UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, | |
Or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to | |
Commission File Number 001-34278 |
BROADWIND ENERGY,, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 88-0409160 | |
3240 S. Central Avenue | 60804 | |
Securities registered pursuant to Section 12 | Registrant’s telephone number, including area code: (708) 780-4800 |
Title of Class | Trading Symbol | Name of Exchange on which Registered |
|
|
|
|
|
|
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
|
|
|
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b‑212b-2 of the Exchange Act. Yes ☐ No ☒
As of June 30, 20192021 the aggregate market value of the Registrant’s voting common stock held by non‑affiliatesnon-affiliates of the Registrant was approximately $26,772,000,$65,536,000, based upon the $2.22$4.53 per share closing sale price of the Registrant’s common stock as reported on the NASDAQ Capital Market. For purposes of this calculation, the Registrant’s directors and executive officers and holders of 5% or more of the Registrant’s outstanding shares of voting common stock have been assumed to be affiliates, with such affiliates holding an aggregate of 4,104,0004,918,000 shares of the Registrant’s voting common stock on June 30, 2019.2021.
The number of shares of the Registrant’s common stock, par value $0.001, outstanding as of February 21, 2020,22, 2022, was 16,556,993.19,585,713.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 20202022 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
BROADWIND ENERGY, INC.
FORM 10‑K10-K
TABLE OF CONTENTS
2
Cautionary Note Regarding This Annual Report on Form (Dollar amounts are presented in thousands, except per share data and unless otherwise stated) 3 As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind” and the “Company” refer to Broadwind, Business Overview Broadwind is a precision manufacturer of structures, equipment and components for clean tech and other specialized applications. We provide technologically advanced high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”). Our capabilities include but are not limited to the following: heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, gearbox repair, heat treat, assembly, engineering and packaging solutions. We were incorporated in 1996 in Nevada as Blackfoot Enterprises, Inc., and through a series of subsequent transactions, became Broadwind Energy, Inc., a Delaware corporation, in 2008. Through acquisitions in 2007 and 2008, we focused on expanding upon our core platform as a wind tower manufacturer, established our Gearing segment, and developed and broadened our industrial fabrications capabilities. In early 2017, we acquired Red Wolf Company, LLC,
Heavy Fabrications We provide large, complex and precision fabrications to customers in a broad range of industrial markets. Our most significant presence is within the U.S. wind energy industry, although we have diversified into other industrial markets in order to improve our capacity utilization, reduce our
customer concentration, and reduce our exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, we provide steel towers and repowering adapters primarily to wind turbine manufacturers. Our production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 550 towers (1650 tower sections), sufficient to support turbines generating more than 1,100 MW of power. We have expanded our production capabilities and leveraged our manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets. We manufacture components for buckets, shovels, car bodies, drill masts and other products that support mining and construction markets. In other industrial markets, we provide crane components, pressure vessels, frames and other Gearing We provide gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other industrial markets. We have manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century. While a significant portion of our business is manufactured to our customer’s specifications, we employ design and metallurgical engineers to meet our customer’s stringent quality requirements, to improve product performance, and reliability and to develop custom products that are integrated into our customer’s product offerings. Industrial Solutions We provide supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market. We have recently expanded our market reach into the solar power generation market by leveraging our existing core competencies. We leverage a global supply chain to provide instrumentation & controls, valve assemblies, sensor devices, fuel system components, electrical junction boxes & wiring, energy storage services and electromechanical devices. We also provide packaging solutions and fabricate panels and sub-assemblies to reduce our customers’ costs, improve manufacturing velocity and reliability. The following table summarizes the key markets served and product offering of our three segments:
4
Business and Operating Strategy We intend to capitalize on the markets for wind energy, gas turbines, O&G, mining, and other industrial verticals in North America by leveraging our core competencies in welding, manufacturing, assembling and kitting. Our strategic objectives include the
5 |
● |
| Improve capacity utilization and broaden our manufacturing capabilities. We have manufacturing capacity available that could support a significant increase in our annual revenues for heavy fabrications, gearing and industrial solutions. We are working to improve our capacity utilization and financial results by leveraging our existing manufacturing capacity and adjusting capacity where we can, in response to changing market conditions. In our Heavy Fabrications segment, we |
● |
|
● |
|
During 2021, supply chain and staffing constraints caused by the COVID-19 pandemic resulted in increased manufacturing inefficiencies. |
|
Reduce fixed manufacturing costs and operating expenses to improve profitability. In 2018, we completed a multi-year rationalization of our operational footprint, which significantly reduced our cumulative square footage through the sale or exit of several operational locations. We lease approximately 74% of our manufacturing square footage, which has allowed us to negotiate flexible lease structure and terms. During periods of lower tower demand, we have reduced our capital spending and labor to optimize our cost structure. In our Gearing segment, after several years of reducing workforce and selling excess gear cutting and grinding equipment, we have been modestly increasing our production capabilities in response to improved market conditions. We have focused on reducing professional fees and expenses, lowering our administrative costs and eliminating non-critical overhead positions.
SALES AND MARKETING
We market our heavy fabrications, gearing, and industrial solutions primarily through a direct sales force, supplemented with independent sales agents in certain markets. Our sales and marketing strategy is to develop and maintain long-term relationships with our existing customers, and seek opportunities to expand these relationships across our business units. Our business development team uses market data, including marketing databases, information gathered at industry and trade shows, internet research and website marketing to identify and target new customers. We sell our products through our trained sales force or through manufacturers’ representatives to a wide variety of customers.
CUSTOMERS
We manufacture products for a variety of customers in the wind energy, O&G, gas turbine, mining, and other industrial markets. The majority of ourWithin the wind energy industry, our customer base consists primarily of wind turbine manufacturers who supply end users and wind farm operators with wind turbines, and wind farm developers with completed wind turbines.gearbox re-manufacturers who use our replacement gears in their replacement gearboxes. The wind turbine market is very concentrated. According to Wood Mackenzie Power & Renewables 20182021 industry data, the top five fourwind turbine manufacturers constitutedcomprised approximately 97% of the U.S. market. As a result, although we have historically produced towers for a broad range of wind turbine manufacturers, in any given year a limited number of customers have accounted for the majority of our revenues. Within the wind energy industry, our customer base consists primarily of wind turbine manufacturers who supply end users and wind farm operators with wind turbines, and wind gearbox re-manufacturers who use our replacement gears in their replacement gearboxes. Within the O&G and mining industries, our customer base consists of manufacturers of hydraulic fracturing and mud pumps, drilling and production equipment, mining equipment, and off highway vehicles. Within the gas turbine industry, our customers supply end-users with natural gas turbines and after-market replacement and efficiency upgrade packages. Within our other industrial markets served, our customer base includes steel producers, ship builders, and manufacturers of material handling, pulp and paper and other power generation equipment. Sales to Siemens Gamesa Renewable Energy (“SGRE”)and GE Renewable Energyeachrepresented greater than 10% of our consolidated revenues for the year ended December 31, 2019. Sales2021 and sales to SGRE and Gardner DenverNordex USA Inc. (“Nordex”) each represented greater than 10% of our consolidated revenues for the year ended December 31, 2018.2020. The loss of one of these customers could have a material adverse effect on our business, results of operation or financial condition. As a result, we have an ongoing initiative to diversify our customer base.
COMPETITION
Each of our businesses faces competition from both domestic and international companies. The December 2015 extension of the PTCproduction tax credit attracted additional investment and competition for wind towers. In recent years, the industrial gearing industry has experienced consolidation of producers and acquisitions by strategic buyers in response to strong international competition, although recent tariff and trade uncertainties have caused buyers to shift more of their purchases to domestic gear manufacturers.
Within the wind tower product line of our Heavy Fabrications segment, the largest North American based competitor is Arcosa Inc., which was formerly a Trinity Industries company. Other competitors include Vestas Wind Systems, which has periodically produced towers for third party customers in addition to meeting the majority of its own captive tower requirements, Marmen Industries, a Canadian company, and GRI Renewable Industries, a Spanish company, each of which both have production facilities in the U.S. We also face competition from imported towers, although importsin recent years a number of trade cases have periodically significantly reduced competition from imports.
Imports from China and Vietnam have declined following a determination by the U.S. International Trade Commission (“USITC”) in 2013 that wind towers from those countries were being sold in the U.S. at less than fair value. As a result of the determination, the U.S. Department of Commerce (“USDOC”) issued antidumping and countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports of towers from Vietnam. In May 2018, the U.S. Court of Appeals affirmed the decision from the U.S. Court of International trade resulting inTrade and at the same time excluded CS Wind Vietnam being excluded from the antidumping order. In April 2019, the USDOC extended the term of these duties for an additional five-year period. Following a renewed surge of tower imports from countries not impacted by existing tariffs, in July 2019,2020, the USDOC issued antidumping and countervailing duty orders on imports of wind towers from Canada, Indonesia, and Vietnam and an antidumping order on imports of towers from Korea. Then in September 2020, a new trade case was brought before the USDOC and USITC, to assess whether wind towers imported from Canada, Indonesia, South KoreaIndia, Malaysia, and VietnamSpain were being sold in the U.S.
7
at less than fair value. This case includes a reassessment of CS Wind Vietnam. On December 6, 2019, theThe USDOC and USITC issued an affirmative preliminary determinationfinal determinations in theall three antidumping (India, Malaysia, and Spain) and two countervailing duty investigations against Canada, Indonesiacases (India and Vietnam. Subsequently, on February 5, 2020,Malaysia). The USDOC imposed orders for two cases in August 2021 and the USDOC issued an affirmative preliminary determinationremainder in the anti-dumping investigations against Canada, Indonesia, Korea and Vietnam. A final determination in the antidumping and countervailing duties investigations is expected to be issued by the USITC no later than August 2020.December 2021.
Within our industrial fabrications product line of our Heavy Fabrications segment, our competitors in a fragmented market includesinclude Weldall Manufacturing and AT&F Advanced Metals, along with a large number of other regional competitors. The primary differentiator among fabricators is the range of manufacturing and machining capabilities, including lifting capacity, precision machining, heat treatment capacity and the sophistication of quality systems.
In our Gearing segment, which is focused on the O&G, wind energy, mining and steel markets, we compete with domestic and international manufacturers who produce gears greater than one meter in diameter. Our key competitors include Overton Chicago Gear, Cincinnati Gearing Systems, Merit Gear, Milwaukee Gear and Horsburgh & Scott. In addition, we compete with the internal gear manufacturing capacity of relevant equipment manufacturers and face competition from foreign competitors.
In our Industrial Solutions segment, which is currently primarily focused on the gas turbine market, we primarily compete with electrical supply distributors. Our key competitors include Gexpro and other small independent companies.
REGULATION
Production Tax Credit/Investment Tax Credit
The highest impactmost impactful development incentive for our products has been the production tax credit (“PTC”) for new wind energy projects, which provides a supplemental payment based on electricity produced from each qualifying wind turbine. Legislative support for the PTC has been intermittent since its introduction in 1992, which has caused volatility in the demand for new wind energy projects. In 2015, the PTC was extended for a five-year period, with a time-based phase-out baseddepending on the year the wind project is started. This legislation has provided some longer-term stability in the market because the subsidy supports construction activity over the medium term.commenced. The phase-out schedule legislated in 2015 provided for: 100% extension of the credit for projects commenced before the end of 2016, 80% extension of the credit for projects commenced in 2017, 60% extension of the credit for projects commenced in 2018 and 40% extension of the credit for projects commenced in 2019. As part of a year-end tax extenders bill in 2019, the PTC was extended for an additional year, allowing for a 60% extension of the credit for projects commenced before the end of 2020.
On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 (“COVID IV”), a $2.3 trillion spending bill that combines a $1.4 trillion omnibus appropriations bill for federal fiscal year 2021 with $900 billion in supplemental appropriations to provide relief for the COVID-19 pandemic. The legislation was signed into law on December 27, 2020. As part of COVID IV, the PTC was extended for an additional year, allowing for a 60% credit for projects that start construction by the end of 2021. In order to benefit from the PTC, qualifying projects must either be completed within threefour years from their commencement,start of construction, or the developer must demonstrate that theirits projects are in continuous construction between commencementstart of construction and completion. As a result of the new legislation,COVID IV, the PTC will subsidize wind projects commenced as late as 20202021 and completed by 2024,2025, or later if continuous construction can be demonstrated.
Included in COVID IV is the addition of a new 30% investment tax credit (“ITC”) created for offshore wind projects that start construction by the end of 2025. The provision will be retroactively applied to projects that started production in 2016.
Investment in Infrastructure
In November 2021, the federal Infrastructure Investment and Jobs Act (“IIJA”) was signed into law. The IIJA provides for $548 billion in new infrastructure spending over the next five years and $650 billion in previously allocated funds. The IIJA allocated $62 billion to the Department of Energy for various projects focused on clean energy resources and expanding renewable energy. However the timing of the award of projects funded by the IIJA is uncertain thus the impact on our business is unknown.
Additionally, a $3.5 trillion “Build Back Better” (“BBB”) framework was announced in March 2021 by the Biden Administration. A sweeping $2.2 trillion version of the measure passed the House of Representatives last November but has been stalled in the Senate for months over scope of programs covered and overall cost. Consequently, a BBB bill has not become law. The House-passed BBB and various Senate iterations include policies to address climate change, including an energy efficiency and clean energy standard. Efforts may resume in the Senate later this year to craft a smaller, more focused bill or set of bills that can pass both the Senate and the House. We anticipate that clean energy provisions could be included as part of a BBB bill or series of smaller bills advancing the Biden Administration’s legislative and funding agenda. We are closely monitoring both legislative and executive agency action regarding the BBB agenda.
Occupational Safety and Health Administration
Our operations are subject to regulation of health and safety matters by the U.S. Occupational Safety and Health Administration. We believe that we take appropriate precautions to protect our employees and third parties from workplace injuries and harmful exposure to materials handled and managed at our facilities. However, claims asserted in the future against the Company for work-related injury or illnesses could increase our costs.
Environmental
Our operations are subject to numerous federal, state and local environmental laws and regulations. Although it is our objective to maintain compliance with these laws and regulations, it may not be possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future.
BACKLOG
We sell our towers under either supply agreements or individual purchase orders (“POs”), depending on the size and duration of the purchase commitment. Under the supply agreements, we typically receive a purchase commitment for towers to be delivered in future fiscal quarters, then receive POs on a periodic basis depending upon the customer’s forecast of production volume requirements within the contract terms. For our Gearing and Industrial Solutions segments, sales are generally based on individual POs. As of December 31, 2019,2021, the dollar amount of our backlog believed to be firm was approximately $142 $106million. This represents a 48%15% increasefrom the backlog at December 31, 2018, primarily due to an increase2020. Backlog as of December 31, 2021 and 2020 is net of revenue recognized over time as described in demand for wind towers inNote 2, “Revenues” of our Heavy Fabrications segment, combined with growth in orders for other industrial fabrications and in our Industrial Solutions segment.consolidated financial statements.
SEASONALITY
The majority of our business is not affected by seasonality.
EMPLOYEES
We had 521 U.S. based493 U.S.-based employees at December 31, 2019,2021, of which 466445 were in manufacturing related functions and 5548 were in administrative functions. As of December 31, 2019,2021, approximately 18% of our employees were covered by collective bargaining agreements with local unions in our Cicero, Illinois and Neville Island, Pennsylvania locations. We anticipate that the collective bargaining agreements with our union members will be renewed through contract renegotiation near the contract expiration dates, although there can be no assurance that any such agreements will be concluded. The five-year collective bargaining agreement with the Neville Island union was renegotiated in November 2017 and is expected to remain in effect through October 2022. A new four-year collective bargaining agreement within regards to the Cicero, unionIllinois facility was negotiated in the third quarter of 2018February 2022 and is expected to remain in effect through February 2022.2026. We believe that our relationship with our employees is generally positive. The table below summarizes our employees as of December 31, 2019:2021:
We consider our active facilities to be in good condition and adequate for our present and future needs.
We are party to a variety of legal proceedings that arise in the ordinary course of our business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on our results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations, financial condition or cash flows. It is possible that if one or more of such matters were decided against us, the effects could be material to our results of operations in the period in which we would be required to record or adjust the related liability and could also be material to our financial condition and cash flows in the period in which we would be required to pay such liability.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
25
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “BWEN.” The following table sets forth the high and low bid prices of our common stock traded on the NASDAQ.
|
|
|
|
|
|
|
|
|
| Common Stock |
| ||||
|
| High |
| Low |
| ||
2019 |
|
|
|
|
|
|
|
First quarter |
| $ | 1.75 |
| $ | 1.30 |
|
Second quarter |
|
| 2.35 |
|
| 1.60 |
|
Third quarter |
|
| 2.36 |
|
| 1.62 |
|
Fourth quarter |
|
| 1.85 |
|
| 1.45 |
|
|
|
|
|
|
|
|
| Common Stock | |||||||
|
| Common Stock |
| High | Low | ||||||||||
|
| High |
| Low |
| ||||||||||
2018 |
|
|
|
|
|
|
| ||||||||
2021 | |||||||||||||||
First quarter |
| $ | 2.85 |
| $ | 2.20 |
| $ | 11.55 | $ | 4.84 | ||||
Second quarter |
|
| 3.15 |
|
| 2.11 |
| 6.41 | 3.97 | ||||||
Third quarter |
|
| 2.54 |
|
| 2.07 |
| 4.55 | 2.46 | ||||||
Fourth quarter |
|
| 2.22 |
|
| 1.20 |
| 3.51 | 1.88 |
Common Stock | ||||||||
High | Low | |||||||
2020 | ||||||||
First quarter | $ | 2.35 | $ | 1.19 | ||||
Second quarter | 4.00 | 1.31 | ||||||
Third quarter | 5.68 | 2.77 | ||||||
Fourth quarter | 8.75 | 2.73 |
The closing price for our common stock as of February 21, 202022, 2022 was $2.15.$1.76. As of February 21, 2020,22, 2022, there were 4643 holders of record of our common stock.
Dividends
We have never paid cash dividends on our common stock and have no current plan to do so in the foreseeable future. The declaration and payment of dividends on our common stock are subject to the discretion of our Board and are further limited by our credit agreement and other contractual agreements we may have in place from time to time. The decision of our Board to pay future dividends will depend on general business conditions, the effect of a dividend payment on our financial condition, and other factors our Board may consider relevant. The current policy of our Board is to reinvest cash generated in our operations to promote future growth and to fund potential investments.
Repurchases
There were no repurchases of our equity securities under our repurchase program made during the years ended December 31, 20192021 and 2018.2020.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities for the years ended December 31, 20192021 or 2018.2020.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K for information as of December 31, 20192021 with respect to shares of our common stock that may be issued under our existing share‑basedshare-based compensation plans.
26
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.
[RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Company”“Company” refer to Broadwind Energy,, Inc., a Delaware corporation headquarteredheadquartered in Cicero, Illinois, and its Subsidiaries.Subsidiaries.
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
On January 1, 2020, we rebranded as Broadwind Energy, Inc. doing business as Broadwind, a reflection of our diversification progress to date and our continued strategy to diversify our product and customer mix outside of wind energy. Effective with that rebranding, we renamed certain segments. Our Towers and Heavy Fabrications segment was renamed as Heavy Fabrications and our Process Systems segment was renamed as Industrial Solutions. Our Gearing segment name remained the same.
We booked $221,549$159,025 in net new orders in 2019,2021, up sharply from $83,241$148,882 in 2018. The significant increase in2020. Gearing segment orders was driven by growth in each of our primary markets, except for the market for O&G production equipment. We realized a $145,371 increase in tower orders within our Heavy Fabrications segment, as tower customers securedincreased 83% compared to 2020 production capacity in support of an expected increase in wind turbine tower installations. During 2018, our largest customer fulfilled orders under a three-year framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis; this change in ordering patterns also contributed to the year-over-year increase. Other industrial fabrication orders, also included in the Heavy Fabrications segment, increased $5,682 or 37%, reflecting an expansion of our customer base and the results of the investments we have made to broaden our manufacturing capabilities. Gearing orders declined $16,110, primarily due to a reductionincreased demand from O&G customers due to excess fracking and drilling equipment capacity. Lower demand frommining customers. This increase was partially offset by the timing of aftermarket wind customers,gearing orders, which can fluctuate based on customer order patterns and repair activity, wasmarket conditions. Industrial fabrication product line orders, included in the Heavy Fabrications segment, increased 72% as compared to 2020 primarily due to increased demand in all end markets. Orders within our Industrial Solutions segment increased 10% as compared to 2020 primarily due to the timing of orders associated with new gas turbine projects, partially offset by an increase inthe timing of orders from other industrial customers. Our Industrial Solutions segment had $16,426 in orders in 2019, an increase of $3,365 over 2018, primarily due to higher customer demand for gas turbine components and initial orders resulting from our entry into the market to support solar energy installation. This wasassociated with aftermarket projects. These increases were partially offset by lower customer demand for gas turbine aftermarket content.a 27% decrease in wind tower orders in our Heavy Fabrications segment as wind customers paused and delayed orders due to uncertainty regarding the timing and likelihood of potential wind energy incentives provided by the federal government and elevated steel prices. At December 31, 2019,2021, total backlog was $142,302,$106,383, up 48%15% from $96,456$92,854 at December 31, 20182020 primarily due to the aforementioned surgeincrease in towergearing and industrial fabrication product line orders.
We recognized revenue of $178,220 $145,619in 2019, up 42%2021, down27% from revenue of $125,380$198,496 in 20182020. Within the Heavy Fabrications segment, tower revenue decreased $50,064 primarily due to a 35% decrease in tower sections sold, a result of the aforementioned pause in wind tower orders. Additionally, within the Heavy Fabrications segment, industrial fabrication product line revenues decreased 16% from 2020, primarily as a result of lower order intake in mining markets during the second half of 2020. Industrial Solutions revenue was down $2,897 or 16% from 2020 primarily due to the growthtiming of new gas turbine and aftermarket installations in orders described above.addition to supply chain constraints. Gearing revenue was up $3,447 or 14% from 2020, driven primarily by increased order intake in recent quarters from O&G and mining customers, partially offset by decreased demand from industrial customers.
We reported a net lossincome of $4,523,$2,847, or $0.28$0.15 per share in 2019,2021, compared to a net loss of $24,146$1,487 or $1.56$0.09 per share in 2018.2020. The improvement in earnings was primarily due to income of $9,151 recognized from the absencePPP loan forgiveness and a $6,965 ERC benefit (described below). Both of a $12,585 impairment chargethese items were recognized in the prior year, as well as higher capacity utilization“Other Income (expense), net” in our Heavy Fabrications segment and improved margins in our other segments. Partially offsetting these increases was the impactconsolidated statement of increased price competition from foreign tower manufacturers which depressed tower product line margins, higher incentive compensation expense, the absence of a $2,249
27
gain recognized upon extinguishment of the New Markets Tax Credit (NMTC) loan and the $1,140 benefit associated with the reversal of the final Red Wolf earn-out reserve, which were both recognized in the prior year.
During 2018, we conducted a review of our business strategies and product plans given the outlook of the industries we serve and our business environment. As a result, we executed a restructuring plan to rationalize our facility capacity and management structure, and to consolidate and increase the efficiencies in our Abilene facility operations. We exited the market for natural gas compression units and transferred remaining operations from a leased facility in Abilene, TX into other production locations. We vacated the leased Abilene facility in 2018 and incurred costs totaling $12 and $668 for the yearsyear ended December 31, 2021. This increase was partially offset by the volume related decreases discussed above.
On March 27, 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. As amended, the ERC is available for wages paid through September 30, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. We qualified for the ERC in the first quarter of the year because we experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since we qualified for the ERC in the first quarter of 2021, we automatically qualified for the ERC in the second quarter of 2021. In the first and 2018, respectively. In conjunction with this initiative, all costs associated with this vacated facility have beensecond quarters of 2021, we received ERC benefits of $3,372 and $3,593, respectively, and under analogy to IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” were recorded in “Other income (expense), net” in our consolidated statement of operations. During the third quarter of 2021 due to relatively higher revenues in 2021 as restructuring expenses withincompared to the Towersthird quarter of 2019, we did not qualify for the ERC benefit. The receivable for the remaining uncollected ERC benefit is $497 as of December 31, 2021 and Heavy Fabrications segment. Our restructuring activities concludedis included in 2019.the “Employee retention credit receivable” line item in our consolidated balance sheet at December 31, 2021. The $497 receivable balance was collected during January 2022.
We use our credit facility to fund working capital requirements and believe that our credit facility, together with the operating cash generated by our businesses, and any potential proceeds from access to the public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve months. On December 31, 2019,2021, we had $11,517$6,350 drawn under our $35,000$30,000 line of credit, and $2,416$852 of cash on hand, resulting in $18,993$14,889 of available liquidity. For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources” in this Annual Report on Form 10-K.
COVID-19 Pandemic
In March 2020, the World Health Organization recognized a novel strain of coronavirus (COVID-19) as a pandemic. In response to this pandemic, the United States and various foreign, state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. The pandemic and the various governments’ response have caused significant and widespread uncertainty, volatility and disruptions in the U.S. and global economies, including in the regions in which we operate.
Our facilities continued to operate as essential businesses in light of the customers and markets served. However, through December 31, 2021, we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to a decline in order activity levels, manufacturing inefficiencies associated with supply chain disruptions and employee staffing constraints due to the spread of the COVID-19 pandemic. In response to the pandemic, we continue to right-size our workforce and delay certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic, including in light of the emerging variants, or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.
Although the long-term effects of COVID-19 remain unknown, there have been some lifting of the related restrictions due to the increased availability of vaccinations and government stimulus programs. However, we continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company, including emerging variants. We have been able to serve the needs of our customers while taking steps to protect the health and safety of our employees, customers, partners, and communities. Among these steps, we follow the guidance provided by the U.S. Centers for Disease Control and Prevention.
KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP,generally accepted accounting principles (“GAAP”), we use certain other financial measures to analyze our performance. These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance.
Key Financial Measures
|
|
|
|
|
|
|
|
| Twelve Months Ended | ||||
|
| December 31, | ||||
|
| 2019 |
| 2018 | ||
Net revenues |
| $ | 178,220 |
| $ | 125,380 |
Net loss |
| $ | (4,523) |
| $ | (24,146) |
Adjusted EBITDA (1) |
| $ | 7,226 |
| $ | (1,019) |
Capital expenditures |
| $ | 1,844 |
| $ | 2,324 |
Free cash flow (2) |
| $ | 4,803 |
| $ | 3,709 |
Operating working capital (3) |
| $ | 5,580 |
| $ | 5,000 |
Total debt |
| $ | 13,422 |
| $ | 13,338 |
Total orders |
| $ | 221,549 |
| $ | 83,241 |
Backlog at end of period |
| $ | 142,302 |
| $ | 96,456 |
Book-to-bill |
|
| 1.2 |
|
| 0.7 |
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Net revenues | $ | 145,619 | $ | 198,496 | ||||
Net income (loss) | $ | 2,847 | $ | (1,487 | ) | |||
Adjusted EBITDA (1) | $ | 13,209 | $ | 7,985 | ||||
Capital expenditures | $ | 1,707 | $ | 1,547 | ||||
Free cash flow (2) | $ | (2,038 | ) | $ | 6,956 | |||
Operating working capital (3) | $ | 18,635 | $ | 5,062 | ||||
Total debt (4) | $ | 6,827 | $ | 10,787 | ||||
Total orders | $ | 159,025 | $ | 148,882 | ||||
Backlog at end of period (5) | $ | 106,383 | $ | 92,854 | ||||
Book-to-bill (6) | 1.1 | 0.8 |
(1) | We provide non-GAAP adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share based compensation, and other stock payments, restructuring costs, impairment charges, and other non-cash gains and losses) as supplemental information regarding our business performance. Our management uses adjusted EBITDA when they internally evaluate the performance of our business, review financial trends and make operating and strategic decisions. We believe that this non-GAAP financial measure is useful to investors because it provides a better understanding of our past financial performance and future results, and it allows investors to evaluate our performance |
28
using the same methodology and information as used by our management. Our definition of adjusted EBITDA may be different from similar non-GAAP financial measures used by |
(2) | We define free cash flow as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net of any proceeds from disposals of property and equipment. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our business for purposes such as repaying maturing debt and funding business acquisitions. |
(3) | We define |
(4) |
|
(5) | Our backlog at December 31, 2021 and 2020 is net of revenue recognized over time. |
(6) | We define |
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Net income (loss) from continuing operations | $ | 2,847 | $ | (1,487 | ) | |||
Interest expense | 1,129 | 1,984 | ||||||
Income tax provision | 25 | 48 | ||||||
Depreciation and amortization | 6,336 | 6,279 | ||||||
Share-based compensation and other stock payments | 2,872 | 1,161 | ||||||
Adjusted EBITDA | 13,209 | 7,985 | ||||||
Changes in operating working capital | (13,573 | ) | 518 | |||||
Capital expenditures | (1,707 | ) | (1,547 | ) | ||||
Proceeds from disposal of property and equipment | 33 | — | ||||||
Free Cash Flow | $ | (2,038 | ) | $ | 6,956 |
|
|
|
|
|
|
|
|
| Twelve Months Ended | ||||
|
| December 31, | ||||
|
| 2019 |
| 2018 | ||
Net loss from continuing operations |
| $ | (4,586) |
| $ | (24,000) |
Interest expense |
|
| 2,309 |
|
| 1,494 |
Income tax provision (benefit) |
|
| 39 |
|
| (204) |
Depreciation and amortization |
|
| 7,497 |
|
| 9,183 |
Share-based compensation and other stock payments |
|
| 1,955 |
|
| 1,504 |
Restructuring costs |
|
| 12 |
|
| 668 |
Impairment charges |
|
| — |
|
| 12,585 |
NMTC extinguishment gain |
|
| — |
|
| (2,249) |
Adjusted EBITDA |
|
| 7,226 |
|
| (1,019) |
Changes in operating working capital |
|
| (580) |
|
| 6,376 |
Capital expenditures |
|
| (1,844) |
|
| (2,324) |
Proceeds from disposal of property and equipment |
|
| 1 |
|
| 676 |
Free Cash Flow |
| $ | 4,803 |
| $ | 3,709 |
29
RESULTS OF OPERATIONS
Year Ended December 31, 20192021 Compared to Year Ended December 31, 20182020
The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the year ended December 31, 20192021 compared to the year ended December 31, 2018.2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Year Ended December 31, |
| 2019 vs. 2018 |
| |||||||||||||||||||||||||||||
|
|
|
|
| % of Total |
|
|
|
| % of Total |
|
|
|
|
|
| ||||||||||||||||||
|
| 2019 |
| Revenue |
| 2018 |
| Revenue |
| $ Change |
| % Change |
| |||||||||||||||||||||
Revenues |
| $ | 178,220 |
| 100.0 | % | $ | 125,380 |
| 100.0 | % | $ | 52,840 |
| 42.1 | % | ||||||||||||||||||
Cost of sales |
|
| 162,796 |
| 91.3 | % |
| 121,684 |
| 97.1 | % |
| 41,112 |
| 33.8 | % | ||||||||||||||||||
Restructuring |
|
| 12 |
| 0.0 | % |
| 631 |
| 0.5 | % |
| (619) |
| (98.1) | % | ||||||||||||||||||
Gross profit |
|
| 15,412 |
| 8.6 | % |
| 3,065 |
| 2.4 | % |
| 12,347 |
| 402.8 | % | ||||||||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Selling, general and administrative expenses |
|
| 16,086 |
| 9.0 | % |
| 13,625 |
| 10.9 | % |
| 2,461 |
| 18.1 | % | ||||||||||||||||||
Impairment charges |
|
| — |
| — | % |
| 12,585 |
| 10.0 | % |
| (12,585) |
| (100.0) | % | ||||||||||||||||||
Intangible amortization |
|
| 1,683 |
| 0.9 | % |
| 1,884 |
| 1.5 | % |
| (201) |
| (10.7) | % | ||||||||||||||||||
Restructuring |
|
| — |
| — | % |
| 37 |
| 0.0 | % |
| (37) |
| (100.0) | % | ||||||||||||||||||
Total operating expenses |
|
| 17,769 |
| 10.0 | % |
| 28,131 |
| 22.4 | % |
| (10,362) |
| (36.8) | % | ||||||||||||||||||
Operating loss |
|
| (2,357) |
| (1.3) | % |
| (25,066) |
| (20.0) | % |
| 22,709 |
| 90.6 | % | ||||||||||||||||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Interest expense, net |
|
| (2,309) |
| (1.3) | % |
| (1,496) |
| (1.2) | % |
| (813) |
| (54.3) | % | ||||||||||||||||||
Other, net |
|
| 118 |
| 0.1 | % |
| 2,355 |
| 1.9 | % |
| (2,237) |
| (95.0) | % | ||||||||||||||||||
Total other expense, net |
|
| (2,191) |
| (1.2) | % |
| 859 |
| 0.7 | % |
| (3,050) |
| (355.1) | % | ||||||||||||||||||
Net loss before provision (benefit) for income taxes |
|
| (4,548) |
| (2.6) | % |
| (24,207) |
| (19.3) | % |
| 19,659 |
| 81.2 | % | ||||||||||||||||||
Provision (benefit) for income taxes |
|
| 38 |
| 0.0 | % |
| (205) |
| (0.2) | % |
| 243 |
| 118.5 | % | ||||||||||||||||||
Loss from continuing operations |
|
| (4,586) |
| (2.6) | % |
| (24,002) |
| (19.1) | % |
| 19,416 |
| 80.9 | % | ||||||||||||||||||
Income (loss) from discontinued operations, net of tax |
|
| 63 |
| 0.0 | % |
| (144) |
| (0.1) | % |
| 207 |
| 143.8 | % | ||||||||||||||||||
Net loss |
| $ | (4,523) |
| (2.5) | % | $ | (24,146) |
| (19.3) | % | $ | 19,623 |
| 81.3 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | 2021 vs. 2020 | |||||||||||||||||||||||
% of Total | % of Total | |||||||||||||||||||||||
2021 | Revenue | 2020 | Revenue | $ Change | % Change | |||||||||||||||||||
Revenues | $ | 145,619 | 100.0 | % | $ | 198,496 | 100.0 | % | $ | (52,877 | ) | (26.6 | )% | |||||||||||
Cost of sales | 140,108 | 96.2 | % | 180,495 | 90.9 | % | (40,387 | ) | (22.4 | )% | ||||||||||||||
Gross profit | 5,511 | 3.8 | % | 18,001 | 9.1 | % | (12,490 | ) | (69.4 | )% | ||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Selling, general and administrative expenses | 17,372 | 11.9 | % | 16,846 | 8.5 | % | 526 | 3.1 | % | |||||||||||||||
Intangible amortization | 733 | 0.5 | % | 733 | 0.4 | % | — | — | % | |||||||||||||||
Total operating expenses | 18,105 | 12.4 | % | 17,579 | 8.9 | % | 526 | 3.0 | % | |||||||||||||||
Operating (loss) income | (12,594 | ) | (8.6 | )% | 422 | 0.2 | % | (13,016 | ) | (3084.4 | )% | |||||||||||||
Other income (expense), net | ||||||||||||||||||||||||
Paycheck Protection Program loan forgiveness | 9,151 | 6.3 | % | — | — | % | 9,151 | 100.0 | % | |||||||||||||||
Interest expense, net | (1,129 | ) | (0.8 | )% | (1,984 | ) | (1.0 | )% | 855 | 43.1 | % | |||||||||||||
Other, net | 7,444 | 5.1 | % | 123 | 0.1 | % | 7,321 | 5952.0 | % | |||||||||||||||
Total other income (expense), net | 15,466 | 10.6 | % | (1,861 | ) | (0.9 | )% | 17,327 | 931.1 | % | ||||||||||||||
Net income (loss) before provision for income taxes | 2,872 | 2.0 | % | (1,439 | ) | (0.7 | )% | 4,311 | 299.6 | % | ||||||||||||||
Provision for income taxes | 25 | 0.0 | % | 48 | 0.0 | % | (23 | ) | (47.9 | )% | ||||||||||||||
Net income (loss) | $ | 2,847 | 2.0 | % | $ | (1,487 | ) | (0.7 | )% | $ | 4,334 | 291.5 | % |
Consolidated
Revenues increased decreasedby $52,840$52,877 during the year ended December 31, 2019. This increase was driven by higher capacity utilization2021 primarily due to a 35% decrease in the Heavy Fabrications segment as tower sections sold increased 73% in support of a strengtheningas wind turbine installation market,customers paused and delayed orders due to $3,482uncertainty regarding the timing and likelihood of growthpotential wind energy incentives provided by the federal government and elevated steel prices. Within our other segments, Gearing revenues increased as a result of increased order intake in other industrial fabrications sales. Partially offsetting this improvementrecent quarters from O&G and mining customers, but was a decrease in Gearing segment revenues of $3,499partially offset by decreased Industrial Solutions revenue due to lower demand from O&G customers. The Industrial Solutions segment recognized revenuethe timing of $14,664 in 2019 as compared to $12,467 in 2018 primarily due to increased demand fornew gas turbine components and because of our entry into the solar power generation market. aftermarket installations in addition to supply chain constraints.
Gross profit increaseddecreased by $12,347$12,490 during the year ended December 31, 2019.2021. The increasedecrease in gross profit reflects improved capacity utilizationlower sales volumes and manufacturing inefficiencies caused by supply chain disruptions, and a temporary shut-down of our Abilene, Texas plant due to a weather event in the Heavy Fabrications segment and improved manufacturing efficiencies in all segments. These benefits were partially offset by the adverse impactfirst quarter of margin pressure associated with lower prices driven by increased competition from foreign tower manufacturers.2021. As a result, our gross margin more than tripleddecreased from 2.4%9.1% for the year ended December 31, 2018,2020, to 8.6%3.8% for the year ended December 31, 2019.2021.
Operating
Due to lower revenue levels, higher commission expenses, decreased $10,362 during the year ended December 31, primarily due to the absence of a $12,585 impairment charge recognizedand an increase in the prior year. Partially offsetting this was increased incentive compensation and the absence of a $1,140 benefit associated with the reversal of the final earn-out reserve associated with the Red Wolf acquisition, which was recorded in 2018. As a result,professional expenses, operating expenses as a percentage of sales decreasedincreased to 12.4% in 2021 from 22.4% to 10.0%8.9% in 2019.2020.
30
LossNet incomeimproved from continuing operations improved significantly from $24,002a loss $1,487 for the year ended December 31, 20182020 to $4,586 net income of $2,847for the year ended December 31, 2019,2021.The improvement in net income was primarily asdue to income of $9,151 recognized from the PPP loan forgiveness and a result$6,965 ERC benefit. Both of these items were recognized in “Other Income (expense), net” in our consolidated statement of operations for the factors describedyear ended December 31, 2021. This increase was partially offset by the volume related decreases discussed above.
Heavy Fabrications Segment
The following table summarizes the Heavy Fabrications segment operating results for the twelve months ended December 31, 20192021 and 2018:2020:
|
|
|
|
|
|
|
|
|
| Twelve Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Orders |
| $ | 179,657 |
| $ | 28,604 |
|
Tower sections sold |
|
| 934 |
|
| 540 |
|
Revenues |
|
| 128,686 |
|
| 74,667 |
|
Operating income (loss) |
|
| 1,861 |
|
| (5,440) |
|
Operating margin |
|
| 1.4 | % |
| (7.3) | % |
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Orders | $ | 93,246 | $ | 105,843 | ||||
Tower sections sold | 747 | 1,150 | ||||||
Revenues | 101,994 | 155,198 | ||||||
Operating (loss) income | (3,214 | ) | 10,385 | |||||
Operating margin | (3.2 | )% | 6.7 | % |
The $151,053Heavy Fabrications orders decreased by 12% versus the prior year as tower customers paused and delayed orders due to uncertainty regarding the timing and likelihood of potential federal wind energy incentives and elevated U.S. steel prices. This decrease was partially offset by a 72% increase in orders was driven primarily by tower customers securing 2020 production capacity in support of increased wind turbine installations. During 2018, our largest customer fulfilled orders under a three-year framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis; this change in ordering also impacted the year-over-year comparison. Other industrial fabrication product line orders increased $5,682.as customers within all markets served resumed capital spending and inventory purchases. Segment revenues increaseddecreased by 72%34% during the year ended December 31, 20192021 primarily due to a 73% increasethe aforementioned pause in wind tower sections sold and a $3,482 increase in other industrial fabrication revenue, reflecting an expansion of our customer base and investments to broaden our manufacturing capabilities.orders.
Heavy Fabrications segment operating results improveddecreased by $7,301$13,599 versus the prior year. The improvement in capacity utilization,degradation reflects the expansion of other industrial fabrications andadverse volume impacts described previously, the absenceunderutilization of plant start-up costs incurredcapacity, manufacturing inefficiencies caused by supply chain disruptions and a temporary shut-down of our Abilene, Texas plant due to a weather event in the prior year were partially offset by the negative impacts from increased competitive tower pricing pressure in the current year.first quarter of 2021. Operating profit margin was 1.4%(3.2%) during the year ended December 31, 20192021 compared to a loss of 7.3%6.7% during the year ended December 31, 2018.2020.
Gearing Segment
The following table summarizes the Gearing segment operating results for the twelve months ended December 31, 20192021 and 2018:2020:
|
|
|
|
|
|
|
|
|
| Twelve Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Orders |
| $ | 25,466 |
| $ | 41,576 |
|
Revenues |
|
| 34,877 |
|
| 38,376 |
|
Operating income |
|
| 3,237 |
|
| 51 |
|
Operating margin |
|
| 9.3 | % |
| 0.1 | % |
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Orders | $ | 46,081 | $ | 25,117 | ||||
Revenues | 28,583 | 25,136 | ||||||
Operating loss | (2,593 | ) | (3,883 | ) | ||||
Operating margin | (9.1 | )% | (15.4 | )% |
Gearing segment orders decreased 39% fromfor the year ended December 31, 2018,2021 increased $20,964 compared to the year ended December 31, 2020 primarily due to a decrease inincreased demand from O&G customers. The prior year period includedand mining customers, partially offset by the benefittiming of the industry’s expansion of fracking capacity and earlier than normal receipt of customer orders due to significantly longer lead times caused by steel availability issues. Also demand was lower from aftermarket wind customers,gearing orders, which can fluctuate based on customer order patterns and repair activity levels. These reductions were partially offset by an increase in orders from other industrial customers.
31
Revenue decreased 9%market conditions. Revenues increased 14% during the year ended December 31, 20192021 primarily due to a decrease in shipments toincreased O&G customers,and mining demand, partially offset by an increasea reduction in sales to mining and aftermarket wind customers; custom gearbox revenue was double the prior year.demand from industrial customers.
The Gearing segmentsegment's operating income improved significantly to $3,237 loss narrowed by $1,290during the year ended December 31, 20192021 primarily due to a higher marginincreased sales mixvolume and improved manufacturing efficiencies, including lower scrap and warranty costs. The operatingefficiencies. Operating margin was 9.3%(9.1)% for the year ended December 31, 20192021 compared to 0.1%(15.4)% during the year ended December 31, 2018.2020.
Industrial Solutions Segment
The following table summarizes the Industrial Solutions segment operating results for the twelve months ended December 31, 20192021 and 2018.2020.
|
|
|
|
|
|
|
|
|
| Twelve Months Ended |
| ||||
|
| December 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Orders |
| $ | 16,426 |
| $ | 13,061 |
|
Revenues |
|
| 14,664 |
|
| 12,467 |
|
Impairment charges |
|
| - |
|
| 12,585 |
|
Operating loss |
|
| (1,059) |
|
| (15,348) |
|
Operating margin |
|
| (7.2) | % |
| (123.1) | % |
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Orders | $ | 19,698 | $ | 17,922 | ||||
Revenues | 15,402 | 18,299 | ||||||
Operating (loss) income | (386 | ) | 881 | |||||
Operating margin | (2.5 | )% | 4.8 | % |
Industrial Solutions segment orders increased 26% by 10% in 2021 primarily due to an increase in orders associated with new gas turbine projects, partially offset by a decrease in orders associated with aftermarket projects. Segment revenue decreased 16% primarily due to the timing of new gas turbine and aftermarket installations in addition to supply chain constraints. The decrease in operating incomeduring the year ended December 31, 2019 primarily due to higher customer demand for new gas turbine content2021 was a result of the revenue decrease and diversification efforts linked to our solar market strategy, partially offset bya lower customer demand for gas turbine aftermarket products.margin sales mix sold during the year. The same factors resulted in an 18% increase in revenues to $14,664 for the year ended December 31, 2019.
The Industrial Solutions segment operating results improved by $14,289margin decreased from 4.8% during the year ended December 31, 2019 primarily due2020, to the absence of $12,585 in impairment charges recognized during 2018, lower related amortization expense, improved labor efficiency and higher prices. This was partially offset by accelerated amortization of $871 in 2019 associated with the Red Wolf trade name. Operating margin decreased from a loss of 123.1% during the year ended December 30, 2018, to a loss of 7.2%(2.5)% during the year ended December 31, 2019.2021.
Corporate and Other
Corporate and Other expenses increaseddecreased by $2,067$552 during the year ended December 31, 2019.2021. The increasedecrease was primarily attributable to the absence of a $1,140 benefit recognized in the prior year associated with the reversal of an earn-out reserve associated with the acquisition of Red Wolf, as well as higherreduced incentive compensation recognized in the current year.and marketing expenses.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated financial statements. This section should also be read in conjunction with Note 1, “Description of Business and Summary of Significant Accounting Policies” in the notes to our
32
consolidated financial statements for further discussion of these and other significant accounting policies.
Revenue Recognition
We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be classified as reductions of revenue in our statement of operations.
In many instances within our Heavy Fabrications segment, wind towers are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment, due to our customers’ preference to ship products in batches to support efficient construction of wind farms. We recognize revenue under these arrangements when there is a substantive reason for the arrangement (i.e., the buyer requests the arrangement), the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we do not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.
We adopted
During 2021 and 2020, we also recognized revenue over time, versus point in time, when products in the provisionsGearing and Heavy Fabrications segments had no alternative use to us and we had an enforceable right to payment, including profit, upon termination of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers,the contract by the customer. Since the projects are labor intensive, we use labor hours as the input measure of progress for the fiscal year beginning January 1, 2018 and electedcontract. Contract assets are recorded when performance obligations are satisfied but we are not yet entitled to payment. We recognize contract assets associated with this revenue which represents our rights to consideration for work completed but not billed at the modified retrospective approach. Through our assessmentend of the ASC 606, we identified minimal changes to the assumptions utilized for the year ending December 31, 2017 and the adoption of the guidance did not result in a material impact on our consolidated financial statements.period.
Warranty Liability
We provide warranty terms that generally range from one to five years for various products relating to workmanship and materials supplied by us. In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third parties for amounts paid to customers under warranty provisions. We estimate the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales.
Inventories
Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of components and parts for general production use. Work-in-process consists of labor and overhead, processing costs, purchased subcomponents, and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by us.
Inventories are stated at the lower of cost or net realizable value. Where necessary, we have recorded a reserve for the excess of cost over marketnet realizable value in our inventory allowance. MarketNet realizable value of inventory, and management’s judgment concerning the need for reserves, encompasses consideration of many business factors including physical condition, inventory holding period, contract terms and usefulness. Inventories are valued based either on actual cost or using a first‑in,first-in, first out method.
Long-Lived Assets
We review property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that their carrying amounts may not be
33
recoverable. Due to the Industrial Solutions’ segment recent operating losses,triggering events identified within our segments, we continue to evaluate the recoverability of certain of the long-lived assetsassets. During November 2021, we identified triggering events associated with thatthe Gearing segment and the Heavy Fabrications segment. In accordance with GAAP, we compared the carrying value of the Industrial Solutionssegment asset groupgroups to the forecast undiscounted cash flows associated with thisthe respective asset group.groups. Based on the analysisanalyses performed, the forecast undiscounted cash flows exceeded the carrying valuevalues resulting in no indicated or recorded impairment of this group. However, in conjunction with our rebranding initiative, during 2019 we decided we would no longer utilize the Red Wolf trade name. As a result, we accelerated the amortization of the trade name by $871 so that it was fully amortized in 2019.these groups.
Income Taxes
We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.
In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax liability for each of the tax jurisdictions in which we operate. This process involves estimating our actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. We also recognize the expected future income tax benefits of net operating loss (“NOL”)NOL carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.
We also account for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. We follow the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition related to the uncertainty in these income tax positions.
Health Insurance Reserves
We self‑insure for our health insurance liabilities, including establishing reserves for self‑retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required health insurance reserves. We take into account claims incurred but not reported when determining our health insurance reserves. Health insurance reserves are included in accrued liabilities. While we believe that we have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred.
34
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of December 31, 2019,2021, cash and cash equivalents totaled $2,416, an increase$852, a decrease of $1,239 $2,520from December 31, 2018.2020. We have in place a line of credit with CIBC Bank (the “Credit Facility”) under which we can borrow up to $35,000,$30,000, depending on our borrowing base. Debt and finance lease obligations at December 31, 20192021 totaled $14,641,$11,368, and we had the ability to borrow up to $16,577$14,037 under the Credit Facility. We anticipate that we will be ableIn addition to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including under a “shelf” registration statement on Form S-3, which was declared effective by the SEC on October 10, 2017.
Wewe also utilize supply chain financing arrangements as a component of our funding for working capital, which accelerates receivable collections and helps to better manage cash flow. Under these agreements, we have agreed to sell certain of our accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements. The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense.
On January 16, 2019,March 9, 2021, we entered into a $10,000 Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC. Pursuant to the terms of the Equity Distribution Agreement, we issued 1,897,697 shares of the Company's common stock thereunder during the first two quarters of 2021. The net proceeds (before upfront costs) to the Company from the sales of such shares were approximately $9,725 after deducting commissions paid of approximately $275 and before deducting other expense of $411.
On November 8, 2021, we executed the SixthThird Amendment to Loan and Security Agreement which increased our capability to issue letters of credit under the Credit Facility.
On February, 25, 2019, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement included minimum EBITDA covenants(the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 20192022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $5,000 to the Revolving Loan Availability through December 31, 2022.
On February 28, 2022, we executed the Fourth Amendment to the Amended and Restated Loan Agreement (the “Fourth Amendment”) which has been replaced by a Fixed Charge Coverage Ratio. We are in compliance with all covenants underreduced the Credit Facilityline of credit from $35,000 to $30,000, extended the maturity date until January 31, 2024, waived the minimum EBITDA covenant for the three-month period ended December 31, 2021, revised the fixed charge coverage ratio covenant as of December 31, 2019.
While we believe that we will continue2022 for the trailing nine-month period after March 31, 2022, revised the minimum EBITDA covenant applicable to have sufficient cash available to operate our businessesthe three-month period ending March 31, 2022, the six-month period ending June 30, 2022 and to meet our financial obligationsthe nine-month period ending September 30, 2022, revised the liquidity reserve and amended debt covenants, therecertain other provisions in connection with the discontinuation of LIBOR and replacement with the forward-looking term Secured Overnight Financing Rate (Term SOFR) administered by CME Group, Inc. For a more detailed description of the Fourth Amendment refer to Item 9B of this Form 10-K.
On March 27, 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including an ERC, which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. As amended, the ERC is available for wages paid through September 30, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be no assurance thatclaimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. In the first and second quarters of 2021, the Company received ERC benefits of $3,372 and $3,593, respectively, and under analogy to IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” were recorded in “Other income (expense), net” in our operations will generate sufficient cash,consolidated statement of operations. The Company qualified for the ERC in the first quarter of 2021 because it experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since the Company qualified for the ERC in the first quarter of 2021, it automatically qualified for the ERC in the second quarter of 2021. As a result of the Company averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services). During the third quarter of 2021 due to relatively higher revenues in 2021 as compared to the third quarter of 2019, the Company did not qualify for the ERC benefit. The receivable for the remaining uncollected ERC benefit is $497 as of December 31, 2021 and is included in the “Employee retention credit receivable” line item in the Company’s consolidated balance sheet at December 31, 2021. The $497 receivable balance was collected during January 2022.
We anticipate that we will be able to complysatisfy the cash requirements associated with, applicable loan covenantsamong other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or that credit facilities will be available in an amount sufficientprivate debt and/or equity markets, including the option to enable us to repayraise additional capital from the sale of our indebtedness or to fund our other liquidity needs. securities under a “shelf” registration statement on Form S-3.
Sources and Uses of Cash
The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
| Twelve Months Ended | ||||
|
| December 31, | ||||
|
| 2019 |
| 2018 | ||
Total cash provided by (used in): |
|
|
|
|
|
|
Operating activities |
| $ | 4,521 |
| $ | 2,045 |
Investing activities |
|
| (1,843) |
|
| (1,648) |
Financing activities |
|
| (1,444) |
|
| 807 |
Discontinued operations |
|
| 5 |
|
| (105) |
Net increase in cash |
| $ | 1,239 |
| $ | 1,099 |
35
Other
Operating Cash Flows
During the year ended December 31, 2019, net cash provided by operations was $4,521 compared to net cash provided by operating activities of $2,045 for the year ended December 31, 2018. The operating cash flow improvement was due primarily to the improved capacity utilization in the current year which resulted in a significantly improved operating results. Partially offsetting this was a build of working capital in response to the higher production levels within the Heavy Fabrications segment, versus the prior year when working capital decreased primarily as a result of the significant collections of deposits related to new tower orders.
Investing Cash Flows
During the year ended December 31, 2019, net cash used in investing activities was $1,843 compared to net cash used in investing activities of $1,648 for the year ended December 31, 2018. The increase was primarily due to the absence of proceeds from property disposals in the prior year period.
Financing Cash Flows
During the year ended December 31, 2019, net cash used in financing activities totaled $1,444 compared to net cash provided by financing activities of $807 for the year ended December 31, 2018. The decrease in net cash provided by financing activities was primarily due to the absence of financing activity resulting in $2,060 of proceeds on long-term debt that occurred in the prior year.
Other
In 2016, we entered into a $570 unsecured loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon us meeting and maintaining specific employment thresholds. During each of the years ended December 31, 20192021 and 2018,2020, $114 of the loan was forgiven. As of December 31, 2019,2021, the loan balance was $342.$114. In addition, we have outstanding notes payable for capital expenditures in the amount of $1,563$186 and $1,882$163 as of December 31, 20192021 and 2018,2020, respectively, with $1,400$186 and $930$161 included in the “Line of credit and other notes payable” line item of our consolidated financial statements as of December 31, 20192021 and 2018,2020, respectively. The notes payable have monthly payments that range from $1 to $36$16 and an interest rate of 5%4%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020March2022 to August 2022.September 2028.
Sources and Uses of Cash
The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2021 and 2020:
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Total cash provided by (used in): | ||||||||
Operating activities | $ | (12,826 | ) | $ | 5,330 | |||
Investing activities | (1,674 | ) | (1,547 | ) | ||||
Financing activities | 11,980 | (2,827 | ) | |||||
Net (decrease) increase in cash | $ | (2,520 | ) | $ | 956 |
Operating Cash Flows
During the year ended December 31, 2021, net cash used in operations was $12,826 compared to net cash provided by operating activities of $5,330 for the year ended December 31, 2020. The increase in net cash used in operating activities was primarily due toour operating performance (excluding the PPP loan forgiveness), the timing of accruals and an increase in operating working capital in the current year period.
Investing Cash Flows
During the year ended December 31, 2021, net cash used in investing activities was $1,674 compared to net cash used in investing activities of $1,547 for the year ended December 31, 2020. The increase was primarily due to an increase in net purchases of property and equipment.
Financing Cash Flows
During the year ended December 31, 2021, net cash provided by financing activities totaled $11,980 compared to net cash used in financing activities of $2,827 for the year ended December 31, 2020. The increase was primarily due to proceeds from the sale of securities under the Equity Distribution Agreement and increased net borrowings under our Credit Facility in the current year, partially offset by the absence of the PPP Loan proceeds received in 2020.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.
Off-Balance SheetArrangements
We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of December 31, 2021, we have no off-balance sheet arrangements.(i) debt obligations related to our Credit Facility and other notes payable as described in Note 9, “Debt and Credit Agreements” of our consolidated financial statements and includes cash principal payments of $6,650 due in 2022, $28 in 2023, $29 in 2024, $30 in 2025, $32 in 2026 and $58 in 2027 and thereafter (ii) cash payments for operating and finance lease obligations that total $34,896 and are described in Note 10, “Leases” of our consolidated financial statements and (iii) purchase obligations made in the normal course of business. We expect to fund these cash requirements primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt and/or equity markets, including the option to raise additional capital from the sale of our securities under a “shelf” registration statement on Form S-3.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND FINANCIAL STATEMENT SCHEDULES” of this Annual Report.
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures
(a) | Evaluation of Disclosure Controls and Procedures |
We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal year reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective as of December 31, 2019.2021.
(b)Changes in Internal Control over Financial Reporting
(b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c)Report of Management on Internal Control Over Financial Reporting
(c) | Report of Management on Internal Control Over Financial Reporting |
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.2021. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that our internal control over financial reporting was effective as of December 31, 2019.2021.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
On February 28, 2022, Broadwind, Inc. and its subsidiaries (the “Company”) entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Loan and Security Agreement dated February 25, 2019 between the Company and CIBC Bank USA, as administrative agent and sole lead arranger and the other financial institutions party thereto. Among other changes, the Fourth Amendment reduced the line of credit from $35,000 to $30,000, extended the maturity date until January 31, 2024, waived the minimum EBITDA covenant for the three-month period ended December 31, 2021, revised the fixed charge coverage ratio covenant as of December 31, 2022 for the trailing nine-month period after March 31, 2022, revised the minimum EBITDA covenant applicable to the three-month period ending March 31, 2022, the six-month period ending June 30, 2022 and the nine-month period ending September 30, 2022, revised the liquidity reserve and amended certain other provisions in connection with the discontinuation of LIBOR and replacement with the forward-looking term Secured Overnight Financing Rate (Term SOFR) administered by CME Group, Inc.
The foregoing description of the Fourth Amendment is not intended to be complete and is qualified in its entirety by reference to the Fourth Amendment to Amended and Restated Loan and Security Agreement, which is attached hereto as Exhibit 10.30 to this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
37
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
With the exception of the description of our Code of Ethics and Business Conduct below, the information required by this item is incorporated herein by reference from the discussion under the headings “Directors and Director Compensation,” “Corporate Governance,” and “Executive Officers” and “Other Matters—Delinquent Section 16(a) Reports” in our definitive Proxy Statement to be filed in connection with our 20202022 Annual Meeting of Stockholders (the “2020“2022 Proxy Statement”).
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to all of our directors, executive officers and senior financial officers (including our principal executive officer, principal financial officer, principal accounting officer, controller, and any person performing similar functions). The Code is available on our website at www.bwen.com under the caption “Investors” and is available in print, free of charge, to any stockholder who sends a request for a paper copy to Broadwind, Energy, Inc., Attn: Investor Relations, 3240 South Central Avenue, Cicero, IL 60804. We intend to include on our website any amendment to, or waiver from, a provision of the Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S‑K.S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding director and executive compensation is incorporated by reference from the discussion under the headings “Directors and Director Compensation” and “Executive Officers and Executive Compensation” in the 20202022 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain of the information required by this item is incorporated herein by reference from the discussion under the heading “Security Ownership of Certain Beneficial Holders and Management” in the 20202022 Proxy Statement.
The following table provides information as of December 31, 2019,2021, with respect to shares of our common stock that may be issued under our existing equity compensation plans:
38
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
|
|
| (a) |
| (b) |
| (c) |
| |
|
|
|
|
|
|
| Number of securities |
|
|
|
|
|
|
|
| remaining available for |
|
|
| Number of securities |
|
|
|
| future issuances under |
|
|
| to be issued upon |
| Weighted-average |
| equity compensation |
| |
|
| exercise of |
| exercise price of |
| plans (excluding |
| |
|
| outstanding options, |
| outstanding options, |
| securities reflected in |
| |
Plan Category |
| warrants, and rights |
| warrants, and rights |
| column (a)) |
| |
Equity compensation plans approved by stockholders |
| 1,411,277 | (1) | $ | 2.73 |
| 414,270 |
|
Total |
| 1,411,277 |
| $ | 2.73 |
| 414,270 |
|
(a) | (b) | (c) | |||||||||||
Number of securities | |||||||||||||
remaining available for | |||||||||||||
Number of securities | future issuances under | ||||||||||||
to be issued upon | Weighted‑average | equity compensation | |||||||||||
exercise of | exercise price of | plans (excluding | |||||||||||
outstanding options, | outstanding options, | securities reflected in | |||||||||||
Plan Category | warrants, and rights | warrants, and rights | column (a)) | ||||||||||
Equity compensation plans approved by stockholders | 918,448 | (1) | $ | 2.73 | 853,446 | ||||||||
Total | 918,448 | $ | 2.73 | 853,446 |
(1) | Includes |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference from the discussion under the headings “Certain Transactions and Business Relationships” and “Corporate Governance” in the 20202022 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference from the discussion under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the 20202022 Proxy Statement.
39
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
The financial statements listed on the Index to Financial Statements (page 41)34) are filed as part of this Annual Report.
2. Financial Statement Schedules
These schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required.
3. Exhibits
The exhibits listed on the Index to Exhibits (pages 77 through 80) are filed as part of this Annual Report.
None.
None.
40
INDEX TO FINANCIAL STATEMENTS
34
Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Broadwind, Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Broadwind, Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical AuditMatter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. 35 Long-Lived Assets As described in Note 7 of the financial statements, the Company’s evaluation of long-lived asset impairment involves the comparison of the undiscounted future cash flows of a respective asset group to its corresponding carrying value. This requires management to make significant qualitative and quantitative estimates and assumptions including estimates of future revenue growth rates, operating margins, and capital expenditures. Changes in these assumptions could have a significant impact on the amount of undiscounted cash flows, which could have an impact on the impairment charge, if any. The Company’s Gearing asset group has experienced reoccurring operating losses in consecutive years ending December 31, 2021, and the Company’s Heavy Fabrications asset group has experienced a decline in revenue and operating margin during the year ended December 31, 2021. Company management determined that the carrying amount of the Gearing and Heavy Fabrications asset groups may not be recoverable based on the operating performances for each asset group. Accordingly, the Company performed impairment assessments of the asset groups as of November 30, 2021. As part of the impairment assessments, it was determined that each asset group had undiscounted future cash flows that exceeded their estimated carrying values. Additionally, there were no changes in facts or circumstances following the November 30, 2021 assessments through December 31, 2021, which would alter each asset group’s initial undiscounted future cash flows or carrying value estimates. As a result, no impairment charge was recorded in the consolidated statement of operations for the year ended December 31, 2021, for the Gearing and Heavy Fabrications asset groups. Key financial assumptions used to determine the undiscounted cash flows of the asset groups were developed by management. We identified the long-lived asset impairment assessments of the Gearing and Heavy Fabrications asset groups as a critical audit matter because of the high degree of judgement and subjectivity involved in auditing management’s assumptions regarding their asset group determination, each asset group’s primary asset determination, and projected revenue growth rates, operating cash flow margins and capital expenditures utilized to determine the recoverability of the asset group’s long-lived assets. How the Critical Audit Matter Was Addressed in the Audit The audit procedures performed related to the evaluation of Company management’s assumptions and estimates relating to their determination of recoverability of the Gearing and Heavy Fabrications asset groups included the following, among others:
/ We have served as the Company's auditor since 2016. Chicago, Illinois
36 BROADWIND CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
37 BROADWIND CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
38 BROADWIND CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share data)
Theaccompanying notes are an integral part of these consolidated financial statements.
39 BROADWIND CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
The accompanying notes are an integral part of theseconsolidated financial statements. 40 BROADWIND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, (in thousands, except share and per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Broadwind,
Heavy Fabrications
The Company provides large, complex and precision fabrications to customers in a broad range of industrial markets. The Company’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the Company provides steel towers and adapters primarily to wind turbine manufacturers.
Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The 41 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) Gearing The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment and gearbox repair in Neville Island, Pennsylvania. Industrial Solutions The Company provides supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market. Liquidity The Company meets its short term liquidity needs through cash generated from operations, its available cash balances, The Company also utilizes supply chain financing arrangements as a component of
the Company's consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company. 42 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) Debt and finance lease obligations at December 31, On August On On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. As amended, the ERC is available for wages paid through September 30,2021 and is equal to 70%of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. In the first and second quarters of 2021, the Company received ERC benefits of $3,372 and $3,593, respectively, and under analogy to IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” were recorded in “Other income (expense), net” in our consolidated statement of operations. The Company qualified for the ERC in the first quarter of 2021 because it experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since the Company qualified for the ERC in the first quarter of 2021, it automatically qualified for the ERC in the second quarter of 2021. As a result of the Company averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services). During the third quarter of 2021 due to relatively higher revenues in 2021 as compared to the third quarter of 2019, the Company did not qualify for the ERC benefit. The receivable for the remaining uncollected ERC benefit is $497 as of December 31, The Company anticipates that current cash resources, amounts available under the Credit Facility, cash to be generated from operations and equipment financing, and any potential proceeds from Reclassifications Certain prior year amounts, which are not material, have been reclassified to conform to current year presentation in the consolidated financial statements and the notes to the consolidated financial statements.
Summary of Significant Accounting Policies Management’s Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts,
43 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) Cash
As of December 31, Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are presumed to be classified as reductions of revenue in the Company’s statement of operations. For many tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment. The Company recognizes revenue under these arrangements only when there is a substantive reason for the agreement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance. During 2021 and 2020, the Company also recognized revenue over time, versus point in time, when products in the Gearing and Heavy Fabrications segments had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contract by the customer. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the contract. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment. The Company recognizes contract assets associated with this revenue which represents its rights to consideration for work completed but not billed at the end of the period. Cost of Sales Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These costs include operation, repair and maintenance of equipment, materials, direct and indirect labor and benefit costs, rent and utilities, maintenance, insurance, equipment rentals, freight, and depreciation. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses include all corporate and administrative functions such as sales and marketing, legal, human resource management, finance, investor and public relations, information technology and senior management. These functions serve to support the Company’s current and future operations and provide an infrastructure to support future growth. Major expense items in this category include management and staff wages and benefits,
44 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) Accounts Receivable (A/R) The Company generally grants uncollateralized credit to customers on an individual basis based upon the customer’s financial condition and credit history. Credit is typically on net 30 day terms and customer deposits are frequently required at various stages of the production process to finance customized products and minimize credit risk. Historically, the Company’s A/R is highly concentrated with a select number of customers. During the year ended December 31, Allowance for Doubtful Accounts Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to A/R. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the realizability of its A/R. These factors include individual customer circumstances, history with the Company and other relevant criteria. A/R balances that remain outstanding after the Company has exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to A/R. The Company monitors its collections and Inventories Inventories are stated at the lower of cost or net realizable value. Net realizable value is the value that can be realized upon the sale of the inventory less a reasonable estimate of selling costs. Cost is determined either based on the Inventories consist of raw materials,
45 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) Long-Lived Assets Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is recognized using the The Company reviews property and equipment and other In evaluating the recoverability of Leases The Company leases various property and equipment under operating lease arrangements. On January 1, 2019, the Company adopted
46 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) Warranty Liability The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Warranty liability is recorded in accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales. The changes in the carrying amount of the Company’s total product warranty liability for the years ended December 31,
Income Taxes The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. In connection with the preparation of its consolidated financial statements, the Company is required to estimate its income tax liability for each of the tax jurisdictions in which the Company operates. This process involves estimating the Company’s actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. The Company also recognizes as deferred income tax assets the expected future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, the Company considers, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause its income tax provision to vary significantly among financial reporting periods.
47 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty in these income tax positions.
Share-Based Compensation The Company grants incentive stock options, restricted stock units (“RSUs”) and/or performance awards (“PSUs”) to certain officers, directors, and employees. The Company accounts for Net Income The Company presents both basic and diluted net income (loss) per share. Basic net income (loss) per share is based solely upon the weighted average number of common shares outstanding and excludes any dilutive effects of restricted stock, options, warrants and convertible securities. Diluted net income (loss) per share is based upon the weighted average number of common shares and
2. REVENUES Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table presents the Company’s revenues disaggregated by revenue source for the years ended December 31,
The Company’s revenue is generally recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The
Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. 48 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) For many tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment. The Company recognizes revenue under these arrangements only when there is a substantive reason for the arrangement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance. During the year ended December 31,2021, the Company recognized a portion of revenue within the Gearing and Heavy Fabrications segments over time, as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contracts. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the applicable contracts. Within the Heavy Fabrications segment, the Company recognized revenue over time of $5,665 and $815 for the years ended December 30,2021 and 2020, respectively. Within the Gearing segment, the Company recognized revenue over time of $2,444 and $1,438 for the years ended December 31,2021 and 2020, respectively. During the fourth quarter of 2021, the Company ceased recording revenue over time within the Gearing segment due to a change in terms. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment. Contract assets represent the Company’s rights to consideration for work completed but not billed at the end of the period. The Company generally expenses sales commissions when incurred. These costs are recorded within selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations. The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.
The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31,
(1) Stock options and restricted stock units granted and outstanding of that period.
49 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data)
4. RECENT ACCOUNTING PRONOUNCEMENTS The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its consolidated financial statements.
The activity in the accounts receivable allowance from operations for the years ended December 31,
6. INVENTORIES The components of inventories from operations as of December 31,
50 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data)
7. LONG-LIVED ASSETS The cost basis and estimated lives of property and equipment from continuing operations as of December 31,
As of December 31,
Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote Gear Works completed in 2007 as well as the noncompetition agreements During
51 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) As of December 31,
Intangible assets are amortized on a
Accrued liabilities as of December 31,
52 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data)
9. DEBT AND CREDIT AGREEMENTS The Company’s outstanding debt balances as of December 31,
As of December 31,
Credit Facilities On October 26, 2016, the Company established a The Credit Facility is an asset-based revolving credit facility, pursuant to which the Lenders advance funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the subsidiaries, plus (b) the lesser of (i) 50% of the lower of cost or market value of eligible inventory of the Company, (ii) 85% of the orderly liquidation value of eligible inventory and (iii) $12.5 million, plus (c) the lesser of (i) the sum of (A) 75% of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50% of the fair market value of the Company’s mortgaged property and (ii) $12 million. Subject to certain borrowing base conditions, the aggregate Credit Facility limit under the Amended and Restated Loan Agreement is $35 million with a sublimit for letters of credit of $10 million. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, the one, two or
On October 29,2020, the Company executed the First Amendment to the 2016 Amended and Restated Loan Agreement (the “First Amendment”), implementing a payoff of a syndicated lender and a pricing grid based on the Company's trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for LIBOR rate loans and 0.00% and 0.75% for base rate loans, and extending the term of the Credit Facility to July 31,2023. 53 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) On February 23, 2021, the Company executed the Second Amendment to the Amended and Restated Loan Agreement, which waived testing of the fixed charge coverage covenant for the quarters ended March 31, 2021 and June 20, 2021, added a new liquidity covenant applicable to the quarter ended March 31, 2021 and new minimum EBITDA covenants applicable to the quarters ended March 31, 2021 and June 30, 2021. As of September 30, 2021, the Company transitioned back to a fixed charge coverage covenant. On November 8, 2021, the Company executed the Third Amendment to the Amended and Restated Loan Agreement (the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 2022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $5,000 to the Revolving Loan Availability through December 31, 2022. On February 28, 2022, the Company executed the Fourth Amendment to the Amended and Restated Loan Agreement (the “Fourth Amendment”) which reduced the line of credit from $35,000 to $30,000, extended the maturity date until January 31, 2024, waived the minimum EBITDA covenant for the three-month period ended December 31, 2021, revised the fixed charge coverage ratio covenant as of December 31, 2022 for the trailing nine-month period after March 31, 2022, revised the minimum EBITDA covenant applicable to the three-month period ending March 31, 2022, the six-month period ending June 30, 2022 and the nine-month period ending September 30, 2022, revised the liquidity reserve and amended certain other provisions in connection with the discontinuation of LIBOR and replacement with the forward-looking term Secured Overnight Financing Rate (Term SOFR) administered by CME Group, Inc. The Credit Facility contains customary representations and warranties applicable to the Company and the subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain In conjunction with the2016 Amended and Restated Loan Agreement, during June 2019, the Company entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notional amount of $6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering the Company’s risk premium. The interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility. The interest rate swap liability is included in the “Accrued liabilities” line item of the Company’s consolidated financial statements as of December 31, 2021 and December 31, 2020. As of December 31, Other In 2016, the Company entered into a $570 unsecured loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years ended December 31,
collateral for the notes payable. The outstanding notes payable have maturity dates that range from
On April 15, 2020, the Company received funds under notes and related documents (“PPP Loans”) with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the CARES Act enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (“SBA”). The Company received total proceeds of $9,530 from the PPP Loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020, the PPP Loans, and accrued interest and fees are eligible to be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and certain employee benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities.The amount of loan forgiveness is reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. The Company used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses consistent with the terms of the PPP and submitted its forgiveness applications to CIBC during the first quarter of 2021. During the quarter ended June 30,2021, all loans were forgiven by the SBA and a gain of $9,151 was recorded in “Other income (expense), net” in the Company's condensed consolidated statements of operations. 54 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) 10. LEASES The Company leases various property and equipment under operating lease arrangements. On January 1, 2019, the Company adopted Topic 842 and ASU The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $19,508 with a corresponding right-of-use (“ROU”) asset of $17,613 based on the present value of the minimum rental payments of such leases. The variance between the ROU asset balance and the lease liability is a deferred rent liability that existed prior to the adoption of Topic 842 and was offset against the ROU asset balance during the adoption. As of December 31, Lease terms generally range from 3 to 15 years with renewal options for extended terms. Some of the Company’s facility leases include options to renew. The exercise of the renewal options is at the Company’s discretion. Therefore, the majority of renewals to extend the lease terms are not included in ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them. Certain leases contain rent escalation clauses that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a In addition, the Company has entered into finance lease arrangements to finance property and equipment and assumed finance lease obligations in connection with certain acquisitions. Finance rental expense for the years ended December 31, Amortization expense recorded in connection with assets recorded under finance leases was
55 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) Quantitative information regarding the Company’s leases is as follows:
Amortization associated with new right-of-use assets obtained in exchange for new operating lease liabilities is $270 and $291 for the years ended December 31, As of December 31,
56 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data)
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings From time to time, the Company is subject to legal proceedings or claims that arise in the ordinary course of its business. The Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. As of December 31, Environmental Compliance and Remediation Liabilities The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. Also, certain environmental laws can impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.
57 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) Collateral In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations. Warranty Liability The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Liquidated Damages In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and dependent on actual losses sustained by the customer. When the damages are determined to be probable and estimable, the damages are recorded as a reduction to revenue. During Workers’ Compensation Reserves As of December 31, Health Insurance Reserves As of December 31,
58 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data)
Other As of December 31,
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows: Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s corporate and municipal bonds, although quoted prices are available and used to value said assets, they are traded less frequently. Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. Fair value of financial instruments The carrying amounts of the Company’s financial instruments, which include
59 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the variability of LIBOR for its floating rate debt described in Note 9, “Debt and Credit Agreements,” of these consolidated financial statements. The fair value of the interest rate swap is reported in “Accrued liabilities” and the change in fair value is reported in “Interest expense, net” of these consolidated financial statements. The fair value of the interest rate swap is estimated as the net present value of projected cash flows based on forward interest rates at the balance sheet date. The following tables represent the fair values of the Company’s financial assets measured as of December 31,
13. INCOME TAXES The provision for income taxes for the years ended December 31,
During the year ended December 31,
The total change in the deferred tax valuation allowance was
to federal and state NOLs. In 2020, the change in the deferred tax valuation allowance was the result of partial losses of NOLs associated with taking a worthless stock deduction related to the liquidation of the Services entity. Management believes that significant uncertainty exists surrounding the recoverability of deferred tax assets. As a result, the Company recorded a valuation allowance against the remaining deferred tax assets. 60 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) The tax effects of the temporary differences and NOLs that give rise to significant portions of deferred tax assets and liabilities are as follows:
Certain prior year amounts have been reclassified to conform to current year presentation. Valuation allowances of
As of December 31, The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate is as follows:
61
BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position taken, or expected to be taken, in a tax return that is required to be met before being recognized in the financial statements. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. As of December 31, The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31, Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated In February 2013, the Company adopted a Stockholder Rights Plan, which was amended in February 2016 and approved by our stockholders (as amended, the “Rights Plan”), designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under Section 382 of the IRC. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan for an additional three years, which was subsequently approved by the Company’s stockholders at the 2019 Annual Meeting of Stockholders held on April 23, 2019
The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a
beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12,2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date.
62 BROADWIND, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 and 2020 (in thousands, except share and per share data) 14. Overview of The Company has granted incentive stock options and other equity awards pursuant to previously Board approved The purposes of the Stock Options. The exercise price of stock options granted under the Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Performance Awards (PSUs). The granting of PSUs is provided for under the
63 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) The
The Company's equity incentive plans prior to the 2015 EIP had reserved 1,891,051 shares of the Company’s common stock, and as of December 31, 2021, 888,748shares of common stock reserved for issuance under these plans had been issued in the form of common stock. As of December 31, 2021, 0 shares of common stock are reserved for equity awards under these plans. There was no stock option activity during the year ended December 31,
The fair value of each stock option award is estimated on the date of grant using the
64 BROADWIND, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, (in thousands, except share and per share data) The following table summarizes information with respect to outstanding RSUs and PSUs
RSUs and PSUs are generally subject to ratable vesting over a The following table summarizes
|
As of December 31, 2019,2021, the Company estimates that pre‑taxpre-tax compensation expense for all unvested share‑basedshare-based RSUs and PSUs in the amount of approximately $1,537 $1,177will be recognized through the year 2021.2023. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.
15. SEGMENT REPORTING
The Company is organized into reporting segments based on the nature of the products offered and business activities from which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision maker.
71
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 2021 and 20182020
(in thousands, except share and per share data)
During the first quarter of 2019, the Company revised its segment presentation by moving its Abilene compressed natural gas and industrial fabrication business from the Industrial Solutions segment to the Heavy Fabrications segment. The Company believes that this change more appropriately aligns its businesses in terms of the nature of its products and services, as well as its production processes and customers. The Company has restated prior periods presented to reflect this change. In conjunction with the Company’s rebranding initiative, the Company renamed certain segments. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of these consolidated financial statements for further discussion of the renamed segments.
The Company’s segments and their product offerings are summarized below:
Heavy Fabrications
The Company provides large, complex and precision fabrications to customers in a broad range of industrial markets. The Company’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the Company provides steel towers and adapters primarily to wind turbine manufacturers. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two2 facilities have a combined annual tower production capacity of up to approximately 550 tower towers (1650 tower sections), sufficient to support turbines generating more than 1,100 MW of power. The Company has expanded production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and OEM components utilized in surface and underground mining, construction, material handling, O&G and other infrastructure markets.
Gearing
The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment and gearbox repair in Neville Island, Pennsylvania.
Industrial Solutions
The Company provides supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.
72
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 2021 and 20182020
(in thousands, except share and per share data)
Corporate and Other
“Corporate” includes the assets and SG&A expenses of the Company’s corporate office. “Eliminations” comprises adjustments to reconcile segment results to consolidated results.
The accounting policies of the reportable segments are the same as those referenced in Note 1, “Description of Business and Summary of Significant Accounting Policies” of these consolidated financial statements. Summary financial information by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
|
| Industrial Solutions |
|
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Year Ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 128,686 |
| $ | 34,877 |
|
| $ | 14,657 |
|
| $ | — |
| $ | — |
| $ | 178,220 |
|
Intersegment revenues |
|
| — |
|
| — |
|
|
| 7 |
|
|
| — |
|
| (7) |
|
| — |
|
Net revenues |
|
| 128,686 |
|
| 34,877 |
|
|
| 14,664 |
|
|
| — |
|
| (7) |
|
| 178,220 |
|
Operating profit (loss) |
|
| 1,861 |
|
| 3,237 |
|
|
| (1,059) |
|
|
| (6,396) |
|
| — |
|
| (2,357) |
|
Depreciation and amortization |
|
| 3,976 |
|
| 1,981 |
|
|
| 1,362 |
|
|
| 178 |
|
| — |
|
| 7,497 |
|
Capital expenditures |
|
| 992 |
|
| 769 |
|
|
| 52 |
|
|
| 31 |
|
| — |
|
| 1,844 |
|
Total assets |
|
| 41,432 |
|
| 47,022 |
|
|
| 8,893 |
|
|
| 239,629 |
|
| (214,110) |
|
| 122,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| Heavy Fabrications |
| Gearing |
| Industrial Solutions |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||||||||||||||||||||||||||
For the Year Ended December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
For the Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||
Revenues from external customers |
| $ | 74,625 |
| $ | 38,376 |
| $ | 12,379 |
| $ | — |
| $ | — |
| $ | 125,380 |
| $ | 101,989 | 28,583 | 15,047 | 0 | 0 | $ | 145,619 | ||||||||||||||||
Intersegment revenues |
|
| 42 |
|
| — |
|
| 88 |
|
| — |
|
| (130) |
|
| — |
| 5 | 0 | 355 | 0 | (360 | ) | 0 | |||||||||||||||||
Net revenues |
|
| 74,667 |
|
| 38,376 |
|
| 12,467 |
|
| — |
|
| (130) |
|
| 125,380 |
| 101,994 | 28,583 | 15,402 | 0 | (360 | ) | 145,619 | |||||||||||||||||
Operating (loss) profit |
|
| (5,440) |
|
| 51 |
|
| (15,348) |
|
| (4,329) |
|
| — |
|
| (25,066) |
| ||||||||||||||||||||||||
Operating loss | (3,214 | ) | (2,593 | ) | (386 | ) | (6,401 | ) | 0 | (12,594 | ) | ||||||||||||||||||||||||||||||||
Depreciation and amortization |
|
| 5,145 |
|
| 2,255 |
|
| 1,550 |
|
| 233 |
|
| — |
|
| 9,183 |
| 3,844 | 1,855 | 425 | 212 | 0 | 6,336 | ||||||||||||||||||
Capital expenditures |
|
| 1,472 |
|
| 706 |
|
| — |
|
| 146 |
|
| — |
|
| 2,324 |
| 1,038 | 328 | 261 | 80 | 0 | 1,707 | ||||||||||||||||||
Total assets |
|
| 34,839 |
|
| 37,028 |
|
| 11,758 |
|
| 243,867 |
|
| (228,327) |
|
| 99,165 |
| 37,131 | 46,219 | 10,825 | 228,219 | (204,347 | ) | 118,047 |
Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
For the Year Ended December 31, 2020 | ||||||||||||||||||||||||
Revenues from external customers | $ | 155,096 | 25,104 | 18,296 | 0 | 0 | $ | 198,496 | ||||||||||||||||
Intersegment revenues | 102 | 32 | 3 | 0 | (137 | ) | 0 | |||||||||||||||||
Net revenues | 155,198 | 25,136 | 18,299 | 0 | (137 | ) | 198,496 | |||||||||||||||||
Operating profit (loss) | 10,385 | (3,883 | ) | 881 | (6,953 | ) | (8 | ) | 422 | |||||||||||||||
Depreciation and amortization | 3,736 | 1,961 | 430 | 152 | 0 | 6,279 | ||||||||||||||||||
Capital expenditures | 1,049 | 283 | 159 | 56 | 0 | 1,547 | ||||||||||||||||||
Total assets | 40,438 | 43,319 | 10,244 | 220,428 | (194,747 | ) | 119,682 |
The Company generates revenues entirely from transactions completed in the U.S. and its long‑livedlong-lived assets are all located in the U.S. All intercompany revenue is eliminated in consolidation. During 2019, one2021, 2 customers accounted for more than 10% of total net revenues. The customers, reported within the Heavy Fabrications segment, accounted for revenues of $59,278 and $25,946, respectively. During 2020, 1 customer accounted for more than 10% of total net revenues and had an accounts receivable balance greater than 10% of current assets. This customer, accounted for revenues of $110,693 and account receivables of $8,428 for fiscal year 2019 and is reported within the Heavy Fabrications segment. At December 31, 2019, no other customer had an account receivables balance greater than 10% of current assets. During 2018, two customers accounted for more than 10% of total net revenues or $72,851 in revenue for fiscal year 2018, with one reported within the Heavy Fabrications segment, accounted for revenues of $105,366 and one reported withinaccounts receivables of $6,118 for fiscal year 2020. Additionally in 2020, another customer, in the Gearing segment. At December 31, 2018, noHeavy Fabrications segment, accounted for more than 10% of total net revenues. This customer had an accounts receivable balance greater than 10%revenues of current assets.$25,237 during fiscal year 2020. During the years ended December 31, 2019 2021 and 2018, five2020, 5 customers accounted for 79%71% and 78%, respectively, of total net revenues.
73
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 2021 and 20182020
(in thousands, except share and per share data)
16. EMPLOYEE BENEFIT PLANS
Retirement Savings and Profit Sharing Plans
Retirement Savings and Profit Sharing Plans
The Company offers a 401(k)401(k) retirement savings plan to all eligible employees who may elect to contribute a portion of their salary on a pre‑taxpre-tax basis, subject to applicable statutory limitations. As of December 31, 2019,2021, all employees arewere eligible to receive safe harbor matching contributions equal to 100% of the first 3% of the participant’s elective deferral contributions and 50% of the next 2% of the participant’s elective deferral contributions. The Company has the discretion, subject to applicable statutory requirements, to fund any matching contribution with a contribution to the plan of the Company’s common stock. The Company periodically evaluates whether to fund the matching contribution in cash or in the Company’s common stock. Under the plan, elective deferrals and basic Company matching is 100% vested at all times.
For the years ended December 31, 2019 2021 and 2018,2020, the Company recorded expense under these plans of approximately $1,002$1,195 and $812,$1,101, respectively.
Deferred Compensation Plan
The Company maintains a deferred compensation plan for certain key employees and nonemployee directors, whereby certain wages earned, compensation for services rendered, and discretionary company‑matchingcompany-matching contributions may be deferred and deemed to be invested in the Company’s common stock. Changes in the fair value of the plan liability are recorded as charges or credits to compensation expense. Compensation expense associated with the deferred compensation plan recorded during the years ended December 31, 2019 2021 and 20182020 was $3 $(55)and $(13).$56. The fair value of the plan liability to the Company is included in accrued liabilities in the Company’s consolidated balance sheets. As of December 31, 2019 2021 and 2018,2020, the fair value of plan liability to the Company was $15$16 and $12,$71, respectively.
In addition to the employee benefit plans described above, the Company participates in certain customary employee benefits plans, including those which provide health and life insurance benefits to employees.
74
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 2021 and 20182020
(in thousands, except share and per share data)
17. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following table provides a summary of selected financial results of operations by quarter for the years ended December 31, 2019 2021 and 20182020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
| First |
| Second |
| Third |
| Fourth |
| ||||
Revenues |
| $ | 41,660 |
| $ | 41,169 |
| $ | 46,138 |
| $ | 49,253 |
|
Gross profit |
|
| 3,537 |
|
| 3,892 |
|
| 3,994 |
|
| 3,989 |
|
Operating loss |
|
| (494) |
|
| (206) |
|
| (258) |
|
| (1,399) |
|
Loss from continuing operations, net of tax |
|
| (1,043) |
|
| (1,018) |
|
| (898) |
|
| (1,627) |
|
Net loss |
|
| (1,042) |
|
| (1,018) |
|
| (898) |
|
| (1,565) |
|
Loss from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.07) |
| $ | (0.06) |
| $ | (0.06) |
| $ | (0.09) |
|
Diluted |
| $ | (0.07) |
| $ | (0.06) |
| $ | (0.06) |
| $ | (0.09) |
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.07) |
| $ | (0.06) |
| $ | (0.06) |
| $ | (0.09) |
|
Diluted |
| $ | (0.07) |
| $ | (0.06) |
| $ | (0.06) |
| $ | (0.09) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
2018 |
| First |
| Second |
| Third |
| Fourth |
| ||||||||||||||||||||
2021 | First | Second | Third | Fourth | |||||||||||||||||||||||||
Revenues |
| $ | 29,967 |
| $ | 36,781 |
| $ | 31,445 |
| $ | 27,187 |
| $ | 32,728 | $ | 46,491 | $ | 40,389 | $ | 26,011 | ||||||||
Gross (loss) profit |
|
| (132) |
|
| 2,223 |
|
| 1,486 |
|
| (512) |
| ||||||||||||||||
Gross profit | 282 | 2,198 | 2,074 | 957 | |||||||||||||||||||||||||
Operating loss |
|
| (4,537) |
|
| (5,736) |
|
| (2,612) |
|
| (12,181) |
| (4,311 | ) | (2,311 | ) | (1,997 | ) | (3,975 | ) | ||||||||
Loss from continuing operations, net of tax |
|
| (4,811) |
|
| (6,083) |
|
| (750) |
|
| (12,358) |
| ||||||||||||||||
Net loss |
|
| (4,838) |
|
| (6,116) |
|
| (783) |
|
| (12,409) |
| ||||||||||||||||
Loss from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (loss) income | (1,210 | ) | 10,252 | (2,105 | ) | (4,090 | ) | ||||||||||||||||||||||
Net (loss) income per share: | |||||||||||||||||||||||||||||
Basic |
| $ | (0.32) |
| $ | (0.40) |
| $ | (0.05) |
| $ | (0.79) |
| $ | (0.07 | ) | $ | 0.55 | $ | (0.11 | ) | $ | (0.21 | ) | |||||
Diluted |
| $ | (0.32) |
| $ | (0.40) |
| $ | (0.05) |
| $ | (0.79) |
| $ | (0.07 | ) | $ | 0.53 | $ | (0.11 | ) | $ | (0.21 | ) | |||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.32) |
| $ | (0.40) |
| $ | (0.05) |
| $ | (0.79) |
| ||||||||||||||||
Diluted |
| $ | (0.32) |
| $ | (0.40) |
| $ | (0.05) |
| $ | (0.79) |
|
2020 | First | Second | Third | Fourth | ||||||||||||
Revenues | $ | 48,634 | $ | 54,926 | $ | 54,614 | $ | 40,322 | ||||||||
Gross profit | 6,172 | 5,417 | 3,738 | 2,674 | ||||||||||||
Operating income (loss) | 1,680 | 1,035 | (475 | ) | (1,818 | ) | ||||||||||
Net income (loss) | 954 | 529 | (1,003 | ) | (1,967 | ) | ||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.06 | $ | 0.03 | $ | (0.06 | ) | $ | (0.12 | ) | ||||||
Diluted | $ | 0.06 | $ | 0.03 | $ | (0.06 | ) | $ | (0.12 | ) |
BROADWIND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021 and 2020
(in thousands, except share and per share data)
18. LEGAL PROCEEDINGS
The Company is party to a variety of legal proceedings that arise in the normal course of its business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. It is possible that if one or more litigation matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could
75
BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.
19. RESTRUCTURING
During 2018, the Company conducted a review of its business strategies and product plans given the outlook of the industries it serves and its business environment. As a result, the Company executed a restructuring plan to rationalize its facility capacity and management structure, and to consolidate and increase the efficiencies of its Abilene facility operations. The Company exited the market for natural gas compression units and transferred remaining operations from a leased facility in Abilene, TX into other production locations. The Company vacated the leased Abilene facility in 2018 and incurred costs totaling $12 and $668 for the years ended December 31, 2019 and 2018, respectively. In conjunction with this initiative, all costs associated with this vacated facility were recorded as restructuring expenses within the Heavy Fabrications segment. Our restructuring activities concluded in 2019.
The Company’s total net restructuring charges for the years ended December 31, 2019 and 2018 consist of the following:
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | ||||
|
| 2019 |
| 2018 | ||
Cost of sales: |
|
|
|
|
|
|
Facility costs |
| $ | 2 |
| $ | 249 |
Moving and remediation |
|
| 10 |
|
| 33 |
Salary and severance |
|
| — |
|
| 17 |
Depreciation |
|
| — |
|
| 332 |
Total cost of sales |
|
| 12 |
|
| 631 |
Selling, general, and administrative expenses: |
|
|
|
|
|
|
Salary and severance |
|
| — |
|
| 37 |
Total selling, general, and administrative expenses |
|
| — |
|
| 37 |
Grand Total |
| $ | 12 |
| $ | 668 |
76
INDEX TO EXHIBITS
Exhibit | Description | |
| ||
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | Third Amended and Restated Bylaws of the Company, adopted as of May 4, 2020 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed May 6, 2020) | |
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
4.5 | Third Amendment to Section 382 Rights Agreement dated as of February 3, 2022 between the Company and Equiniti Trust Company, as rights agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed February 3, 2022 | |
| ||
10.1 | ||
10.2 | ||
10.3† |
77
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| Amended and Restated Loan and Security Agreement, dated February 25, 2019, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC, the other Loan Parties and Lenders party thereto, and CIBC Bank USA, as Administrative Agent and Sole Lead Arranger |
78
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
10.21 | Note dated April 5, 2020 by and between Broadwind Heavy Fabricators, Inc. and CIBC Bank USA (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020) | |
10.22 | Note dated April 5, 2020 by and between Broadwind Industrial Solutions, Inc. and CIBC Bank USA (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020) | |
10.23 | Note dated April 8, 2020 by and between Broadwind Energy, Inc. n/k/a Broadwind, Inc. and CIBC Bank USA (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020) | |
10.24† | Form of Performance Award Agreement (Amended and Restated Broadwind, Inc. 2015 Equity Incentive Plan) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020) | |
10.25† | First Amendment to Amended and Restated Broadwind Energy, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020) | |
10.26 | First Amendment to the Amended and Restated Loan and Security Agreement and Other Loan Documents, dated October 29, 2020, among the Company, Brad Foote Gearworks, Inc, Broadwind Services, LLC, Broadwind Heavy Fabrications, Inc., Broadwind Industrial Solutions, LLC, CIBC Bank USA, as Administrative Agent for itself and all Lenders and Siena Lending Group (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020) | |
10.27 | Second Amendment to the Amended and Restated Loan and Security Agreement, dated February 23, 2021, among the Company, Brad Foote Gearworks, Inc, Broadwind Services, LLC, Broadwind Heavy Fabrications, Inc., Broadwind Industrial Solutions, LLC, and CIBC Bank USA, as Administrative Agent for itself and all Lenders (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December | |
10.28 | Third Amendment to Amended and Restated Loan and Security Agreement, dated November 8, 2021, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Heavy Fabrications, Inc., Broadwind Industrial Solutions, LLC and CIBC Bank USA, as Administrative Agent for itself and all Lenders (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021) | |
10.29 | Equity Distribution Agreement, dated March 9, 2021, by and between the Company and | |
10.30 | Fourth Amendment to Amended and Restated Loan and Security Agreement, dated February 28, 2022, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Heavy Fabrications, Inc., Broadwind Industrial Solutions, LLC and CIBC Bank USA, as Administrative Agent for itself and all Lenders (filed herewith) | |
21 | ||
23 | ||
31.1 | Rule | |
|
| |
32.1 | ||
|
79
101 | The following financial information from this Form 10-K of Broadwind, | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
† | Indicates management contract or compensation plan or arrangement. |
†Indicates management contract or compensation plan or arrangement.
80
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th2nd day of February, 2020.
March, 2022.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons (including a majority of the board of directors) on behalf of the registrant and in the capacities and on the dates indicated.
72 |