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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒☒
☐☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
(State of or other jurisdiction of
incorporation or organization)
3240 S. Central Avenue
Cicero, Illinois
(Address of principal executive offices)
88-0409160
(I.R.S. Employer
Identification No.)
60804
(Zip code)
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Registrant’s telephone number, including area code: (708) 780-4800
Title of Class
Trading Symbol
Name of Exchange on which Registered
Common Stock, $0.001 par value
BWEN
The Nasdaq Capital Market
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b‑2 of the Exchange Act. Yes ☐ No ☒
As of June 30, 2019 the aggregate market value of the Registrant’s voting common stock held by non‑affiliates of the Registrant was approximately $26,772,000, based upon the
$2.22 per share closing sale price of the Registrant’s common stock as reported on the NASDAQ Capital Market. For purposes of this calculation, the Registrant’s directors and executive
officers and holders of 5% or more of the Registrant’s outstanding shares of voting common stock have been assumed to be affiliates, with such affiliates holding an aggregate of 4,104,000
shares of the Registrant’s voting common stock on June 30, 2019.
The number of shares of the Registrant’s common stock, par value $0.001, outstanding as of February 21, 2020, was 16,556,993.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
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BROADWIND ENERGY, INC.
FORM 10‑‑K
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
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Cautionary Note Regarding Forward‑‑Looking Statements
PART I
This Annual Report on Form 10-K (“Annual Report”) contains “forward looking statements”— that
is, statements related to future, not past, events—as defined in Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that reflect our current expectations regarding our future growth,
results of operations, financial condition, cash flows, performance, business prospects and opportunities, as
well as assumptions made by, and information currently available to, our management. We have tried to
identify forward looking statements by using words such as “anticipate,” “believe,” “expect,” “intend,”
“will,” “should,” “may,” “plan” and similar expressions, but these words are not the exclusive means of
identifying forward looking statements. 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; (xii) the effects of the change of administrations in the U.S.
federal government; (xiii) our ability to successfully integrate and operate acquired 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 Internal Revenue Code of 1986, as amended; (xv) the limited
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. 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.
(Dollar amounts are presented in thousands, except per share data and unless otherwise
stated)
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ITEM 1. BUSINESS
As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind” and the “Company” refer
to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its wholly‑owned
subsidiaries (the “Subsidiaries”). Dollars are presented in thousands unless otherwise stated.
Business Overview
Broadwind is a precision manufacturer of structures, equipment and components for clean tech and
other specialized applications. We provide technologically advanced high value products to customers with
complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors,
primarily in the United States of America (the “U.S.”). Our capabilities include, but are not limited to the
following: heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, heat treat,
assembly, engineering and packaging solutions.
We were incorporated in 1996 in Nevada as Blackfoot Enterprises, Inc., and through a series of
subsequent transactions, became Broadwind Energy, Inc., a Delaware corporation, in 2008. Through
acquisitions in 2007 and 2008, we focused on expanding upon our core platform as a wind tower
manufacturer, established our Gearing segment, and developed and broadened our industrial fabrications
capabilities. In early 2017, we acquired Red Wolf Company, LLC (“Red Wolf”), a kitter and assembler of
industrial components primarily supporting the global gas turbine market. In early 2020, we rebranded to
Broadwind Energy, Inc. doing business as Broadwind, a reflection of our diversification progress to date
and our continued strategy to expand our product and customer diversification outside of wind energy.
Effective with this rebranding, we renamed certain segments. Our Towers and Heavy Fabrications segment
was renamed to Heavy Fabrications and our Process Systems segment was renamed to Industrial
Solutions. Our Gearing segment name remained the same. This Annual Report on Form 10-K incorporates
these changes.
Segment
Heavy Fabrications
Gearing
Industrial Solutions
Key Markets Served -Wind Power Generation
-Surface and Underground Mining
-Construction
-Material Handling
-Oil and Gas
-Infrastructure
Products
-Wind Towers
-Industrial Fabrications
Mining Components
Crane Components
Pressure Vessels
Other Frames/Structures
Heavy Fabrications
-Combined Cycle Natural
Gas Power Generation
-Solar Power Generation
-Onshore & Offshore
Oil and Gas Fracking/Drilling
-Surface and Underground Mining
-Wind Power Generation
-Steel Production
-Pulp and Paper
-Waste Processing
-Material Handling
-Infrastructure
-Custom Gearboxes
-Loose Gearing
-Heat Treat Services
-Supply Chain Solutions
-Inventory Management
-Kitting and Assembly
We provide large, complex and precision fabrications to customers in a broad range of industrial
markets. Our most significant presence is within the U.S. wind energy industry, although we have
diversified into other industrial markets in order to improve our capacity utilization, reduce our
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customer concentration, and reduce our exposure to uncertainty related to governmental policies currently
impacting the U.S. wind energy industry. Within the U.S. wind energy industry, we provide steel towers and
repowering adapters primarily to wind turbine manufacturers. Our production facilities, located in
Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic
wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower
production capacity of up to approximately 550 towers (1650 tower sections), sufficient to support turbines
generating more than 1,100 MW of power. We have expanded our production capabilities and leveraged our
manufacturing competencies, including welding, lifting capacity and stringent quality practices, into
aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground
mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets. We
manufacture components for buckets, shovels, car bodies, drill masts and other products that support mining
and construction markets. In other industrial markets, we provide crane components, pressure vessels,
frames and other utility structures.
Gearing
We provide gearing and gearboxes to a broad set of customers in diverse markets including; onshore
and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material
handling and other industrial markets. We have manufactured loose gearing, gearboxes and systems, and
provided heat treat services for aftermarket and OEM applications for nearly a century. While a significant
portion of our business is manufactured to our customer’s specifications, we employ design and
metallurgical engineers, to meet our customer’s stringent quality requirements, to improve product
performance, and reliability and to develop custom products that are integrated into our customer’s product
offerings.
Industrial Solutions
We provide supply chain solutions, inventory management, kitting and assembly services, primarily
serving the combined cycle natural gas turbine market. We have recently expanded our market reach into
the solar power generation market by leveraging our existing core competencies. We leverage a global
supply chain to provide instrumentation & controls, valve assemblies, sensor devices, fuel system
components, electrical junction boxes & wiring, energy storage services and electromechanical devices. We
also provide packaging solutions and fabricate panels and sub-assemblies to reduce our customers’ costs,
improve manufacturing velocity and reliability.
Business and Operating Strategy
We intend to capitalize on the markets for wind energy, gas turbines, O&G, mining, and other
industrial verticals in North America by leveraging our core competencies in welding, manufacturing,
assembling and kitting. Our strategic objectives include the following:
· Diversify our customer and product line concentrations. In 2019, sales derived from our
top five customers represented 79% of total sales and sales into the wind energy industry
represented 66% of total sales. This is an improvement as compared to 2016, when our top
five customers comprised 91% of total sales and sales in the wind energy industry
represented 92% of total sales. To reduce the concentration of our sales, we have focused
our market research activities and our sales force on expanding and diversifying our
customer base and product lines. We are leveraging existing customer relationships within
each of our segments to cross sell our broad portfolio of capabilities. We have introduced a
new product development process, a stage gate model, which provides a framework for
evaluating opportunities and
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·
·
commercialization. Additionally, we have adopted new customer and product revenues as
metrics within our variable executive compensation programs.
Improve capacity utilization and broaden our manufacturing capabilities. We have
manufacturing capacity available that could support a significant increase in our annual
revenues for heavy fabrications, gearing and industrial solutions. We are working to improve
our capacity utilization and financial results by leveraging our existing manufacturing
capacity and adjusting capacity where we can, in response to changing market conditions. In
our Heavy Fabrications segment, we are expanding production capabilities and leveraging
our fabrication competencies to support growth in mining, material handling, and other
industrial markets.
Improve production technology and operational efficiency. We believe that the proper
coordination and integration of the supply chain, consistent use of systems to manage our
production activities and “Continuous Improvement” initiatives are key factors that enable
high operating efficiencies, increased reliability, better delivery and lower costs. We have
introduced robust Advanced Product Quality Processes (APQP) to support the introduction
of new products. We have developed better supply chain expertise, worked with lean
enterprise resources, upgraded and improved systems utilization and invested capital
to enhance our operational efficiency and flexibility. We have implemented scheduling
software and have expanded our engineering organization to support the growing complexity
of our expanded customer base and product lines. We have staffed our operations with
Continuous Improvement experts in order to optimize our production processes to increase
output, leverage our scale and lower our costs while maintaining product quality.
· Reduce fixed manufacturing costs and operating expenses to improve profitability. In
2018, we completed a multi-year rationalization of our operational footprint, which
significantly reduced our cumulative square footage through the sale or exit of several
operational locations. We lease approximately 74% of our manufacturing square footage,
which has allowed us to negotiate flexible lease structure and terms. During periods of lower
tower demand, we have reduced our capital spending and labor to optimize our cost
structure. In our Gearing segment, after several years of reducing workforce and selling
excess gear cutting and grinding equipment, we have been modestly increasing our
production capabilities in response to improved market conditions. We have focused on
reducing professional fees and expenses, lowering our administrative costs and eliminating
non-critical overhead positions.
SALES AND MARKETING
We market our heavy fabrications, gearing, and industrial solutions primarily through a direct sales
force, supplemented with independent sales agents in certain markets. Our sales and marketing strategy is to
develop and maintain long-term relationships with our existing customers, and seek opportunities to expand
these relationships across our business units. Our business development team uses market data, including
marketing databases, information gathered at industry and trade shows, internet research and website
marketing to identify and target new customers. We sell our products through our trained sales force or
through manufacturers’ representatives to a wide variety of customers.
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CUSTOMERS
We manufacture products for a variety of customers in the wind energy, O&G, mining and other
industrial markets. The majority of our wind energy industry customer base consists of wind turbine
manufacturers who supply wind farm operators and wind farm developers with completed wind turbines.
The wind turbine market is very concentrated. According to Wood Mackenzie Power & Renewables 2018
industry data, the top five wind turbine manufacturers constituted approximately 97% of the U.S. market.
As a result, although we have historically produced towers for a broad range of wind turbine manufacturers,
in any given year a limited number of customers have accounted for the majority of our revenues. Within
the wind energy industry, our customer base consists primarily of wind turbine manufacturers who supply
end users and wind farm operators with wind turbines, and wind gearbox re-manufacturers who use our
replacement gears in their replacement gearboxes. Within the O&G and mining industries, our customer
base consists of manufacturers of hydraulic fracturing and mud pumps, drilling and production equipment,
mining equipment, and off highway vehicles. Within the gas turbine industry, our customers supply end-
users with natural gas turbines and after-market replacement and efficiency upgrade packages. Within our
other industrial markets served, our customer base includes steel producers, ship builders,
and manufacturers of material handling, pulp and paper and other power generation equipment. Sales to
Siemens Gamesa Renewable Energy (“SGRE”) represented greater than 10% of our consolidated revenues
for the year ended December 31, 2019. Sales to SGRE and Gardner Denver represented greater than 10% of
our consolidated revenues for the year ended December 31, 2018. The loss of one of these customers could
have a material adverse effect on our business, results of operation or financial condition. As a result, we
have an ongoing initiative to diversify our customer base.
COMPETITION
Each of our businesses faces competition from both domestic and international companies. The
December 2015 extension of the PTC attracted additional investment and competition for wind towers. In
recent years, the industrial gearing industry has experienced consolidation of producers and acquisitions by
strategic buyers in response to strong international competition, although recent tariff and trade uncertainties
have caused buyers to shift more of their purchases to domestic gear manufacturers.
Within the wind tower product line of our Heavy Fabrications segment, the largest North American
based competitor is Arcosa Inc., which was formerly a Trinity Industries company. Other competitors
include Vestas Wind Systems, which has periodically produced towers for third party customers in addition
to meeting the majority of its own captive tower requirements, Marmen Industries, a Canadian company and
GRI, a Spanish company, which both have production facilities in the U.S. We also face competition from
imported towers, although imports from China and Vietnam have declined following a determination by the
U.S. International Trade Commission (“USITC”) in 2013 that wind towers from those countries were being
sold in the U.S. at less than fair value. As a result of the determination, the U.S. Department of Commerce
(“USDOC”) issued antidumping and countervailing duty orders on imports of wind towers from China and
an antidumping duty order on imports of towers from Vietnam. In May 2018, the U.S. Court of Appeals
affirmed the decision from the U.S. Court of International trade resulting in CS Wind Vietnam being
excluded from the antidumping order. In April 2019, the USDOC extended the term of these duties for an
additional five-year period. Following a renewed surge of tower imports from countries not impacted by
existing tariffs, in July 2019, a new trade case was brought before the USDOC and USITC, to assess
whether wind towers imported from Canada, Indonesia, South Korea and Vietnam were being sold in the
U.S.
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at less than fair value. This case includes a reassessment of CS Wind Vietnam. On December 6, 2019, the
USDOC issued an affirmative preliminary determination in the countervailing duty investigations against
Canada, Indonesia and Vietnam. Subsequently, on February 5, 2020, the USDOC issued an affirmative
preliminary determination in the anti-dumping investigations against Canada, Indonesia, Korea and
Vietnam. A final determination in the antidumping and countervailing duties investigations is expected to
be issued by the USITC no later than August 2020.
Within our industrial fabrications product line of our Heavy Fabrications segment, our competitors
in a fragmented market includes Weldall and AT&F, along with a large number of other regional
competitors. The primary differentiator among fabricators is the range of manufacturing and machining
capabilities, including lifting capacity, precision machining, heat treatment capacity and the sophistication
of quality systems.
In our Gearing segment, which is focused on the O&G, wind energy, mining and steel markets, we
compete with domestic and international manufacturers who produce gears greater than one meter in
diameter. Our key competitors include Overton Chicago Gear, Cincinnati Gearing Systems, Merit Gear,
Milwaukee Gear and Horsburgh & Scott. In addition, we compete with the internal gear manufacturing
capacity of relevant equipment manufacturers and face competition from foreign competitors.
In our Industrial Solutions segment, which is currently primarily focused on the gas turbine market,
we primarily compete with electrical supply distributors. Our key competitors include Gexpro and other
small independent companies.
REGULATION
Production Tax Credit
The highest impact development incentive has been the production tax credit (“PTC”) for new wind
energy projects, which provides a supplemental payment based on electricity produced from each qualifying
wind turbine. Legislative support for the PTC has been intermittent since its introduction in 1992, which has
caused volatility in the demand for new wind energy projects. In 2015, the PTC was extended for a five-
year period, with a time-based phase-out based on the year the wind project is started. This legislation has
provided some longer-term stability in the market because the subsidy supports construction activity over
the medium term. The phase-out schedule legislated in 2015 provided for: 100% extension of the credit for
projects commenced before the end of 2016, 80% for projects commenced in 2017, 60% in 2018 and 40%
in 2019. As part of a year-end tax extenders bill in 2019, the PTC was extended for an additional year,
allowing for a 60% credit for projects commenced before the end of 2020. In order to benefit from the PTC,
qualifying projects must either be completed within three years from their commencement, or the developer
must demonstrate that their projects are in continuous construction between commencement and
completion. As a result of the new legislation, the PTC will subsidize wind projects commenced as late as
2020 and completed by 2024, or later if continuous construction can be demonstrated.
Occupational Safety and Health Administration
Our operations are subject to regulation of health and safety matters by the U.S. Occupational Safety
and Health Administration. We believe that we take appropriate precautions to protect our employees and
third parties from workplace injuries and harmful exposure to materials handled and managed at our
facilities. However, claims asserted in the future against the Company for work-related injury or illnesses
could increase our costs.
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Environmental
Our operations are subject to numerous federal, state and local environmental laws and regulations.
Although it is our objective to maintain compliance with these laws and regulations, it may not be possible
to quantify with certainty the potential impact of actions regarding environmental matters, particularly
remediation and other compliance efforts that we may undertake in the future.
BACKLOG
We sell our towers under either supply agreements or individual purchase orders (“POs”), depending
on the size and duration of the purchase commitment. Under the supply agreements, we typically receive a
purchase commitment for towers to be delivered in future fiscal quarters, then receive POs on a periodic
basis depending upon the customer’s forecast of production volume requirements within the contract terms.
For our Gearing and Industrial Solutions segments, sales are generally based on individual POs. As of
December 31, 2019, the dollar amount of our backlog believed to be firm was approximately $142 million.
This represents a 48% increase from the backlog at December 31, 2018, primarily due to an increase in
demand for wind towers in our Heavy Fabrications segment, combined with growth in orders for other
industrial fabrications and in our Industrial Solutions segment.
SEASONALITY
The majority of our business is not affected by seasonality.
EMPLOYEES
We had 521 U.S. based employees at December 31, 2019, of which 466 were in manufacturing
related functions and 55 were in administrative functions. As of December 31, 2019, approximately 18% of
our employees were covered by collective bargaining agreements with local unions in our Cicero, Illinois
and Neville Island, Pennsylvania locations. The five-year collective bargaining agreement with the Neville
Island union was renegotiated in November 2017, and is expected to remain in effect through October 2022.
A new four-year collective bargaining agreement with the Cicero union was negotiated in the third quarter
of 2018 and is expected to remain in effect through February 2022. We believe that our relationship with
our employees is generally positive. The table below summarizes our employees as of December 31, 2019:
Segment
Heavy Fabrications
Gearing
Industrial Solutions
Corporate
Total
RAW MATERIALS
Number of Employees As of
December 31, 2019
339
133
34
15
521
The primary raw material used in the construction of heavy fabrication and gearing products is steel
in the form of plate, bar stock, forgings and castings. The market for tower steel and internal packages has
become increasingly globalized. Although we are generally responsible for procurement of the raw
materials, our global tower customers often negotiate the prices and terms for purchases, and, through a
“directed buy”, we purchase under these agreements. We then pass the raw material cost through to our end
customer plus a conversion margin.
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Outside of these directed buys, we operate a multiple supplier sourcing strategy and source our raw
materials through various suppliers located throughout the U.S. and abroad. We generally do not have long
term supply agreements with our raw material suppliers, and closely match terms with those of our
customers to limit our exposure to commodity price fluctuations. Our business has been impacted by steel
plate availability and pricing issues primarily attributable to steel tariffs introduced in early 2018. We have
made modifications to our supply chain management practices to deal more effectively with potential
disruptions arising from these purchasing practices.
We believe that we will be able to obtain an adequate supply of steel and other raw materials in 2020
to meet our manufacturing requirements, although from time to time we have faced shortages of specific
grades of steel and delays associated of other materials from foreign sources.
QUALITY CONTROL
We have a long standing focus on processes for ensuring the manufacture of high quality products.
To achieve high standards of production and operational quality, we implement strict and extensive quality
control and inspections throughout our production processes. We maintain internal quality controls over all
core manufacturing processes and carry out quality assurance inspections at the completion of each major
manufacturing step to ensure the quality of our products. The manufacturing process at our Gearing
segment, for example, involves transforming forged steel into precision gears through cutting, heat treating,
testing and finishing. We inspect and test raw materials before they enter the assembly process, retest the
raw materials after rough machining, test the functioning of gear teeth and cores after thermal treatment and
accuracy test final outputs for compliance with product specifications. We believe our investment in
industry leading heat treatment, high precision machining, specialized grinding technologies and cutting
edge welding has contributed to our high product reliability and the consistent performance of our products
under varying operating conditions. All of our core operating facilities are ISO 9001:2015 certified.
WORKING CAPITAL
We sell to a broad range of industrial customers. In general, we produce to order rather than to stock.
For wind towers, currently our largest product line, the industry has historically used customized contracts
with varying terms and conditions between suppliers and customers, depending on the specific objectives of
each party. Our practices mirror this historical industry practice of negotiating agreements on a case by case
basis. As a result, working capital needs, including levels of accounts receivable (“A/R”), accounts payable
(“A/P”), and inventory, can vary significantly from quarter to quarter based on the contractual terms
associated with each quarter’s sales, such as whether and when we are required to purchase and supply steel
to meet our contractual obligations. Customer deposits can vary significantly from quarter to quarter based
on customer mix, contractual terms associated with each quarter’s sales and the timing impacts associated
with customers placing orders for future production. In recent years, our larger customers have increasingly
used supplier financing programs, whereby a third party lender advances customer payments to us net of an
interest charge. The combination of customer deposits and supplier financing programs arrangements may
significantly reduce our working capital requirements.
In analyzing our liquidity, an important short-term metric is our use of operating working capital
(“OWC”) in relationship to revenue. OWC is comprised of A/R and inventories, net of A/P and customer
deposits. Our OWC at December 31, 2019 was $5,580 or 3% of trailing three months of sales annualized, in
line with December 31, 2018, when OWC was $5,000, or 5% of trailing three months of sales annualized.
Although OWC was relatively flat on a percent of trailing three months sales
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annualized basis year over year, OWC fluctuated materially during the year, driven primarily by the timing
and level of customer deposits received for future scheduled production.
CORPORATE INFORMATION
Our principal executive office is located at 3240 South Central Avenue, Cicero, IL 60804. Our
phone number is (708) 780‑4800 and our website address is www.bwen.com.
OTHER INFORMATION
On our website at www.bwen.com, we make available under the “Investors” menu selection, free of
charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8 K,
and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
as soon as reasonably practicable after such reports or amendments are electronically filed with, or
furnished to, the Securities and Exchange Commission (the “SEC”). Also, the SEC maintains an Internet
site at www.sec.gov that contains reports, proxy and information statements, and other information that we
file electronically with the SEC.
ITEM 1A. RISK FACTORS
Our financial and operating performance is subject to certain factors out of our control, including the
state of the wind energy market in North America.
Our results of operations (like those of our customers) are subject to general economic conditions,
and specifically to the state of the wind energy market. In addition to the state and federal government
policies supporting renewable energy described above, the growth and development of the larger wind
energy market in North America is subject to a number of factors, including, among other things:
·
·
·
·
·
·
·
·
·
the availability and cost of financing for the estimated pipeline of wind energy development
projects;
the cost of electricity, which may be affected by a number of factors, including government
regulation, power transmission, seasonality, fluctuations in demand, and the cost and availability
of fuel, particularly natural gas;
the general demand for electricity or “load growth”;
the costs of competing power sources, including natural gas, nuclear power, solar power and
other power sources;
the development of new power generating technology, advances in existing technology or
discovery of power generating natural resources;
the development of electrical transmission infrastructure;
state and federal laws and regulations regarding avian protection plans and noise or turbine
setback requirements;
other state and federal laws and regulations, particularly those favoring low carbon energy
generation alternatives;
administrative and legal challenges to proposed wind energy development projects;
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·
·
·
the effects of global climate change such as more frequent or more extreme weather events,
changes in temperature and precipitation patterns, changes to ground and surface water and other
related phenomena;
the improvement in efficiency and cost of wind energy, as influenced by advances in turbine
design and operating efficiencies; and
public perception and localized community responses to wind energy projects.
In addition, while some of the factors listed above may only affect individual wind energy project
developments or portions of the market, in the aggregate they may have a significant effect on the
successful development of the wind energy market as a whole, and thus affect our operating and financial
results.
We may have difficulty maintaining our current financing arrangements or obtaining additional
financing when needed or on acceptable terms, and there can be no assurance that our operations will
generate cash flows in an amount sufficient to enable us to pay our indebtedness.
We rely on banks and capital markets as a source of liquidity for capital requirements not satisfied
by cash flows from operations or asset sales. We have experienced operating losses for most periods during
which we have operated, and our committed sources of liquidity may be inadequate to satisfy our
operational needs. There can be no assurance that, even if we were to achieve any or all of our strategic
objectives, we would be successful in obtaining and improving profitability. If we are not able to access
capital at competitive rates, our ability to implement our business plans may be adversely affected. Without
access to capital resources, we could face substantial liquidity problems and might be required to dispose of
material assets or operations at times when the prices for such assets or operations are depressed. In such
event, we may not be able to consummate those dispositions. Furthermore, the proceeds of any such
dispositions may not be adequate to meet our debt service obligations when due.
Our ability to comply with the restrictive covenants contained in our debt instruments, to make
scheduled payments on our existing or future debt obligations, and to fund our operations will depend on
our future financial and operating performance. Such performance is, to a significant extent, subject to
general economic, financial, competitive and other factors that are beyond our control. 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 actual
results, or any future restructuring efforts are not successful, 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 with deposits,
which will reduce our liquidity. There can be no assurance that our operations will generate sufficient cash
flows to enable us to maintain compliance with the restrictive covenants contained in our debt instruments,
pay our remaining indebtedness or to fund our other liquidity needs. If we cannot make scheduled payments
on our debt, we will be in default and, as a result, among other things, our debt holders could declare all
outstanding principal and interest to be due and payable, which could force us to liquidate certain assets or
alter our business operations or debt obligations, and we could be forced into a restructuring, bankruptcy or
liquidation. We cannot assure you that we will be able to do any of the foregoing on commercially
reasonable terms or at all, or on terms that would be advantageous to our stockholders. In addition, raising
capital in the equity capital markets could result in limitations on our ability to use our net operating loss
carryforwards.
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Borrowings under our credit facility and other variable rate indebtedness may use the London
Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the applicable interest rate. LIBOR is
the subject of recent regulatory guidance and proposals for reform, which may cause LIBOR to disappear
entirely or to perform differently than in the past. The consequences of these developments with respect to
LIBOR cannot be entirely predicted, but could result in an increase in the cost of our variable rate
indebtedness causing a negative impact on our financial position and operating results.
We are substantially dependent on a few significant customers.
Historically, the majority of our revenues are highly concentrated with a limited number of
customers. In 2019, one customer, SGRE, accounted for more than 10% of our consolidated revenues, and
our five largest customers accounted for 79% of our consolidated revenues. Certain of our customers have
periodically expressed their intent to scale back, delay or restructure existing customer agreements, which
has led to reduced revenues from these customers. It is possible that this may occur again in the future. As a
result, our operating profits and gross margins have historically been negatively affected by significant
variability in production levels, which has created production volume inefficiencies in our operations and
cost structures.
The U.S. wind energy industry is significantly impacted by tax and other economic incentives. A
significant change in these incentives could significantly impact our results of operations and growth.
We sell towers to wind turbine manufacturers who supply wind energy generation facilities. The
U.S. wind energy industry is significantly impacted by federal tax incentives and state Renewable Portfolio
Standards (“RPSs”). Despite recent reductions in the cost of wind energy, due to variability in wind quality
and consistency, and other regional differences, wind energy may not be economically viable in certain
parts of the country absent such incentives. These programs have provided material incentives to develop
wind energy generation facilities and thereby impact the demand for our products. The increased demand
for our products that generally results from the credits and incentives could be impacted by the expiration or
curtailment of these programs.
One such federal government program, the PTC, provides economic incentives to the owners of
wind energy facilities in the form of a tax credit. The PTC has been extended several times since its initial
introduction in 1992. The FY16 Omnibus Appropriations Bill, passed on December 18, 2015, included a
five-year extension and phase-down of the PTC, as well as providing the option to elect the ITC for wind
energy projects. As a result, the PTC was extended at full value for projects commenced by the end of 2016,
was reduced to 80% of full value for projects commenced in 2017, 60% for projects commenced in 2018,
and 40% for projects commenced in 2019. As part of a year-end tax extenders bill in 2019, the PTC was
extended for an additional year, allowing for a 60% credit for projects commenced before the end of 2020.
Similarly, for the ITC election, projects that started construction in 2015 and 2016 are eligible for a full 30%
ITC, and projects that start construction in 2017, 2018 and 2019 are eligible for an ITC of 24%, 18% and
12%, respectively. As before, the rules allow wind energy projects to qualify so long as construction is
started before the end of the applicable period and is either completed within three years, or under
continuous construction between the start date and completion. The PTC tax benefits are available for the
first ten years of operation of a wind energy facility, and also applies to significant redevelopment of
existing wind energy facilities.
RPSs generally require or encourage state regulated electric utilities to supply a certain proportion of
electricity from renewable energy sources or to devote a certain portion of their plant
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capacity to renewable energy generation. Typically, utilities comply with such standards by qualifying for
renewable energy credits evidencing the share of electricity that was produced from renewable sources.
Under many state standards, these renewable energy credits can be unbundled from their associated energy
and traded in a market system, allowing generators with insufficient credits to meet their applicable state
mandate. These standards have spurred significant growth in the wind energy industry and a corresponding
increase in the demand for our products. Currently, the majority of states have RPSs in place and certain
states have voluntary utility commitments to supply a specific percentage of their electricity from renewable
sources. The enactment of RPSs in additional states or any changes to existing RPSs (including changes due
to the failure to extend or renew the federal incentives described above), or the enactment of a federal RPS
or imposition of other greenhouse gas regulations, may impact the demand for our products. We cannot
assure that government support for renewable energy will continue. The elimination of, or reduction in, state
or federal government policies that support renewable energy could have a material adverse impact on our
business, results of operations, financial performance and future development efforts.
Changes to trade regulation, quotas, duties or tariffs, and sanctions caused by changing U.S. and
geopolitical policies, may impact our competitive position or adversely impact our margins.
New tariffs have resulted in increased prices, including with respect to certain steel products, and
could adversely affect our consolidated results of operations, financial position and cash flows. These
tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other
countries, could result in further increased prices and a decreased available supply of steel and other
imported components and inputs. We may not be able to pass price increases on to our customers and may
not be able to secure adequate alternative sources of steel on a timely basis.
The existence of government subsidies available to our competitors in certain countries may affect
our ability to compete on a price basis. In 2013, the U.S. International Trade Commission (“USITC”)
determined that wind towers from China and Vietnam were being sold in the U.S. at less than fair value. As
a result of that determination, the U.S. Department of Commerce (“USDOC”) issued antidumping and
countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports
of towers from Vietnam. In May 2018, the U.S. Court of Appeals affirmed the decision from the U.S. Court
of International trade resulting in CS Wind Vietnam being excluded from the antidumping order. In April
2019, the USDOC extended the term of these duties for an additional five-year period. Following a
renewed surge of tower imports from countries not impacted by existing tariffs, in July 2019, a new trade
case was brought before the USDOC and USITC, to assess if wind towers imported from Canada,
Indonesia, South Korea and Vietnam were being sold in the U.S. at less than fair value. This case includes a
reassessment of CS Wind Vietnam. A final determination of whether to assess antidumping and
countervailing duties in this case is expected to be issued by the USITC in August 2020. On August 22,
2019, the USITC determined that there is a reasonable indication that a U.S. industry is materially injured
by reason of imports of utility scale wind towers from Canada, Indonesia, South Korea and Vietnam sold in
the U.S. at less than fair value, and voted to continue its antidumping and countervailing duty investigations
into those countries. On December 6, 2019, the USDOC issued an affirmative preliminary determination in
the countervailing duty investigations against Canada, Indonesia and Vietnam. Subsequently, on February 5,
2020, the USDOC issued an affirmative preliminary determination in the anti-dumping investigations
against Canada, Indonesia, Korea and Vietnam. A final determination in the antidumping and countervailing
duties investigations is expected to be issued by the USITC no later than August 2020. There can be no
assurance that antidumping and/or countervailing duty orders will be issued, renewed or extended.
Additionally, producers in other countries not subject to those orders may benefit from government
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subsidies (particularly with respect to the price of steel, the primary raw material used in the production of
wind towers) which could lead to increased competition from those producers in the U.S. market, causing us
to lose market share and/or reducing our margins.
Consolidation among wind turbine manufacturers could increase our customer concentration and/or
disrupt our supply chain relationships.
Wind turbine manufacturers are among our primary customers. There has been consolidation among
these manufacturers, and more consolidation may occur in the future. For example, both Siemens Energy,
Inc. and Gamesa Wind US, LLC, were customers for our tower business until early 2017, at which time
they merged into SGRE and became our largest customer. Customer consolidation may result in pricing
pressures, leading to downward pressure on our margins and profits, and may also disrupt our supply chain
relationships.
We face competition from industry participants who may have greater resources than we do.
Our businesses are subject to risks associated with competition from new or existing industry
participants who may have more resources and better access to capital. Certain of our competitors and
potential competitors may have substantially greater financial resources, customer support, technical and
marketing resources, larger customer bases, longer operating histories, greater name recognition and more
established relationships in the industry than we do. Among other things, these industry participants
compete with us based upon price, quality, location and available capacity. We cannot be sure that we will
have the resources or expertise to compete successfully in the future. We also cannot be sure that we will be
able to match cost reductions by our competitors or that we will be able to succeed in the face of current or
future competition.
We face significant risks associated with uncertainties resulting from changes to policies and laws with
the periodic changes in the U.S. administration as well as risks associated with changes in our
relationship with our significant customers.
Changes of administration in the U.S. federal government may affect our business in a manner that
currently cannot be reliably predicted, especially given the potentially significant changes to various laws
and regulations that affect us. These uncertainties may include changes in laws and policies in areas such as
corporate taxation, taxation on imports of internationally-sourced products, international trade including
trade treaties such as the North American Free Trade Agreement, environmental protection and workplace
safety laws, labor and employment law, immigration and health care, which individually or in the aggregate
could materially and adversely affect our business, results of operations or financial condition.
Additionally, if our relationships with significant customers should change materially, it could be
difficult for us to immediately and profitably replace lost sales in a market with such concentration, which
could have a material adverse effect on our operating and financial results. We could be adversely impacted
by decreased customer demand for our products due to (i) the impact of current or future economic
conditions on our customers, (ii) our customers’ loss of market share to their competitors that do not use our
products, and (iii) our loss of market share with our customers. We could lose market share with our
customers to our competitors or to our customers themselves, should they decide to become more vertically
integrated and produce the products that we currently provide.
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In addition, even if our customers continue to do business with us, we could be adversely affected by
a number of other potential developments with our customers. For example:
· The inability or failure of our customers to meet their contractual obligations could have a
material adverse effect on our business, financial position and results of operations.
· Certain customer contracts provide the customer with the opportunity to cancel a substantial
portion of its volume obligation by providing us with notice of such election prior to
commencement of production. Such contracts generally require the customer to pay a sliding
cancelation fee based on how far in advance of commencement of production such notice is
provided.
·
If we are unable to deliver products to our customers in accordance with an agreed-upon
schedule, we may become subject to liquidated damages provisions in certain supply agreements
for the period of time we are unable to deliver finished products. Although the liquidated
damages provisions are generally capped, they can become significant and may have a negative
impact on our profit margins and financial results.
· A material change in payment terms with a significant customer could have a material adverse
effect on our short term cash flows.
Our plans for growth, diversification, and restructuring may not be successful, and could result in poor
financial performance.
The Company continues to strategically diversify, restructure and grow the business to improve
operational efficiency and meet customer demand. Our diversification efforts into the natural gas turbine
power generation, O&G, mining and other industries, particularly within our gearing and industrial
fabrication product lines and through our 2017 acquisition of Red Wolf, may require additional investments
in personnel, equipment and operational infrastructure. Moreover, although we have historically participated
in most of these lines of business, there is no assurance that we will be able to grow our presence in these
markets at a rate sufficient to compensate for a potentially weaker wind energy market. If we are unable to
further penetrate these markets, our plans to diversify our operations may not be successful and our
anticipated future growth may be adversely affected.
Any restructuring efforts may involve occasionally opening or closing facilities to rationalize facility
capacity and management structure, and consolidating and increasing efficiencies in certain operations. If
the Company is unable to generate anticipated cost savings or successfully implement its strategies, the
Company’s financial results could suffer. These efforts and strategies could also have a negative impact on
the Company’s relationships, including those with its employees or customers, which could also adversely
affect the Company’s financial results.
Our growth efforts through increased production levels at existing facilities, acquisitions and
continuous improvement activities such as the proper coordination and integration of the supply chain, the
consistent use of systems with respect to production activities, the Advanced Product Quality Processes
(APQP) to support the introduction of new products, and the hiring of continuous improvement experts to
optimize our production processes, will require coordinated efforts across the Company and continued
enhancements to our current operating infrastructure. If the cost of making these changes increases or if our
efforts are unsuccessful, the Company may not realize anticipated benefits and our future earnings may be
adversely affected.
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If our projections regarding the future market demand for our products are inaccurate, our operating
results and our overall business may be adversely affected.
We have previously made significant capital investments in anticipation of rapid growth in the U.S.
wind energy market. However, the growth in the U.S. wind energy market has not kept pace with our
expectations when some of these capital investments were made, and there can be no assurance that the U.S.
wind energy market will grow and develop in a manner consistent with our expectations, or that we will be
able to fill our capacity through the further diversification of our operations. Our internal manufacturing
capabilities have required significant upfront capital costs. If market demand for our products does not
increase at the pace we have anticipated and align with our manufacturing capacity, we may be unable to
offset these costs and achieve economies of scale, and our operating results may continue to be adversely
affected by high fixed costs, reduced margins and underutilization of capacity which may cause us to
continue to incur significant losses and may prevent us from achieving or maintaining profitability. In light
of these considerations, we may be forced to reduce our labor force and production to minimum levels, as
was done at certain operating locations in both 2017 and 2018, temporarily idle existing capacity or sell to
third parties manufacturing capacity that we cannot utilize in the near term, in addition to the steps that we
have already taken to adjust our capacity more closely to demand. Alternatively, if we experience rapid
increased demand for our products in excess of our estimates, or we reduce our manufacturing capacity, our
installed capital equipment and existing workforce may be insufficient to support higher production
volumes, which could adversely affect our customer relationships and overall reputation. In addition, we
may not be able to expand our workforce and operations in a timely manner, procure adequate resources or
locate suitable third party suppliers to respond effectively to changes in demand for our existing products or
to the demand for new products requested by our customers, and our business could be adversely affected.
Our ability to meet such excess customer demand could also depend on our ability to raise additional capital
and effectively scale our manufacturing operations.
Additionally, most of our customers do not commit to long-term contracts or firm production
schedules, and accordingly, we frequently experience volatile lead-times in customer orders. Additionally,
customers may change production quantities or delay production with little advance notice. Therefore, we
rely on and plan our production and inventory levels based on our customers’ advance orders, commitments
and/or forecasts, as well as our internal assessments and forecasts of customer demand. The variations in
volume and timing of sales make it difficult to schedule production and optimize utilization of
manufacturing capacity. This uncertainty may require us to increase staffing and incur other expenses in
order to meet an unexpected increase in customer demand, potentially placing a significant burden on our
resources. An inability to respond to such changes in a timely manner may also cause customer
dissatisfaction, which may negatively affect our customer relationships.
Disruptions in the supply of parts and raw materials, or changes in supplier relations, may negatively
impact our operating results.
We are dependent upon the supply of certain raw materials used in our production process, and these
raw materials are exposed to price fluctuations on the open market. Raw material costs for materials such as
steel, our primary raw material, have fluctuated significantly and may continue to fluctuate. To reduce price
risk caused by market fluctuations, we have generally tried to match raw material purchases to our sales
contracts or incorporated price adjustment clauses in our contracts. However, limitations on availability of
raw materials or increases in the cost of raw materials (including steel), energy, transportation and other
necessary services may impact our operating results
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if our manufacturing businesses are not able to fully pass on the costs associated with such increases to their
respective customers. Alternatively, we will not realize material improvements from any decline in steel
prices as the terms of our contracts generally require that we pass these cost savings through to our
customers. In addition, we may encounter supplier constraints, be unable to maintain favorable supplier
arrangements and relations or be affected by disruptions in the supply chain caused by events such as
natural disasters, shipping delays, power outages and labor strikes. Additionally, our supply chain has
become more global in nature and, thus, more complex from a shipping and logistics perspective. In the
event of limitations on availability of raw materials or significant changes in the cost of raw materials,
particularly steel, our margins and profitability could be negatively impacted.
Our growth strategies could be ineffective due to the risks of acquisitions and risks relating to
integration.
Our growth strategy has historically included acquiring complementary businesses. In regards to any
other future acquisitions, we could fail to identify, finance or complete suitable acquisitions on acceptable
terms and prices. Acquisitions and the related integration processes could increase a number of risks,
including diversion of operations personnel, financial personnel and management’s attention, difficulties in
integrating systems and operations, potential loss of key employees and customers of the acquired
companies and exposure to unanticipated liabilities. The price we pay for a business may exceed the value
realized and we cannot provide any assurance that we will realize the expected synergies and benefits of any
acquisitions. Our discovery of, or failure to discover, material issues during due diligence investigations of
acquisition targets, either before closing with regard to potential risks of the acquired operations, or after
closing with regard to the timely discovery of breaches of representations or warranties, could materially
harm our business. Our failure to meet the challenges involved in integrating a new business to realize the
anticipated benefits of an acquisition could cause an interruption or loss of momentum in our existing
activities and could adversely affect our profitability. Acquisitions also may result in the recording of
goodwill and other intangible assets which are subject to potential impairments in the future that could
diminish our reported earnings and operating results.
Our diversification outside of the wind energy market exposes us to business risks associated with the gas
turbine, oil and gas, and mining industries, among others, which may slow our growth or penetration in
these markets.
Although we have experience in the gas turbine, oil and gas and mining industry markets, these
markets have not historically been our primary focus. In further diversifying our business to serve these
markets, we face competitors who may have more resources, longer operating histories and more well-
established relationships than we do, and we may not be able to successfully or profitably generate
additional business opportunities in these industries. Moreover, if we are able to successfully diversify into
these markets, our businesses may be exposed to risks associated with these industries, which could
adversely affect our future earnings and growth. These risks include, among other things:
· Variability in the prices and relative demand for oil, gas, minerals and other commodities;
· Changes in domestic and global political and economic conditions affecting the O&G and
mining industries;
· Changes in technology;
· Changes in the price and availability of alternative fuels and energy sources and changes in
energy consumption or supply; and
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· Changes in federal, state and local regulations, including, among other regulations, relating to
hydraulic fracturing and greenhouse gas emissions.
We have substantially generated net losses since our inception.
We have experienced operating losses since inception, except that we were profitable in 2016. We
have incurred significant costs in connection with the development of our businesses, and because we have
operated at low capacity utilization in certain facilities, there is no assurance that we will generate sufficient
revenues to offset anticipated operating costs. Although we anticipate deriving revenues from the sale of our
products, no assurance can be given that these products can be sold on a profitable basis. We cannot give
any assurance that we will be able to sustain or increase profitability on a quarterly or annual basis in the
future.
We may continue to incur significant losses in the future for a number of reasons, including other
risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses,
difficulties, complications, delays, and other unknown factors.
We rely on unionized labor, the loss of which could adversely affect our future success.
We depend on the services of unionized labor and have collective bargaining agreements with
certain of our operations workforce at our Cicero, Illinois and Neville Island, Pennsylvania Gearing
facilities. The loss of the services of these and other personnel, whether through terminations, attrition, labor
strike or otherwise, or a material change in our collective bargaining agreements, could have a material
adverse impact on us and our future profitability. In November 2017, a five-year collective bargaining
agreement was ratified by the collective bargaining union in our Neville Island facility and is expected to
remain in effect through October 2022. A new four-year collective bargaining agreement with the Cicero
union was negotiated in the third quarter of 2018 and is expected to remain in effect through February 2022.
As of December 31, 2019, these collective bargaining units represented approximately 18% of our
workforce.
We could incur substantial costs to comply with environmental, health and safety (“EHS”) laws and
regulations and to address violations of or liabilities under these requirements.
Our operations are subject to a variety of EHS laws and regulations in the jurisdictions in which we
operate and sell products governing, among other things, health, safety, pollution and protection of the
environment and natural resources, including the use, handling, transportation and disposal of non-
hazardous and hazardous materials and wastes, as well as emissions and discharges into the environment,
including discharges to air, surface water, groundwater and soil, product content, performance and
packaging. We cannot guarantee that we have been, or will at all times be in compliance with such laws and
regulations. Changes in existing EHS laws and regulations, or their application, could cause us to incur
additional or unexpected costs to achieve or maintain compliance. Failure to comply with these laws and
regulations, obtain the necessary permits to operate our business, or comply with the terms and conditions
of such permits may subject us to a variety of administrative, civil and criminal enforcement measures,
including the imposition of civil and criminal sanctions, monetary fines and penalties, remedial obligations,
and the issuance of compliance requirements limiting or preventing some or all of our operations. The
assertion of claims relating to regulatory compliance, on or off site contamination, natural resource damage,
the discovery of previously unknown environmental liabilities, the imposition of criminal or civil fines or
penalties and/or other sanctions, or the obligation to undertake investigation, remediation or monitoring
activities could result in potentially significant costs and expenditures to address contamination or resolve
claims or liabilities. Such costs and expenditures could have a material adverse effect on our
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business, financial condition or results of operations. Under certain circumstances, violation of such EHS
laws and regulations could result in us being disqualified from eligibility to receive federal government
contracts or subcontracts under the federal government’s debarment and suspension system.
We also are subject to laws and regulations that impose liability and cleanup responsibility for
releases of hazardous substances into the environment. Under certain of these laws and regulations, such
liabilities can be imposed for cleanup of currently and formerly owned, leased or operated properties, or
properties to which hazardous substances or wastes were sent by current or former operators at our current
or former facilities, regardless of whether we directly caused the contamination or violated any law at the
time of discharge or disposal. Several of our facilities have a history of industrial operations, and
contaminants have been detected at some of our facilities. The presence of contamination from hazardous
substances or wastes could interfere with ongoing operations or adversely affect our ability to sell, lease or
use our properties as collateral for financing. We also could be held liable under third-party claims for
property damage, natural resource damage or personal injury and for penalties and other damages under
such environmental laws and regulations, which could have a material adverse effect on our business,
financial condition and results of operations.
Our ability to comply with regulatory requirements is critical to our future success, and there can be no
guarantee that our businesses are in full compliance with all such requirements.
As a manufacturer and distributor of wind and other energy industry products we are subject to the
requirements of federal, state, local and foreign regulatory authorities. In addition, we are subject to a
number of authorities setting industry standards, such as the American Gear Manufacturers Association and
the American Welding Society. Changes in the standards and requirements imposed by such authorities
could have a material adverse effect on us. In the event we are unable to meet any such standards when
adopted, our businesses could be adversely affected. We may not be able to obtain all regulatory approvals,
licenses and permits that may be required in the future, or any necessary modifications to existing
regulatory approvals, licenses and permits, or maintain all required regulatory approvals, licenses and
permits. There can be no guarantee that our businesses are fully compliant with such standards and
requirements.
We may be unable to keep pace with rapidly changing technology in wind turbine and other industrial
component manufacturing.
The global markets for wind turbines and our other manufactured industrial components are rapidly
evolving technologically. Our component manufacturing equipment and technology may not be suited for
future generations of products being developed by wind turbine companies. As turbines grow in size,
particularly to support the development of offshore windfarms, tower manufacturing becomes more
complicated and may require investments in new manufacturing equipment. For example, some wind
turbine manufacturers are using wind turbine towers made partially or wholly from concrete instead of steel.
To maintain a successful business in our field, we must keep pace with technological developments and the
changing standards of our customers and potential customers and meet their constantly evolving demands.
If we fail to adequately respond to the technological changes in our industry, make the necessary capital
investments or are not suited to provide components for new types of wind turbines, our business, financial
condition and operating results may be adversely affected.
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If our estimates for warranty expenses differ materially from actual claims made, or if we are unable to
reasonably estimate future warranty expense for our products, our business and financial results could
be adversely affected.
We provide warranty terms generally ranging between one and five years to our customers
depending upon the specific product and terms of the customer agreement. We reserve for warranty claims
based on prior experience and estimates made by management based upon a percentage of our sales
revenues related to such products. From time to time, customers have submitted warranty claims to us.
However, we have a limited history on which to base our warranty estimates for certain of our manufactured
products. Our assumptions could materially differ from the actual performance of our products in the future
and could exceed the levels against which we have reserved. In some instances, our customers have
interpreted the scope and coverage of certain of our warranty provisions differently from our interpretation
of such provisions. The expenses associated with remediation activities in the wind energy industry can be
substantial, and if we are required to pay such costs in connection with a customer’s warranty claim, we
could be subject to additional unplanned cash expenditures. If our estimates prove materially incorrect, or if
we are required to cover remediation expenses in addition to our regular warranty coverage, we could be
required to incur additional expenses and could face a material unplanned cash expenditure, which could
adversely affect our business, financial condition and results of operations. Market disruptions and volatility
may result in an increased likelihood of our customers asserting warranty or remediation claims in
connection with our products that they would not ordinarily assert in a more stable economic environment.
In the event of such a claim, we may incur costs if we decide to compensate the affected customer or to
engage in litigation with the affected customer regarding the claim. We maintain product liability insurance,
but there can be no guarantee that such insurance will be available or adequate to protect against such
claims. A successful claim against us could have a material adverse effect on our business.
If we are unable to produce, maintain and disseminate relevant and/or reliable data and information
pertaining to our business in an efficient, cost-effective, secure and well-controlled fashion and avoid
security breaches affecting our information technology systems, such inability may have significant
negative impacts on our confidentiality obligations, and proprietary needs and therefore on our future
operations, profitability and competitive position.
Management relies on information technology infrastructure and architecture, including hardware,
network, software, people and processes, to provide useful and confidential information to conduct our
business in the ordinary course, including correspondence and commercial data and information interchange
with customers, suppliers, consultants, advisors and governmental agencies, and to support assessments and
conclusions about future plans and initiatives pertaining to market demands, operating performance and
competitive positioning.
There has been an increase in global cybersecurity threats, computer viruses and more sophisticated
and targeted cyber-related attacks as well as cybersecurity failures resulting from human and technological
errors. While we attempt to mitigate these risks, including through the use of protective systems, monitoring
and testing and employee training, any material failure, interruption of service, compromised data security,
computer virus or cybersecurity threat or attack could adversely affect our relations with suppliers and
customers, place us in violation of confidentiality and data protection laws, rules and regulations, and result
in negative impacts to our reputation, market share, operations and profitability. Despite our use of
measures to protect our systems and confidential information, security breaches, human or technological
error or other failures in our information
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technology could result in theft, destruction, loss, misappropriation or release of confidential data or
intellectual property which could materially and adversely impact our future results.
There is a limited trading market for our securities and the market price of our securities is subject to
volatility.
Our common stock trades on the Nasdaq Capital Market. The absence of an active trading market
increases price volatility and reduces the liquidity of our common stock. The market price and level of
trading of our common stock could be subject to wide fluctuations in response to numerous factors, many of
which are beyond our control. These factors include, among other things, our limited trading volume, actual
or anticipated variations in our operating results and cash flow, the nature and content of our earnings
releases, announcements or events that impact our business and the general state of the securities market, as
well as general economic, political and market conditions and other factors that may affect our future
results. In 2019, the price of our common stock varied from a high of $2.36 per share to a low of $1.30 per
share. Stockholders may have incurred substantial losses with regard to any investment in our common
stock adversely affecting stockholder confidence.
Limitations on our ability to utilize our net operating losses (“NOLs”) may negatively affect our financial
results.
We may not be able to utilize all of our NOLs. For financial statement presentation, all benefits
associated with the NOL carryforwards have been reserved; therefore, this potential asset is not reflected on
our balance sheet. To the extent available, we will use any NOL carryforwards to reduce the U.S. corporate
income tax liability associated with our operations. However, if we do not achieve profitability prior to their
expiration, we will not be able to fully utilize our NOLs to offset income. Section 382 of the IRC (“Section
382”) generally imposes an annual limitation on the amount of NOL carryforwards that may be used to
offset taxable income when a corporation has undergone certain changes in stock ownership. Our ability to
utilize NOL carryforwards and built in losses may be limited, under Section 382 or otherwise, by our
issuance of common stock or by other changes in ownership of our stock. After analyzing Section 382 in
2010 we determined that aggregate changes in our stock ownership had triggered an annual limitation of
NOL carryforwards and built in losses available for utilization to $14,284 per annum. Although this event
limited the amount of pre ownership change date NOLs and built in losses we can utilize annually, it does
not preclude us from fully utilizing our current NOL carryforwards prior to their expiration. However,
subsequent changes in our stock ownership could further limit our ability to use our NOL carryforwards and
our income could be subject to taxation earlier than it would if we were able to use NOL carryforwards and
built in losses without an annual limitation, which could result in lower profits. To address these concerns,
in February 2013 we adopted a Section 382 Stockholder Rights Plan, which was subsequently approved by
our stockholders and extended in 2016 for an additional three-year period (as amended, the “Rights Plan”),
designed to preserve our substantial tax assets associated with NOL carryforwards under Section 382. The
Rights Plan is intended to deter any person or group from being or becoming the beneficial owner of 4.9%
or more of our common stock and thereby triggering a further limitation of our available NOL
carryforwards. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment
extending the Rights Plan for an additional three years, which was approved by our stockholders at the 2019
Annual Meeting of Stockholders held on April 23, 2019. See Note 13, “Income Taxes” of our consolidated
financial statements for further discussion of our Rights Plan. There can be no assurance that the Rights
Plan will be effective in protecting our NOL carryforwards.
Additionally, because the Rights Plan subjects any person that acquires 4.9% of our common stock
without the Board’s permission to significant dilution, it could make it harder for a third party to
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acquire us without the consent of the Board. In particular, the Rights Plan may deter a third party from
completing or even initiating an acquisition of the Company, which may prevent stockholders from
realizing a control premium from a potential acquirer, or from otherwise maximizing stockholder value.
Equipment failures or extensive damage to our facilities, including those that might occur as a result of
natural disasters, could lead to production, delivery or service curtailments or shutdowns, loss of revenue
or higher expenses.
We operate a substantial amount of equipment at our production facilities. Operation of this
equipment may be subject to interruption due to equipment failure or acts of nature. Any such interruption
in production capabilities at our facilities could reduce or prevent the production, delivery, service, or repair
of our products and increase our costs and expenses. A halt of production at any of our manufacturing
facilities could severely affect delivery times to our customers. While we maintain emergency response and
business recovery plans that are intended to allow us to recover from natural disasters that could disrupt our
business, we cannot provide assurance that these plans would fully protect us from the effects of all such
disasters. In addition, insurance may not adequately compensate us for any losses incurred as a result of
natural or other disasters, which may adversely affect our financial condition. Any significant delay in
deliveries not otherwise contractually mitigated by favorable force majeure or other provisions could result
in cancellation of all or a portion of our orders, cause us to lose future sales, and negatively affect our
reputation and results of operations.
Because our industry is capital intensive and we have significant fixed and semi-fixed costs, our
profitability is sensitive to changes in volume.
The property, plants and equipment needed to manufacture products for our customers and provide
our processes and solutions can be very expensive. We must spend a substantial amount of capital to
purchase and maintain such property, plant and equipment. Although we believe our current cash balance,
along with our projected internal cash flows and available financing sources, will provide sufficient cash to
support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to
purchase and maintain the property, plant and equipment necessary to operate our business, we may be
required to reduce or delay planned capital expenditures or to incur additional indebtedness.
If our intangible assets and other long-lived assets or inventory become impaired, we may be required to
record a significant charge to earnings.
We may be required to record a significant charge to operations in our financial statements should
we determine that our long-lived assets or inventory are impaired. Such a charge might have a significant
impact on our reported financial position and results of operations. We review inventory, long-lived assets
and project assets for impairment whenever events or changes in circumstances indicate the carrying
amount may not be recoverable. In conjunction with the rebranding initiative, during 2019 we decided we
would no longer utilize the Red Wolf trade name and subsequently accelerated the amortization of the trade
name by $871 so that it was fully amortized in 2019.
Any failure to protect our customers’ intellectual property that we use in the products we manufacture
for them could harm our customer relationships and subject us to liability.
The products we manufacture for our customers often contain our customers’ intellectual property,
including copyrights, patents, trade secrets and know-how. Our success depends, in part, on our ability to
protect our customers’ intellectual property. The steps we take to protect our customers’
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intellectual property may not adequately prevent its disclosure or misappropriation. If we fail to protect our
customers’ intellectual property, our customer relationships could be harmed and we may experience
difficulty in establishing new customer relationships. Additionally, our customers might pursue legal claims
against us for any failure to protect their intellectual property, possibly resulting in harm to our reputation
and our business, financial condition and operating results.
We may not be able to protect important intellectual property and we could incur substantial costs
defending against claims that our products infringe on the proprietary rights of others.
Our ability to compete effectively will depend, in part, on our ability to protect our proprietary
system level technologies, systems designs and manufacturing processes. While we have attempted to
safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely
successful in doing so.
Further, our competitors may independently develop or patent technologies or processes that are
substantially equivalent or superior to ours. If we are found to be infringing third-party patents, we could be
required to pay substantial royalties and/or damages, and we do not know whether we will be able to obtain
licenses to use such patents on acceptable terms, if at all. Failure to obtain needed licenses could delay or
prevent the development, manufacture or sale of our products, and could necessitate the expenditure of
significant resources to develop or acquire non infringing intellectual property.
We may need to pursue lawsuits or legal action in the future to enforce our intellectual property
rights and to determine the validity and scope of the proprietary rights of others. Litigation and other
proceedings, even if they are successful, are expensive to pursue and time consuming, and we could use a
substantial amount of our management and financial resources in either case.
Confidentiality agreements to which we are party may be breached, and we may not have adequate
remedies for any breach. Our trade secrets may also be known without breach of such agreements or may be
independently developed by competitors. Our inability to maintain the proprietary nature of our technology
and processes could allow our competitors to limit or eliminate any competitive advantages we may have.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our corporate headquarters is located in Cicero, Illinois, a suburb located west of Chicago, Illinois.
In addition, the Subsidiaries own or lease operating facilities, which are presented by operating segment as
follows (information below is as of December 31, 2019).
Operating Segment and Facility Type
Heavy Fabrications (1)
Tower Manufacturing
Tower Manufacturing
Industrial Fabrications Manufacturing
Gearing and Corporate
Gearing System Manufacturing—Machining and Corporate Administration
Gearing System Manufacturing—Heat Treatment and Gearbox Repair
Industrial Solutions
Industrial Solutions Manufacturing
Location
Owned / Approximate
Leased Square Footage
Manitowoc, WI
Abilene, TX
Manitowoc, WI
Leased
Owned
Leased
Cicero, IL
Leased
Neville Island, PA Owned
213,000
175,000
30,000
301,000
52,000
Sanford, NC
Leased
105,000
(1) The Heavy Fabrications segment listing does not include the tower storage yards of 40 acres in Manitowoc, WI and 25 acres in
Abilene, TX.
We consider our active facilities to be in good condition and adequate for our present and future
needs.
ITEM 3. LEGAL PROCEEDINGS
We are party to a variety of legal proceedings that arise in the ordinary course of our business. While
the results of these legal proceedings cannot be predicted with certainty, management believes that the final
outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on
our results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation,
there can be no assurance that the resolution of any particular claim or proceeding would not have a material
adverse effect on our results of operations, financial condition or cash flows. It is possible that if one or
more of such matters were decided against us, the effects could be material to our results of operations in
the period in which we would be required to record or adjust the related liability and could also be material
to our financial condition and cash flows in the period in which we would be required to pay such liability.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol
“BWEN.” The following table sets forth the high and low bid prices of our common stock traded on the
NASDAQ.
2019
First quarter
Second quarter
Third quarter
Fourth quarter
2018
First quarter
Second quarter
Third quarter
Fourth quarter
Common Stock
High
Low
$
1.75
2.35
2.36
1.85
$
1.30
1.60
1.62
1.45
Common Stock
High
Low
$
2.85
3.15
2.54
2.22
$ 2.20
2.11
2.07
1.20
The closing price for our common stock as of February 21, 2020 was $2.15. As of February 21,
2020, there were 46 holders of record of our common stock.
Dividends
We have never paid cash dividends on our common stock and have no current plan to do so in the
foreseeable future. The declaration and payment of dividends on our common stock are subject to the
discretion of our Board and are further limited by our credit agreement and other contractual agreements we
may have in place from time to time. The decision of our Board to pay future dividends will depend on
general business conditions, the effect of a dividend payment on our financial condition, and other factors
our Board may consider relevant. The current policy of our Board is to reinvest cash generated in our
operations to promote future growth and to fund potential investments.
Repurchases
There were no repurchases of our equity securities under our repurchase program made during the
years ended December 31, 2019 and 2018.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities for the years ended December 31, 2019 or
2018.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters” of this Annual Report on Form 10-K for information as of December 31,
2019 with respect to shares of our common stock that may be issued under our existing share‑based
compensation plans.
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ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are
not required to provide information under this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Company”
refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its
Subsidiaries.
(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)
On January 1, 2020, we rebranded as Broadwind Energy, Inc. doing business as Broadwind, a
reflection of our diversification progress to date and our continued strategy to diversify our product and
customer mix outside of wind energy. Effective with that rebranding, we renamed certain segments. Our
Towers and Heavy Fabrications segment was renamed as Heavy Fabrications and our Process Systems
segment was renamed as Industrial Solutions. Our Gearing segment name remained the same.
We booked $221,549 in net new orders in 2019, up sharply from $83,241 in 2018. The significant
increase in orders was driven by growth in each of our primary markets, except for the market for O&G
production equipment. We realized a $145,371 increase in tower orders within our Heavy Fabrications
segment, as tower customers secured 2020 production capacity in support of an expected increase in wind
turbine tower installations. During 2018, our largest customer fulfilled orders under a three-year framework
agreement in which minimum contract orders were reported in backlog at the onset of the agreement in
2016 and is now placing orders on a project-by-project basis; this change in ordering patterns also
contributed to the year-over-year increase. Other industrial fabrication orders, also included in the Heavy
Fabrications segment, increased $5,682 or 37%, reflecting an expansion of our customer base and the results
of the investments we have made to broaden our manufacturing capabilities. Gearing orders declined
$16,110, primarily due to a reduction from O&G customers due to excess fracking and drilling equipment
capacity. Lower demand from aftermarket wind customers, which can fluctuate based on customer order
patterns and repair activity, was partially offset by an increase in orders from other industrial customers.
Our Industrial Solutions segment had $16,426 in orders in 2019, an increase of $3,365 over 2018, primarily
due to higher customer demand for gas turbine components and initial orders resulting from our entry into
the market to support solar energy installation. This was partially offset by lower customer demand for gas
turbine aftermarket content. At December 31, 2019, total backlog was $142,302, up 48% from $96,456 at
December 31, 2018 due to the aforementioned surge in tower orders.
We recognized revenue of $178,220 in 2019, up 42% from revenue of $125,380 in 2018 due to the
growth in orders described above.
We reported a net loss of $4,523, or $0.28 per share in 2019, compared to a net loss of $24,146 or
$1.56 per share in 2018. The improvement in earnings was primarily due to the absence of a $12,585
impairment charge recognized in the prior year, as well as higher capacity utilization in our Heavy
Fabrications segment and improved margins in our other segments. Partially offsetting these increases was
the impact of increased price competition from foreign tower manufacturers which depressed tower product
line margins, higher incentive compensation expense, the absence of a $2,249
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gain recognized upon extinguishment of the New Markets Tax Credit (NMTC) loan and the $1,140 benefit
associated with the reversal of the final Red Wolf earn-out reserve, which were both recognized in the prior
year.
During 2018, we conducted a review of our business strategies and product plans given the outlook
of the industries we serve and our business environment. As a result, we executed a restructuring plan to
rationalize our facility capacity and management structure, and to consolidate and increase the efficiencies
in our Abilene facility operations. We exited the market for natural gas compression units and transferred
remaining operations from a leased facility in Abilene, TX into other production locations. We vacated the
leased Abilene facility in 2018 and incurred costs totaling $12 and $668 for the years ended December 31,
2019 and 2018, respectively. In conjunction with this initiative, all costs associated with this vacated facility
have been recorded as restructuring expenses within the Towers and Heavy Fabrications segment. Our
restructuring activities concluded in 2019.
We use our credit facility to fund working capital requirements and believe that our credit facility,
together with the operating cash generated by our businesses, and any potential proceeds from access to the
public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve
months. On December 31, 2019, we had $11,517 drawn under our $35,000 line of credit, and $2,416 of
cash on hand, resulting in $18,993 of available liquidity. For a further discussion of our capital resources
and liquidity, including a description of recent amendments and waivers under our credit facility, please see
the discussion under “Liquidity, Financial Position and Capital Resources” in this Annual Report on Form
10-K.
KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
In addition to measures of financial performance presented in our consolidated financial statements
in accordance with GAAP, we use certain other financial measures to analyze our performance. These non-
GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate
growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate
our overall financial performance.
Key Financial Measures
Net revenues
Net loss
Adjusted EBITDA (1)
Capital expenditures
Free cash flow (2)
Operating working capital (3)
Total debt
Total orders
Backlog at end of period
Book-to-bill
Twelve Months Ended
December 31,
2019
2018
$ 178,220 $ 125,380
(4,523) $
(24,146)
$
7,226 $
(1,019)
$
1,844 $
2,324
$
4,803 $
3,709
$
5,580 $
5,000
$
13,338
$
13,422 $
83,241
$ 221,549 $
96,456
$ 142,302 $
0.7
1.2
(1) We provide non-GAAP adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share based
compensation, and other stock payments, restructuring costs, impairment charges, and other non-cash gains and losses) as
supplemental information regarding our business performance. Our management uses adjusted EBITDA when they internally
evaluate the performance of our business, review financial trends and make operating and strategic decisions. We believe that
this non-GAAP financial measure is useful to investors because it provides a better understanding of our past financial
performance and future results, and it allows investors to evaluate our performance
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using the same methodology and information as used by our management. Our definition of adjusted EBITDA may be different
from similar non-GAAP financial measures used by other companies and/or analysts.
(2) We define free cash flow as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net
of any proceeds from disposals of property and equipment. We believe free cash flow is a useful measure for investors because
it portrays our ability to generate cash from our business for purposes such as repaying maturing debt and funding business
acquisitions.
(3) We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits.
The following table reconciles our non-GAAP key financial measures to the most directly
comparable GAAP measure:
Net loss from continuing operations
Interest expense
Income tax provision (benefit)
Depreciation and amortization
Share-based compensation and other stock payments
Restructuring costs
Impairment charges
NMTC extinguishment gain
Adjusted EBITDA
Changes in operating working capital
Capital expenditures
Proceeds from disposal of property and equipment
Free Cash Flow
29
Twelve Months Ended
December 31,
2019
(4,586)
2,309
39
7,497
1,955
12
—
—
7,226
(580)
(1,844)
1
4,803
$
$
2018
$ (24,000)
1,494
(204)
9,183
1,504
668
12,585
(2,249)
(1,019)
6,376
(2,324)
676
$
3,709
Table of Contents
RESULTS OF OPERATIONS
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The summary of selected financial data table below should be referenced in connection with a
review of the following discussion of our results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018.
Year Ended December 31,
2019 vs. 2018
Revenues
Cost of sales
Restructuring
Gross profit
Operating expenses
Selling, general and administrative expenses
Impairment charges
Intangible amortization
Restructuring
Total operating expenses
Operating loss
Other expense, net
Interest expense, net
Other, net
Total other expense, net
Net loss before provision (benefit) for income
taxes
Provision (benefit) for income taxes
Loss from continuing operations
Income (loss) from discontinued operations, net
of tax
Net loss
Consolidated
% of Total
Revenue
% of Total
Revenue
$ Change
% Change
2019
$ 178,220
162,796
12
15,412
16,086
—
1,683
—
17,769
(2,357)
(2,309)
118
(2,191)
(4,548)
38
(4,586)
100.0 % $
91.3 %
0.0 %
8.6 %
9.0 %
— %
0.9 %
— %
10.0 %
(1.3)%
(1.3)%
0.1 %
(1.2)%
(2.6)%
0.0 %
(2.6)%
2018
125,380
121,684
631
3,065
13,625
12,585
1,884
37
28,131
(25,066)
(1,496)
2,355
859
(24,207)
(205)
(24,002)
100.0 % $
97.1 %
0.5 %
2.4 %
52,840
41,112
(619)
12,347
10.9 %
10.0 %
1.5 %
0.0 %
22.4 %
(20.0)%
(1.2)%
1.9 %
0.7 %
(19.3)%
(0.2)%
(19.1)%
2,461
(12,585)
(201)
(37)
(10,362)
22,709
(813)
(2,237)
(3,050)
19,659
243
19,416
63
$ (4,523)
0.0 %
(2.5)% $
(144)
(24,146)
(0.1)%
(19.3)% $
207
19,623
42.1 %
33.8 %
(98.1)%
402.8 %
18.1 %
(100.0)%
(10.7)%
(100.0)%
(36.8)%
90.6 %
(54.3)%
(95.0)%
(355.1)%
81.2 %
118.5 %
80.9 %
143.8 %
81.3 %
Revenues increased by $52,840 during the year ended December 31, 2019. This increase was
driven by higher capacity utilization in the Heavy Fabrications segment as tower sections sold increased
73% in support of a strengthening wind turbine installation market, and due to $3,482 of growth in other
industrial fabrications sales. Partially offsetting this improvement was a decrease in Gearing segment
revenues of $3,499 due to lower demand from O&G customers. The Industrial Solutions segment
recognized revenue of $14,664 in 2019 as compared to $12,467 in 2018 primarily due to increased demand
for gas turbine components and because of our entry into the solar power generation market. Gross profit
increased by $12,347 during the year ended December 31, 2019. The increase in gross profit reflects
improved capacity utilization in the Heavy Fabrications segment and improved manufacturing efficiencies
in all segments. These benefits were partially offset by the adverse impact of margin pressure associated
with lower prices driven by increased competition from foreign tower manufacturers. As a result, our gross
margin more than tripled from 2.4% for the year ended December 31, 2018, to 8.6% for the year ended
December 31, 2019.
Operating expenses decreased $10,362 during the year ended December 31, primarily due to the
absence of a $12,585 impairment charge recognized in the prior year. Partially offsetting this was increased
incentive compensation and the absence of a $1,140 benefit associated with the reversal of the final earn-out
reserve associated with the Red Wolf acquisition, which was recorded in 2018. As a result, operating
expenses as a percentage of sales decreased from 22.4% to 10.0% in 2019.
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Loss from continuing operations improved significantly from $24,002 for the year ended December
31, 2018 to $4,586 for the year ended December 31, 2019, primarily as a result of the factors described
above.
Heavy Fabrications Segment
The following table summarizes the Heavy Fabrications segment operating results for the twelve
months ended December 31, 2019 and 2018:
Orders
Tower sections sold
Revenues
Operating income (loss)
Operating margin
Twelve Months Ended
December 31,
2019
2018
$ 179,657 $ 28,604
540
74,667
(5,440)
934
128,686
1,861
1.4 %
(7.3)%
The $151,053 increase in orders was driven primarily by tower customers securing 2020 production
capacity in support of increased wind turbine installations. During 2018, our largest customer fulfilled
orders under a three-year framework agreement in which minimum contract orders were reported in backlog
at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis; this change in
ordering also impacted the year-over-year comparison. Other industrial fabrication orders increased $5,682.
Segment revenues increased by 72% during the year ended December 31, 2019 primarily due to a 73%
increase in tower sections sold and a $3,482 increase in other industrial fabrication revenue, reflecting an
expansion of our customer base and investments to broaden our manufacturing capabilities.
Heavy Fabrications segment operating results improved by $7,301 versus the prior year. The
improvement in capacity utilization, the expansion of other industrial fabrications and the absence of plant
start-up costs incurred in the prior year were partially offset by the negative impacts from increased
competitive tower pricing pressure in the current year. Operating profit margin was 1.4% during the year
ended December 31, 2019 compared to a loss of 7.3% during the year ended December 31, 2018.
Gearing Segment
The following table summarizes the Gearing segment operating results for the twelve months ended
December 31, 2019 and 2018:
Orders
Revenues
Operating income
Operating margin
Twelve Months Ended
December 31,
2019
$ 25,466
34,877
3,237
9.3 %
2018
$ 41,576
38,376
51
0.1 %
Gearing segment orders decreased 39% from the year ended December 31, 2018, 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 earlier than normal receipt of customer orders due to significantly longer
lead times caused by steel availability issues. Also demand was lower from aftermarket wind customers,
which can fluctuate based on customer order patterns and repair activity levels. These reductions were
partially offset by an increase in orders from other industrial customers.
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Revenue decreased 9% during the year ended December 31, 2019 primarily due to a decrease in shipments
to O&G customers, partially offset by an increase in sales to mining and aftermarket wind customers;
custom gearbox revenue was double the prior year.
The Gearing segment operating income improved significantly to $3,237 during the year ended
December 31, 2019 primarily due to a higher margin sales mix and improved manufacturing efficiencies,
including lower scrap and warranty costs. The operating margin was 9.3% for the year ended December 31,
2019 compared to 0.1% during the year ended December 31, 2018.
Industrial Solutions Segment
The following table summarizes the Industrial Solutions segment operating results for the twelve
months ended December 31, 2019 and 2018.
Orders
Revenues
Impairment charges
Operating loss
Operating margin
Twelve Months Ended
December 31,
2019
$ 16,426
$
14,664
-
(1,059)
(7.2)%
2018
13,061
12,467
12,585
(15,348)
(123.1)%
Industrial Solutions segment orders increased 26% during the year ended December 31, 2019
primarily due to higher customer demand for new gas turbine content and diversification efforts linked to
our solar market strategy, partially offset by lower customer demand for gas turbine aftermarket products.
The same factors resulted in an 18% increase in revenues to $14,664 for the year ended December 31, 2019.
The Industrial Solutions segment operating results improved by $14,289 during the year ended
December 31, 2019 primarily due to the absence of $12,585 in impairment charges recognized during 2018,
lower related amortization expense, improved labor efficiency and higher prices. This was partially offset
by accelerated amortization of $871 in 2019 associated with the Red Wolf trade name. Operating margin
decreased from a loss of 123.1% during the year ended December 30, 2018, to a loss of 7.2% during the
year ended December 31, 2019.
Corporate and Other
Corporate and Other expenses increased by $2,067 during the year ended December 31, 2019. The
increase was primarily attributable to the absence of a $1,140 benefit recognized in the prior year associated
with the reversal of an earn-out reserve associated with the acquisition of Red Wolf, as well as higher
incentive compensation recognized in the current year.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments that we use in applying our critical accounting policies have
a significant impact on the results that we report in our financial statements. Some of our accounting
policies require us to make difficult and subjective judgments, often as a result of the need to make
estimates regarding matters that are inherently uncertain.
We have identified the accounting policies listed below to be critical to obtain an understanding of
our consolidated financial statements. This section should also be read in conjunction with Note 1,
“Description of Business and Summary of Significant Accounting Policies” in the notes to our
32
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consolidated financial statements for further discussion of these and other significant accounting policies.
Revenue Recognition
We recognize revenue when control of the promised goods or services is transferred to customers, in
an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods
or services. Customer deposits and other receipts are deferred and recognized when the revenue is realized
and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be
classified as reductions of revenue in our statement of operations.
In many instances within our Heavy Fabrications segment, wind towers are sold under terms
included in bill and hold sales arrangements that result in different timing for revenue recognition versus
shipment, due to our customers’ preference to ship products in batches to support efficient construction of
wind farms. We recognize revenue under these arrangements when there is a substantive reason for the
arrangement (i.e. the buyer requests the arrangement), the ordered goods are segregated from inventory and
not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we
do not have the ability to use the product or to direct it to another customer. Assuming these required
revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and
customer acceptance.
We adopted the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from
Contracts with Customers, for the fiscal year beginning January 1, 2018 and elected the modified
retrospective approach. Through our assessment of the ASC 606, we identified minimal changes to the
assumptions utilized for the year ending December 31, 2017 and the adoption of the guidance did not result
in a material impact on our consolidated financial statements.
Warranty Liability
We provide warranty terms that generally range from one to five years for various products relating
to workmanship and materials supplied by us. In certain contracts, we have recourse provisions for items
that would enable us to seek recovery from third parties for amounts paid to customers under warranty
provisions. We estimate the warranty accrual based on various factors, including historical warranty costs,
current trends, product mix and sales.
Inventories
Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of
components and parts for general production use. Work-in-process consists of labor and overhead,
processing costs, purchased subcomponents, and materials purchased for specific customer orders. Finished
goods consist of components purchased from third parties as well as components manufactured by us.
Inventories are stated at the lower of cost or net realizable value. Where necessary, we have recorded
a reserve for the excess of cost over market value in our inventory allowance. Market value of inventory,
and management’s judgment concerning the need for reserves, encompasses consideration of many business
factors including physical condition, inventory holding period, contract terms and usefulness. Inventories
are valued based either on actual cost or using a first‑in, first out method.
Long-Lived Assets
We review property and equipment and other long-lived assets (“long-lived assets”) for impairment
whenever events or circumstances indicate that their carrying amounts may not be
33
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recoverable. Due to the Industrial Solutions’ segment recent operating losses, we continue to evaluate the
recoverability of certain of the long-lived assets associated with that segment. In accordance with GAAP,
we compared the carrying value of the Industrial Solutions asset group to the forecast undiscounted cash
flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash
flows exceeded the carrying value resulting in no indicated or recorded impairment of this group. However,
in conjunction with our rebranding initiative, during 2019 we decided we would no longer utilize the Red
Wolf trade name. As a result, we accelerated the amortization of the trade name by $871 so that it was fully
amortized in 2019.
Income Taxes
We account for income taxes based upon an asset and liability approach. Deferred tax assets and
liabilities represent the future tax consequences of the differences between the financial statement carrying
amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax
assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards.
Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and
liabilities is recognized in the year that the change is enacted.
In connection with the preparation of our consolidated financial statements, we are required to
estimate our income tax liability for each of the tax jurisdictions in which we operate. This process involves
estimating our actual current income tax expense and assessing temporary differences resulting from
differing treatment of certain income or expense items for income tax reporting and financial reporting
purposes. We also recognize the expected future income tax benefits of net operating loss (“NOL”)
carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax assets
associated with NOL carryforwards, we consider, among other things, expected future taxable income, the
expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax
planning strategies that may be implemented to prevent the potential loss of future income tax benefits.
Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income
levels could materially impact our valuation of income tax assets and liabilities and could cause our income
tax provision to vary significantly among financial reporting periods.
We also account for the uncertainty in income taxes related to the recognition and measurement of a
tax position taken or expected to be taken in an income tax return. We follow the applicable pronouncement
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition related to the uncertainty in these income tax positions.
Health Insurance Reserves
We self‑insure for our health insurance liabilities, including establishing reserves for self‑retained
losses. Historical loss experience combined with actuarial evaluation methods and the application of risk
transfer programs are used to determine required health insurance reserves. We take into account claims
incurred but not reported when determining our health insurance reserves. Health insurance reserves are
included in accrued liabilities. While we believe that we have adequately reserved for these claims, the
ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred.
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LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of December 31, 2019, cash and cash equivalents totaled $2,416, an increase of $1,239 from
December 31, 2018. We have in place a line of credit with CIBC Bank (the “Credit Facility”) under which
we can borrow up to $35,000, depending on our borrowing base. Debt and finance lease obligations at
December 31, 2019 totaled $14,641, and we had the ability to borrow up to $16,577 under the Credit
Facility. 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, our Credit Facility,
additional equipment financing, and access to the public or private debt equity markets, including under a
“shelf” registration statement on Form S-3, which was declared effective by the SEC on October 10, 2017.
We also utilize supply chain financing arrangements as a component of our funding for working
capital, which accelerates receivable collections and helps to better manage cash flow. Under these
agreements, we have agreed to sell certain of our accounts receivable balances to banking institutions who
have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set
forth in the respective agreements. The balances under these agreements are accounted for as sales of
accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as
operating activities included in the change in accounts receivable in the consolidated statements of cash
flows. Fees incurred in connection with the agreements are recorded as interest expense.
On January 16, 2019, we executed the Sixth Amendment to Loan and Security Agreement which
increased our capability to issue letters of credit under the Credit Facility.
On February, 25, 2019, we executed an Amended and Restated Loan and Security Agreement (the
“Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended
the term to February 25, 2022. The Amended and Restated Loan Agreement included minimum EBITDA
covenants through September 30, 2019 which has been replaced by a Fixed Charge Coverage Ratio. We are
in compliance with all covenants under the Credit Facility as of December 31, 2019.
While we believe that we will continue to have sufficient cash available to operate our businesses
and to meet our financial obligations and amended debt covenants, there can be no assurance that our
operations will generate sufficient cash, that we will be able to comply with applicable loan covenants or
that credit facilities will be available in an amount sufficient to enable us to repay our indebtedness or to
fund our other liquidity needs.
Sources and Uses of Cash
The following table summarizes our cash flows from operating, investing, and financing activities
for the years ended December 31, 2019 and 2018:
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Discontinued operations
Net increase in cash
35
Twelve Months Ended
December 31,
2019
2018
$
$
4,521 $
(1,843)
(1,444)
5
1,239 $
2,045
(1,648)
807
(105)
1,099
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Operating Cash Flows
During the year ended December 31, 2019, net cash provided by operations was $4,521 compared to
net cash provided by operating activities of $2,045 for the year ended December 31, 2018. The operating
cash flow improvement was due primarily to the improved capacity utilization in the current year which
resulted in a significantly improved operating results. Partially offsetting this was a build of working capital
in response to the higher production levels within the Heavy Fabrications segment, versus the prior year
when working capital decreased primarily as a result of the significant collections of deposits related to new
tower orders.
Investing Cash Flows
During the year ended December 31, 2019, net cash used in investing activities was $1,843
compared to net cash used in investing activities of $1,648 for the year ended December 31, 2018. The
increase was primarily due to the absence of proceeds from property disposals in the prior year period.
Financing Cash Flows
During the year ended December 31, 2019, net cash used in financing activities totaled $1,444
compared to net cash provided by financing activities of $807 for the year ended December 31, 2018. The
decrease in net cash provided by financing activities was primarily due to the absence of financing activity
resulting in $2,060 of proceeds on long-term debt that occurred in the prior year.
Other
In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene
which is included in long-term debt, less current maturities. The loan is forgivable upon us meeting and
maintaining specific employment thresholds. During each of the years ended December 31, 2019 and 2018,
$114 of the loan was forgiven. As of December 31, 2019, the loan balance was $342. In addition, we have
outstanding notes payable for capital expenditures in the amount of $1,563 and $1,882 as of December 31,
2019 and 2018, respectively, with $1,400 and $930 included in the “Line of credit and other notes payable”
line item of our consolidated financial statements as of December 31, 2019 and 2018, respectively. The
notes payable have monthly payments that range from $1 to $36 and an interest rate of 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.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are
not required to provide information under this item.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are
not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES” of this Annual Report.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to
management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as
appropriate, to allow timely decisions regarding required disclosure. Our management, under the
supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the most recent fiscal year reported on
herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures
are effective as of December 31, 2019.
(b)
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
(c)
Report of Management on Internal Control Over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act).
Our management, including our CEO and CFO, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2019. Management based this assessment on criteria for
effective internal control over financial reporting described in “Internal Control—Integrated Framework
(2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management determined that our internal control over financial reporting was effective as of
December 31, 2019.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not
required to include an attestation report of our independent registered public accounting firm regarding
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
With the exception of the description of our Code of Ethics and Business Conduct below, the
information required by this item is incorporated herein by reference from the discussion under the headings
“Directors and Director Compensation,” “Corporate Governance,” “Executive Officers” and “Other Matters
—Delinquent Section 16(a) Reports” in our definitive Proxy Statement to be filed in connection with our
2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”).
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to all of our
directors, executive officers and senior financial officers (including our principal executive officer, principal
financial officer, principal accounting officer, controller, and any person performing similar functions). The
Code is available on our website at www.bwen.com under the caption “Investors” and is available in print,
free of charge, to any stockholder who sends a request for a paper copy to Broadwind Energy, Inc., Attn:
Investor Relations, 3240 South Central Avenue, Cicero, IL 60804. We intend to include on our website any
amendment to, or waiver from, a provision of the Code that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar
functions, that relates to any element of the code of ethics definition enumerated in Item 406(b) of
Regulation S‑K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding director and executive compensation is incorporated by reference from the
discussion under the headings “Directors and Director Compensation” and “Executive Officers and
Executive Compensation” in the 2020 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain of the information required by this item is incorporated herein by reference from the
discussion under the heading “Security Ownership of Certain Beneficial Holders and Management” in the
2020 Proxy Statement.
The following table provides information as of December 31, 2019, with respect to shares of our
common stock that may be issued under our existing equity compensation plans:
38
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EQUITY COMPENSATION PLAN INFORMATION
(a)
(b)
Plan Category
Equity compensation plans approved by stockholders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
1,411,277 (1)$
1,411,277
$
Weighted-average
exercise price of
outstanding options,
warrants, and rights
2.73
2.73
(c)
Number of securities
remaining available for
future issuances under
equity compensation
plans (excluding
securities reflected in
column (a))
414,270
414,270
(1)
Includes outstanding stock options to purchase shares of our common stock and outstanding restricted stock awards pursuant to
the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan, the Broadwind Energy, Inc. 2012 Equity
Incentive Plan, and the Broadwind Energy, Inc. 2015 Equity Incentive Plan. Each of these plans has been approved by our
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference from the discussion under
the headings “Certain Transactions and Business Relationships” and “Corporate Governance” in the 2020
Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference from the discussion under
the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the 2020
Proxy Statement.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
The financial statements listed on the Index to Financial Statements (page 41) are filed as part of this
Annual Report.
2. Financial Statement Schedules
These schedules have been omitted because the required information is included in the consolidated
financial statements or notes thereto or because they are not applicable or not required.
3. Exhibits
The exhibits listed on the Index to Exhibits (pages 77 through 80) are filed as part of this Annual
Report.
ITEM 16. FORM 10-K SUMMARY
None.
40
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
Page
42
43
44
45
46
47
41
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Broadwind Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Broadwind Energy, Inc. (the Company)
as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity
and cash flows for the years then ended, and the related notes to the consolidated financial statements
(collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2016.
Chicago, Illinois
February 27, 2020
42
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
LONG-TERM ASSETS:
Property and equipment, net
Operating lease right-of-use assets
Other intangible assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Line of credit and other notes payable
Current portion of finance lease obligations
Current portion of operating lease obligations
Accounts payable
Accrued liabilities
Customer deposits
Current liabilities held for sale
Total current liabilities
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities
Long-term finance lease obligations, net of current portion
Long-term operating lease obligations, net of current portion
Other
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
As of December 31,
2018
2019
$
$
$
2,416 $
18,310
31,863
2,124
54,713
46,940
15,980
4,919
314
122,866 $
12,917 $
546
1,326
21,876
4,911
22,717
—
64,293
505
673
16,591
44
17,813
1,177
17,455
22,670
1,776
43,078
49,087
—
6,602
398
99,165
11,930
967
—
11,618
3,806
23,507
27
51,855
1,408
571
—
1,969
3,948
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; 16,830,930 and 15,982,622
shares issued as of December 31, 2019, and December 31, 2018, respectively
Treasury stock, at cost, 273,937 shares as of December 31, 2019 and December 31, 2018
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
—
—
17
(1,842)
383,361
(340,776)
40,760
122,866 $
16
(1,842)
381,441
(336,253)
43,362
99,165
$
The accompanying notes are an integral part of these consolidated financial statements.
43
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the Years Ended December 31,
2019
2018
Revenues
Cost of sales
Restructuring
Gross profit
OPERATING EXPENSES:
Selling, general and administrative
Impairment charges
Intangible amortization
Restructuring
Total operating expenses
Operating loss
OTHER EXPENSE, net:
Interest expense, net
Other, net
Total other expense, net
$
178,220 $
162,796
12
15,412
125,380
121,684
631
3,065
13,625
12,585
1,884
37
28,131
(25,066)
(1,496)
2,355
859
(24,207)
(205)
(24,002)
(144)
(24,146)
(1.55)
(0.01)
(1.56)
15,469
(1.55)
(0.01)
(1.56)
15,469
16,086
—
1,683
—
17,769
(2,357)
(2,309)
118
(2,191)
(4,548)
38
(4,586)
63
(4,523) $
(0.28) $
0.00
(0.28) $
16,127
(0.28) $
0.00
(0.28) $
16,127
Net loss before provision (benefit) for income taxes
Provision (benefit) for income taxes
LOSS FROM CONTINUING OPERATIONS
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
NET LOSS
NET LOSS PER COMMON SHARE—BASIC:
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC
NET LOSS PER COMMON SHARE—DILUTED:
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
BALANCE, December 31, 2017
Stock issued for restricted stock
Stock issued under defined
contribution 401(k) retirement
savings plan
Share-based compensation
Sale of common stock, net of
expenses
Net loss
BALANCE, December 31, 2018
15,982,622 $
Stock issued for restricted stock
Stock issued under defined
contribution 401(k) retirement
savings plan
Share-based compensation
Net loss
223,580
624,728
—
—
BALANCE, December 31, 2019
16,830,930 $
Treasury Stock
Common Stock
Shares
Issued
15,480,299 $
156,472
Issued
Amount Shares
Issued Additional
Amount Paid-in Capital
Accumulated
Deficit
Total
15 (273,937) $ (1,842) $
—
1
—
380,005 $
—
(312,107) $ 66,071
1
—
330,739
—
—
—
—
—
—
—
15,112
—
—
—
16 (273,937) $ (1,842) $
—
1
—
—
685
803
(52)
—
381,441 $
—
—
—
685
803
(52)
(24,146)
(24,146)
(336,253) $ 43,362
1
—
—
—
—
—
—
—
17 (273,937) $ (1,842) $
—
—
—
962
958
—
383,361 $
—
—
(4,523)
962
958
(4,523)
(340,776) $ 40,760
The accompanying notes are an integral part of these consolidated financial statements.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Income (loss) from discontinued operations
Loss from continuing operations
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense
Deferred income taxes
Impairment charges
Remeasurement of contingent consideration
Change in fair value of interest rate swap agreements
Stock-based compensation
Extinguishment of New Markets Tax Credits obligation
Allowance for doubtful accounts
Common stock issued under defined contribution 401(k) plan
Gain on disposal of assets
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Customer deposits
Other non-current assets and liabilities
Net cash provided by operating activities of continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from disposals of property and equipment
Net cash used in investing activities of continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit
Payments on line of credit
Proceeds from long-term debt
Payments on long-term debt
Principal payments on finance leases
Proceeds from sale of common stock, net
Net cash (used in) provided by financing activities of continuing operations
DISCONTINUED OPERATIONS:
Operating cash flows
Net cash provided by (used in) discontinued operations
NET INCREASE IN CASH
CASH beginning of the period
CASH end of the period
Supplemental cash flow information:
Interest paid
Income taxes paid
Non-cash activities:
Issuance of restricted stock grants
Equipment additions via finance lease
Non-cash purchases of property and equipment
December 31,
2019
2018
$
(4,523) $
63
(4,586)
(24,146)
(144)
(24,002)
7,497
(30)
—
—
34
958
—
(63)
962
(1)
(792)
(9,193)
(585)
9,769
1,105
(790)
236
4,521
(1,844)
1
(1,843)
9,183
(307)
12,585
(1,140)
—
803
(2,249)
(35)
685
(116)
(3,776)
(2,944)
22
801
553
13,716
(1,734)
2,045
(2,324)
676
(1,648)
177,081
(176,564)
—
(937)
(1,024)
—
(1,444)
141,414
(141,040)
2,060
(761)
(814)
(52)
807
5
5
1,239
1,177
2,416 $
1,619 $
49 $
958 $
704 $
552 $
(105)
(105)
1,099
78
1,177
1,168
116
803
650
64
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
46
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
(in thousands, except share and per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Broadwind Energy, Inc. (the “Company”) is a precision manufacturer of structures, equipment and
components for clean tech and other specialized applications. The Company provides technologically
advanced high value products to customers with complex systems and stringent quality standards that
operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”).
The Company’s most significant presence is within the U.S. wind energy industry, although the Company
has increasingly diversified into other industrial markets. Within the U.S. wind energy industry, the
Company provides products primarily to turbine manufacturers. The Company also provides precision
gearing and heavy fabrications to a broad range of industrial customers for oil and gas (“O&G”), mining,
steel and other industrial applications, in addition to supplying components for natural gas turbines. The
Company has three reportable operating segments: Heavy Fabrications, Gearing, and Industrial Solutions.
During the first quarter of 2019, the Company assessed its segment reporting by evaluating various
qualitative and quantitative measures for each business and product line. Following the execution of the
Company’s 2018 restructuring plan and the resulting exit of the leased Abilene facility at the end of 2018,
the Company revised its segment presentation by moving its Abilene compressed natural gas and industrial
fabrication business from the Industrial Solutions segment to the Heavy Fabrications segment. The
Company made this determination because, post-restructuring, the residual industrial fabrications business
activities previously carried out in the now vacated space were transferred to the nearby tower plant under
the supervision of Heavy Fabrications segment management. The Company has restated prior periods
presented to reflect this change. See Note 15, “Segment Reporting” of these consolidated financial
statements for further discussion of reportable segments.
Effective, January 1, 2020, the Company rebranded to Broadwind Energy, Inc. doing business as
Broadwind, a reflection of its diversification progress to date and continued strategy to expand its product
and customer diversification outside of wind energy. Effective with that rebranding, the Company renamed
certain segments. The Towers and Heavy Fabrications segment was renamed to Heavy Fabrications and the
Process Systems segment was renamed to Industrial Solutions. The Gearing segment name remained the
same. These notes to the consolidated financial statements incorporate these changes.
Heavy Fabrications
The Company provides large, complex and precision fabrications to customers in a broad range of
industrial markets. The Company’s most significant presence is within the U.S. wind energy industry,
although it has diversified into other industrial markets in order to improve capacity utilization, reduce
customer concentrations, and reduce exposure to uncertainty related to governmental policies currently
impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the Company provides steel
towers and adapters primarily to wind turbine manufacturers.
47
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity
to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a
combined annual tower production capacity of up to approximately 550 towers (1650 tower sections),
sufficient to support turbines generating more than 1,100 MW of power. The Company has expanded its
production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and
stringent quality practices, into aftermarket and OEM components utilized in surface and underground
mining, construction, material handling, O&G and other infrastructure markets.
Gearing
The Company provides gearing and gearboxes to a broad set of customers in diverse markets
including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy,
steel, material handling and other infrastructure markets. The Company has manufactured loose gearing,
gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a
century. The Company uses an integrated manufacturing process, which includes machining and finishing
processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.
Industrial Solutions
The Company provides supply chain solutions, inventory management, kitting and assembly
services, primarily serving the combined cycle natural gas turbine market.
Liquidity
The Company meets its short term liquidity needs through cash generated from operations, its
available cash balances and through its credit facility (as further discussed in Note 9 “Debt and Credit
Agreements” of these consolidated financial statements), equipment financing and access to the public and
private debt equity markets, and has the option to raise capital under the Company’s registration statement
on Form S-3 (as discussed below). The Company uses the Credit Facility to fund working capital
requirements. Under the Credit Facility, borrowings are continuous and all cash receipts are usually applied
to the outstanding borrowed balance. As of December 31, 2019, cash and cash equivalents and short-term
investments totaled $2,416, an increase of $1,239 from December 31, 2018. The Company had the ability to
borrow up to $16,577 under the Credit Facility as of December 31, 2019.
The Company also utilizes supply chain financing arrangements as a component of our funding for
working capital, which accelerates receivable collections and helps to better manage cash flow. Under these
agreements, the Company has agreed to sell certain of its accounts receivable balances to banking
institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a
discount as set forth in the respective agreements. The balances under these agreements are accounted for as
sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are
reflected as operating activities included in the change in accounts receivable in
48
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
the Company's consolidated statements of cash flows. Fees incurred in connection with the agreements are
recorded as interest expense by the Company.
Debt and finance lease obligations at December 31, 2019 totaled $14,641, which includes current
outstanding debt and finance lease obligations totaling $13,463, over the next twelve months. The current
outstanding debt includes $11,517 outstanding under the Credit Facility.
On August 11, 2017, the Company filed a “shelf” registration statement on Form S-3, which was
declared effective by the SEC on October 10, 2017 (the “Broadwind Form S-3”). This shelf registration
statement, which includes a base prospectus, allows the Company at any time to offer any combination of
securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus
supplement accompanying the Company’s 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 December 31, 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 did not use the ATM Agreement in 2019.
The Company anticipates that current cash resources, amounts available under the Credit Facility,
cash to be generated from operations, equipment financing, and any potential proceeds from access to the
public or private debt or equity markets, including the option to raise capital under the Broadwind Form S-
3, will be adequate to meet the Company’s liquidity needs for at least the next twelve months.
Summary of Significant Accounting Policies
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the U.S. (“GAAP”) requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the
financial statements and reported amounts of revenues and expenses during the reported period. Significant
estimates, among others, include inventory reserves, warranty reserves, impairment of long-lived assets,
allowance for doubtful accounts, health insurance reserves, and environmental
49
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
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.
Cash and Cash Equivalents and Short‑Term Investments
Cash and cash equivalents typically comprise cash balances and readily marketable investments with
original maturities of three months or less, such as money market funds, short‑term government bonds,
Treasury bills, marketable securities and commercial paper. As of December 31, 2019 and December 31,
2018, cash totaled $2,416 and $1,177, respectively. For the years ended December 31, 2019 and 2018,
interest income was $0 and $5, respectively.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those
goods or services. Customer deposits, deferred revenue and other receipts are deferred and recognized when
the revenue is realized and earned. Cash payments to customers are presumed to be classified as reductions
of revenue in the Company’s statement of operations.
For many tower sales within the Company’s Heavy Fabrications segment, products are sold under
terms included in bill and hold sales arrangements that result in different timing for revenue recognition
versus shipment. The Company recognizes revenue under these arrangements only when there is a
substantive reason for the agreement, the ordered goods are identified separately as belonging to the
customer and not available to fill other orders, the goods are currently ready for physical transfer to the
customer, and the Company does not have the ability to use the product or to direct it to another customer.
Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of
product manufacture and customer acceptance.
Cost of Sales
Cost of sales represents all direct and indirect costs associated with the production of products for
sale to customers. These costs include operation, repair and maintenance of equipment, materials, direct and
indirect labor and benefit costs, rent and utilities, maintenance, insurance, equipment rentals, freight, and
depreciation.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses include all corporate and administrative
functions such as sales and marketing, legal, human resource management, finance, investor and public
relations, information technology and senior management. These functions serve to support the Company’s
current and future operations and provide an infrastructure to support future growth. Major expense items in
this category include management and staff wages and benefits, share‑based compensation and professional
services.
50
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Accounts Receivable (A/R)
The Company generally grants uncollateralized credit to customers on an individual basis based
upon the customer’s financial condition and credit history. Credit is typically on net 30 day terms and
customer deposits are frequently required at various stages of the production process to finance customized
products and minimize credit risk.
Historically, the Company’s A/R is highly concentrated with a select number of customers. During
the year ended December 31, 2019, the Company’s five largest customers accounted for 79% of its
consolidated revenues and 55% of outstanding A/R balances, compared to the year ended December 31,
2018 when the Company’s five largest customers accounted for 78% of its consolidated revenues and 54%
of its outstanding A/R balances.
Allowance for Doubtful Accounts
Based upon past experience and judgment, the Company establishes an allowance for doubtful
accounts with respect to A/R. The Company’s standard allowance estimation methodology considers a
number of factors that, based on its collections experience, the Company believes will have an impact on its
credit risk and the realizability of its A/R. These factors include individual customer circumstances, history
with the Company and other relevant criteria. A/R balances that remain outstanding after the Company has
exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a
credit to A/R.
The Company monitors its collections and 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 realizability of its A/R, as noted above, or modifications to the Company’s credit standards,
collection practices and other related policies may impact its allowance for doubtful accounts and its
financial results.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined either based on
the first‑in, first‑out (“FIFO”) method, or on a standard cost basis that approximates the FIFO method.
Market is determined based on net realizable value. Any excess of cost over net realizable value is included
in the Company’s inventory allowance. Net realizable value of inventory, and management’s judgment of
the need for reserves, encompasses consideration of other business factors including physical condition,
inventory holding period, contract terms and usefulness.
Inventories consist of raw materials, work‑in‑process and finished goods. Raw materials consist of
components and parts for general production use. Work‑in‑process consists of labor and overhead,
processing costs, purchased subcomponents and materials purchased for specific customer orders. Finished
goods consist of components purchased from third parties as well as components manufactured by the
Company that will be used to produce final customer products.
51
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Long-Lived Assets
Property and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization of property and equipment is recognized using the straight‑line method over
the estimated useful lives of the related assets for financial reporting purposes, and generally using an
accelerated method for income tax reporting purposes. Depreciation expense related to property and
equipment for the years ended December 31, 2019 and 2018 was $5,814 and $7,299, respectively.
Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs
that do not improve or extend the useful lives of the respective assets are expensed as incurred. The
Company has in the past capitalized interest costs incurred on indebtedness used to construct property and
equipment. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the
asset’s estimated useful life. There was no interest cost capitalized during the years ended December 31,
2019 or 2018. Property or equipment sold or disposed of is removed from the respective property accounts,
with any corresponding gains and losses recorded within the operating results of the Company’s
consolidated statement of operations.
The Company reviews property and equipment and other long‑lived assets (“long-lived assets”) for
impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Asset
recoverability is first measured by comparing the assets’ carrying amounts to their expected future
undiscounted net cash flows to determine if the assets are impaired.
In evaluating the recoverability of long‑lived assets, the Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of such assets. If the Company’s
fair value estimates or related assumptions change in the future, the Company may be required to record
impairment charges related to property and equipment and other long‑lived assets. If such assets are
considered to be impaired, the impairment recognized is measured based on the amount by which the
carrying amount of the assets exceeds the fair value. See Note 7, “Long-Lived Assets” of these consolidated
financial statements for further discussion of long-lived assets.
Leases
The Company leases various property and equipment under operating lease arrangements. On
January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and ASU 2018-11 using the
cumulative effect method. Adopting the standard resulted in the Company recognizing operating lease
assets and liabilities on the balance sheet. 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. Rent expense for these types
of leases is recognized on a straight‑line basis over the lease term. In addition, the Company has entered
into finance lease arrangements to finance property and equipment and assumed finance lease obligations in
connection with certain acquisitions. The cost basis and accumulated amortization of assets recorded under
finance leases are included in property and equipment, while the liabilities are included in finance lease
obligations.
52
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Warranty Liability
The Company provides warranty terms that generally range from one to five years for various
products and services relating to workmanship and materials supplied by the Company. In certain contracts,
the Company has recourse provisions for items that would enable the Company to pursue recovery from
third parties for amounts paid to customers under warranty provisions. Warranty liability is recorded in
accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based
on various factors, including historical warranty costs, current trends, product mix and sales. The changes in
the carrying amount of the Company’s total product warranty liability for the years ended December 31,
2019 and 2018 were as follows, excluding activity related to the discontinued Services segment:
Balance, beginning of period
Reduction of warranty reserve
Warranty claims
Other adjustments
Balance, end of period
Income Taxes
As of December 31,
2018
2019
226 $
(32)
(21)
(10)
163 $
581
(350)
(5)
—
226
$
$
The Company accounts for income taxes based upon an asset and liability approach. Deferred tax
assets and liabilities represent the future tax consequences of the differences between the financial statement
carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method,
deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit
carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred
tax assets and liabilities is recognized in the year that the change is enacted.
In connection with the preparation of its consolidated financial statements, the Company is required
to estimate its income tax liability for each of the tax jurisdictions in which the Company operates. This
process involves estimating the Company’s actual current income tax expense and assessing temporary
differences resulting from differing treatment of certain income or expense items for income tax reporting
and financial reporting purposes. The Company also recognizes as deferred income tax assets the expected
future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of
deferred income tax assets associated with NOL carryforwards, the Company considers, among other
things, expected future taxable income, the expected timing of the reversals of existing temporary reporting
differences and the expected impact of tax planning strategies that may be implemented to prevent the
potential loss of future income tax benefits. Changes in, among other things, income tax legislation,
statutory income tax rates or future taxable income levels could materially impact the Company’s valuation
of income tax assets and liabilities and could cause its income tax provision to vary significantly among
financial reporting periods.
53
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
The Company also accounts for the uncertainty in income taxes related to the recognition and
measurement of a tax position taken or expected to be taken in an income tax return. The Company follows
the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition related to the uncertainty in these income tax positions.
Share‑Based Compensation
The Company grants incentive stock options, restricted stock units (“RSUs”) and/or performance
awards (“PSUs”) to certain officers, directors, and employees. The Company accounts for share‑based
compensation related to these awards based on the estimated fair value of the equity award and recognizes
expense ratably over the required vesting term of the award. The expense associated with PSUs is also
based on the probability of achieving embedded targets. See Note 14 “Share‑Based Compensation” of these
consolidated financial statements for further discussion of the Company’s share‑based compensation plans,
the nature of share‑based awards issued and the Company’s accounting for share‑based compensation.
Net Income (Loss) Per Share
The Company presents both basic and diluted net income (loss) per share. Basic net income (loss)
per share is based solely upon the weighted average number of common shares outstanding and excludes
any dilutive effects of restricted stock, options, warrants and convertible securities. Diluted net income
(loss) per share is based upon the weighted average number of common shares and common‑share
equivalents outstanding during the year excluding those common‑share equivalents where the impact to
basic net income (loss) per share would be anti‑dilutive.
2. REVENUES
Revenues are recognized when control of the promised goods or services is transferred to customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those
goods or services.
The following table presents the Company’s revenues disaggregated by revenue source for the years
ended December 31, 2019 and 2018:
Heavy Fabrications
Gearing
Industrial Solutions
Eliminations
Consolidated
For the Years Ended December 31,
2018
2019
$
$
128,686
34,877
14,664
(7)
178,220
$
$
74,667
38,376
12,467
(130)
125,380
The Company’s revenue is generally recognized at a point in time, typically when control of the
promised goods or services is transferred to its customers in an amount that reflects the consideration it
expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a
contract to transfer a distinct product or service to the customer. The
54
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Company measures revenue based on the consideration specified in the purchase order and revenue is
recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract
is allocated to each distinct performance obligation and recognized as revenue when or as the customer
receives the benefit of the performance obligation.
For many tower sales within the Company’s Heavy Fabrications segment, products are sold under
terms included in bill and hold sales arrangements that result in different timing for revenue recognition
versus shipment. The Company recognizes revenue under these arrangements only when there is a
substantive reason for the arrangement, the ordered goods are identified separately as belonging to the
customer and not available to fill other orders, the goods are currently ready for physical transfer to the
customer, and the Company does not have the ability to use the product or to direct it to another customer.
Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of
product manufacture and customer acceptance.
The Company generally expenses sales commissions when incurred. These costs are recorded within
selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are
deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified
as reductions of revenue in the Company’s statement of operations.
The Company does not disclose the value of the unsatisfied performance obligations for contracts
with an original expected length of one year or less.
3. EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share for the years
ended December 31, 2019 and 2018 as follows:
Basic earnings per share calculation:
Net loss
Weighted average number of common shares outstanding
Basic net loss per share
Diluted earnings per share calculation:
Net loss
Weighted average number of common shares outstanding
Common stock equivalents:
Stock options and non-vested stock awards
(1)
Weighted average number of common shares outstanding
Diluted net loss per share
For the Years Ended December 31,
2019
2018
$
$
$
$
(4,523)
16,127,296
(0.28)
(4,523)
16,127,296
—
16,127,296
(0.28)
$
$
$
$
(24,146)
15,468,975
(1.56)
(24,146)
15,468,975
—
15,468,975
(1.56)
(1) Stock options and restricted stock units granted and outstanding of 1,411,277 and 862,706,
respectively, are excluded from the computation of diluted earnings for the years ended December 31,
2019 and 2018 due to the anti‑dilutive effect as a result of the Company’s net loss for those respective
periods.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
4. RECENT ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting standards as issued. Although some of the accounting
standards issued or effective in the current fiscal year may be applicable to it, the Company believes that
none of the new standards have a significant impact on its consolidated financial statements.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the accounts receivable allowance from operations for the years ended December 31,
2019 and 2018 consists of the following:
Balance at beginning of period
Recoveries
Write-offs
Balance at end of period
6. INVENTORIES
For the Years Ended
December 31,
2019
2018
$
$
190
(27)
(36)
127
$
$
225
(34)
(1)
190
The components of inventories from operations as of December 31, 2019 and 2018 are summarized
as follows:
Raw materials
Work-in-process
Finished goods
Less: Reserve for excess and obsolete inventory
Net inventories
56
As of December 31,
2018
2019
22,759 $
8,366
2,915
34,040
(2,177)
31,863 $
16,394
5,426
2,958
24,778
(2,108)
22,670
$
$
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
7. LONG-LIVED ASSETS
The cost basis and estimated lives of property and equipment from continuing operations as of
December 31, 2019 and 2018 are as follows:
As of December 31,
2018
2019
Life
Land
Buildings
Machinery and equipment
Office furniture and equipment
Leasehold improvements
Construction in progress
Less accumulated depreciation and amortization
Total property and equipment
1,423
20,747
107,469
4,387
8,974 Asset life or life of lease
39
2
3
years
-
-
10 years
7 years
$
1,423 $
20,747
109,775
4,597
8,974
1,093
146,609
(99,669)
46,940 $
$
172
143,172
(94,085)
49,087
As of December 31, 2019 and December 31, 2018, the Company had commitments of $758 and $80,
respectively, related to the completion of projects within construction in progress.
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, trade names and customer relationships that were part of the Company’s
acquisition of Red Wolf. Other intangible assets are amortized on a straight-line basis over their estimated
useful lives, with a remaining life range from 3 to 8 years.
During 2018, the Company recorded impairment charges of $12,585 associated with certain
intangible assets recorded as part of the Red Wolf acquisition. The assets that were impaired related to the
full amount of goodwill in the amount of $4,993 and the impairment of the customer relationship intangible
in the amount of $7,592. These charges were recorded within the Company’s Industrial Solutions segment.
During 2019, the Company also identified a triggering event associated with its continued operating losses
within the Industrial Solutions segment. The Company relied upon an undiscounted cash flow analysis and
concluded that no impairment to this asset group was indicated as of December 31, 2019. However, in
conjunction with the Company’s rebranding initiative, during 2019 the Company decided it would no longer
utilize the Red Wolf trade name. As a result, the Company accelerated the amortization of the trade name
by $871 so that it was fully amortized in 2019.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
As of December 31, 2019 and 2018, the cost basis, accumulated amortization and net book value of
intangible assets were as follows:
December 31, 2019
December 31, 2018
Accumulated Net
Remaining
Weighted
Average
Accumulated Net
Remaining
Weighted
Average
Cost
Accumulated Impairment Book Amortization
Amortization Charges
Value
Period
Cost
Accumulated Impairment Book Amortization
Amortization Charges
Value
Period
Other
intangible
assets:
Noncompete
agreements
Customer
relationships
Trade names
Other
intangible
assets
$
170 $
(83) $
— $
87
3.1 $
170 $
(54) $
— $ 116
15,979
9,099
(6,674)
(5,980)
(7,592)
—
1,713
3,119
5.8
7.8
15,979
9,099
(6,369)
(4,631)
(7,592)
—
2,018
4,468
$25,248 $
(12,737) $
(7,592) $4,919
5.5 $25,248 $
(11,054) $
(7,592) $6,602
4.1
6.8
9.5
6.5
Intangible assets are amortized on a straight‑line basis over their estimated useful lives, which range
from 6 to 20 years. Amortization expense was $1,683 and $1,884 for the years ended December 31, 2019
and 2018, respectively. As of December 31, 2019, estimated future amortization expense is as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
$
$
733
733
725
664
661
1,403
4,919
8. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 2019 and 2018 consisted of the following:
Accrued payroll and benefits
Income taxes payable
Accrued professional fees
Accrued warranty liability
Self-insured workers compensation reserve
Accrued other
Total accrued liabilities
58
December 31,
2019
2018
$
$
3,870 $
61
136
163
115
566
4,911 $
2,126
66
101
226
374
913
3,806
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
9. DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of December 31, 2019 and 2018 consisted of the
following:
Line of credit
Other notes payable
Long-term debt
Less: Current portion
Long-term debt, net of current maturities
December 31,
2019
2018
$
$
11,517 $
1,563
342
(12,917)
505 $
11,000
1,882
456
(11,930)
1,408
As of December 31, 2019, future annual principal payments on the Company’s outstanding debt
obligations were as follows:
2020
2021
2022
2023
2024 and thereafter
Total
Credit Facilities
$
$
12,917
275
116
114
—
13,422
On October 26, 2016, the Company established a three-year secured revolving line of credit with
CIBC Bank USA (“CIBC”). This line of credit has been amended from time to time. On February 25, 2019,
the line of credit was expanded and extended for three years when the Company and its subsidiaries entered
into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan
Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions
party thereto (the “Lenders”), providing the Company and its subsidiaries with a $35,000 secured credit
facility (the “Credit Facility”). The obligations under the Credit Facility are secured by, subject to certain
exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and
investment property, and (ii) a mortgage on the Abilene, Texas tower and Pittsburgh, Pennsylvania gearing
facilities.
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
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
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 described below), the Company is allowed to prepay in whole or in part advances under the Credit
Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.
The Amended and Restated Loan Agreement contains customary representations and warranties
applicable to the Company and the subsidiaries. It also contains a requirement that the Company, on a
consolidated basis, maintain minimum quarterly earnings before interest, taxes, depreciation, amortization,
share-based payments, restructuring costs, and intangible impairments (“EBITDA”) levels through
September 30, 2019 and a minimum quarterly fixed charge coverage ratio thereafter, along with other
customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and
customary exceptions and qualifications. The Company was in compliance with all covenants under the
Credit Facility as of December 31, 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 December 31, 2019, there was $11,517 outstanding under the Credit Facility. The Company
had the ability to borrow up to $16,577 under the Credit Facility as of December 31, 2019.
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 each of the years ended
December 31, 2019 and 2018, $114 of the loan was forgiven. As of December 31, 2019, the loan balance
was $342. In addition, the Company has outstanding notes payable for capital expenditures in the amount
of $1,563 and $1,882 as of December 31, 2019 and 2018, respectively, with $1,400 and $930 included in
the “Line of credit and other notes payable” line item of the Company’s consolidated financial statements as
of December 31, 2019 and 2018, respectively. The notes payable have monthly payments that range from
$1 to $36 and an interest rate of 5%. The equipment purchased is utilized as
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
collateral for the notes payable. The outstanding notes payable have maturity dates that range from April
2020 to August 2022.
10. LEASES
The Company leases various property and equipment under operating lease arrangements. On
January 1, 2019, the Company adopted 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 Topic 842 and was offset against the
ROU asset balance during the adoption. As of December 31, 2019, the ROU asset had a balance of $15,980
which is included in the “Operating lease right-of-use assets” line item of these consolidated financial
statements and current and non-current lease liabilities relating to the ROU asset of $1,326 and $16,591,
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 consolidated financial statements. The
discount rates used for leases accounted for under Topic 842 are based on an interest rate yield curve
developed for the leases in the Company’s lease portfolio.
Lease terms generally range from 3 to 15 years with renewal options for extended terms. Some of
the Company’s facility leases include options to renew. The exercise of the renewal options is at the
Company’s discretion. Therefore, the majority of renewals to extend the lease terms are not included in
ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly
evaluates the renewal options and includes them in the lease term when the Company is reasonably certain
to exercise them. Certain leases contain rent escalation clauses that require additional rental payments in the
later years of the term. Rent expense for these types of leases is recognized on a straight‑line basis over the
lease term. Operating rental expense for the years ended December 31, 2019 and 2018 was $4,264 and
$3,654, respectively.
In addition, the Company has entered into finance lease arrangements to finance property and
equipment and assumed finance lease obligations in connection with certain acquisitions. Finance rental
expense for the years ended December 31, 2019 and 2018 was $666 and $572, respectively.
Amortization expense recorded in connection with assets recorded under finance leases was $560
and $527 for the years ended December 31, 2019 and 2018, respectively.
61
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Quantitative information regarding the Company’s leases is as follows:
For the Year Ended
December 31, 2019
Components of lease cost
Finance lease cost components:
Amortization of finance lease assets
Interest on finance lease liabilities
Total finance lease costs
Operating lease cost components:
Operating lease cost
Short-term lease cost
(1)
Variable lease cost
Sublease income
Total operating lease costs
Total lease cost
Supplemental cash flow information related to our operating leases is
as follows for the year ended December 31, 2019:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases
Weighted-average remaining lease term-finance leases at 12/31/19 (in years)
Weighted-average remaining lease term-operating leases at 12/31/19 (in years)
Weighted-average discount rate-finance leases at 12/31/19
Weighted-average discount rate-operating leases at 12/31/19
$ 560
106
666
3,017
629
783
(165)
4,264
$ 4,930
$ 3,505
1.1
10.8
8.4%
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 December 31, 2019, the Company had an additional operating lease of $4,380 that will
commence during fiscal year 2020 and carries a lease term of ten years.
As of December 31, 2019, future minimum lease payments under finance leases and operating leases
were as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less—portion representing interest
Present value of lease obligations
Less—current portion of lease obligations
$
$
Finance
Leases
Operating
Leases
Total
631 $
501
179
29
—
—
1,340 $
(121)
1,219
(546)
2,914 $
2,772
2,286
2,268
2,291
16,655
29,186 $
(11,269)
17,917
(1,326)
3,545
3,273
2,465
2,297
2,291
16,655
30,526
(11,390)
19,136
(1,872)
62
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Long-term portion of lease obligations
$
673 $
16,591 $
17,264
As of December 31, 2018, future minimum lease payments under finance leases and operating leases
were as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Total lease payments
Less—portion representing interest
Present value of lease obligations
Less—current portion of lease obligations
Long-term portion of lease obligations
Finance
Leases
Operating
Leases
Total
3,524 $
2,784
2,334
2,333
2,213
6,340
19,528 $
4,581
3,160
2,586
2,333
2,213
6,340
21,213
$
$
$
1,057 $
376
252
—
—
—
1,685 $
(147)
1,538
(967)
571
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company is subject to legal proceedings or claims that arise in the ordinary
course of its business. The Company accrues for costs related to loss contingencies when such costs are
probable and reasonably estimable. As of December 31, 2019, the Company is not aware of any material
pending legal proceedings or threatened litigation that would have a material adverse effect on the
Company’s results of operations, financial condition or cash flows, although no assurance can be given with
respect to the ultimate outcome of pending actions. Refer to Note 18, “Legal Proceedings” of these
consolidated financial statements for further discussion of legal proceedings.
Environmental Compliance and Remediation Liabilities
The Company’s operations and products are subject to a variety of environmental laws and
regulations in the jurisdictions in which the Company operates and sells products governing, among other
things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and
groundwater contamination, employee health and safety, and product content, performance and packaging.
Also, certain environmental laws can impose the entire cost or a portion of the cost of investigating and
cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including
the current or previous owners or operators of the site. These environmental laws also impose liability on
any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third
parties may also make claims against owners or operators of sites and users of disposal sites for personal
injuries and property damage associated with releases of hazardous substances from those sites.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Collateral
In select instances, the Company has pledged specific inventory and machinery and equipment
assets to serve as collateral on related payable or financing obligations.
Warranty Liability
The Company provides warranty terms that generally range from one to five years for various
products and services relating to workmanship and materials supplied by the Company. In certain contracts,
the Company has recourse provisions for items that would enable the Company to pursue recovery from
third parties for amounts paid to customers under warranty provisions.
Liquidated Damages
In certain customer contracts, the Company has agreed to pay liquidated damages in the event of
qualifying delivery or production delays. These damages are typically limited to a specific percentage of the
value of the product in question and dependent on actual losses sustained by the customer. When the
damages are determined to be probable and estimable, the damages are recorded as a reduction to revenue.
During 2019 and 2018, the Company incurred no liquidated damages and there was no reserve for
liquidated damages as of December 31, 2019.
Workers’ Compensation Reserves
As of December 31, 2019 and 2018, the Company had $115 and $374, respectively, accrued for
self‑insured workers’ compensation liabilities. At the beginning of the third quarter of 2013, the Company
began to self‑insure for its workers’ compensation liabilities, including reserves for self‑retained losses. The
Company entered into a guaranteed workers’ compensation cost program at the beginning of the third
quarter of 2016, but still maintains a liability for the trailing claims for the self-insured policy periods.
Although the ultimate outcome of these matters may exceed the amounts recorded and additional losses may
be incurred, the Company does not believe that any additional potential exposure for such liabilities will
have a material adverse effect on the Company’s consolidated financial position or results of operations.
Health Insurance Reserves
As of December 31, 2019 and 2018, the Company had $344 and $450, respectively, accrued for
health insurance liabilities. The Company self‑insures for its health insurance liabilities, including
establishing reserves for self‑retained losses. Historical loss experience combined with actuarial evaluation
methods and the application of risk transfer programs are used to determine required health insurance
reserves. The Company takes into account claims incurred but not reported when determining its health
insurance reserves. Health insurance reserves are included in accrued liabilities. While the Company’s
management believes that it has adequately reserved for these claims, the ultimate outcome of these matters
may exceed the amounts recorded and additional losses may be incurred.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Other
As of December 31, 2019, approximately 18% of the Company’s employees were covered by two
collective bargaining agreements with local unions at the Company’s Cicero, Illinois and Neville Island,
Pennsylvania locations. The current five-year collective bargaining agreement with the Neville Island union
is expected to remain in effect through October 2022. During the third quarter of 2018, a new collective
bargaining agreement was negotiated and ratified with the Cicero Union. The new four-year collective
bargaining agreement with the Cicero union is expected to remain in effect through February 2022.
12. FAIR VALUE MEASUREMENTS
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly
transaction between market participants at the measurement date. Additionally, the Company is required to
provide disclosure and categorize assets and liabilities measured at fair value into one of three different
levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable
measure of fair value while Level 3 generally requires significant management judgment. Financial assets
and liabilities are classified in their entirety based on the lowest level of input significant to the fair value
measurement. Financial instruments are assessed quarterly to determine the appropriate classification within
the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and
type of the observable inputs. The fair value hierarchy is defined as follows:
Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or
liabilities.
Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or
quoted prices in markets that are not active for which significant inputs are observable, either directly or
indirectly. For the Company’s corporate and municipal bonds, although quoted prices are available and used
to value said assets, they are traded less frequently.
Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value measurement. Inputs reflect management’s best
estimate of what market participants would use in valuing the asset or liability at the measurement date.
Fair value of financial instruments
The carrying amounts of the Company’s financial instruments, which include cash, restricted cash,
A/R, 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.
65
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the
variability of LIBOR for its floating rate debt described in Note 9, “Debt and Credit Agreements,” of these
consolidated financial statements. The fair value of the interest rate swap is reported in “Accrued liabilities”
and the change in fair value is reported in “Interest expense, net” of these consolidated financial statements.
The fair value of the interest rate swap is estimated as the net present value of projected cash flows based on
forward interest rates at the balance sheet date.
The following tables represent the fair values of the Company’s financial assets measured as of
December 31, 2019 and 2018:
Liabilities measured on a recurring basis:
Interest rate swap
Total liabilities at fair value
Assets measured on a nonrecurring basis:
Customer relationships
Total assets at fair value
13. INCOME TAXES
December 31, 2019
Level 1
Level 2
Level 3
Total
$
$
— $
— $
78 $
78 $
— $
— $
78
78
Level 1
Level 2
Level 3
Total
December 31, 2018
$
$
— $
— $
— $
— $
1,852 $
1,852 $
1,852
1,852
The provision for income taxes for the years ended December 31, 2019 and 2018 consists of the
following:
Current provision
Federal
Foreign
State
Total current benefit
Deferred credit
Federal
State
Total deferred credit
Increase (decrease) in deferred tax valuation allowance
Total provision (benefit) for income taxes
For the Years Ended December 31,
2019
2018
$
$
—
—
57
57
(558)
(453)
(1,011)
992
38
$
$
—
—
98
98
(3,978)
(2,963)
(6,941)
6,638
(205)
During the year ended December 31, 2019, the Company recorded an expense for income taxes of
$38, compared to a benefit for income taxes of $205 during the year ended December 31, 2018.
The total change in the deferred tax valuation allowance was $992 and $6,638 for the years ended
December 31, 2019 and 2018, respectively. The changes in the deferred tax valuation allowances in 2019
and 2018 were primarily the result of increases to the deferred tax assets pertaining
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
to federal and state NOLs. Management believes that significant uncertainty exists surrounding the
recoverability of deferred tax assets. As a result, the Company recorded a valuation allowance against the
deferred tax assets.
The tax effects of the temporary differences and NOLs that give rise to significant portions of
deferred tax assets and liabilities are as follows:
Noncurrent deferred income tax assets:
Net operating loss carryforwards
Intangible assets
Accrual and reserves
Other
Total noncurrent deferred tax assets
Valuation allowance
Noncurrent deferred tax assets, net of valuation allowance
Noncurrent deferred income tax liabilities:
Fixed assets
Total noncurrent deferred tax liabilities
Net deferred income tax liability
As of December 31,
2019
2018
67,014 $
5,040
2,462
77
74,593
(74,121)
472
476
476
(4) $
63,906
7,261
2,502
19
73,688
(73,129)
559
593
593
(34)
$
$
Valuation allowances of $74,121 and $73,129 have been provided for deferred income tax assets for
which realization is uncertain as of December 31, 2019 and 2018, respectively. A reconciliation of the
beginning and ending amounts of the valuation is as follows:
Valuation allowance as of December 31, 2018
Gross increase for current year activity
Valuation allowance as of December 31, 2019
$
$
(73,129)
(992)
(74,121)
As of December 31, 2019, the Company had federal and unapportioned state NOL carryforwards of
approximately $258,834 of which $227,781 will begin to expire in 2026. The majority of the NOL
carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018
will not expire.
The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective
income tax rate is as follows:
Statutory U.S. federal income tax rate
State and local income taxes, net of federal income tax benefit
Permanent differences
Change in valuation allowance
Other
Effective income tax rate
67
For the Year Ended
December 31,
2019
2018
21.0 %
2.0
(0.4)
(23.1)
(0.5)
(1.0)%
21.0 %
3.2
(4.4)
(18.7)
(0.3)
0.8 %
Table of Contents
BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition
threshold for a tax position taken, or expected to be taken, in a tax return that is required to be met before
being recognized in the financial statements. The Company recognizes interest and penalties related to
uncertain tax positions as income tax expense. As of December 31, 2019, the Company had no
unrecognized tax benefits that could impact the income tax expense.
The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31,
2019, open tax years in the federal and some state jurisdictions date back to 1996 due to the taxing
authorities’ ability to adjust NOL carryforwards. The Company’s 2008 and 2009 federal tax returns were
examined in 2011 and no material adjustments were identified related to any of the Company’s tax
positions. Although these periods have been audited, they continue to remain open until all NOLs generated
in those tax years have either been utilized or expire.
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 this section 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, the Company has determined that aggregate
changes in stock ownership have resulted in an annual limitation of $14,284 on NOLs and built‑in losses
available for utilization based on the triggering event in 2010. To the extent the Company’s use of NOL
carryforwards and associated built‑in losses is significantly limited in the future due to additional changes in
stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would
if the Company were able to use NOL carryforwards and built‑in losses without such annual limitation,
which could result in lower profits and the loss of the majority of the benefits from these attributes.
In February 2013, the Company adopted a Stockholder Rights Plan, which was amended in February
2016 and approved by our stockholders (as amended, the “Rights Plan”), designed to preserve the
Company’s substantial tax assets associated with NOL carryforwards under Section 382 of the IRC. On
February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan
for an additional three years, which was subsequently approved by the Company’s stockholders at the 2019
Annual Meeting of Stockholders held on April 23, 2019 (the “2019 Annual Meeting of Stockholders”).
The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates
and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock
and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection
with the adoption of the Rights Plan, the Board declared a 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
68
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
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.
14. SHARE‑‑BASED COMPENSATION
Overview of Share‑‑Based Compensation Plan
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 (a) to 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) to advance the interests of the Company by attracting and retaining
officers, other employees, non-employee directors and independent contractors; and (c) to 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
Section 422 of the IRC); (iii) stock appreciation rights; (iv) restricted stock and restrictive stock units; and
(v) performance awards.
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.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
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 December 31, 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 December 31,
2019, 567,009 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 1,356,915 shares of common
stock remained reserved for issuance upon the exercise of stock options outstanding under the 2015 EIP.
Stock option activity during the year ended December 31, 2019 under the Equity Incentive Plans
was as follows:
Weighted Average Aggregate Intrinsic
Outstanding as of December 31, 2018
Expired
Outstanding as of December 31, 2019
Exercisable as of December 31, 2019
56,862 $
(2,500) $
54,362 $
54,362 $
15.06
99.90
11.16
11.16
2.72 $
— $
1.81 $
1.81 $
Options
Weighted Average
Exercise Price
Remaining
Contractual Term
Value
(in thousands)
—
—
—
—
The following table summarizes information with respect to all outstanding and exercisable stock
options under the Equity Incentive Plans as of December 31, 2019:
Options Outstanding
Options Exercisable
Weighted Average
Exercise Price or Range
outstanding
Number of options
Weighted Average
Exercise Price
Remaining
Contractual Term
Number
Exercisable
Weighted Average
Exercise Price
$3.39 - $13.50
$54.40
49,039 $
5,323
54,362 $
$
6.47
54.40
11.16
1.99 years
0.19 years
1.81 years
49,039 $
5,323
54,362 $
$
6.47
54.40
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
subjective variables. These variables include, but are not limited to, the Company’s expected stock price
volatility over the expected life of the awards and actual and projected stock option exercise behavior. There
were no stock options granted during the twelve months ended December 31, 2019 and 2018.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
The following table summarizes information with respect to outstanding RSUs and PSUs under the
Equity Incentive Plans as of December 31, 2019 and 2018:
Unvested as of December 31, 2018
Granted
Vested
Forfeited
Unvested as of December 31, 2019
Number of Shares
Weighted Average
Grant-Date Fair Value
Per Share
805,844 $
905,321 $
(272,351) $
(81,899) $
1,356,915 $
3.16
1.92
3.05
2.56
2.39
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.
During the years ended December 31, 2019 and 2018, the Company utilized a forfeiture rate of 25% for
estimating the forfeitures of stock compensation granted.
The following table summarizes share‑based compensation expense, net of taxes withheld, included
in the Company’s consolidated statements of operations for the years ended December 31, 2019 and 2018 as
follows:
Share-based compensation expense:
Cost of sales
Selling, general and administrative
Net effect of share-based compensation expense on net income
Reduction in earnings per share:
Basic earnings per share
Diluted earnings per share
For the Years Ended
December 31,
2019
2018
$
$
$
$
99
859
958
0.06
0.06
$
$
$
$
99
704
803
0.05
0.05
(1)
Income tax benefit is not illustrated because the Company is currently in a full tax valuation allowance position and an actual
income tax benefit was not realized for the years ended December 31, 2019 and 2018. The result of the income (loss) situation
creates a timing difference, resulting in a deferred tax asset, which is fully reserved for in the Company’s valuation allowance.
As of December 31, 2019, the Company estimates that pre‑tax compensation expense for all
unvested share‑based RSUs and PSUs in the amount of approximately $1,537 will be recognized through
the year 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.
15. SEGMENT REPORTING
The Company is organized into reporting segments based on the nature of the products offered and
business activities from which it earns revenues and incurs expenses for which discrete financial
information is available and regularly reviewed by the Company’s chief operating decision maker.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
During the first quarter of 2019, the Company revised its segment presentation by moving its Abilene
compressed natural gas and industrial fabrication business from the Industrial Solutions segment to
the Heavy Fabrications segment. The Company believes that this change more appropriately aligns its
businesses in terms of the nature of its products and services, as well as its production processes and
customers. The Company has restated prior periods presented to reflect this change. In conjunction with the
Company’s rebranding initiative, the Company renamed certain segments. See Note 1 “Description of
Business and Summary of Significant Accounting Policies” of these consolidated financial statements for
further discussion of the renamed segments.
The Company’s segments and their product offerings are summarized below:
Heavy Fabrications
The Company provides large, complex and precision fabrications to customers in a broad range of
industrial markets. The Company’s most significant presence is within the U.S. wind energy industry,
although it has diversified into other industrial markets in order to improve capacity utilization, reduce
customer concentrations, and reduce exposure to uncertainty related to governmental policies currently
impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the Company provides steel
towers and adapters primarily to wind turbine manufacturers. Production facilities, located in Manitowoc,
Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy
and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of
up to approximately 550 tower towers (1650 tower sections), sufficient to support turbines generating more
than 1,100 MW of power. The Company has expanded production capabilities and leveraged manufacturing
competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and OEM
components utilized in surface and underground mining, construction, material handling, O&G and other
infrastructure markets.
Gearing
The Company provides gearing and gearboxes to a broad set of customers in diverse markets
including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy,
steel, material handling and other infrastructure markets. The Company has manufactured loose gearing,
gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a
century. The Company uses an integrated manufacturing process, which includes machining and finishing
processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.
Industrial Solutions
The Company provides supply chain solutions, inventory management, kitting and assembly
services, primarily serving the combined cycle natural gas turbine market.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
Corporate and Other
“Corporate” includes the assets and SG&A expenses of the Company’s corporate office.
“Eliminations” comprises adjustments to reconcile segment results to consolidated results.
The accounting policies of the reportable segments are the same as those referenced in Note 1,
“Description of Business and Summary of Significant Accounting Policies” of these consolidated financial
statements. Summary financial information by reportable segment is as follows:
For the Year Ended December 31, 2019
$
Revenues from external customers
Intersegment revenues
Net revenues
Operating profit (loss)
Depreciation and amortization
Capital expenditures
Total assets
Heavy
Fabrications
Gearing
Industrial
Solutions
Corporate Eliminations Consolidated
128,686 $ 34,877
—
34,877
—
128,686
$
1,861
3,976
3,237
1,981
992
41,432
769
47,022
14,657 $
7
14,664
(1,059)
1,362
52
— $
—
—
(6,396)
178
31
8,893 239,629
— $
(7)
(7)
—
—
—
(214,110)
178,220
—
178,220
(2,357)
7,497
1,844
122,866
Heavy
Fabrications
Gearing
Industrial
Solutions
Corporate Eliminations Consolidated
For the Year Ended December 31, 2018
Revenues from external customers
$
Intersegment revenues
Net revenues
Operating (loss) profit
Depreciation and amortization
Capital expenditures
Total assets
74,625 $
42
74,667
(5,440)
5,145
1,472
34,839
38,376 $
—
38,376
51
2,255
706
37,028
12,379 $
88
12,467
(15,348)
1,550
—
11,758
— $
—
—
(4,329)
233
146
243,867
— $
(130)
(130)
—
—
—
(228,327)
125,380
—
125,380
(25,066)
9,183
2,324
99,165
The Company generates revenues entirely from transactions completed in the U.S. and its long‑lived
assets are all located in the U.S. All intercompany revenue is eliminated in consolidation. During 2019, one
customer accounted for more than 10% of total net revenues and had an accounts receivable balance greater
than 10% of current assets. This customer accounted for revenues of $110,693 and account receivables of
$8,428 for fiscal year 2019 and is reported within the Heavy Fabrications segment. At December 31, 2019,
no other customer had an account receivables balance greater than 10% of current assets. During 2018, two
customers accounted for more than 10% of total net revenues or $72,851 in revenue for fiscal year 2018,
with one reported within the Heavy Fabrications segment and one reported within the Gearing segment. At
December 31, 2018, no customer had an accounts receivable balance greater than 10% of current assets.
During the years ended December 31, 2019 and 2018, five customers accounted for 79% and 78%,
respectively, of total net revenues.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
16. EMPLOYEE BENEFIT PLANS
Retirement Savings and Profit Sharing Plans
Retirement Savings and Profit Sharing Plans
The Company offers a 401(k) retirement savings plan to all eligible employees who may elect to
contribute a portion of their salary on a pre‑tax basis, subject to applicable statutory limitations. As of
December 31, 2019, all employees are eligible to receive safe harbor matching contributions equal to 100%
of the first 3% of the participant’s elective deferral contributions and 50% of the next 2% of the
participant’s elective deferral contributions. The Company has the discretion, subject to applicable statutory
requirements, to fund any matching contribution with a contribution to the plan of the Company’s common
stock. The Company periodically evaluates whether to fund the matching contribution in cash or in the
Company’s common stock. Under the plan, elective deferrals and basic Company matching is 100% vested
at all times.
For the years ended December 31, 2019 and 2018, the Company recorded expense under these plans
of approximately $1,002 and $812, respectively.
Deferred Compensation Plan
The Company maintains a deferred compensation plan for certain key employees and nonemployee
directors, whereby certain wages earned, compensation for services rendered, and discretionary
company‑matching contributions may be deferred and deemed to be invested in the Company’s common
stock. Changes in the fair value of the plan liability are recorded as charges or credits to compensation
expense. Compensation expense associated with the deferred compensation plan recorded during the years
ended December 31, 2019 and 2018 was $3 and $(13). The fair value of the plan liability to the Company is
included in accrued liabilities in the Company’s consolidated balance sheets. As of December 31, 2019 and
2018, the fair value of plan liability to the Company was $15 and $12, respectively.
In addition to the employee benefit plans described above, the Company participates in certain
customary employee benefits plans, including those which provide health and life insurance benefits to
employees.
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
17. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following table provides a summary of selected financial results of operations by quarter for the
years ended December 31, 2019 and 2018 as follows:
2019
Revenues
Gross profit
Operating loss
Loss from continuing operations, net of tax
Net loss
Loss from continuing operations per share:
Basic
Diluted
Net loss per share:
Basic
Diluted
2018
Revenues
Gross (loss) profit
Operating loss
Loss from continuing operations, net of tax
Net loss
Loss from continuing operations per share:
Basic
Diluted
Net loss per share:
Basic
Diluted
18. LEGAL PROCEEDINGS
$
$
$
$
$
$
First
Second
Third
Fourth
41,660 $
3,537
(494)
(1,043)
(1,042)
41,169 $
3,892
(206)
(1,018)
(1,018)
46,138 $
3,994
(258)
(898)
(898)
(0.07) $
(0.07) $
(0.06) $
(0.06) $
(0.06) $
(0.06) $
(0.07) $
(0.07) $
(0.06) $
(0.06) $
(0.06) $
(0.06) $
49,253
3,989
(1,399)
(1,627)
(1,565)
(0.09)
(0.09)
(0.09)
(0.09)
First
Second
Third
Fourth
29,967 $
(132)
(4,537)
(4,811)
(4,838)
36,781 $
2,223
(5,736)
(6,083)
(6,116)
31,445 $
1,486
(2,612)
(750)
(783)
$
$
(0.32) $
(0.32) $
(0.40) $
(0.40) $
(0.05) $
(0.05) $
$
$
(0.32) $
(0.32) $
(0.40) $
(0.40) $
(0.05) $
(0.05) $
27,187
(512)
(12,181)
(12,358)
(12,409)
(0.79)
(0.79)
(0.79)
(0.79)
The Company is party to a variety of legal proceedings that arise in the normal course of its
business. While the results of these legal proceedings cannot be predicted with certainty, management
believes that the final outcome of these proceedings will not have a material adverse effect, individually or
in the aggregate, on the Company’s results of operations, financial condition or cash flows. Due to the
inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company’s results of operations, financial
condition or cash flows. It is possible that if one or more litigation matters were decided against the
Company, the effects could be material to the Company’s results of operations in the period in which the
Company would be required to record or adjust the related liability and could
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BROADWIND ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
(in thousands, except share and per share data)
also be material to the Company’s financial condition and cash flows in the periods the Company would be
required to pay such liability.
19. RESTRUCTURING
During 2018, the Company conducted a review of its business strategies and product plans given the
outlook of the industries it serves and its business environment. As a result, the Company executed a
restructuring plan to rationalize its facility capacity and management structure, and to consolidate and
increase the efficiencies of its Abilene facility operations. The Company exited the market for natural gas
compression units and transferred remaining operations from a leased facility in Abilene, TX into other
production locations. The Company vacated the leased Abilene facility in 2018 and incurred costs totaling
$12 and $668 for the years ended December 31, 2019 and 2018, respectively. In conjunction with this
initiative, all costs associated with this vacated facility were recorded as restructuring expenses within the
Heavy Fabrications segment. Our restructuring activities concluded in 2019.
The Company’s total net restructuring charges for the years ended December 31, 2019 and 2018
consist of the following:
Cost of sales:
Facility costs
Moving and remediation
Salary and severance
Depreciation
Total cost of sales
Selling, general, and administrative expenses:
Salary and severance
Total selling, general, and administrative expenses
Grand Total
76
For the Years Ended December 31,
2019
2018
$
$
2
10
—
—
12
—
—
12
$
$
249
33
17
332
631
37
37
668
Table of Contents
Exhibit
Number
2.1
3.1
3.2
INDEX TO EXHIBITS
Description
Membership Interest Purchase Agreement dated as of February 1, 2017, by and among the
Company, Christopher J. Brice , Lewis J. Hendrix and Kimberley M. Sutton (incorporated by
reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 1, 2017)
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Company’s Quarterly Report on Form 10‑Q for the quarterly period ended June 30, 2008)
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 8‑K 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 8‑K filed
May 23, 2014)
4.1
Section 382 Rights Agreement dated as of February 12, 2013 between the Company and
Equiniti Trust Company, as rights agent, which includes the Form of Rights Certificate as
Exhibit B thereto (incorporated by reference to Exhibit 1 to the Company’s Registration
Statement on Form 8‑A filed February 13, 2013)
4.2
Certificate of Designation of Series A Junior Participating Preferred Stock of the Company
(incorporated by reference to Exhibit 2 to the Company’s Registration Statement on Form 8‑A
filed February 13, 2013)
4.3
First Amendment to Section 382 Rights Agreement dated as of February 2, 2016 between the
Company and Equiniti Trust Company, as rights agent (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 8, 2016)
4.4
Second Amendment to Section 382 Rights Agreement dated as of February 7, 2019 between
the Company and Equiniti Trust Company, as rights agent (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 12, 2019)
4.5
Description of Securities (filed herewith)
10.1
Lease Agreement dated December 26, 2007 between Tower Tech Systems Inc. and City
Centre, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2007)
10.2
Amended and Restated Lease for Industrial/Manufacturing Space dated as of May 1, 2010
between Tower Tech Systems Inc. and City Centre, LLC (incorporated by reference to Exhibit
10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2010)
10.3†
Severance and Non-Competition Agreement, dated as of December 15, 2011 between the
Company and Robert R. Rogowski (incorporated by reference to Exhibit 10.26 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014)
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10.4†
Severance and Non-Competition Agreement, dated as of July 8, 2014 between the Company
and Erik W. Jensen (incorporated by reference to Exhibit 10.27 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2014)
10.5†
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010)
10.6†
Broadwind Energy, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit A to
the Company’s Schedule 14A filed on March 12, 2015)
10.7†
Form of Executive Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended
June 30, 2010)
10.8†
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31,
2012)
10.9†
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to
the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31,
2012)
10.10† Form of Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2012)
10.11† Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (incorporated by
reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2015)
10.12† Form of Restricted Stock Unit Award Agreement (Extended Executive Team) (incorporated by
reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2015)
10.13† Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.37
to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
10.14† Broadwind Energy, Inc. 2015 Equity Incentive Plan Restricted Stock Unit Award Notice
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2018)
10.15† Second Amended and Restated Employment Agreement, dated May 20, 2016, between the
Company and Stephanie K. Kushner (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed May 24, 2016)
10.16
Amended and Restated Loan and Security Agreement, dated February 25, 2019, among the
Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc.,
Red Wolf Company, LLC, the other Loan Parties and Lenders party thereto, and CIBC Bank
USA, as Administrative Agent and Sole Lead Arranger (incorporated by reference to Exhibit
10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2018)
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Table of Contents
10.17† Severance and Non-Competition Agreement, dated October 23, 2017, between the Company
and Jason L. Bonfigt (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K/A filed November 28, 2017)
10.18† Severance and Non-Competition Agreement, dated as of May 4, 2018, between the Company
and Eric Blashford (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed May 3, 2018)
10.19
At Market Issuance Sales Agreement, dated July 31, 2018, by and among the Company and
Roth Capital Partners, LLC (incorporated by reference to Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed July 31, 2018)
10.20† Form of Performance Award Agreement (Broadwind Energy, Inc. 2015 Equity Incentive Plan)
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2019)
10.21† Form of Performance Award Agreement (Amended and Restated Broadwind Energy, Inc.
2015 Equity Incentive Plan) (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019)
10.22† Form of Performance Award Agreement dated April 23, 2019 between the Company and
Stephanie K. Kushner (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2019)
10.23† Restricted Stock Award Agreement dated April 23, 2019 between the Company and Stephanie
K. Kushner (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2019)
10.24† Amended and Restated Broadwind Energy, Inc. 2015 Equity Incentive Plan (incorporated by
reference to Exhibit D to the Company’s Schedule 14A filed on March 11, 2019)
10.25† Separation Agreement, dated December 23, 2019 between the Company and Erik W. Jensen
21
23
31.1
31.2
32.1
(filed herewith)
Subsidiaries of the Registrant (filed herewith)
Consent of RSM LLP (filed herewith)
Rule 13a‑14(a) Certification of Chief Executive Officer (filed herewith)
Rule 13a‑14(a) Certification of Chief Financial Officer (filed herewith)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith)
32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith)
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101
The following financial information from this Form 10-K of Broadwind Energy, Inc. for the
year ended December 31, 2019, formatted in iXBRL (inline eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii)
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018, (iii)
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and
2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2019 and
2018, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
† Indicates management contract or compensation plan or arrangement.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 27 day of February, 2020.
th
BROADWIND ENERGY, INC.
By:
/s/ Stephanie K. Kushner
Stephanie K. Kushner
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Stephanie K. Kushner
Stephanie K. Kushner
President, Chief Executive Officer, and
Director (Principal Executive Officer)
February 27, 2020
/s/ Jason L. Bonfigt
Jason L. Bonfigt
/s/ David P. Reiland
David P. Reiland
/s/ Philip J. Christman
Philip J. Christman
/s/ Terence P. Fox
Terence P. Fox
/s/ Thomas A. Wagner
Thomas A. Wagner
/s/ Cary B. Wood
Cary B. Wood
Vice President and Chief Financial Officer
(Principal Financial Officer)
February 27, 2020
Director and Chairman of the Board
February 27, 2020
Director
Director
Director
Director
81
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
EXHIBIT 4.5
BROADWIND ENERGY, INC.
DESCRIPTION OF SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.5
The authorized capital stock of Broadwind Energy, Inc. (the “Company,” “Broadwind” or “us”) consists of 30,000,000
shares of common stock, par value $0.001 per share, and 10,000,000 shares of undesignated stock, par value $0.001 per share,
which may be designated as one or more series of preferred stock by resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors, 30,000 shares of which have been designated Series A Junior Participating Preferred
Stock.
The following description of the terms of our securities is not complete and is qualified in its entirety by reference to the
Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”), the Company’s Second Amended and
Restated Bylaws (the “Bylaws”), and the Rights Agreement (as defined below), all of which are exhibits to our Annual Report on
Form 10-K.
Common Stock
The holders of common stock are entitled to one vote for each outstanding share of common stock owned by that
stockholder on every matter properly submitted to the stockholders for their vote. Generally, all matters to be voted on by
stockholders must be approved by a majority in voting power of the stock having voting power present in person or represented
by proxy. However, questions governed expressly by provisions of the certificate of incorporation, bylaws, applicable stock
exchange rules or applicable law require approval as set forth in the applicable governing document, stock exchange rule or law.
The election of directors shall be by majority of the votes cast (meaning the number of shares voted “for” a nominee must exceed
the number of shares voted “against” such nominee) with “abstentions” and “broker non-votes” not counted as a vote cast either
“for” or “against” that nominee’s election, and there is no cumulative voting for the election of directors; provided that at a
meeting for the election of directors at which there are one or more stockholder nominees, directors shall be elected by a plurality
of the votes cast on the election of directors.
The holders of common stock will be entitled to such dividends and other distributions of cash or any other right or
property as may be declared by the Board of Directors out of the assets or funds legally available for such dividends or
distributions.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company’s affairs, holders of
common stock would be entitled to share ratably, based upon the number of shares held, in assets that are legally available for
distribution to stockholders after payment of liabilities. If there is any preferred stock outstanding at such time, holders of the
preferred stock may be entitled to distribution and/or liquidation preferences.
The Certificate of Incorporation provides that holders of common stock shall not have any preference, preemptive right,
or right of subscription, other than to the extent, if any, the Board of Directors may determine from time to time.
Provisions of the Company’s Certificate of Incorporation, Bylaws and Delaware Law that May Have an Anti-Takeover Effect
Certificate of Incorporation and Bylaws. The Certificate of Incorporation and Bylaws provide that a special meeting of
stockholders may be called only by the Chairman of the Board, Chief Executive Officer, or the Secretary of the
Company. Stockholders are not permitted to call, or to require that the Board of Directors call, a special meeting of stockholders.
Delaware Takeover Statute. The Certificate of Incorporation provides that the Company will not be subject to Section
203 of the Delaware General Corporation Law (the “DGCL”), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any “business combination” (as defined below) with any “interested stockholder” (as defined
below) for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to
such date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) on consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those
shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 of the DGCL defines “business combination” to include: (i) any merger or consolidation involving the
corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the
corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 of the
DGCL defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.
Rights to Acquire Series A Junior Participating Preferred Stock
Broadwind has adopted, and it stockholders have approved, a Section 382 stockholders rights plan and declared a
dividend distribution of one right for each outstanding share of our common stock to stockholders of record at the close of
business on February 22, 2013. Each right entitles its holder, under the circumstances described below, to purchase from us one
one-thousandth of a share of our Series A Junior Participating Preferred Stock at an exercise price of $4.25 per right, subject to
adjustment. The terms of the rights are set forth in a Section 382 Rights Agreement between us and Wells Fargo Bank, N.A., as
rights agent, as amended (the “Rights Agreement”).
The rights plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being
or becoming the beneficial owner of 4.9% or more of common stock, with certain exceptions (any such person or group is
referred to as an “acquiring person”). A person shall be deemed to be a “beneficial owner” of, and shall be deemed to
“beneficially own,” any securities that such person is deemed to constructively own under Section 382 of the Code and the
Treasury Regulations thereunder (including pursuant to the “option” rules of Treasury Regulation Section 1.382-4), that such
person would be deemed to own together with any other persons as a single “entity” under Treasury Regulations Section 1.382-
3(a)(1), or that otherwise would be aggregated with securities owned by such person pursuant to Section 382 of the Code and the
Treasury Regulations thereunder.
A stockholder who together with its affiliates and associates beneficially owned 4.9% or more of common stock as of
February 12, 2013 is deemed not to be an “acquiring person,” so long as such stockholder does not acquire any additional shares
of common stock without the prior written approval of Broadwind, other than pursuant to or as a result of (a) a reduction in the
amount of common stock outstanding; (b) any unilateral grant of any common stock by Broadwind or (c) any issuance of
common stock by Broadwind or any share dividend, share split or similar transaction effected by Broadwind in which all holders
of common stock are treated equally. Such a stockholder is a “grandfathered person” for purposes of the rights plan.
The board of directors of Broadwind may, in its sole discretion, exempt any person or group who would otherwise be an
acquiring person from being deemed an acquiring person for purposes of the rights plan if it determines at any time prior to the
time at which the rights are no longer redeemable that the beneficial ownership of such person would not jeopardize, endanger or
limit (in timing or amount) the availability of Broadwind’s net operating losses and other tax benefits. Any such person or group
is an “exempted person” under the rights plan. The board of directors, in its sole discretion, may subsequently make a contrary
determination and such person would then become an acquiring person.
An “exempted transaction” is a transaction that the board of directors determines is an exempted transaction and, unlike
the determination of an exempted person, such determination is irrevocable.
Initially, the rights are associated with our common stock and evidenced by common stock certificates or, in the case of
uncertificated shares of common stock, the book-entry records evidencing the common stock, and are transferable with and only
with the underlying shares of common stock. Subject to certain exceptions, the rights become exercisable and trade separately
from the common stock only upon the “distribution date,” which occurs upon the earlier of (i) ten days following a public
announcement (such date, the “stock acquisition date”) that a an acquiring person has acquired, or obtained the right to acquire,
beneficial ownership of 4.9% or more of our outstanding shares of common stock, or (ii) ten business days (or later date if
determined by our board of directors prior to such time as any person or group becomes an acquiring person) following the
commencement of a tender offer or exchange offer which, if consummated, would result in a person or group becoming an
acquiring person.
In addition, if Broadwind’s board of directors determines in good faith that a person became an acquiring person
inadvertently and such person divests as promptly as practicable a sufficient number of shares of common stock so that such
person would no longer be an acquiring person, then such person will not be deemed to be an acquiring person.
Until the distribution date, the surrender for transfer of any shares of common stock outstanding will also constitute the
transfer of the rights associated with those shares.
The rights are not exercisable until the distribution date and, unless earlier redeemed or exchanged by us as described
below, will expire upon the close of business on February 22, 2022, unless earlier terminated in accordance with the terms of the
Rights Plan.
In the event that a person or group becomes an acquiring person (a “flip-in event”), each holder of a right (other than any
acquiring person and certain related parties, whose rights automatically become null and void) will have the right to receive, upon
exercise, common stock having a value equal to two times the exercise price of the right. If an insufficient number of shares of
common stock is available for issuance, then our board of directors would be required to substitute cash, property or other
securities of Broadwind for the common stock. The rights may not be exercised following a flip-in event while Broadwind has the
ability to cause the rights to be redeemed, as described later in this summary.
In general, Broadwind may redeem the rights in whole, but not in part, at a price of $0.001 per right (subject to
adjustment and payable in cash, common stock or other consideration deemed appropriate by our board of directors) at any time
until ten days following the stock acquisition date. Immediately upon the action of the board of directors authorizing any
redemption, the rights will terminate and the only right of the holders of rights will be to receive the redemption price.
At any time after there is an acquiring person and prior to the acquisition by the acquiring person of 50% or more of the
outstanding shares of our common stock, we may exchange the rights (other than rights owned by the acquiring person which will
have become void), in whole or in part, at an exchange ratio of one share of common stock, or one one-thousandth of a share of
preferred stock (or of a share of a class or series of our preferred stock having equivalent rights, preferences and privileges), per
right (subject to adjustment).
Until a right is exercised, its holder will have no rights as a stockholder of Broadwind, including the right to vote or to
receive dividends. While the distribution of the rights will not result in the recognition of taxable income by us or our
stockholders, stockholders may, depending upon the circumstances, recognize taxable income after a triggering event.
Broadwind and the rights agent may from time to time amend or supplement the Section 382 Rights Agreement without
the consent of the holders of the rights. After the stock acquisition date, however, no amendment can materially adversely affect
the interests of the holders of the rights (other than the acquiring person or any affiliate or associate thereof).
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this “Agreement”) is made and entered into by and
between BROADWIND ENERGY, INC. (the “Company”) and ERIK W. JENSEN (the
“Employee”). Company and Employee are sometimes referred to hereinafter individually as a
“Party” and collectively as the “Parties.”
WHEREAS, the Parties have previously entered into that certain Severance and Non-
Competition Agreement dated as of July 8, 2014 (the “Non-Competition Agreement”); and
WHEREAS, the Parties desire to settle fully and amicably all issues between them, including,
but not limited to, any issues arising out of Employee’s employment with Company and the
termination of that employment, consistent with the terms of the Non-Competition Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises contained herein, and
for other good and sufficient consideration, receipt of which is hereby acknowledged, the Parties,
intending to be legally bound, agree as follows:
Section 1.Termination Date. As of the close of business on December 31, 2019 (the
“Termination Date”), Employee’s service as an officer of and employment with Company is
terminated and Employee irrevocably resigns from all positions with Company and any parents,
subsidiaries and affiliates of Company.
Section 2.Restrictive Covenants. Employee expressly acknowledges and agrees that the
terms, conditions and restrictions set forth in Section 1 of the Non-Competition Agreement shall
remain in full force and effect as provided therein following the termination of Employee’s
employment. Employee may seek Company’s written consent to engage in activities covered by
Section 1 of the Non-Competition Agreement, and the granting or denying of such consent shall be
provided in writing to Employee within ten (10) business days of Employee’s written request for such
consent and shall be within the sole discretion of Company.
Section 3.Benefits. Subject to Employee’s compliance with this Agreement and the
restrictive covenants set forth in Section 1 of the Non-Competition Agreement and Employee’s
timely execution of this Agreement and the Release pursuant to Section 7 of this Agreement,
Employee shall receive the severance benefits set forth in this Section 3 (collectively referred to
herein as the “Severance Benefits”).
(a)
(b)
Payment of Salary Benefit. Employee shall receive a cash severance
benefit of $113,625.50 (the “Salary Benefit”), which equals
Employee’s base salary for a period of six (6) months following the
Termination Date. The Salary Benefit shall be payable in equal
installments in accordance with Company’s normal payroll schedule
and the terms of the Non-Competition Agreement.
Outstanding Equity Awards. Employee’s rights with regard to any
outstanding equity award granted to Employee by Company
(c)
(d)
shall be governed by the applicable agreement relating to such award.
2019 Short Term Incentive Performance (STIP). The Employee
shall be entitled to any payments under the Company’s STIP for
periods prior to the Termination Date.
Healthcare Benefits. In accordance with the terms of the applicable
plans, Employee’s benefits under the Company’s healthcare benefit
program will end on December 31, 2019, the last day of the month in
which Employee’s employment with Company terminates. Employee
will be advised separately of his COBRA continuation rights in a
separate mailing. The timely election of COBRA continuation
coverage and the timely payment of all COBRA premiums is
Employee’s obligation alone.
Section 4.Final Paycheck and Business Expenses. Regardless of whether Employee signs
this Agreement, Company will pay Employee Employee’s final paycheck for Employee’s
employment services, and for Employee’s earned and unused vacation time, through the Termination
Date. Company also will reimburse Employee for reasonable business expenses appropriately
incurred by Employee prior to the Termination Date in furtherance of Employee’s employment with
Company, subject to Company’s applicable business expense reimbursement policy. Employee shall
submit all requests to Company for expense reimbursements within ten (10) days after the
Termination Date. Any requests submitted thereafter shall not be eligible for reimbursement, except
as required by applicable law.
Section 5.Employee Acknowledgement. Employee acknowledges and agrees that, subject to
fulfillment of all obligations provided for herein, Employee has been fully compensated by Company
for all amounts owed to Employee under the Non-Competition Agreement and Company's policies,
practices and rules, and any applicable law, and that nothing is owed to Employee with respect to
salaries, bonuses, benefits or any other form of compensation. Employee further acknowledges and
agrees that the Severance Benefits referred to in Section 3 are consideration for Employee’s promises
contained in this Agreement and the Release.
Section 6. Termination of Benefits. Except as provided in Section 3 above, Employee’s
participation in all employee benefit (pension and welfare) and compensation plans will cease as of
the Termination Date. Nothing contained herein shall limit or otherwise impair Employee’s right to
receive pension or similar benefit payments which are vested as of the Termination Date under any
applicable tax qualified pension or other tax qualified or non-qualified benefit plans, pursuant to the
terms and conditions of the applicable plan.
Section 7.Release of Claims. The benefits and payments to Employee provided under this
Agreement are subject to Employee’s execution of and delivery to Company by the thirtieth (30th)
day following the Termination Date of a Release and Waiver of Claims (the “Release”) in the form
attached hereto as Exhibit A and Employee not revoking such Release as set forth therein.
Section 8.Representations by Employee. Employee represents and warrants that (a)
Employee is legally competent to execute this Agreement; (b) Employee has not relied on any
statements or explanations made by Company or its attorneys with respect to this Agreement; (c)
Employee has read and understands the terms and effect of this Agreement; (d) Employee has the full
right and power to grant, execute and deliver the releases, undertakings and agreements contained in
this Agreement and in the Release; and (e) the releases and waiver of claims under this Agreement
and under the Release are in exchange for consideration in addition to anything of value to which
Employee already is entitled. Moreover, Employee hereby acknowledges that Employee has been
afforded the opportunity to be advised by legal counsel regarding the terms of this Agreement and of
Employee’s right to be advised by legal counsel regarding the terms of this Agreement, including the
release of all claims and waiver of rights set forth in the Release. Employee acknowledges that
Employee has been offered twenty-one (21) days to consider this Agreement. After being so advised,
and without coercion of any kind, Employee freely, knowingly and voluntarily enters into this
Agreement and this Agreement shall be effective on the date the Agreement has been duly executed
by both Parties (the “Effective Date”).
Section 9.Company Property.
(a)
(b)
Employee agrees to immediately return to Company all information,
property and supplies belonging to Company and/or its affiliates,
including without limitation, any company autos, keys (for equipment
or facilities), cellular phone, smart phone or PDA (including SIM
cards), security cards, corporate credit cards, and the originals and all
copies of all files, materials or documents (whether in tangible or
electronic form) containing Confidential Information (as defined in the
Non-Competition Agreement) or relating to Company’s and/or its
affiliates’ business; provided, however, that Employee shall be allowed
to keep his Company-issued laptop computer after Company has
removed all Confidential Information from same.
Employee agrees that Employee shall not, at any time on or after the
Termination Date, directly or indirectly use, access or in any way alter
or modify any of the databases, e mail systems, software, computer
systems or hardware or other electronic, computerized or technological
systems of Company. Employee acknowledges and agrees that any
such conduct by Employee would be illegal and could subject
Employee to legal action by Company, including, without limitation,
claims for damages and/or appropriate injunctive relief.
Section 10.Future Cooperation. In connection with any and all claims, disputes,
negotiations, governmental or internal investigations, lawsuits or administrative proceedings (the
“Legal Matters”) involving Company, or any of its current or former officers, employees or board
members (each, a “Disputing Party”), Employee agrees to make himself reasonably available and
provide his reasonable efforts, upon reasonable notice from Company and without the necessity of
subpoena, to provide information or documents, provide truthful declarations or statements regarding
a Disputing Party, meet with attorneys or other representatives of a
Disputing Party, prepare for and give truthful depositions or testimony, and/or otherwise cooperate in
the investigation, defense or prosecution of any or all such Legal Matters, as may, in the good faith
and judgment of Company, be reasonably requested. Employee will be compensated at the rate of
$175 per hour or any part thereof plus reasonable travel expenses for this cooperation.
Section 11.No Admissions. Nothing in this Agreement is intended to or shall be construed as
an admission by Company or any of the other Releasees (as defined in the Release) that any of them
violated any law, interfered with any right, breached any obligation or otherwise engaged in any
improper or illegal conduct with respect to Employee or otherwise. Company and the other
Releasees deny that they have taken any improper action against Employee, and Employee agrees
that this Agreement shall not be admissible in any proceeding as evidence of improper action by
Company or any of the Releasees.
Section 12.Non-Waiver. Company’s waiver of a breach of this Agreement by Employee
shall not be construed or operate as a waiver of any subsequent breach by Employee of the same or of
any other provision of this Agreement.
Section 13.Withholding. All amounts and benefits payable under this Agreement shall be
reduced by any and all required or authorized withholding and deductions.
Section 14.Choice of Law; Forum; Attorneys’ Fees. This Agreement is executed pursuant
to and is governed by the substantive law of Illinois without regard to choice-of-laws principles. All
claims shall be brought, commenced and maintained only in a state or federal court of competent
jurisdiction situated in the County of Cook, State of Illinois. Each Party hereby (i) consents to the
exercise of jurisdiction over his or its person and property by any court of competent jurisdiction
situated in the County of Cook, State of Illinois for the enforcement of any claim, case or controversy
based on or arising under this Agreement; (ii) waives any and all personal or other rights to object to
such jurisdiction for such purposes; and (iii) waives any objection which he or it may have to the
laying of venue of any such action, suit or proceeding in any such court.
Section 15.Entire Agreement. This Agreement sets forth the entire agreement of the Parties
with respect to the subject matter described herein and supersedes any and all prior and/or
contemporaneous agreements and understandings, oral and written, between the Parties regarding
such matters.
Section 16.Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the same
Agreement. Facsimile or other electronic transmission of any executed original document shall be
deemed to be the same as the delivery of the executed original.
Section 17.Enforcement. The provisions of this Agreement shall be regarded as divisible
and separable and if any provision should be declared invalid or unenforceable by a court of
competent jurisdiction (after reformation pursuant to Section 1(h) of the Non-Competition
Agreement, where applicable), the validity and enforceability of the remaining provisions shall not be
affected thereby. In addition, Employee agrees and stipulates that breach by Employee of restrictions
and requirements under this Agreement will cause irreparable damage to the Releasees and Company
would not have entered into this Agreement without
Employee binding himself to these restrictions and requirements. In the event of Employee’s breach
of this Agreement, in addition to and without prejudice to any other rights and remedies Company
may have for Employee’s breach of this Agreement, and without bond, Company shall be relieved of
any obligation to provide Severance Benefits pursuant to this Agreement and shall be entitled to an
injunction to prevent or restrain any such violation by Employee and any and all persons directly or
indirectly acting for or with Employee. Employee further stipulates that the restrictive period for
which Company is entitled to an injunction shall be extended in for a period which equals the time
period during which Employee is or has been in violation of the restrictions contained herein.
Section 18.Miscellaneous. The headings used in this Agreement are for convenience only,
shall not be deemed to constitute a part hereof, and shall not be deemed to limit, characterize or in
any way affect the construction or enforcement of the provisions of this Agreement. Wherever from
the context that it appears appropriate, each term stated in either the singular or plural shall include
the singular and the plural and the pronouns stated in either the masculine, feminine or the neuter
gender shall include the masculine, feminine and neuter, and the words “include,” “includes” and
“including” shall mean “include, without limitation,” “includes, without limitation” and “including,
without limitation,” respectively. The subject matter and language of this Agreement have been the
subject of negotiations between the Parties and their respective counsel, and this Agreement has been
jointly prepared by their respective counsel. Accordingly, this Agreement shall not be construed
against either Party on the basis that this Agreement was drafted by such Party or its counsel. This
Agreement shall be binding upon and inure to the benefit of Employee and Employee’s heirs and
personal representatives and Company and its successors, representatives and assigns. This
Agreement may be modified only in a written agreement signed by both Parties, and either Party’s
failure to enforce this Agreement in the event of one or more events which violate this Agreement
shall not constitute a waiver of any right to enforce this Agreement against subsequent
violations. The Section headings used herein are for convenience of reference only and are not to be
considered in construction of the provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the
respective dates set forth below.
_____________________________________
Erik W. Jensen
Date: December __, 2019
Broadwind Energy, Inc.
By:___________________________________
Name: Stephanie K. Kushner
Title: President and Chief Executive Officer
Date: December __, 2019
Exhibit A
Release and Waiver of Claims
Broadwind Energy, Inc. (the “Company”) and Erik W. Jensen (the “Employee”) hereby
enter into this Release and Waiver of Claims (the “Release”) in accordance with the Separation
Agreement between Company and Employee dated as of December ____, 2019 (the
“Agreement”). Capitalized terms not expressly defined in this Release have the meanings set forth in
the Agreement.
1.
2.
3.
Employee understands and agrees that Employee’s execution of this Release
within thirty (30) days after (but not before) the Termination Date, and his not
revoking it as provided for in Section 6 below, is among the conditions
precedent to Company’s obligation to provide any of the payments or benefits
set forth in Section 3 of the Agreement. Company will provide such payments
or benefits in accordance with the terms of the Agreement once the conditions
set forth therein and in this Release have been met.
The term “Releasees” as used in this Release includes: (a) Company and its
past, present and future parents, divisions, subsidiaries, affiliates and other
related entities (whether or not they are wholly owned); and (b) the past,
present and future owners, trustees, fiduciaries, administrators, shareholders,
directors, officers, agents, representatives, members, associates, employees and
attorneys of each entity listed in subpart (a) above; and (c) the predecessors,
successors and assigns of each person and entity listed in subparts (a) and (b)
above.
Employee, on his own behalf and that of his heirs, executors, attorneys,
administrators, successors, assigns and anyone claiming by or through
Employee or on his behalf, hereby waives and releases Company and the other
Releasees with respect to any and all liability, claims and demands Employee
now has or has ever had, whether currently known or unknown, against
Company or any of the other Releasees arising from or related to any act,
omission or thing occurring or existing at any time prior to or on the date on
which Employee signs this Release. Without limiting the generality of the
foregoing, the claims waived and released by Employee hereunder include, but
are not limited to:
a.
any and all claims arising from or relating to Employee’s
employment, the terms and conditions of Employee’s
employment, or the termination of Employee’s
employment, including, without limitation, any and all
claims relating to wages, bonuses, other compensation,
or benefits, and any and all claims arising from or
relating to any employment contract (including, without
limitation, the Non-Competition Agreement);
b.
c.
d.
e.
any and all claims arising from or relating to any
employment or other federal, state, local, employment or
other law, regulation, ordinance, constitutional
provision, court order or other source of law, including,
without limitation, any of the following laws as amended
from time to time: the United States Constitution or the
constitution of any state; Title VII of the Civil Rights
Act of 1964; the Civil Rights Act of 1991; the Illinois
Human Rights Act or similar applicable statute of any
other state; the Employee Retirement Income Security
Act of 1974; the Age Discrimination in Employment
Act; the Americans with Disabilities Act; the Equal Pay
Act; the Lilly Ledbetter Fair Pay Act of 2009; the
Family and Medical Leave Act; Employee Order 11246;
the Illinois Equal Pay Act; the Cook County Human
Rights Ordinance; and any other federal, state or local
statute, ordinance or regulation with respect to
employment;
any and all claims with respect to Employee’s
employment with Company or other association with
Company through the Effective Date;
any and all claims under any tort or common law theory,
including, but not limited to, all claims for breach of
contract (oral, written or implied), defamation,
intentional or negligent infliction of emotional distress,
breach of the covenant of good faith and fair dealing,
promissory estoppel, wrongful termination, invasion of
privacy, tortious interference, fraud, estoppel, unjust
enrichment and negligence; and
any and all claims that were or could have been asserted
by Employee or on his behalf in any federal, state or
local court, commission or agency.
4.
Employee acknowledges, agrees, represents and warrants, without limiting the
generality of the above release, that (i) Employee hereby irrevocably and
unconditionally waives any and all rights to recover damages or any other
amounts, including attorneys’ fees, concerning the claims that are lawfully
released in this Release, (ii) Employee has not previously filed, initiated or
joined in any such claims or proceedings against any of the Releasees; (iii) no
such proceedings have been initiated against any of the Releasees on
Employee’s behalf; (iv) Employee is the sole owner of the
5.
6.
claims that are released above; and (v) none of these claims has been
transferred or assigned or caused to be transferred or assigned to any other
person, firm or other legal entity.
Excluded from the release above are any claims or rights which cannot be
waived or released by law. Also excluded is Employee’s right to file a charge
with an administrative agency or participate in any agency
investigation. Employee is, however, waiving the right to recover any money
in connection with any charge or investigation. Employee is also waiving the
right to recover any money in connection with any charge filed by any other
individual or by the Equal Employment Opportunity Commission or any other
federal or state agency.
Employee represents and warrants that (a) Employee is legally competent to
execute this Release; (b) Employee has not relied on any statements or
explanations made by Company or its attorneys; (c) Employee has read and
understands the terms and effect of this Release; (d) Employee has the full
right and power to grant, execute and deliver the releases, undertakings and
agreements contained in this Release; and (e) the releases and waiver of claims
under this Release are in exchange for consideration in addition to anything of
value to which Employee already is entitled. Moreover:
a.
b.
c.
Employee acknowledges that he hereby is and has been
advised of Employee’s right to be advised by legal
counsel regarding the terms of this Release before
signing it;
Employee acknowledges that he has been offered thirty
(30) days to consider whether to sign this Release; and
Employee acknowledges that he may, at his sole option,
revoke this Release upon written notice delivered to
Company’s Human Resources Dept. at 3240 S. Central
Ave., Cicero, IL 60804, within seven (7) days after
signing it. This Release, and Company’s obligations to
provide payments and benefits under Section 3 of the
Agreement, shall not become effective or enforceable
until this seven (7)-day period has expired and will be
void if Employee revokes this Release within such
period.
THE PARTIES STATE THAT THEY HAVE READ AND UNDERSTAND THE FOREGOING
RELEASE AND KNOWINGLY, VOLUNTARILY AND WITHOUT ANY COERCION OF ANY
KIND SIGN BELOW, INTENDING TO BE BOUND HERETO:
/s/ Erik W. Jensen
ERIK W. JENSEN
BROADWIND ENERGY, INC.
By:/s/ Stephanie K. Kushner
Name: Stephanie K. Kushner
Title: President and Chief Executive Officer
Date: December 23, 2019
Date: December 20, 2019
EXHIBIT 21
Subsidiaries
Brad Foote Gear Works, Inc.
Broadwind Services, LLC
Broadwind Heavy Fabrications, Inc.
Broadwind Industrial Solutions, LLC
Subsidiaries of the Registrant
Illinois
Delaware
Wisconsin
North Carolina
State of Incorporation/Formation
EXHIBIT 21
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-176066 and 333-219931) on Form S-3 and
(Nos. 333-160039, 333-181168, 333-181170, 333-181901, 333-190311, 333-203736, 333-223260, 333-229875, 333-231051
and 333-234361) on Form S-8 of Broadwind Energy, Inc. of our report dated February 27, 2020 relating to the consolidated
financial statements of Broadwind Energy, Inc. appearing in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K of Broadwind Energy, Inc. for the year ended December 31, 2019.
EXHIBIT 23
/s/ RSM US LLP
Chicago, Illinois
February 27, 2020
EXHIBIT 31.1
I, Stephanie K. Kushner, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10‑K of Broadwind Energy, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a‑15(f) and 15d‑(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report, based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2020
/s/ Stephanie K. Kushner
Stephanie K. Kushner
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, Jason L. Bonfigt, certify that:
CERTIFICATION OF CHIEF FINANCIAL OFFICER
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10‑K of Broadwind Energy, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f)
and 15d‑(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such
evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 27, 2020
/s/ Jason L. Bonfigt
Jason L. Bonfigt
Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑‑OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10‑K of Broadwind Energy, Inc. (the “Company”) for the year ended
December 31, 2019, as filed with the Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”),
I, Stephanie K. Kushner, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑
Oxley Act of 2002 (“Section 906”), that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of, and for, the periods presented in the Report.
February 27, 2020
/s/ Stephanie K. Kushner
Stephanie K. Kushner
President and Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for
purposes of Section 18 of the Exchange Act.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑‑OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10‑K of Broadwind Energy, Inc. (the “Company”) for the year ended
December 31, 2019, as filed with the Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”),
I, Jason L. Bonfigt, Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the
Sarbanes‑Oxley Act of 2002 (“Section 906”), that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of, and for, the periods presented in the Report.
February 27, 2020
/s/ Jason L. Bonfigt
Jason L. Bonfigt
Vice President and Chief Financial Officer
(Principal Financial Officer)
This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for
purposes of Section 18 of the Exchange Act.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon request.