UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
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 |
(State or other jurisdiction |
| (I.R.S. Employer |
3240 S. Central Avenue, Cicero, IL 60804
(Address of principal executive offices)
(708) 780-4800
(Registrant’s telephone number, including area code)
Not applicableBroadwind Energy, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.001 par value | BWEN | The NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 twelve 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ |
| Accelerated filer ☐ |
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Non-accelerated filer ☒
Emerging growth company ☐ |
| Smaller reporting company ☒
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of registrant’s common stock, par value $0.001, outstanding as of July 30, 2019: 16,163,172.May 1, 2020: 16,640,043.
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |
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| 27 |
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
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| June 30, |
| December 31, |
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| March 31, |
| December 31, |
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| 2019 |
| 2018 |
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| 2020 |
| 2019 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 74 |
| $ | 1,177 |
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Cash |
| $ | 2,743 |
| $ | 2,416 |
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Accounts receivable, net |
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| 20,273 |
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| 17,455 |
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| 16,244 |
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| 18,310 |
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Inventories, net |
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| 35,758 |
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| 22,670 |
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| 40,754 |
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| 31,863 |
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Prepaid expenses and other current assets |
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| 1,760 |
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| 1,776 |
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| 2,600 |
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| 2,124 |
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Total current assets |
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| 57,865 |
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| 43,078 |
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| 62,341 |
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| 54,713 |
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LONG-TERM ASSETS: |
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Property and equipment, net |
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| 48,197 |
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| 49,087 |
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| 46,989 |
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| 46,940 |
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Operating lease right-of-use assets |
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| 16,651 |
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| — |
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| 19,932 |
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| 15,980 |
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Other intangible assets, net |
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| 6,196 |
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| 6,602 |
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Intangible assets, net |
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| 4,736 |
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| 4,919 |
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Other assets |
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| 349 |
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| 398 |
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| 300 |
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| 314 |
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TOTAL ASSETS |
| $ | 129,258 |
| $ | 99,165 |
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| $ | 134,298 |
| $ | 122,866 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Line of credit and other notes payable |
| $ | 27,555 |
| $ | 11,930 |
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| $ | 16,350 |
| $ | 12,917 |
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Current portion of finance lease obligations |
|
| 825 |
|
| 967 |
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| 462 |
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| 546 |
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Current portion of operating lease obligations |
|
| 1,591 |
|
| — |
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| 1,579 |
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| 1,326 |
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Accounts payable |
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| 15,484 |
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| 11,618 |
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| 25,132 |
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| 21,876 |
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Accrued liabilities |
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| 4,372 |
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| 3,806 |
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| 4,392 |
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| 4,911 |
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Customer deposits |
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| 18,561 |
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| 23,507 |
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| 23,022 |
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| 22,717 |
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Current liabilities held for sale |
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| 26 |
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| 27 |
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Total current liabilities |
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| 68,414 |
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| 51,855 |
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| 70,937 |
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| 64,293 |
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LONG-TERM LIABILITIES: |
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Long-term debt, net of current maturities |
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| 998 |
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| 1,408 |
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| 355 |
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| 505 |
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Long-term finance lease obligations, net of current portion |
|
| 553 |
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| 571 |
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| 594 |
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| 673 |
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Long-term operating lease obligations, net of current portion |
|
| 17,020 |
|
| — |
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| 20,324 |
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| 16,591 |
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Other |
|
| 69 |
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| 1,969 |
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| 66 |
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| 44 |
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Total long-term liabilities |
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| 18,640 |
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| 3,948 |
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| 21,339 |
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| 17,813 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY: |
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding |
|
| — |
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| — |
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| — |
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| — |
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Common stock, $0.001 par value; 30,000,000 shares authorized; 16,437,109 and 15,982,622 shares issued as of June 30, 2019, and December 31, 2018, respectively |
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| 16 |
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| 16 |
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Treasury stock, at cost, 273,937 shares as of June 30, 2019 and December 31, 2018 |
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| (1,842) |
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| (1,842) |
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Common stock, $0.001 par value; 30,000,000 shares authorized; 16,913,980 and 16,830,930 shares issued as of March 31, 2020, and December 31, 2019, respectively |
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| 17 |
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| 17 |
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Treasury stock, at cost, 273,937 shares as of March 31, 2020 and December 31, 2019 |
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| (1,842) |
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| (1,842) |
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Additional paid-in capital |
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| 382,343 |
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| 381,441 |
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| 383,669 |
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| 383,361 |
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Accumulated deficit |
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| (338,313) |
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| (336,253) |
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| (339,822) |
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| (340,776) |
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Total stockholders’ equity |
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| 42,204 |
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| 43,362 |
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| 42,022 |
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| 40,760 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 129,258 |
| $ | 99,165 |
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| $ | 134,298 |
| $ | 122,866 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| Three Months Ended March 31, |
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| 2019 |
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| 2018 |
| 2019 |
| 2018 |
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| 2020 |
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| 2019 |
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Revenues |
| $ | 41,169 |
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| $ | 36,781 |
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| $ | 82,829 |
| $ | 66,748 |
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| $ | 48,634 |
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| $ | 41,660 |
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Cost of sales |
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| 37,277 |
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| 34,442 |
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| 75,388 |
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| 64,426 |
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| 42,462 |
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| 38,111 |
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Restructuring |
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| — |
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| 116 |
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| 12 |
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| 231 |
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| — |
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| 12 |
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Gross profit |
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| 3,892 |
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| 2,223 |
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| 7,429 |
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| 2,091 |
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| 6,172 |
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| 3,537 |
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OPERATING EXPENSES: |
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Selling, general and administrative |
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| 3,895 |
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| 2,495 |
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| 7,723 |
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| 6,393 |
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| 4,309 |
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| 3,828 |
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Impairment charges |
|
| — |
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| 4,993 |
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| — |
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| 4,993 |
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Intangible amortization |
|
| 203 |
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| 471 |
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| 406 |
|
| 942 |
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| 183 |
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| 203 |
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Restructuring |
|
| — |
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| — |
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| — |
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| 36 |
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Total operating expenses |
|
| 4,098 |
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| 7,959 |
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|
| 8,129 |
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| 12,364 |
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| 4,492 |
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| 4,031 |
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Operating loss |
|
| (206) |
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|
| (5,736) |
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|
| (700) |
|
| (10,273) |
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Operating income (loss) |
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| 1,680 |
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| (494) |
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OTHER EXPENSE, net: |
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Interest expense, net |
|
| (773) |
|
|
| (352) |
|
|
| (1,309) |
|
| (650) |
|
|
| (673) |
|
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| (536) |
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Other, net |
|
| (16) |
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|
| (1) |
|
|
| (18) |
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| (4) |
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| (1) |
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| (1) |
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Total other expense, net |
|
| (789) |
|
|
| (353) |
|
|
| (1,327) |
|
| (654) |
|
|
| (674) |
|
|
| (537) |
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Net loss before provision (benefit) for income taxes |
|
| (995) |
|
|
| (6,089) |
|
|
| (2,027) |
|
| (10,927) |
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Provision (benefit) for income taxes |
|
| 23 |
|
|
| (6) |
|
|
| 34 |
|
| (33) |
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LOSS FROM CONTINUING OPERATIONS |
|
| (1,018) |
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|
| (6,083) |
|
|
| (2,061) |
|
| (10,894) |
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INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
|
| — |
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|
| (33) |
|
|
| 1 |
|
| (60) |
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NET LOSS |
| $ | (1,018) |
|
| $ | (6,116) |
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| $ | (2,060) |
| $ | (10,954) |
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NET LOSS PER COMMON SHARE—BASIC: |
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Loss from continuing operations |
| $ | (0.06) |
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| $ | (0.40) |
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| $ | (0.13) |
| $ | (0.71) |
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Income (loss) from discontinued operations |
|
| 0.00 |
|
|
| 0.00 |
|
|
| 0.00 |
|
| 0.00 |
| |||||||||||
Net loss |
| $ | (0.06) |
|
| $ | (0.40) |
|
| $ | (0.13) |
| $ | (0.71) |
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Net income (loss) before provision for income taxes |
|
| 1,006 |
|
|
| (1,031) |
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Provision for income taxes |
|
| 52 |
|
|
| 11 |
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NET INCOME (LOSS) |
| $ | 954 |
|
| $ | (1,042) |
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NET INCOME (LOSS) PER COMMON SHARE—BASIC: |
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Net income (loss) |
| $ | 0.06 |
|
| $ | (0.07) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC |
|
| 16,046 |
|
|
| 15,421 |
|
|
| 15,917 |
|
| 15,339 |
|
|
| 16,596 |
|
|
| 15,786 |
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| |
NET LOSS PER COMMON SHARE—DILUTED: |
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Loss from continuing operations |
| $ | (0.06) |
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| $ | (0.40) |
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| $ | (0.13) |
| $ | (0.71) |
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Income (loss) from discontinued operations |
|
| 0.00 |
|
|
| 0.00 |
|
|
| 0.00 |
|
| 0.00 |
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Net loss |
| $ | (0.06) |
|
| $ | (0.40) |
|
| $ | (0.13) |
| $ | (0.71) |
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NET INCOME (LOSS) PER COMMON SHARE—DILUTED: |
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Net income (loss) |
| $ | 0.06 |
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| $ | (0.07) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED |
|
| 16,046 |
|
|
| 15,421 |
|
|
| 15,917 |
|
| 15,339 |
|
|
|
| 16,733 |
|
|
| 15,786 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share data)
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| Common Stock |
| Treasury Stock |
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| Common Stock |
| Treasury Stock |
| Additional |
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| Shares |
| Issued |
|
|
| Issued |
| Additional |
| Accumulated |
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| Shares |
| Issued |
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| Issued |
| Paid-in |
| Accumulated |
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| Issued |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total |
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BALANCE, December 31, 2017 |
|
| 15,480,299 |
| $ | 15 |
| (273,937) |
| $ | (1,842) |
| $ | 380,005 |
| $ | (312,107) |
| $ | 66,071 |
| ||||||||||||||||||||
Stock issued for restricted stock |
|
| 96,534 |
|
| 1 |
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
| ||||||||||||||||||||
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 74,123 |
|
| — |
| — |
|
| — |
|
| 167 |
|
| — |
|
| 167 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 262 |
|
| — |
|
| 262 |
| ||||||||||||||||||||
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (4,838) |
|
| (4,838) |
| ||||||||||||||||||||
BALANCE, March 31, 2018 |
|
| 15,650,956 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 380,434 |
| $ | (316,945) |
| $ | 61,663 |
| ||||||||||||||||||||
Stock issued for restricted stock |
|
| 18,869 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 74,820 |
|
| — |
| — |
|
| — |
|
| 171 |
|
| — |
|
| 171 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 227 |
|
| — |
|
| 227 |
| ||||||||||||||||||||
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (6,116) |
|
| (6,116) |
| ||||||||||||||||||||
BALANCE, June 30, 2018 |
|
| 15,744,645 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 380,832 |
| $ | (323,061) | $ |
| 55,945 |
| ||||||||||||||||||||
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|
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|
|
|
|
| Issued |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Total |
| |||||
BALANCE, December 31, 2018 |
|
| 15,982,622 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 381,441 |
| $ | (336,253) |
| $ | 43,362 |
|
| 15,982,622 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 381,441 |
| $ | (336,253) |
| $ | 43,362 |
|
Stock issued for restricted stock |
|
| 141,384 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 141,384 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 135,636 |
|
| — |
| — |
|
| — |
|
| 187 |
|
| — |
|
| 187 |
|
| 135,636 |
|
| — |
| — |
|
| — |
|
| 187 |
|
| — |
|
| 187 |
|
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
|
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (1,042) |
|
| (1,042) |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (1,042) |
|
| (1,042) |
|
BALANCE, March 31, 2019 |
|
| 16,259,642 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 381,883 |
| $ | (337,295) |
| $ | 42,762 |
|
| 16,259,642 |
|
| 16 |
| (273,937) |
|
| (1,842) |
|
| 381,883 |
|
| (337,295) |
|
| 42,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
BALANCE, December 31, 2019 |
| 16,830,930 |
| $ | 17 |
| (273,937) |
| $ | (1,842) |
| $ | 383,361 |
| $ | (340,776) |
| $ | 40,760 |
| |||||||||||||||||||||
Stock issued for restricted stock |
|
| 53,740 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 83,050 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 123,727 |
|
| — |
| — |
|
| — |
|
| 205 |
|
| — |
|
| 205 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
|
| — |
|
| — |
| — |
|
| — |
|
| 308 |
|
| — |
|
| 308 |
|
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (1,018) |
|
| (1,018) |
| ||||||||||||||||||||
BALANCE, June 30, 2019 |
|
| 16,437,109 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 382,343 |
| $ | (338,313) |
| $ | 42,204 |
| ||||||||||||||||||||
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 954 |
|
| 954 |
| |||||||||||||||||||||
BALANCE, March 31, 2020 |
| 16,913,980 |
| $ | 17 |
| (273,937) |
| $ | (1,842) |
| $ | 383,669 |
| $ | (339,822) |
| $ | 42,022 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
|
|
| Three Months Ended March 31, |
|
| ||||||||
|
| 2019 |
| 2018 |
|
|
| 2020 |
| 2019 |
|
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,060) |
| $ | (10,954) |
|
| ||||||||
Income (loss) from discontinued operations |
|
| 1 |
|
| (60) |
|
| ||||||||
Loss from continuing operations |
|
| (2,061) |
|
| (10,894) |
|
| ||||||||
Net income (loss) |
| $ | 954 |
| $ | (1,042) |
|
| ||||||||
Adjustments to reconcile net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 3,390 |
|
| 4,706 |
|
|
|
| 1,612 |
|
| 1,761 |
|
|
Deferred income taxes |
|
| (5) |
|
| (42) |
|
|
|
| 22 |
|
| (9) |
|
|
Impairment charges |
|
| — |
|
| 4,993 |
|
| ||||||||
Change in fair value of interest rate swap agreements |
|
| 26 |
|
| — |
|
|
|
| 138 |
|
| — |
|
|
Stock-based compensation |
|
| 510 |
|
| 489 |
|
|
|
| 308 |
|
| 255 |
|
|
Allowance for doubtful accounts |
|
| (12) |
|
| (25) |
|
|
|
| 29 |
|
| (14) |
|
|
Common stock issued under defined contribution 401(k) plan |
|
| 392 |
|
| 338 |
|
|
|
| — |
|
| 187 |
|
|
Gain on disposal of assets |
|
| (1) |
|
| — |
|
|
|
| — |
|
| (1) |
|
|
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (2,806) |
|
| (4,232) |
|
|
|
| 2,037 |
|
| (5,040) |
|
|
Inventories |
|
| (13,088) |
|
| (1,003) |
|
|
|
| (8,891) |
|
| (10,274) |
|
|
Prepaid expenses and other current assets |
|
| 16 |
|
| 49 |
|
|
|
| (476) |
|
| 70 |
|
|
Accounts payable |
|
| 3,306 |
|
| 4,823 |
|
|
|
| 3,545 |
|
| 8,132 |
|
|
Accrued liabilities |
|
| 540 |
|
| 325 |
|
|
|
| (657) |
|
| 321 |
|
|
Customer deposits |
|
| (4,946) |
|
| (1,141) |
|
|
|
| 305 |
|
| (5,752) |
|
|
Other non-current assets and liabilities |
|
| 127 |
|
| (1,179) |
|
|
|
| 49 |
|
| 57 |
|
|
Net cash used in operating activities of continuing operations |
|
| (14,612) |
|
| (2,793) |
|
| ||||||||
Net cash used in operating activities |
|
| (1,025) |
|
| (11,349) |
|
| ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (1,183) |
|
| (1,676) |
|
|
|
| (670) |
|
| (577) |
|
|
Proceeds from disposals of property and equipment |
|
| 1 |
|
| — |
|
|
|
| — |
|
| 1 |
|
|
Net cash used in investing activities of continuing operations |
|
| (1,182) |
|
| (1,676) |
|
| ||||||||
Net cash used in investing activities |
|
| (670) |
|
| (576) |
|
| ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
| 91,007 |
|
| 66,985 |
|
|
|
| 51,552 |
|
| 42,440 |
|
|
Payments on line of credit |
|
| (75,370) |
|
| (63,200) |
|
|
|
| (49,070) |
|
| (31,191) |
|
|
Proceeds from long-term debt |
|
| — |
|
| 1,410 |
|
| ||||||||
Payments on long-term debt |
|
| (462) |
|
| (313) |
|
|
|
| (242) |
|
| (228) |
|
|
Principal payments on finance leases |
|
| (485) |
|
| (377) |
|
|
|
| (218) |
|
| (236) |
|
|
Net cash provided by financing activities of continuing operations |
|
| 14,690 |
|
| 4,505 |
|
| ||||||||
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
| ||||||||
Operating cash flows |
|
| 1 |
|
| (38) |
|
| ||||||||
Net cash provided by (used in) discontinued operations |
|
| 1 |
|
| (38) |
|
| ||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (1,103) |
|
| (2) |
|
| ||||||||
CASH AND CASH EQUIVALENTS beginning of the period |
|
| 1,177 |
|
| 78 |
|
| ||||||||
CASH AND CASH EQUIVALENTS end of the period |
| $ | 74 |
| $ | 76 |
|
| ||||||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
| ||||||||
Interest paid |
| $ | 825 |
| $ | 537 |
|
| ||||||||
Income taxes paid |
| $ | 49 |
| $ | 84 |
|
| ||||||||
Non-cash activities: |
|
|
|
|
|
|
|
| ||||||||
Issuance of restricted stock grants |
| $ | 510 |
| $ | 489 |
|
| ||||||||
Non-cash purchases of property and equipment |
| $ | 325 |
| $ | — |
|
| ||||||||
Net cash provided by financing activities |
|
| 2,022 |
|
| 10,785 |
|
| ||||||||
NET INCREASE (DECREASE) IN CASH |
|
| 327 |
|
| (1,140) |
|
| ||||||||
CASH beginning of the period |
|
| 2,416 |
|
| 1,177 |
|
| ||||||||
CASH end of the period |
| $ | 2,743 |
| $ | 37 |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands, except share and per share data)
NOTE 1 — BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, Energy, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Towers,Heavy Fabrications, Inc. (“Broadwind Towers”Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”), and Red Wolf Company,Broadwind Industrial Solutions, LLC (“Red Wolf”Broadwind Industrial Solutions”). All intercompany transactions and balances have been eliminated. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2019.2020. The December 31, 20182019 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. This financial information should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
During the first quarter of 2019, the Company assessed its segment reporting by evaluating various qualitative and quantitative measures for each business and product line. Following the execution of the Company’s 2018 restructuring plan and the resulting exit of the leased Abilene facility at the end of 2018, the Company revised its segment presentation by moving its Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. The Company made this determination because, post-restructuring, the residual heavy fabrications business activities previously carried out in the now vacated space were transferred to the nearby tower plant under the supervision of Towers and Heavy Fabrications segment management. The Company has restated prior periods presented to reflect this change. See Note 14, “Segment Reporting” of these condensed consolidated financial statements for further discussion of reportable segments.2019.
There have been no material changes in the Company’s significant accounting policies during the sixthree months ended June 30, 2019March 31, 2020 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, other than the adoption of Accounting Standards Updates (“ASU”) 2016-02 described in Note 8 “Leases” of these condensed consolidated financial statements.2019.
Company Description
Through its subsidiaries, the Company is a precision manufacturer of structures, equipment and components for clean technology and other specialized applications. The Company provides technologically advanced high-valuehigh value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sector customers,sectors, primarily in the United States of America (the “U.S.”). The Company’s capabilities include, but are not limited to the following: heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, heat treatment, assembly, engineering and packaging solutions. The Company’s most significant presence is within the U.S. wind energy industry, which accounted for 65%74% of the Company’s revenue during the first sixthree months of 2019.
The Company has increasingly diversified its operations to provide precision gearing and gearboxes, heavy fabrications, kitting and assemblies of industrial systems to a broad range of industrial customers for oil and gas (“O&G”), mining, steel, and other industrial applications.
Please refer to Note 16, “Restructuring” of these condensed consolidated financial statements for the discussion of the restructuring plan which the Company initiated in the first quarter of 2018. The Company has incurred a total of approximately $12 and $267 of net costs during the six months ended June 30, 2019 and 2018, respectively, to implement this restructuring plan.2020.
Liquidity
The Company meets its short term liquidity needs through cash generated from operations, its available cash balances, the Credit Facility (as defined below), equipment financing, and access to the public or private debt and equity markets and has the option to raise capital under the Company’s Form S-3 (as discussed below).
See Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a complete description of the Credit Facility and the Company’s other debt.
5
Total debt and finance lease obligations at June 30, 2019March 31, 2020 totaled $29,931,$17,761, which includes current outstanding debt and finance leases totaling $28,380.$16,812. The current outstanding debt includes $26,637$14,000 outstanding under the Company’s revolving line of credit.
On August 11, 2017, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on October 10, 2017 (the “Form S-3”). This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus supplement accompanying the base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes.
On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the "ATM Agreement"“ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company’s common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. During the year ended December 31, 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of June 30, 2019,March 31, 2020, the Company’s common stock having a value of approximately $9,967 remained available for issuance with respect to the ATM Agreement. The Company has not used the ATM Agreement in 2019 or 2020.
5
In April 2020, the Company received funds under notes and related documents with CIBC under the new U.S. Paycheck Protection Program. For additional discussion, refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements.
The Company anticipates that current cash resources, amounts available under the Credit Facility, the loans received
by the Company under the U.S. Payroll Protection Program, cash to be generated from operations and any potential proceeds from the sale of further Company securities under the Form S-3 will be adequate to meet the Company’s liquidity needs for at least the next twelve months. However, the Company does not anticipate that it will have the ability to generate a significant amount of capital from equity markets in the near-term as a result of the low trading volume of the Company’s common stock on the NASDAQ exchange and limitations on the aggregate amount of securities the Company may offer under the Form S-3 due to its public float size. The Form S-3 will expire on October 10, 2020.
If assumptions regarding the Company’s production, sales and subsequent collections from certain of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit the Company’s operational flexibility, require a delay in making planned investments and/or require the Company to seek additional equity or debt financing. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company. While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, there can be no assurances that its operations will generate sufficient cash, or that credit facilities will be available in an amount sufficient to enable the Company to meet these financial obligations.
Management’s Use of Estimates
The preparation of financial statements in conformity with 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 revenue recognition, future tax rates, future cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts workers’ compensation reserves, and health insurance reserves. Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates.
NOTE 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 three and six months ended June 30, 2019March 31, 2020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Towers and Heavy Fabrications | $ | 28,970 | $ | 25,552 | $ | 57,264 | $ | 43,747 |
Gearing |
| 9,266 |
| 8,632 |
| 19,293 |
| 17,438 |
Process Systems |
| 2,933 |
| 2,620 |
| 6,272 |
| 5,586 |
Eliminations |
| - |
| (23) |
| - |
| (23) |
Consolidated | $ | 41,169 | $ | 36,781 | $ | 82,829 | $ | 66,748 |
|
|
|
|
|
|
| Three Months Ended March 31, | ||
|
| 2020 |
| 2019 |
Heavy Fabrications | $ | 38,368 | $ | 28,294 |
Gearing |
| 6,227 |
| 10,027 |
Industrial Solutions |
| 4,039 |
| 3,339 |
Consolidated | $ | 48,634 | $ | 41,660 |
6
Revenue within the Company’s Gearing and Process SystemsIndustrial Solutions segments, as well as heavyindustrial fabrication revenues within the Towers and Heavy Fabrications segment, isare 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.
For many tower sales within the Company’s Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under
6
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.
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.
NOTE 3 — EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share for the three and six months ended June 30,March 31, 2020 and 2019, and 2018, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
|
| ||||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
|
| ||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
|
| ||||||||
Basic earnings per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (1,018) |
| $ | (6,116) |
| $ | (2,060) |
| $ | (10,954) |
| ||||||||||
Net income (loss) |
| $ | 954 |
| $ | (1,042) |
|
| |||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,045,790 |
|
| 15,420,704 |
|
| 15,916,590 |
|
| 15,339,420 |
|
|
| 16,596,236 |
|
| 15,785,954 |
|
| ||
Basic net loss per share |
| $ | (0.06) |
| $ | (0.40) |
| $ | (0.13) |
| $ | (0.71) |
| ||||||||||
Basic net income (loss) per share |
| $ | 0.06 |
| $ | (0.07) |
|
| |||||||||||||||
Diluted earnings per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (1,018) |
| $ | (6,116) |
| $ | (2,060) |
| $ | (10,954) |
| ||||||||||
Net income (loss) |
| $ | 954 |
| $ | (1,042) |
|
| |||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,045,790 |
|
| 15,420,704 |
|
| 15,916,590 |
|
| 15,339,420 |
|
|
| 16,596,236 |
|
| 15,785,954 |
|
| ||
Common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Stock options and non-vested stock awards (1) |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
Non-vested stock awards (1) |
|
| 137,038 |
|
| — |
|
| |||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,045,790 |
|
| 15,420,704 |
|
| 15,916,590 |
|
| 15,339,420 |
|
|
| 16,733,274 |
|
| 15,785,954 |
|
| ||
Diluted net loss per share |
| $ | (0.06) |
| $ | (0.40) |
| $ | (0.13) |
| $ | (0.71) |
| ||||||||||
Diluted net income (loss) per share |
| $ | 0.06 |
| $ | (0.07) |
|
|
(1) | Stock options and restricted stock units granted and outstanding of |
NOTE 4 — INVENTORIES
The components of inventories as of June 30, 2019March 31, 2020 and December 31, 20182019 are summarized as follows:
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|
|
|
|
|
| ||||
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Raw materials |
| $ | 26,264 |
| $ | 16,394 |
|
| $ | 24,325 |
| $ | 22,759 |
|
Work-in-process |
|
| 7,342 |
|
| 5,426 |
|
|
| 11,496 |
|
| 8,366 |
|
Finished goods |
|
| 3,728 |
|
| 2,958 |
|
|
| 6,926 |
|
| 2,915 |
|
|
|
| 37,334 |
|
| 24,778 |
|
|
| 42,747 |
|
| 34,040 |
|
Less: Reserve for excess and obsolete inventory |
|
| (1,576) |
|
| (2,108) |
|
|
| (1,993) |
|
| (2,177) |
|
Net inventories |
| $ | 35,758 |
| $ | 22,670 |
|
| $ | 40,754 |
| $ | 31,863 |
|
7
NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities. Goodwill is not amortized but is tested at least annually for impairment or more frequently whenever events or circumstances occur indicating that those assets might be impaired.
Other intangibleIntangible 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 completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf in 2017.Company, LLC. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 43 to 98 years. The Company tests other intangible assets for impairment when events or circumstances indicate that the carrying value
7
The Company added $4,993 of goodwill and $13,270 of other intangible assets, as a result of the Red Wolf acquisition, which was included in the Process Systems segment. See Note 14, “Segment Reporting,” of these condensed consolidated financial statements for further discussion of the Company’s segments.
During the second quarter of 2018, the Company determined that the carrying amount of the Red Wolf reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge. In addition, during the fourth quarter of 2018, the Company determined that its customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge.
During the second quarter of 2019, the Company also identified a further triggering event associated with Red Wolf’s recent operating losses. The Company relied upon an undiscounted cash flow analysis performed in the prior quarter and determined that no significant changes to the previously used inputs or assumptions were needed. As a result, the Company concluded that no impairment to this asset group was indicated as of June 30, 2019.
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the cost basis, accumulated amortization and net book value of intangible assets were as follows:
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| June 30, 2019 |
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| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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| Remaining |
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| Remaining |
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| Remaining |
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| Remaining | ||||||||
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| Weighted |
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| Weighted |
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| Weighted |
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| Weighted | ||
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| Accumulated |
| Net |
| Average |
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| Accumulated |
| Net |
| Average |
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| Accumulated |
| Net |
| Average |
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| Accumulated |
| Net |
| Average | |||||||||||||
|
| Cost |
| Accumulated |
| Impairment |
| Book |
| Amortization |
|
|
|
|
| Accumulated |
| Impairment |
| Book |
| Amortization |
| Cost |
| Accumulated |
| Impairment |
| Book |
| Amortization |
|
|
|
| Accumulated |
| Impairment |
| Book |
| Amortization | ||||||||||||||||||
|
| Basis |
| Amortization |
| Charges |
| Value |
| Period |
|
|
| Cost |
| Amortization |
| Charges |
| Value |
| Period |
| Basis |
| Amortization |
| Charges |
| Value |
| Period |
| Cost |
| Amortization |
| Charges |
| Value |
| Period | |||||||||||||||||||
Other intangible assets: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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| ||||||||||||||||||||||||||||||||||
Noncompete agreements |
| $ | 170 |
| $ | (69) |
|
| $ | — |
| $ | 101 |
| 3.6 |
|
|
| $ | 170 |
| $ | (54) |
| $ | — |
| $ | 116 |
| 4.1 |
| $ | 170 |
| $ | (90) |
| $ | — |
| $ | 80 |
| 2.8 |
| $ | 170 |
| $ | (83) |
| $ | — |
| $ | 87 |
| 3.1 | ||
Customer relationships |
|
| 15,979 |
|
| (6,521) |
|
|
| (7,592) |
|
| 1,866 |
| 6.3 |
|
|
|
| 15,979 |
|
| (6,369) |
|
| (7,592) |
|
| 2,018 |
| 6.8 |
|
| 15,979 |
|
| (6,750) |
|
| (7,592) |
|
| 1,637 |
| 5.6 |
|
| 15,979 |
|
| (6,674) |
|
| (7,592) |
|
| 1,713 |
| 5.8 | ||
Trade names |
|
| 9,099 |
|
| (4,870) |
|
|
| — |
|
| 4,229 |
| 9.0 |
|
|
|
| 9,099 |
|
| (4,631) |
|
| — |
|
| 4,468 |
| 9.5 |
|
| 9,099 |
|
| (6,080) |
|
| — |
|
| 3,019 |
| 7.5 |
|
| 9,099 |
|
| (5,980) |
|
| — |
|
| 3,119 |
| 7.8 | ||
Other intangible assets |
| $ | 25,248 |
| $ | (11,460) |
|
| $ | (7,592) |
| $ | 6,196 |
| 6.1 |
|
|
| $ | 25,248 |
| $ | (11,054) |
| $ | (7,592) |
| $ | 6,602 |
| 6.5 | ||||||||||||||||||||||||||||||
Intangible assets |
| $ | 25,248 |
| $ | (12,920) |
| $ | (7,592) |
| $ | 4,736 |
| 6.3 |
| $ | 25,248 |
| $ | (12,737) |
| $ | (7,592) |
| $ | 4,919 |
| 6.5 |
As of June 30, 2019,March 31, 2020, estimated future amortization expense is as follows:
|
|
|
|
|
|
| |
2019 |
| $ | 406 |
| |||
2020 |
|
| 812 |
|
| $ | 550 |
2021 |
|
| 812 |
|
| 733 | |
2022 |
|
| 812 |
|
|
| 725 |
2023 |
|
| 786 |
|
|
| 664 |
2024 and thereafter |
|
| 2,568 |
| |||
2024 |
|
| 661 | ||||
2025 and thereafter |
|
| 1,403 | ||||
Total |
| $ | 6,196 |
|
| $ | 4,736 |
8
NOTE 6 — ACCRUED LIABILITIES
Accrued liabilities as of June 30, 2019March 31, 2020 and December 31, 20182019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
| ||||
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Accrued payroll and benefits |
| $ | 2,885 |
| $ | 2,126 |
|
| $ | 3,256 |
| $ | 3,870 |
|
Fair value of interest rate swap |
| 216 |
| 78 |
| |||||||||
Accrued property taxes |
|
| 315 |
|
| — |
|
|
| 158 |
|
| — |
|
Income taxes payable |
|
| 56 |
|
| 66 |
|
|
| 69 |
|
| 61 |
|
Accrued professional fees |
|
| 132 |
|
| 101 |
|
|
| 91 |
|
| 136 |
|
Accrued warranty liability |
|
| 214 |
|
| 226 |
|
|
| 118 |
|
| 163 |
|
Accrued self-insurance reserve |
|
| 125 |
|
| 374 |
| |||||||
Self-insured workers compensation reserve |
|
| 112 |
|
| 115 |
| |||||||
Accrued other |
|
| 645 |
|
| 913 |
|
|
| 372 |
|
| 488 |
|
Total accrued liabilities |
| $ | 4,372 |
| $ | 3,806 |
|
| $ | 4,392 |
| $ | 4,911 |
|
NOTE 7 — DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of June 30, 2019March 31, 2020 and December 31, 20182019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
| ||||
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Line of credit |
| $ | 26,637 |
| $ | 11,000 |
|
| $ | 14,000 |
| $ | 11,517 |
|
Other notes payable |
| 1,445 |
| 1,882 |
|
| 2,363 |
| 1,563 |
| ||||
Long-term debt |
| 471 |
| 456 |
|
| 342 |
| 342 |
| ||||
Less: Current portion |
|
| (27,555) |
|
| (11,930) |
|
|
| (16,350) |
|
| (12,917) |
|
Long-term debt, net of current maturities |
| $ | 998 |
| $ | 1,408 |
|
| $ | 355 |
| $ | 505 |
|
Credit Facility
On October 26, 2016, the Company established a $20,000 three-year secured revolving line of credit with CIBC Bank USA (“CIBC”). This line of credit has been amended from time to time. On February 25, 2019, the line of credit was expanded and extended for three years when the Company and its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto (the “Lenders”), providing the Company and its subsidiaries with a $35,000 secured credit facility (the “Credit Facility”). The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower and Pittsburgh, Pennsylvania gearing facilities.
8
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 three-month LIBOR rate or the base rate, plus a margin. The applicable margin is 5.50% for LIBOR rate loans and 3.50% for base rates loans. Upon certain pay downs, a pricing grid based on the Company’s trailing twelve month fixed charge coverage ratio may become effective under which applicable margins would range from 2.25% to 2.75% for LIBOR rate loans and 0.00% to 0.75% for base rate loans. The Company must also pay an unused facility fee equal to 0.50% per annum on the unused portion of the Credit Facility along with other standard fees. The initial term of the Amended and Restated Loan Agreement ends on February 25, 2022. TheWith the exception of the balance impacted by the interest rate swap (as defined below), the Company is allowed to prepay in whole or in part advances under the Credit Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.
The Amended and Restated Loan Agreement 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 minimum quarterly earnings before interest, taxes, depreciation, amortization, share-based payments, restructuring costs, and intangible impairments (“EBITDA”) levels through September 30, 2019 and a minimum quarterly fixed charge coverage ratio thereafter, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications. The Company was in compliance with all financial covenants as of June 30, 2019.
9
March 31, 2020.
In conjunction with the Amended and Restated Loan Agreement, duringin 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 condensed consolidated financial statements as of March 31, 2020 and December 31, 2019.
As of June 30, 2019,March 31, 2020, there was $26,637$14,000 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $8,033$16,283, under the Credit Facility.
Other
In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-termthe “Long-term debt, less current maturities.maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018, $114 of the loan was forgiven. As of March 31, 2020, the loan balance was $342. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $1,445$2,363 and $1,882$1,563 as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, with $918$2,350 and $930$1,400 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.
In April 2020, the Company received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act. Please refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements for additional details.
NOTE 8 — LEASES
The Company leases certain facilities and equipment. On January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and ASU 2018-11 using the cumulative effect method and has elected to apply each available practical expedient. The standard requires companies to recognize operating lease assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under legacy accounting. ASU 2018-11 also allows an exception so that companies do not have to make the new required lease disclosures for periods before the effective date. The Company has elected to apply the short-term lease exception to all leases of one year or less.
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
9
adoption of ASCTopic 842 and was offset against the ROU asset balance during the adoption. As of June 30, 2019, the ROU asset had a balance of $16,651 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities relating to the ROU asset of $1,591 and $17,020, respectively, and are included in the “Current portion of operating lease obligations” and “Long-term operating lease obligations, net of current portion” line items of these condensed consolidated financial statements. The discount rates used for leases accounted for under ASC 842 are based on an interest rate yield curve developed for the leases in the Company’s lease portfolio.
The Company has elected to apply the short-term lease exception to all leases of one year or less. During the three months ended March 31, 2020, the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $4,380.
Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically 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.
10
Quantitative information regarding the Company’s leases is as follows:
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| For the Three Months Ended | ||
| June 30, 2019 |
| June 30, 2019 |
| March 31, 2020 |
| March 31, 2019 |
Components of lease cost |
|
|
|
|
|
|
|
Finance lease cost components: |
|
|
|
|
|
|
|
Amortization of finance lease assets | $ 136 |
| $ 272 |
| $ 129 |
| $ 136 |
Interest on finance lease liabilities | 25 |
| 54 |
| 26 |
| 29 |
Total finance lease costs | 161 |
| 326 |
| 155 |
| 165 |
Operating lease cost components: |
|
|
|
|
|
|
|
Operating lease cost | 755 |
| 1,541 |
| 765 |
| 786 |
Short-term lease cost | 158 |
| 304 |
| 132 |
| 146 |
Variable lease cost (1) | 207 |
| 385 |
| 195 |
| 178 |
Sublease income | (44) |
| (88) |
| (45) |
| (44) |
Total operating lease costs | 1,076 |
| 2,142 |
| 1,047 |
| 1,066 |
|
|
|
|
|
|
|
|
Total lease cost | $ 1,237 |
| $ 2,468 |
| $ 1,202 |
| $ 1,231 |
|
|
|
|
|
|
|
|
Supplemental cash flow information related to our operating leases is |
|
|
|
|
|
|
|
as follows for the six months ended June 30, 2019: |
|
|
| ||||
as follows for the three months ended March 31, 2020 and 2019: |
|
|
|
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
Operating cash flows from finance leases |
|
|
|
| |||
Operating cash outflow from operating leases |
|
| 1,750 |
| $ 888 |
| $ 875 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average remaining lease term-finance leases at 6/30/19 (in years) |
|
| 1.4 | ||||
Weighted-average remaining lease term-operating leases at 6/30/19 (in years) |
|
| 10.8 | ||||
Weighted-average discount rate-finance leases at 6/30/19 |
|
| 8.6% | ||||
Weighted-average discount rate-operating leases at 6/30/19 |
|
| 9.0% | ||||
Weighted-average remaining lease term-finance leases at end of period (in years) |
| 1.2 |
| 1.6 | |||
Weighted-average remaining lease term-operating leases at end of period (in years) |
| 10.5 |
| 10.9 | |||
Weighted-average discount rate-finance leases at end of period |
| 9.2% |
| 8.4% | |||
Weighted-average discount rate-operating leases at end of period |
| 8.8% |
| 9.0% |
(1) | Variable lease costs consist primarily of taxes, insurance, utilities, and common area or other maintenance costs for the Company’s leased facilities and equipment. |
As of June 30, 2019,March 31, 2020, future minimum lease payments under finance leases and operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Finance |
| Operating |
|
|
|
|
| Finance |
| Operating |
|
|
|
| ||||
|
| Leases |
| Leases |
| Total |
|
| Leases |
| Leases |
| Total |
| ||||||
2019 |
| $ | 590 |
| $ | 1,755 |
| $ | 2,345 |
| ||||||||||
2020 |
|
| 499 |
|
| 2,900 |
|
| 3,399 |
|
| $ | 409 |
| $ | 2,628 |
| $ | 3,037 |
|
2021 |
|
| 376 |
|
| 2,766 |
|
| 3,142 |
|
|
| 527 |
|
| 3,387 |
|
| 3,914 |
|
2022 |
|
| 51 |
|
| 2,503 |
|
| 2,554 |
|
|
| 202 |
|
| 2,902 |
|
| 3,104 |
|
2023 |
|
| — |
|
| 2,355 |
|
| 2,355 |
|
|
| 34 |
|
| 2,884 |
|
| 2,918 |
|
2024 and thereafter |
|
| — |
|
| 18,115 |
|
| 18,115 |
| ||||||||||
2024 |
|
| — |
|
| 2,906 |
|
| 2,906 |
| ||||||||||
2025 and thereafter |
|
| — |
|
| 20,119 |
|
| 20,119 |
| ||||||||||
Total lease payments |
| $ | 1,516 |
| $ | 30,394 |
| $ | 31,910 |
|
|
| 1,172 |
| 34,826 |
| 35,998 |
| ||
Less—portion representing interest |
|
| (138) |
|
| (11,783) |
|
| (11,921) |
|
|
| (116) |
|
| (12,923) |
|
| (13,039) |
|
Present value of lease obligations |
|
| 1,378 |
|
| 18,611 |
|
| 19,989 |
|
|
| 1,056 |
|
| 21,903 |
|
| 22,959 |
|
Less—current portion of lease obligations |
|
| (825) |
|
| (1,591) |
|
| (2,416) |
|
|
| (462) |
|
| (1,579) |
|
| (2,041) |
|
Long-term portion of lease obligations |
| $ | 553 |
| $ | 17,020 |
| $ | 17,573 |
|
| $ | 594 |
| $ | 20,324 |
| $ | 20,918 |
|
10
NOTE 9 — FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.
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 7, “Debt and Credit Agreements,” of these condensed 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
11
expense, net” of these condensed 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 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. The Company used market negotiations to value the Gearing segments assets.
The following table representstables represent the fair values of the CompaniesCompany’s financial liabilities as of June 30,March 31, 2020 and December 31, 2019:
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| June 30, 2019 |
|
| March 31, 2020 |
| ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||
Liabilities measured on a recurring basis: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
| $ | — |
| $ | 81 |
| $ | — |
| $ | 81 |
|
| $ | — |
| $ | 216 |
| $ | — |
| $ | 216 |
|
Total liabilities at fair value |
| $ | — |
| $ | 81 |
| $ | — |
| $ | 81 |
|
| $ | — |
| $ | 216 |
| $ | — |
| $ | 216 |
|
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|
|
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|
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|
|
|
|
|
| December 31, 2019 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
Liabilities measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
| $ | — |
| $ | 78 |
| $ | — |
| $ | 78 |
|
Total liabilities at fair value |
| $ | — |
| $ | 78 |
| $ | — |
| $ | 78 |
|
NOTE 10 — INCOME TAXES
Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of June 30, 2019,March 31, 2020, the Company has a full valuation allowance recorded against deferred tax assets. During the sixthree months ended June 30, 2019,March 31, 2020, the Company recorded a provision for income taxes of $34,$52, compared to a benefitprovision for income taxes of $33$11 during the sixthree months ended June 30, 2018.March 31, 2019.
The Company files income tax returns in U.S. federal and state jurisdictions. As of June 30, 2019,March 31, 2020, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. As of December 31, 2018,2019, the Company had federal and unapportioned state net operating loss (“NOL”)
11
carryforwards of $248,717$258,834 of which $228,787$227,781 will generally begin to expire in 2022.2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire.
Since the Company has no unrecognized tax benefits, they will not have an impact on the condensed consolidated financial statements as a result of the expiration of the applicable statues of limitations within the next twelve months. In addition, 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 built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built-in losses may be limited, under IRC Section 382 or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382 in 2010, the Company determined that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards and built-in losses available for utilization, thereby currently limiting annual NOL usage to $14,284 per year. Further limitations may occur, depending on additional future changes in stock ownership. To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future, the Company’s income could be subject to U.S. corporate income tax earlier than it would be if the Company were able to use NOL carryforwards and built-in losses without such limitation, which could result in lower profits and the loss of benefits from these attributes.
In February 2013, the Company adopted a Stockholder Rights Plan, which was amended and extended in February 2016 and again in February 2019 (as amended, the “Rights Plan”). The Rights Plan is designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382. The amendment to the Rights Plan was most recently approved by our stockholders at our 2019 Annual Meeting of Stockholders and has a term of three years.
12
The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, 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 non‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Each Right entitles its holder to purchase from the Company one one‑thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $4.25 per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires 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.
As of June 30, 2019,March 31, 2020, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company had no accrued interest and penalties as of June 30, 2019.March 31, 2020.
NOTE 11 — SHARE-BASED COMPENSATION
Overview of Share-Based Compensation Plans
The Company has granted incentivefollowing table summarizes stock options and other equity awards pursuant to previously Board approved Equity Incentive Plans (“2007 and 2012 EIPs”). Most recently,option activity during the Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan, which was approved by the Board in February 2015 and by the Company’s stockholders in April 2015. On February 8, 2019, the Board approved an Amended and Restated 2015 Equity Incentive Plan (as amended, the “2015 EIP,” and together with the 2007 and 2012 EIPs, the “Equity Incentive Plans”), which, among other things, increased the number of shares of our common stock authorized for issuance under the 2015 EIP from 1,100,000 to 2,200,000. The amendment and restatement of the 2015 EIP was approved by the Company’s stockholders at the 2019 Annual Meeting of Stockholders.three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average |
| |
|
| Options |
| Exercise Price |
| |
Outstanding as of December 31, 2019 |
| 54,362 |
| $ | 11.16 |
|
Forfeited |
| — |
| $ | — |
|
Outstanding as of March 31, 2020 |
| 54,362 |
| $ | 11.16 |
|
Exercisable as of March 31, 2020 |
| 54,362 |
| $ | 11.16 |
|
The purposes of the Equity Incentive Plans are to (a) align the interests of the Company’s stockholders and recipients of awards by increasing the proprietary interest of such recipients in the Company’s growth and success; (b) advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors and independent contractors; and (c) motivate such persons to act in the long-term best interests of the Company and its stockholders. Under the 2015 EIP, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and restricted stock units (“RSUs”); and (v) performance awards (“PSUs”).
Stock Options. The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the date of grant. The fair value of stock options granted is expensed ratably over their vesting term.
Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally contain a vesting period of one to five years from the date of grant. The fair value of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the vesting term of the RSU award.
Performance Awards (PSUs). The granting of PSUs is provided for under the Equity Incentive Plans. Vesting of PSUs is conditioned upon the Company meeting applicable performance measures over the performance period. The fair value of each PSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the term of the PSU award plan.
The Equity Incentive Plans reserve shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. The 2007 and 2012 EIPs reserved 1,891,051 shares of the Company’s common stock. As of June 30, 2019, 888,748 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2007 and 2012 EIPs had been issued in the form of common stock, and 56,862 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2007 and 2012 EIPs. The 2015 EIP reserves 2,200,000 shares of the Company’s common stock. As of June 30, 2019, 538,553 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2015 EIP had been issued in the form of common stock and 1,432,798 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2015 EIP.
1312
The following table summarizes the Company’s restricted stock optionunit and performance award activity during the sixthree months ended June 30, 2019 under the Equity Incentive Plans, as follows:March 31, 2020:
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|
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|
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|
|
|
|
| Weighted Average |
| |
|
| Options |
| Exercise Price |
| |
Outstanding as of December 31, 2018 |
| 56,862 |
| $ | 15.06 |
|
Granted |
| — |
| $ | — |
|
Expired |
| — |
| $ | — |
|
Outstanding as of June 30, 2019 |
| 56,862 |
| $ | 15.06 |
|
Exercisable as of June 30, 2019 |
| 56,862 |
| $ | 15.06 |
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average |
| |
|
| Number of |
| Grant-Date Fair Value |
| |
|
| Shares |
| Per Share |
| |
Unvested as of December 31, 2019 |
| 1,356,915 |
| $ | 2.39 |
|
Granted |
| — |
| $ | — |
|
Vested |
| (121,132) |
| $ | 3.41 |
|
Forfeited |
| (89,464) |
| $ | 5.43 |
|
Unvested as of March 31, 2020 |
| 1,146,319 |
| $ | 2.05 |
|
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and sometimes subjective variables. These variables include, but are not limited to, the expected volatility of the price of the Company’s stock over the expected life of the awards and actual and projected stock option exercise behavior. No stock options were granted during the six months ended June 30, 2019 and 2018.
The following table summarizes RSU’s and PSU’s activity during the six months ended June 30, 2019 under the Equity Incentive Plans, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average |
| |
|
|
|
|
| Grant-Date Fair Value |
| |
|
|
| Number of Shares |
| Per Share |
| |
Unvested as of December 31, 2018 |
|
| 805,844 |
| $ | 3.16 |
|
Granted |
|
| 860,381 |
| $ | 1.91 |
|
Vested |
|
| (233,427) |
| $ | 2.88 |
|
Unvested as of June 30, 2019 |
|
| 1,432,798 |
| $ | 2.46 |
|
RSUs and PSUs are generally subject to ratable vesting over a three year period. Compensation expense related to these service-based awards is recognized on a straight-line basis over the vesting period. The Company utilized a forfeiture rate of 25% during the six months ended June 30, 2019 and 2018 for estimating the forfeitures of equity compensation granted.
The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, as follows:
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| ||||
|
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|
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|
|
| ||||
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| ||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Share-based compensation expense: |
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales |
| $ | 60 |
| $ | 61 |
|
| $ | 22 |
| $ | 30 |
|
Selling, general and administrative |
|
| 450 |
|
| 428 |
|
|
| 286 |
|
| 225 |
|
Net effect of share-based compensation expense on net income |
| $ | 510 |
| $ | 489 |
|
| $ | 308 |
| $ | 255 |
|
Reduction in earnings per share: |
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
| $ | 0.03 |
| $ | 0.03 |
|
| $ | 0.02 |
| $ | 0.02 |
|
|
|
|
|
|
| |||||||||
Diluted earnings per share |
| $ | 0.03 |
| $ | 0.03 |
|
| $ | 0.02 |
| $ | 0.02 |
|
As of June 30, 2019, the Company estimates that pre-tax compensation expense for all unvested share-based RSUs and PSUs in the amount of approximately $1,861 will be recognized through 2021. 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.
NOTE 12 — 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 of such matters were decided against the Company, the effects could
14
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 also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.
NOTE 13 — 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 condensed consolidated financial statements, except as discussed below. The Company is currently evaluating the impact of the new standards on its condensed consolidated financial statements.
The Company adopted the amendments to certain disclosure requirements in Securities Act of 1933, as amended, Release No. 33-10532, “Disclosure Update and Simplification” on November 5, 2018, the effective date of the release. Among the amendments is a requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. See the condensed consolidated statement of stockholders’ equity.
NOTE 14— 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. During the first quarter of 2019, the Company revised its segment presentation by moving its Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and 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.
The Company’s segments and their product and service offerings are summarized below:
Towers and Heavy Fabrications
The Company manufactures towers forprovides 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 turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines, as well as heavy fabrications for mining andenergy industry, although it has diversified into other industrial customers.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
13
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 two facilities have a combined annual tower production capacity of up to approximately 550 towers (1,650 tower sections), sufficient to support turbines generating more than 1,100 MWmegawatts of power. The Company has expanded production capabilities and leveraged 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.
Gearing
The Company engineers, buildsprovides gearing and remanufactures precision gearsgearboxes to a broad set of customers in diverse markets including; onshore and gearing systems foroffshore O&G fracking and drilling, surface and underground mining, defense, wind mining,energy, steel, material handling and other industrial applications.infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treatment 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 processes in Neville Island, Pennsylvania.
Process SystemsIndustrial Solutions
This segmentThe Company provides contract manufacturing services that include build-to-print,supply chain solutions, inventory management, kitting and inventory management for customers throughoutassembly services, primarily serving the U.S. and in foreign countries, primarily supporting thecombined cycle natural gas electrical generationturbine market.
Corporate
“Corporate” includes the assets and selling, general and administrative 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, “Basis of Presentation” of these condensed consolidated financial statements. Summary financial information by reportable segment for the three months ended March 31, 2020 and 2019 is as follows:
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|
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|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
|
| Industrial Solutions |
|
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 38,368 |
|
| 6,227 |
|
|
| 4,039 |
|
|
| — |
|
| — |
| $ | 48,634 |
|
Operating profit (loss) |
|
| 3,541 |
|
| (261) |
|
|
| 192 |
|
|
| (1,792) |
|
| — |
|
| 1,680 |
|
Depreciation and amortization |
|
| 963 |
|
| 512 |
|
|
| 104 |
|
|
| 33 |
|
| — |
|
| 1,612 |
|
Capital expenditures |
|
| 381 |
|
| 168 |
|
|
| 120 |
|
|
| 1 |
|
| — |
|
| 670 |
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Industrial Solutions |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 28,294 |
|
| 10,027 |
|
| 3,339 |
|
| — |
|
| — |
| $ | 41,660 |
|
Operating (loss) profit |
|
| (222) |
|
| 1,387 |
|
| (285) |
|
| (1,374) |
|
| — |
|
| (494) |
|
Depreciation and amortization |
|
| 1,095 |
|
| 482 |
|
| 122 |
|
| 62 |
|
| — |
|
| 1,761 |
|
Capital expenditures |
|
| 201 |
|
| 367 |
|
| — |
|
| 9 |
|
| — |
|
| 577 |
|
1514
Summary financial information by reportable segment for the three and six months ended June 30, 2019 and 2018 is as follows:
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|
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|
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|
|
|
|
|
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|
|
|
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|
|
|
|
|
| Towers and |
|
|
|
|
| Process |
|
|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
|
| Systems |
|
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 28,970 |
| $ | 9,266 |
|
| $ | 2,933 |
|
| $ | — |
| $ | — |
| $ | 41,169 |
|
Operating profit (loss) |
|
| 318 |
|
| 913 |
|
|
| 28 |
|
|
| (1,465) |
|
| — |
|
| (206) |
|
Depreciation and amortization |
|
| 978 |
|
| 483 |
|
|
| 122 |
|
|
| 45 |
|
| — |
|
| 1,628 |
|
Capital expenditures |
|
| 308 |
|
| 273 |
|
|
| 14 |
|
|
| 11 |
|
| — |
|
| 606 |
|
|
|
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|
| Towers and |
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|
|
| Process |
|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 25,529 |
| $ | 8,632 |
| $ | 2,620 |
| $ | — |
| $ | — |
| $ | 36,781 |
|
Intersegment revenues |
|
| 23 |
|
| — |
|
| — |
|
| — |
|
| (23) |
|
| — |
|
Net revenues |
|
| 25,552 |
|
| 8,632 |
|
| 2,620 |
|
| — |
|
| (23) |
|
| 36,781 |
|
Operating profit (loss) |
|
| 541 |
|
| (662) |
|
| (5,589) |
|
| (26) |
|
| — |
|
| (5,736) |
|
Depreciation and amortization |
|
| 1,317 |
|
| 586 |
|
| 386 |
|
| 60 |
|
| — |
|
| 2,349 |
|
Capital expenditures |
|
| 1,198 |
|
| 247 |
|
| — |
|
| 2 |
|
| — |
|
| 1,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Towers and |
|
|
|
| Process |
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated | ||||||
For the Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 57,264 |
| $ | 19,293 |
| $ | 6,272 |
| $ | — |
| $ | — |
| $ | 82,829 |
Operating profit (loss) |
|
| 96 |
|
| 2,300 |
|
| (256) |
|
| (2,840) |
|
| — |
|
| (700) |
Depreciation and amortization |
|
| 2,073 |
|
| 964 |
|
| 245 |
|
| 108 |
|
| — |
|
| 3,390 |
Capital expenditures |
|
| 509 |
|
| 640 |
|
| 14 |
|
| 20 |
|
| — |
|
| 1,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Towers and |
|
|
|
| Process |
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated | ||||||
For the Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 43,724 |
| $ | 17,438 |
| $ | 5,586 |
| $ | — |
| $ | — |
| $ | 66,748 |
Intersegment revenues |
|
| 23 |
|
| — |
|
| — |
|
| — |
|
| (23) |
|
| — |
Net revenues |
|
| 43,747 |
|
| 17,438 |
|
| 5,586 |
|
| — |
|
| (23) |
|
| 66,748 |
Operating (loss) profit |
|
| (1,554) |
|
| (1,288) |
|
| (5,890) |
|
| (1,541) |
|
| — |
|
| (10,273) |
Depreciation and amortization |
|
| 2,638 |
|
| 1,176 |
|
| 773 |
|
| 119 |
|
| — |
|
| 4,706 |
Capital expenditures |
|
| 1,198 |
|
| 467 |
|
| — |
|
| 11 |
|
| — |
|
| 1,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Assets as of |
|
| Total Assets as of |
| ||||||||
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
Segments: |
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Towers and Heavy Fabrications |
| $ | 55,116 |
| $ | 34,839 |
| |||||||
Heavy Fabrications |
| $ | 52,904 |
| $ | 41,432 |
| |||||||
Gearing |
|
| 49,004 |
|
| 37,028 |
|
|
| 46,802 |
|
| 47,022 |
|
Process Systems |
|
| 10,746 |
|
| 11,758 |
| |||||||
Industrial Solutions |
|
| 9,107 |
|
| 8,893 |
| |||||||
Corporate |
|
| 256,659 |
|
| 243,867 |
|
|
| 239,429 |
|
| 239,629 |
|
Eliminations |
|
| (242,267) |
|
| (228,327) |
|
|
| (213,944) |
|
| (214,110) |
|
|
| $ | 129,258 |
| $ | 99,165 |
|
| $ | 134,298 |
| $ | 122,866 |
|
NOTE 15 — COMMITMENTS AND CONTINGENCIES
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
16
safety, and product content, performance and packaging. Certain environmental laws may 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.
Warranty Liability
The Company warrants its products for terms that range from one to five years. In certain contracts, the Company has recourse provisions for items that would enable recovery from third parties for amounts paid to customers under warranty provisions. As of June 30,March 31, 2020 and 2019, and 2018, estimated product warranty liability was $214$118 and $593,$218, respectively, and is recorded within accrued liabilities in the Company’s condensed consolidated balance sheets.
The changes in the carrying amount of the Company’s total product warranty liability for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
| ||||
|
| For the Six Months Ended June 30, |
|
| For the Three Months Ended March 31, |
| ||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Balance, beginning of period |
| $ | 226 |
| $ | 581 |
|
| $ | 163 |
| $ | 226 |
|
(Reduction of) addition to warranty reserve |
|
| (4) |
|
| 15 |
| |||||||
Warranty claims |
|
| (19) |
|
| (3) |
| |||||||
Reduction of warranty reserve |
|
| (25) |
|
| (19) |
| |||||||
Other adjustments |
|
| 11 |
|
| - |
|
|
| (20) |
|
| 11 |
|
Balance, end of period |
| $ | 214 |
| $ | 593 |
|
| $ | 118 |
| $ | 218 |
|
Allowance for Doubtful Accounts
Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to accounts receivable. 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 collectability of its accounts receivable. These factors include individual customer circumstances, history with the Company, the length of the time period during which the account receivable has been past due and other relevant criteria.
15
The Company monitors its collections and write-off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the collectability of its accounts receivable, as noted above, or modifications to its credit standards, collection practices and other related policies may impact the Company’s allowance for doubtful accounts and its financial results. The activity in the accounts receivable allowance liability for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
| For the Six Months Ended June 30, |
|
| For the Three Months Ended March 31, |
| ||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Balance at beginning of period |
| $ | 190 |
| $ | 225 |
|
| $ | 127 |
| $ | 190 |
|
Bad debt expense (recoveries) |
|
| 2 |
|
| (12) |
| |||||||
Bad debt expense |
|
| 55 |
|
| — |
| |||||||
Write-offs |
|
| (14) |
|
| (13) |
|
|
| (19) |
|
| — |
|
Other adjustments |
|
| (7) |
|
| (14) |
| |||||||
Balance at end of period |
| $ | 178 |
| $ | 200 |
|
| $ | 156 |
| $ | 176 |
|
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.
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/or are dependent on actual losses sustained by the customer. The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations. There was no reserve for liquidated damages as of June 30, 2019March 31, 2020 or December 31, 2018.2019.
1716
NOTE 16 — RESTRUCTURINGSUBSEQUENT EVENTS
COVID-19
DuringIn March 2020, the first quarterWorld Health Organization characterized the novel coronavirus disease (“COVID-19”) a pandemic, and the President of 2018,the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. The Company’s operations and those of its suppliers and customers, and the supply chains that support the Company’s and its suppliers’ and customers’ operations have been and continue to be affected by COVID-19. In response to the virus, the Company conducted a reviewis following the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of itsour employees, business strategiespartners and product plans given the outlook for the industries it serves and its business environment. As a result,their respective communities. In addition, the Company beganhas taken various precautionary actions including, but not limited to, execute a restructuring plananalyzing its supply chain to rationalizedetermine its facility capacityexposure and management structure,identify alternative sourcing, reducing board of director and executive compensation, delaying applicable merit increases and other discretionary spending, restricting employee travel, encouraging employees that have the ability to consolidatework from home to do so, implementing social distancing best practices and increasepreparing various contingency plans in the efficienciesevent the Company faces any material adverse impacts from COVID-19.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States in response to COVID-19. The Paycheck Protection Program (“PPP”) was formed as part of its Abilene facility operations.the CARES Act and is administered by the U.S. Small Business Administration (the “SBA”). The PPP allows certain companies to apply for aid through forgivable loans (“PPP Loans”). Under the terms of the PPP, certain amounts of the PPP Loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company exited the CNGapplied for these loans through CIBC Bank and Fabrication Manufacturing location in Abilene, TX in 2018 and consolidated these manufacturing activities into other locations. All remaining costs associated with this facility were recorded as restructuring expenses.
received total proceeds of $9,530. The Company expects that any additionalintends to use proceeds from the PPP Loans primarily for payroll costs, relatedin accordance with terms and conditions applicable to loans administered by the SBA. The PPP Loans have a 1.00% interest rate and are scheduled to mature starting on April 5, 2022.
For more information, refer to the 2018 restructuring initiative will be immaterial. TheCompany’s supplemental risk factor included in the Company’s Current Report on Form 8-K filed April 17, 2020.
Name Change
In connection with the Company’s rebranding efforts previously announced, following the approval of the Company’s stockholders at the Company’s 2020 Annual Meeting of Stockholders on May 1, 2020, the Company projected annual cost savings going forwardfiled a Certificate of approximately $575 in facility expenses relatedAmendment to the restructuring.
The Company’s total net restructuring charges forCertificate of Incorporation with the three and six months ended June 30, 2019 and 2018 consistSecretary of State of Delaware, changing the name of the following:Company from “Broadwind Energy, Inc.” to “Broadwind, Inc.” effective on May 4, 2020. In connection with the Company’s name change, the board of directors of the Company amended the Company’s Second Amended and Restated Bylaws to reflect the Company’s new corporate name.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Facility costs |
| $ | — |
| $ | 64 |
| $ | 2 |
| $ | 146 |
Moving and remediation |
|
| — |
|
| 1 |
|
| 10 |
|
| 1 |
Salary and severance |
|
| — |
|
| — |
|
| — |
|
| 17 |
Depreciation |
|
| — |
|
| 51 |
|
| — |
|
| 67 |
Total cost of sales |
|
| — |
|
| 116 |
|
| 12 |
|
| 231 |
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salary and severance |
|
| — |
|
| — |
|
| — |
|
| 36 |
Total selling, general, and administrative expenses |
|
| — |
|
| — |
|
| — |
|
| 36 |
Grand Total |
| $ | — |
| $ | 116 |
| $ | 12 |
| $ | 267 |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in Item 1, “Financial Statements,” of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including, but not limited to, those identified in “Cautionary Note Regarding Forward-Looking Statements” at the end of Item 2. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties.uncertainties including those arising as a result of COVID-19. As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” refer to Broadwind, Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries.
(Dollars are presented in thousands except per share data or unless otherwise stated)
17
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, 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
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Net revenues |
| $ | 48,634 |
| $ | 41,660 |
Net income (loss) |
| $ | 954 |
| $ | (1,042) |
Adjusted EBITDA (1) |
| $ | 3,605 |
| $ | 1,715 |
Capital expenditures |
| $ | 670 |
| $ | 577 |
Free cash flow (2) |
| $ | (329) |
| $ | (11,468) |
Operating working capital (3) |
| $ | 8,844 |
| $ | 17,607 |
Total debt |
| $ | 16,705 |
| $ | 24,384 |
Total orders |
| $ | 33,809 |
| $ | 24,006 |
Backlog at end of period |
| $ | 127,401 |
| $ | 81,126 |
Book-to-bill (4) |
|
| 0.7 |
|
| 0.6 |
(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 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 other companies and/or analysts.
(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 future investments.
(3)We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits.
(4)We define the book-to-bill as the ratio of new orders we received to units shipped and billed during a period.
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Net income (loss) |
| $ | 954 |
| $ | (1,042) |
Interest expense |
|
| 673 |
|
| 536 |
Income tax provision (benefit) |
|
| 52 |
|
| 11 |
Depreciation and amortization |
|
| 1,612 |
|
| 1,761 |
Share-based compensation and other stock payments |
|
| 314 |
|
| 437 |
Restructuring costs |
|
| — |
|
| 12 |
Adjusted EBITDA |
|
| 3,605 |
|
| 1,715 |
Changes in operating working capital |
|
| (3,264) |
|
| (12,607) |
Capital expenditures |
|
| (670) |
|
| (577) |
Proceeds from disposal of property and equipment |
|
| — |
|
| 1 |
Free Cash Flow |
| $ | (329) |
| $ | (11,468) |
OUR BUSINESS
Second quarterFirst Quarter Overview
We booked $104,612$33,809 in new orders in the secondfirst quarter of 2020, up from $24,006 in the first quarter of 2019 up five-fold from $18,602driven primarily by a $5,286 increase in the second quarter of 2018. The increase wasaftermarket wind Gearing and other industrial Gearing orders and a $3,004 rise in Heavy Fabrication orders, predominately driven primarily by an increase in tower orders asmining and other industrial customers, booked production slots to support strong 2020 turbine demand.
We recognized revenue of $41,169 in the second quarter of 2019, up 12% from revenue of $36,781 in the second quarter of 2018, reflecting sales growth in each segment. Although the number of tower sections sold was flat compared to the prior year quarter, Towers and Heavy Fabrications segment revenues were up $3,418 or 13% due primarily to a higher average sales price for a more complex mix of towers sold, and as a result of higher steel prices.
We reported a net loss of $1,018 or $0.06 per share in the second quarter of 2019, compared to a net loss of $6,116 or $0.40 per share in the second quarter of 2018. The significant improvement was due primarily to the absence of the $4,993 goodwill impairment charge that occurred during the prior year quarter, higher sales, and improved manufacturing efficienciesour ongoing
18
within our Gearingdiversification efforts. Our Industrial Solutions segment realized a $1,513 increase in orders for new gas turbine content, partially offset by a decrease in aftermarket demand.
We recognized revenue of $48,634 in the absencefirst quarter of a beneficial $1,140 earn-out reversal recorded in 2018 and lower margins in our Towers and Heavy Fabrications segment.
As noted in Note 14, “Segment Reporting,” of these condensed consolidated financial statements, during2020, up 17% compared to the first quarter of 2019, we revised ourprimarily due to sales growth in the Heavy Fabrications segment presentation and moved our Abilene compressed natural gas and heavy fabrication business from the Process Systems segmentas tower sections sold surged 66% compared to the Towersprior year quarter driven primarily by customer demand to support the expected increase of wind turbine tower installations. This growth was partially offset by a lower average sales price on towers sold due to higher levels of customer supplied materials in the current year. Industrial Solutions revenue was up $700, or 21% primarily due to higher near-term demand for new gas turbine content, partially offset by weaker aftermarket demand. Gearing revenue was down $3,800 driven primarily by lower order intake in the second half of 2019 and Heavy Fabricationsas customers delayed approximately $1,000 of purchases into future periods.
We reported net income of $954 or $0.06 per share in the first quarter of 2020, compared to a net loss of $1,042 or $0.07 per share in the first quarter of 2019 primarily due to higher capacity utilization in towers and overall improved operating efficiencies, partially offset by decreased profitability in our gearing segment due to decreased sales, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels.
In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. Although our financial results were not materially impacted in the quarter ending March 31, 2020, our operations and those of our suppliers and customers, and the supply chains that support our and their operations have been and continue to be affected by COVID-19. Order activity levels for Gearing, Industrial Solutions and industrial fabrications have declined since the COVID-19 outbreak. Additionally, customers have delayed scheduled purchases in our Gearing segment. We have restated prior periods presentedFor more information, refer to reflectNote 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this change.Quarterly Report on Form 10-Q and our supplemental risk factor included in our Current Report on Form 8-K filed April 17, 2020.
RESULTS OF OPERATIONS
Three months ended June 30, 2019,March 31, 2020, Compared to Three months ended June 30, 2018March 31, 2019
The condensed consolidated statement of operations table below should be read in connection with a review of the following discussion of our results of operations for the three months ended June 30, 2019,March 31, 2020, compared to the three months ended June 30, 2018.March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| 2019 vs. 2018 |
|
|
| Three Months Ended March 31, |
| 2020 vs. 2019 |
|
| ||||||||||||||||||||||
|
|
|
|
| % of Total |
|
|
|
| % of Total |
|
|
|
|
|
|
|
|
|
|
| % of Total |
|
|
|
| % of Total |
|
|
|
|
|
|
|
|
| 2019 |
| Revenue |
| 2018 |
| Revenue |
| $ Change |
| % Change |
|
|
| 2020 |
| Revenue |
| 2019 |
| Revenue |
| $ Change |
| % Change |
|
| ||||||
Revenues |
| $ | 41,169 |
| 100.0 | % | $ | 36,781 |
| 100.0 | % | $ | 4,388 |
| 11.9 | % |
|
| $ | 48,634 |
| 100.0 | % | $ | 41,660 |
| 100.0 | % | $ | 6,974 |
| 16.7 | % |
|
Cost of sales |
|
| 37,277 |
| 90.5 | % |
| 34,442 |
| 93.6 | % |
| 2,835 |
| 8.2 | % |
|
|
| 42,462 |
| 87.3 | % |
| 38,111 |
| 91.5 | % |
| 4,351 |
| 11.4 | % |
|
Restructuring |
|
| — |
| — | % |
| 116 |
| 0.3 | % |
| (116) |
| (100.0) | % |
|
|
| — |
| — | % |
| 12 |
| 0.0 | % |
| (12) |
| (100.0) | % |
|
Gross profit |
|
| 3,892 |
| 9.5 | % |
| 2,223 |
| 6.0 | % |
| 1,669 |
| 75.1 | % |
|
|
| 6,172 |
| 12.7 | % |
| 3,537 |
| 8.5 | % |
| 2,635 |
| 74.5 | % |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 3,895 |
| 9.5 | % |
| 2,495 |
| 6.8 | % |
| 1,400 |
| 56.1 | % |
|
|
| 4,309 |
| 8.9 | % |
| 3,828 |
| 9.2 | % |
| 481 |
| 12.6 | % |
|
Impairment charges |
|
| — |
| — | % |
| 4,993 |
| 13.6 | % |
| (4,993) |
| (100.0) | % |
| |||||||||||||||||
Intangible amortization |
|
| 203 |
| 0.5 | % |
| 471 |
| 1.3 | % |
| (268) |
| (56.9) | % |
|
|
| 183 |
| 0.4 | % |
| 203 |
| 0.5 | % |
| (20) |
| (9.9) | % |
|
Total operating expenses |
|
| 4,098 |
| 10.0 | % |
| 7,959 |
| 21.6 | % |
| (3,861) |
| (48.5) | % |
|
|
| 4,492 |
| 9.2 | % |
| 4,031 |
| 9.7 | % |
| 461 |
| 11.4 | % |
|
Operating loss |
|
| (206) |
| (0.5) | % |
| (5,736) |
| (15.6) | % |
| 5,530 |
| 96.4 | % |
| |||||||||||||||||
Operating income (loss) |
|
| 1,680 |
| 3.5 | % |
| (494) |
| (1.2) | % |
| 2,174 |
| 440.1 | % |
| |||||||||||||||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (773) |
| (1.9) | % |
| (352) |
| (1.0) | % |
| (421) |
| (119.6) | % |
|
|
| (673) |
| (1.4) | % |
| (536) |
| (1.3) | % |
| (137) |
| (25.6) | % |
|
Other, net |
|
| (16) |
| (0.0) | % |
| (1) |
| (0.0) | % |
| (15) |
| (1,500.0) | % |
|
|
| (1) |
| (0.0) | % |
| (1) |
| (0.0) | % |
| — |
| — | % |
|
Total other expense, net |
|
| (789) |
| (1.9) | % |
| (353) |
| (1.0) | % |
| (436) |
| (123.5) | % |
|
|
| (674) |
| (1.4) | % |
| (537) |
| (1.3) | % |
| (137) |
| (25.5) | % |
|
Net loss before provision (benefit) for income taxes |
|
| (995) |
| (2.4) | % |
| (6,089) |
| (16.6) | % |
| 5,094 |
| 83.7 | % |
| |||||||||||||||||
Provision (benefit) for income taxes |
|
| 23 |
| 0.1 | % |
| (6) |
| (0.0) | % |
| 29 |
| 483.3 | % |
| |||||||||||||||||
Loss from continuing operations |
|
| (1,018) |
| (2.5) | % |
| (6,083) |
| (16.5) | % |
| 5,065 |
| 83.3 | % |
| |||||||||||||||||
Income (loss) from discontinued operations |
|
| — |
| — | % |
| (33) |
| (0.1) | % |
| 33 |
| 100.0 | % |
| |||||||||||||||||
Net loss |
| $ | (1,018) |
| (2.5) | % | $ | (6,116) |
| (16.6) | % | $ | 5,098 |
| 83.4 | % |
| |||||||||||||||||
Net income (loss) before provision for income taxes |
|
| 1,006 |
| 2.1 | % |
| (1,031) |
| (2.5) | % |
| 2,037 |
| 197.6 | % |
| |||||||||||||||||
Provision for income taxes |
|
| 52 |
| 0.1 | % |
| 11 |
| 0.0 | % |
| 41 |
| 372.7 | % |
| |||||||||||||||||
Net income (loss) |
| $ | 954 |
| 2.0 | % | $ | (1,042) |
| (2.5) | % | $ | 1,996 |
| 191.6 | % |
|
Consolidated
Revenues increased from $36,781 duringby $6,974, primarily due to higher production levels in the three months ended June 30, 2018, to $41,169 during the three months ended June 30, 2019, including increases in each segment. Towers and Heavy Fabrications segment revenues were up $3,418 or 13% due primarily toas towers sections sold increased 66% from the first quarter of 2019, partially offset by a higherlower average sales price on the towers sold primarily due to higher levels of customer supplied materials in the current year. Industrial Solutions revenue was up $700 from the first quarter of 2019, primarily due to increased shipments of new gas turbine content. Partially offsetting these improvements was a more complex mix of towers sold and as a result of higher steel prices.
Gross profit increased by $1,669, from $2,223 during the three months ended June 30, 2018, to $3,892 during the three months ended June 30, 2019. Gross margin increased from 6.0% during the three months ended June 30, 2018, to 9.5% during the three months ended June 30, 2019. The increasedecrease in gross profit was primarily attributable to improved manufacturing efficiencies in our Gearing segment partially offset by lower margins in our Towers and Heavy Fabrications segment, where margins have been depressed becauserevenue of increased competition from foreign tower manufacturers.
Operating expenses decreased from $7,959 during the three months ended June 30, 2018,$3,800 due primarily to $4,098 during the three months ended June 30, 2019. The decrease was primarily attributable to the absence of the $4,993 goodwill impairment charge that occurred during the prior year quarter, partially offset by the absence of the reversal of the $1,140 Red Wolf earn-out reserve, which also occurred during the prior year quarter. As a result, operating expenses as a percentage of sales normalized to 10.0%weak order intake in the current-year quarter.
Net loss decreased from $6,116 during the three months ended June 30, 2018, to $1,018 during the three months ended June 30, 2019, as a resultsecond half of the factors described above.
19
2019 primarily within O&G and other industrial markets. In addition, due to declining oil prices and general market uncertainty, customers delayed approximately $1,000 of purchases into future periods.
Gross profit increased by $2,635 due primarily to higher capacity utilization in towers and overall improved operating efficiencies. This benefit was partially offset by lower gearing sales across all core industries, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. As a result, gross margin increased to 12.7% during the three months ended March 31, 2020, from 8.5% during the three months ended March 31, 2019.
Due to higher revenue levels, operating expenses as a percentage of sales improved to 9.2% in the current-year quarter from 9.7% in the prior year quarter.
Net income increased to $954 during the three months ended March 31, 2020 from a net loss of $1,042 during the three months ended March 31, 2019 due to the factors described above.
Towers and Heavy Fabrications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Three Months Ended |
|
|
| Three Months Ended |
| |||||||||
|
| June 30, |
|
|
| March 31, |
| |||||||||
|
| 2019 |
| 2018 |
|
|
| 2020 |
| 2019 |
| |||||
Orders |
| $ | 96,328 |
| $ | 9,870 |
|
|
| $ | 15,514 |
| $ | 12,510 |
| |
Tower sections sold |
|
| 312 |
|
| 188 |
| |||||||||
Revenues |
|
| 28,970 |
|
| 25,552 |
|
|
|
| 38,368 |
|
| 28,294 |
| |
Operating income |
|
| 318 |
|
| 541 |
|
| ||||||||
Operating income (loss) |
|
| 3,541 |
|
| (222) |
| |||||||||
Operating margin |
|
| 1.1 | % |
| 2.1 | % |
|
|
| 9.2 | % |
| (0.8) | % |
|
Towers and The increase in Heavy Fabrications segment orders spiked as both newwas primarily due to increased demand for other industrial fabrications of $4,935, primarily from mining and existingother industrial customers secured capacityresulting from ongoing diversification efforts. Partially offsetting this increase was a reduction in tower orders, primarily due to support strong turbine installationstiming of customer purchases. Segment revenues increased by $10,074 due to a 66% increase in 2020. In addition, 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. Although the number oftower sections sold was flat compared to the prior year quarter segment revenues were up $3,418 or 13% due primarily toand the benefit of improved customer diversification. This was partially offset by a higherlower average sales price on the towers sold primarily due to a more complex design and higher steel prices.increased customer supplied materials in the current year.
Towers and Heavy Fabrications segment operating income decreasedresults improved by $223 from $541$3,763 compared to the prior year. The quarter-over-quarter improvement reflected the higher capacity utilization associated with tower production and overall improved operating efficiencies. Operating margin was 9.2% during the three months ended June 30, 2018, to $318March 31, 2020, an increase from (0.8%) during the three months ended June 30,March 31, 2019. Despite higher selling prices, margins have been adversely impacted by increased competition from offshore tower manufacturers. Also impacting profitability were higher legal fees and increases in incentive compensation. Operating margin decreased from 2.1% during the three months ended June 30, 2018, to 1.1% during the three months ended June 30, 2019.
Gearing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
| Three Months Ended |
|
| ||||||||
|
| June 30, |
|
|
| March 31, |
|
| ||||||||
|
| 2019 |
| 2018 |
|
|
| 2020 |
| 2019 |
|
| ||||
Orders |
| $ | 5,572 |
| $ | 6,148 |
|
|
| $ | 12,421 |
| $ | 7,135 |
|
|
Revenues |
|
| 9,266 |
|
| 8,632 |
|
|
|
| 6,227 |
|
| 10,027 |
|
|
Operating income (loss) |
|
| 913 |
|
| (662) |
|
| ||||||||
Operating (loss) income |
|
| (261) |
|
| 1,387 |
|
| ||||||||
Operating margin |
|
| 9.9 | % |
| (7.7) | % |
|
|
| (4.2) | % |
| 13.8 | % |
|
Gearing segment orders for the three months ended June 30, 2019 decreased $576increased 74% compared to the prior year period primarily due to timing of orders received from mining industry customers. Revenue increased from $8,632 during the three months ended June 30, 2018, to $9,266 during the three months ended June 30, 2019. Thean increase was driven primarily by increasedin aftermarket wind shipments and stronger mining industry demand, partially offset by lower O&G demand as the fracking capacity expansions underway in 2018 have subsided, and some customers have shifted purchases to low cost countries.
gearing orders, which can fluctuate based on customer order patterns. Gearing segment operating income improved by $1,575,orders also benefitted from a loss of $662 during the three months ended June 30, 2018, to income of $913 during the three months ended June 30, 2019. The improvement was primarily attributable to a better product mix, improved plant throughput and improved manufacturing efficiencies including lower scrap and warranty expense. Operating margin was 9.9% during the three months ended June 30, 2019, up sharply from (7.7%) during the three months ended June 30, 2018.
Process Systems Segment
|
|
|
|
|
|
|
| Three Months Ended | |||||
| June 30, | |||||
| 2019 |
|
| 2018 | ||
Orders | $ | 2,712 |
| $ | 2,584 |
|
Revenues |
| 2,933 |
|
| 2,620 |
|
Operating income (loss) |
| 28 |
|
| (5,589) |
|
Operating margin |
| 1.0 | % |
| (213.3) | % |
Process Systems segment orders and revenues have increased modestlyan increase in other industrial customer demand. Revenue decreased 38% from the prior year periodquarter due primarily to lower order intake in the second half of 2019 within O&G and other industrial markets. In addition, due to stronger demand for new gas turbine content. The Process Systems segment operating income improvement was the resultdeclining oil prices and general market uncertainty, customers delayed approximately $1,000 of the absence of a $4,993 goodwill impairment charge that occurred during the prior year quarter, improvements in product mix sold and lower amortization expense during the current year quarter. The operating margin improved from (213.3%) during the three months ended June 30, 2018 to 1.0% during the three months ended June 30, 2019. purchases into future periods.
20
Corporate and Other
Corporate and Other expenses normalizedGearing segment operating results decreased $1,648 from $26 during the three months ended June 30, 2018, to $1,465 during the three months ended June 30, 2019. The increase was primarily attributable to the absence of a reversal of the final Red Wolf earn-out reserve which benefitted the prior year quarter, and increased incentive compensation for the current year.
Six months ended June 30, 2019, Compared to Six months ended June 30, 2018
The condensed consolidated statement of operations table below should be read in connection with a review of the following discussion of our results of operations for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
| 2019 vs. 2018 |
| |||||||||||
|
|
|
|
| % of Total |
|
|
|
| % of Total |
|
|
|
|
|
|
|
| 2019 |
| Revenue |
| 2018 |
| Revenue |
| $ Change |
| % Change |
| |||
Revenues |
| $ | 82,829 |
| 100.0 | % | $ | 66,748 |
| 100.0 | % | $ | 16,081 |
| 24.1 | % |
Cost of sales |
|
| 75,388 |
| 91.0 | % |
| 64,426 |
| 96.5 | % |
| 10,962 |
| 17.0 | % |
Restructuring |
|
| 12 |
| 0.0 | % |
| 231 |
| 0.3 | % |
| (219) |
| (94.8) | % |
Gross profit |
|
| 7,429 |
| 9.0 | % |
| 2,091 |
| 3.1 | % |
| 5,338 |
| 255.3 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 7,723 |
| 9.3 | % |
| 6,393 |
| 9.6 | % |
| 1,330 |
| 20.8 | % |
Impairment charges |
|
| — |
| — | % |
| 4,993 |
| 7.5 | % |
| (4,993) |
| (100.0) | % |
Intangible amortization |
|
| 406 |
| 0.5 | % |
| 942 |
| 1.4 | % |
| (536) |
| (56.9) | % |
Restructuring |
|
| — |
| — | % |
| 36 |
| 0.1 | % |
| (36) |
| (100.0) | % |
Total operating expenses |
|
| 8,129 |
| 9.8 | % |
| 12,364 |
| 18.5 | % |
| (4,235) |
| (34.3) | % |
Operating loss |
|
| (700) |
| (0.8) | % |
| (10,273) |
| (15.4) | % |
| 9,573 |
| 93.2 | % |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,309) |
| (1.6) | % |
| (650) |
| (1.0) | % |
| (659) |
| (101.4) | % |
Other, net |
|
| (18) |
| (0.0) | % |
| (4) |
| (0.0) | % |
| (14) |
| (350.0) | % |
Total other expense, net |
|
| (1,327) |
| (1.6) | % |
| (654) |
| (1.0) | % |
| (673) |
| (102.9) | % |
Net loss before provision (benefit) for income taxes |
|
| (2,027) |
| (2.4) | % |
| (10,927) |
| (16.4) | % |
| 8,900 |
| 81.4 | % |
Provision (benefit) for income taxes |
|
| 34 |
| 0.0 | % |
| (33) |
| (0.0) | % |
| 67 |
| 203.0 | % |
Loss from continuing operations |
|
| (2,061) |
| (2.5) | % |
| (10,894) |
| (16.3) | % |
| 8,833 |
| 81.1 | % |
Income (loss) from discontinued operations, net of tax |
|
| 1 |
| 0.0 | % |
| (60) |
| (0.1) | % |
| 61 |
| 101.7 | % |
Net loss |
| $ | (2,060) |
| (2.5) | % | $ | (10,954) |
| (16.4) | % | $ | 8,894 |
| 81.2 | % |
Consolidated
Revenues increased from $66,748 during the six months ended June 30, 2018, to $82,829 during the six months ended June 30, 2019, including increases in each segment. Towers and Heavy Fabrications segment revenues were up $13,517 or 31% due to a 13% increase in tower sections sold, a higher average sales price due to a more complex mix of towers sold and as a result of higher steel prices. Heavy fabrications revenues increased due to higher demand from mining and construction customers, partially offset by decreases in O&G fabrications. Gearing segment revenues were up $1,855 or 11%, primarily as a result of increased aftermarket wind shipments and stronger mining demand, partially offset by lower O&G demand.
Gross profit increased by $5,338, from $2,091 during the six months ended June 30, 2018, to $7,429 during the six months ended June 30, 2019. Gross margin increased from 3.1% during the six months ended June 30, 2018, to 9.0% during the six months ended June 30, 2019. The increase in gross profit was primarily attributable to higher plant utilization and improved manufacturing efficiencies in our Towers and Heavy Fabrications and Gearing segments. The negative impacts from pricing pressure were offset by increased production volumes and the absence of plant start-up costs incurred in the prior year.
Operating expenses decreased from $12,364 during the six months ended June 30, 2018, to $8,129 during the six months ended June 30, 2019.period. The decrease was primarily attributable to the absence of a $4,993 goodwill impairment charge that occurreddecrease in sales across all core markets, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. Operating margin was (4.2%) during the prior year and lower amortization and commission expense. Partially offsetting these factors was the absence of a $1,140 reversal of the final Red Wolf earn-out reserve which occurredthree months ended March 31, 2020, down from 13.8% during the prior year and higher incentive compensation costs. Operating expenses as a percentage of revenue decreased to 9.8% in the first two quarters of 2019, compared to 18.5% during the prior year period.
Net loss decreased from $10,954 during the sixthree months ended June 30, 2018, to $2,060 during the six months ended June 30, 2019, as a result of the factors described above. March 31, 2019.
21
Towers and Heavy FabricationsIndustrial Solutions Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Three Months Ended | |||||||||
|
| June 30, |
| March 31, | |||||||||
|
| 2019 |
| 2018 |
| 2020 |
|
| 2019 | ||||
Orders |
| $ | 108,839 |
| $ | 19,674 |
| $ | 5,874 |
| $ | 4,361 |
|
Revenues |
|
| 57,264 |
|
| 43,747 |
|
| 4,039 |
|
| 3,339 |
|
Operating income (loss) |
|
| 96 |
|
| (1,554) |
|
| 192 |
|
| (285) |
|
Operating margin |
|
| 0.2 | % |
| (3.6) | % |
| 4.8 | % |
| (8.5) | % |
Towers and Heavy FabricationsIndustrial Solutions segment orders spiked as both new and existing customers secured capacity to support strong turbine demand in 2020. In addition, our largest customer fulfilled orders under a three-year customer 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. Towers and Heavy Fabrications segment revenues increased by $13,517 due to a 13% increase in tower sections sold, a higher average sales price on the towers sold due to a more complex design, and higher steel prices. Heavy fabrication revenues increased due to higher demand from mining and construction customers, partially offset by decreases in O&G.
Towers and Heavy Fabrications segment operating results improved by $1,650, from a loss of $1,554 during the six months ended June 30, 2018, to income of $96 during the six months ended June 30, 2019. The negative impacts from increased competitive pricing pressure in the current year, were offset by increased production volumes and the absence of plant start-up costs incurred in the prior year.
Gearing Segment
0 |
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| June 30, |
| ||||
|
| 2019 |
| 2018 |
| ||
Orders |
| $ | 12,707 |
| $ | 21,514 |
|
Revenues |
|
| 19,293 |
|
| 17,438 |
|
Operating income (loss) |
|
| 2,300 |
|
| (1,288) |
|
Operating margin |
|
| 11.9 | % |
| (7.4) | % |
Gearing segment orders decreased $8,807 during the six months ended June 30, 2019 compared to the prior year period primarily due to a decrease instronger near-term demand from O&G customers as the prior year period benefitted from the industry’s expansion of fracking capacity and significantly longer lead times due to steel availability issues. Revenue increased from $17,438 during the six months ended June 30, 2018, to $19,293 during the six months ended June 30, 2019. The increase was driven primarily by increased aftermarket wind shipments and stronger mining demand,for new gas turbine content, partially offset by lower O&Gaftermarket demand.
The Gearing segmentrevenue increase was a result of recent strong order activity levels associated with an increase in global new gas turbine activity levels. The operating profit improved by $3,588, from a loss of $1,288 during the six months ended June 30, 2018, to income of $2,300 during the six months ended June 30, 2019. The improvement was primarily attributable to the product mix sold, improved plant throughput and improved manufacturing efficiencies including lower scrap and warranty costs. Operating margin was 11.9% during the six months ended June 30, 2019, up sharply from (7.4%) during the six months ended June 30, 2018.
Process Systems Segment
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| June 30, | ||||
|
| 2019 |
| 2018 | ||
Orders |
| $ | 7,072 |
| $ | 5,555 |
Revenues |
|
| 6,272 |
|
| 5,586 |
Impairment charges |
|
| - |
|
| 4,993 |
Operating loss |
|
| (256) |
|
| (5,890) |
Operating margin |
|
| (4.1) | % |
| (105.4) |
Process Systems segment orders increased $1,517, from $5,555 during the six months ended June 30, 2018, to $7,072 during the six months ended June 30, 2019. The increase in orders is primarily due to higher customer demand for new gas
22
turbine content. Process Systems segment revenues increased by $686, from $5,586 during the six months ended June 30, 2018, to $6,272 during the six months ended June 30, 2019 primarily due to increased sales for aftermarket products.
The Process Systems segment operating loss improvement was thea result of the absence of a $4,993 goodwill impairment charge that occurred during the prior yearrevenue growth and lower amortization expense.general operating efficiencies. The operating margin improved to (4.1%4.8% during the three months ended March 31, 2020 from (8.5%) during the sixthree months ended June 30, 2019 from (105.4%) during the six months ended June 30, 2018, due to the factors mentioned above.March 31, 2019.
Corporate and Other
Corporate and Other expenses normalized from $1,541increased by $418 during the sixthree months ended June 30, 2018, to $2,840 during the six months ended June 30, 2019. The increase wasMarch 31, 2020 primarily attributable to the absence of a $1,140 benefit in the prior year associated with the reversal of the final Red Wolf earn-out reserve and also due to higher incentive compensationincreased salary and benefit related expenses in the current year.year quarter.
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of June 30, 2019,March 31, 2020, cash and cash equivalents totaled $74 a decrease$2,743 an increase of $1,103$327 from December 31, 2018.2019. Cash balances remain minimal as operating receipts and disbursements flow through our Credit Facility, which is in a drawn position. Debt and finance lease obligations at June 30, 2019March 31, 2020 totaled $29,931.$17,761. As of June 30, 2019,March 31, 2020, we had the ability to borrow up to an additional $8,033$16,283 under the Credit Facility (as defined in Note 7, “Debt and Credit Agreements,” in the notes to our condensed consolidated financial statements). On July 31, 2018, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. We anticipate that we will be able 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, the Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including the option to raise capital from the sale of our securities under the Form S-3.
On February 25, 2019, However, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facilitydo not anticipate that we will have the ability to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019, replaced bygenerate a Fixed Charge Coverage Ratio thereafter.
In conjunction with the Amended and Restated Loan Agreement, during June 2019, we entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notionalsignificant amount of $6,000 andcapital from equity markets in the near-term as a schedule matching thatresult of the underlying loanlow trading volume of our common stock on the NASDAQ exchange and limitations on the aggregate amount of securities that synthetically fixeswe may offer under the interest rateForm S-3 due to our public float size. The Form S-3 will expire on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering our 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.October 10, 2020.
We anticipate that current cash resources, amounts available under the Credit Facility, the loans received under the U.S. Payroll Protection Program, cash to be generated from operations, and any potential proceeds from the sale of our securities under the Form S-3 or other privately raised funds will be adequate to meet our liquidity needs for at least the next twelve months. If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, we may encounter cash flow and liquidity issues. Additionally new or existing customers may request acceleration of production or we may accept new orders or modify existing orders to purchase steel opportunistically or to build products without deposits, which will reduce our liquidity. Further in advance of anticipated cash needs, we may also issue debt or sell equity or equity linked securities.
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If our operational performance does not improve,deteriorates, we may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit our operational flexibility, require a delay in making planned investments and/or require us to seek additional equity or debt financing. Any attempt to raise equity through the public markets could have a negative effect on our stock price, making an equity raise more difficult or more dilutive. Any additional equity financing or equity linked financing, if available, will be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other operating and financial restrictions on us. While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and debt covenants, there can be no assurances that our operations will generate sufficient cash or that existing or new credit
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facilities or equity or equity linked financings will be available in an amount sufficient to enable us to meet these financial obligations.
Sources and Uses of Cash
The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2020 and 2019:
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| Three Months Ended | ||||
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| March 31, | ||||
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| 2020 |
| 2019 | ||
Total cash provided by (used in): |
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|
Operating activities |
| $ | (1,025) |
| $ | (11,349) |
Investing activities |
|
| (670) |
|
| (576) |
Financing activities |
|
| 2,022 |
|
| 10,785 |
Net increase (decrease) in cash |
| $ | 327 |
| $ | (1,140) |
Operating Cash Flows
During the sixthree months ended June 30, 2019,March 31, 2020, net cash used in operating activities totaled $14,612,$1,025, compared to net cash used in operating activities of $2,793$11,349 for the sixthree months ended June 30, 2018. NetMarch 31, 2019. This decrease in net cash used inwas primarily due to improved operating activities increased versus the prior year period due primarily toperformance, a lower working capital build of inventory driven by higher production levels within the Towers and Heavy Fabrications segment. Additionally, customer deposits decreased by $4,946 in the current year period, due to increased tower shipments andlargely as a result of the timing of new tower orders that include customerincluded deposit provisions.
Investing Cash Flows
During the sixthree months ended June 30, 2019,March 31, 2020, net cash used in investing activities totaled $1,182,$670, compared to net cash used in investing activities of $1,676$576 during the sixthree months ended June 30, 2018.March 31, 2019. The decreaseincrease in net cash used in investing activities as compared to the prior-year period was primarily due to a $493 decreasean increase in net investments inpurchases of property and equipment.
Financing Cash Flows
During the sixthree months ended June 30, 2019,March 31, 2020, net cash provided by financing activities totaled $14,690,$2,022, compared to net cash provided by financing activities of $4,505$10,785 for the sixthree months ended June 30, 2018.March 31, 2019. The increase in net cash provided by financing activities as compared todecrease versus the prior-year period was primarily due to increasedlower usage of our Credit Facility in 2019.the current year.
Other
In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-termthe “Long-term debt, less current maturities.maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018, $114 of the loan was forgiven. As of March 31, 2020, the loan balance was $342. In addition, we have outstanding notes payable for capital expenditures in the amount of $1,445$2,363 and $1,882$1,563 as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, with $918$2,350 and $930$1,400 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.
In April 2020, we received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act. Please refer to Note 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The preceding discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Portions of this Quarterly Report on Form 10-Q, including the discussion and analysis in this Part I, Item 2, contain “forward looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Forward looking statements include any statement that does not directly relate to a current or historical fact. Our forward-looking statements may include or relate to our beliefs, expectations, plans and/or assumptions with respect to the following:following, many of which are, and will be, amplified by the COVID-19 pandemic: (i) the impact of global health concerns, including the impact of the current COVID-19 pandemic on the economies and financial markets and the demand for our products; (ii) state, local and federal regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards; (ii)standards as well as new or continuing tariffs on steel or other products imported into the United States; (iii) our customer relationships and our substantial dependency on a few significant customers and our efforts to diversify our customer base and sector focus and leverage relationships across business units; (iii)(iv) the economic and operational stability of our significant customers and suppliers, including their respective supply chains, and the ability to source alternative suppliers as necessary, in light of the COVID-19 pandemic; (v) our ability to continue to grow our business organically and through acquisitions; (iv)acquisitions, and the impairment thereto by the impact of the COVID-19 pandemic; (vi) the production, sales, collections, customer deposits and revenues generated by new customer orders and our ability to realize the resulting cash flows; (v)(vii) information technology failures, network disruptions, cybersecurity attacks or breaches in data security, including with respect to any remote work arrangements implemented in response to the COVID-19 pandemic; (viii) the sufficiency of our liquidity and alternate sources of funding, if necessary; (vi)(ix) our ability to realize revenue from customer orders and backlog; (vii)(x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (viii)(xi) the economy, including its stability in light of the COVID-19 pandemic, and the potential impact it may have on our business, including our customers; (ix)(xii) the state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets; (x)(xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; (xi)(xiv) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers; (xv) the effects of the change of administrations in the U.S. federal government; (xii)(xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions; (xiii)(xvii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the IRC; (xiv)Internal Revenue Code of 1986, as amended; (xviii) our ability to utilize various relief options enabled by the Coronavirus Aid, Relief and Economic Security Act; (xix) the limited trading market for our securities and the volatility of market price for our securities; and (xv)(xx) the impact of future sales of our common stock or
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securities convertible into our common stock on our stock price. These statements are based on information currently available to us and are subject to various risks, uncertainties and other factors that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements including, but not limited to, those set forth under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.2019, as supplemented by our Current Report on Form 8-K filed April 17, 2020 . We are under no duty to update any of these statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or other factors that could cause our current beliefs, expectations, plans and/or assumptions to change. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2Item 10(f)(1) of Regulation S-K under the ExchangeSecurities Act and as such are not required to provide information under this Item.Item pursuant to Item 305(e) of Regulation S-K.
Item 4.Controls and Procedures
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
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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 quarter reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2019.March 31, 2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 30, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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The information required by this item is incorporated herein by reference to Note 12, “Legal Proceedings” of the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018. 2019 except as supplemented by the risk factor set forth on our Current Report on Form 8-K filed April 17, 2020.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not Applicable.
Not Applicable.
The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
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EXHIBIT INDEX
BROADWIND, ENERGY, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019MARCH 31, 2020
Exhibit Number |
| Exhibit |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
10.1 | Note dated April 5, 2020 by and between Brad Foote Gear Works, Inc. and CIBC Bank USA* | |
10.2 | Note dated April 5, 2020 by and between Broadwind Heavy Fabricators, Inc. and CIBC Bank USA* | |
10.3 | Note dated April 5, 2020 by and between Broadwind Industrial Services, Inc. and CIBC Bank USA* | |
10.4 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following financial information from this Form 10-Q of Broadwind, |
________________________
*Filed herewith.
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In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BROADWIND, | |
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| By: | /s/ |
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| President, Chief Executive Officer |
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| (Principal Executive Officer) |
| By: | /s/ Jason L. Bonfigt |
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| Jason L. Bonfigt |
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| Vice President, Chief Financial Officer (Principal Financial Officer) |
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