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BROADWIND, INC. - Quarter Report: 2019 September (Form 10-Q)

Table of Contents

 

 

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 September 30, 2019

 

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
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

3240 S. Central Avenue, Cicero, IL 60804

(Address of principal executive offices)

 

(708) 780-4800

(Registrant’s telephone number, including area code)

 

Not applicable

(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

Preferred Stock Purchase Rights

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 ☐

 

 

 

Non-accelerated filer ☒

 

Emerging growth company ☐

 

Smaller reporting company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant 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 October 25,  2019: 16,361,572.

 

 

 

Table of Contents

BROADWIND ENERGY, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

Item 1. 

Financial Statements

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4. 

Controls and Procedures

26

PART II. OTHER INFORMATION 

Item 1. 

Legal Proceedings

27

Item 1A. 

Risk Factors

27

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3. 

Defaults Upon Senior Securities

27

Item 4. 

Mine Safety Disclosures

27

Item 5. 

Other Information

27

Item 6. 

Exhibits

27

Signatures 

 

29

 

 

 

 

Table of Contents

 

PART I.       FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15

 

$

1,177

 

 

Accounts receivable, net

 

 

22,862

 

 

17,455

 

 

Inventories, net

 

 

31,250

 

 

22,670

 

 

Prepaid expenses and other current assets

 

 

2,387

 

 

1,776

 

 

Total current assets

 

 

56,514

 

 

43,078

 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

47,017

 

 

49,087

 

 

Operating lease right-of-use assets

 

 

16,150

 

 

 —

 

 

Other intangible assets, net

 

 

5,993

 

 

6,602

 

 

Other assets

 

 

328

 

 

398

 

 

TOTAL ASSETS

 

$

126,002

 

$

99,165

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Line of credit and other notes payable

 

$

9,592

 

$

11,930

 

 

Current portion of finance lease obligations

 

 

632

 

 

967

 

 

Current portion of operating lease obligations

 

 

1,468

 

 

 —

 

 

Accounts payable

 

 

17,864

 

 

11,618

 

 

Accrued liabilities

 

 

5,488

 

 

3,806

 

 

Customer deposits

 

 

31,064

 

 

23,507

 

 

Current liabilities held for sale

 

 

25

 

 

27

 

 

Total current liabilities

 

 

66,133

 

 

51,855

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

802

 

 

1,408

 

 

Long-term finance lease obligations, net of current portion

 

 

479

 

 

571

 

 

Long-term operating lease obligations, net of current portion

 

 

16,686

 

 

 —

 

 

Other

 

 

64

 

 

1,969

 

 

Total long-term liabilities

 

 

18,031

 

 

3,948

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding

 

 

 —

 

 

 —

 

 

Common stock, $0.001 par value; 30,000,000 shares authorized; 16,626,489 and 15,982,622 shares issued as of September 30, 2019, and December 31, 2018, respectively

 

 

16

 

 

16

 

 

Treasury stock, at cost, 273,937 shares as of September 30, 2019 and December 31, 2018

 

 

(1,842)

 

 

(1,842)

 

 

Additional paid-in capital

 

 

382,875

 

 

381,441

 

 

Accumulated deficit

 

 

(339,211)

 

 

(336,253)

 

 

Total stockholders’ equity

 

 

41,838

 

 

43,362

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

126,002

 

$

99,165

 

 

 

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

1

Table of Contents

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

 

2019

 

    

2018

 

 

2019

    

2018

 

 

Revenues

 

$

46,138

 

 

$

31,445

 

 

$

128,967

 

$

98,193

 

 

Cost of sales

 

 

42,144

 

 

 

29,802

 

 

 

117,532

 

 

94,228

 

 

Restructuring

 

 

 —

 

 

 

157

 

 

 

12

 

 

388

 

 

Gross profit

 

 

3,994

 

 

 

1,486

 

 

 

11,423

 

 

3,577

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,049

 

 

 

3,627

 

 

 

11,772

 

 

10,020

 

 

Impairment charges

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

4,993

 

 

Intangible amortization

 

 

203

 

 

 

471

 

 

 

609

 

 

1,413

 

 

Restructuring

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

36

 

 

Total operating expenses

 

 

4,252

 

 

 

4,098

 

 

 

12,381

 

 

16,462

 

 

Operating loss

 

 

(258)

 

 

 

(2,612)

 

 

 

(958)

 

 

(12,885)

 

 

OTHER EXPENSE, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(610)

 

 

 

(372)

 

 

 

(1,919)

 

 

(1,022)

 

 

Other, net

 

 

(2)

 

 

 

2,247

 

 

 

(20)

 

 

2,243

 

 

Total other expense, net

 

 

(612)

 

 

 

1,875

 

 

 

(1,939)

 

 

1,221

 

 

Net loss before provision (benefit) for income taxes

 

 

(870)

 

 

 

(737)

 

 

 

(2,897)

 

 

(11,664)

 

 

Provision (benefit) for income taxes

 

 

28

 

 

 

13

 

 

 

62

 

 

(20)

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

(898)

 

 

 

(750)

 

 

 

(2,959)

 

 

(11,644)

 

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

 

 —

 

 

 

(33)

 

 

 

 1

 

 

(93)

 

 

NET LOSS

 

$

(898)

 

 

$

(783)

 

 

$

(2,958)

 

$

(11,737)

 

 

NET LOSS PER COMMON SHARE—BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.06)

 

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

Income (loss) from discontinued operations

 

 

0.00

 

 

 

0.00

 

 

 

0.00

 

 

0.00

 

 

Net loss

 

$

(0.06)

 

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC

 

 

16,236

 

 

 

15,541

 

 

 

16,024

 

 

15,390

 

 

NET LOSS PER COMMON SHARE—DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.06)

 

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

Income (loss) from discontinued operations

 

 

0.00

 

 

 

0.00

 

 

 

0.00

 

 

0.00

 

 

Net loss

 

$

(0.06)

 

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED

 

 

16,236

 

 

 

15,541

 

 

 

16,024

 

 

15,390

 

 

 

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

 

2

Table of Contents

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Issued

 

 

 

Issued

 

Additional

 

Accumulated

 

 

 

 

 

 

 

Issued

 

Amount

 

Shares

 

Amount

 

Paid-in Capital

 

Deficit

 

Total

 

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

 

Stock issued for restricted stock

 

 

38,151

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock issued under defined contribution 401(k) retirement savings plan

 

 

92,697

 

 

 —

 

 —

 

 

 —

 

 

199

 

 

 —

 

 

199

 

Share-based compensation

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

196

 

 

 —

 

 

196

 

Sale of common stock, net

 

 

15,112

 

 

 —

 

 —

 

 

 —

 

 

(52)

 

 

 —

 

 

(52)

 

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(783)

 

 

(783)

 

BALANCE, September 30, 2018

 

 

15,890,605

 

$

16

 

(273,937)

 

$

(1,842)

 

$

381,175

 

$

(323,844)

 

$

55,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2018

 

 

15,982,622

 

$

16

 

(273,937)

 

$

(1,842)

 

$

381,441

 

$

(336,253)

 

$

43,362

 

Stock issued for restricted stock

 

 

141,384

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock issued under defined contribution 401(k) retirement savings plan

 

 

135,636

 

 

 —

 

 —

 

 

 —

 

 

187

 

 

 —

 

 

187

 

Share-based compensation

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

255

 

 

 —

 

 

255

 

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,042)

 

 

(1,042)

 

BALANCE, March 31, 2019

 

 

16,259,642

 

$

16

 

(273,937)

 

$

(1,842)

 

$

381,883

 

$

(337,295)

 

$

42,762

 

Stock issued for restricted stock

 

 

53,740

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock issued under defined contribution 401(k) retirement savings plan

 

 

123,727

 

 

 —

 

 —

 

 

 —

 

 

205

 

 

 —

 

 

205

 

Share-based compensation

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

255

 

 

 —

 

 

255

 

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,018)

 

 

(1,018)

 

BALANCE, June 30, 2019

 

 

16,437,109

 

$

16

 

(273,937)

 

$

(1,842)

 

$

382,343

 

$

(338,313)

 

$

42,204

 

Stock issued for restricted stock

 

 

19,436

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock issued under defined contribution 401(k) retirement savings plan

 

 

169,944

 

 

 —

 

 —

 

 

 —

 

 

277

 

 

 —

 

 

277

 

Share-based compensation

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

255

 

 

 —

 

 

255

 

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(898)

 

 

(898)

 

BALANCE, September 30, 2019

 

 

16,626,489

 

$

16

 

(273,937)

 

$

(1,842)

 

$

382,875

 

$

(339,211)

 

$

41,838

 

 

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

 

3

Table of Contents

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

    

2019

    

2018

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,958)

 

$

(11,737)

 

 

Income (loss) from discontinued operations

 

 

 1

 

 

(93)

 

 

Loss from continuing operations

 

 

(2,959)

 

 

(11,644)

 

 

Adjustments to reconcile net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

5,006

 

 

6,990

 

 

Deferred income taxes

 

 

(11)

 

 

(45)

 

 

Impairment charges

 

 

 —

 

 

4,993

 

 

Remeasurement of contingent consideration

 

 

 —

 

 

(1,140)

 

 

Change in fair value of interest rate swap agreements

 

 

50

 

 

 —

 

 

Stock-based compensation

 

 

765

 

 

685

 

 

Extinguishment of New Markets Tax Credits obligation

 

 

 —

 

 

(2,249)

 

 

Allowance for doubtful accounts

 

 

(30)

 

 

(48)

 

 

Common stock issued under defined contribution 401(k) plan

 

 

669

 

 

537

 

 

Gain on disposal of assets

 

 

(1)

 

 

(23)

 

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,377)

 

 

(3,035)

 

 

Inventories

 

 

(8,580)

 

 

(3,814)

 

 

Prepaid expenses and other current assets

 

 

(737)

 

 

(19)

 

 

Accounts payable

 

 

6,046

 

 

3,576

 

 

Accrued liabilities

 

 

1,632

 

 

1,567

 

 

Customer deposits

 

 

7,557

 

 

(2,018)

 

 

Other non-current assets and liabilities

 

 

303

 

 

(1,546)

 

 

Net cash provided by (used in) operating activities of continuing operations

 

 

4,333

 

 

(7,233)

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,776)

 

 

(2,018)

 

 

Proceeds from disposals of property and equipment

 

 

 1

 

 

583

 

 

Net cash used in investing activities of continuing operations

 

 

(1,775)

 

 

(1,435)

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

131,865

 

 

103,406

 

 

Payments on line of credit

 

 

(134,136)

 

 

(95,493)

 

 

Proceeds from long-term debt

 

 

 —

 

 

2,060

 

 

Payments on long-term debt

 

 

(698)

 

 

(536)

 

 

Principal payments on finance leases

 

 

(752)

 

 

(581)

 

 

Proceeds from sale of common stock, net

 

 

 —

 

 

(52)

 

 

Net cash (used in) provided by financing activities of continuing operations

 

 

(3,721)

 

 

8,804

 

 

DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

Operating cash flows

 

 

 1

 

 

(72)

 

 

Net cash provided by (used in) discontinued operations

 

 

 1

 

 

(72)

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(1,162)

 

 

64

 

 

CASH AND CASH EQUIVALENTS beginning of the period

 

 

1,177

 

 

78

 

 

CASH AND CASH EQUIVALENTS end of the period

 

$

15

 

$

142

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,372

 

$

822

 

 

Income taxes paid

 

$

49

 

$

94

 

 

Non-cash activities:

 

 

 

 

 

 

 

 

Issuance of restricted stock grants

 

$

765

 

$

685

 

 

Non-cash purchases of property and equipment

 

$

325

 

$

 —

 

 

 

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

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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, Inc. (“Broadwind Towers”), Brad Foote Gear Works, Inc. (“Brad Foote”), and Red Wolf Company, LLC (“Red Wolf”).  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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2019. The December 31, 2018 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 (“CNG”) 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.

There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2019 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.

Company Description  

Through its subsidiaries, the Company provides technologically advanced high-value products to energy, mining and infrastructure sector customers, primarily in the United States of America (the “U.S.”). The Company’s most significant presence is within the U.S. wind energy industry, which accounted for 65% of the Company’s revenue during the first nine 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.

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.

Total debt and finance lease obligations at September 30, 2019 totaled $11,505, which includes current outstanding debt and finance leases totaling $10,224. The current outstanding debt includes $8,729 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,

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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") 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 September 30, 2019, 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.

The Company anticipates that current cash resources, amounts available under the Credit Facility, 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. 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 nine months ended September 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Towers and Heavy Fabrications

$

33,834

$

18,810

$

91,098

$

62,557

Gearing

 

7,989

 

10,056

 

27,282

 

27,494

Process Systems

 

4,317

 

2,676

 

10,589

 

8,262

Eliminations

 

(2)

 

(97)

 

(2)

 

(120)

Consolidated

$

46,138

$

31,445

$

128,967

$

98,193

Revenue within the Company’s Gearing and Process Systems segments, as well as heavy fabrication revenues within the Towers and Heavy Fabrications segment, are 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 

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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 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.

 

NOTE 3 — EARNINGS PER SHARE 

The following table presents a reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018, as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

    

2019

    

2018

 

 

2019

    

2018

 

 

Basic earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(898)

 

$

(783)

 

 

$

(2,958)

 

$

(11,737)

 

 

Weighted average number of common shares outstanding

 

 

16,235,961

 

 

15,541,289

 

 

 

16,024,217

 

 

15,390,090

 

 

Basic net loss per share

 

$

(0.06)

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

Diluted earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(898)

 

$

(783)

 

 

$

(2,958)

 

$

(11,737)

 

 

Weighted average number of common shares outstanding

 

 

16,235,961

 

 

15,541,289

 

 

 

16,024,217

 

 

15,390,090

 

 

Common stock equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and non-vested stock awards (1)

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

Weighted average number of common shares outstanding

 

 

16,235,961

 

 

15,541,289

 

 

 

16,024,217

 

 

15,390,090

 

 

Diluted net loss per share

 

$

(0.06)

 

$

(0.05)

 

 

$

(0.18)

 

$

(0.76)

 

 

 

(1)

Stock options and restricted stock units granted and outstanding of 1,502,196 and 870,707, respectively, are excluded from the computation of diluted earnings for the three and nine months ended September 30, 2019 and 2018 due to the anti dilutive effect as a result of the Company’s net loss for those respective periods.

 

NOTE 4 — INVENTORIES 

The components of inventories as of September 30, 2019 and December 31, 2018 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

Raw materials

 

$

20,428

 

$

16,394

 

Work-in-process

 

 

10,024

 

 

5,426

 

Finished goods

 

 

2,225

 

 

2,958

 

 

 

 

32,677

 

 

24,778

 

Less: Reserve for excess and obsolete inventory

 

 

(1,427)

 

 

(2,108)

 

Net inventories

 

$

31,250

 

$

22,670

 

 

 

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 intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements,

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trade names and customer relationships that were part of the Company’s acquisition of Red Wolf in 2017. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 3 to 9 years. The Company tests other intangible assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable.

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 third 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 a 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 September 30, 2019.

As of September 30, 2019 and December 31, 2018, the cost basis, accumulated amortization and net book value of intangible assets were as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

 

    

 

 

    

Weighted

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Net

 

Average

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Net

 

Average

 

 

Cost

 

Accumulated

 

 

Impairment

 

 

Book

 

Amortization

 

 

 

 

 

 

 

Accumulated

 

Impairment

 

Book

 

Amortization

 

 

Basis

 

Amortization

 

 

Charges

 

 

Value

 

Period

 

 

 

 

Cost

 

Amortization

 

Charges

 

Value

 

Period

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncompete agreements

 

$

170

 

$

(75)

 

 

$

 —

 

 

$

95

 

3.3

 

 

 

 

$

170

 

$

(54)

 

$

 —

 

$

116

 

4.1

Customer relationships

 

 

15,979

 

 

(6,598)

 

 

 

(7,592)

 

 

 

1,789

 

6.1

 

 

 

 

 

15,979

 

 

(6,369)

 

 

(7,592)

 

 

2,018

 

6.8

Trade names

 

 

9,099

 

 

(4,990)

 

 

 

 —

 

 

 

4,109

 

8.8

 

 

 

 

 

9,099

 

 

(4,631)

 

 

 —

 

 

4,468

 

9.5

Other intangible assets

 

$

25,248

 

$

(11,663)

 

 

$

(7,592)

 

 

$

5,993

 

5.9

 

 

 

 

$

25,248

 

$

(11,054)

 

$

(7,592)

 

$

6,602

 

6.5

 

As of September 30, 2019, estimated future amortization expense is as follows: 

 

 

 

 

 

 

2019

    

$

203

 

2020

 

 

812

 

2021

 

 

812

 

2022

 

 

812

 

2023

 

 

786

 

2024 and thereafter

 

 

2,568

 

Total

 

$

5,993

 

 

 

 

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NOTE 6 — ACCRUED LIABILITIES 

Accrued liabilities as of September 30, 2019 and December 31, 2018 consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

Accrued payroll and benefits

 

$

3,923

 

$

2,126

 

Accrued property taxes

 

 

457

 

 

 —

 

Income taxes payable

 

 

90

 

 

66

 

Accrued professional fees

 

 

88

 

 

101

 

Accrued warranty liability

 

 

183

 

 

226

 

Accrued self-insurance reserve

 

 

118

 

 

374

 

Accrued other

 

 

629

 

 

913

 

Total accrued liabilities

 

$

5,488

 

$

3,806

 

 

 

NOTE 7 — DEBT AND CREDIT AGREEMENTS

 

The Company’s outstanding debt balances as of September 30, 2019 and December 31, 2018 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

Line of credit

 

$

8,729

 

$

11,000

 

Other notes payable

 

 

1,209

 

 

1,882

 

Long-term debt

 

 

456

 

 

456

 

Less: Current portion

 

 

(9,592)

 

 

(11,930)

 

Long-term debt, net of current maturities

 

$

802

 

$

1,408

 

 

Credit Facility

On October 26, 2016, the Company established a $20,000 three-year secured revolving line of credit with CIBC Bank USA (“CIBC”). 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.

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. With 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,

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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 covenants as of September 30, 2019.

In conjunction with the Amended and Restated Loan Agreement, during June 2019, the Company entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notional amount of $6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering the Company’s risk premium. The interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility.

As of September 30, 2019, there was $8,729 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $19,234, 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-term debt, less current maturities. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During the fourth quarter of 2018, $114 of the loan was forgiven. As of September 30, 2019, the loan balance was $456. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $1,209 and $1,882 as of September 30, 2019 and December 31, 2018, respectively, with $863 and $930 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of September 30, 2019 and December 31, 2018, 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. 

 

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 adoption of ASC 842 and was offset against the ROU asset balance during the adoption. As of September 30, 2019, the ROU asset had a balance of $16,150 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 $1,468 and $16,686, 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.

Some of the Company’s facility leases include options to renew. The exercise of the renewal options is at the Company’s discretion. Therefore the majority of renewals to extend the lease terms are not included in ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.

 

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Quantitative information regarding the Company’s leases is as follows:

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2019

 

September 30, 2019

Components of lease cost

 

 

 

Finance lease cost components:

 

 

 

  Amortization of finance lease assets

$ 139

 

$ 411

  Interest on finance lease liabilities

27

 

81

     Total finance lease costs

166

 

492

Operating lease cost components:

 

 

 

  Operating lease cost

724

 

2,265

  Short-term lease cost

166

 

470

  Variable lease cost (1)

185

 

570

  Sublease income

(32)

 

(120)

     Total operating lease costs

1,043

 

3,185

 

 

 

 

Total lease cost

$ 1,209

 

$ 3,677

 

 

 

 

Supplemental cash flow information related to our operating leases is

 

 

 

as follows for the nine months ended September 30, 2019:

 

 

 

     Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

               Operating cash outflow from operating leases

 

 

$ 2,626

 

 

 

 

 

 

 

 

Weighted-average remaining lease term-finance leases at 9/30/19 (in years)

 

 

1.1

Weighted-average remaining lease term-operating leases at 9/30/19 (in years)

 

 

10.8

Weighted-average discount rate-finance leases at 9/30/19

 

 

8.7%

Weighted-average discount rate-operating leases at 9/30/19

 

 

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 September 30, 2019, future minimum lease payments under finance leases and operating leases were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Finance

    

Operating

    

 

 

 

 

 

Leases

 

Leases

 

Total

 

2019

 

$

295

 

$

879

 

$

1,174

 

2020

 

 

500

 

 

2,900

 

 

3,400

 

2021

 

 

376

 

 

2,766

 

 

3,142

 

2022

 

 

51

 

 

2,503

 

 

2,554

 

2023

 

 

 —

 

 

2,355

 

 

2,355

 

2024 and thereafter

 

 

 —

 

 

18,116

 

 

18,116

 

Total lease payments

 

$

1,222

 

$

29,519

 

$

30,741

 

Less—portion representing interest

 

 

(111)

 

 

(11,365)

 

 

(11,476)

 

Present value of lease obligations

 

 

1,111

 

 

18,154

 

 

19,265

 

Less—current portion of lease obligations

 

 

(632)

 

 

(1,468)

 

 

(2,100)

 

Long-term portion of lease obligations

 

$

479

 

$

16,686

 

$

17,165

 

 

 

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

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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 represents the fair values of the Company’s financial liabilities as of September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Liabilities measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

 —

 

$

100

 

$

 —

 

$

100

 

Total liabilities at fair value

 

$

 —

 

$

100

 

$

 —

 

$

100

 

 

 

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 September 30, 2019, the Company has a full valuation allowance recorded against deferred tax assets. During the nine months ended September 30, 2019, the Company recorded a provision for income taxes of $62, compared to a benefit for income taxes of $20 during the nine months ended September 30, 2018. 

The Company files income tax returns in U.S. federal and state jurisdictions. As of September 30, 2019, 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, the Company had net operating loss (“NOL”) carryforwards of $248,717 of which $228,787 will generally begin to expire in 2022. 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.

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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 September 30, 2019, 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 September 30, 2019.

 

NOTE 11 — SHARE-BASED COMPENSATION 

Overview of Share-Based Compensation Plans 

The Company has granted incentive stock options and other equity awards pursuant to previously Board approved Equity Incentive Plans (“2007 and 2012 EIPs”). Most recently, 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 19, 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.

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 September 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 54,362 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 September 30, 2019,  557,989 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 1,447,834 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2015 EIP.

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The following table summarizes stock option activity during the nine months ended September 30, 2019 under the Equity Incentive Plans, as follows: 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

 

 

Weighted Average

 

 

    

Options

    

Exercise Price

 

Outstanding as of December 31, 2018

 

56,862

 

$

15.06

 

Granted

 

 —

 

$

 —

 

Expired

 

(2,500)

 

$

99.90

 

Outstanding as of September 30, 2019

 

54,362

 

$

11.16

 

Exercisable as of September 30, 2019

 

54,362

 

$

11.16

 

 

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 nine months ended September 30, 2019 and 2018. 

The following table summarizes RSU’s and PSU’s activity during the nine months ended September 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

 

 

905,321

 

$

1.92

 

Vested

 

 

(263,331)

 

$

3.09

 

Unvested as of September 30, 2019

 

 

1,447,834

 

$

2.40

 

 

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 nine months ended September 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 nine months ended September 30, 2019 and 2018, as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2019

    

2018

 

Share-based compensation expense:

 

 

 

 

 

 

 

Cost of sales

 

$

91

 

$

79

 

Selling, general and administrative

 

 

674

 

 

606

 

Net effect of share-based compensation expense on net income

 

$

765

 

$

685

 

Reduction in earnings per share:

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.05

 

$

0.04

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.05

 

$

0.04

 

 

As of September 30, 2019, the Company estimates that pre-tax compensation expense for all unvested share-based RSUs and PSUs in the amount of approximately $1,763 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

14

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condition or cash flows. It is possible that if one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could 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, (the “Securities Act”), 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. Refer to the condensed consolidated statements of stockholders’ equity for more information.  

 

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 for 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 and other industrial customers. 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, sufficient to support turbines generating more than 1,100 MW of power. 

Gearing 

The Company engineers, builds and remanufactures precision gears and gearing systems for O&G, wind, mining, steel and other industrial applications. 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 Systems 

This segment provides contract manufacturing services that include build-to-print, kitting, and inventory management for customers throughout the U.S. and in foreign countries, primarily supporting the natural gas electrical generation 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. 

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Table of Contents

Summary financial information by reportable segment for the three and nine months ended September 30, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Towers and

    

 

 

    

 

Process

 

 

 

 

    

 

 

    

 

 

 

 

 

Heavy Fabrications

 

Gearing

 

 

Systems

 

 

Corporate

 

Eliminations

 

Consolidated

 

For the Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

33,834

 

$

7,989

 

 

$

4,315

 

 

$

 —

 

$

 —

 

$

46,138

 

Intersegment revenues

 

 

 —

 

 

 —

 

 

 

 2

 

 

 

 —

 

 

(2)

 

 

 —

 

Net revenues

 

 

33,834

 

 

7,989

 

 

 

4,317

 

 

 

 —

 

 

(2)

 

 

46,138

 

Operating profit (loss)

 

 

693

 

 

496

 

 

 

141

 

 

 

(1,588)

 

 

 —

 

 

(258)

 

Depreciation and amortization

 

 

951

 

 

508

 

 

 

123

 

 

 

34

 

 

 —

 

 

1,616

 

Capital expenditures

 

 

346

 

 

235

 

 

 

 8

 

 

 

 4

 

 

 —

 

 

593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Towers and

    

 

 

    

Process

    

 

 

    

 

 

    

 

 

 

 

 

Heavy Fabrications

 

Gearing

 

Systems

 

Corporate

 

Eliminations

 

Consolidated

 

For the Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

18,799

 

$

10,056

 

$

2,590

 

$

 —

 

$

 —

 

$

31,445

 

Intersegment revenues

 

 

11

 

 

 —

 

 

86

 

 

 —

 

 

(97)

 

 

 —

 

Net revenues

 

 

18,810

 

 

10,056

 

 

2,676

 

 

 —

 

 

(97)

 

 

31,445

 

Operating (loss) profit

 

 

(885)

 

 

346

 

 

(787)

 

 

(1,286)

 

 

 —

 

 

(2,612)

 

Depreciation and amortization

 

 

1,280

 

 

566

 

 

386

 

 

52

 

 

 —

 

 

2,284

 

Capital expenditures

 

 

148

 

 

76

 

 

 —

 

 

118

 

 

 —

 

 

342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Towers and

    

 

 

 

Process

    

 

 

 

    

 

    

 

 

 

 

Heavy Fabrications

 

Gearing

 

Systems

 

Corporate

 

Eliminations

 

Consolidated

For the Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

91,098

 

$

27,282

 

$

10,587

 

$

 —

 

$

 —

 

$

128,967

Intersegment revenues

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

(2)

 

 

 —

Net revenues

 

 

91,098

 

 

27,282

 

 

10,589

 

 

 —

 

 

(2)

 

 

128,967

Operating profit (loss)

 

 

789

 

 

2,797

 

 

(116)

 

 

(4,428)

 

 

 —

 

 

(958)

Depreciation and amortization

 

 

3,024

 

 

1,472

 

 

368

 

 

142

 

 

 —

 

 

5,006

Capital expenditures

 

 

855

 

 

875

 

 

22

 

 

24

 

 

 —

 

 

1,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Towers and

    

 

 

 

Process

    

 

 

    

 

 

    

 

 

 

 

Heavy Fabrications

 

Gearing

 

Systems

 

Corporate

 

Eliminations

 

Consolidated

For the Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

62,523

 

$

27,494

 

$

8,176

 

$

 —

 

$

 —

 

$

98,193

Intersegment revenues

 

 

34

 

 

 —

 

 

86

 

 

 —

 

 

(120)

 

 

 —

Net revenues

 

 

62,557

 

 

27,494

 

 

8,262

 

 

 —

 

 

(120)

 

 

98,193

Operating loss

 

 

(2,441)

 

 

(941)

 

 

(6,675)

 

 

(2,828)

 

 

 —

 

 

(12,885)

Depreciation and amortization

 

 

3,917

 

 

1,742

 

 

1,160

 

 

171

 

 

 —

 

 

6,990

Capital expenditures

 

 

1,346

 

 

543

 

 

 —

 

 

129

 

 

 —

 

 

2,018

 

 

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

Total Assets as of 

 

 

 

September 30,

 

December 31,

 

Segments:

 

2019

 

2018

 

Towers and Heavy Fabrications

    

$

44,893

    

$

34,839

 

Gearing

 

 

48,452

 

 

37,028

 

Process Systems

 

 

11,039

 

 

11,758

 

Corporate

 

 

237,792

 

 

243,867

 

Eliminations

 

 

(216,174)

 

 

(228,327)

 

 

 

$

126,002

 

$

99,165

 

 

 

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 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 September 30, 2019 and 2018, estimated product warranty liability was $183 and  $523, 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 nine months ended September 30, 2019 and 2018 were as follows: 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

    

2019

    

2018

 

Balance, beginning of period

 

$

226

 

$

581

 

Reduction of warranty reserve

 

 

(11)

 

 

(58)

 

Warranty claims

 

 

(22)

 

 

 —

 

Other adjustments

 

 

(10)

 

 

-

 

Balance, end of period

 

$

183

 

$

523

 

 

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. 

17

Table of Contents

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 nine months ended September 30, 2019 and 2018 consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

    

2019

    

2018

 

Balance at beginning of period

 

$

190

 

$

225

 

Bad debt expense

 

 

(30)

 

 

(47)

 

Write-offs

 

 

 —

 

 

(1)

 

Balance at end of period

 

$

160

 

$

177

 

 

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 September 30, 2019 or December 31, 2018. 

 

NOTE 16 — RESTRUCTURING

During the first quarter of 2018, the Company conducted a review of its business strategies and product plans given the outlook for the industries it serves and its business environment. As a result, the Company began to execute a restructuring plan to rationalize its facility capacity and management structure, and to consolidate and increase the efficiencies of its Abilene facility operations. The Company exited the CNG 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.

The Company expects that any additional costs related to the 2018 restructuring initiative will be immaterial.  The Company projected annual cost savings going forward of approximately $575 in facility expenses related to the restructuring.

The Company’s total net restructuring charges for the three and nine months ended September 30, 2019 and 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

    Facility costs

 

$

 —

 

$

69

 

$

 2

 

$

215

    Moving and remediation

 

 

 —

 

 

 —

 

 

10

 

 

 1

    Salary and severance

 

 

 —

 

 

 —

 

 

 —

 

 

17

    Depreciation

 

 

 —

 

 

88

 

 

 —

 

 

155

        Total cost of sales

 

 

 —

 

 

157

 

 

12

 

 

388

Selling, general, and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

   Salary and severance

 

 

 —

 

 

 —

 

 

 —

 

 

36

        Total selling, general, and administrative expenses

 

 

 —

 

 

 —

 

 

 —

 

 

36

        Grand Total

 

$

 —

 

$

157

 

$

12

 

$

424

 

 

 

18

Table of Contents

 

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. 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. 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) 

OUR BUSINESS 

Third  Quarter Overview 

We booked $76,517 in new orders in the third quarter of 2019, up nearly four-fold from  $19,717 in the third quarter of 2018, driven primarily by an increase in tower orders as customers booked production slots to support strong 2020 demand. Other heavy fabrication orders increased $4,936 as a result of our strategy to leverage our competencies to expand into mining and other industrial markets. Gearing orders were down $5,653 primarily due to weakness from O&G customers. Our Process Systems segment realized a modest increase in orders for new gas turbine content.

We recognized revenue of $46,138 in the third quarter of 2019, up 47%  from revenue of $31,445 in the third quarter of 2018, primarily due to sales growth in the Towers and Heavy Fabrications segment as tower sections sold increased 84% compared to the prior year quarter and due to a $2,242 increase in sales of other heavy fabrications. Gearing revenue was down $2,067 as weaker demand from O&G customers was partially offset by higher sales to mining customers. Process Systems revenue was up $1,641, or 61% primarily due to higher demand for new gas turbine content.

We reported a net loss of $898 or $0.06 per share in the third quarter of 2019, compared to a net loss of $783 or $0.05 per share in the third  quarter of 2018, which included the $2,249 benefit from extinguishing the New Markets Tax Credit transaction.

As noted in Note 14, “Segment Reporting,” in the notes to our condensed consolidated financial statements, during the first quarter of 2019, we revised our segment presentation and moved our Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. We have restated prior periods presented to reflect this change.

RESULTS OF OPERATIONS 

Three months ended September 30, 2019, Compared to Three months ended September 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 three months ended September 30, 2019, compared to the three months ended September 30, 2018.  

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2019 vs. 2018

 

 

 

 

 

 

 

% of Total

 

 

 

 

% of Total

 

 

 

 

 

 

 

 

 

2019

 

Revenue

 

2018

 

Revenue

 

$ Change

 

% Change

 

 

Revenues

    

$

46,138

    

100.0

%  

$

31,445

    

100.0

%  

$

14,693

    

46.7

%  

 

Cost of sales

 

 

42,144

 

91.3

%  

 

29,802

 

94.8

%  

 

12,342

 

41.4

%  

 

Restructuring

 

 

 —

 

 —

%  

 

157

 

0.5

%  

 

(157)

 

(100.0)

%  

 

Gross profit

 

 

3,994

 

8.7

%  

 

1,486

 

4.7

%  

 

2,508

 

168.8

%  

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

4,049

 

8.8

%  

 

3,627

 

11.5

%  

 

422

 

11.6

%  

 

Intangible amortization

 

 

203

 

0.4

%  

 

471

 

1.5

%  

 

(268)

 

(56.9)

%  

 

Total operating expenses

 

 

4,252

 

9.2

%  

 

4,098

 

13.0

%  

 

154

 

3.8

%  

 

Operating loss

 

 

(258)

 

(0.6)

%  

 

(2,612)

 

(8.3)

%  

 

2,354

 

90.1

%  

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(610)

 

(1.3)

%  

 

(372)

 

(1.2)

%  

 

(238)

 

(64.0)

%  

 

Other, net

 

 

(2)

 

(0.0)

%  

 

2,247

 

7.1

%  

 

(2,249)

 

(100.1)

%  

 

Total other expense, net

 

 

(612)

 

(1.3)

%  

 

1,875

 

6.0

%  

 

(2,487)

 

(132.6)

%  

 

Net loss before provision for income taxes

 

 

(870)

 

(1.9)

%  

 

(737)

 

(2.3)

%  

 

(133)

 

(18.0)

%  

 

Provision for income taxes

 

 

28

 

0.1

%  

 

13

 

0.0

%  

 

15

 

115.4

%  

 

Loss from continuing operations

 

 

(898)

 

(1.9)

%  

 

(750)

 

(2.4)

%  

 

(148)

 

(19.7)

%  

 

Income (loss) from discontinued operations

 

 

 —

 

 —

%  

 

(33)

 

(0.1)

%  

 

33

 

100.0

%  

 

Net loss

 

$

(898)

 

(1.9)

%  

$

(783)

 

(2.5)

%  

$

(115)

 

(14.7)

%  

 

 

Consolidated 

Revenues increased from $31,445 during the three months ended September 30, 2018, to $46,138 during the three months ended September 30, 2019,  primarily due to higher production levels in the Towers and Heavy Fabrications segment as towers sections sold increased 84% and due to growth of the other heavy fabrications product line. Gearing revenue was down $2,067 as weaker demand from O&G customers was partially offset by higher mining customer demand. Process Systems revenue was up $1,641, or 61%, primarily due to increased shipments of new gas turbine content for international shipments.  

Gross profit increased by $2,508, from $1,486 during the three months ended September 30, 2018, to $3,994 during the three months ended September 30, 2019. Gross margin increased from 4.7% during the three months ended September 30, 2018, to 8.7% during the three months ended September 30, 2019.  The increase in gross profit was primarily attributable to improved capacity utilization and lower depreciation expense, partially offset by lower margins in our Towers and Heavy Fabrications segment, where margins have been depressed because of increased competition from foreign tower manufacturers with access to lower cost steel.  

Operating expenses increased from $4,098 during the three months ended September 30,  2018, to $4,252 during the three months ended September 30, 2019.  The increase was primarily attributable to increased incentive compensation, partially offset by a decrease in intangible amortization expense. As a result, operating expenses as a percentage of sales decreased to 9.2% in the current-year quarter from 13.0% in the prior year quarter.

Net loss increased from $783 during the three months ended September 30,  2018, to $898 during the three months ended September 30, 2019 due to the absence of the prior year $2,249 gain associated with the extinguishment of the New Markets Tax Credit transaction, partially offset by the factors described above. 

Towers and Heavy Fabrications Segment 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

 

Orders

    

$

65,559

    

$

4,642

 

 

Revenues

 

 

33,834

 

 

18,810

 

 

Operating income (loss)

 

 

693

 

 

(885)

 

 

Operating margin

 

 

2.0

%  

 

(4.7)

%  

 

 Towers and Heavy Fabrications segment orders spiked as we received a surge in orders to support strong 2020 demand.  During 2018, our largest customer fulfilled orders under a three-year framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis. Other heavy fabrication orders improved $4,936 reflecting expansion of our customer base and investments to broaden our manufacturing capabilities.  Tower and Heavy Fabrications segment revenues were up $15,024 or 80% due to a 84% increase in tower sections sold over the prior year quarter and an increase in other heavy fabrication sales of $2,242.

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Table of Contents

Towers and Heavy Fabrications operating income increased by $1,578 from a loss of $885 during the three months ended September 30, 2018, to income of $693 during the three months ended September 30, 2019. The year-over-year improvement reflected the higher capacity utilization in towers, strategic growth in other heavy fabrication activity and lower depreciation expense. Partially offsetting the volume increase was adverse margin compression due to increased competition from offshore tower manufacturers. Operating margin increased from (4.7%) during the three months ended September 30, 2018, to 2.0%  during the three months ended September 30, 2019.

Gearing Segment 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

 

Orders

    

$

5,877

    

$

11,530

 

 

Revenues

 

 

7,989

 

 

10,056

 

 

Operating income

 

 

496

 

 

346

 

 

Operating margin

 

 

6.2

%  

 

3.4

%  

 

 Gearing segment orders for the three months ended September 30, 2019 decreased $5,653 compared to the prior year period primarily due to lower O&G demand attributable to a slowdown in fracking activity, as well as the timing of wind orders. Revenue decreased from $10,056 during the three months ended September 30, 2018, to $7,989 during the three months ended September 30,  2019. The decrease was driven primarily by lower O&G demand, partially offset by increased shipments to mining industry customers. 

Gearing segment operating income improved by $150, from $346 during the three months ended September 30, 2018, to income of $496 during the three months ended September 30, 2019. The improvement was primarily attributable to the product mix sold as well as decreased sales commissions. Operating margin was 6.2% during the three months ended September 30, 2019, up from 3.4% during the three months ended September 30, 2018.

 Process Systems Segment 

 

 

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

2019

 

 

2018

Orders

$

5,081

 

$

3,545

    

Revenues

 

4,317

 

 

2,676

 

Operating income (loss)

 

141

 

 

(787)

 

Operating margin

 

3.3

%  

 

(29.4)

%  

Process Systems segment orders and revenues have increased from the prior year period primarily due to stronger demand for new gas turbine content primarily to support international installations, partially offset by weaker aftermarket demand. The Process Systems segment operating income improvement was the result of revenue growth, improved margins on the product mix sold and lower amortization expense during the current year quarter. The operating margin improved from (29.4%) during the three months ended September 30, 2018 to 3.3% during the three months ended September 30, 2019.  

Corporate and Other 

Corporate and Other expenses increased from $1,286 during the three months ended September 30, 2018, to $1,588 during the three months ended September 30, 2019. The increase was primarily attributable to higher compensation costs in the current year.

Nine months ended September 30, 2019, Compared to Nine months ended September 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 nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2019 vs. 2018

 

 

 

 

 

 

% of Total

 

 

 

 

% of Total

 

 

 

 

 

 

 

 

2019

 

Revenue

 

2018

 

Revenue

 

$ Change

 

% Change

 

Revenues

    

$

128,967

    

100.0

%  

$

98,193

 

100.0

%  

$

30,774

    

31.3

%  

Cost of sales

 

 

117,532

 

91.1

%  

 

94,228

 

96.0

%  

 

23,304

 

24.7

%  

Restructuring

 

 

12

 

0.0

%  

 

388

 

0.4

%  

 

(376)

 

(96.9)

%  

Gross profit

 

 

11,423

 

8.9

%  

 

3,577

 

3.6

%  

 

7,846

 

219.3

%  

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

Table of Contents

Selling, general and administrative expenses

 

 

11,772

 

9.1

%  

 

10,020

 

10.2

%  

 

1,752

 

17.5

%  

Impairment charges

 

 

 —

 

 —

%  

 

4,993

 

5.1

%  

 

(4,993)

 

(100.0)

%  

Intangible amortization

 

 

609

 

0.5

%  

 

1,413

 

1.4

%  

 

(804)

 

(56.9)

%  

Restructuring

 

 

 —

 

 —

%  

 

36

 

0.0

%  

 

(36)

 

(100.0)

%  

Total operating expenses

 

 

12,381

 

9.6

%  

 

16,462

 

16.8

%  

 

(4,081)

 

(24.8)

%  

Operating loss

 

 

(958)

 

(0.7)

%  

 

(12,885)

 

(13.1)

%  

 

11,927

 

92.6

%  

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,919)

 

(1.5)

%  

 

(1,022)

 

(1.0)

%  

 

(897)

 

(87.8)

%  

Other, net

 

 

(20)

 

(0.0)

%  

 

2,243

 

2.3

%  

 

(2,263)

 

(100.9)

%  

Total other expense, net

 

 

(1,939)

 

(1.5)

%  

 

1,221

 

1.2

%  

 

(3,160)

 

(258.8)

%  

Net loss before provision (benefit) for income taxes

 

 

(2,897)

 

(2.2)

%  

 

(11,664)

 

(11.9)

%  

 

8,767

 

75.2

%  

Provision (benefit) for income taxes

 

 

62

 

0.0

%  

 

(20)

 

(0.0)

%  

 

82

 

410.0

%  

Loss from continuing operations

 

 

(2,959)

 

(2.3)

%  

 

(11,644)

 

(11.9)

%  

 

8,685

 

74.6

%  

Income (loss) from discontinued operations, net of tax

 

 

 1

 

0.0

%  

 

(93)

 

(0.1)

%  

 

94

 

101.1

%  

Net loss

 

$

(2,958)

 

(2.3)

%  

$

(11,737)

 

(12.0)

%  

$

8,779

 

74.8

%  

 

Consolidated 

Revenues increased 31%, from $98,193 during the nine months ended September 30, 2018, to $128,967 during the nine months ended September 30,  2019. Towers and Heavy Fabrications segment revenues were up $28,541 or 46% primarily due to a  33%  increase in tower sections sold and an increase in other heavy fabrication revenue of $2,684. Gearing segment revenues were down $212 or 1%, primarily as a result of lower O&G demand from fracking customers, partially offset by increased aftermarket wind shipments and stronger mining demand. Process Systems revenue increased by 28% primarily due to increased demand for new gas turbine content for international installations.

Gross profit increased by $7,846, from $3,577 during the nine months ended September 30, 2018, to $11,423 during the nine months ended September 30, 2019. Gross margin more than doubled from 3.6% during the nine months ended September 30, 2018, to 8.9% during the nine months ended September 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.  Partially offsetting these benefits was adverse margin compression due to increased competition from offshore tower manufacturers.

Operating expenses decreased from $16,462 during the nine months ended September 30, 2018, to $12,381 during the nine months ended September 30, 2019. The decrease was primarily attributable to the absence of a $4,993 goodwill impairment charge that occurred 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 occurred during the prior year and higher incentive compensation costs. Operating expenses as a percentage of revenue decreased to 9.6% in the first three quarters of 2019, compared to 16.8% during the prior year period.  

Net loss decreased from  $11,737 during the nine months ended September 30, 2018, to $2,958 during the nine months ended September 30, 2019, as a result of the factors described above, partially offset by the absence of the New Markets Tax Credit transaction.

Towers and Heavy Fabrications Segment 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

2018

 

Orders

    

$

174,398

    

$

24,316

 

Revenues

 

 

91,098

 

 

62,557

 

Operating income (loss)

 

 

789

 

 

(2,441)

 

Operating margin

 

 

0.9

%  

 

(3.9)

%  

 

Towers and Heavy Fabrications 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 $28,541 due to a 33% increase in tower sections sold and a higher average sales price on the towers sold due to a more complex design and higher steel prices.  Other heavy fabrication revenues increased  $2,684 due to growth in our customer base linked to investments in additional machining capabilities.

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Table of Contents

Towers and Heavy Fabrications segment operating results improved by $3,230, from  a loss of $2,441 during the nine months ended September 30, 2018, to income of $789 during the nine months ended September 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 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

2018

 

Orders

    

$

18,584

    

$

33,044

 

Revenues

 

 

27,282

 

 

27,494

 

Operating income (loss)

 

 

2,797

 

 

(941)

 

Operating margin

 

 

10.3

%  

 

(3.4)

%  

 

Gearing segment orders decreased  $14,460 during the nine months ended September 30, 2019 compared to the prior year period, primarily due to a decrease in demand from O&G customers. The prior year period included the benefit of the industry’s expansion of fracking capacity and significantly longer lead times due to steel availability issues. Also impacting the comparison was a decrease in aftermarket wind orders. Partially offsetting these decreases was an increase in industrial customer orders. Revenue was essentially unchanged as the impact of lower O&G sales was offset by increased sales to aftermarket wind and mining customers. 

The Gearing segment operating profit improved by  $3,738, from a loss of $941 during the nine months ended September 30, 2018, to income of $2,797 during the nine months ended September 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 10.3% during the nine months ended September 30, 2019, up sharply from (3.4%) during the nine months ended September 30, 2018.

Process Systems Segment 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

2018

 

Orders

 

$

12,153

 

$

9,154

 

Revenues

 

 

10,589

 

 

8,262

 

Impairment charges

 

 

 -

 

 

4,993

 

Operating loss

 

 

(116)

 

 

(6,675)

 

Operating margin

 

 

(1.1)

%  

 

(80.8)

%  

Process Systems segment orders increased 33%, from $9,154 during the nine months ended September 30, 2018, to $12,153 during the nine months ended September 30, 2019. The increase in orders is primarily due to higher customer demand for new gas turbine content, partially offset by lower customer demand for aftermarket products. Process Systems segment revenues increased by $2,327, from $8,262 during the nine months ended September 30, 2018, to $10,589 during the nine months ended September 30, 2019 primarily due to increased sales for gas turbine components. 

The Process Systems segment operating  loss improvement was the result of increased pricing and margins,  the absence of a $4,993 goodwill impairment charge that occurred during the prior year, and lower amortization expense. The operating margin improved to (1.1%) during the nine months ended September 30, 2019 from (80.8%) during the nine months ended September 30, 2018, due to the factors mentioned above.

Corporate and Other 

Corporate and Other expenses increased from $2,828 during the nine months ended September 30, 2018, to $4,428 during the nine months ended September 30, 2019.  The increase was 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 higher incentive compensation in the current year.

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LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES 

As of September 30, 2019, cash and cash equivalents totaled $15 a decrease of $1,162 from December 31, 2018. 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 September 30, 2019 totaled $11,505. As of September 30, 2019, we had the ability to borrow up to an additional $19,234 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, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019, replaced by 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 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 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.

We anticipate that current cash resources, amounts available under the Credit Facility, 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.  

If our operational performance 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 facilities or equity or equity linked financings will be available in an amount sufficient to enable us to meet these financial obligations.

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Sources and Uses of Cash 

Operating Cash Flows 

During the nine months ended September 30, 2019, net cash provided by operating activities totaled $4,333, compared to net cash used in operating activities of $7,233 for the nine months ended September 30,  2018. Net cash provided by operating activities increased versus the prior year period due to collections of deposits related to new tower orders. This increase was partially offset by a build of other working capital accounts driven by higher production levels within the Towers and Heavy Fabrications segment.

Investing Cash Flows 

During the nine months ended September 30, 2019, net cash used in investing activities totaled $1,775, compared to net cash used in investing activities of $1,435 during the nine months ended September 30,  2018. The increase in net cash used in investing activities as compared to the prior-year period was primarily due to the absence of proceeds from property disposals in the prior year period.

Financing Cash Flows 

During the nine months ended September 30, 2019, net cash used in financing activities totaled $3,721, compared to net cash provided by financing activities of $8,804 for the nine months ended September 30, 2018. The increase in net cash used in financing activities as compared to the prior-year period was primarily due to paydowns of our Credit Facility in the current year.

Other

In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon meeting and maintaining specific employment thresholds. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During the fourth quarter of 2018, $114 of the loan was forgiven. As of September 30, 2019, the loan balance was $456. In addition, we have outstanding notes payable for capital expenditures in the amount of $1,209 and $1,882 as of September 30, 2019 and December 31, 2018, respectively, with $855 and $930 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of September 30, 2019 and December 31, 2018, 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.

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. 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: (i) 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 as well as new or continuing tariffs on steel or other products imported into the United States; (ii) 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) our ability to continue to grow our business organically and through acquisitions; (iv) the production, sales, collections, customer deposits and revenues generated by new customer orders and our ability to realize the resulting cash flows; (v) the sufficiency of our liquidity and alternate sources of funding, if necessary; (vi) our ability to realize revenue from customer orders and backlog; (vii) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (viii) the economy and the potential impact it may have on our business, including our customers; (ix) 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) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; xi) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers with access to lower cost steel;  (xii) the effects of the change of administrations in the U.S. federal government; (xiii) our ability to successfully integrate and operate companies and to identify, negotiate and execute future acquisitions; (xiv) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the IRC; (xv) the limited

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trading market for our securities and the volatility of market price for our securities; and (xvi) the impact of future sales of our common stock or 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. 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 Item 10(f)(1) of Regulation S-K under the Securities Act and as such are not required to provide information under this Item. 

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 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 September 30, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.   OTHER INFORMATION 

Item 1.Legal Proceedings 

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. 

Item 1A.Risk Factors

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.  

 

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. 

Item 5.Other Information 

Not Applicable.  

Item 6.Exhibits 

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 SEPTEMBER 30, 2019

 

Exhibit
Number

 

Exhibit

3.1

 

Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10Q for the quarterly period ended June 30, 2008)

3.2

 

Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8K filed August 23, 2012)

3.3

 

Second Amended and Restated Bylaws of the Company, adopted as of May 20, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8K filed May 23, 2014)

31.1

 

Rule 13a-14(a) Certification of Chief Executive Officer*

31.2

 

Rule 13a-14(a) Certification of Chief Financial Officer*

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer*

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer*

101

 

The following financial information from this Form 10-Q of Broadwind Energy, Inc. for the quarter ended September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

 


*Filed herewith.

 

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SIGNATURES

 

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 ENERGY, INC.

 

 

 

 

October  29, 2019

By:

/s/ Stephanie K. Kushner

 

 

Stephanie K. Kushner

 

 

President, Chief Executive Officer

 

 

 

 

(Principal Executive Officer) 

October  29, 2019

By:

/s/ Jason L. Bonfigt

 

 

Jason L. Bonfigt

 

 

Vice President, Chief Financial Officer

(Principal Financial Officer)

 

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