claims of approximately $4.0 million outstanding with the customer as of September 30, 2011. As of September 30, 2011, the Company has not recognized any revenue or profit associated with these claims.

The Company also is involved in a variety of claims and other legal proceedings generally incidental to its normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on its financial condition or results of operations.

Commitments as a Result of Acquisitions

Related to the Company's acquisition of Quantum in the third quarter of 2010 (see Note 3), certain individuals are eligible to receive additional compensation. Total potential additional compensation is up to $1,150,000 and will be recognized as compensation expense as earned.

Related to the Company's acquisition of AEG in the third quarter of 2011 (see Note 3), the former stockholders of AEG, who are now employees of the Company, may be entitled to receive up to $5 million in additional consideration if AEG meets certain financial performance milestones.

8. GEOGRAPHIC INFORMATION

The Company attributes revenue to customers based on the location of the customer. The composition of the Company's assets at December 31, 2010 and September 30, 2011 and revenues from sales to unaffiliated customers for the three and nine months ended September 30, 2010 and 2011 between those in the United States and those in other locations, is as follows:

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)



	December 31,		September 30,
	2010		2011
Assets:
United States	$	512,290,125	$	714,831,896
Canada	72,012,318		73,491,855
Other	104,896		109,862
	$	584,407,339	$	788,433,613



	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2011		2010		2011
Revenue:
United States	$	159,173,097	$	189,745,710	$	364,673,963	$	449,089,445
Canada	32,442,118		37,235,830		73,468,415		89,063,210
Other	286,214		822,028		742,144		1,552,625
	$	191,901,429	$	227,803,568	$	438,884,522	$	539,705,280

9. RELATED PARTY TRANSACTIONS

The Company's principal and controlling stockholder previously provided a limited personal indemnification to the surety companies that provide performance and payment bonds and other surety products to the Company. During 2010, in connection with the initial public offering the limited personal indemnification provided by the Company's principal and controlling stockholder was removed.

10. OTHER EXPENSES, NET

Other expenses, net, consisted of the following items for the three and nine months ended September 30, 2010 and 2011:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2011			2010			2011
Unrealized loss from derivatives	$	—		$	—		$	(133,591	)	$	—
Interest expense, net of interest income	(1,703,632		)	(1,253,137		)	(3,474,423		)	(2,936,488		)
Amortization of deferred financing fees	(306,398		)	(106,776		)	(474,403		)	(312,431		)
	$	(2,010,030	)	$	(1,359,913	)	$	(4,082,417	)	$	(3,248,919	)

11. FAIR VALUE MEASUREMENT

The Company recognizes its financial assets and liabilities at fair value on a recurring basis (at least annually). Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Three levels of inputs that may be used to measure fair value are as follows:

Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following table presents the input level used to determine the fair values of the Company's financial instruments measured at fair value on a recurring basis as of December 31, 2010 and September 30, 2011:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)



		Fair Value as of
		December 31,		September 30,
	Level	2010		2011
Liabilities:
Interest rate swap instruments	2	$	3,632,238	$	6,952,034
Total liabilities		$	3,632,238	$	6,952,034

The fair value of the Company's interest rate swaps was determined using cash flow analysis on the expected cash flow of the contract in combination with observable market-based inputs, including interest rate curves and implied volatilities. As part of this valuation, the Company considered the credit ratings of the counterparties to the interest rate swaps to determine if a credit risk adjustment was required.

The Company is also required periodically to measure certain other assets at fair value on a nonrecurring basis, including long-lived assets, goodwill and other intangible assets. The Company determined the fair value used in its annual impairment analysis with its own discounted cash flow analysis. The Company has determined the inputs used in such analysis as Level 3 inputs. The Company did not record any impairment charges on goodwill or other intangible assets as no significant events requiring non-financial assets and liabilities to be measured at fair value occurred for the year ended December 31, 2010 or for the nine months ended September 30, 2011.

12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

At December 31, 2010 and September 30, 2011, the following table presents information about the fair value amounts of the Company's derivative instruments:

Liability Derivatives as of

December 31, 2010

September 30, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives Designated as Hedging Instruments:

Interest rate swap contracts

Other liabilities

3,632,238

Other liabilities

6,952,034

There were no derivatives not designated as hedging instruments for the three months ended September 30, 2010 and 2011.

The following table presents information about the effects of the Company's derivative instruments on the condensed consolidated statements of income and comprehensive income:



	Location of Gain (Loss) Recognized in	Amount of Gain (Loss) Recognized in Income on Derivative for the Nine Months Ended September 30, are as follows:
	Income on Derivative	2010			2011
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts	Interest (expense) income	$	(133,591	)	$	—



	As of September 30, 2011
	Loss Recognized in Accumulated Other Comprehensive Income		Loss Reclassified from Accumulated Other Comprehensive Income
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts	$	3,319,796	$	1,207,255

13. BUSINESS SEGMENT INFORMATION

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

nature, serve similar types of customers and use similar methods to distribute their products and services. Accordingly, these four regions meet the aggregation criteria set forth in ASC 280, Segment Reporting. The "all other" category includes activities, such as O&M and sales of renewable energy and certain other renewable energy products, that are managed centrally at the Company's corporate headquarters. It also includes all corporate operating expenses — salaries and benefits, project development costs, and general, administrative and other — not specifically allocated to the segments. The Company does not allocate any indirect expenses to the segments. For the three months ended September 30, 2010 and 2011 unallocated corporate expenses were $7,712,229 and $10,259,457, respectively. Income before taxes and unallocated corporate expenses for all other for the three months ended September 30, 2010 and 2011 was $866,405 and $194,499, respectively. For the nine months ended September 30, 2010 and 2011, unallocated corporate expenses were $21,700,187 and $28,636,642, respectively. Income before taxes and unallocated corporate expenses for all other for the nine months ended September 30, 2010 and 2011 was $9,671,347 and $7,564,040, respectively. The accounting policies are the same as those described in the summary of significant accounting policies (see Note 2).

Ameresco, Inc. and Subsidiaries

Segment Reporting

Three Months Ending September 30, 2011



	U.S. Federal		Central U.S. Region			Other U.S. Regions		Canada		All Other			Total
Total revenue	$	28,525,581	$	32,206,277		$	96,496,756	$	37,235,830	$	33,339,124		$	227,803,568
Interest income	$	—	$	—		$	—	$	2	$	90,650		$	90,652
Interest expense	$	—	$	—		$	—	$	172	$	1,343,612		$	1,343,784
Depreciation and amortization of intangible assets	$	47,112	$	(2,231	)	$	—	$	416,104	$	3,561,966		$	4,022,951
Income (loss) before taxes	$	2,393,199	$	4,326,876		$	17,116,611	$	1,277,048	$	(10,064,958	)	$	15,048,776
Total assets	$	250,568,886	$	20,482,833		$	309,664,125	$	73,491,855	$	134,225,914		$	788,433,613
Capital expenditures	$	95,389	$	3,469		$	1,226,426	$	833,666	$	15,541,724		$	17,700,674

Ameresco, Inc. and Subsidiaries

Segment Reporting

Three Months Ending September 30, 2010



	U.S. Federal		Central U.S. Region		Other U.S. Regions		Canada		All Other			Total
Total revenue	$	53,278,830	$	37,541,875	$	40,486,208	$	33,466,031	$	27,128,485		$	191,901,429
Interest income	$	—	$	—	$	—	$	5,058	$	1,170		$	6,228
Interest expense	$	—	$	—	$	—	$	855	$	1,842,596		$	1,843,451
Depreciation	$	19,855	$	2,399	$	—	$	103,970	$	4,669,797		$	4,796,021
Income (loss) before taxes	$	8,060,725	$	6,436,116	$	6,558,649	$	2,693,902	$	(6,845,824	)	$	16,903,568
Total assets	$	174,640,659	$	24,709,712	$	122,388,247