20 19 ANNUAL REPORT
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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
OR
For the transition period from to
Commission File Number 001-37839
TPI Composites, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20-1590775
(I.R.S. Employer
Identification Number)
8501 N. Scottsdale Rd.
Gainey Center II, Suite 100
Scottsdale, AZ 85253
(480) 305-8910
(Address, including zip code, and telephone number,
including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01
Trading symbol(s)
TPIC
Name of each exchange on which registered
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if 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 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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes 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, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Non-accelerated filer
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 for complying 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
The aggregate market value of the shares of common stock held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on
June 28, 2019 as reported by the NASDAQ Global Market on such date was approximately $740 million. Shares of the Registrant’s common stock held by each
executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This
calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose.
As of January 31, 2020, the Registrant had 35,184,189 shares of common stock outstanding.
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on May 20, 2020, are incorporated by
reference into Part III of this Report.
Documents Incorporated by Reference
Table of Contents
Page
PART I
Business ...........................................................................................................................................
Item 1.
Item 1A. Risk Factors .....................................................................................................................................
Item 1B. Unresolved Staff Comments ............................................................................................................
Properties .........................................................................................................................................
Item 2.
Legal Proceedings ............................................................................................................................
Item 3.
Mine Safety Disclosures ..................................................................................................................
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities .........................................................................................................................
Selected Financial Data ....................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .........................................................
Financial Statements and Supplementary Data ................................................................................
Item 8.
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 Accounting Fees and Services ..........................................................................................
PART IV
Item 15. Exhibits, Financial Statement Schedules .........................................................................................
Item 16. Form 10-K Summary .......................................................................................................................
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal
securities law. All statements other than statements of historical facts contained in this Annual Report on Form 10-
K, including statements regarding our future results of operations and financial position, business strategy and plans
and objectives of management for future operations, are forward-looking statements. In many cases, you can
identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,”
“intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the
negative of these terms or other similar words. Forward-looking statements contained in this Annual Report on
Form 10-K include, but are not limited to, statements about:
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growth of the wind energy market and our addressable market;
the potential impact of the increasing prevalence of auction-based tenders in the wind energy market
and increased competition from solar energy on our gross margins and overall financial performance;
our future financial performance, including our net sales, cost of goods sold, gross profit or gross
margin, operating expenses, ability to generate positive cash flow, and ability to achieve or maintain
profitability;
changes in domestic or international government or regulatory policy, including without limitation,
changes in trade policy;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our ability to attract and retain customers for our products, and to optimize product pricing;
our ability to effectively manage our growth strategy and future expenses, including our startup and
transition costs;
competition from other wind blade and wind blade turbine manufacturers;
the discovery of defects in our products;
our ability to successfully expand in our existing wind energy markets and into new international wind
energy markets, including our ability to expand our field service inspection and repair services in wind
energy markets;
our ability to successfully open new manufacturing facilities and expand existing facilities on time and
on budget;
the impact of the accelerated pace of new product and wind blade model introductions on our business
and our results of operations;
our ability to successfully expand our transportation business and execute upon our strategy of entering
new markets outside of wind energy;
the potential impact of the Coronavirus on our business and results of operations;
worldwide economic conditions and their impact on customer demand;
our ability to maintain, protect and enhance our intellectual property;
our ability to comply with existing, modified or new laws and regulations applying to our business,
including the imposition of new taxes, duties or similar assessments on our products;
the attraction and retention of qualified employees and key personnel;
our ability to maintain good working relationships with our employees, and avoid labor disruptions,
strikes and other disputes with labor unions that represent certain of our employees;
our ability to procure adequate supplies of raw materials and components to fulfill our wind blade
volume commitments to our customers; and
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the potential impact of one or more of our customers becoming bankrupt or insolvent, or experiencing
other financial problems.
These forward-looking statements are only predictions. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and other important factors that may
cause our actual results, levels of activity, performance or achievements to materially differ from any future results,
levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have
described under the heading “Risk Factors” included in Part 1, Item 1A of this Annual Report on Form 10-K the
principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking
statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future
events.
The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this
Annual Report on Form 10-K. We anticipate that subsequent events and developments will cause our views to
change. However, while we may elect to update these forward-looking statements at some point in the future, we
undertake no obligation to update any forward-looking statement to reflect events or developments after the date on
which the statement is made or to reflect the occurrence of unanticipated events except to the extent required by
applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of
any date after the date of this Annual Report on Form 10-K. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
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Item 1. Business
Description of Business
PART I
TPI Composites, Inc. is the holding company that conducts substantially all of its business operations through
its direct and indirect subsidiaries (collectively, the Company or we). The Company was founded in 1968 and has
been producing composite wind blades since 2001. The Company’s knowledge and experience of composite
materials and manufacturing originates with its predecessor company, Tillotson Pearson Inc., a leading manufacturer
of high-performance sail and powerboats along with a wide range of composite structures used in other industrial
applications. Following the separation from the boat building business in 2004, the Company reorganized in
Delaware as LCSI Holding, Inc. and then changed its corporate name to TPI Composites, Inc. in 2008.
Overview
We are the only independent manufacturer of composite wind blades for the wind energy market with a global
manufacturing footprint. We enable many of the industry’s leading wind turbine original equipment manufacturers
(OEM), who have historically relied on in-house production, to outsource the manufacturing of some of their wind
blades through our global footprint of advanced manufacturing facilities strategically located to serve large and
growing wind markets in a cost-effective manner. Given the importance of wind energy capture, turbine reliability
and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our
OEM customers. As a result, we have become a key supplier to our OEM customers in the manufacture of wind
blades and related precision molding and assembly systems. We have entered into long-term supply agreements
pursuant to which we dedicate capacity at our facilities to our customers in exchange for their commitment to
purchase minimum annual volumes of wind blade sets (which consist of three wind blades). This collaborative
dedicated supplier model provides us with contracted volumes that generate significant revenue visibility, drive
capital efficiency and allow us to produce wind blades at a lower total delivered cost, while ensuring critical
dedicated capacity for our customers. For a further discussion regarding our wind blade and precision molding and
assembly systems manufacturing businesses, refer to the discussion in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Results of Operations” included in Part II, Item 7 of this Annual
Report on Form 10-K.
We also provide field service inspection and repair services to our OEM customers and wind farm owners and
operators. Our field service inspection and repairs services include diagnostic, repair and maintenance service
offerings for wind blades that have been installed on wind turbines located at wind farms. Our field service
inspection and repair services can be performed up-tower, where a blade technician performs these services in the
air or from the wind turbine tower on a wind turbine blade, or down tower, where a blade is first removed from a
wind turbine and these services are performed on the ground at the wind farm site or in a repair facility.
We also leverage our advanced composite technology and history of innovation to supply high strength,
lightweight and durable composite products to the transportation market. In November 2017, we signed a five- year
supply agreement with Proterra Inc. (Proterra) to supply Proterra Catalyst® composite bus bodies. In February 2018,
we entered into an agreement with Navistar, Inc. (Navistar) to design and develop an all composite Class 8 tractor
cab. This collaborative development project was entered into in connection with Navistar’s recent award under the
Department of Energy’s (DOE) Super Truck II investment program, which is designed to promote fuel efficiency in
commercial vehicles. In 2019, we also agreed to develop prototype composite body delivery vehicles for Workhorse
Group. In November 2018, we announced a capital investment of approximately $11.5 million in 2019 to develop a
highly automated pilot manufacturing line for the electric vehicle market within our Warren, Rhode Island facility,
and we plan to commence operating this pilot line later this year. We expect this investment will enable us to further
develop our technology, create defensible product and process IP and demonstrate our capability to manufacture
composite components cost effectively at automotive volume rates. We also expect this pilot line will also help our
current and potential customers to de-risk the decision-making process to commit to TPI for high-volume
manufacturing programs in the future.
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Our wind blade and precision molding and assembly systems manufacturing businesses accounted for
approximately 96%, 95%, and 96% of our total net sales for each of the years ended December 31, 2019, 2018 and
2017, respectively. As of February 27, 2020, our long-term wind and transportation supply agreements provide for
minimum aggregate volume commitments from our customers of approximately $2.8 billion and encourage our
customers to purchase additional volume up to, in the aggregate, a total contract value of approximately $5.2 billion
through the end of 2023.
Public Offerings and Stock Split
In July 2016, we completed an initial public offering (IPO) of 7,187,500 shares of our common stock at a
price of $11.00 per share, which included 937,500 shares issued pursuant to the underwriters’ over-allotment option.
Certain of our existing stockholders, a non-employee director and executive officers purchased an aggregate of
1,250,000 shares of our common stock in the IPO included in the total issuance above. The net proceeds from the
IPO were $67.2 million after deducting underwriting discounts and offering expenses. Immediately prior to the
closing of the IPO, all shares of the then-outstanding redeemable preferred shares converted into an aggregate
of 21,110,204 shares of our common stock and the redeemable preferred share warrants converted on a net issuance
basis into 120,923 shares of our common stock. In addition, concurrent with the closing of the IPO, certain
subordinated convertible promissory notes in the aggregate principal and interest amount of $11.9 million were
converted into 1,079,749 shares of our common stock at the public offering price of $11.00 per share.
Prior to the IPO, in July 2016 we amended our amended and restated certificate of incorporation to effect a
360-for-1 forward stock split of our common stock. As a result of the stock split, we have adjusted the share
amounts authorized and issuable under the share-based compensation plans. All share and per share common stock
information (including the share-based compensation plans) referenced throughout the consolidated financial
statements and notes thereto have been retroactively adjusted to reflect this stock split. The stock split did not cause
an adjustment to the par value of the authorized shares of our common stock.
In May 2017, we completed a secondary public offering of 5,075,000 shares of our common stock at a price of
$16.35 per share, which included 575,000 shares issued pursuant to the underwriters’ option to purchase additional
shares. All of the shares were sold by existing stockholders and certain of our executive officers. The selling
stockholders received all of the net proceeds of $78.8 million from the secondary public offering. We did not sell
any shares and did not receive any of the proceeds from the offering and the costs paid by us in connection with the
offering of $0.8 million were recorded in general and administrative costs in the accompanying consolidated
statement of operations.
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Financial Information about Segments and Geographic Areas
We divide our business operations into four geographic operating segments—(1) the United States (U.S.), (2) Asia,
(3) Mexico and (4) Europe, the Middle East, Africa and India (EMEAI) as follows:
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Our U.S. segment includes (1) the manufacturing of wind blades at our Newton, Iowa plant, (2) the
manufacturing of precision molding and assembly systems used to manufacture wind blades at our
Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation
industry, which we also conduct at our Rhode Island facility, (4) wind blade inspection and repair
services in North America, (5) our advanced engineering center in Kolding, Denmark, which provides
technical and engineering resources to our manufacturing facilities, (6) our engineering center in Berlin,
Germany which we purchased in July 2019 and (7) our corporate headquarters, the costs of which are
included in general and administrative expenses.
Our Asia segment includes (1) the manufacturing of wind blades at our facilities in Dafeng, China and
Yangzhou, China, the latter of which commenced operations in March 2019, (2) the manufacturing of
precision molding and assembly systems at our Taicang Port, China facility and (3) wind blade
inspection and repair services.
Our Mexico segment manufactures wind blades from three facilities in Juárez, Mexico and a facility in
Matamoros, Mexico at which we commenced operations in July 2018. In November 2018, we entered
into a new lease agreement with a third party for a new precision molding and assembly systems
manufacturing facility in Juárez, Mexico and we commenced operations at this facility in March 2019.
This segment also performs wind blade inspection and repair services.
Our EMEAI segment manufactures wind blades from two facilities in Izmir, Turkey and also performs
wind blade inspection and repair services. In February 2019, we entered into a new lease agreement
with a third party for a new manufacturing facility that was built in Chennai, India and we commenced
operations at this facility in the first quarter of 2020. This segment also performs wind blade inspection
and repair services.
For additional information regarding our operating segments and geographic areas, see Note 18 – Segment
Reporting of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on
Form 10-K.
Business Strategy
Our long-term success will be driven by our business strategy. The key elements of our business strategy are
as follows:
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Grow our existing relationships and develop new relationships with leading industry OEMs. We plan
to continue growing and expanding our relationships with existing customers who, according to data
from Wood Mackenzie (WoodMac), represented approximately 55% of the global onshore wind energy
market, approximately 87% of that market excluding China, and 99% of the U.S. onshore wind turbine
market over the three years ended December 31, 2018, based on megawatts (MWs) of energy capacity
installed, as well as developing new relationships with other leading industry OEMs. We expect to be
presented with opportunities to expand our existing relationships and develop new relationships with
industry OEMs as they seek to capitalize on the benefits of outsourced wind blade manufacturing while
maintaining high quality customization and dedicated capacity. General Electric International, Inc. and
its affiliates (GE Wind) agreed to transition to a larger blade model in our Newton, Iowa plant in early
2019 and to eliminate its option to terminate their supply agreement at this location prior to its
December 2020 expiration. In December 2018, we entered into a multiyear supply agreement with
Vestas to supply wind blades from a new manufacturing facility that was built in Chennai, India and we
commenced operations at this facility in the first quarter of 2020. In the first quarter of 2019, GE Wind
executed a joint development agreement to cooperatively develop advanced blade technology for future
wind turbines. In August 2019, we reached an agreement with Nordex SE (Nordex) to transition
multiple existing lines at one of our Izmir, Turkey locations to longer blades and at the same time
extended the contract by two years through 2022.
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Leverage our footprint in large and growing wind markets, capitalize on the continuing outsourcing
trend, evaluate building wind turbine blades for the offshore market and evaluate strategic
acquisitions. As the wind energy market continues to expand globally and many wind turbine OEMs
continue to shift towards increased outsourcing of wind blade manufacturing, we believe we are well-
positioned with our global footprint. We utilize our strengths in composites technology and
manufacturing, combined with our collaborative dedicated supplier model to provide our customers
with an efficient solution for their expansion in large and growing wind markets. Our quality, reliability
and total delivered cost reduce sourcing risk for our customers. In addition, our demonstrated ability to
enter into new markets and the strength of our manufacturing capabilities afford us the optionality to
build new factories or grow through strategic acquisitions.
Continue to drive down costs of wind energy. We continue to work with our customers on larger size
wind blade models that maximize the capture of wind energy and drive down the levelized cost of
energy (LCOE). We also continue to utilize our advanced technology, regional manufacturing facilities
strategically located to cost effectively serve large and growing wind markets and ability to source
materials globally at competitive costs to deliver high-performing, composite wind blades. Our
collaborative engineering approach and our advanced precision molding and assembly systems allow us
to integrate our customer’s design requirements with cost-efficient, replicable and scalable
manufacturing processes. This collaborative engineering approach with our customers also allows us to
reduce manufacturing cycle times, new line and factory start up times and new blade model transition
times. We also continue to work with our customers to drive down the cost of materials and production,
the benefit of which we typically share with our customers contractually in a manner that reduces LCOE
for customers, further strengthens our customer relationships and improves our margins.
Expand our field service inspection and repair business. Although sales from our field service
inspection and repair business currently represent a very small percentage of our total revenue, we plan
to expand our field service inspection and repair business by leveraging our existing wind blade
manufacturing and composites expertise. We believe there is an increasing demand and growing market
for experienced wind blade inspection and repair services worldwide as the number of wind turbines
installed worldwide continues to grow and the fleet of existing wind turbines continues to age.
Expand our transportation business and expand into other strategic markets. We leverage our
advanced composite technology and history of innovation to supply high strength, lightweight and
durable composite products to the transportation market. As the vehicle electrification trend continues,
reducing the weight of these vehicles is critical to expanding range and/or providing more room for
additional batteries or reducing the number of batteries. As a result, we believe there is an increasing
demand for composites products for electric vehicles. In addition, we believe there is a potential demand
in other strategic markets for composites as to replace aluminum or other more expensive composite
materials such as carbon.
Focus on continuing innovation. We have a history of innovation in advanced composite technologies
and production techniques and use several proprietary technologies related to wind blade
manufacturing. With this culture of innovation and a collaborative “design for manufacturability”
approach, we continue to address increasing physical dimensions, demanding technical specifications
and strict quality control requirements for our customers’ most advanced wind blades. We also invest in
ongoing simplification and selective automation of production processes for increased efficiency and
precision. In addition, we plan to leverage our history of composite industry-first innovations to grow
our business in the transportation market, in which we believe there is a demand for high precision,
structural composites manufacturing as well as high speed, high volume manufacturing of structural
composite components, particularly in the transportation market.
Wind Blade Manufacturing Operations and Process
We have developed significant expertise in advanced composite technology and use high performance
composite materials, precision molding and assembly systems including modular tooling, and advanced process
technology, as well as sophisticated measurement, inspection, testing and quality assurance tools, allowing us to
produce over 55,000 wind blades since 2001 with an excellent field performance record in a market where reliability
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is critical to our customers’ success. We manufacture or have manufactured wind blades ranging from 30 meters to
over 70 meters across our global facilities, and have the capability to manufacture wind blades of greater lengths as
required by existing or new customers. In combination with our advanced technologies, we seek to create
manufacturing processes that are replicable and scalable in our manufacturing facilities located worldwide,
regardless of cultural or language barriers. Using continuous improvement principles, we can customize each
manufacturing step, from raw materials to finished products. This also allows us to systematically design for the
entire manufacturing process so that we can achieve better quality control and increase production efficiencies. We
believe that our focus on simplifying and, where feasible, automating production processes is critical to
manufacturing high-precision, lightweight and durable products at a reasonable cost to our customers. We produce
high unit volumes of near-aerospace grade products at industrial costs.
Raw Materials
The key raw materials for the wind blades we manufacture include highly advanced fiberglass fabrics, select
carbon reinforcements, foam, balsa wood, resin, adhesives for assembly of molded components, gel coat or paint for
preparation of cosmetic surfaces and attachment hardware including steel components. Most of these materials are
available in multiple geographic regions and in reasonably close proximity to our manufacturing facilities. Our
agreements for the supply of raw materials are designed to guarantee volumes that we believe will be required to
fulfill our customers’ wind blade commitments. A portion of our raw materials are subject to price volatility, such as
the resins used in our manufacturing processes. Although the majority of materials incorporated into our products
are available from a number of sources, certain materials are available only from a relatively limited number of
suppliers. We seek multiple suppliers for our raw materials and continually evaluate potential new supplier
relationships.
Precision Molding and Assembly Systems
Over the last decade, we have produced hundreds of precision molding and assembly systems, ranging from
30 meters to over 70 meters in length, to support our global operations. We began these operations in our tooling
technology center in Warren, Rhode Island. In 2013, we expanded our precision molding and assembly system
production capabilities to a facility in Taicang City, China, which was recently moved to Taicang Port, China, which
serves customers around the globe. While capable of cost-effectively delivering precision molding and assembly
systems across all of our facilities, our Rhode Island tooling technology center primarily serves the North American
market. We currently have transitioned most of our North American precision molding and assembly system
production capabilities from Warren, Rhode Island to a new facility in Juárez, Mexico, which can serve customers
globally. We expect this transition to be completed during 2020. Our precision molding and assembly systems have
been used to build tens of thousands of wind blades worldwide.
Our tooling solutions include precision wind blade patterns, precision molding and assembly systems,
including modular tooling techniques. We believe that our technological and production expertise are key factors in
our continued competitiveness, as we address continually increasing physical dimensions, demanding technical
specifications, and strict quality control requirements for wind blades.
Wind Blade Production Process
Production of wind blades requires adherence to the unique specifications of each of our customers, who
design their wind turbines and wind blades to optimize performance, reliability and total delivered cost. With our
culture of innovation and a collaborative “design for manufacturability” approach, we have the capability and
expertise to manufacture wind blades of different designs, utilizing fiberglass, carbon or other advanced composite
materials to meet unique customer specifications. We also have the flexibility to quickly transition our
manufacturing facilities to produce different wind blade models and sizes using our precision molding and assembly
systems, including modular tooling techniques.
We have developed a highly dependable method for making high-quality wind blades. In conjunction with our
continuous improvement principles, we design our proprietary manufacturing processes to be replicable, scalable
and transferable to each of our advanced manufacturing facilities worldwide. As a result, we can repeatedly move a
product from its design phase to volume production while maintaining quality, even in developing regions of the
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world. Similarly, we have developed the manual portions of our manufacturing processes based on proven
technologies and production methods that can be learned and implemented rapidly by line personnel. We focus on
consistency and quality control across our facilities, using hands-on training methods and employing repeatable
manufacturing processes.
We use an advanced form of vacuum-assisted resin transfer tooling process to pull liquid resin into a dry lay-
up, resulting in light, strong, and reliable composite structures. In our manufacturing process, fiber reinforcements
and core materials are laid up in a mold while dry, followed by a vacuum bag that is placed over the layup and
sealed to the mold. The wind blade component is then placed under vacuum. The resin is introduced into the wind
blade component via resin inlet ports and then distributed through the reinforcement and core materials via a flow
medium and a series of channels, saturating the wind blade component. The vacuum removes air and gases during
processing, thereby eliminating voids. Pressure differentials drive resin uniformly throughout the wind blade
component, providing a consistent laminate. By using a variety of reinforcement and core materials, the structural
characteristics of the wind blade can be highly engineered to suit the custom specifications of our customers.
Although only occasionally required by our customers, we are also capable of employing additional composite
fabrication processes, such as pre-impregnated laminates, in addition to our vacuum infusion process.
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Wind Blade Long-Term Supply Agreements
Our current wind blade customers, which include Vestas, GE Wind, Nordex, Siemens Gamesa Renewable
Energy S.A. (Siemens Gamesa) and ENERCON GmbH (ENERCON), are some of the world’s largest wind turbine
manufacturers. According to data from WoodMac, our customers represented approximately 55% of the global
onshore wind energy market, approximately 87% of that market excluding China, and 99% of the U.S. onshore wind
turbine market over the three years ended December 31, 2018, based on MWs of energy capacity installed. In our
collaborative dedicated supplier model, our customers are incentivized to maximize the volume of wind blades
purchased through lower pricing at higher purchase volumes. As of February 27, 2020, our existing wind blade
supply agreements provide for minimum aggregate volume commitments from our customers of approximately $2.7
billion and encourage our customers to purchase additional volume up to, in the aggregate, a total contract value of
approximately $5.0 billion through the end of 2023, which we believe provides us with significant future revenue
visibility and helps to insulate us from potential short-term fluctuations or legislative changes in any one market.
Our supply agreements generally contain liquidated damages provisions in the event of late delivery, however, we
generally do not bear the responsibility for transporting the wind blades we manufacture to our customers.
Our long-term supply agreements with our customers generally encourage our customers to maximize the
volume of wind blades they purchase from us, since purchasing less than a specified amount triggers higher pricing,
as well as provide downside protection for us through minimum annual volume commitments. Some of our long-
term supply agreements also provide for annual sales price reductions reflecting assumptions regarding increases in
our manufacturing efficiency and productivity. We work to continue to drive down the cost of materials and
production through innovation and global sourcing, a portion of the benefit of which we share with our customers
contractually, further strengthening our deep customer relationships. Wind blade pricing is based on annual
commitments of volume as established in the customer’s contract, with orders less than committed volume resulting
in additional costs per wind blade to customers. Orders in excess of annual commitments may but generally do not
result in discounts to customers from the contracted price for the committed volume. Customers may utilize early
payment discounts, which are reported as a reduction of revenue at the time the discount is taken.
Vestas
In 2014, we entered into a new supply agreement with Vestas to supply wind blades from a new
manufacturing facility in Dafeng, China. Based on the success of this manufacturing arrangement, we expanded our
relationship with Vestas through additional supply agreements for a manufacturing facility in Turkey, Matamoros,
Mexico and Yangzhou, China. Additionally, in 2018, we entered into a supply agreement with Vestas to supply
wind blades from a new manufacturing facility that was built in Chennai, India and we commenced operations at
this facility in the first quarter of 2020. Each of the supply agreements with Vestas provide for a minimum number
of wind blade sets to be purchased by Vestas each year during the term, the schedule for which is established at the
outset of the agreement. In return, we commit to dedicate a specific number of manufacturing lines to Vestas for
each of the years under the supply agreements. Additionally, we create some of the model-specific tooling for
Vestas. If either party commits a material breach of the supply agreement, the non-breaching party may terminate
the supply agreement if the breach is not remedied or if the parties have not mutually agreed to plan for cure within
30 days after notice of breach has been given.
GE Wind
We have entered into multiple supply agreements with GE Wind to manufacture wind blades from two
manufacturing facilities in Juárez, Mexico and our Newton, Iowa manufacturing facility. Each of the supply
agreements with GE Wind provide for a minimum number of wind blade sets to be purchased by GE Wind each
year during the term, the schedule for which is established at the outset of the agreement. In return, we commit to
dedicate a specific number of manufacturing lines to GE Wind for each of the years under the supply agreements. In
August 2018, GE Wind agreed to extend our existing supply agreement for one of our Mexico manufacturing
facilities by two years to 2022 and increased the number of wind blade manufacturing lines in that facility from
three to five. In addition, GE Wind agreed to transition to a larger blade model in our Newton, Iowa plant in early
2019 and to eliminate its option to terminate their supply agreement at this location prior to its December 2020
expiration. Unless otherwise terminated or renewed, our supply agreements with GE Wind are in effect until the end
of 2020 for one of our Mexico manufacturing facilities and our Iowa manufacturing facility, and until the end of
2022 for our other Mexico facility. GE Wind may terminate the Mexico supply agreements with no advance notice
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and paying us termination fees as set forth in the applicable agreement. In addition, either party may terminate these
supply agreements upon a material breach by the other party which goes uncured for 30 days after written notice has
been provided.
In 2017, General Electric Company (GE) completed its acquisition of LM Wind Power (LM), our largest
competitor. We expect that GE Wind will utilize LM for a substantial percentage of its wind blade production in the
future and may reduce the volumes of wind blades it purchases from us or not extend any of our supply agreements
beyond 2022, which may materially harm our business, financial condition and results of operations. See “Risk
Factors—Risks Related to Our Wind Blade Business—GE’s acquisition of LM Wind Power, our largest competitor,
may materially harm our business, financial condition and results of operations and may cause the price of our
common stock to decline” included in Part I, Item 1A of this Annual Report on Form 10-K for further discuss on the
GE’s acquisition of LM and its potential effects on us.
See Note 4 – Related Party Transactions of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K for additional information regarding our related party transactions with
GE Wind for the year ended December 31, 2017 when GE Wind was a stockholder of the Company.
Other Long-Term Supply Agreements
We have entered into other long-term supply agreements in China, Mexico and Turkey with Nordex, Siemens
Gamesa and ENERCON. With respect to these supply agreements, we agree to dedicate capacity for a set number of
wind blades for each calendar year during the term of the agreement in exchange for commitments to purchase
minimum annual volumes of wind blade sets. Unless otherwise terminated, these supply agreements generally
remain in effect for a period of five years and either party may terminate their respective supply agreements upon a
material breach by the other party which goes uncured. Some of these supply agreements contain provisions that
allow for our customers to purchase less volume in later years of these supply agreements, reduce the number of
dedicated manufacturing lines or to terminate the supply agreement upon notice for reasons such as our failure to
deliver the contracted wind blade volumes or our failure to meet certain mutually agreed upon cost reduction targets.
See “Risk Factors—Risks Related to Our Wind Blade Business—Our long-term supply agreements with our
customers are subject to termination on short notice and our failure to perform our obligations under such
agreements, and termination of a significant number of these agreements would materially harm our business”
included in Part I, Item 1A of this Annual Report on Form 10-K.
Research and Development
We have a long history of developing composite products as well as the development of new and advanced
materials, tooling, manufacturing processes and inspection methods. Our knowledge and experience of composite
materials and manufacturing originates with our predecessor company, Tillotson Pearson Inc., a leading
manufacturer of high-performance recreational sail and powerboats along with a wide range of composite structures
used in other industrial applications. Leveraging our knowledge and experience, we realized the opportunity to
specialize in wind energy and other industrial end-markets where there was a demand for high precision composite
manufacturing capabilities.
We conduct extensive research and development in close collaboration with our customers on the design,
development and deployment of innovative manufacturing processes, including automation, advanced materials and
sophisticated product quality inspection tools. We have partnered with the U.S. Department of Energy (DOE),
government laboratories, universities and our customers to innovate through cost sharing Advanced Manufacturing
Innovation Initiative programs. In 2015, we received a $3.0 million award from the DOE’s Office of Energy
Efficiency & Renewable Energy to lead a team of industry and academic participants to design, develop and
demonstrate an ultra-light composite vehicle door for high volume manufacturing production in conjunction with
other industry and university participants. In February 2018, we entered into an agreement with Navistar to design
and develop an all composite Class 8 tractor cab. This collaborative development project was entered into in
connection with Navistar’s recent award under the DOE’s Super Truck II investment program, which is designed to
promote fuel efficiency in commercial vehicles. Incorporating composite materials into a Class 8 tractor cab offers
multiple potential performance and efficiency advantages compared to traditional metals in terms of weight savings,
reduced part counts, and non-corrosion. In the first quarter of 2019, we executed a joint development agreement
with GE Wind to cooperatively develop advanced blade technology for future wind turbines.
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We employ a highly experienced workforce of engineers in various facets of our business, from discrete
research and development projects, to the ongoing, real-time development and implementation of incremental
manufacturing and material improvements. Our research and development effort places a priority on improving
quality through process and procedure improvement, in addition to reducing cost through specification changes and
sourcing of more cost-effective suppliers. Other areas of emphasis include composite design, in-house fabrication of
precision molding and assembly systems, prototyping, testing, optimization and volume production capabilities. We
also encourage our employees to invent and develop new technologies to maintain our competitiveness in the
marketplace. In addition to our internal research and development activities, from time to time, we also conduct
research and development activities pursuant to funded development arrangements with our customers and other
third parties, and intend to continue to seek opportunities for product development programs that could create
recurring revenue and increase our overall profitability over the long term.
In July 2019, we acquired certain intellectual property and hired a team of engineering resources from the
EUROS group, based in Berlin, Germany. This team of approximately 20 technical experts focuses on blade design,
tooling, materials and process technology development, which will strengthen our technical capabilities in support
of our global operations and growth. In 2017, we established an advanced engineering center in Kolding, Denmark
which provides technical and engineering resources to our manufacturing facilities and our customers.
Competition
The wind blade market is highly concentrated, competitive and subject to evolving customer needs and
expectations. In 2017, GE Wind, our largest customer at the time, completed its acquisition of LM, our largest
competitor. We also compete primarily with other independent wind blade manufacturers such as Sinoma Science &
Technology Co. Ltd., Shanghai Aeolon Wind Energy Technology Development (Group) Co., Ltd., Aeris Industria E
Comercio De Equipamentos Para Geracao De Energia S.A. and ZhongFu Lianzhong Composites Group Co., Ltd., as
well as regional wind blade suppliers in geographic areas where our current or prospective manufacturing facilities
are located.
We also compete with, and in a number of cases supplement, vertically integrated wind turbine OEMs that
manufacture their wind blades. We believe that a number of other established companies are manufacturing wind
blades that will compete directly with our offerings, and some of our competitors noted above, may have significant
financial and institutional resources.
The principal competitive factors in the wind blade market include reliability, total delivered cost,
manufacturing capability, product quality, engineering capability and timely completion of wind blades. We believe
we compete favorably with our competitors on the basis of the foregoing factors. Our ability to remain competitive
will depend to a great extent upon our ongoing performance in the areas of manufacturing capability, timely
completion and product quality.
Transportation Products
We seek to create additional recurring revenue opportunities through the supply of other composite structures
outside the wind energy market. We believe transportation products, including buses, trucks, electric vehicles and
high performance automotive products, are ideally suited for our advanced composite technology because of the
benefits derived from weight reduction, corrosion resistance, strength and durability. These benefits should allow us
to develop structural composite solutions to assist our customers in developing electric vehicles, including light,
medium and heavy duty trucks, buses and automobiles with clean propulsion systems or in meeting new and
developing fuel economy standards.
In addition, by producing a range of composite structures, we are able to leverage the materials and
manufacturing process technology and expertise developed through one project to maximize production quality,
improve performance and minimize costs across our other manufacturing efforts, including our wind blade business.
Our projects for customers in the transportation market have historically generated project-related revenues for a
specific duration. We intend to seek collaborations with additional customers in these markets that will provide
recurring revenue and business opportunities for us, in addition to the opportunities provided by our existing
customers and relationships, and contribute to our overall profitability over the long term.
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Our facilities in Warren, Rhode Island and Juárez, Mexico manufacture products for customers in the
transportation market using a similar proprietary and replicable manufacturing processes that we use to produce
wind blades. Our projects for customers in the transportation market include, or have included, the supply of all-
composite bodies for electric buses and automated people mover systems for airports. We will cease manufacturing
composite bus bodies from our Newton, Iowa facility in the first quarter of 2020.
Our current principal competitors in the transportation market include suppliers of conventional steel and
aluminum products and non-structural automotive fiberglass and other advanced composites-based manufacturers
for transportation applications.
Intellectual Property
We have a variety of intellectual property rights, including patents issued, filed and applied-for in a number of
jurisdictions, including the United States, Germany, the European Union and China, trademarks and copyrights, but
we believe that our continued success and competitive position depend, in large part, on our proprietary materials,
tooling, process and inspection technologies and our ability to innovate. Accordingly, we take measures to protect
the confidentiality and control the disclosure of our proprietary technology. We rely primarily on a combination of
patents, know-how and trade secrets to establish and protect our proprietary rights and preserve our competitive
position. We also seek to protect our proprietary technology, in part, by confidentiality agreements with our
customers, employees, consultants and other contractors. Trade secrets, however, are difficult to protect. These
agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets
may otherwise become known or be independently discovered by competitors. To the extent that our customers,
employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may
arise as to the rights in related or resulting know-how and inventions.
Backlog
As of December 31, 2019 and 2018, our backlog for wind blades and related products totaled $1,038.9 million
and $514.8 million, respectively. Our backlog includes purchase orders issued in connection with our long-term
supply agreements. We generally record a purchase order into backlog when the following requirements have been
met: a signed long-term supply agreement or other contractual agreement has been executed with our customer, a
purchase order has been issued by our customer and we expect to ship wind blades to or produce the related
products for such customer in satisfaction of any purchase order within 12 months. Backlog as of any particular date
should not be relied upon as indicative of our revenue for any future period.
Regulation
Wind Energy
Our operations are subject to various foreign, federal, state and local regulations related to environmental
protection, health and safety, labor relationships, general business practices and other matters. These regulations are
administered by various foreign, federal, state and local environmental agencies and authorities, including the EPA,
the Occupational Safety and Health Administration of the U.S. Department of Labor and comparable agencies in
China, Mexico, Turkey, India and individual U.S. states. In addition, our manufacturing operations in China,
Mexico, Turkey and India are subject to those countries’ wage and price controls, currency exchange control
regulations, investment and tax laws, laws restricting our ability to repatriate profits, trade restrictions and laws that
may restrict foreign investment in certain industries. Some of these laws have only been recently adopted or are
subject to further rulemaking or interpretation, and their impact on our operations, including the cost of complying
with these laws, is uncertain. We believe that our operations currently comply, in all material respects, with
applicable laws and regulations. Further, as a U.S. corporation, we are subject to The Foreign Corrupt Practices Act
of 1977 (FCPA), which generally prohibits U.S. companies and their intermediaries from making improper
payments to foreign officials for the purpose of obtaining or keeping business.
In addition, our business has been and will continue to be affected by subsidization of the wind turbine
industry with its influence declining over time as wind energy reaches grid parity with traditional sources of energy.
In the United States, the federal government has encouraged capital investment in renewable energy primarily
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through tax incentives. Production tax credits for new renewable energy projects were first established in 1992. The
Production Tax Credit for Renewable Energy (PTC) provided the owner of a wind turbine placed in operation before
January 1, 2015 with a 10-year credit against its U.S. federal income tax obligations based on the amount of
electricity generated by the wind turbine.
The PTC was extended in 2015 for wind power projects through December 31, 2019, and was to be phased
down over the term of the PTC extension. Specifically, the PTC was kept at the same rate in effect at the end of
2014 for wind power projects that either commenced construction or met certain safe harbor requirements by the end
of 2016, and thereafter was to be reduced by 20% per year in 2017, 2018 and 2019, respectively. In December 2019,
Congress extended the PTC through the end of 2020 and increased the rate from 40% to 60% for projects that either
commenced construction or met certain safe harbor requirements by the end of 2020 and are commissioned by the
end of 2024.
In June 2019, the EPA issued the Affordable Clean Energy Rule, which replaced the Clean Power Plan, which
was designed to promote renewable energy. The Clean Power Plan, which was established by the EPA in 2015, set
national standards for states to reduce carbon emissions from power plants. Specifically, the Clean Power Plan
required states to reduce carbon emissions from power plants 32% below 2005 levels by 2030. In general, the
Affordable Clean Energy Rule, provides for efficiency improvements at power plants and directs individual States to
choose how they want to regulate power plant emissions. Unlike the Clean Power Plan, the Affordable Clean
Energy Rule does not set specific standards or limits for carbon emissions.
At the state level, as of December 31, 2019, 29 states, the District of Columbia and Puerto Rico have
implemented renewable portfolio standard (RPS) programs that generally require that, by a specified date, a certain
percentage of a utility’s electricity supplied to consumers within such state is to be from renewable sources (ranging
from 10% to 100% and from between the present and 2045).
In addition, there are also increasing regulatory efforts to promote renewable power. China implemented its
13th 5-Year Plan with a goal of 15% total primary energy from non-fossil fuel sources and targeting 210 gigawatts
(GWs) of grid-connected wind capacity by 2020 according to its National Development and Reform Commission,
and employs preferential feed-in tariff schemes, in addition to local tax-based incentives. Mexico has established
strict targets, aiming for 35% renewable energy by 2024 and 50% by 2050, according to WoodMac, which it is
facilitating through tax incentives. Large European Union members have renewable energy targets for 2020 of
between 10% and 49% of all energy use derived from renewable energy sources, according to the European
Commission. Additionally, Turkey enacted Law No. 5346 in 2005 to promote renewable-based electricity
generation within their domestic electricity market by introducing tariffs and purchase obligations for distribution
companies requiring purchases from certified renewable energy producers. The World Bank also provided Turkey
with an aggregate of $600 million of loan proceeds to encourage investors to construct generation plants with
renewable energy resources.
Employees
As of December 31, 2019, we employed over 13,300 full-time employees, approximately 1,300 of whom were
located in the United States, 2,900 in China, 5,500 in Mexico, 3,300 in Turkey and 300 in India. Certain of our
employees in Turkey and at our manufacturing facility in Matamoros, Mexico are represented by a labor union. We
believe that our relations with our employees are generally good.
13
In January 2019, thousands of workers employed in dozens of manufacturing facilities in Matamoros, Mexico,
went on strike. In general, these workers, who were represented by several different labor unions, demanded an
increase in their wage rate and an annual bonus. In February 2019, our manufacturing production employees in
Matamoros, Mexico, who are represented by a labor union, went on strike also demanding an increase in their
hourly wage rate and the payment of an annual bonus, even though our collective bargaining agreement did not
provide for such incentives. During this strike, our Matamoros manufacturing facility stopped production from
February 15, 2019 until March 2, 2019. In March 2019, we reached an agreement with the labor union to end the
strike and we reopened our Matamoros manufacturing facility on March 3, 2019. In the first quarter of 2020, we
amended our Matamoros collective bargaining agreement to adjust the salaries and bonuses payable to our
associates for calendar year 2020 that are covered by this agreement.
Environmental, Health and Safety
We are subject to various environmental, health and safety laws, regulations and permit requirements in the
jurisdictions in which we operate governing, among other things, health, safety, pollution and protection of the
environment and natural resources, the handling and use of hazardous substances, the generation, storage, treatment
and disposal of wastes, and the cleanup of any contaminated sites. We are not aware of any pending environmental
compliance or remediation matters that are reasonably likely to have a material adverse effect on our business,
financial position or results of operations. However, failure by us to comply with applicable environmental and
other requirements could result in fines, penalties, enforcement actions, third party claims, remediation actions,
and could negatively impact our reputation with customers. We have adopted environmental, health and safety
policies outlining our commitment to environmental responsibility and accountability. These policies apply to the
company as a whole, and our vendors and suppliers and are available on our website. We have a company-wide
focus on safety and have implemented a number of measures to promote workplace safety. Customers are
increasingly focused on safety records in their sourcing decisions due to increased regulations to report all
incidents that occur at their sites and the costs associated with such incidents.
Available Information
Our website address is www.tpicomposites.com. All of our filings with the Securities and Exchange
Commission (SEC), including this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, statements of changes in beneficial ownership and amendments to those reports, are available free of
charge on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the
SEC. The information contained on our website is neither a part of, nor incorporated by reference into, this Annual
Report on Form 10-K. The SEC also maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers, like us, that file electronically with the SEC. The address of that
website is www.sec.gov.
Our investor relations website address is www.tpicomposites.com/investors and includes key information
about our corporate governance initiatives, including our Nominating and Corporate Governance Committee charter,
charters of the Audit and Compensation committees and our Code of Business Conduct & Ethics.
Information about our Executive Officers
The following table sets forth certain information regarding our Executive Officers as of February 27, 2020:
Name
Steven C. Lockard
William E. Siwek
Bryan Schumaker
Ramesh Gopalakrishnan
Thomas J. Castle
Steven G. Fishbach
Age
58
57
44
52
48
50
Position
Chief Executive Officer and Director
President
Chief Financial Officer
Chief Operating Officer, Wind
Senior Vice President—Operations, Strategic Markets
General Counsel and Secretary
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Steven C. Lockard. Mr. Lockard became our President and Chief Executive Officer in 2004 and has served as
a member of our board of directors since 2004. In May 2019, he relinquished the title of President to Mr. Siwek.
Prior to joining us in 1999, Mr. Lockard was Vice President of Satloc, Inc., a supplier of precision GPS equipment,
from 1997 to 1999. Prior to that, Mr. Lockard was Vice President of marketing and business development and a
founding officer of ADFlex Solutions, Inc., a NASDAQ-listed international manufacturer of interconnect products
for the electronics industry, from 1993 to 1997. Prior to that, Mr. Lockard held several marketing and management
positions including Business Unit Manager, Corporate Market Development Manager and Marketing/Applications
Engineer at Rogers Corporation from 1982 to 1993. Mr. Lockard currently serves as a member of the Board of
Directors for the American Wind Energy Association and previously served as its Chairman from May 2018 to May
2019. Mr. Lockard holds a B.S. degree in Electrical Engineering from Arizona State University.
William E. Siwek. Mr. Siwek joined us in August 2013 as our Chief Financial Officer. In May 2019, Mr.
Siwek was named our President and ceased serving as our Chief Financial Officer. Prior to joining us, Mr. Siwek
previously served as the Chief Financial Officer for T.W. Lewis Company, an Arizona-based real estate investment
company, from September 2012 to September 2013. From May 2010 until September 2012, he was an independent
consultant assisting companies in the real estate, construction, insurance and renewable energy industries. Prior to
that, Mr. Siwek was Executive Vice President and Chief Financial Officer of Talisker Mountain, Inc., from January
2009 to April 2010. Prior to that, he was President and Chief Financial Officer of the Lyle Anderson Company from
December 2002 to December 2008. Prior to that, Mr. Siwek spent 18 years, from September 1984 to May 2002,
with Arthur Andersen where he became a Partner in both Audit and Business Consulting Divisions. Mr. Siwek holds
B.S. degrees in Accounting and Economics from University of Redlands and is a Certified Public Accountant.
Bryan Schumaker. Mr. Schumaker joined us in May 2019 as our Chief Financial Officer. Prior to joining us,
Mr. Schumaker served as the Chief Accounting Officer of First Solar, Inc. from July 2015 to May 2019 and the
Chief Financial Officer of 8point3 Energy Partners, a publicly-traded limited partnership formed by First Solar and
Sunpower Corporation to own, operate and acquire solar energy generation projects from July 2016 to July 2018.
Mr. Schumaker also served as Assistant Corporate Controller of First Solar from April 2008 to December 2011 and
Vice President, Corporate Controller from December 2011 to July 2015. Prior to working at First Solar, Mr.
Schumaker worked for Swift Transportation from January 2003 to April 2008 in multiple roles, including Vice
President, Corporate Controller. Prior to that, Mr. Schumaker worked for KPMG, LLP as a Supervising Senior for
the Assurance Practice and for a BDO Alliance Firm as a Senior Audit Associate. Mr. Schumaker holds a B.B.A.
degree in Accounting from the University of New Mexico. Mr. Schumaker also serves on the Board of Directors of
the Arizona Manufacturing Extension Partnership.
Ramesh Gopalakrishnan. Mr. Gopalakrishnan joined us in September 2016 as Vice President, Technology,
Transfer and Launch, and was promoted to Senior Vice President, Technology and Industrialization in August 2017
and Senior Vice President, Global Quality, Technology and Latin American Operations in February 2019. In May
2019, Mr. Gopalakrishnan was named our Chief Operating Officer – Wind. Prior to joining us, Mr. Gopalakrishnan
served as Executive Vice President, Manufacturing for Senvion GmbH from May 2015 to August 2016 and Senior
Vice President, Global Blades from February 2013 to April 2015. Prior to joining Senvion GmbH,
Mr. Gopalakrishnan served as the Chief Executive Officer of Suzlon Energy Composites from February 2011 to
January 2014, where he oversaw blade and mold factories in the United States, China and India and engineering
centers in Europe. Prior to joining Suzlon Energy Composites, Mr. Gopalakrishnan served in various operations,
supply chain and engineering roles at Halliburton Company and General Electric Company. Mr. Gopalakrishnan
holds a B.S. in Mechanical Engineering from the Indian Institute of Technology and a M.S. and Ph.D in Mechanical
Engineering from the State University of New York at Stony Brook.
Thomas J. Castle. Mr. Castle joined us in November 2015 as our Senior Vice President—North American
Wind Operations and Global Operational Excellence. In February 2019, Mr. Castle was named our Senior Vice
President—U.S. and Transportation Operations. In May 2019, Mr. Castle was named our Senior Vice President –
Operations, Strategic Markets. Prior to joining us, Mr. Castle was with Honeywell Aerospace from 2007 to 2015.
Mr. Castle served as the Vice President of Integrated Supply Chain, Americas Electronics Operations Center from
2014 to 2015. From 2012 to 2014, he was the Global Vice President of the Honeywell Operating System for
Aerospace. Prior to that, Mr. Castle held various positions at the Americas Services Organization from 2007 to
2012. From 1996 to 2007, Mr. Castle was with GE Aviation in roles of increasing responsibility, most recently as
the Managing Director of a manufacturing facility in Thailand from 2005 to 2007. Mr. Castle holds a B.S. degree in
Aeronautics from St. Louis University.
15
Steven G. Fishbach. Mr. Fishbach has served as our General Counsel since January 2015. Prior to joining us,
Mr. Fishbach served as Deputy General Counsel of Global Cash Access Holdings, Inc. from 2011 to 2015 and
Associate General Counsel from 2009 to 2011. Prior to that, Mr. Fishbach served in various senior roles in the legal
department of Fidelity National Information Services, Inc./eFunds Corporation from 2005 to 2008. Mr. Fishbach
also practiced corporate and securities law at Squire Sanders (now Squire Patton Boggs) from 2000 to 2005. Mr.
Fishbach holds a B.A. degree in American Studies from Georgetown University and a J.D. degree from William &
Mary Law School.
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Item 1A. Risk Factors
You should carefully consider the following risk factors. If any of the events contemplated by the following
discussion of risks should occur, our business, results of operations, financial condition, growth prospects and cash
flows could suffer significantly. Additional risks that we currently do not know about or that we currently believe to
be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Special
Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Risks Related to Our Wind Blade Business
A significant portion of our business is derived from a small number of customers, and two wind blade customers
in particular, therefore any loss of or reduction in purchase orders, failure of these customers to fulfill their
obligations or our failure to secure long-term supply agreement renewals from these customers could materially
harm our business.
Substantially all of our revenues are derived from four wind blade customers. Two customers, Vestas and GE
Wind, accounted for 46.1% and 25.7%, respectively, of our total net sales for the year ended December 31, 2019,
and 32.0% and 31.7%, respectively, of our total net sales for the year ended December 31, 2018, and 27.9% and
44.6%, respectively, of our total net sales for the year ended December 31, 2017. In addition, two customers, Nordex
and Siemens Gamesa accounted for 16.1% and 5.1%, respectively, of our net sales for the year ended December 31,
2019, 19.0% and 11.2%, respectively, of our net sales for the year ended December 31, 2018, and 16.0% and 9.7%,
respectively, of our net sales for the year ended December 31, 2017. Accordingly, we are substantially dependent on
continued business from our current wind blade customers, and Vestas and GE Wind in particular. If one or more of
our wind blade customers were to reduce or delay wind blade orders, file for bankruptcy or become insolvent, fail to
pay amounts due or satisfactorily perform their respective contractual obligations with us or otherwise terminate or
fail to renew their long-term supply agreements with us, our business, financial condition and results of operations
could be materially harmed.
Defects in materials and workmanship or wind blade failures could harm our reputation, expose us to product
warranty or other liability claims, decrease demand for wind blades we manufacture, or materially harm existing
or prospective customer relationships.
Defects in the wind blades we manufacture, whether caused by a design, engineering, materials,
manufacturing or component failure or deficiencies in our manufacturing processes, are unpredictable and an
inherent risk in manufacturing technically advanced products. Under our supply agreements, we warranty the
materials and workmanship of the wind blades while our customers are responsible for the fitness of use and design
of the wind blades. We have, in the past, experienced wind blade testing failures and defects at some of our facilities
during the startup manufacturing phase of new products, and we may experience failures or defects in the future. We
have also experienced wind blade failures in the field. Any such customer qualification and wind blade testing
failures or other product defects in the future could materially harm our existing and prospective customer
relationships. Specifically, negative publicity about the quality of the wind blades we manufacture or defects in the
wind blades supplied to our customers could result in a reduction in wind blade orders, increased warranty claims,
product liability claims and other damages or termination of our long-term supply agreements or business
relationships with current or new customers. In addition, we have recently started wind blade production at a new
facility in Yangzhou, China in March 2019 and have commenced operations at a new facility in Chennai, India in
the first quarter of 2020 which may expose us to greater risk of warranty claims as these facilities ramp up to serial
production levels.
We may determine that resolving potential warranty claims through a negotiated settlement may be in the best
interest of the business and long-term customer relationships. Wind blades may also fail due to lightning strikes or
other extreme weather, which could also result in negative publicity regarding our wind blades and wind energy in
general. In addition, product defects may require costly repairs or replacement components, a change in our
manufacturing processes or recall of previously manufactured wind blades, which could result in significant expense
and materially harm our existing or prospective customer relationships. Further, defects or product liability claims,
with or without merit, may result in negative publicity that could harm our future sales and our reputation in the
industry. Any of the foregoing could materially harm our business, operating results and financial condition.
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We operate in an industry characterized by changing customer demands and associated transition costs,
which could materially harm our business.
The wind energy industry is competitive and is characterized by evolving customer demands. As a result, we
must adapt quickly to customer requests for changes to wind blade specifications, which increases our costs and can
provide periods of reduced revenue and margins. For instance, during 2019 and into 2020, we have undertaken and
will undertake model transitions at several of our facilities for various customer demands. In 2019, we had 10
manufacturing lines in transition which adversely impacted our revenue and profitability. We currently expect to
have manufacturing lines in transition during 2020 which could adversely affect our revenue and profitability in
2020. We are generally able to share transition costs with the customer in connection with these changing customer
demands, but any sharing is the subject of negotiation and the amount is not always contractually defined. If we do
not receive transition payments from our customers sufficient to cover our transition costs or lost margins, our
business, financial condition and results of operations could be materially harmed.
We have experienced, and could in the future experience, quality or operational issues in connection with
plant construction or expansion, wind blade model transitions and wind blade manufacturing, which could result
in losses and cause delays in our ability to complete our projects and may therefore materially harm our business,
financial condition and results of operations.
We dedicate most of the capacity of our current wind blade manufacturing facilities to existing customers and,
as a result, we may need to build additional manufacturing capacity or facilities to serve the needs of new customers
or expanded needs of existing customers. Since the third quarter of 2016, we have commenced operations at four
new manufacturing facilities in Mexico, one in Turkey, one in Yangzhou, China, one in Chennai, India and one in
Iowa. The construction of new plants and the expansion of existing plants involves significant time, cost and other
risks. We generally expect our plants to generate losses in their first 12 to 24 months of operations related to
production startup costs. Additionally, numerous factors can contribute, and have in the past contributed, to delays
or difficulties in the startup of, or the adoption of our manufacturing lines to produce larger wind blade models,
which we refer to as model transitions, in our manufacturing facilities. These factors include permitting,
construction or renovation delays, the engineering and fabrication of specialized equipment, the modification of our
general production know-how and customer-specific manufacturing processes to address the specific wind blades to
be tested and built, changing and evolving customer specifications and expectations and the hiring and training of
plant personnel. If our production or the delivery by any third-party suppliers of any custom equipment is delayed,
the construction or renovation of the facility, or the addition of a production line would be delayed. Any delays or
difficulties in plant startup or expansion may result in cost overruns, production delays, contractual penalties, loss of
revenues, reduced margins and impairment of customer relationships, which could materially harm our business,
financial condition and results of operations. For example, we experienced construction and startup delays with
respect to our new manufacturing facility in Yangzhou, China. These delays resulted in us paying liquidated
damages of $7.8 million to one of our customers payable in installment payments in 2019 and 2020.
Some of our long-term supply agreements with our customers are subject to early termination and our failure to
perform our obligations under these agreements or the termination of these agreements would materially harm
our business, financial condition and results of operation.
Our current long-term supply agreements expire between the end of the third quarter of 2020 and the end of
2023. Some of our long-term supply agreements contain provisions that allow for the early termination of these
agreements upon the customer providing us with advance written notice and paying an early termination fee.
Additionally, our long-term supply agreements contain provisions allowing our customers to terminate these
agreements upon our failure to deliver the contracted wind blade volumes or our failure to meet certain mutually
agreed upon cost reductions or a force majeure event that impacts our supply agreements for a contractually
specified period of time. Our customers may not continue to maintain long-term supply agreements with us in the
future. If one or more of our customers terminate, or reduce the number of lines or fail to renew their long-term
supply agreements with us, it would materially harm our business, financial condition and results of operations.
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Our long-term supply agreements and our backlog are subject to reduction within contractual parameters and we
may not realize all of the expected revenue.
Our current long-term wind blade supply agreements generally establish annual purchase requirements on
which we rely for our future production and financial forecasts. However, the timing and volume of purchases,
within certain parameters, may be subject to change by our customers. In addition, the amount of the annual
purchase requirements typically decline in the later years of our long-term supply agreements. In some instances,
our customers have the contractual right to require us to reduce the number of manufacturing lines committed to
them and correspondingly reduce their minimum annual purchase requirements. Additionally, our minimum annual
purchase commitments could potentially understate the forecasted net sales that we are likely to generate in a given
period or periods if all of our long-term supply agreements remain in place and pricing remains materially
unchanged. Such minimum annual purchase requirements could also potentially overstate the forecasted net sales
that we are likely to generate in a given period or periods if one or more of our long-term supply agreements were to
be terminated by our customers for any reason or due to market conditions our plants are underutilized. As a result,
we may not realize the forecasted net sales we expect under our long-term supply agreements or pursuant to our
backlog, which we define as the value of purchase orders received less the revenue recognized to date on those
purchase orders. In addition, fulfillment of our backlog may not result in profits.
Many of our long-term supply agreements contain liquidated damages provisions, which may require us to make
unanticipated payments to our customers.
Many of our long-term supply agreements contain liquidated damages provisions in the event that we fail to
perform our obligations thereunder in a timely manner or in accordance with the agreed terms, conditions and
standards. Our liquidated damages provisions generally require us to make a payment to the customer if we fail to
deliver a product or service on time. For example, we experienced construction and startup delays with respect to
our new manufacturing facility in Yangzhou, China and a work stoppage in Matamoros, Mexico during 2019. These
delays resulted in us paying liquidated damages of $20.5 million to one of our customers payable in installment
payments in 2019 and 2020. We generally try to limit our exposure under any individual long-term supply
agreement to a maximum penalty. Nevertheless, if we incur liquidated damages, they may materially harm our
business, operating results and financial condition.
Our wind turbine OEM customers are facing increasing competition and pricing pressure due to the increasing
prevalence of auction-based tenders in wind energy markets, and correspondingly our margins and results of
operations may be adversely affected.
Many governments are shifting from feed-in tariffs to auction-based tenders as a means of promoting the
development and growth of renewable energy sources such as wind energy. As a result of this shift, our wind
turbine OEM customers are experiencing intense pricing pressure with respect to the sale of their turbines. As a
result of this pricing pressure, we will be required to further reduce the costs we incur to manufacture wind blades to
remain competitive. We typically share the benefit of cost reductions related to manufacturing wind blades with our
customers pursuant to the terms of our long-term supply agreements. If these pricing pressures continue, we may
choose to reduce our margins or pass on a greater percentage of the savings to our OEM customers obtained from
manufacturing cost reductions than required under our supply agreements to remain competitive, each of which may
materially harm our business, financial condition and results of operations.
Although a majority of our manufacturing facilities are located outside the United States, our business is still
heavily dependent upon the demand for wind energy in the United States and any downturn in demand for wind
energy in the United States could materially harm our business.
We have developed a global footprint to serve the growing wind energy market worldwide and have wind
blade manufacturing facilities in the United States, China, Mexico, Turkey and India. Although a majority of our
manufacturing facilities are located outside of the United States, historically more than half of the wind blades that
we produced were deployed in wind farms located within the United States. Our Iowa and Mexico manufacturing
facilities manufacture wind blades that are generally deployed within the United States. In addition, we export wind
blades from our China and Turkey manufacturing facilities to the United States and wind blades that will be
produced at our India manufacturing facility could be exported by our customers to the United States as well. In
addition, tariffs imposed by the current administration on components of wind turbines from China, including wind
blades, in 2018 and 2019 could also have a negative impact on demand for our wind blades manufactured in our
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Chinese manufacturing facilities. Consequently, demand for wind energy and our wind blade sales in the United
States could be adversely affected by a variety of reasons and factors, and any downturn in demand for wind energy
and our wind blade sales in the United States could materially harm our business.
We could experience shortages of raw materials or components critical to our manufacturing needs, which may
hinder our ability to perform under our supply agreements.
We rely upon third parties for raw materials, such as fiberglass, carbon, resins, foam core and balsa wood, and
various components for the wind blades we manufacture. Some of these raw materials and components may only be
purchased from a limited number of suppliers. For example, balsa wood is only grown and produced in a limited
number of geographies and is only available from a limited number of suppliers. Additionally, our ability to
purchase the appropriate quantities of raw materials is constrained by our customers’ transitioning wind blade
designs and specifications. As a result, we maintain relatively low inventory and acquire raw materials and
components as needed. Due to significant international demand for these raw materials from many industries, we
may be unable to acquire sufficient quantities or secure a stable supply for our manufacturing needs. For example, in
2019, we experienced shortages in the supply of balsa wood and other core materials which adversely impacted our
results of operations. If shortages or delays occur, we may be unable to provide our products to our customers on
time, or at all. In some instances, our customers directly control the purchase of certain key raw materials and
components and if they are unable to procure and provide us with such raw materials and components, it could cause
delays and disruptions with respect to our business and operations. In addition, a disruption in any aspect of our
global supply chain caused by transportation delays, customs delays, cost issues or other factors could result in a
shortage of raw materials or components critical to our manufacturing needs. Any supply shortages, delays in the
shipment of materials or components from third party suppliers, or changes in the terms on which they are available
could disrupt or materially harm our business, operating results and financial condition.
The concentration of customers in our wind business could enable one or more of our customers to attempt to
substantially influence our policies, business and affairs going forward, or adversely affect our business,
financial condition or results of operations if one or more of our customers experience financial difficulties,
become insolvent or file for bankruptcy.
Our dependence on five wind blade customers for substantially all of our revenues could encourage these
customers to attempt to impose new or additional requirements on us that reduce the profitability of our long-term
supply agreements with them or otherwise influence our policies, choice of and arrangements with raw material
suppliers and other aspects of our business. Our customers could also attempt to influence the outcome of a
corporate transaction if the transaction benefits a customer’s competitor or is otherwise perceived as not
advantageous to a customer, which could have the effect of delaying, deterring, or preventing a transaction that
could benefit us. In addition, consolidation of some of our customers may result in increased customer concentration
and the potential loss of customers. For example, Nordex completed its acquisition of Acciona in 2016 and Gamesa
completed the merger of Siemens’ Wind Power with Gamesa in 2017. Although we are not constrained by any
exclusivity agreements with any of our existing wind blade customers, they may resist our development of new
customer relationships, which could affect our relationships with them or our ability to secure new customers.
In addition, if one or more of our customers experience financial difficulties, demand for the wind blades we
manufacture could decline significantly. In such a circumstance, we could also be at risk of collecting accounts
receivable amounts owed from such customers as well as realizing the value of inventory balances for such
customers. Similarly, if one or more of our customers becomes insolvent or files for bankruptcy, the demand for the
wind blades we manufacture from the affected customers could be eliminated altogether. For example, in 2019,
Senvion GmbH entered into a provisional self-administration procedure concerning its assets as ordered by the
Local Court of Hamburg, Germany pursuant to the Insolvency Act in Germany. As a result of this event, we
reevaluated the outstanding accounts receivables due from Senvion, the revenue recognized under our supply
agreement with Senvion as well as the property, plant and equipment at our Taicang Port, China facility where we
manufactured blades for Senvion. As a result of that reevaluation, we revised our estimate of consideration to be
received under that contract, which reduced the revenue recorded in the year ended December 31, 2019 by $7.8
million. We also revised the useful life of the property, plant and equipment which was being used to fulfill the
Senvion supply agreement which does not have an alternative use. The reevaluation and the lost production from
Senvion had an adverse impact on our results of operations for the year ended December 31, 2019. If any of our
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other customers experience financial difficulties, they also may seek pricing concessions, extended payment terms,
reduced minimum purchase commitments and other changes to the key terms of our supply agreements that could
adversely affect our business, financial condition and results of operations.
Demand for the wind blades we manufacture may fluctuate for a variety of reasons, including the growth of the
wind industry, and decreases in demand could materially harm our business and may not be sufficient to support
our growth strategy.
Our revenues, business prospects and growth strategy heavily depend on the continued growth of the wind
industry and our customers’ continuing demand for wind blades. Customer demand could decrease from anticipated
levels due to numerous factors outside of our control that may affect the development of the wind energy market
generally, portions of the market or individual wind project developments, including:
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general economic conditions;
the general availability and demand for electricity;
wind energy market volatility;
cost-effectiveness, availability and reliability of alternative sources of energy and competing methods of
producing electricity, including solar and non-renewable sources such as natural gas;
foreign, federal and state governmental tariffs, subsidies and tax or regulatory policies;
delays or cancellations of government tenders or auctions for wind energy projects;
the availability of financing for wind development projects;
the development of electrical transmission infrastructure and the ability to implement a proper grid
connection for wind development projects;
foreign, federal and state laws and regulations regarding avian protection plans, noise or turbine setback
requirements and other environmental laws and regulations;
administrative and legal challenges to proposed wind development projects; and
public perception and localized community responses to wind energy projects.
In addition to factors affecting the wind energy market generally, our customers’ demand may also fluctuate
based on other factors beyond our control. Any decline in customer demand below anticipated levels could
materially harm our revenues and operating results and could delay or impede our growth strategy.
Changes in customers’ business focus and strategy could materially harm our business and results of operations.
Changes in our customers’ business focus could significantly reduce their demand for wind blades. For
instance, GE, the parent corporation of GE Wind, is a highly diversified company that operates in a number of
different industries and could decide to devote more resources to operations outside of wind energy or cease selling
wind turbines altogether. In addition, we expect that GE Wind will utilize LM for a substantial percentage of its
wind blade production in the future. If any of our customers change their business focus, including a strategic shift
to insource a material portion of its wind blade production requirements, it could materially harm our business and
results of operations.
We have experienced in the past, and our future wind blade production could be affected by, operating problems
at our facilities, which may materially harm our operating results and financial condition.
Our wind blade manufacturing processes and production capacity have in the past been, and could in the
future be, disrupted by a variety of issues, including:
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production outages to conduct maintenance activities that cannot be performed safely during operations;
prolonged power failures or reductions;
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breakdowns, failures or substandard performance of machinery and equipment;
our inability to comply with material environmental requirements or permits;
inadequate transportation infrastructure, including problems with railroad tracks, bridges, tunnels or
roads;
supply shortages of key raw materials and components;
damage or production delays caused by earthquakes, fires, floods, tornadoes, hurricanes, extreme
weather conditions such as windstorms, hailstorms, drought, temperature extremes, typhoons or other
natural disasters or terrorism or health epidemics such as the coronavirus; and
labor unrest or shortages in skilled labor.
For example, we announced in the first quarter of 2020 that we were shutting down our Newton, Iowa
transportation facility due to operational challenges primarily relating to our inability to hire enough skilled
personnel to manufacture our transportation products at this facility. In addition, the cost of repeated or prolonged
interruptions, reductions in production capacity, or the repair or replacement of complex and sophisticated tooling
and equipment may be considerable and could result in damages under or the termination of our long-term supply
agreements or penalties for regulatory non-compliance, any of which could materially harm our business, operating
results and financial condition.
We operate a substantial portion of our business in international markets and we may be unable to effectively
manage a variety of currency, legal, regulatory, economic, social and political risks associated with our global
operations and those in developing markets.
We currently operate manufacturing facilities in the United States, China, Mexico and Turkey, and we
commenced operations at our manufacturing facility in Chennai, India in the first quarter of 2020. Since the third
quarter of 2016, we have commenced operations at four new manufacturing facilities in Mexico, one in Turkey, one
in Yangzhou, China, one in Chennai, India and one in Iowa. For the years ended December 31, 2019, 2018 and
2017, approximately 88%, 84% and 80%, respectively, of our net sales were derived from our international
operations and we expect that a substantial portion of our projected revenue growth will be derived from those
operations. Our overall success depends, in part, upon our ability to succeed in differing legal, regulatory, economic,
social and political conditions. The global nature of our operations is subject to a variety of risks, including:
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difficulties in staffing and managing multiple international locations;
increased exposure to foreign currency exchange rate risk or currency exchange controls imposed by
foreign countries;
the risk of import, export and transportation regulations and tariffs on foreign trade and investment,
including boycotts and embargoes;
taxation and revenue policies or other restrictions, including royalty and tax increases, retroactive tax
claims and the imposition of unexpected taxes;
the imposition of, or rapid or unexpected adverse changes in, foreign laws, regulatory requirements or
trade policies;
restrictions on repatriation of earnings or capital or transfers of funds into or out of foreign countries;
limited protection for intellectual property rights in some jurisdictions;
inability to obtain adequate insurance;
difficulty administering internal controls and legal and compliance practices in countries with different
cultural norms and business practices;
the possibility of being subjected to the jurisdiction of foreign courts in connection with legal disputes
and the possible inability to subject foreign persons to the jurisdiction of courts in the United States;
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the misinterpretation of local contractual terms, renegotiation or modification of existing long-term
supply agreements and enforcement of contractual terms in disputes before local courts;
the inability to maintain or enforce legal rights and remedies at a reasonable cost or at all; and
the potential for political unrest, expropriation, nationalization, revolution, war or acts of terrorism in
countries in which we operate.
In particular, our operations in China are subject to a variety of specific risks, which may adversely affect our
business, including:
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the imposition by the United States of tariffs on certain wind turbine components, including wind
turbine blades, being imported into the United States;
the deterioration of the diplomatic and political relationships between the United States and China
resulting from such factors as the opposition of the United States to censorship and other policies of the
Chinese government, China’s growing trade surpluses with the United States and the introduction by the
United States of trade restrictions that would impact Chinese imports and any retaliatory measures that
could ensue;
the uncertainty of the Chinese legal regime generally, and in particular in protecting intellectual
property and contractual rights, in securing future land use rights, and the recent adoption of new labor,
environmental and tax laws, the impacts of which are not yet fully understood; and
various restrictions on our ability to repatriate profits from China to other jurisdictions. See “Risk
Factors—Risks Related to our Business as a Whole—We may have difficulty making distributions and
repatriating earnings from our Chinese manufacturing operations, which may also occur in some of our
other locations.”
We also operate in developing markets, which have, in the past, experienced, and may in the future
experience, social and political unrest. For example, Turkey has experienced problems with domestic terrorist and
ethnic separatist groups and attempted military coups. The issue of civil rights for Kurdish citizens remains a
potential source of political instability, which may be exacerbated by continuing instability in the Middle East.
In addition, the locations of our manufacturing facilities in Juárez, Mexico and Matamoros, Mexico are, and
have been in the past, subject to violence related to drug trafficking, including kidnappings and killings as well as
labor unrest. These factors and events could negatively impact our ability to hire and retain personnel, especially
senior U.S. managers, to continue to work at these facilities, or disrupt our operation in other ways, which could
materially harm our business.
As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate
and effectively manage these and other related risks. We may be unsuccessful in developing and implementing
policies and strategies that will be effective in managing these risks in each country where we do business or
conduct operations. Our failure to manage these risks successfully could materially harm our business, operating
results and financial condition.
We may not achieve the long-term growth we anticipate if wind turbine OEMs do not continue to shift from in-
house production of wind blades to outsourced wind blade suppliers and if we do not expand our customer
relationships and add new customers.
Many wind turbine OEMs rely on in-house production of wind blades for some or all of their wind turbines.
Our growth strategy depends in large part on the continued expansion of our relationships with our current wind
blade customers, and the addition of new key customers. All of our customers possess the financial, engineering and
technical capabilities to produce their own wind blades and many source wind blades from multiple suppliers. Our
existing customers may not expand their wind energy operations or, if they do, they may not choose us to supply
them with new or additional quantities of wind blades. Our collaborative dedicated supplier model for the
manufacture of wind blades is a significant departure from traditional vertically integrated methods. As is typical for
rapidly evolving industries, customer demand for new business models is highly uncertain. Although we have
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entered into long-term supply agreements with customers that also produce wind blades for their wind turbines in-
house, we may not be able to maintain these customer relationships or enter into similar arrangements with new
customers that produce wind blades in-house in the future. In addition, although GE Wind historically outsourced all
of their wind blade production requirements prior to its acquisition of LM, we expect that GE Wind will continue to
utilize LM for a substantial percentage of its wind blade production in the future. Our business and growth strategies
depend in large part on the continuation of the trend toward outsourcing manufacturing. If that trend does not
continue or we are unsuccessful in persuading wind turbine OEMs to shift from in-house production to the
outsourcing of their wind blade manufacturing, we may not achieve the long-term growth we anticipate and our
market share could be limited.
A drop in the price of energy sources other than wind energy, or our inability to deliver wind blades that compete
with the price of other energy sources, may materially harm our business, financial condition and results of
operations.
We believe that the decision to purchase wind energy is, to a significant degree, driven by the relative cost of
electricity generated by wind turbines compared to the applicable price of electricity from the utility grid and the
cost of traditional and other renewable energy sources. Decreases in the prices of electricity from the relevant utility
grid or from renewable energy sources other than wind energy, such as solar, would harm the market for wind
energy. In particular, a drop in natural gas prices could lessen the appeal of wind-generated electricity.
Technological advancements or the construction of a significant number of power generation plants, including
nuclear, coal, natural gas or power plants utilizing other renewable energy technologies, government support for
other forms of renewable energy or construction of additional electric transmission and distribution lines could
reduce the price of electricity produced by competing methods, thereby making the purchase of wind energy less
attractive. For example, in 2017, the current President signed an executive order that is intended to promote the
domestic coal industry, which may make the cost of electricity generated from coal more cost competitive. The
ability of energy conservation technologies, public initiatives and government incentives to reduce electricity
consumption or support other forms of renewable energy could also lead to a reduction in the price of electricity,
which would undermine the attractiveness of wind energy and thus wind turbines, and, ultimately wind blades. If
prices for electricity generated by wind turbines are not competitive, our business, financial condition and results of
operations may be materially harmed.
If any precision molding and assembly systems needed for our manufacturing process contains a defect or is not
fabricated and delivered in a timely manner, our ongoing manufacturing operations, business, financial
condition and results of operation may be materially harmed.
We custom fabricate many of the precision molding and assembly systems used in our facilities. Our
customers also have the option of using third-party manufacturers to produce their custom tooling. If any piece of
equipment fails, is determined to produce nonconforming or defective products or is not fabricated and delivered in
a timely manner, whether produced by us or a third party, our wind blade production could be interrupted and we
could be subject to contractual penalties, warranty claims, loss of revenues and damage to our customer
relationships, among other consequences.
The long sales cycle involved in attracting new customers may make the timing of our revenue difficult to predict
and may cause our operating results to fluctuate.
The complexity, expense and long-term nature of our supply agreements generally require a lengthy customer
education, evaluation and approval process. It can take us from several months to years to identify and attract new
customers, if we are successful at all. This long sales cycle for attracting and retaining new customers subjects us to
a number of significant risks that may materially harm our business, results of operations and financial condition
over which we have limited control, including fluctuations in our quarterly operating results. In addition, we may
incur substantial expenses and devote significant management effort to develop potential relationships that do not
result in agreements or revenue and may prevent us from pursuing other opportunities.
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We encounter intense competition for limited customers from other wind blade manufacturers, as well as in-
house production by wind turbine OEMs, which may make it difficult to enter into long-term supply agreements,
keep existing customers and potentially get new customers.
We face significant competition from other wind blade manufacturers, and this competition may intensify in
the future. The wind turbine market is characterized by a relatively small number of large OEMs. In addition, a
significant percentage of wind turbine OEMs, including all of our current customers, produce some of their own
wind blades in-house. As a result, we compete for business from a limited number of customers that outsource the
production of wind blades. We also compete with a number of wind blade manufacturers in China, who are growing
in terms of their technical capability and aspire to expand outside of China. Some of our competitors have more
experience in the wind energy industry, as well as greater financial, technical or human resources than we do, which
may limit our ability to compete effectively with them and maintain or improve our market share. Additionally, our
long-term supply agreements dedicate capacity at our facilities to our customers, which may also limit our ability to
compete if our facilities cannot accommodate additional capacity. If we are unable to compete effectively for the
limited number of customers that outsource production of wind blades, our ability to enter into long-term supply
agreements with potential new and existing customers may be materially harmed.
We could be affected by increasing competition from new and existing industry participants and industry
consolidation.
The markets in which we operate are increasingly competitive and any failure on our part to compete
effectively on an ongoing basis could materially harm our business, results of operations or financial condition. The
key factors affecting competition in the wind energy industry are the capacity and quality of products, technology,
price, the ability to fulfill local market requirements and the scope, cost and location of manufacturing facilities.
Competition in the wind energy industry has intensified in recent years as a result of a number of factors,
including international expansion by existing industry participants exploiting new markets, particularly as political
will around the issues of global warming and the environment become more prominent to the political agenda in
those new markets. There has also been increasing pressure from Asian manufacturers improving the quality and
reliability of their technologies, and considering moving out of their local markets and into international cross border
transactions. Western wind turbine OEMs have now started using Asian manufacturers for a portion of their wind
blades. Market entry by certain large industrial groups, including those previously unconnected to the wind energy
market, through acquisitions and license agreements and numerous greenfield establishments in certain markets, also
poses a competition risk.
The competitive environment in the wind energy industry may become more challenging in the years ahead,
particularly in the event of greater consolidation in the industry, leading to greater market power and “economies of
scale” by such market players which translate into being able to offer greater “cost of energy” savings to wind power
plant customers. For example, GE completed its acquisition of LM in 2017 and also acquired Alstom S.A.’s power
business in 2015; Nordex completed its acquisition of Acciona in 2016 and Gamesa merged with Siemens’ Wind
Power in 2017. These transactions or further consolidation in the wind energy industry may have an adverse impact
on our business in the future, including, without limitation, reduced demand for our products and services, product
innovation, changes in pricing and similar factors, including any competitor’s attempt to duplicate our collaborative
dedicated supplier model. Such events could materially harm our business, results of operations, financial condition
or prospects.
Significant increases in the prices of raw materials or components that cannot be reflected in the price of our
products could negatively affect our operating margins.
The prices of our raw materials and components are subject to price fluctuations resulting from volatility of
supply and demand in world markets. Under our long-term supply agreements, our customers generally commit to
purchase minimum annual volumes and prices for wind blades are generally set as of the date of our supply
agreements and adjusted quarterly, for the cost of raw material and our operating expenses in certain cases. As a
result, the competitive nature of the wind blade market and our long-term supply agreements with our customers
may delay or prevent us from passing cost increases in raw materials and components on to our customers.
Significant increases in the price of raw materials or components used in our manufactured wind blades that cannot
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be reflected in the price of our products, could negatively affect our operating margins and materially harm our
business, operating results or financial condition.
GE’s acquisition of LM Wind Power, our largest competitor, may materially harm our business, financial
condition and results of operations and may cause the price of our common stock to decline.
In 2017, GE completed its acquisition of LM Wind Power, our largest competitor. By the end of 2016, we had
entered into five supply agreements with GE Wind providing for the supply of wind blades from our Iowa, Mexico,
Turkey and our Taicang Port, China facilities. In 2016, we entered into (i) an amended and restated supply
agreement for the continued supply of wind blades from our Iowa facility through December 31, 2020, (ii) an
amendment to our existing supply agreement for the continued supply of wind blades from our original Juárez,
Mexico facility through December 31, 2020 and (iii) a new supply agreement with GE Wind for the supply of
incremental wind blades from our second manufacturing facility in Juárez, Mexico through December 31, 2020. GE
Wind elected not to renew or extend the Turkey and Taicang Port, China supply agreements, which both expired on
December 31, 2017. We expect that GE Wind will utilize LM for a substantial percentage of its wind blade
production in the future. As such, GE Wind may not continue to purchase wind blades from us at similar volumes or
on as favorable terms in the future. In August 2018, GE Wind did agree to extend our existing supply agreement in
one of our Mexico plants by two years to 2022 and increased the number of wind blade manufacturing lines in that
facility from three to five. In addition, GE Wind has agreed to transition to a larger blade model in our Newton,
Iowa plant in early 2019 and to eliminate its option to terminate their supply agreement at this location prior to its
December 2020 expiration. Unless otherwise terminated or renewed, our supply agreements with GE Wind are in
effect until the end of 2020 for our Iowa and one of our Mexico facilities and until the end of 2022 for our other
Mexico facility. GE Wind may terminate the Mexico supply agreements with no advance notice and paying us
termination fees as set forth in the applicable agreement. In addition, either party may terminate these supply
agreements upon a material breach by the other party which goes uncured for 30 days after written notice has been
provided. If GE Wind elects to utilize LM or another supplier for more of its wind blade production, reduce the
volumes of wind blades it purchases from us or terminates any of our supply agreements, it may materially harm our
business, financial condition and results of operations.
Certain of our long-term supply agreements are highly dependent upon a limited number of suppliers of raw
materials.
Our ability to perform under certain of our long-term supply agreements is currently, and may continue to be
in the future, highly dependent on a limited number of suppliers of raw materials. For instance, our agreements with
certain customers require us or our customers to purchase raw materials from a single supplier unless additional
suppliers are evaluated and found to satisfy the requirements set out in those agreements. In 2015, for example, our
ability to supply wind blades to one of our customers was constrained because our customer, who under our
agreement was required to procure a sufficient supply of a specific type of material, was unable to procure the
material from a single source supplier. Should any of these suppliers of raw materials experience production delays
or shortages, have their operations interrupted or otherwise cease or curtail their operations, this may disrupt or
materially harm our business, operating results and financial condition.
Significant increases in the cost of transporting the wind blades we manufacture could negatively affect the
demand for our products.
A significant portion of our customers’ costs relate to the costs necessary to transport the wind blades we
manufacture to their customers’ wind farms. Demand for our products could be negatively affected if the costs our
customers bear to transport the wind blades we manufacture materially increase.
The nature of our manufacturing processes and unanticipated changes to those processes could significantly
reduce our manufacturing yields and product reliability, which could materially harm our business, operating
results and financial condition.
The manufacturing of our wind blades involves highly complex and precise processes which may be
dictated by our customers’ requests requiring production in highly controlled environments. Changes in our
manufacturing processes or that are required by our customers could affect product reliability. Furthermore, many
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of our processes are manual to facilitate production flexibility and compliance with customer requirements. A
manually dependent manufacturing process can limit capacity and increase production costs. In some cases,
existing manufacturing techniques may be insufficient to achieve the volume or cost targets of our customers. For
example, our manufacturing processes may at times require a quantity of raw materials greater than the quantity
for which we have contracted, making it difficult for us to achieve the targeted cost levels negotiated with our
customers. In order to achieve targeted volume and cost levels, we may need to increase the quantity of raw
materials for which we contract or develop new manufacturing processes and techniques. While we continue to
devote substantial efforts to the improvement of our manufacturing techniques and processes, we may not achieve
manufacturing volumes and cost levels in our manufacturing activities that will fully satisfy customer demands,
which could materially harm our business, operating results and financial condition.
Our reserves for warranty expenses might not be sufficient to cover all future costs.
We provide warranties for all of the wind blades and precision molding and assembly systems we produce,
including parts and labor, for periods that typically range from two to five years depending on the product sold. If a
wind blade is found to be defective during the warranty period as a result of a defect in workmanship or materials, or
if we are required to cover remediation expenses or other potential remedies, in addition to our regular warranty
coverage we may need to repair or replace the wind blade (which could include significant transportation,
installation and erection costs) at our sole expense. Our estimate of warranty expense requires us to make
assumptions about matters that are highly uncertain, including future rates of product failure, repair costs, shipping
and handling and de-installation and re-installation costs at customers’ sites. Our assumptions could be materially
different from the actual performance of our products and these remediation expenses in the future. The expenses
associated with wind blade repair and remediation activities can be substantial and may include changes to our
manufacturing processes. If our estimates prove materially incorrect, we could incur warranty expenses that exceed
our reserves and be required to make material unplanned cash expenditures, which could materially harm our
business, operating results and financial condition.
We may not be able to meet our customers’ future wind blade supply demands, which may hinder our customer
relationships and reputation.
Historically, our existing customers’ demand and MW capacity goals have mirrored the anticipated growth of
the wind energy industry. Given the importance of wind energy capture, turbine reliability and cost to power
producers, the size, quality and performance of wind blades have become highly strategic to our OEM customers. If
we are unable to maintain future manufacturing capacity at levels that meet our customers’ increasing demands,
including with respect to volume, technical specifications, or commercial terms, our existing customers may seek
relationships with, or give priority to, other wind blade manufacturers or may use or develop their own internal
manufacturing capabilities to meet their increased demand, which could materially harm our business, operating
results and financial condition. In addition, our reputation could be materially harmed if we are unable to satisfy the
requirements of our customers.
We rely on our research and development efforts to remain competitive, and we may fail to develop on a timely
basis new wind blade manufacturing technologies that are commercially attractive or permit us to keep up with
customer demands.
The market for wind blades is subject to evolving customer needs and expectations. Our research and
development is invested in developing faster and more efficient manufacturing processes in order to build the new
wind blades designed by our customers that more effectively capture wind energy and are adaptable to new growth
segments of the wind energy market. Research and development activities are inherently uncertain and the results of
our in-house research and development may not be successful. In addition, our competition may adopt more
advanced technologies or develop wind blades that are more effective or commercially attractive. We believe that
our future success will depend in large part upon our ability to be at the forefront of technological innovation in the
wind energy industry and to rapidly and cost-effectively adapt our wind blade manufacturing processes to keep pace
with changing technologies, new wind blade design and changing customer needs. If we are unable to do so, our
business, operating results, financial condition and reputation could be materially harmed.
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We depend on third parties for certain construction, maintenance, engineering, transportation, warehousing and
logistics services, and failures of those third parties to perform their obligations may in turn impede our ability to
perform our obligations.
We contract with third parties for certain services relating to the design, construction and maintenance of
various components of our production facilities and other systems. If these third parties fail to comply with their
obligations:
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we may experience delays in the completion of new facilities or expansion of existing facilities;
the facilities may not operate as intended;
we may be required to recognize impairment charges; or
we could experience production delays, which could cause us to miss our production capacity targets
and breach our long-term supply agreements, which could damage our relationships with our customers
and subject us to contractual penalties and contract termination.
Any of these events could have a material adverse effect on our business, operating results or financial
condition. Our customers also contract with third parties for the transportation of the products we manufacture. In
particular, a significant portion of the goods we manufacture are transported to different countries, which requires
customized shipping cradles, sophisticated warehousing, logistics and other resources. If our customers fail to
contract with third parties for certain construction, maintenance, engineering, transportation, warehousing and
logistics services, or there are any disruptions, delays or failures in these services, this could have a material adverse
effect on our business, operating results or financial condition.
Various legislation, regulations and incentives that are expected to support the growth of wind energy in the
United States and around the world may not be extended or may be discontinued, phased out or changed, or may
not be successfully implemented, which could materially harm wind energy programs and materially decrease
demand for the wind blades we manufacture.
The U.S. wind energy industry is dependent in part upon governmental support through certain incentives
including federal tax incentives and RPS programs and may not be economically viable absent such incentives.
Government-sponsored tax incentive programs including the PTC, and to a lesser extent, the Investment Tax Credit,
are expected to support the U.S. growth of wind energy. The PTC provided the owner of a wind turbine placed in
operation before January 1, 2015 with a ten year credit against its U.S. federal income tax obligations based on the
amount of electricity generated by the wind turbine.
The PTC was extended in 2015 for wind power projects through December 31, 2019, and was phased down
over the term of the PTC extension. Specifically, the PTC was kept at the same rate in effect at the end of 2014 for
wind power projects that either commenced construction or met certain safe harbor requirements by the end of 2016,
and thereafter was reduced by 20% per year in 2017, 2018 and 2019, respectively. In December 2019, Congress
extended the PTC through the end of 2020 and increased the rate from 40% to 60% for projects that commenced
construction or met certain safe harbor requirements by the end of 2020 and are commissioned by the end of 2024.
In June 2019, the EPA issued the Affordable Clean Energy Rule, which replaced the Clean Power Plan, which
was designed to promote renewable energy. The Clean Power Plan, which was established by the EPA in 2015, set
national standards for states to reduce carbon emissions from power plants. Specifically, the Clean Power Plan
required states to reduce carbon emissions from power plants 32% below 2005 levels by 2030. In general, the
Affordable Clean Energy Rule, provides for efficiency improvements at power plants and directs individual States to
choose how they want to regulate power plant emissions. Unlike the Clean Power Plan, the Affordable Clean
Energy Rule, does not set specific standards or limits for carbon emissions.
In addition, many state governments have adopted measures designed to promote wind energy. For example,
according to the American Wind Energy Association (AWEA), at the state level, as of December 31, 2019, 29
states, as well as the District of Columbia and Puerto Rico, have implemented RPS programs that mandate that a
specific percentage of electricity sales in a state come from renewable energy within a specified period. However,
some RPS programs have been challenged and all of them may not continue going forward. These programs have
spurred significant growth in the wind energy industry in the United States and a corresponding increase in the
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demand for our manufactured wind blades. However, although the U.S. government and several state governments
have adopted these various programs that are expected to help drive the growth of wind energy, they may approve
new or additional programs that might hinder the wind energy industry and therefore negatively impact our business,
operating results or financial condition.
China implemented its 13th 5-Year Plan with a goal of 15% energy from non-fossil fuel sources and targeting
210 GWs of grid-connected wind capacity by 2020, according to its National Development and Reform
Commission, and employs preferential feed-in tariff schemes, in addition to local tax-based incentives. Mexico has
established strict targets, aiming for 35% renewable energy by 2024 and 50% by 2050, according to WoodMac,
which it is facilitating through tax incentives. Large European Union members have renewable energy targets for
2020 of between 10% and 49% of all energy use derived from renewable energy sources, according to the European
Commission. Turkey enacted Law No. 5346 in 2005 to promote renewable-based electricity generation within its
domestic electricity market by introducing tariffs and purchase obligations for distribution companies requiring
purchases from certified renewable energy producers. The World Bank also provided to Turkey an aggregate of
$600 million of loan proceeds to encourage investors to construct generation plants with renewable energy
resources. These programs have spurred significant growth in the wind energy industry internationally and a
corresponding increase in the demand for our manufactured wind blades. However, although foreign governments
have adopted various programs that are expected to drive the growth of wind energy, they may approve new or
additional programs going forward that might hinder the wind energy industry and therefore negatively impact our
business as a result. For example, foreign governments may decide to reduce or eliminate these economic incentives
for political, financial or other reasons. They may also favor other forms of energy, including current and new
sources of energy such as solar, nuclear and hydropower. Foreign governments may also cancel or delay scheduled
tender offers or auctions for wind energy projects. For example, the Mexican government recently canceled the
country’s fourth energy tender which was in the final stages to contract a minimum 5% of national power by 2021.
Because of the long lead times necessary to develop wind energy projects, any uncertainty or delay in
adopting, extending or renewing these incentives beyond their current or future expiration dates could negatively
impact potential wind energy installations and result in industry volatility. There can be no assurance that the PTC,
tender offers, auctions or other governmental programs or subsidies for renewable energy will remain in effect in
their present form or at all, and the elimination, reduction, or modification of these programs or subsidies could
materially harm wind energy programs in the United States and international markets and materially decrease
demand for the wind blades we manufacture and, in turn, materially harm our business, operating results and
financial condition.
We may not be able to obtain, or agree on acceptable terms and conditions for, government tax credits, grants,
loans and other incentives for which we have in the past applied or may in the future apply, which may materially
harm our business, operating results and financial condition.
We have in the past and may in the future rely, in part, on tax credits, grants, loans and other incentives under
U.S. and foreign governmental programs to support the construction of new plants and expansion of existing
manufacturing facilities. We may not be successful in obtaining these tax credits, grants, loans and other incentives,
and the tax and other incentives that have already been approved may not be continued in the future. Our ability to
obtain funds or incentives from government sources is subject to the availability of funds under applicable
governmental programs and approval of our applications to participate in these programs. The application process
for these funds and other incentives is and will be highly competitive. We may not be able to satisfy the
requirements and milestones imposed by the granting authority as conditions to receipt of the funds or other
incentives, the timing of the receipt of the funds may not meet our needs, and, even if obtained, we may be unable to
successfully execute on our business plan. Moreover, not all of the terms and conditions associated with these
incentive funds have been disclosed to us, and once disclosed, there may be terms and conditions with which we are
unable to comply or that are commercially unacceptable to us. Further, participation in certain programs may require
us to notify the federal government of certain intellectual property we develop and comply with applicable
regulations in order to protect our interests in that intellectual property. In addition, these federal governmental
programs may require us to spend a portion of our own funds for every incentive dollar we receive or are permitted
to borrow from the government and may impose time limits during which we must use the funds awarded to us that
we may be unable to achieve. If we are unable to obtain or comply with the terms of these tax credits, grants, loans
or other incentives, our business, operating results and financial condition may be harmed.
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Adverse weather conditions could impact the wind energy industry in some regions and could materially harm
our business, operating results and financial condition.
Our business may be subject to fluctuations in sales volumes due to adverse weather conditions that could
delay the erection of wind turbines, the installation of wind blades and the ability of wind turbines to generate
electricity efficiently. Moreover, any remediation efforts we could be required to undertake pursuant to wind blade
warranties could be delayed or otherwise adversely impacted by poor weather. Although our customer base and
manufacturing footprint is geographically diversified, enduring weather patterns or seasonal variations may impact
the expansion of the wind energy industry in certain regions. A resulting reduction or delay in demand for the wind
blades we manufacture for our customers could materially harm our business, operating results and financial
condition.
Our long-term growth and success is dependent upon retaining our senior management and attracting and
retaining qualified personnel.
Our growth and success depends to a significant extent on our ability to attract and retain highly qualified
research and development, management, manufacturing and other key personnel including engineers in our various
locations. In addition, we rely heavily on our management team, including Steven C. Lockard, our Chief Executive
Officer; William E. Siwek, our President; Ramesh Gopalakrishnan, our Chief Operating Officer - Wind; Bryan
Schumaker, our Chief Financial Officer; and other senior management. Although we have executed an employment
agreement with each of these executives, these executives and other senior management can resign with little or no
notice to us. The inability to recruit and retain key personnel or the unexpected loss of key personnel may materially
harm our business, operating results and financial condition. Hiring those persons may be especially difficult
because of the specialized nature of our business and our international operations. If we cannot attract and retain
qualified personnel, or if we lose the services of Messrs. Lockard, Siwek, Gopalakrishnan, or Schumaker, other key
members of senior management or other key personnel, and we do not have adequate succession plans in place, our
ability to successfully execute our business plan, market and develop our products and serve our customers could be
materially and adversely affected. In addition, because of our reliance on our management team, our future success
depends, in part, on its ability to identify and develop talent to succeed its senior management. The retention of key
personnel and appropriate senior management succession planning will continue to be critical to the successful
implementation of our future strategies.
Risks Related to our Transportation Business
Our efforts to expand our transportation business and enter into other strategic markets may not be successful.
While our primary focus has been to manufacture composite wind blades, our strategy is to expand our
transportation business and to enter into other strategic markets. In 2018, we expanded our relationship with Proterra
and began supplying bus bodies from a new manufacturing facility in Newton, Iowa in addition to our
manufacturing facility in Warren, Rhode Island. We experienced startup challenges and incurred significant losses
in connection with the supply of bus bodies to Proterra from our Newton, Iowa manufacturing facility. As result, we
are planning to close our Newton, Iowa bus body manufacturing facility in the first quarter of 2020 and plan to
consolidate our bus body manufacturing operation into our Warren, Rhode Island manufacturing facility. The
expansion of our transportation business and our entry into other strategic markets will require improved execution
in terms of our start up activity and ongoing manufacturing performance as well as significant levels of investment.
There can be no assurance that our transportation business or other strategic markets will develop as anticipated or
that we will have success in any such markets, and if we do not, we may be unable to recover our investment, which
could adversely impact our business, financial condition and results of operations, including potentially impairing
the value of our goodwill.
We may incur material losses and costs as a result of product liability and warranty claims, litigation and other
disputes and claims.
We are exposed to warranty and product liability claims if our transportation products fail to perform as
expected. We may in the future be required to participate in a recall of these products or the vehicles incorporating
our products. If public safety concerns are raised, we may have to participate in a recall even if our products are
ultimately found not to be defective. Vehicle manufacturers have experienced increasing recall campaigns in recent
years. Our customers may look to us for contribution when faced with recalls and product liability claims. If our
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customers demand higher warranty-related cost recoveries, or if our transportation products fail to perform as
expected, our business, financial condition and results of operations could materially suffer.
We may also be exposed to product liability claims, warranty claims and damage to our reputation if our
transportation products actually or allegedly fail to perform as expected or the use of our products results, or is
alleged to result, in bodily injury or property damage. Recalls may also cause us to lose additional business from our
customers. Material product defect issues may subject us to recalls of those products and restrictions on bidding on
new customer programs.
Risks Related to Our Business as a Whole
Our facilities or operations could be adversely affected by health epidemics such as the Coronavirus or other
events outside of our control.
We may be impacted by health epidemics, such as the Coronavirus, or other events outside of our control,
such as wars or natural disasters. For example, as a result of the recent Coronavirus quarantine and movement
restrictions being imposed in China, we do not expect our China manufacturing facilities to be back at full
production until the second quarter of 2020 and we may not be able to produce the number of wind blade sets in our
China manufacturing facilities that we originally projected for calendar year 2020. In addition, our global supply
chain may be adversely affected by the Coronavirus epidemic, other health epidemics, wars, natural disasters or
other events outside our control. If the Coronavirus epidemic or other events outside of our control persist for an
extended period of time, they may have an adverse impact on our business, financial condition and results of
operations.
We may not be able to manage our future growth effectively, which may materially harm our business, operating
results and financial condition.
We expect to continue to expand our business to meet our current and expected future contractual obligations
and to satisfy anticipated increased demand for our products. To manage our anticipated expansion, we believe we
must scale our internal infrastructure, including establishing additional facilities, improve our operational systems
and procedures and manufacturing capabilities, continue to enhance our compliance and quality assurance systems,
train and manage our growing employee base, and retain and add to our current executives and management
personnel. Rapid expansion of our operations could place a significant strain on our senior management team,
support teams, manufacturing lines, information technology platforms and other resources. Difficulties in effectively
managing the budgeting, forecasting and other process control issues presented by any rapid expansion could
materially harm our business, prospects, results of operations or financial condition. Our inability to implement
operational improvements, generate and sustain increased revenue and manage and control our cost of goods sold
and operating expenses could impede our future growth and materially harm our business, operating results and
financial condition.
Our financial position, revenue, operating results, profitability and cash flows are difficult to predict and may
vary from quarter to quarter, which could cause our share price to decline significantly.
Our quarterly revenue, operating results, profitability and cash flows have varied in the past and are likely to
vary significantly from quarter to quarter in the future. For example, our quarterly results have ranged from an
operating profit of $21.0 million for the three months ended September 30, 2017 to an operating loss of $11.7
million for the three months ended March 31, 2019. The factors that are likely to cause these variations include:
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operating and startup costs of new manufacturing facilities;
wind blade model transitions;
differing quantities of wind blade production;
unanticipated contract or project delays or terminations;
changes in the costs of raw materials or disruptions in raw material supply;
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scrap of defective products;
payment of liquidated damages to our customers for late deliveries of our products;
warranty expense;
availability of qualified personnel;
employee wage levels;
costs incurred in the expansion of our existing manufacturing capacity;
volume reduction requests from our customers pursuant to our customer agreements;
damage or production delays caused by earthquakes, fires, floods, tornadoes, hurricanes, extreme
weather conditions such as windstorms, hailstorms, drought, temperature extremes, typhoons or other
natural disasters or terrorism or health epidemics such as the coronavirus;
general economic conditions; and
the complexity of the financial assumptions we must use for forecasting our revenue, profitability and
operating results under ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and the
impact that unanticipated blade transitions have on those estimates.
As a result, our revenue, operating results, profitability and cash flows for a particular period are difficult to
predict and may decline in comparison to corresponding prior periods regardless of the strength of our business. It is
also possible that in some future periods our revenue, operating results and profitability may not meet the
expectations of securities analysts or investors. If this occurs, the trading price of our common stock could fall
substantially, either suddenly or over time, and our business, operating results and financial condition would be
materially harmed.
The fluctuation of foreign currency exchange rates could materially harm our financial results.
Since we conduct a significant portion of our operations internationally, our business is subject to foreign
currency risks, including currency exchange rate fluctuations. The exchange rates are affected by, among other
things, changes in political and economic conditions. For example, an increase in our Turkey sales and operations
will result in a larger portion of our net sales and expenditures being denominated in the Euro and Turkish Lira.
Significant fluctuations in the exchange rate between the Turkish Lira and the U.S. dollar, the Turkish Lira and the
Euro or the Euro and the U.S. dollar may adversely affect our revenue, expenses, as well as the value of our assets
and liabilities. Similarly, an increase in our sales within China may result in a larger portion of our net sales and
expenditures being denominated in Chinese Renminbi. The Chinese government controls the procedures by which
the Chinese Renminbi is converted into other currencies, and conversion of the Chinese Renminbi generally requires
government consent. As a result, the Chinese Renminbi may not be freely convertible into other currencies at all
times. If the Chinese government institutes changes in currency conversion procedures, or imposes restrictions on
currency conversion, those actions may materially harm our business, liquidity, financial condition and operating
results. In addition, significant fluctuations in the exchange rate between the Chinese Renminbi and U.S. dollars
may adversely affect our revenues, expenses as well as the value of our assets and liabilities. However, in Mexico,
since all of our net sales and some of our expenditures are denominated in U.S. dollars, an increase in our Mexico
sales and operations will result in a larger portion of our cost of goods sold being denominated in the Mexican Peso.
Significant fluctuations in the exchange rate between the Mexican Peso and the U.S. dollar may adversely affect our
expenses, as well as the value of our assets and liabilities. To the extent our future revenues and expenses are
generated outside of the United States in currencies other than the U.S. dollar, including the Euro, the Turkish Lira,
the Chinese Renminbi, Mexican Peso or India Rupee, among others, we will be subject to increased risks relating to
foreign currency exchange rate fluctuations which could materially harm our business, financial condition and
operating results.
Our manufacturing operations and future growth are dependent upon the availability of capital, which may be
insufficient to support our capital expenditures.
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Our current wind blade manufacturing activities and future growth will require substantial capital investment.
For the years ended December 31, 2019 and 2018, our capital expenditures were $80.3 million and $74.7 million,
respectively, including assets acquired under finance leases in 2019 and 2018 of $5.8 million and $22.0 million,
respectively. We have recently entered into lease agreements with third parties to lease new manufacturing facilities
in China, India and Mexico. Major projects expected to be undertaken include purchasing equipment for our new
manufacturing facility in Chennai, India and the continued investment in our Turkey, Mexico and China facilities.
Our ability to grow our business is predicated upon us making significant additional capital investments to expand
our existing manufacturing facilities and build and operate new manufacturing facilities in existing and new
markets. We generally estimate that the startup of a new six-line manufacturing facility requires cash for net
operating expenses and working capital of between $20 million to $25 million and additional capital expenditures
primarily for machinery and equipment of between $30 million to $35 million. In addition, we estimate our annual
maintenance capital expenditures to be between $1 million to $2 million per facility. We may not have the capital to
undertake these capital investments. In addition, our capital expenditures may be significantly higher if our estimates
of future capital investments are incorrect and may increase substantially if we are required to undertake actions to
comply with new regulatory requirements or compete with new technologies. The cost of some projects may also be
affected by foreign exchange rates if any raw materials or other goods must be paid for in foreign currency. We
cannot assure you that we will be able to raise funds on favorable terms, if at all, or that future financings would not
be dilutive to holders of our capital stock. We also cannot assure you that completed capital expenditures will yield
the anticipated results. If we raise additional funds by obtaining loans from third parties, the terms of those financing
arrangements may include negative covenants, or other restrictions on our business that could impair our operational
flexibility, and would require us to fund additional interest expense. If we are unable to obtain sufficient capital at a
reasonable cost or at all, we may not be able to expand production sufficiently to take advantage of changes in the
marketplace or may be required to delay, reduce or eliminate some or all of our current operations, which could
materially harm our business, operating results and financial condition.
As a U.S. corporation with international operations, we are subject to the U.S. Foreign Corrupt Practices Act of
1977, which could impact our ability to compete in certain jurisdictions.
As a U.S. corporation, we are subject to the FCPA, which generally prohibits U.S. companies and their
intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business.
We have manufacturing facilities in China, Mexico, Turkey and India, countries with a fairly high risk of
corruption. Those facilities are subject to routine government oversight. In addition, a number of our raw materials
and components suppliers are state-owned, particularly in China. Moreover, due to our need to import raw materials
across international borders, we also routinely have interactions, directly or indirectly, with customs officials. In
many foreign countries, under local custom, businesses engage in practices that may be prohibited by the FCPA or
other similar laws and regulations. Additionally, we continue to hire employees around the world as we continue to
expand. Although we have implemented certain procedures and controls designed to ensure compliance with the
FCPA and similar laws, there can be no guarantee that all of our employees and agents, as well as those companies
to which we outsource certain of our business operations, have not taken and will not take actions that violate our
policies and the FCPA, which could subject us to fines, penalties, disgorgement, and loss of business, harm our
reputation and impact our ability to compete in certain jurisdictions. In addition, these laws are complex and far-
reaching in nature, and, as a result, we may be required in the future to alter one or more of our practices to be in
compliance with these laws or any changes in these laws or the interpretation thereof. Moreover, our competitors
may not be subject to the FCPA or comparable legislation, which could provide them with a competitive advantage
in some jurisdictions.
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We may have difficulty making distributions and repatriating earnings from our Chinese manufacturing
operations, which may also occur in some of our other locations.
A material portion of our business is conducted in China. As of December 31, 2019, our China operations had
unrestricted cash of $9.7 million, most of which will be used to fund our future operations in China. Our ability to
repatriate funds from China to the United States is subject to a number of restrictions imposed by the Chinese
government. We repatriate funds through several technology license contracts and corporate/administrative service
agreements. We are compensated quarterly based on agreed upon royalty rates for such intellectual property licenses
and quarterly fees for those services. Certain of our subsidiaries are limited in their ability to declare dividends
without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as
determined under Chinese-statutory accounting requirements. Until 50% ($26.5 million) of registered capital is
contributed to a surplus reserve, our Chinese operations can only pay dividends equal to 90% of after-tax profits
(10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, we can pay
dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31, 2019, the amount of
the surplus reserve fund was $6.6 million. Any inability to make distributions, repatriate earnings or otherwise
access funds from our manufacturing operations in China, if and when needed for use outside of China, could
materially harm our liquidity and our business.
Effective internal controls are necessary for us to provide reliable financial reports and effectively address fraud
risks.
We maintain a system of internal controls to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles (GAAP). The process of designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to establish and maintain a system of internal controls that will be
adequate to satisfy the reporting obligations of a public company. The effectiveness of our internal controls depends
in part on the cooperation of senior managers worldwide.
Any system of controls, however well designed and operated, can provide only reasonable, and not absolute,
assurance that the objectives of the system are met. Any failure to maintain that system, or consequent inability to
produce accurate financial statements on a timely basis, could increase our operating costs and harm our business,
and lead to our becoming subject to litigation, sanctions or investigations by The NASDAQ Global Market
(NASDAQ), the SEC or other regulatory governmental agencies and bodies. Furthermore, investors’ perceptions
that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely
basis may harm our stock price.
The state of financial markets and the economy may materially harm our sources of liquidity and capital.
There has been significant recent turmoil and volatility in worldwide financial markets. These conditions have
resulted in a disruption in the liquidity of financial markets, and could directly impact us to the extent we need to
access capital markets to raise funds to support our business and overall liquidity position. This situation could
affect the cost of such funds or our ability to raise such funds. If we were unable to access any of these funding
sources when needed, it could materially harm our business, operating results and financial condition.
Our ability to use our net operating loss carry forwards may be subject to limitation and may result in increased
future tax liability.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), contain rules that limit
the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carry
forwards and certain built-in losses recognized in years after the “ownership change”. An “ownership change” is
generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year
period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a
new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual
limitation on the use of pre-ownership change net operating losses (NOLs), credits and certain other tax attributes to
offset taxable income earned after the ownership change. The annual limitation is equal to the product of the
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applicable long-term tax exempt rate and the value of our common stock immediately before the ownership change.
This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized
built-in gains and losses for the year. In addition, Section 383 generally limits the amount of tax liability in any post-
ownership change year that can be reduced by pre-ownership change tax credit carryforwards. This could result in
increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the
use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also
be limited to the extent that we do not generate positive taxable income in future tax periods. As a result of these
limitations, we may be unable to offset future taxable income (if any) with losses, or our tax liability with credits,
before such losses and credits expire. Accordingly, these limitations may increase our federal income tax liability.
We experienced an “ownership change” in June 2018, and it remains possible that future transactions may
cause us to undergo one or more ownership changes. As of December 31, 2019, we have U.S. federal NOLs of
approximately $20.9 million and state NOLs of approximately $158.0 million. The pre-ownership change NOLs
existing at the date of change of $47.7 million are subject to annual limitation. We do not believe that the Section
382 and 383 annual limitation will materially impact our ability to utilize the tax attributes that existed as of the date
of the ownership change.
We have U.S. federal and state NOLs. In general, NOLs in one country cannot be used to offset income in any
other country and NOLs in one state cannot be used to offset income in any other state. Accordingly, we may be
subject to tax in certain jurisdictions even if we have unused NOLs in other jurisdictions. Also, each jurisdiction in
which we operate may have its own limitations on our ability to utilize NOLs or tax credit carryovers generated in
that jurisdiction. These limitations may increase our federal, state, and/or foreign income tax liability.
Our senior, secured current revolving credit facility contains, and any future loan agreements we may enter into
may contain, operating and financial covenants that may restrict our business and financing activities.
As of December 31, 2019, we had a $150.0 million revolving credit facility (the Credit Facility) with
JPMorgan Chase Bank, N.A. Wells Fargo Bank, N.A., Capital One, N.A. and Bank of America N.A., consisting of a
$125.0 million revolving credit facility and a $25.0 million letter of credit sub-facility. As of December 31, 2019,
the aggregate outstanding balance under the Credit Facility was $112.4 million. The Credit Facility is secured by
substantially all of our assets. In addition, from time to time, we enter into various loan, working capital and
accounts receivable financing facilities to finance the construction and ongoing operations of our advanced
manufacturing facilities and other capital expenditures. The Credit Facility contains various financial covenants and
restrictions on our and our operating subsidiaries’ excess cash flows and ability to make capital expenditures, incur
additional indebtedness and pay dividends or make distributions on, or repurchase, our stock. The operating and
financial restrictions and covenants of the Credit Facility, as well as our other existing and any future financing
agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or
expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events
beyond our control, and we may not be able to maintain appropriate minimum leverage ratio and fixed charge
coverage ratio requirements in the future. A breach of any of these covenants could result in a default under the
applicable loan facility, which could cause all of the outstanding indebtedness under such facility to become
immediately due and payable by us and/or enable the lender to terminate all commitments to extend further credit. In
addition, if we were unable to repay the outstanding indebtedness upon a default, our lenders could proceed against
the assets pledged as collateral to secure that indebtedness.
In February 2020, we entered into an Incremental Facility Agreement with the current lenders to our Credit
Agreement and an additional lender, pursuant to which the aggregate principal amount of our revolving credit
facility under the Credit Agreement was increased from $150.0 million to $205.0 million. All other material terms
and conditions of the Credit Agreement remained the same. We did not make any draw downs on the revolving
credit facility in connection with the execution of the Incremental Facility Agreement.
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Our indebtedness may adversely affect our business, results of operations and financial condition.
Our indebtedness could adversely affect our business, results of operations and financial condition by, among
other things:
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requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and
interest on our debt, which would reduce the availability of our cash flow to fund working capital,
capital expenditures, acquisitions, execution of our growth strategy and other general corporate
purposes;
limiting our ability to borrow additional amounts to fund debt service requirements, working capital,
capital expenditures, acquisitions, execution of our growth strategy and other general corporate
purposes;
making us more vulnerable to adverse changes in general economic, industry and regulatory conditions
and in our business by limiting our flexibility in planning for, and making it more difficult to react
quickly to, changing conditions;
placing us at a competitive disadvantage compared with those of our competitors that have less debt and
lower debt service requirements;
making us more vulnerable to increases in interest rates since some of our indebtedness is subject to
variable rates of interest; and
making it more difficult for us to satisfy our financial obligations.
In addition, we may not be able to generate sufficient cash flow from our operations to repay our outstanding
indebtedness when it becomes due and to meet our other cash needs or to comply with the financial covenants set forth
therein. If we are not able to pay our debts as they become due, we could be in default of the Credit Facility or other
indebtedness. We might also be required to pursue one or more alternative strategies to repay indebtedness, such as
selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not
be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if
we must sell assets, it may negatively affect our ability to generate revenues.
The elimination of LIBOR could adversely affect our business, results of operations or financial condition.
In July 2017, the head of the United Kingdom Financial Conduct Authority announced plans to phase out
the use of LIBOR by the end of 2021. Although the impact is uncertain at this time, the elimination of LIBOR
could have an adverse impact on our business, results of operations, or financial condition. We may incur
significant expenses to amend our LIBOR-indexed loans and other applicable financial or contractual obligations,
including our revolving credit facility, to a new reference rate, which may differ significantly from LIBOR.
Accordingly, the use of an alternative rate could result in increased costs, including increased interest expense on
our revolving credit facility, and increased borrowing costs in the future. At this time, no consensus exists as to
what rate or rates may become acceptable alternatives to LIBOR and we are unable to predict the effect of any
such alternatives on our business, results of operations or financial condition.
Much of our intellectual property consists of trade secrets and know-how that is very difficult to protect. If we
experience loss of protection for our trade secrets or know-how, our business would be substantially harmed.
We have a variety of intellectual property rights, including patents, trademarks and copyrights, but much of
our most important intellectual property rights consist of trade secrets and know-how and effective intellectual
property protection may be unavailable, limited or outside the scope of the intellectual property rights we pursue in
the United States and in foreign countries such as China where we operate. Although we strive to protect our
intellectual property rights, there is always a risk that our trade secrets or know-how will be compromised or that a
competitor could lawfully reverse-engineer our technology or independently develop similar or more efficient
technology. We have confidentiality agreements with each of our customers, suppliers, key employees and
independent contractors in place to protect our intellectual property rights, but it is possible that a customer,
supplier, employee or contractor might breach the agreement, intentionally or unintentionally. For example, we
believe a key former employee may have shared some of our intellectual property with a competitor in China and
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this former employee or the competitor may use this intellectual property to compete with us in the future. It is also
possible that our confidentiality agreements with customers, suppliers, employees and contractors will not be
effective in preserving the confidential nature of our intellectual property rights. The patents we own could be
challenged, invalidated, narrowed or circumvented by others and may not be of sufficient scope or strength to
provide us with any meaningful protection or commercial advantage. Once our patents expire, or if they are
invalidated, narrowed or circumvented, our competitors may be able to utilize the inventions protected by our
patents. Additionally, the existence of our intellectual property rights does not guarantee that we will be successful
in any attempt to enforce these rights against third parties in the event of infringement, misappropriation or other
misuse, which may materially and adversely affect our business. Because our ability to effectively compete in our
industry depends upon our ability to protect our proprietary technology, we might lose business to competitors and
our business, revenue, operating results and prospects could be materially harmed if we suffer loss of trade secret
and know-how protection or breach of our confidentiality agreements.
If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate in one
or more jurisdictions, our tax liability may increase.
In many countries, including the United States, we are subject to transfer pricing and other tax regulations
designed to ensure that appropriate levels of income are reported as earned in each jurisdiction in which we operate.
These regulations require that any international transaction involving associated enterprises be on substantially the
same basis as a transaction between unrelated companies dealing at arms’ length and that contemporaneous
documentation be maintained to support the transfer prices. We have transfer pricing arrangements among our
subsidiaries in relation to various aspects of our business. We consider the transactions among our subsidiaries to be
substantially on arm’s-length terms. If, however, a tax authority in any jurisdiction reviews any of our tax returns
and determines that the transfer prices and terms we have applied are not appropriate, or that other income of our
affiliates should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and
penalties, which would cause our tax provision to increase, possibly materially. In addition, if the jurisdiction from
which the income is reallocated does not agree with the reallocation, both jurisdictions could tax the same income,
resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income
to double taxation, or assess interest and penalties, it would increase our consolidated tax liability, which could
materially harm our business, operating results and financial condition.
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Our insurance coverage may not cover all risks we face and insurance premiums may increase, which may
hinder our ability to maintain sufficient coverage to cover losses we may incur.
We are exposed to risks inherent in the manufacturing of wind blades and other composite structures as well
as the construction of our facilities, such as natural disasters, breakdowns and manufacturing defects that could harm
persons and damage property. We maintain insurance coverage with licensed insurance carriers that limits our
aggregate exposure to certain types of catastrophic losses. In addition, we self-insure for a portion of our claims
exposure resulting from workers’ compensation and certain events of general liability. We accrue currently for
estimated incurred losses and expenses, and periodically evaluate and adjust our claims accrued liability amount to
reflect our experience. However, our insurance coverage may not be sufficient to cover the full amount of potential
losses. In addition, there are some types of losses such as from warranty, hurricanes, terrorism, wars, or earthquakes
where insurance is limited and/or not economically justifiable. If we were to sustain a serious uninsured loss or a
loss exceeding the limits of our insurance policies, the resulting costs could have a material adverse effect on our
business prospects, results of operations and financial condition. Further, our insurance policies provide for our
premiums to be adjusted annually. If the premiums we pay for our policies increase significantly, we may be unable
to maintain the same level of coverage we currently carry, or we will incur significantly greater costs to maintain the
same level of coverage, including through higher deductibles.
We may be subject to significant liabilities and costs relating to environmental and health and safety
requirements.
We are subject to various environmental, health and safety laws, regulations and permit requirements in the
jurisdictions in which we operate governing, among other things, health, safety, pollution and protection of the
environment and natural resources, the handling and use of hazardous substances, the generation, storage, treatment
and disposal of wastes, and the cleanup of any contaminated sites. In June 2018, Iowa OSHA, a division of the Iowa
Department of Labor, issued a citation and notification of penalty to us alleging that certain of our workplace
practices and conditions at our Newton, Iowa wind blade manufacturing facility had violated the Iowa Occupational
Safety and Health Act. Specifically, the citation cited us for multiple alleged violations and proposed that we pay an
aggregate penalty of $0.2 million. In March 2019, we entered into a settlement agreement with the Iowa Department
of Labor pursuant to which we agreed to make a settlement payment of $0.1 million and to implement certain safety
enhancements at our Newton, Iowa manufacturing facility to fully resolve this matter.
We have incurred, and expect to continue to incur, capital and operating expenditures to comply with such
laws, regulations and permit requirements. While we believe that we currently are in material compliance with all
such laws, regulations and permit requirements, any noncompliance may subject us to a range of enforcement
measures, including the imposition of monetary fines and penalties, other civil or criminal sanctions, remedial
obligations, and the issuance of compliance requirements restricting our operations. In addition, the future adoption
of more stringent laws, regulations and permit requirements may require us to make additional capital and operating
expenditures. Under certain environmental laws and regulations, liabilities also can be imposed for cleanup of
currently and formerly owned, leased or operated properties, or properties to which we sent hazardous substances or
wastes, regardless of whether we directly caused the contamination or violated any law. For example, we could have
future liability relating to any contamination that remains from historic industrial operations by others at our
properties. Additionally, some of our facilities have a long history of industrial operations and, in the past,
contaminants have been detected and remediated at one of our facilities in Izmir, Turkey.
There can be no assurance that we will not in the future become subject to compliance requirements,
obligations to undertake cleanup or related activities, or claims or proceedings relating to environmental, health or
safety matters, hazardous substances or wastes, contaminated sites, or other environmental or natural resource
damages, that could impose significant liabilities and costs on us and materially harm our business, operating results
or financial condition.
Claims that we infringe, misappropriate or otherwise misuse the intellectual property rights of others could
subject us to significant liability and disrupt our business.
Our competitors and third party suppliers of components and raw materials used in our products protect their
intellectual property rights by means such as trade secrets and patents. In the future we may be sued for violations of
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other parties’ intellectual property rights, and the risk of this type of lawsuit will likely increase as our size,
geographic presence and market share expand and as the number of competitors in our market increases. Any such
claims or litigation, whether meritorious or not, could:
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be time-consuming and expensive to defend;
divert the attention of our technical and managerial resources;
adversely affect our relationships with current or future customers;
require us to enter into royalty or licensing agreements with third parties, which may not be available on
terms that we deem acceptable;
prevent us from operating all or a portion of our business or force us to redesign our manufacturing
processes or products, which could be difficult, time-consuming and expensive;
limit the supply or increase the cost of key raw materials and components used in our products;
subject us to significant liability for damages or result in significant settlement payments; and
require us to indemnify our customers or suppliers.
Any of the foregoing could disrupt our business and materially harm our operating results and financial
condition. In addition, intellectual property disputes have in the past arisen between our customers which negatively
affected such customers’ demand for wind blades manufactured by us. If such intellectual property disputes
involving, or between, one or more of our customers should arise in the future, our business could be materially
harmed.
We may form joint ventures, or acquire businesses or assets, in the future, and we may not realize the benefits of
those transactions.
We have, in the past, entered into joint ventures with third parties for the manufacture of wind blades. For
example, we entered into joint ventures with third parties in both our Mexico and Turkey locations. We may create
new or additional joint ventures with third parties, or acquire businesses or assets, in the future that we believe will
complement or augment our existing business. We cannot assure you that, following any such joint venture or
acquisition, we will achieve the expected synergies to justify the transaction. We may encounter numerous
difficulties in manufacturing any new products resulting from a joint venture or acquisition that delay or prevent us
from realizing their expected benefits or enhancing our business. If we enter into joint ventures or acquire businesses
or assets with respect to promising markets, we may not be able to realize the benefit of those joint ventures or
acquired businesses assets if we are unable to successfully integrate them with our existing operations and company
culture.
Work disruptions resulting from our collective bargaining agreements could result in increased operating costs
and materially harm our business, operating results and financial condition.
Certain of our employees in Turkey and Matamoros, Mexico, which in the aggregate represented
approximately 37% of our workforce as of December 31, 2019, are covered by collective bargaining arrangements.
Our collective bargaining arrangement for our certain of our Turkish employees are in effect through the end of
2021. In March 2018, we entered into a collective bargaining agreement with a labor union for certain of our
employees in our Matamoros, Mexico facility. In January 2019, thousands of workers employed in dozens of
manufacturing facilities in Matamoros, Mexico, went on strike. In general, these workers, who were represented by
several different labor unions, demanded an increase in their wage rate and an annual bonus. In February 2019, our
manufacturing production employees in Matamoros, Mexico, who are represented by a labor union, went on strike
also demanding an increase in their hourly wage rate and the payment of an annual bonus. In February 2019, our
manufacturing production employees in Matamoros, Mexico, who are represented by a labor union, went on strike
also demanding an increase in their hourly wage rate and the payment of an annual bonus. During this strike, our
Matamoros manufacturing facility stopped production for several weeks until we reached a revised agreement with
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our labor union. In the first quarter of 2020, we amended our Matamoros collective bargaining agreement to adjust
the salaries and bonuses payable to our associates for calendar year 2020 that are covered by this agreement.
Additionally, our other employees working at other manufacturing facilities may vote to be represented by a
labor union in the future. There can be no assurance that we will not experience labor disruptions such as work
stoppages or other slowdowns by workers at any of our facilities. Should significant industrial action, threats of
strikes or related disturbances occur, we could experience further disruptions of operations and increased labor costs
in Turkey, Mexico or other locations, which could materially harm our business, operating results or financial
condition. Any such work stoppage or slow-down at any of our facilities could also result in additional expenses and
possible loss of revenue for us.
Our information technology infrastructure could experience serious failures or disruptions, the failure of which
could materially harm our business, operating results and financial condition.
Information technology is part of our business strategy and operations. It enables us to streamline operation
processes, facilitate the collection and reporting of business data, and provide for internal and external
communications. There are risks that information technology system failures, network disruptions, breaches of data
security and phishing and ransomware attacks could disrupt our operations. Any significant disruption or breach
may materially harm our business, operating results or financial condition.
We incur significant increased costs as a result of operating as a public company, and our management devotes
substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-
Oxley Act, as well as rules subsequently implemented by the SEC and NASDAQ, impose various requirements on
public companies, including requiring establishment and maintenance of effective disclosure controls and internal
control over financial reporting and changes in corporate governance practices. Our management and other
personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
will increase our legal and financial compliance costs. We estimate that we incur approximately $2 million to
$3 million in expenses annually in response to these requirements.
Section 404(a) of the Sarbanes-Oxley Act requires annual management assessment of the effectiveness of our
internal control over financial reporting. Our testing, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be
material weaknesses. Our management and other personnel devote a substantial amount of time to these compliance
initiatives, diverting their attention away from the day-to-day management of our business. We may also need to
upgrade our financial and operating systems, implement additional financial and management controls, reporting
systems and procedures, and add additional accounting, auditing and financial staff with appropriate public company
experience and technical accounting knowledge. We have operations in China, Mexico, Turkey and India and may
have difficulty hiring and retaining employees in these countries who have the experience necessary to implement
the kind of management and financial controls that are expected of a U.S. public company. In this regard, for
example, China has only recently begun to adopt management and financial reporting concepts and practices like
those in the United States. If we are not able to comply with these requirements in a timely manner or if we or our
independent registered public accounting firm identify deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to
sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional
financial and management resources.
We are faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay
additional taxes in various jurisdictions.
We may be subject to taxation in many jurisdictions in the United States and around the world with
increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these
jurisdictions could increase substantially as a result of changes in the applicable tax laws, including increased tax
rates or revised interpretations of existing tax laws and precedents, which could harm our liquidity and operating
results. In addition, the taxing authorities in these jurisdictions could review our tax returns, or authorities in
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jurisdictions in which we do not file tax returns could assert that we are subject to tax in those jurisdictions, and in
either case could impose additional tax, interest and penalties. Further, the authorities could claim that various
withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us
or our subsidiaries, any of which could have a material adverse impact on us and the results of our operations.
Risks Related to Ownership of Our Common Stock
The price of our common stock may fluctuate substantially and your investment may decline in value.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to
many factors, including:
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actual or anticipated fluctuations in our results of operations;
our ability to provide products due to shipments subject to delayed delivery and deferred revenue
arrangements;
loss of or changes in our relationship with one or more of our customers;
failure to meet our earnings estimates;
conditions and trends in the energy and manufacturing markets in which we operate and changes in
estimates of the size and growth rate of these markets;
announcements by us or our competitors of significant contracts, developments, acquisitions, strategic
partnerships or divestitures;
availability of equipment, labor and other items required for the manufacture of wind blades;
changes in governmental policies;
additions or departures of members of our senior management or other key personnel;
changes in market valuation or earnings of our competitors;
sales of our common stock, including sales of our common stock by our directors and officers or by our
other principal stockholders;
the trading volume of our common stock; and
general market and economic conditions.
In addition, the stock market in general, including NASDAQ, as well as the market for broader energy and
renewable energy companies in particular, have experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of particular companies affected. These broad
market and industry factors may materially harm the market price of our common stock, regardless of our operating
performance. In the past, securities class-action litigation has often been instituted against a company following
periods of volatility in the market price of that company’s securities. Securities class-action litigation, if instituted
against us, could result in substantial costs or damages and a diversion of management’s attention and resources,
which could materially harm our business and operating results.
A significant portion of our total outstanding shares may be sold into the public market in future sales, which
could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market can occur at any time. These
sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the
market price of our common stock. As of December 31, 2019, we had 35,180,706 shares of common stock
outstanding. All shares can now be sold, subject to any applicable volume limitations under federal securities laws.
In addition, as of December 31, 2019, there were: (i) 2,594,228 shares subject to outstanding options, or 7.4%
of our outstanding shares; (ii) 354,427 restricted stock units, or 1.0% of our outstanding shares; (iii) 491,718
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performance stock units, or 1.4% of our outstanding shares; and (iv) 6,621,512 shares reserved for future issuance,
or 18.8% of our outstanding shares under the Amended and Restated 2015 Stock Option and Incentive Plan (the
2015 Plan) that will become eligible for sale in the public market to the extent permitted by any applicable vesting
requirements and Rules 144 and 701 under the Securities Act. We also filed a shelf registration statement in
September 2017 for the resale of up to 19,774,751 shares of common stock by certain of our common stockholders.
We also have registered all shares of common stock that we may issue under our employee equity incentive plans.
These shares can be freely sold in the public market upon issuance and subject to the restrictions imposed on our
affiliates under Rule 144.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of
shares of our common stock issued in connection with an investment or acquisition could constitute a material
portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection
with investments or acquisitions may result in additional dilution to you and may cause the market price of our
common stock to drop significantly.
The exercise of options and warrants and other issuances of shares of common stock or securities convertible
into common stock under our equity compensation plans will dilute your interest.
Under our existing equity compensation plans, as of December 31, 2019, we had outstanding options to
purchase 2,594,228 shares of our common stock, 354,427 restricted stock units and 491,718 performance stock units
to our employees and non-employee directors. From time to time, we expect to grant additional options and other
stock awards in accordance with the 2015 Plan. The exercise of options and warrants at prices below the market
price of our common stock could adversely affect the price of shares of our common stock. Additionally, any
issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests,
such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing their
percentage ownership of the total outstanding shares. If we issue options or warrants to purchase our common stock
in the future and those options or warrants are exercised or we issue stock, stockholders may experience further
dilution.
If equity research analysts issue unfavorable commentary or downgrade our common stock, the price of our
common stock could decline.
The trading market for our common stock relies in part on the research and reports that equity research
analysts publish about us and our business. We do not control the work performed by these analysts. The demand for
our common stock could decline if one or more equity analysts downgrade our stock or if those analysts issue
unfavorable or inaccurate commentary. If such analysts cease publishing reports about us or our business, we could
lose visibility in the market, which in turn could cause our share price and trading volume to decline.
We do not currently intend to pay dividends on the common stock, which may hinder your ability to achieve a
return on your investment.
We have never declared or paid any cash dividends on our common stock. The continued operation and
expansion of our business will require substantial funding and thus we currently intend to retain any future earnings
and do not expect to pay any dividends in the foreseeable future. Accordingly, you are not likely to receive any
dividends on common stock in the foreseeable future, and your ability to achieve a return on your investment will
therefore depend on appreciation in the price of the common stock.
Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our company, even
if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change
management.
Provisions of Delaware law and our amended and restated certificate of incorporation and amended and
restated by-laws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which stockholders might otherwise receive a premium for their
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shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current
management or members of our board of directors. These provisions include:
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a classified board of directors;
limitations on the removal of directors;
advance notice requirements for stockholder proposals and nominations;
the inability of stockholders to act by written consent or to call special meetings;
the ability of our board of directors to make, alter or repeal our amended and restated by-laws; and
the authority of our board of directors to issue preferred stock with such terms as our board of directors
may determine.
The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote, and not less
than 75% of the outstanding shares of each class entitled to vote thereon as a class, is necessary to amend or repeal
the above provisions that are contained in our amended and restated certificate of incorporation. In addition, absent
approval of our board of directors, our amended and restated by-laws may only be amended or repealed by the
affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which
limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our
board of directors has not approved. These provisions and other similar provisions make it more difficult for
stockholders or potential acquirers to acquire us without negotiation. These provisions may apply even if some
stockholders may consider the transaction beneficial to them.
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As a result, these provisions could limit the price that investors are willing to pay in the future for shares of
our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if
the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties
Our headquarters is located in Scottsdale, Arizona, and we own or lease various other facilities in the United
States, China, Mexico, Turkey, India, Denmark and Germany. We believe that our properties are generally in good
condition, are well maintained and are generally suitable and adequate to carry out our business at expected capacity
for the foreseeable future. The table below lists the locations and square footage for our facilities as of February 27,
2020:
Location
Newton, IA, United States
Newton, IA, United States
Dafeng, China
Dafeng, China
Taicang Port, China
Yangzhou, China
Juárez, Mexico
Juárez, Mexico
Juárez, Mexico
Juárez, Mexico
Matamoros, Mexico
Izmir, Turkey
Izmir, Turkey
Warren, RI, United States
Description of Use
Year
Leased or Approximate
Commenced Owned Square Footage
Leased
2008
Leased
2018
Leased
2013
Leased
2015
Owned
2007
Leased
2018
Leased
2013
Leased
2016
Leased
2017
Leased
2018
Leased
2017
Leased
2012
Leased
2015
Leased
2004
337,922 Wind Blade Manufacturing Facility
114,078 Transportation Manufacturing Facility
381,102 Wind Blade Manufacturing Facility
446,034 Wind Blade Manufacturing Facility
208,445 Precision Molding Facility
934,133 Wind Blade Manufacturing Facility
345,984 Wind Blade Manufacturing Facility
453,096 Wind Blade Manufacturing Facility
339,386 Wind Blade Manufacturing Facility
300,277 Precision Molding Manufacturing Facility
527,442 Wind Blade Manufacturing Facility
343,000 Wind Blade Manufacturing Facility
817,078 Wind Blade Manufacturing Facility
Precision Molding Development and
108,750
Manufacturing and Research and Development
Facility, Transportation Manufacturing Facility
Santa Teresa, NM, United States 2014
2015
Scottsdale, AZ, United States
2018
Kolding, Denmark
2019
Chennai, India
2019
Berlin, Germany
Leased
Leased
Leased
Leased
Leased
503,710 Wind Blade Storage Facility
22,508 Corporate Headquarters
2,583 Advanced Engineering Center
776,280 Wind Blade Manufacturing Facility
4,982 Engineering Center
Item 3. Legal Proceedings
From time to time, we are party to various lawsuits, claims, and other legal proceedings that arise in the
ordinary course of business, some of which are covered by insurance. Upon resolution of any pending legal matters,
we may incur charges in excess of presently established reserves. Our management does not believe that any such
charges would, individually or in the aggregate, have a material adverse effect on our financial condition, results of
operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
On July 22, 2016, our common stock began trading on the NASDAQ Global Market under the symbol
“TPIC.” Prior to that time, there was no public market for our stock.
Stock Performance Graph
The following graph and table illustrate the total stockholder return from July 22, 2016 through December 31,
2019, on our common stock, the Russell 2000 Index, the S&P Small Cap 600 Energy (Sector) Index and the
NASDAQ Clean Edge Green Energy Index, assuming an investment of $100.00 on July 22, 2016 including the
reinvestment of dividends.
COMPARISON OF CUMULATIVE
RETURN
$220
$190
$160
$130
$100
$70
$40
7 / 2 2 / 1 6
1 2 / 3 0 / 1 6
6 / 3 0 / 1 7
1 2 / 2 9 / 1 7
6 / 2 9 / 1 8
1 2 / 3 1 / 1 8
6 / 2 8 / 1 9
1 2 / 3 1 / 1 9
TPI Composites, Inc.
Russell 2000
S&P Small Cap 600 Energy (Sector)
NASDAQ Clean Edge Green Energy
Base
Period
TPI Composites, Inc.
Russell 2000
S&P Small Cap 600 Energy (Sector)
NASDAQ Clean Edge Green Energy
7/22/16 12/30/16 6/30/17 12/29/17 6/29/18 12/31/18 6/28/19 12/31/19
$ 100.00 $ 118.29 $ 136.28 $ 150.88 $ 215.63 $ 181.27 $ 182.30 $ 136.50
$ 100.00 $ 111.89 $ 116.69 $ 126.60 $ 135.47 $ 111.19 $ 129.16 $ 137.56
$ 100.00 $ 133.11 $ 84.00 $ 97.60 $ 107.35 $ 55.64 $ 57.15 $ 47.19
$ 100.00 $ 102.59 $ 119.52 $ 134.16 $ 128.63 $ 116.50 $ 139.39 $ 163.93
Holders
As of January 31, 2020, there were five stockholders of record of our common stock, although there is a much
larger number of beneficial owners.
Dividends
We have never declared or paid any cash dividends on shares of our capital stock. We currently intend to
retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash
dividends on the common stock in the future. Any payment of any future dividends will be at the discretion of the
board of directors, subject to compliance with certain covenants in our loan agreements, after taking into account
various factors, including our financial condition, operating results, capital requirements, restrictions contained in
45
any future financing instruments, growth plans and other factors the board deems relevant. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”
included in Part II, Item 7.
Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory
restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory
accounting requirements. Until 50% ($26.5 million) of registered capital is contributed to a surplus reserve, our
Chinese operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus
reserve). Once the surplus reserve fund requirement is met, we can pay dividends equal to 100% of after-tax profit
assuming other conditions are met. At December 31, 2019, the amount of the surplus reserve fund was $6.6 million.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and
Capital Resources” included in Part II, Item 7.
Securities Authorized for Issuance under Equity Compensation Plans
The information required in response to Item 201(d) of Regulation S-K is set forth in Part III, Item 12 of this
Annual Report on Form 10-K which is incorporated herein by reference.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Securities
None
Issuer Purchases of Equity Securities
None
46
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with the information
contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in
Part II, Item 7 of this Annual Report on Form 10-K and the consolidated financial statements and related notes
included in Part II, Item 8 of this Annual Report on Form 10-K, in order to understand the factors that may affect the
comparability of the financial data presented below.
Consolidated Statement of Operations Data:
Net sales
Cost of sales
Startup and transition costs
Total cost of goods sold
Gross profit
General and administrative expenses
Realized loss on sale of assets and asset
impairments
Restructuring charges, net
Income from operations
Other income (expense):
Interest income
Interest expense
Loss on extinguishment of debt
Realized loss on foreign currency
remeasurement
Miscellaneous income
Total other expense
Income before income taxes
Income tax benefit (provision)
Net income (loss)
Net income attributable to preferred
stockholders(2)
Net income (loss) attributable to
common stockholders
Weighted-average common shares outstanding:
Basic(3)
Diluted(3)
Net income (loss) per common share:
Basic
Diluted
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt, net of debt issuance costs and discount
Total liabilities
Total convertible and senior redeemable preferred
shares and warrants
Total stockholders’ equity (deficit)
2018
2019
Year Ended December 31,
2016 (1)
2017 (1)
(in thousands, except per share data)
$ 1,436,500 $ 1,029,624 $ 955,198 $ 769,019 $ 585,852
1,290,619 882,075 804,099 664,026 528,247
74,708 40,628 18,127 15,860
1,358,652 956,783 844,727 682,153 544,107
72,841 110,471 86,866 41,745
43,542 40,373 33,892 14,126
77,848
39,916
68,033
2015
18,117
3,927
15,888
157
(8,179 )
—
(4,107 )
3,648
(8,481 )
7,407
(23,115 )
(15,708 )
4,581
—
—
—
24,718 70,098 52,974 27,619
—
—
—
—
95
181
161
(10,417 ) (12,381 ) (17,614 ) (14,565 )
—
(3,397 )
(4,487 )
344
—
(757 )
238
(4,471 )
1,191
(13,489 )
4,650
(1,802 )
246
(22,472 ) (15,566 ) (22,276 ) (15,960 )
2,246 54,532 30,698 11,659
(3,977 )
(3,654 )
3,033 (15,798 )
7,682
5,279 38,734 27,044
—
—
—
5,471
9,423
$
(15,708 ) $
5,279 $ 38,734 $ 21,573 $
(1,741 )
35,062
35,062
34,311 33,844 17,530
36,002 34,862 17,616
4,238
4,238
$
$
(0.45 ) $
(0.45 ) $
0.15 $
0.15 $
1.14 $
1.11 $
1.23 $
1.22 $
(0.41 )
(0.41 )
December 31,
2019
2018
2017 (1)
2016 (1)
2015
(in thousands)
$ 70,282 $ 85,346 $ 148,113 $ 119,066 $ 45,917
826,677 604,855 545,737 436,833 329,920
141,389 137,623 121,385 123,155 129,346
621,627 383,898 325,183 265,433 322,287
—
— 198,830
205,050 220,957 220,554 171,400 (191,197 )
—
—
47
Other Financial Information:
Total billings(4)
EBITDA(4)
Adjusted EBITDA(4)
Capital expenditures
Free cash flow(4)
Total debt, net of debt issuance costs and discount
Net cash (debt)(4)
Other Operating Information:
Sets(5)
Estimated megawatts(6)
Dedicated manufacturing lines(7)
Manufacturing lines installed(8)
Manufacturing lines in startup(9)
Manufacturing lines in transition(10)
2018
2019
2015
2016 (1)
Year Ended December 31,
2017 (1)
(in thousands, except other operating information)
$ 1,387,235 $ 1,006,541 $ 941,565 $ 764,424 $ 600,107
42,308 $ 88,516 $ 65,641 $ 37,479
$
68,173 $ 100,111 $ 76,300 $ 39,281
$
52,688 $ 44,828 $ 30,507 $ 26,361
$
4,932
(55,946 ) $ 29,772 $ 29,335 $
$
$ 141,389 $ 137,623 $ 121,385 $ 123,155 $ 129,346
(6,379 ) $ (90,667 )
$
54,009 $
81,914 $
74,408 $
(17,324 ) $
(53,155 ) $ 24,557 $
(71,779 ) $
3,178
9,324
52
48
14
10
2,423
6,560
55
43
16
15
2,736
6,602
48
41
9
—
2,154
4,920
44
33
3
3
1,609
3,595
34
30
10
11
(1) Reflects the impact of the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts
with Customers, (Topic 606) effective January 1, 2018. See Note 1 - Recently Issued Accounting
Pronouncements - Revenue from Contracts with Customers of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K for a further discussion. Prior period
information for 2015 has not been restated and is, therefore, not comparable to the 2019, 2018, 2017 and 2016
information.
(2) Represents the accrual of dividends on our convertible and senior redeemable preferred shares, the accretion
to redemption amounts on our convertible preferred shares and warrant fair value adjustments. Immediately
prior to the closing of the IPO, all preferred shares were converted into shares of our common stock and as a
result, the accrual of dividends ceased.
(3) For the years ended December 31, 2017 and 2016, the weighted-average diluted shares outstanding include the
conversion on a net issuance basis of our common warrants and the stock options issued under the 2015 Plan
and the 2008 Stock Option and Grant Plan. For the year ended December 31, 2015, the weighted-average
common shares outstanding are the same under the basic and diluted per share calculations as we incurred a
net loss in that year.
(4) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics
Used By Management to Measure Performance” included in Part II, Item 7 of this Annual Report on Form 10-
K for more information and the reconciliations of total billings, EBITDA, adjusted EBITDA, free cash flow
and net cash (debt) to net sales, net income (loss), net income (loss), net cash provided by (used in) operating
activities and total debt, net of debt issuance costs and discount, respectively, the most directly comparable
financial measures calculated and presented in accordance with GAAP.
(5) Number of wind blade sets (which consist of three wind blades) invoiced worldwide in the period. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics
Used By Management to Measure Performance” included in Part II, Item 7 of this Annual Report on Form 10-
K for more information.
48
(6) Estimated megawatts of energy capacity to be generated by wind blade sets invoiced in the period. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics
Used By Management to Measure Performance” included in Part II, Item 7 of this Annual Report on Form 10-
K for more information.
(7) Number of wind blade manufacturing lines that are dedicated to our customers under long-term supply
agreements at the end of the period. For the year ended December 31, 2017, includes seven manufacturing
lines for GE Wind that were not extended beyond 2017. Dedicated manufacturing lines may be greater than
total manufacturing line capacity in instances where we have signed new supply agreements for
manufacturing facilities that are under construction or have not yet been built. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to
Measure Performance” included in Part II, Item 7 of this Annual Report on Form 10-K for more information.
(8) Number of wind blade manufacturing lines installed and either in operation, startup or transition at the end of
the period. For the year ended December 31, 2017, includes four manufacturing lines for GE Wind that were
not extended beyond 2017. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Key Metrics Used By Management to Measure Performance” included in Part II, Item 7 of
this Annual Report on Form 10-K for more information.
(9) Number of wind blade manufacturing lines that were in a startup phase during the pre-production and
production ramp-up period. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Key Metrics Used By Management to Measure Performance” included in Part II, Item 7 of
this Annual Report on Form 10-K for more information.
(10) Number of wind blade manufacturing lines that were being transitioned to a new wind blade model during the
period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key
Metrics Used By Management to Measure Performance” included in Part II, Item 7 of this Annual Report on
Form 10-K for more information.
49
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and the related notes included in Part II, Item 8 of this Annual
Report on Form 10-K and other financial information appearing elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on
Form 10-K, including information with respect to plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those described in or implied by these forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly those under “Risk Factors”
included in Part I, Item 1A of this Annual Report on Form 10-K.
OVERVIEW
Our Company
We are the only independent manufacturer of composite wind blades for the wind energy market with a global
manufacturing footprint. We enable many of the industry’s leading wind turbine original equipment manufacturers
(OEM), who have historically relied on in-house production, to outsource the manufacturing of some of their wind
blades through our global footprint of advanced manufacturing facilities strategically located to serve large and
growing wind markets in a cost-effective manner. Given the importance of wind energy capture, turbine reliability
and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our
OEM customers. As a result, we have become a key supplier to our OEM customers in the manufacture of wind
blades and related precision molding and assembly systems. We have entered into long-term supply agreements
pursuant to which we dedicate capacity at our facilities to our customers in exchange for their commitment to
purchase minimum annual volumes of wind blade sets (which consist of three wind blades). This collaborative
dedicated supplier model provides us with contracted volumes that generate significant revenue visibility, drive
capital efficiency and allow us to produce wind blades at a lower total delivered cost, while ensuring critical
dedicated capacity for our customers.
We also leverage our advanced composite technology and history of innovation to supply high strength,
lightweight and durable composite products to the transportation market. In November 2017, we signed a five- year
supply agreement with Proterra Inc. (Proterra) to supply Proterra Catalyst® composite bus bodies. In February 2018,
we entered into an agreement with Navistar, Inc. (Navistar) to design and develop an all composite Class 8 tractor
cab. This collaborative development project was entered into in connection with Navistar’s recent award under the
Department of Energy’s (DOE) Super Truck II investment program, which is designed to promote fuel efficiency in
commercial vehicles. In 2019, we also agreed to develop prototype composite body delivery vehicles for Workhorse
Group. In November 2018, we announced a capital investment of approximately $11.5 million in 2019 to develop a
highly automated pilot manufacturing line for the electric vehicle market within our Warren, Rhode Island facility,
and we plan to commence operating this pilot line later this year. We expect this investment will enable us to further
develop our technology, create defensible product and process IP and demonstrate our capability to manufacture
composite components cost effectively at automotive volume rates. We also expect this pilot line will also help our
current and potential customers to de-risk the decision-making process to commit to TPI for high-volume
manufacturing programs in the future.
Our wind blade and precision molding and assembly systems manufacturing businesses accounted for
approximately 96%, 95% and 96% of our total net sales for each of the years ended December 31, 2019, 2018 and
2017, respectively. As of February 27, 2020, our long-term wind and transportation supply agreements provide for
minimum aggregate volume commitments from our customers of approximately $2.8 billion and encourage our
customers to purchase additional volume up to, in the aggregate, a total contract value of approximately $5.2 billion
through the end of 2023. In recent years, we have experienced significant growth in our OEM customer base, as
according to data from WoodMac, our OEM customers collectively accounted for approximately 55% of the global
onshore wind energy market and approximately 87% of that market excluding China over the three years ended
December 31, 2018, based on MWs of energy capacity installed. Additionally, our customers represented 99% of
the U.S. onshore wind turbine market over the three years ended December 31, 2018, based on MWs of energy
capacity installed. We believe these figures demonstrate the leading position of our existing OEM customers, as well
as our opportunity to develop relationships with new OEM customers as additional OEMs seeking to capitalize on
50
the benefits of outsourced wind blade manufacturing while maintaining high quality customization and dedicated
capacity. We believe that these trends will help us to strengthen our current customer base, grow our business
worldwide, increase our revenue and improve our business prospects.
We divide our business operations into four geographic operating segments—the United States (U.S.), Asia,
Mexico and Europe, the Middle East, Africa and India (EMEAI), as follows:
•
•
•
•
Our U.S. segment includes (1) the manufacturing of wind blades at our Newton, Iowa plant, (2) the
manufacturing of precision molding and assembly systems used to manufacture wind blades at our
Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation
industry at our Rhode Island facility, (4) wind blade inspection and repair services in North America, (5)
our advanced engineering center in Kolding, Denmark, which provides technical and engineering
resources to our manufacturing facilities, (6) our engineering center in Berlin, Germany which we
purchased in July 2019 and (7) our corporate headquarters, the costs of which are included in general
and administrative expenses.
Our Asia segment includes (1) the manufacturing of wind blades at our facilities in Dafeng, China and
Yangzhou, China, the latter of which commenced operations in March 2019, (2) the manufacturing of
precision molding and assembly systems at our Taicang Port, China facility and (3) wind blade
inspection and repair services.
Our Mexico segment manufactures wind blades from three facilities in Juárez, Mexico and a facility in
Matamoros, Mexico at which we commenced operations in July 2018. In November 2018, we entered
into a new lease agreement with a third party for a new precision molding and assembly systems
manufacturing facility in Juárez, Mexico and we commenced operations at this facility in March 2019.
This segment also performs wind blade inspection and repair services.
Our EMEAI segment manufactures wind blades from two facilities in Izmir, Turkey and also performs
wind blade inspection and repair services. In February 2019, we entered into a new lease agreement
with a third party for a new manufacturing facility that was built in Chennai, India and we commenced
operations at this facility in the first quarter of 2020. This segment also performs wind blade inspection
and repair services.
Key Trends Affecting our Business
We have identified the following material trends affecting our business:
•
•
•
Our business seeks to capitalize on two major global trends: (i) increasing worldwide demand for
renewable energy; and (ii) increasing worldwide demand for electric vehicles.
The wind power generation industry has grown rapidly and expanded worldwide over the last five years
to meet global demand for electricity and the expanded use of renewable energy. Our sales of wind
blades to our wind turbine customers have grown rapidly over the last several years in response to these
trends. In 2019, our net sales grew to $1.44 billion compared to net sales of $1.03 billion in 2018. We
expect our revenue to continue to grow in 2020 but at a slower rate than in 2019.
During the last several years, wind turbine OEMs generally have increasingly outsourced the production
of wind blades and other key components to specialized manufacturers to meet this increasing global
demand for wind energy in a cost-effective manner in new and growing markets. That shift, together
with the overall expansion of the wind power generation industry, has increased our addressable market.
Given our growth in production, we have hired several thousand new employees globally in the past two
years. In addition, we have expanded our wind turbine OEM customer base from one to five OEM
customers since 2012, capitalizing on the growth and expansion of the wind energy generation industry
generally as well as the specific trend of most wind turbine OEMs increasing the outsourcing of the
manufacturing of wind blades for growth and diversification.
51
•
Changing customer demands, including shifts to bigger wind turbines with larger wind blades, have
driven some of our customers to require us to transition to new wind blade models one or two times
during the term of a long-term supply agreement. Although we generally receive transition payments to
compensate us for certain costs incurred during these transitions, these payments generally do not fully
cover the transition costs and lost margin. In 2019, we had a significant number of our manufacturing
lines in transition to larger wind blade models and we also had a significant number of lines starting up
in our new manufacturing facilities in Matamoros, Mexico and Yangzhou, China. This large number of
transitions and startups had an adverse impact on our results of operations and profitability in 2019. In
2020, we expect to continue to have a significant number of lines in transition and startup which will
have an adverse impact on our results of operations for 2020, but we expect this to provide a foundation
for longer term revenue growth and profitability as these lines ramp up to full production levels.
• We expect our new manufacturing facilities to generally generate operating losses in their first 18
months of operations due to production and overhead expenses as they initially operate far below
capacity during the pre-production and production ramp up periods. As a result, this generally has a
negative impact on our results of operations during these ramp-up periods. In addition, construction of
new facilities and expansion of existing facilities, including the fabrication of precision molding and
assembly systems to outfit those facilities, is complex and involves inherent risks. For planning
purposes, we generally estimate that the startup of a new six-line manufacturing facility requires cash
for net operating expenses and working capital of between $20 million to $25 million. We also estimate
that capital expenditures, primarily for machinery and equipment, of between $30 million to $35 million
will be required. We expect to incur significant startup costs and expenses during 2020 in connection
with the recent startup of our new manufacturing facility in Chennai, India.
• Many governments are shifting from feed-in tariffs to auction-based tenders as a means of promoting
the development and growth of renewable energy sources such as wind energy. As a result of this shift,
our wind turbine OEM customers have experienced intense pricing pressure with respect to the sale of
their turbines together with increased competitive pricing from solar energy. As a result of these pricing
pressures, the financial performance of certain smaller wind turbine OEMs has deteriorated over the last
twelve months. In 2019, one of our former customers, Senvion, entered into insolvency proceedings in
Germany and Senvion’s insolvency had an adverse impact on our results of operations in 2019. In
addition, ENERCON, one of our current customers, announced in 2019 that it was entering into
financial restructuring discussions with its lenders. To date, our financial performance has not been
impacted by ENERCON’s announced restructuring although if ENERCON’s financial positions
deteriorates further in 2020, it could have an adverse impact on our results of operations in 2020.
52
•
•
•
The long-term supply agreements we sign with our customers provide us with significant visibility of
future production demands due in part to the annual minimum purchase commitments of our customers
contained in those agreements. These annual minimum purchase commitments generally require our
customers to purchase a negotiated percentage of the manufacturing capacity that we have agreed to
dedicate to them. Generally, this percentage begins at 100% of the manufacturing capacity for the first
few years of the supply agreement, and the percentage declines over time in subsequent years according
to the terms of the agreement, but generally remains above 50%. It is our experience that our customers
will generally order wind blades from us in a volume that exceeds (sometimes substantially) the annual
minimum purchase commitments contained in our supply agreements, particularly in the later years of a
supply agreement when the annual minimum purchase commitment percentage declines. As of February
27, 2020, our long-term wind and transportation supply agreements provide for minimum aggregate
volume commitments from our customers of approximately $2.8 billion and encourage our customers to
purchase additional volume up to, in the aggregate, a total contract value of approximately $5.2 billion
through the end of 2023. As noted elsewhere in this Annual Report on Form 10-K, some of our long-
term supply agreements are subject to early termination by our customers if our customers pay an early
termination fee. Additionally, some of our contracts allow our customers to reduce the number of lines
under contract without penalty, prior to the end of the contact term. We caution investors that the annual
minimum purchase commitments in our long-term supply agreements can understate the forecasted net
sales that we are likely to generate in a given period or periods if all of our long-term supply agreements
remain in place and pricing remains materially unchanged, and they could potentially overstate the
forecasted net sales that we are likely to generate in a given period or periods if one or more of our
agreements were to be terminated by our customers for any reason due to market conditions our plants
are underutilized. See “Business—Wind Blade Long-Term Supply Agreements” included in Part 1, Item
1A of this Annual Report on Form 10-K for additional information.
As the global vehicle electrification trend continues, reducing the weight of these vehicles is critical to
expanding range and/or providing more room for additional batteries or reducing the number of
batteries. We believe there is an increasing demand for composites products for electric vehicles. As
part of our diversification strategy, we have made significant investments to expand our transportation
business during the last several years. In 2018 and 2019, we experienced significant losses relating to
our transportation business and experienced operational challenges as we are expanding this business.
Specifically, we experienced extended startup delays and challenges with respect to our Newton, Iowa
transportation facility, which had an adverse impact on our results of operations in 2019. We plan to
cease manufacturing composite bus bodies from our Newton, Iowa manufacturing facility in the first
quarter of 2020 and consolidate these operations into our Warren, Rhode Island manufacturing facility.
We expect our transportation business results of operations will improve substantially in 2020 compared
to 2019 although we expect it will continue to operate at a loss in 2020.
The Coronavirus will have an adverse impact on our business, particularly our manufacturing facilities
in China. We expect that the impact of the Coronavirus will have an adverse impact on our net sales, net
income and Adjusted EBITDA for the first quarter of 2020 and also may have an adverse impact on our
financial condition and results of operations for the rest of 2020. Although we are currently attempting
to take all reasonable steps to mitigate the impact of the Coronavirus, including taking steps to make up
the anticipated lost wind blade volume later this year, we currently estimate that the Coronavirus will
negatively impact our net income and Adjusted EBITDA in 2020 by up to approximately $10 million.
In addition, if we experience any additional unexpected delays in the resumption of our full production
capacity at our China manufacturing facilities or incur additional unanticipated costs and expenses as a
result of the Coronavirus, such production delays and unanticipated costs and expenses will have a
further adverse impact on our business, financial condition and results of operations in 2020.
COMPONENTS OF RESULTS OF OPERATIONS
Net Sales
We recognize revenue from manufacturing services over time as our customers control the product as it is
produced, and we may not use or sell the product to fulfill other customers’ contracts. Net sales include amounts
billed to our customers for our products, including wind blades, precision molding and assembly systems and other
53
products and services, as well as the progress towards the completion of the performance obligation for products in
progress, which is determined on a ratio of direct costs incurred to date in fulfillment of the contract to the total
estimated direct costs required to complete the performance obligation.
Cost of Goods Sold
Cost of goods sold includes the costs we incur at our production facilities to make products saleable on both
products invoiced during the period as well as products in progress towards the completion of each performance
obligation. Cost of goods sold includes such items as raw materials, direct and indirect labor and facilities costs,
including purchasing and receiving costs, plant management, inspection costs, production process improvement
activities, product engineering and internal transfer costs. In addition, all depreciation associated with assets used in
the production of our products is also included in cost of goods sold. Direct labor costs consist of salaries, benefits
and other personnel related costs for employees engaged in the manufacturing of our products and services.
Startup and transition costs are primarily unallocated fixed overhead costs and underutilized direct labor costs
incurred during the period production facilities are transitioning wind blade models and ramping up manufacturing.
All direct labor costs are included in the measure of progress towards completion of the relevant performance
obligation when determining revenue to be recognized during the period. The cost of sales for the initial wind blades
from a new model manufacturing line is generally higher than when the line is operating at optimal production
volume levels due to inefficiencies during ramp-up related to labor hours per blade, cycle times per blade and raw
material usage. Additionally, these costs as a percentage of net sales are generally higher during the period in which
a facility is ramping up to full production capacity due to underutilization of the facility. Manufacturing overhead at
each of our facilities includes virtually all indirect costs (including share-based compensation costs) incurred at the
plants, including engineering, finance, information technology, human resources and plant management.
General and Administrative Expenses
General and administrative expenses primarily relate to the unallocated portion of costs incurred at our
corporate headquarters and our research facilities and include salaries, benefits and other personnel related costs for
employees engaged in research and development, engineering, finance, internal audit, information technology,
human resources, business development, global operational excellence, global supply chain, in-house legal and
executive management. Other costs include outside legal and accounting fees, risk management (insurance), share-
based compensation and certain other administrative and global resources costs.
The research and development expenses incurred at our Warren, Rhode Island location as well as at our
Kolding, Denmark advanced engineering center and our Berlin, Germany engineering center are also included in
general and administrative expenses. For the years ended December 31, 2019, 2018 and 2017, total research and
development expenses totaled $1.0 million, $0.8 million and $1.6 million, respectively.
Realized Loss on Sale of Assets and Asset Impairments
Realized loss on sale of assets represents the realized losses on the sale of certain receivables, on a non-
recourse basis under supply chain financing arrangements with our customers, to financial institutions and realized
losses on the sale of other assets at our corporate and manufacturing facilities. Asset impairments represent the
realized losses on the impairment of our assets at our corporate and manufacturing facilities.
Restructuring Charges
Restructuring charges primarily consist of employee severance, one-time termination benefits and ongoing
benefits related to the reduction of our workforce and other costs associated with exit activities, which may include
costs related to leased facilities to be abandoned and facility and employee relocation costs.
54
Other Income (Expense)
Other income (expense) consists primarily of interest expense on our debt borrowings and the amortization of
deferred financing costs on such borrowings. Other income (expense) also includes realized gains and losses on
foreign currency remeasurement, interest income, losses on extinguishment of debt and miscellaneous income and
expense.
Income Taxes
Income taxes consists of federal, state, provincial, local and foreign taxes based on income in jurisdictions in
which we operate, including in the U.S., China, Mexico, Turkey and India. The composite income tax rate, tax
provisions, deferred tax assets and liabilities vary according to the jurisdiction in which the income or loss arises.
Tax laws are complex and subject to different interpretations by management and the respective governmental
taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax
assets and liabilities and the valuation allowance recorded against our net deferred tax assets.
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 and operating metrics to analyze our performance.
These “non-GAAP” financial measures consist of total billings, EBITDA, adjusted EBITDA, free cash flow and net
cash (debt), which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our
overall liquidity, and evaluate our overall financial performance. The key operating metrics consist of wind blade
sets invoiced, estimated megawatts of energy capacity to be generated by wind blade sets invoiced, utilization,
dedicated manufacturing lines, manufacturing lines installed, manufacturing lines in operation, manufacturing lines
in startup and manufacturing lines in transition, which help us evaluate our operational performance. We believe that
these measures are useful to investors in evaluating our performance.
Key Financial Measures
2019
2017
Year Ended December 31,
2018
(in thousands)
$ 1,436,500 $ 1,029,624 $ 955,198
$ 1,387,235 $ 1,006,541 $ 941,565
5,279 $ 38,734
$
42,308 $ 88,516
$
68,173 $ 100,111
$
52,688 $ 44,828
$
(55,946 ) $ 29,772
$
$ 141,389 $ 137,623 $ 121,385
(53,155 ) $ 24,557
$
(15,708 ) $
54,009 $
81,914 $
74,408 $
(17,324 ) $
(71,779 ) $
Net sales
Total billings(1)
Net income
EBITDA(1)
Adjusted EBITDA(1)
Capital expenditures
Free cash flow(1)
Total debt, net of debt issuance costs and discount
Net cash (debt)(1)
55
Key Operating Metrics (2)
Year Ended December 31,
2018
2017
2019
Sets
Estimated megawatts
Utilization
Dedicated manufacturing lines
Manufacturing lines installed
Manufacturing lines in operation
Manufacturing lines in startup
Manufacturing lines in transition
3,178
9,324
2,423
6,560
2,736
6,602
79 %
52
48
24
14
10
71 %
55
43
12
16
15
86 %
48
41
32
9
—
(1) See below for more information and a reconciliation of total billings, EBITDA, adjusted EBITDA, free cash
flow and net cash (debt) to net sales, net income (loss), net income (loss), net cash provided by (used in)
operating activities and total debt, net of debt issuance costs, respectively, the most directly comparable
financial measures calculated and presented in accordance with GAAP.
(2) See below for more information on each of our key operating metrics.
Key Financial Measures
Total billings
We define total billings, a non-GAAP financial measure, as the total amounts we have invoiced our customers
for products and services for which we are entitled to payment under the terms of our long-term supply agreements
or other contractual agreements. We monitor total billings, and believe it is useful to present to investors as a
supplement to our GAAP measures, because we believe it more directly correlates to sales activity and operations
based on the timing of actual transactions with our customers, which facilitates comparison of our performance
between periods and provides a more timely indication of trends in sales. Under GAAP, total net sales recognized on
products in production represents the total amount that we have recognized as revenue under the cost-to-cost method
for services performed during the period under our long-term supply agreements. Services performed but unbilled
include procurement of raw materials and production of work in process and undelivered finished goods. Under our
long-term supply agreements with our customers, we invoice our customers for wind blades once the blades pass
certain acceptance procedures and title passes to our customers. Our customers generally pay us for the wind blades
between 5 to 25 days after receipt of the invoice based on negotiated payment terms and when considering our
supply chain financing arrangements.
Our use of total billings has limitations as an analytical tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•
•
Total billings includes wind blades that have not been delivered and for which we are responsible if
damage occurs to them while we hold them; and
Other companies, including companies in our industry, may define total billings differently, which
reduces its usefulness as a comparative measure.
EBITDA and adjusted EBITDA
We define EBITDA, a non-GAAP financial measure, as net income or loss plus interest expense (including
losses on extinguishment of debt and net of interest income), income taxes and depreciation and amortization. We
define adjusted EBITDA as EBITDA plus any share-based compensation expense, plus or minus any realized gains
or losses from foreign currency remeasurement, plus or minus any gains or losses from the sale of assets. Adjusted
EBITDA is the primary metric used by our management and our board of directors to establish budgets and
operational goals for managing our business and evaluating our performance. In addition, our credit agreement (the
Credit Agreement) that we entered into in April 2018 contains minimum EBITDA (as defined in the Credit
Agreement) covenants with which we must comply. We monitor adjusted EBITDA as a supplement to our GAAP
56
measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our
period-to-period operating performance by eliminating items that are not operational in nature, allowing comparison
of our recurring core business operating results over multiple periods unaffected by differences in capital structure,
capital investment cycles and fixed asset base. In addition, we believe adjusted EBITDA and similar measures are
widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our
industry as a measure of financial performance and debt-service capabilities.
Our use of adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or
as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•
•
•
•
•
•
•
•
•
•
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual
commitments;
adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service
interest or principal payments on our indebtedness;
adjusted EBITDA does not reflect losses on extinguishment of debt relating to prepayment penalties,
termination fees and the write off of any remaining debt discount and debt issuance costs upon the
repayment or refinancing of our debt;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized
may have to be replaced in the future, and adjusted EBITDA does not reflect capital expenditure
requirements relating to the future need to augment or replace those assets;
adjusted EBITDA does not reflect the realized gains or losses from foreign currency remeasurement in
our international operations;
adjusted EBITDA does not reflect share-based compensation expense on equity-based incentive awards
to our officers, employees, directors and consultants;
adjusted EBITDA does not reflect the realized gains or losses on the sale of assets and asset
impairments; and
other companies, including companies in our industry, may calculate EBITDA and adjusted EBITDA
differently, which reduces their usefulness as comparative measures.
In evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, we will incur expenses
similar to the adjustments noted in this presentation. Our presentations of EBITDA and adjusted EBITDA should
not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-
recurring items. When evaluating our performance, you should consider EBITDA and adjusted EBITDA alongside
other financial performance measures, including our net income (loss) and other GAAP measures.
Free cash flow
We define free cash flow as net cash provided by (used in) operating activities less capital expenditures. 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.
Net cash (debt)
We define net cash (debt) as total unrestricted cash and cash equivalents less the total principal amount of debt
outstanding. The total principal amount of debt outstanding is comprised of the long-term debt and current
maturities of long-term debt as presented in our consolidated balance sheets adding back any debt issuance costs.
We believe that the presentation of net cash (debt) provides useful information to investors because our management
reviews net cash (debt) as part of our oversight of overall liquidity, financial flexibility and leverage. Net cash (debt)
is important when we consider opening new plants and expanding existing plants, as well as for capital expenditure
requirements.
57
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP
measures:
Total billings, EBITDA and adjusted EBITDA are reconciled as follows:
Net sales
Change in gross contract assets
Foreign exchange impact(1)
Total billings
Net income (loss)
Adjustments:
2019
2017
Year Ended December 31,
2018
(in thousands)
$ 1,436,500 $ 1,029,624 $ 955,198
(13,437 )
(196 )
$ 1,387,235 $ 1,006,541 $ 941,565
(43,405 )
(5,860 )
(15,011 )
(8,072 )
$
(15,708 ) $
5,279 $ 38,734
Depreciation and amortization
Interest expense (net of interest income)
Loss on extinguishment of debt
Income tax provision (benefit)
EBITDA
Share-based compensation expense
Realized loss on foreign currency remeasurement
Realized loss on sale of assets and asset
impairments
Adjusted EBITDA
$
38,580
8,022
—
23,115
54,009
5,681
4,107
26,429
10,236
3,397
(3,033 )
42,308
7,795
13,489
21,698
12,286
—
15,798
88,516
7,124
4,471
18,117
81,914 $
4,581
—
68,173 $ 100,111
(1) Represents the effect of the difference in the exchange rates used by our various foreign subsidiaries when
converted to U.S. dollars on the net sales and contract assets as of period-end.
Free cash flow is reconciled as follows:
2019
Year Ended December 31,
2018
(in thousands)
2017
Net cash provided by (used in) operating activities
Less capital expenditures
Free cash flow
Net cash (debt) is reconciled as follows:
Cash and cash equivalents
Less total debt, net of debt issuance costs
Less debt issuance costs
Net cash (debt)
$ 57,084 $
(74,408 )
(3,258 ) $ 74,600
(44,828 )
$ (17,324 ) $ (55,946 ) $ 29,772
(52,688 )
2019
2017
December 31,
2018
(in thousands)
$ 70,282 $ 85,346 $ 148,113
(141,389 ) (137,623 ) (121,385 )
(2,171 )
$ (71,779 ) $ (53,155 ) $ 24,557
(878 )
(672 )
Key Operating Metrics
Key operating metrics consist of sets invoiced, estimated megawatts of energy capacity for wind blade sets
invoiced, utilization, dedicated manufacturing lines, manufacturing lines installed, manufacturing lines in operation,
manufacturing lines in startup and manufacturing lines in transition.
58
Sets represents the number of wind blade sets (which consist of three wind blades) which we invoiced
worldwide during the period. We monitor sets and believe that presenting sets to investors is helpful because we
believe that it is the most direct measurement of our manufacturing output during the period. Sets primarily impact
net sales and total billings
Estimated megawatts are the energy capacity to be generated by wind blade sets invoiced in the period. Our
estimate is based solely on name-plate capacity of the wind turbine on which the wind blades we manufacture are
expected to be installed. We monitor estimated megawatts and believe that presenting estimated megawatts to
investors is helpful because we believe that it is a commonly followed measurement of energy capacity across our
industry and provides an indication of our share of the overall wind blade market.
Utilization represents the percentage of wind blades invoiced during a period compared to the total potential
wind blade capacity of the manufacturing lines installed at the end of the period. We monitor utilization because we
believe it helps investors to better understand how close we are to operating at maximum production capacity.
Dedicated manufacturing lines are the number of wind blade manufacturing lines that we have dedicated to
our customers pursuant to our long-term supply agreements at the end of the period. We monitor dedicated
manufacturing lines and believe that presenting this metric to investors is helpful because we believe that the
number of dedicated manufacturing lines is the best indicator of demand for the wind blades we manufacture for
customers under our long-term supply agreements in any given period. We believe that dedicated manufacturing
lines provide an understanding of additional capacity within an existing facility. Dedicated manufacturing lines
primarily impacts our net sales and total billings.
Manufacturing lines installed represents the number of wind blade manufacturing lines installed and either in
operation, startup or transition at the end of the period. We believe that total manufacturing lines installed provides
an understanding of the number of manufacturing lines installed and either in operation, startup or transition.
Manufacturing lines in operation is the number of wind blade manufacturing lines installed less the number of
manufacturing lines in startup and in transition. We monitor manufacturing lines in operation because we believe it
helps investors understand the number of our manufacturing lines that are operating in a mature state of production.
Manufacturing lines in startup is the number of wind blade manufacturing lines that were in a startup phase
during the pre-production and production ramp up period, pursuant to the opening of a new manufacturing facility,
the expansion of an existing manufacturing facility or the addition of new manufacturing lines in an existing
manufacturing facility. We monitor and present this metric because we believe it helps investors to better understand
the impact of the startup phase of our new manufacturing facilities on our gross profit and net income.
Manufacturing lines in transition is the number of wind blade manufacturing lines that were being
transitioned to a new wind blade model during the period. We monitor and present this metric because we believe it
helps investors to better understand the impact of these transitions on our gross profit and net income.
59
RESULTS OF OPERATIONS
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table summarizes certain information relating to our operating results (in thousands) and related
percentage of net sales for the years ended December 31 that have been derived from our consolidated financial
statements:
2019
2018
Net sales
Cost of sales
Startup and transition costs
Total cost of goods sold
Gross profit
General and administrative expenses
Realized loss on sale of assets and asset
impairments
Restructuring charges, net
Income from operations
Other expense
Income before income taxes
Income tax benefit (provision)
Net income (loss)
$ 1,436,500 100.0 % $ 1,029,624 100.0 %
85.7 %
1,290,619
7.2 %
68,033
92.9 %
1,358,652
7.1 %
77,848
4.2 %
39,916
882,075
74,708
956,783
72,841
43,542
89.8 %
4.8 %
94.6 %
5.4 %
2.8 %
18,117
3,927
15,888
(8,481 )
7,407
(23,115 )
(15,708 )
1.3 %
0.2 %
1.1 %
(0.6 )%
0.5 %
(1.6 )%
(1.1 )% $
4,581
—
24,718
(22,472 )
2,246
3,033
5,279
0.5 %
0.0 %
2.4 %
(2.2 )%
0.2 %
0.3 %
0.5 %
$
Net sales for the year ended December 31, 2019 increased by $406.9 million or 39.5% to $1,436.5 million
compared to $1,029.6 million in the same period in 2018. Net sales of wind blades increased by 42.4% to $1,328.7
million for the year ended December 31, 2019 as compared to $933.3 million in the same period in 2018. The
increase was primarily driven by a 31% increase in the number of wind blades produced during the year ended
December 31, 2019 compared to the same period in 2018 largely as a result of increased production at our Turkey,
Mexico and China facilities. The increase was also due to a higher average sales price due to the mix of wind blade
models produced during the year ended December 31, 2019 compared to the same period in 2018. Net sales from the
manufacturing of precision molding and assembly systems during the year ended December 31, 2019 were $48.7
million as compared to $48.9 million in the same period in 2018. Additionally, there was a $11.6 million increase in
transportation and other sales during the year ended December 31, 2019 as compared to the same period in 2018.
The impact of the fluctuating U.S. dollar against the Euro in our Turkey operations and the Chinese Renminbi in our
China operations on consolidated net sales and total billings for the year ended December 31, 2019 was a net
decrease of 2.1% and 2.2%, respectively, as compared to 2018.
Total cost of goods sold for the year ended December 31, 2019 was $1,358.7 million and included $48.5
million related to 14 lines in startup and $19.5 million related to 10 lines in transition during the period. This
compares to total cost of goods sold for the year ended December 31, 2018 of $956.8 million and included $61.9
million related to startup costs and $12.8 million related to transition costs. Cost of goods sold as a percentage of net
sales increased by approximately two percentage points during the year ended December 31, 2019 as compared to
the same period in 2018, driven primarily by the extended startup of our Newton, Iowa transportation facility,
significant underutilization of labor in Matamoros, Mexico due to the strike, partially offset by a $6.7 million
decrease in startup and transition costs, the impact of savings in raw material costs and foreign currency fluctuations.
The impact of the fluctuating U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso
decreased consolidated cost of goods sold by 3.1% for the year ended December 31, 2019 as compared to 2018.
60
General and administrative expenses for the year ended December 31, 2019 totaled $39.9 million, or 2.8% of
net sales, compared to $43.5 million, or 4.2% of net sales, for the same period in 2018. The decrease as a percentage
of net sales was primarily driven by lower incentive compensation and a reduction in the performance assumptions
related to certain of our share-based plans.
Realized loss on sale of assets and asset impairments for the year ended December 31, 2019 totaled $18.1
million, comprised of $8.1 million of realized losses on the sale of receivables under supply chain financing
arrangements with our customers, $5.3 million of realized losses on the sale of assets at our corporate and
manufacturing facilities and $4.7 million of asset impairment charges primarily related to the shutdown of our
second Newton, Iowa Facility. Realized loss on sale of assets and asset impairments for the year ended
December 31, 2018 totaled $4.6 million, comprised of $2.5 million of realized losses on the sale of assets at our
corporate and manufacturing facilities and $2.1 million of realized losses on the sale of receivables under supply
chain financing arrangements with our customers. There were no asset impairment charges for the year ended
December 31, 2018.
Restructuring charges, net, for the year ended December 31, 2019 totaled $3.9 million. These charges
primarily related to the closing of our Taicang City, China manufacturing facility, comprised of $3.3 million of
severance benefits to terminated employees and $0.6 million of other charges, primarily related to exit costs. There
were no corresponding charges for the same period in 2018.
Other expense totaled $8.5 million for the year ended December 31, 2019 as compared to $22.5 million for the
same period in 2018. The $14.0 million decrease was primarily due to a $9.4 million decrease in realized losses on
foreign currency remeasurement and a $5.6 million decrease in interest expense, primarily related to the loss on the
extinguishment of debt of $3.4 million in the 2018 period. These decreases were partially offset by a $1.0 million
decrease in miscellaneous income.
Income taxes reflected a provision of $23.1 million for the year ended December 31, 2019 as compared to a
benefit of $3.0 million for the same period in 2018. The increase in taxes was primarily due to the benefit for the
reversal of the valuation allowance related to our U.S. federal deferred tax assets in the three months ended
September 30, 2018 and the earnings mix by jurisdiction in the year ended December 31, 2019 as compared to the
same period in 2018.
Net loss for the year ended December 31, 2019 was $15.7 million as compared to net income of $5.3 million
in the same period in 2018. The decrease was primarily due to the reasons set forth above. The net loss per share
was $0.45 for the year ended December 31, 2019, compared to diluted income per share of $0.15 for the year ended
December 31, 2018.
Segment Discussion
The following table summarizes our net sales and income (loss) from operations by our four geographic
operating segments for the years ended December 31:
Net Sales
U.S.
Asia
Mexico
EMEAI
Total net sales
2019
2018
(in thousands)
$ 169,317 $ 163,716
393,809 306,255
435,606 268,756
437,768 290,897
$ 1,436,500 $ 1,029,624
61
Income (Loss) from Operations
U.S.
Asia
Mexico
EMEAI
Total income from operations
2019
2018
(in thousands)
$
$
(78,278 ) $
24,132
3,533
66,501
15,888 $
(67,357 )
28,147
12,154
51,774
24,718
U.S. Segment
Net sales in the year ended December 31, 2019 increased by $5.6 million or 3.4% to $169.3 million compared
to $163.7 million in the same period in 2018. Net sales of wind blades decreased to $120.1 million during the year
ended December 31, 2019 from $126.3 million in the same period of 2018. The decrease was primarily due to a 19%
reduction in the number of wind blades produced in the year ended December 31, 2019 as compared to the same
period in 2018 because of wind blade model transitions, partially offset by a higher average sales price due to the
mix of wind blade models produced in both periods. Net sales from the manufacturing of precision molding and
assembly systems during the year ended December 31, 2019 were $3.8 million compared to $5.0 million during the
same period in 2018. Additionally, there was a $13.1 million increase in transportation and other sales during the
year ended December 31, 2019 as compared to the same period in 2018.
The loss from operations in the U.S. segment for the year ended December 31, 2019 was $78.3 million as
compared to a loss of $67.4 million in the same period in 2018. As previously discussed, the loss amounts include
corporate general and administrative costs of $39.9 million and $43.5 million for the years ended December 31,
2019 and 2018, respectively. The 2019 operating results were unfavorably impacted by the extended startup at our
Newton, Iowa transportation facility, the asset impairment charges related to the shutdown of our Newton, Iowa
transportation facility, the transition costs at our Newton, Iowa blade facility and the lower wind blade volume
discussed above.
Asia Segment
Net sales in the year ended December 31, 2019 increased by $87.6 million or 28.6% to $393.8 million
compared to $306.3 million in the same period in 2018. Net sales of wind blades were $366.2 million in the year
ended December 31, 2019 as compared to $264.4 million in the same period of 2018. The increase in the net sales of
wind blades was primarily due to an increase in the year over year number of wind blades still in the production
process at the end of the period, an increase in the average sales price of wind blades due to a change in the mix of
wind blades between the two periods and a 20% net increase in overall wind blade volume, notwithstanding the
reduced production in Taicang, China as a result of Senvion’s insolvency. Net sales from the manufacturing of
precision molding and assembly systems totaled $25.2 million during the 2019 period compared to $36.6 million
during the 2018 period. The impact of the fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable
impact of 1.5% on net sales during the year ended December 31, 2019 as compared to the same period in 2018.
Income from operations in the Asia segment for the year ended December 31, 2019 was $24.1 million as
compared to $28.1 million in the same period in 2018. This decrease was driven by the insolvency of a customer as
noted above and the resultant revenue reduction relating to our contract with that customer and the related
restructuring charges in Taicang, partially offset by a decrease in startup and transition costs. This was partially
offset by the fluctuating U.S. dollar against the Chinese Renminbi which had a favorable impact of 2.8% on cost of
goods sold for the year ended December 31, 2019 as compared to the 2018 period.
Mexico Segment
Net sales in the year ended December 31, 2019 increased by $166.9 million or 62.1% to $435.6 million
compared to $268.8 million in the same period in 2018. The increase reflects a 44% net increase in overall wind
blade volume, an increase in the average sales price of wind blades due to a change in the mix of wind blades
62
between the two periods and an increase in the year over year number of wind blades still in the production process
at the end of the period. Net sales from the manufacturing of precision molding and assembly systems during the
year ended December 31, 2019 were $19.7 million compared to $7.2 million during the same period in 2018.
Income from operations in the Mexico segment for the year ended December 31, 2019 was $3.5 million as
compared to $12.2 million in the same period in 2018. The decrease was due primarily to a significant
underutilization of labor in Matamoros as well as increased startup and transition costs, partially offset by the overall
increase in wind blade volume noted above as well as from savings in raw material costs. The fluctuating U.S. dollar
relative to the Mexican Peso had a favorable impact of 0.1% on cost of goods sold for the year ended December 31,
2019 as compared to 2018.
EMEAI Segment
Net sales during the year ended December 31, 2019 increased by $146.9 million or 50.5% to $437.8 million
compared to $290.9 million in the same period in 2018. The increase was driven by a 70% increase in wind blade
production at our two Turkey plants. This increase was partially offset by a decrease in the average sales price of
wind blades delivered in the comparative periods. The fluctuating U.S. dollar relative to the Euro had an unfavorable
impact of 5.3% on net sales during the year ended December 31, 2019.
Income from operations in the EMEAI segment for the year ended December 31, 2019 was $66.5 million as
compared to $51.8 million in the same period in 2018. The increase was primarily driven by the increased wind
blade production at our two Turkey plants, lower startup and transition costs at our Turkey plants and the favorable
impact on cost of goods sold of the fluctuation of the U.S. dollar relative to the Turkish Lira and Euro of 8.5% for
the year ended December 31, 2019 as compared to 2018, partially offset by higher material costs related to a new
product at our second Turkey plant and startup costs related to our new plant in India.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
For a comparison of our results of operations for the years ended December 31, 2018 and 2017, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations”
included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the
SEC on March 5, 2019 incorporated herein by reference.
LIQUIDITY AND CAPITAL RESOURCES
Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, new
facility startup costs, the impact of transitions, working capital and debt service costs. Our capital expenditures have
been primarily related to machinery and equipment for new facilities or facility expansions. Historically, we have
funded our working capital needs through cash flows from operations, the proceeds received from our credit
facilities and from proceeds received from the issuance of stock. During the years ended December 31, 2019, 2018
and 2017, we had net repayments of financing arrangements of $2.1 million, $8.9 million and $8.1 million,
respectively. As of December 31, 2019 and 2018, we had $142.1 million and $138.5 million in outstanding
indebtedness, excluding debt issuance costs, respectively. As of December 31, 2019, we had an aggregate of $100.4
million of remaining capacity and $40.9 million of remaining availability under our various credit facilities.
Working capital requirements have increased as a result of our overall growth and the need to fund higher accounts
receivable and inventory levels as our business volumes have increased as well as the increased level of transitions.
Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities and
cash flow from operations will be adequate to fund our working capital and capital expenditure requirements and to
make required payments of principal and interest on our indebtedness over the next twelve months.
We anticipate that any new facilities and future facility expansions will be funded through cash flows from
operations, the incurrence of other indebtedness and other potential sources of liquidity. At December 31, 2019 and
2018, we had unrestricted cash, cash equivalents and short-term investments totaling $70.3 million and
$85.3 million, respectively. The December 31, 2019 balance includes $24.5 million of cash located outside of the
United States, including $9.9 million in Turkey, $9.7 million in China, $2.4 million in India, $2.1 million in Mexico
63
and $0.4 million in Denmark. In February 2020, we entered into an Incremental Facility Agreement with the current
lenders to our Credit Agreement and an additional lender, pursuant to which the aggregate principal amount of our
revolving credit facility under the Credit Agreement was increased from $150.0 million to $205.0 million. Our
ability to repatriate funds from China to the United States is subject to a number of restrictions imposed by the
Chinese government. We repatriate funds through several technology license and corporate/administrative service
agreements. We are compensated quarterly based on agreed upon royalty rates for such intellectual property licenses
and quarterly fees for those services. Certain of our subsidiaries are limited in their ability to declare dividends
without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as
determined under Chinese-statutory accounting requirements. Until 50% ($26.5 million) of registered capital is
contributed to a surplus reserve, our Chinese operations can only pay dividends equal to 90% of after-tax profits
(10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, our Chinese
operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31,
2019, the amount of the surplus reserve fund was $6.6 million.
Operating Cash Flows
2019
Year Ended December 31,
2018
(in thousands)
2017
Net income (loss)
Depreciation and amortization
Realized loss on sale of assets and asset impairments
Share-based compensation expense
Restructuring charges, net
Other non-cash items
Changes in assets and liabilities
Net cash provided by (used in) operating activities
$ (15,708 ) $
38,580
18,117
5,681
3,927
5,157
1,330
$ 57,084 $
5,279 $ 38,734
21,698
26,429
334
4,581
7,124
7,795
—
—
2,223
(11,179 )
4,487
(36,163 )
(3,258 ) $ 74,600
Net cash provided by operating activities totaled $57.1 million for the year ended December 31, 2019 and was
primarily the result of the net loss, adjusted for non-cash items (depreciation and amortization, realized loss on the
sale of assets and asset impairments, share-based compensation expense, restructuring charges, net and other non-
cash items) which generated $55.8 million of operating cash flow and net changes in working capital generated $1.3
million of operating cash flow. The key components of the net change in working capital include a $80.7 million
increase in accounts payable and accrued expenses, a $10.9 million increase in accrued warranty, a $7.0 million
decrease in operating lease right of use assets and operating lease labilities and a $2.8 million increase in other
noncurrent liabilities. This was mostly offset by a $57.6 million increase in contract assets and liabilities, a $19.4
million increase in accounts receivable, a $13.7 million increase in other current assets, a $7.2 million increase in
other noncurrent assets, a $1.1 million increase in prepaid expenses and a $1.1 million increase in inventories. The
working capital changes in contract assets and liabilities, accounts receivable, accounts payable and accrued
expenses and accrued warranty are primarily the result of the timing of production in the year ended December 31,
2019.
Net cash used in operating activities totaled $3.3 million for the year ended December 31, 2018 and was
primarily the result of a $36.2 million decrease in working capital and $6.6 million of other non-cash items, mostly
offset by non-cash depreciation and amortization charges totaling $26.4 million, share-based compensation costs of
$7.8 million and net income of $5.3 million. The key components of the decrease in working capital include a $59.2
million increase in accounts receivable, a $7.9 million increase in contract assets and labilities, a $5.2 million
increase in other noncurrent assets, and a $2.0 million decrease in other noncurrent liabilities. This was partially
offset by a $32.3 million increase in accounts payable and accrued expenses and a $6.3 million increase in accrued
warranty. The working capital changes in contract assets and liabilities, accounts receivable, accounts payable and
accrued expenses and accrued warranty are primarily the result of the timing of production in the year ended
December 31, 2018.
64
Investing Cash Flows
Purchase of property and equipment
Acquisition of a business
Proceeds from sale of assets
Net cash used in investing activities
2019
2017
Year Ended December 31,
2018
(in thousands)
$ (74,408 ) $ (52,688 ) $ (44,828 )
—
850
$ (75,510 ) $ (52,688 ) $ (43,978 )
(1,102 )
—
—
—
Net cash flows used in investing activities totaled $75.5 million and $52.7 million in the years ended
December 31, 2019 and 2018, respectively, driven primarily by capital expenditures for new facilities and expansion
or improvements at existing facilities. The capital expenditures for the year ended December 31, 2019 primarily
related to our new manufacturing facilities in Yangzhou, China and Chennai, India, our second manufacturing
facility in Turkey, our new tooling facility and the expansion of one of our blade manufacturing facilities in Juárez,
Mexico and continued investments in our other existing facilities. The capital expenditures for the year ended
December 31, 2018 primarily related to our new wind blade plants in Matamoros, Mexico and Yangzhou, China, the
expansion and improvements at our Taicang, China facility, our second wind blade plant in Turkey, our second
facility in Newton, Iowa and costs to enhance our information technology systems. The above capital expenditure
amounts do not include the amounts which we financed primarily through finance leases totaling $5.8 million and
$22.0 million in the years ended December 31, 2019 and 2018, respectively.
We anticipate fiscal year 2020 capital expenditures of between $80 million to $90 million and we estimate that
the cost that we will incur after December 31, 2019 to complete our current projects in process will be
approximately $18.3 million. We have used, and will continue to use, cash flows from operations, the proceeds
received from our credit facilities and the proceeds received from the issuance of stock for major projects currently
being undertaken, which include purchasing equipment for our new manufacturing facility in Chennai, India and the
continued investment in our Turkey, Mexico and China facilities.
Financing Cash Flows
2019
Year Ended December 31,
2018
(in thousands)
2017
Net proceeds from (repayments of) revolving and
term loans
Net proceeds from (repayments of) accounts
receivable financing
Net repayments of working capital loans
Principal repayments of finance leases
Net proceeds from (repayments of) other debt
Debt issuance costs
Proceeds from exercise of stock options
Repurchase of common stock including shares
withheld in lieu of income taxes
Net cash provided by (used in) financing activities
$ 22,000 $ 14,463 $
(3,750 )
(10,719 )
—
(9,128 )
(4,286 )
—
5,223
424
—
—
(23,763 )
(281 )
4,284
(1,020 )
(4,638 )
—
1,313
(454 )
1,430
(2,120 )
970 $
(2,859 )
(7,732 ) $
(1,264 )
(8,383 )
$
Net cash flows provided by financing activities for the year ended December 31, 2019 totaled $1.0 million.
The net cash flows used in financing activities totaled $7.7 million for the year ended December 31, 2018. Net cash
provided by financing activities for the year ended December 31, 2019 primarily reflects the net proceeds from
revolving and term loans and the proceeds from the exercise of stock options, mostly offset by the net repayment of
accounts receivable financing and other debt, principal repayments of finance leases and the repurchase of common
stock including shares withheld in lieu of income taxes. Net cash used in financing activities for the year ended
December 31, 2018 primarily reflects the net repayment of other debt and the repurchase of common stock
65
associated with taxes on the vesting of share-based awards, mostly offset by the net proceeds from revolving and
term loans and the proceeds from the exercise of stock options.
Description of Our Indebtedness
Refer to Note 12 - Long-Term Debt, Net of Debt Issuance Costs and Current Maturities of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a description of our
indebtedness.
Other Contingencies
As of December 31, 2019, we were not involved in any material litigation. In the future, however, we may
become involved in various claims and legal actions arising in the ordinary course of business which may have a
material adverse effect on our consolidated financial position, results of operations or liquidity.
The wind blades and other composite structures that we produce are subject to warranties against defects in
workmanship and materials, generally for a period of two to five years. We are not responsible for the fitness for use
of the wind blade or the overall wind turbine system. If a wind blade is found to be defective during the warranty
period as a result of a defect in workmanship or materials, among other potential remedies, we may need to repair or
replace the wind blade (which could include significant transportation and installation costs) at our sole expense. At
December 31, 2019 and 2018, we had accrued warranty reserves totaling $47.6 million and $36.8 million,
respectively.
As of December 31, 2019, we had no material operating expenditures for environmental matters, including
government imposed remedial or corrective actions, during the year ended December 31, 2019.
Off-Balance Sheet Transactions
We are not presently involved in any off-balance sheet arrangements, including transactions with
unconsolidated special-purpose or other entities that would materially affect our financial position, results of
operations, liquidity or capital resources, other than our accounts receivable assignment agreements described
below. Furthermore, we do not have any relationships with special-purpose or other entities that provide off-balance
sheet financing; liquidity, market risk or credit risk support; or engage in leasing or other services that may expose
us to liability or risks of loss that are not reflected in consolidated financial statements and related notes.
Our Mexico segment has an existing accounts receivable assignment agreement with a financial institution
under which the financial institution buys, on a non-recourse basis, the accounts receivable amounts related to one of
our Mexico segment’s customers at a discount calculated based on an effective annual rate of LIBOR plus 2.75%.
In September 2018, our U.S. and Mexico segments entered into an accounts receivable assignment agreement,
as amended, with a financial institution. Under this agreement, the financial institution buys, on a non-recourse
basis, the accounts receivable amounts related to one of our U.S. (Iowa location) and Mexico segment’s customers
at a discount calculated based on LIBOR plus 1.25%.
In the fourth quarter of 2018, our EMEAI segment entered into an accounts receivable assignment agreement
with a financial institution. Under this agreement, the financial institution may buy, on a non-recourse revolving
basis, up to 15.0 million Euro (approximately $16.8 million as of December 31, 2019) of the accounts receivable
amounts related to one of our EMEAI segment’s customers at a discount calculated based on EURIBOR plus 2.65%.
In the fourth quarter of 2018, our EMEAI segment entered into an accounts receivable assignment agreement
with a financial institution. Under this agreement, the financial institution buys, on a non-recourse basis, the
accounts receivable amounts related to one of our EMEAI segment’s customers at a discount calculated based on
EURIBOR plus 0.75%.
In the first quarter of 2019, our Asia and Mexico segments entered into separate accounts receivable purchase
agreements, as amended, with a financial institution. Under these agreements, the financial institution may buy, on a
non-recourse basis, and hold outstanding at any time up to $60.0 million of a customer’s accounts receivable
amounts in our Asia segment and up to $30.0 million of a customer’s accounts receivable amounts in our Mexico
segment at a discount calculated based on the three month LIBOR plus 1.0% and the number of days from the date
of purchase to maturity.
66
In the second quarter of 2019, our Asia segment entered into an accounts receivable purchase agreement with
a financial institution. Under this agreement, the financial institution may buy, on a non-recourse basis, and hold
outstanding at any time up to $20.0 million of a customer’s accounts receivable amounts in our Asia segment at a
discount calculated based on the three month LIBOR plus 1.0% and the number of days from the date of purchase to
maturity.
In the fourth quarter of 2019, our Asia segment entered into an accounts receivable purchase agreement with a
financial institution. Under this agreement, the financial institution may buy, on a non-recourse basis, and hold
outstanding at any time an unlimited amount of a customer’s accounts receivable amounts in our Asia segment at a
discount calculated based on a fixed rate of 4.2% and the number of days from the date of purchase to maturity.
As the receivables are purchased by the financial institutions under the agreements as described in the
preceding paragraphs, the receivables were removed from our consolidated balance sheet. During the years ended
December 31, 2019 and 2018, $776.2 million and $214.6 million of receivables were sold under the accounts
receivable assignment agreements described above, respectively.
Contractual Obligations
The following table summarizes certain of our contractual obligations as of December 31, 2019:
Payments Due by Period
Less than 1
year
1-3 years
3-5 years
(in thousands)
More than 5
years
Total
Long-term debt obligations(1)
Operating lease obligations(2)
Purchase obligations
Estimated interest payments(3)
Total contractual obligations
$ 13,501 $ 14,649 $ 113,911 $
25,425 44,287 38,497
1,429
1,887
— $ 142,061
66,584 174,793
—
7,895
— 14,540
$ 46,371 $ 70,610 $ 155,724 $ 66,584 $ 339,289
3,668
8,006
2,798
4,647
(1) See “—Description of Our Indebtedness” above.
(2) Our operating lease obligations represent the contractual payments due for the lease of our corporate office in
Scottsdale, Arizona in addition to our facilities in Iowa, Rhode Island, New Mexico, China, Mexico, Turkey
and Denmark.
Includes interest on variable rate debt based on interest rates as of December 31, 2019. See “—Description of
Our Indebtedness” above.
(3)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amount of our
assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We evaluate our
estimates on an ongoing basis, including those related to income taxes and warranty expense. We base our estimates
on our historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making the judgments we make about the carrying values of
our assets and liabilities that are not readily apparent from other sources. Because these estimates can vary
depending on the situation, actual results may differ from the estimates.
We believe the following critical accounting policies affect our more significant judgments used in the
preparation of our consolidated financial statements.
Revenue Recognition. The majority of our revenue is generated from long-term contracts associated with
manufacturing of wind blades and related services. We account for a long-term contract when it has the approval
from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial
substance and the collectability of consideration is probable.
67
To determine the proper revenue recognition method for each long-term contract, we evaluate whether the
original contract should be accounted for as one or more performance obligations. This evaluation requires judgment
and the decisions reached could change the amount of revenue and gross profit recorded in a given period. As most
of our contracts contain multiple performance obligations, we allocate the total transaction price to each
performance obligation based on the estimated relative standalone selling prices of the promised goods or services
underlying each performance obligation. Our manufacturing services are customer specific and involve production
of items that cannot be sold to other customers due to the customers’ protected intellectual property; therefore, we
allocate the total transaction price under our contracts with multiple performance obligations using the contractually
stated prices, as these prices represent the relative standalone selling price based on an expected cost plus margin
model.
Revenue is primarily recognized over time as we have an enforceable right to payment upon termination and
we may not use or sell the product to fulfill other customers’ contracts. In addition, the customer does not have
return or refund rights for items produced that conform to the specifications included in the contract. Because
control transfers over time, revenue is recognized based on the extent of progress towards the completion of the
performance obligation. We use the cost-to-cost input measure of progress for our contracts as this method provides
the best representation of the production progress towards satisfaction of the performance obligation as the materials
are distinct to the product being manufactured because of customer specifications provided for in the contract, the
costs incurred are proportional to the progress towards completion of the product, and the products do not involve
significant pre-fabricated component parts. Under the cost-to-cost method, progress and the related revenue
recognition is determined by a ratio of direct costs incurred to date in fulfillment of the performance obligation to
the total estimated direct costs required to complete the performance obligation.
Determining the revenue to be recognized for services performed under our manufacturing contracts involves
judgments and estimates relating to the total consideration to be received and the expected direct costs to complete
the performance obligation. As such, revenue recognized reflects our estimates of future contract volumes and the
direct costs to complete the performance obligation. The judgments and estimates relating to the total consideration
to be received include the amount of variable consideration as our contracts typically provide the customer with a
range of production output options from guaranteed minimum volume obligations to the production capacity of the
facility, and customers will provide periodic non-cancellable commitments for the number of wind blades to be
produced over the term of the agreement. The total consideration also includes payments expected to be received
associated with wind blade model transitions. We use historical experience, customer commitments and forecasted
future production based on the capacity of the plant to estimate the total revenue to be received to complete the
performance obligation. In addition, the amount of revenue per unit produced may vary based on the costs of
production of the wind blades as we may be able to change the price per unit based on changes in the cost of
production. Further, some of our contracts provide opportunities for us to share in labor and material cost savings as
well as absorb some additional costs as an incentive for more efficient production, both of which impact the margin
realized on the contract and ultimately the total amount of revenue to be recognized. Additionally, certain of our
customer contracts provide for us to make concessions, such as in the form of liquidated damages, for missed
production deadlines which are paid over a negotiated timeline.
We estimate variable consideration at the most likely amount to which we expect to be entitled. We include
estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our
estimates of variable consideration and determination of whether to include estimated amounts in the transaction
price are based largely on an assessment of our anticipated performance and all information available to us at the
time of the estimate and may materially change as additional information becomes known.
Our contracts may be modified to account for changes in specifications of products and changing
requirements. If the contract modifications are for goods or services that are not distinct from the existing contract,
they are accounted for as if they were part of the original contract. The effect of a contract modification on the
transaction price and the measure of progress for the performance obligation to which it relates is recognized as an
adjustment to revenue on a cumulative catch-up basis. If contract modifications are for goods and services that are
distinct from the existing contract and increases the amount of consideration reflecting the standalone sale price of
the additional goods or services, then the contract modification is accounted for as a separate contract and is
evaluated for one or more performance obligations.
68
Each reporting period, we evaluate the progress towards satisfaction of each performance obligation based on
any contract modifications that have occurred, cost incurred to date, and an estimate of the expected future revenue
and costs to be incurred to complete the performance obligation. Based on this analysis, any changes in estimates of
revenue, cost of sales, contract assets and liabilities and the related impact to operating income are recognized on a
cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current
and prior periods based on the percentage of completion of the performance obligation.
Wind blade pricing is based on annual commitments of volume as established in our customer contracts and
orders less than committed volume may result in a higher price per wind blade to our customers. Orders in excess of
annual commitments may result in discounts to our customers from the contracted price for the committed volume.
Our customers typically provide periodic purchase orders with the price per wind blade given the current cost of the
bill of materials, labor requirements and volume desired. We record an allowance for expected utilization of early
payment discounts which are reported as a reduction of the related revenue.
Precision molding and assembly systems included in a customer’s contract are based upon the specific
engineering requirements and design determined by the customer and are specific to the wind blade design and
function desired. From the customer’s engineering specifications, a job cost estimate is developed along with a
production plan, and the desired margin is applied based on the location the work is to be performed and complexity
of the customer’s design. Precision molding and assembly systems are generally built to produce wind blades which
may be manufactured by us in production runs specified in the customer contract.
Contract assets primarily relate to our rights to consideration for work completed but not billed at the reporting
date on manufacturing services contracts. The majority of the contract asset balance relates to materials procured
based on customer specifications. The contract assets are transferred to accounts receivable when the rights become
unconditional, which generally occurs when customers are invoiced upon the determination that a product conforms
to the contract specifications and invoices are due based on each customer’s negotiated payment terms, which, when
factoring in supply chain financing arrangements, range from 5 to 25 days. We apply the practical expedient that
allows us to exclude payment terms under one year from the transfer of a promised good or service from
consideration of a significant financing component in its contracts. With regards to the production of precision
molding and assembly systems, our contracts generally call for progress payments to be made in advance of
production. Generally, payment is made at certain percentage of completion milestones with the final payment due
upon delivery to the manufacturing facility. These progress payments are recorded within contract liabilities as
current liabilities in the consolidated balance sheets and are reduced as we record revenue over time. We evaluate
indications that a customer may not be able to meet the obligations under our long-term supply agreements to
determine if an account receivable or contract asset may be impaired.
Our customers may request, in situations where they do not have space available to receive products or do not
want to take possession of products immediately for other reasons, that their finished products be stored by us in one
of our facilities. Most of our contracts provide for a limited number of wind blades to be stored during the period of
the contract with any additional wind blades stored subject to additional storage fees, which are included in the wind
blade product revenue.
Revenue related to non-recurring engineering and freight services provided under our customer contracts is
recognized at a point in time following the transfer of control of the promised services to the customer. Customers
usually pay the carrier directly for the cost of shipping associated with items produced. When we pay the shipping
costs, we apply the practical expedient that allows us to account for shipping and handling as a fulfillment costs and
include the revenue in the associated performance obligation and the costs are included in cost of goods sold.
Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue-
producing transactions, that are collected by us from a customer, are excluded from revenue.
Income Taxes. In connection with preparing our consolidated financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process involves our assessment of any net
operating loss carryforwards, as well as estimating our actual current tax liability together with assessing temporary
differences resulting from differing treatment of items, such as reserves and accrued liabilities, for tax and
accounting purposes. We also have to assess whether any portion of our earnings generated in one taxing
jurisdiction might be claimed as earned by income tax authorities in a differing tax jurisdiction. Significant judgment
69
is required in determining our annual tax rate, the allocation of earnings to various jurisdictions and in the evaluation
of our tax positions.
Additionally, we record the estimated future tax effects of temporary differences between the tax basis of
assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating
loss and tax credit carryforwards. We then assess the likelihood that our deferred income tax assets will be realized
by evaluating all available positive and negative evidence in order to determine if it is more-likely-than-not that the
deferred tax assets will be realized. To the extent we believe that the realization of our deferred tax assets is not
more-likely-than-not, we are required to establish a valuation allowance. In doing so we considered our recent
operating history, taxpaying history and future reversals of deferred tax liabilities based upon future operating
projections. Historically, as a result of cumulative losses in the United States, we determined that a valuation
allowance for all of our U.S. deferred tax assets was appropriate. During the third quarter of 2018, we reversed a
portion of the United States valuation allowance, based on the available evidence at that time. During the first
quarter of 2019, a full valuation allowance was recorded in Taicang due to cumulative losses in Taicang. We also
maintain a full valuation allowance in India due to cumulative losses. We periodically evaluate all available positive
and negative evidence regarding the future recoverability of our deferred tax assets and, when we determine that the
recoverability of deferred tax assets meets the criteria of more-likely-than-not, we reduce the valuation allowance
against our deferred tax assets. The effect of a change in judgment concerning the realizability of deferred tax assets
is included in provision for income taxes.
As of December 31, 2019, we have U.S. federal NOLs of approximately $20.9 million, state NOLs of
approximately $158.0 million, foreign NOLs of approximately $31.3 million and foreign tax credits of
approximately $1.9 million available to offset future taxable income in the U.S., China and India.
On December 22, 2017, the current President signed into law Tax Reform, which significantly revised U.S.
tax law by, among other things, lowering the statutory federal corporate income tax rate from 35% to 21% for tax
years beginning after December 31, 2017, eliminating certain deductions, imposing a mandatory one-time transition
tax, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. Tax Reform also
includes many new provisions, such as changes to bonus depreciation, changes to deductions for executive
compensation, interest expense limitations, net operating loss deduction limitations, tax on GILTI earned by foreign
corporate subsidiaries, the BEAT, and a deduction for FDII.
At December 31, 2018, we completed the accounting for the enactment-date income tax effects of Tax
Reform, which resulted in an immaterial impact to the financial statements. Upon further analyses of certain aspects
of Tax Reform, and refinement of calculations during 2018, we increased our provisional amount of previously
untaxed foreign earnings by $13.8 million, to $88.1 million. This resulted in no change to our U.S. federal income
tax expense due to the impact of foreign tax credits. In addition, the provisional net tax expense, which was
estimated at approximately $0.1 million, primarily attributable to the reduction in the federal tax rate, was
unchanged. Additionally, we have made a policy election to account for any impacts of GILTI tax in the period in
which it is incurred.
Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits
reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the U.S. and
numerous foreign jurisdictions in which we operate, principally, China, Mexico, and Turkey. Significant judgements
and estimates are required in determining our consolidated income tax expense. The statutory federal corporate
income tax rate in the U.S. decreased from 35% to 21% beginning in January 2018, while the tax rates in China and
Mexico are 25% and 30%, respectively. During the fourth quarter of 2017, Turkey also modified its statutory
corporate income tax rate from 20% to 22% for 2018, 2019, and 2020. Our second Turkey facility is located in a
tax-free zone and is not subject to income taxes for its earnings recognized from its manufacturing activities.
Warranty Expense. As discussed above, the wind blades we manufacture are subject to warranties against
defects in workmanship and materials, generally for a period of two to five years. We are not responsible for the
fitness for use of the wind blade in the overall wind turbine system. If a wind blade is found to be defective during
the warranty period as a result of a defect in workmanship or materials, among other potential remedies, we may
need to repair or replace the wind blade at our sole expense. We provide warranties for all of our products with
terms and conditions that vary depending on the product sold. We record warranty expense based upon our estimate
70
of future repairs using a probability-based methodology that considers previous warranty claims, identified quality
issues and industry practices. Once the warranty period has expired, any remaining unused warranty accrual for the
specific products is reversed against the current year warranty expense amount.
Our estimate of warranty expense requires us to make assumptions about matters that are highly uncertain,
including future rates of product failure, repair costs, availability of materials, shipping and handling, and de-
installation and re-installation costs at customers’ sites, among others. When a potential or actual warranty claim
arises, we may accrue additional warranty reserves for the estimated cost of remediation or proposed settlement. We
have not experienced any material warranty expenses beyond the provision described above in the years ended
December 31, 2019, 2018 and 2017. However, changes in warranty reserves could have a material effect on our
consolidated financial statements.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1 – Summary of Significant Accounting
Policies of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of our business. These market risks are principally
limited to changes in foreign currency exchange rates and commodity prices.
Foreign Currency Risk. We conduct international operations in China, Mexico, Turkey and India. Our results
of operations are subject to both currency transaction risk and currency translation risk. We incur currency
transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local
currency of the transacting entity. With respect to currency translation risk, our financial condition and results of
operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars for
inclusion in our consolidated financial statements. In recent years, exchange rates between these foreign currencies
and the U.S. dollar have fluctuated significantly and may do so in the future. A hypothetical change of 10% in the
exchange rates for the countries above would have resulted in a change to income from operations of approximately
$10.9 million and $7.4 million for the years ended December 31, 2019 and 2018, respectively.
Commodity Price Risk. We are subject to commodity price risk under agreements for the supply of our raw
materials. We have not hedged our commodity price exposure. We generally lock in pricing for our key raw
materials for 12 months which protects us from price increases within that period. As many of our raw material
supply agreements have meet or release clauses, if raw materials prices go down, we are able to benefit from the
reductions in price. We believe that this adequately protects us from increases in raw material prices and also
enables us to take full advantage of decreases.
Resin and resin systems are the primary commodities for which we do not have fixed pricing. Approximately
40% of the resin and resin systems we use are purchased under contracts controlled by two of our customers and
therefore they receive/bear 100% of any increase or decrease in resin costs further limiting our exposure to price
fluctuations. We believe that a 10% change in the price of resin and resin systems for the customers in which we are
exposed to fluctuating prices would have had an impact to income from operations of approximately $9.3 million
and $7.6 million for the years ended December 31, 2019 and 2018, respectively. Furthermore, this amount does not
include the portion of any increase or decrease that would be shared with our customers under our long-term supply
agreements, which is generally 70%.
Interest Rate Risk. As of December 31, 2019, our EMEAI segment has one general credit agreement with a
Turkish financial institution outstanding which is tied to EURIBOR. This agreement had collateralized financing of
capital expenditures outstanding as of December 31, 2019 of $7.9 million. In addition, as of December 31, 2019, our
Credit Agreement includes interest on the unhedged principal amount of $37.4 million which is tied to LIBOR. The
one EMEAI general credit agreement and our Credit Agreement noted above are the only variable rate debt that we
had outstanding as of December 31, 2019 as all remaining working capital loans, accounts receivable, secured and
unsecured financing and finance lease obligations are fixed rate instruments and are not subject to fluctuations in
interest rates. Due to the relatively low LIBOR and EURIBOR rates in effect as of December 31, 2019, a 10%
71
change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or
cash flows.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Report. An index of
those financial statements is found in Item 15.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that
information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and
reported within the time period specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of
December 31, 2019 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2019.
Management’s Report on Internal Control Over Financial Reporting
As required by Rules 13a-15(f) promulgated under the Exchange Act, our management is responsible for
establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. Management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2019. Management based its assessment on criteria
established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Management's assessment included evaluation of elements such as the
design and operating effectiveness of key financial reporting controls, process documentation, accounting policies
and our overall control environment. Based on this assessment, management has concluded that our internal control
over financial reporting was effective as of December 31, 2019 to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles. We reviewed the results of management's
assessment with the Audit Committee of our Board of Directors.
Our internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended
December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information
Not applicable.
72
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference to “Business – Information about our
Executive Officers” included in Part 1, Item 1 of this Annual Report on Form 10-K and the information that will be
contained in our proxy statement related to the 2020 Annual Meeting of Stockholders, which we intend to file with
the SEC within 120 days of the fiscal year ended December 31, 2019.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the information that will be contained in
our proxy statement related to the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC
within 120 days of the fiscal year ended December 31, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated by reference to the information that will be contained in
our proxy statement related to the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC
within 120 days of the fiscal year ended December 31, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the information that will be contained in
our proxy statement related to the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC
within 120 days of the fiscal year ended December 31, 2019.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the information that will be contained in
our proxy statement related to the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC
within 120 days of the fiscal year ended December 31, 2019.
73
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements and Schedules
PART IV
The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as
part of this Annual Report on Form 10-K.
(b) Exhibits
See Exhibit Index.
Item 16. Form 10-K Summary
Not applicable.
74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-
10
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, 2018 and 2017 .......................
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and
2017 .................................................................................................................................................................
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31,
2019, 2018 and 2017 ........................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 ......................
Notes to Consolidated Financial Statements ........................................................................................................
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
TPI Composites, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of TPI Composites, Inc. and
subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of
operations, comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 2019, and the related notes (collectively,
the consolidated financial statements). We also have audited the Company’s internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above 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 each of the years in the three-year period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Adoption of New Accounting Pronouncement
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019, the Company
changed its method of accounting for leases due to the adoption of Financial Accounting Standards
Board Accounting Standard Codification Topic 842, Leases.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
consolidated financial statements and an opinion on the Company’s internal control over financial
reporting 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 the 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 audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included
F-2
performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgment. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Evaluation of variable consideration and direct costs to complete performance obligations for
wind blade manufacturing revenue
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company generates
the majority of its revenue from long-term contracts associated with manufacturing custom wind
blades. Revenue from manufacturing wind blades is primarily recognized over time based on
progress towards the completion of the performance obligation in the contract. Progress is
determined by the ratio of direct costs incurred to date in fulfillment of the performance obligation
to the total estimated direct costs required to complete the performance obligation. The Company
recognizes variable consideration for wind blade manufacturing revenue that includes estimates
of future contract volumes. Wind blade manufacturing revenue under long-term contracts was
$1,328,717 thousand compared to consolidated revenue of $1,436,500 thousand in fiscal 2019.
We identified the evaluation of future contract volumes and direct costs to complete performance
obligations for wind blade manufacturing revenue as a critical audit matter. Evaluating these
estimates requires a high degree of auditor judgment as changes to the inputs can have a
significant effect on the Company’s revenue. Each wind blade contract contains variable
consideration that includes estimates of future contract volumes. Each wind blade contract also
requires a measure of progress that includes estimates of direct costs to complete the
performance obligations.
F-3
The primary procedures we performed to address this critical audit matter included the following.
We tested certain internal controls over the Company’s revenue recognition process, including
controls related to estimates of future contract volumes and direct costs to complete the
performance obligation. We read a sample of long-term customer contracts, and observed that
terms, conditions, and key elements of the contracts were included in the Company’s estimate of
future contract volumes. We evaluated the Company’s ability to estimate future contract volumes
and direct costs to complete the performance obligations by comparing these estimates to
historical results. We evaluated estimated future contract volumes by assessing (1)
manufacturing plant capacity, (2) historical production volume, and (3) customer purchase
commitments. We evaluated estimated direct costs to complete the performance obligations by
examining the estimated amounts agreed upon with the customer and comparing them to
historical prices. We compared the future direct cost per blade to historical direct costs per blade
and assessed future manufacturing efficiencies. Further, we evaluated historical labor utilization
and rate per hour by wind blade type and manufacturing plant, and analyzed jurisdiction-specific
inflation rates based on publicly available government data. We assessed current period revenue
based upon the estimated consideration, the ratio of direct costs incurred to date in fulfillment of
the performance obligations to the total estimated direct costs required to complete the
performance obligations, and revenue recognized in previous periods for the performance
obligations.
We have served as the Company’s auditor since 2008.
Phoenix, Arizona
February 28, 2020
/s/ KPMG LLP
F-4
TPI COMPOSITES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Contract assets
Prepaid expenses
Other current assets
Inventories
Total current assets
Property, plant and equipment, net
Operating lease right of use assets
Goodwill
Intangible assets and deferred costs, net
Other noncurrent assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Accrued warranty
Current maturities of long-term debt
Current operating lease liabilities
Contract liabilities
Total current liabilities
Long-term debt, net of debt issuance costs and current maturities
Noncurrent operating lease liabilities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common shares, $0.01 par value, 100,000 shares authorized and 35,326
shares issued and 35,181 shares outstanding at December 31, 2019;
100,000 shares authorized and 34,745 shares issued and 34,678 shares
outstanding at December 31, 2018
Paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Treasury stock, at cost, 145 shares at December 31, 2019; 67 shares at
December 31, 2018
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2019
2018
70,282 $
992
184,012
166,515
10,047
29,843
6,731
468,422
205,007
122,351
2,807
4,170
23,920
826,677 $
293,104 $
47,639
13,501
16,629
3,008
373,881
127,888
113,883
5,975
621,627
85,346
3,555
176,815
116,708
9,219
16,819
5,735
414,197
159,423
—
2,807
4,458
23,970
604,855
199,078
36,765
27,058
—
7,143
270,044
110,565
—
3,289
383,898
353
322,906
(23,612 )
(90,689 )
(3,908 )
205,050
826,677 $
347
311,771
(14,392 )
(74,981 )
(1,788 )
220,957
604,855
$
$
$
$
See accompanying notes to consolidated financial statements.
F-5
TPI COMPOSITES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
Net sales
Cost of sales
Startup and transition costs
Total cost of goods sold
Gross profit
General and administrative expenses
Realized loss on sale of assets and asset impairments
Restructuring charges, net
Income from operations
Other income (expense):
Interest income
Interest expense
Loss on extinguishment of debt
Realized loss on foreign currency remeasurement
Miscellaneous income
Total other expense
Income before income taxes
Income tax benefit (provision)
Net income (loss)
Weighted-average common shares outstanding:
Basic
Diluted
Net income (loss) per common share:
Basic
Diluted
Year Ended December 31,
2018
2019
$ 1,436,500 $ 1,029,624 $
882,075
74,708
956,783
72,841
43,542
4,581
—
24,718
1,290,619
68,033
1,358,652
77,848
39,916
18,117
3,927
15,888
157
(8,179 )
—
(4,107 )
3,648
(8,481 )
7,407
(23,115 )
(15,708 ) $
181
(10,417 )
(3,397 )
(13,489 )
4,650
(22,472 )
2,246
3,033
5,279 $
$
2017
955,198
804,099
40,628
844,727
110,471
40,373
—
—
70,098
95
(12,381 )
—
(4,471 )
1,191
(15,566 )
54,532
(15,798 )
38,734
35,062
35,062
34,311
36,002
33,844
34,862
$
$
(0.45 ) $
(0.45 ) $
0.15 $
0.15 $
1.14
1.11
See accompanying notes to consolidated financial statements.
F-6
TPI COMPOSITES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
$
Year Ended December 31,
2018
2017
5,279 $
38,734
2019
(15,708 ) $
Foreign currency translation adjustments
Unrealized gain (loss) on hedging derivatives, net of taxes
of $(585) and $158 for the years ended December 31, 2019
and 2018
Comprehensive income (loss)
(7,026 )
(14,428 )
3,304
(2,194 )
(24,928 ) $
594
(8,555 ) $
—
42,038
$
See accompanying notes to consolidated financial statements.
F-7
TPI COMPOSITES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands)
Balance at December 31, 2016
Cumulative-effect adjustment of the
adoption of ASU 2016-09 on
January 1, 2017
Net income
Other comprehensive income
Common stock repurchased
Issuances under share-based
compensation plan
Share-based compensation expense
Balance at December 31, 2017
Net income
Other comprehensive loss
Common stock repurchased
Issuances under share-based
compensation plan
Share-based compensation expense
Balance at December 31, 2018
Net loss
Other comprehensive loss
Common stock repurchased
Issuances under share-based
compensation plan
Share-based compensation expense
Balance at December 31, 2019
Common
Paid-in
Shares Amount capital
33,737 $ 337 $ 292,833 $
comprehensive Accumulated
income (loss) deficit
(3,862 ) $ (117,908 ) $ — $ 171,400
Treasury
stock,
at cost
Total
stockholders'
equity
(deficit)
Accumulated
other
— —
— —
— —
— —
1,072
—
—
—
—
—
3,304
—
(1,086 ) —
38,734 —
— —
— (1,264 )
(14 )
38,734
3,304
(1,264 )
312
3
674
6,964
— —
34,049 340 301,543
—
— —
—
— —
—
— —
2,695
696
7
— —
7,533
34,745 347 311,771
—
— —
—
— —
—
— —
—
—
(558 )
—
(13,834 )
—
—
—
(14,392 )
—
(9,220 )
—
(80,260 )
—
753
— —
1,430
6,964
(511 ) 220,554
5,279
(13,834 )
(2,859 )
5,279 —
— —
— (2,859 )
— 1,582
— —
4,284
7,533
(74,981 ) (1,788 ) 220,957
(15,708 )
(15,708 ) —
(9,220 )
— —
(2,120 )
— (2,120 )
5,291
581
6
— —
5,844
35,326 $ 353 $ 322,906 $
—
—
(23,612 ) $
—
— —
5,297
5,844
(90,689 ) $ (3,908 ) $ 205,050
See accompanying notes to consolidated financial statements.
F-8
TPI COMPOSITES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
2019
Year Ended December 31,
2018
2017
$
(15,708 ) $
5,279
$
38,734
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization
Realized loss on sale of assets and asset impairments
Restructuring charges, net
Share-based compensation expense
Amortization of debt issuance costs
Loss on extinguishment of debt
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable
Contract assets and liabilities
Operating lease right of use assets and operating lease liabilities
Inventories
Prepaid expenses
Other current assets
Other noncurrent assets
Accounts payable and accrued expenses
Accrued warranty
Other noncurrent liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Acquisition of a business
Proceeds from sale of assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from revolving and term loans
Repayments of revolving and term loans
Net proceeds from (repayments of) accounts receivable financing
Proceeds from working capital loans
Repayments of working capital loans
Principal repayments of finance leases
Net proceeds from (repayments of) other debt
Debt issuance costs
Proceeds from exercise of stock options
Repurchase of common stock including shares withheld in lieu of income
taxes
Net cash provided by (used in) financing activities
Impact of foreign exchange rates on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net
Supplemental disclosures of noncash investing and financing activities:
Accrued capital expenditures in accounts payable
$
$
38,580
18,117
3,927
5,681
206
—
4,951
(19,366 )
(57,583 )
6,953
(1,145 )
(1,052 )
(13,692 )
(7,177 )
80,720
10,874
2,798
57,084
(74,408 )
(1,102 )
—
(75,510 )
22,000
—
(10,719 )
3,535
(3,535 )
(9,128 )
(4,286 )
—
5,223
(2,120 )
970
(171 )
(17,627 )
89,376
71,749
$
8,190
18,640
$
26,429
4,581
—
7,795
336
3,397
(14,912 )
(59,200 )
(7,898 )
—
(1,685 )
1,318
(132 )
(5,167 )
32,263
6,346
(2,008 )
(3,258 )
(52,688 )
—
—
(52,688 )
89,435
(74,972 )
424
—
—
—
(23,763 )
(281 )
4,284
(2,859 )
(7,732 )
617
(63,061 )
152,437
89,376
$
$
9,904
7,246
14,644
5,139
21,698
334
—
7,124
573
-
1,650
(54,227 )
(4,423 )
—
964
(1,724 )
4,874
2,816
51,474
9,330
(4,597 )
74,600
(44,828 )
—
850
(43,978 )
—
(3,750 )
(1,020 )
9,936
(14,574 )
—
1,313
(454 )
1,430
(1,264 )
(8,383 )
335
22,574
129,863
152,437
11,803
17,263
5,725
See accompanying notes to consolidated financial statements.
F-9
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary of Operations and Significant Accounting Policies
(a) Description of Business
TPI Composites, Inc. is the holding company that conducts substantially all of its business operations through
its direct and indirect subsidiaries (collectively, the Company or we). The Company was founded in 1968 and has
been producing composite wind blades since 2001. The Company’s knowledge and experience of composite
materials and manufacturing originates with its predecessor company, Tillotson Pearson Inc., a leading manufacturer
of high-performance sail and powerboats along with a wide range of composite structures used in other industrial
applications. Following the separation from the boat building business in 2004, the Company reorganized in
Delaware as LCSI Holding, Inc. and then changed its corporate name to TPI Composites, Inc. in 2008. Today, the
Company is headquartered in Scottsdale, Arizona and has expanded its global footprint to include domestic facilities
in Newton, Iowa; Warren, Rhode Island and Santa Teresa, New Mexico and international facilities in Dafeng,
China; Taicang Port, China; Yangzhou, China, Juárez, Mexico; Matamoros, Mexico; Izmir, Turkey; Chennai, India,
Kolding, Denmark and Berlin, Germany.
(b) Basis of Presentation
We divide our business operations into four geographic operating segments—the United States (U.S.), Asia,
Mexico and Europe, the Middle East, Africa and India (EMEAI), as follows:
•
•
•
•
Our U.S. segment includes (1) the manufacturing of wind blades at our Newton, Iowa plant, (2) the
manufacturing of precision molding and assembly systems used to manufacture wind blades at our
Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation
industry, which we also conduct at our Rhode Island facility, (4) wind blade inspection and repair
services in North America, (5) our advanced engineering center in Kolding, Denmark, which provides
technical and engineering resources to our manufacturing facilities, (6) our engineering center in Berlin,
Germany which we purchased in July 2019 and (7) our corporate headquarters, the costs of which are
included in general and administrative expenses.
Our Asia segment includes (1) the manufacturing of wind blades at our facilities in Dafeng, China and
Yangzhou, China, the latter of which commenced operations in March 2019, (2) the manufacturing of
precision molding and assembly systems at our Taicang Port, China facility and (3) wind blade
inspection and repair services.
Our Mexico segment manufactures wind blades from three facilities in Juárez, Mexico and a facility in
Matamoros, Mexico at which we commenced operations in July 2018. In November 2018, we entered
into a new lease agreement with a third party for a new precision molding and assembly systems
manufacturing facility in Juárez, Mexico and we commenced operations at this facility in March 2019.
This segment also performs wind blade inspection and repair services.
Our EMEAI segment manufactures wind blades from two facilities in Izmir, Turkey and also performs
wind blade inspection and repair services. In February 2019, we entered into a new lease agreement
with a third party for a new manufacturing facility that was built in Chennai, India and we commenced
operations at this facility in the first quarter of 2020. This segment also performs wind blade inspection
and repair services.
The accompanying consolidated financial statements include the accounts of TPI Composites, Inc. and all
majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain
prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to
conform to the current period’s presentation.
(c) Public Offering
In May 2017, we completed a secondary public offering of 5,075,000 shares of our common stock at a price of
$16.35 per share, which included 575,000 shares issued pursuant to the underwriters’ option to purchase additional
F-10
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
shares. All of the shares were sold by existing stockholders and certain of our executive officers. The selling
stockholders received all of the net proceeds of $78.8 million from the secondary public offering. We did not sell
any shares and did not receive any of the proceeds from the offering and the costs paid by us in connection with the
offering of $0.8 million were recorded in general and administrative costs in the accompanying consolidated
statement of operations.
(d) Revenue Recognition
The majority of our revenue is generated from long-term contracts associated with manufacturing of wind
blades and related services. We account for a long-term contract when it has the approval from both parties, the
rights of the parties are identified, payment terms are established, the contract has commercial substance and the
collectability of consideration is probable.
To determine the proper revenue recognition method for each long-term contract, we evaluate whether the
original contract should be accounted for as one or more performance obligations. This evaluation requires judgment
and the decisions reached could change the amount of revenue and gross profit recorded in a given period. As most
of our contracts contain multiple performance obligations, we allocate the total transaction price to each
performance obligation based on the estimated relative standalone selling prices of the promised goods or services
underlying each performance obligation. Our manufacturing services are customer specific and involve production
of items that cannot be sold to other customers due to the customers’ protected intellectual property; therefore, we
allocate the total transaction price under our contracts with multiple performance obligations using the contractually
stated prices, as these prices represent the relative standalone selling price based on an expected cost plus margin
model.
Revenue is primarily recognized over time as we have an enforceable right to payment upon termination and
we may not use or sell the product to fulfill other customers’ contracts. In addition, the customer does not have
return or refund rights for items produced that conform to the specifications included in the contract. Because
control transfers over time, revenue is recognized based on the extent of progress towards the completion of the
performance obligation. We use the cost-to-cost input measure of progress for our contracts as this method provides
the best representation of the production progress towards satisfaction of the performance obligation as the materials
are distinct to the product being manufactured because of customer specifications provided for in the contract, the
costs incurred are proportional to the progress towards completion of the product, and the products do not involve
significant pre-fabricated component parts. Under the cost-to-cost method, progress and the related revenue
recognition is determined by a ratio of direct costs incurred to date in fulfillment of the performance obligation to
the total estimated direct costs required to complete the performance obligation.
Determining the revenue to be recognized for services performed under our manufacturing contracts involves
judgments and estimates relating to the total consideration to be received and the expected direct costs to complete
the performance obligation. As such, revenue recognized reflects our estimates of future contract volumes and the
direct costs to complete the performance obligation. The judgments and estimates relating to the total consideration
to be received include the amount of variable consideration as our contracts typically provide the customer with a
range of production output options from guaranteed minimum volume obligations to the production capacity of the
facility, and customers will provide periodic non-cancellable commitments for the number of wind blades to be
produced over the term of the agreement. The total consideration also includes payments expected to be received
associated with wind blade model transitions. We use historical experience, customer commitments and forecasted
future production based on the capacity of the plant to estimate the total revenue to be received to complete the
performance obligation. In addition, the amount of revenue per unit produced may vary based on the costs of
production of the wind blades as we may be able to change the price per unit based on changes in the cost of
production. Further, some of our contracts provide opportunities for us to share in labor and material cost savings as
well as absorb some additional costs as an incentive for more efficient production, both of which impact the margin
realized on the contract and ultimately the total amount of revenue to be recognized. Additionally, certain of our
customer contracts provide for us to make concessions, such as in the form of liquidated damages, for missed
production deadlines which are paid over a negotiated timeline.
We estimate variable consideration at the most likely amount to which we expect to be entitled. We include
estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our
F-11
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
estimates of variable consideration and determination of whether to include estimated amounts in the transaction
price are based largely on an assessment of our anticipated performance and all information available to us at the
time of the estimate and may materially change as additional information becomes known.
Our contracts may be modified to account for changes in specifications of products and changing
requirements. If the contract modifications are for goods or services that are not distinct from the existing contract,
they are accounted for as if they were part of the original contract. The effect of a contract modification on the
transaction price and the measure of progress for the performance obligation to which it relates is recognized as an
adjustment to revenue on a cumulative catch-up basis. If contract modifications are for goods and services that are
distinct from the existing contract and increases the amount of consideration reflecting the standalone sale price of
the additional goods or services, then the contract modification is accounted for as a separate contract and is
evaluated for one or more performance obligations.
Each reporting period, we evaluate the progress towards satisfaction of each performance obligation based on
any contract modifications that have occurred, cost incurred to date, and an estimate of the expected future revenue
and costs to be incurred to complete the performance obligation. Based on this analysis, any changes in estimates of
revenue, cost of sales, contract assets and liabilities and the related impact to operating income are recognized on a
cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current
and prior periods based on the percentage of completion of the performance obligation.
Wind blade pricing is based on annual commitments of volume as established in our customer contracts and
orders less than committed volume may result in a higher price per wind blade to our customers. Orders in excess of
annual commitments may result in discounts to our customers from the contracted price for the committed volume.
Our customers typically provide periodic purchase orders with the price per wind blade given the current cost of the
bill of materials, labor requirements and volume desired. We record an allowance for expected utilization of early
payment discounts which are reported as a reduction of the related revenue.
Precision molding and assembly systems included in a customer’s contract are based upon the specific
engineering requirements and design determined by the customer and are specific to the wind blade design and
function desired. From the customer’s engineering specifications, a job cost estimate is developed along with a
production plan, and the desired margin is applied based on the location the work is to be performed and complexity
of the customer’s design. Precision molding and assembly systems are generally built to produce wind blades which
may be manufactured by us in production runs specified in the customer contract.
Contract assets primarily relate to our rights to consideration for work completed but not billed at the reporting
date on manufacturing services contracts. The contract assets are transferred to accounts receivable when the rights
become unconditional, which generally occurs when customers are invoiced upon the determination that a product
conforms to the contract specifications and invoices are due based on each customer’s negotiated payment terms,
which, when factoring in supply chain financing arrangements, range from 5 to 25 days. We apply the practical
expedient that allows us to exclude payment terms under one year from the transfer of a promised good or service
from consideration of a significant financing component in its contracts. With regards to the production of precision
molding and assembly systems, our contracts generally call for progress payments to be made in advance of
production. Generally, payment is made at certain percentage of completion milestones with the final payment due
upon delivery to the manufacturing facility. These progress payments are recorded within contract liabilities as
current liabilities in the consolidated balance sheets and are reduced as we record revenue over time. We evaluate
indications that a customer may not be able to meet the obligations under our long-term supply agreements to
determine if an account receivable or contract asset may be impaired.
Our customers may request, in situations where they do not have space available to receive products or do not
want to take possession of products immediately for other reasons, that their finished products be stored by us in one
of our facilities. Most of our contracts provide for a limited number of wind blades to be stored during the period of
the contract with any additional wind blades stored subject to additional storage fees, which are included in the wind
blade product revenue.
Revenue related to non-recurring engineering and freight services provided under our customer contracts is
recognized at a point in time following the transfer of control of the promised services to the customer. Customers
F-12
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
usually pay the carrier directly for the cost of shipping associated with items produced. When we pay the shipping
costs, we apply the practical expedient that allows us to account for shipping and handling as a fulfillment costs and
include the revenue in the associated performance obligation and the costs are included in cost of goods sold.
Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue-
producing transactions, that are collected by us from a customer, are excluded from revenue.
(e) Cost of Goods Sold
Cost of goods sold includes the costs we incur at our production facilities to make products saleable on both
products invoiced during the period as well as products in progress towards the completion of each performance
obligation. Cost of goods sold includes such items as raw materials, direct and indirect labor and facilities costs,
including purchasing and receiving costs, plant management, inspection costs, production process improvement
activities, product engineering and internal transfer costs. In addition, all depreciation associated with assets used in
the production of our products is also included in cost of goods sold. Direct labor costs consist of salaries, benefits
and other personnel related costs for employees engaged in the manufacture of our products and services.
Startup and transition costs are primarily unallocated fixed overhead costs and underutilized direct labor costs
incurred during the period production facilities are transitioning wind blade models and ramping up manufacturing.
All direct labor costs are included in the measure of progress towards completion of the relevant performance
obligation when determining revenue to be recognized during the period. The cost of sales for the initial wind blades
from a new model manufacturing line is generally higher than when the line is operating at optimal production
volume levels due to inefficiencies during ramp-up related to labor hours per blade, cycle times per blade and raw
material usage. Additionally, these costs as a percentage of net sales are generally higher during the period in which
a facility is ramping up to full production capacity due to underutilization of the facility. Manufacturing overhead at
each of our facilities includes virtually all indirect costs (including share-based compensation costs) incurred at the
plants, including engineering, finance, information technology, human resources and plant management.
(f) General and Administrative Expenses
General and administrative expenses primarily relate to the unallocated portion of costs incurred at our
corporate headquarters and our research facilities and include salaries, benefits and other personnel related costs for
employees engaged in research and development, engineering, finance, internal audit, information technology,
human resources, business development, global operational excellence, global supply chain, in-house legal and
executive management. Other costs include outside legal and accounting fees, risk management (insurance), share-
based compensation and certain other administrative and global resources costs.
The research and development expenses incurred at our Warren, Rhode Island location as well as at our
Kolding, Denmark advanced engineering center and our Berlin, Germany engineering center are also included in
general and administrative expenses. For the years ended December 31, 2019, 2018 and 2017, total research and
development expenses totaled $1.0 million, $0.8 million and $1.6 million, respectively.
F-13
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) Realized Loss on Sale of Assets and Asset Impairments
For the year ended December 31, 2019, the realized loss on the sale of certain receivables, on a non-recourse
basis under supply chain financing arrangements with our customers, to financial institutions, the realized loss on
the sale of other assets at our corporate and manufacturing facilities and asset impairment charges totaled $18.1
million. For the year ended December 31, 2018, the realized loss on the sale of certain receivables, on a non-
recourse basis under supply chain financing arrangements with our customers, to financial institutions and the
realized loss on the sale of other assets at our manufacturing facilities totaled $4.6 million. There were no asset
impairment charges for the year ended December 31, 2018.
(h) Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of
cash with original maturities of three months or less. The carrying value of cash and cash equivalents approximates
fair value.
As of December 31, 2019 and 2018, our China locations collectively had unrestricted cash totaling $9.7
million and $28.9 million, respectively, in bank accounts in China. The Chinese government imposes certain
restrictions on transferring cash out of China. The local governments in Turkey and Mexico impose no such
restrictions on transferring cash out of the respective country.
As of December 31, 2019 and 2018, we had provided for cash deposits for letters of guarantee used for
customs clearance related to our China locations totaling $1.0 million and $3.5 million, respectively. These amounts
are reported as restricted cash in our consolidated balance sheets.
As of December 31, 2019 and 2018, we maintained a long-term deposit in interest bearing accounts, related to
fully cash-collateralized letters of credit in connection an equipment lessor in Iowa, totaling $0.5 million. See
Note 9, Other Noncurrent Assets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
consolidated balance sheets which total the same such amounts in the consolidated statements of cash flows:
December 31,
2019
2018
2017
2016
(in thousands)
Cash and cash equivalents
Restricted cash
Restricted cash included within other noncurrent assets
$
70,282 $
992
475
85,346 $ 148,113 $ 119,066
2,259
3,555
8,538
475
3,849
475
Total cash, cash equivalents and restricted cash shown
in the consolidated statements of cash flows
$
71,749 $
89,376 $ 152,437 $ 129,863
(i) Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. We follow
the allowance method of recognizing uncollectible accounts receivable, which recognizes bad debt expense based on
a review of the individual accounts outstanding and prior history of uncollectible accounts receivable. Credit is
extended based on evaluation of each of our customer’s financial condition and is generally unsecured. Accounts
receivable are generally due within 30 days and are stated net of an allowance for doubtful accounts in the
consolidated balance sheets. Accounts are considered past due if outstanding longer than contractual payment terms.
We record an allowance based on consideration of a number of factors, including the length of time trade accounts
are past due, previous loss history, the credit-worthiness of individual customers, economic conditions affecting
specific customer industries, and economic conditions in general. We charge-off accounts receivable after all
reasonable collection efforts have been exhausted. We credit payments subsequently received on such receivables to
bad debt expense in the period payment is received. We record delinquent finance charges on outstanding accounts
receivables only if they are collected. We wrote off no receivables during 2019, $0.2 million during 2018 and $0.2
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TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
million during 2017, and do not have any off-balance-sheet credit exposure related to our customers. See Note 5,
Accounts Receivable.
(j) Inventories
Inventories represent materials purchased that are not restricted to fulfillment of a specific contract and are
measured at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in
the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is
determined using the first-in, first-out method for such raw materials. Write-downs to reduce the carrying cost of
obsolete, slow-moving, and unusable inventory to net realizable value are recognized in cost of goods sold. The
effect of these write-downs establishes a new cost basis in the related inventory, which is not subsequently written
up.
(k) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization of property, plant, and
equipment is calculated on the straight-line method over the estimated useful lives of the assets. See Note 7,
Property, Plant and Equipment, Net.
Machinery and equipment
Buildings
Leasehold improvements
Office equipment and software
Furniture
Vehicles
Estimated
useful lives
7–10 years
20 years
5 to 10 years, or the term
of the lease, if shorter
3 to 5 years
3 to 5 years
5 years
(l) Recoverability of Long-Lived Assets
We review property, plant and equipment and other long-lived assets in order to assess recoverability based on
expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not
be recoverable. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss is
recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of
the asset.
(m) Goodwill, Intangible Assets and Deferred Costs
Goodwill represents the excess of the acquisition cost of Composite Solutions, Inc. from True North Partners,
LLC in 2004 over the fair value of identifiable assets acquired and liabilities assumed. Goodwill, which is entirely in
the U.S. segment, is evaluated for impairment annually on October 31 and whenever events or circumstances make
it likely that impairment may have occurred. In determining whether impairment has occurred, one compares the fair
value of the related reporting unit (calculated using the discounted cash flow method) to its carrying value. If the
carrying value exceeds the fair value, impairment is recognized for the difference. We may first assess qualitative
factors to determine whether it is necessary to perform the quantitative goodwill impairment test. We performed our
annual goodwill impairment test during 2019 and determined that it is more-likely-than-not that its fair value
exceeds its carrying amount.
Our patents, licenses, trademarks and development tools were acquired in business acquisitions and provide
contractual or legal rights, or other future benefits that could be separately identified. Our valuation of identified
intangible assets was based upon discounted cash flow estimates that require significant management judgment with
respect to revenue and expense growth rates, changes in working capital, and the selection and use of the appropriate
discount rate. The intangible assets are amortized over their estimated useful life. Intangible assets with indefinite
lives are evaluated at least annually for impairment or whenever events or circumstances make it likely that
impairment may have occurred.
F-15
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of our adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with
Customers, (Topic 606), we recognized an asset for deferred costs incurred to fulfill a contract when such costs meet
certain criteria. These deferred costs are amortized over their estimated useful life. See Note 2, Revenue From
Contracts with Customers for a further discussion of those deferred costs recognized as a result of the adoption of
Topic 606. See Note 8, Intangible Assets and Deferred Costs, Net.
(n) Warranty Expense
We provide a limited warranty for our mold and wind blade products, including materials and workmanship,
with terms and conditions that vary depending on the product sold, generally for periods that range from two to
five years. We also provide a limited warranty for our transportation products, including materials and
workmanship, with terms and conditions that vary depending on the product sold, generally for a period of
approximately two years. Warranty expense is recorded based upon estimates of future repairs using a probability-
based methodology that considers previous warranty claims, identified quality issues and industry practices. Once
the warranty period has expired, any remaining unused warranty accrual for the specific products is generally
reversed against the current year warranty expense amount. See Note 10, Accrued Warranty.
(o) Treasury Stock
Common stock purchased for treasury is recorded at historical cost. Transactions in treasury shares relate to
share-based compensation plans and are recorded at weighted-average cost.
(p) Foreign Currency Translation and Remeasurements
Foreign currency-denominated assets and liabilities are translated into U.S. dollars at exchange rates existing
at the respective balance sheet dates. Results of operations of our foreign subsidiaries are translated at the average
exchange rates during the respective periods. Translation adjustments are reported in accumulated other
comprehensive loss in our consolidated balance sheets. Currency translation adjustments for the years ended
December 31, 2019, 2018 and 2017 amounted to an other comprehensive loss of $7.0 million, an other
comprehensive loss of $14.4 million and an other comprehensive gain of $3.3 million, respectively.
Our reporting currency is the U.S. dollar. However, we have non-U.S. operating subsidiaries in our U.S.,
Mexico, Turkey, China and India operations.
•
•
•
•
•
•
•
The U.S. parent companies of our China and Mexico operations, which are wholly-owned subsidiaries
of TPI Composites, Inc., maintain their books and records in U.S. dollars.
Our Mexico operations maintain their books and records through multiple legal entities that are
denominated in the local Mexican currency, the Peso.
Our Turkey operations maintain their books and records in the local Turkish currency, the Lira.
Our China operations maintain their books and records in the local Chinese currency, the Renminbi.
Our Chennai, India operation maintains its books and records in the local India currency, the Rupee.
Our Kolding, Denmark operation, which is a wholly-owned subsidiary of TPI Composites, Inc.,
maintains its books and records denominated in the local Danish currency, the Krone.
Our Berlin, Germany operation, which is a wholly-owned subsidiary of TPI Composites, Inc., maintains
its books and records in their official currency, the Euro.
Foreign currency transaction gains and losses are reported in realized loss on foreign currency remeasurement
in our consolidated statements of operations.
(q) Share-Based Compensation
We maintain two active incentive compensation plans: the 2008 Stock Option and Grant Plan and the
Amended and Restated 2015 Stock Option and Incentive Plan (the 2015 Plan). In May 2015, our board of directors
and stockholders adopted and approved the 2015 Plan, which provides for the issuance of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock units (RSUs), restricted stock awards,
F-16
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
unrestricted stock awards, cash-based awards, performance-based restricted stock units (PSUs) and dividend
equivalent rights to certain of our employees, non-employee directors and consultants. The term of stock options
issued under the 2015 Plan may not exceed ten years from the date of grant. Under the 2015 Plan, incentive stock
options and non-qualified stock options are granted at an exercise price that is not to be less than 100% of the fair
market value of our common stock on the date of grant, as determined by the Compensation Committee of our board
of directors. Stock options become vested and exercisable at such times and under such conditions as determined by
the Compensation Committee on the date of grant. Upon approval of the 2015 Plan, no future grants will be made
from the 2008 Stock Option and Grant Plan.
We use the Black Scholes valuation model, unless the awards are subject to market conditions, in which case
we utilize a binomial-lattice model (i.e., Monte Carlo simulation model), to determine the fair value of stock options
and certain PSUs granted pursuant to the 2015 Plan. The Monte Carlo simulation model utilizes multiple input
variables to determine the share-based compensation expense. For grants with market conditions made in the year
ended December 31, 2019, we utilized a volatility of 28.3%, a 0% dividend yield and a risk-free interest rate of
2.5%. The volatility was based on the most recent comparable period for the Company and the peer group. The
stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is
mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free
interest rate is equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is
commensurate with the remaining performance measurement period.
The determination of the grant date fair value using an option-pricing model and simulation model requires
judgment as well as assumptions regarding a number of other complex and subjective variables. These variables
include our closing market price at the grant date as well as the following assumptions:
Expected Volatility. As our common stock had not been publicly traded prior to July 2016, the expected
volatility assumption reflects an average of volatilities of publicly traded peer group companies with a period equal
to the expected life of the options.
Expected Life (years). We use the simplified method to estimate the expected term of stock options. The
simplified method for estimating expected term is to use the mid-point between the vesting term and the contractual
term of the option. We elected to use the simplified method because we did not have historical exercise data to
estimate the expected term due to the limited time period our common stock had been publicly traded.
Risk-Free Interest Rate. The risk-free interest rate assumption is based upon the U.S. constant maturity
treasury rates as the risk-free rate interpolated between the years commensurate with the expected life of the options.
Dividend Yield. The dividend yield assumption is zero since we do not expect to declare or pay dividends in
the foreseeable future.
Forfeitures. Share-based compensation expense is reversed when the service-based award is forfeited.
Expected Vesting Period. We amortize the share-based compensation expense over the requisite service
period.
Share-based compensation expense related to RSUs and PSUs are expensed over the vesting period using the
straight-line method for our employees and our board of directors. The RSUs and PSUs do not have voting rights.
We calculate the fair value of our share-based awards on the date of grant for our employees and directors.
(r) Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right
of use (ROU) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the consolidated
balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt,
and long-term debt, net of debt issuance costs and current maturities in the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future
minimum lease payments over the lease term at commencement date. Variable payments are not included in ROU
F-17
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
assets or lease liabilities and can vary from period to period based on asset usage or our proportionate share of
common costs. The implicit rate within our leases is generally not determinable and, therefore, the incremental
borrowing rate at lease commencement is utilized to determine the present value of lease payments. We estimate our
incremental borrowing rate based on third-party lender quotes to obtain secured debt in a like currency for a similar
asset over a timeframe similar to the term of the lease. The ROU asset also includes any lease prepayments made
and any initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease
payments is recognized on a straight-line basis over the lease term. We have elected not to recognize ROU assets or
lease liabilities for leases with a term of 12 months or less.
We have lease agreements with lease and non-lease components. We have elected to apply the practical
expedient to account for these components as a single lease component for all classes of underlying assets. See
section (x) Recently Issued Accounting Pronouncements - Accounting Pronouncements Adopted in 2019 – Leases
for more details on leases.
(s) Financial Instruments
Interest Rate Swap
We use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with our
credit agreement (the Credit Agreement) that we entered into in April 2018. We do not use such swap contracts for
speculative or trading purposes.
To offset the variability of future interest payments on the Credit Agreement arising from changes in the
London Interbank Offered Rate (LIBOR), in April 2018, we entered into an interest rate swap agreement with a
financial institution for a notional amount of $75.0 million with an expiration date of April 2023. This interest rate
swap effectively hedges $75.0 million of the future variable rate LIBOR interest expense to a fixed rate interest
expense. The derivative instrument qualified for accounting as a cash flow hedge in accordance with Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 815, Derivatives and
Hedging, and we designated it as such.
The settlement value of the interest rate swap is $2.7 million as of December 31, 2019 and is included in other
noncurrent liabilities in the consolidated balance sheet. The unrealized loss on the swap of $2.2 million, net of tax, is
included in the consolidated statement of other comprehensive income (loss). The settlement value of the interest
rate swap was $0.8 million as of December 31, 2018 and is included in other noncurrent assets in the consolidated
balance sheet. The unrealized gain on the swap of $0.6 million, net of tax, was included in the consolidated
statement of other comprehensive income (loss).
Foreign Exchange Forward Contracts
We use foreign exchange forward contracts to mitigate our exposure to fluctuations in exchange rates between
the functional currencies of our subsidiaries and the other currencies in which they transact. In September 2019, we
entered into the first of these foreign exchange forward contracts. We do not use such forward contracts for
speculative or trading purposes.
We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other
than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our
subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to
receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward
contracts to hedge a portion of these forecasted cash flows. As of December 31, 2019, these foreign exchange
forward contracts hedged our forecasted cash flows for periods up to nine months. These foreign exchange forward
contracts qualified for accounting as cash flow hedges in accordance with ASC Topic 815, and we designated them
as such.
As of December 31, 2019, the notional values associated with our foreign exchange forward contracts
qualifying as cash flow hedges were approximately 1.1 billion Mexican Peso. The fair value of the foreign exchange
forward contracts is $0.7 million as of December 31, 2019 and includes $0.8 million in other current assets and $0.1
million in accounts payable and accrued expenses in the consolidated balance sheet. The unrealized gain on the
F-18
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
foreign exchange forward contracts of $0.5 million, net of tax, as of December 31, 2019 is included in the
consolidated statement of other comprehensive income (loss).
Forward Contract on Intercompany Debt
We use forward contracts to mitigate our exposure associated with fluctuations in foreign currency exchange
rates. We do not use such forward contracts for speculative or trading purposes.
In August 2018, we provided a Turkish Lira denominated intercompany loan to an EMEAI subsidiary of
$15.0 million converted at the spot rate on the transaction date to 96.6 million Turkish Lira to fund their working
capital requirements. We entered into a forward contract, with the same expiration as that of the intercompany loan’s
maturity in October 2018, for a notional amount of 101.5 million Turkish Lira to reduce our exposure to currency
fluctuations from the settlement of this Turkish Lira denominated intercompany loan. The derivative instrument
qualifies for accounting as a cash flow hedge in accordance with ASC Topic 815, and we designated it as such. The
forward contract was settled in October 2018.
(t) Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with FASB ASC Topic 740,
Income Taxes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those differences are projected to be recovered or settled. Realization of deferred tax
assets is dependent on our ability to generate sufficient taxable income of an appropriate character in future periods.
A valuation allowance is established if it is determined to be more-likely-than-not that a deferred tax asset will not
be realized.
(u) Net Income (Loss) Per Common Share Calculation
The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-
average number of common shares outstanding during a period. Diluted net income per common share is computed
by dividing the net income by the weighted-average number of common shares outstanding plus potentially dilutive
securities using the treasury stock method. The table below reflects the calculation of the weighted-average number
of common shares outstanding, using the treasury stock method, used in computing basic and diluted earnings per
common share for the years ended December 31:
Basic weighted-average shares outstanding
Effect of dilutive awards
Diluted weighted-average shares outstanding
2017
2019
2018
(in thousands)
35,062 34,311 33,844
1,018
35,062 36,002 34,862
1,691
—
Share-based compensation awards of 28,000 shares were excluded from the computation of net loss per share
for the year ended December 31, 2019 because their effect would be anti-dilutive. Further, we had 1,176,000
potentially dilutive shares outstanding for the year ended December 31, 2019 which were excluded due to the net
loss for the year. Share-based compensation awards of 30,000 shares were excluded from the computation of diluted
net income per share for the year ended December 31, 2018 because their effect would be anti-dilutive. In addition,
since 2018, certain performance-based restricted stock units have been excluded from the computation of diluted
shares outstanding for the 2019 and 2018 periods presented as the performance conditions had not yet been met. We
did not have any potential dilutive securities which were excluded from the computation of diluted net income per
share for the year ended December 31, 2017.
(v) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
F-19
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of
property, plant and equipment, realizability of intangible assets, deferred costs and deferred tax assets, standalone
selling prices and cost assumptions for revenue recognition, fair value of stock options, performance-based restricted
stock units and warrants, warranty reserves and other contingencies.
(w) Fair Value of Financial Instruments
FASB ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value is follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities; and
Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable
in the market. These unobservable assumptions reflect our own estimate of assumptions that market
participants would use in pricing the asset or liability.
The carrying amounts of cash and cash equivalents, trade accounts receivable, income taxes receivable,
accounts payable and accrued expenses and income taxes payable approximate fair value because of the short-term
nature of these financial instruments. The carrying amount of working capital loans approximates fair value due to
their short term nature and the loans carry a current market rate of interest, a level 2 input. The carrying value of
long-term debt approximates fair value based on its variable rate index or based upon market interest rates available
to us for debt of similar risk and maturities, both of which are level 2 inputs.
(x) Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted in 2019
Leases
In February 2016, the FASB established Topic 842, Leases, by Accounting Standards Update (ASU) No.
2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing
arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for
Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-
11, Targeted Improvements. The new standard established a right of use model that required a lessee to recognize a
ROU asset and related lease liability on the consolidated balance sheet for all leases with a term longer than 12
months. Leases were to be classified as either finance or operating, with classification affecting the pattern and
classification of expense recognition in the consolidated statement of operations.
We adopted this new standard on January 1, 2019 and used the effective date as our date of initial application.
Consequently, we have not provided financial information and the disclosures required under the new standard for
periods before January 1, 2019.
The adoption of this standard had a material effect on our financial statements, the most significant of which
related to the recognition of ROU assets and lease liabilities on our consolidated balance sheet for our real estate,
equipment and auto operating leases and providing significant new disclosures about our leasing activities.
We elected the package of practical expedients, which allowed us to retain conclusions related to lease
identification and classification under legacy GAAP. The new standard also provided practical expedients for an
entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify.
Accordingly, for those leases that qualified, we did not recognize ROU assets or lease liabilities, and this includes
F-20
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
not recognizing ROU assets or lease liabilities for existing short-term leases. We also elected the practical expedient
to not separate lease and non-lease components for all of our leases. See Note 13, Leases.
Income Taxes
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income, which allowed a reclassification from accumulated other comprehensive income to
retained earnings stranded tax effects resulting from the Tax Reform Act. We adopted this standard on January 1,
2019 and it did not have a material impact on our consolidated financial statements.
Share-Based Compensation
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment
Accounting, which expanded the scope of Topic 718, Compensation-Stock Compensation, to include share-based
payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1,
2019 and it did not have a material impact on our consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which contained amendments that
affected a wide variety of Topics in the Codification, including amendment to Subtopic 718-40, Compensation-
Stock Compensation-Income Taxes, that clarified the timing of when an entity should recognize excess tax benefits.
We adopted this standard on January 1, 2019 and it did not have a material impact on our consolidated financial
statements.
Internal Use Software
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract, which allowed for the capitalization of implementation costs incurred to develop or
obtain internal-use software (and hosting arrangements that include an internal use software license). We adopted
this standard on January 1, 2019 and it did not have a material impact on our consolidated financial statements.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment, which eliminated Step 2 from the goodwill impairment test. We adopted this
standard during 2019 when we performed our annual impairment tests and it did not have a material impact on our
consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The new standard is intended to provide financial
statement users with more decision-useful information about the expected credit losses on financial instruments and
other commitments to extend credit held at each reporting date.
This standard is effective for all public business entities for annual and interim periods beginning after
December 15, 2019, with early adoption permitted. We will adopt this standard as of January 1, 2020 and we do not
expect the adoption of this standard to have a material effect on our consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure
requirements in Topic 820.
F-21
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
This standard is effective for all public business entities for annual and interim periods beginning after
December 15, 2019, with early adoption permitted. We will adopt this standard as of January 1, 2020 and we are
currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which primarily removes specific exemptions to the general principles in Topic 740 in GAAP and
improves the financial statement preparers’ application of income tax-related guidance and simplifies GAAP.
This standard is effective for all public business entities for annual and interim periods beginning after
December 15, 2020, with early adoption permitted. We will adopt this standard as of January 1, 2021 and we are
currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
There have been no other recent accounting pronouncements or changes in accounting pronouncements during
the current year that are of significance, or potential significance, to us.
Note 2 – Revenue From Contracts with Customers
The following tables represents the disaggregation of our net sales revenue by product for each of our
reportable segments:
Wind blade sales
Precision molding and
assembly systems sales
Transportation sales
Other sales
Total net sales
Wind blade sales
Precision molding and
assembly systems sales
Transportation sales
Other sales
Total net sales
Wind blade sales
Precision molding and
assembly systems sales
Transportation sales
Other sales
Total net sales
Year Ended December 31, 2019
U.S.
Asia
Mexico
EMEAI
Total
$
120,125 $
366,206 $
410,337 $
432,049 $ 1,328,717
(in thousands)
3,774
28,523
16,895
169,317 $
25,203
—
2,400
393,809 $
19,703
347
5,219
435,606 $
—
—
5,719
48,680
28,870
30,233
437,768 $ 1,436,500
$
U.S.
Asia
Mexico
EMEAI
Total
Year Ended December 31, 2018
(in thousands)
$
126,335 $
264,417 $
256,101 $
286,414 $
933,267
5,034
29,254
3,093
163,716 $
36,616
—
5,222
306,255 $
7,203
—
5,452
268,756 $
—
—
4,483
48,853
29,254
18,250
290,897 $ 1,029,624
$
U.S.
Asia
Mexico
EMEAI
Total
Year Ended December 31, 2017
(in thousands)
$
164,870 $
346,200 $
200,355 $
179,100 $
890,525
8,445
14,020
3,690
191,025 $
18,408
—
7,912
372,520 $
760
—
5,448
206,563 $
—
—
5,990
185,090 $
27,613
14,020
23,040
955,198
$
In addition, most of our net sales are made directly to our customers, primarily large multi-national wind
turbine manufacturers, under our long-term contracts which are typically five years in length.
F-22
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Contract Assets and Liabilities
Contract assets consist of the amount of revenue recognized over time for performance obligations in
production where control has transferred to the customer but the contract does not yet allow for the customer to be
billed. Typically, customers are billed when the product finishes production and meets the technical specifications
contained in the contract. The majority of the contract asset balance relates to materials procured based on customer
specifications. The contract assets are recorded as current assets in the consolidated balance sheets. Contract
liabilities consist of advance payments in excess of revenue earned. These amounts were historically recorded as
customer deposits which usually relate to progress payments received as precision molding and assembly systems
were being manufactured. The contract liabilities are recorded as current liabilities in the consolidated balance
sheets and are reduced as we record revenue over time.
These contract assets and liabilities are reported on the consolidated balance sheets net on a contract-by-
contract basis at the end of each reporting period, as demonstrated in the table below.
Contract assets and contract liabilities consisted of the following:
December 31,
Gross contract assets
Less: reclassification from contract liabilities
Contract assets
2019
$ Change
2018
(in thousands)
$ 170,973 $ 127,568 $ 43,405
6,402
$ 166,515 $ 116,708 $ 49,807
(10,860 )
(4,458 )
Gross contract liabilities
Less: reclassification to contract assets
Contract liabilities
December 31,
2019
2018
$ Change
(in thousands)
$
$
7,466 $ 18,003 $ (10,537 )
6,402
(10,860 )
(4,458 )
(4,135 )
7,143 $
3,008 $
Contracts assets increased by $49.8 million from December 31, 2018 to December 31, 2019 due to
incremental unbilled production during the year ended December 31, 2019. Contracts liabilities decreased by $4.1
million from December 31, 2018 to December 31, 2019 due to the revenue earned related to precision molding and
assembly systems and wind blades being produced exceeding the amounts billed to customers during the year ended
December 31, 2019.
The time it takes to produce a single blade is typically between 5 to 7 days. The time it takes to produce a
mold is typically between 3 to 6 months.
For the year ended December 31, 2019, we recognized $7.1 million of revenue which was included in the
corresponding contract liability balance at the beginning of the period.
Performance Obligations
Remaining performance obligations represent the transaction price for which work has not been performed
and excludes any unexercised contract options. As discussed in Note 1, Summary of Operations and Significant
Accounting Policies, the transaction price includes estimated variable consideration as determined based on the
estimated production output within the range of the contractual guaranteed minimum volume obligations and
production capacity.
F-23
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the year ended December 31, 2019, net revenue recognized from our performance obligations satisfied in
previous periods decreased by $19.3 million. This primarily relates to changes in certain of our estimated total
contract values and related percentage of completion estimates.
As of December 31, 2019, the aggregate amount of the transaction price allocated to the remaining
performance obligations to be satisfied in future periods was approximately $4.1 billion. We estimate that we will
recognize the remaining performance obligations as revenue as follows: 38 percent in 2020, 31 percent in 2021, 18
percent in 2022 and the remaining 13 percent in 2023. The transaction price allocated to the remaining performance
obligations excludes approximately $295.5 million of variable consideration over the contractual guaranteed
minimum volume obligations under current contracts with customers which has been constrained primarily due to
uncertainty associated with production volume during the remaining term of the agreements. We estimate the
constraint will be resolved in subsequent periods when our customers provide additional information relevant to
forecasted future production.
Pre-Production Investments
We recognize an asset for deferred costs incurred to fulfill a contract when those costs meet all of the
following criteria: (a) the costs relate directly to a contract or to an anticipated contract that we can specifically
identify; (b) the costs generate or enhance our resources that will be used in satisfying performance obligations in
the future; and, (c) the costs are expected to be recovered. We capitalize the costs related to training our workforce
to execute the manufacturing services and other facility set-up costs related to preparing for production of a specific
contract. We factor these costs into our estimated cost analysis for the overall contract. Costs capitalized are
amortized over the number of units produced during the contract term. As of December 31, 2019, the cost and
accumulated amortization of such assets totaled $5.6 million and $2.7 million, respectively. As of December 31,
2018, the cost and accumulated amortization of such assets totaled $5.6 million and $2.1 million, respectively. These
amounts are included in intangible assets and deferred costs, net in the consolidated balance sheet. See Note 8,
Intangible Assets and Deferred Costs, Net.
In applying the practical expedient as permitted under Topic 606, we recognize the incremental costs of
obtaining contracts as an expense when incurred if the amortization period of the asset that we otherwise would have
recognized is one year or less. These costs are included in cost of goods sold.
Note 3. Significant Risks and Uncertainties
Our revenues and receivables are from a small number of customers. As such, our production levels are
dependent on these customers’ orders. See Note 17, Concentration of Customers.
We have experienced extended startup delays and challenges with respect to our Newton, Iowa transportation
facility, which had an adverse impact on our results of operations for the year ended December 31, 2019. See
Note 20, Subsequent Events.
We maintain our U.S. cash in bank deposit accounts that, at times, exceed U.S. federally insured limits. U.S.
bank accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) in an amount up to $250,000
during 2019 and 2018. At December 31, 2019 and 2018, we had $45.8 million and $53.7 million, respectively, of
cash in deposit accounts in high quality U.S. banks, which was in excess of FDIC limits. We have not experienced
losses in any such accounts.
We also maintain cash in bank deposit accounts outside the U.S. with no insurance. At December 31, 2019,
this includes $9.9 million in Turkey, $9.7 million in China, $2.4 million in India, $2.1 million in Mexico and $0.4
million in Denmark. We have not experienced losses in these accounts. In addition, we have short-term deposits in
interest bearing accounts of $1.0 million in China, which are reported as restricted cash in our consolidated balance
sheets. We also have long-term deposits in interest bearing accounts of $0.5 million in Iowa. See Note 9, Other
Noncurrent Assets.
F-24
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Certain of our debt agreements are either tied to LIBOR or EURIBOR and certain of them have associated
interest rate hedges. Due to the relatively low LIBOR and EURIBOR rates in effect as of December 31, 2019, a 10%
change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or
cash flows.
Note 4. Related-Party Transactions
Related party transactions include transactions between us and certain of our affiliates. The following
transactions were in the normal course of operations and were measured at the exchange amount, which is the
amount of consideration established and agreed to by the parties.
We have previously entered into several agreements with subsidiaries of General Electric Company and its
consolidated affiliates (GE) relating to the operation of its business. As a result of these agreements, GE has been a
debtor, creditor and holder of both our preferred and common shares. During the second quarter of 2017, GE
reduced its holdings of our common shares to less than five percent of the total shares outstanding and then
completely divested of our common shares during the third quarter of 2017. For the six months ended June 30, 2017,
we recorded related-party sales with GE of $198.6 million.
We have entered into five separate supply agreements with GE to manufacture wind blades in Newton, Iowa;
Taicang Port, China; Juárez, Mexico (2) and Izmir, Turkey. The supply agreements in Taicang Port, China and
Izmir, Turkey expired on December 31, 2017.
In connection with our secondary offering in May 2017, certain entities associated with Element Partners,
Angeleno Group, Landmark Partners and NGP Energy Technology Partners, L.P, as well as certain of our executive
officers sold an aggregate of 5,075,000 shares of our common stock at the public offering price of $16.35 per share.
Note 5. Accounts Receivable
Accounts receivable at December 31 consisted of the following:
Trade accounts receivable
Other accounts receivable
Total accounts receivable
Note 6. Other Current Assets
Other current assets at December 31 consisted of the following:
Refundable value-added tax
Deposits
Other current assets
Total current assets
2019
2018
(in thousands)
$ 180,051 $ 172,667
4,148
$ 184,012 $ 176,815
3,961
2019
2018
(in thousands)
$
$
22,687 $
6,143
1,013
29,843 $
11,160
5,659
—
16,819
F-25
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7. Property, Plant and Equipment, Net
Property, plant and equipment, net at December 31 consisted of the following:
Machinery and equipment
Buildings
Leasehold improvements
Office equipment and software
Furniture
Vehicles
Construction in progress
Total property, plant and equipment, gross
Accumulated depreciation
Total property, plant and equipment, net
2019
2018
14,495
56,414
32,284
22,429
562
20,677
(in thousands)
$ 159,176 $ 119,737
15,080
38,747
26,363
19,579
287
17,390
306,037 237,183
(101,030 )
(77,760 )
$ 205,007 $ 159,423
As of December 31, 2019, the projects in construction in progress included the construction and outfitting of
our new manufacturing facility in Chennai, India and continued investments in our other existing manufacturing
facilities.
Total depreciation for the years ended December 31, 2019, 2018 and 2017 was $36.7 million, $25.5 million
and $20.8 million, respectively.
As of December 31, 2019, the cost and accumulated depreciation of property, plant and equipment that we are
leasing under finance lease arrangements is $45.0 million and $17.0 million, respectively. As of December 31, 2018,
the cost and accumulated depreciation of property, plant and equipment that we are leasing under finance lease
arrangements is $41.3 million and $11.7 million, respectively. See Note 13, Leases for more information related to
finance leases.
Note 8. Intangible Assets and Deferred Costs, Net
Carrying values and estimated useful lives of intangible assets and deferred costs as of December 31, 2019,
consisted of the following:
Pre-production investments (1)
Patents
Acquired development tools
Trademarks
Total intangible assets and deferred costs, net
Estimated
Useful Life
Cost
Accumulated
Amortization
(in thousands)
Net
$
Various
10 years
10 years
Indefinite
$
5,639 $
112
980
150
6,881 $
(2,656 ) $
(6 )
(49 )
—
(2,711 ) $
2,983
106
931
150
4,170
Carrying values and estimated useful lives of intangible assets and deferred costs as of December 31, 2018,
consisted of the following:
Estimated
Useful Life
Cost
Accumulated
Amortization
(in thousands)
Net
Pre-production investments (1)
License
Trademarks
Total intangible assets and deferred costs, net
$
Various
5 years
Indefinite
$
5,598 $
1,000
150
6,748 $
(2,111 ) $
(179 )
—
(2,290 ) $
3,487
821
150
4,458
F-26
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) See Note 2, Revenue From Contracts with Customers, for a further discussion of these pre-production
investments.
During the years ended December 31, 2019, 2018 and 2017, we recorded amortization expense for the
intangible assets and deferred costs of $1.9 million, $0.9 million and $0.9 million, respectively.
Note 9. Other Noncurrent Assets
Other noncurrent assets at December 31 consisted of the following:
Deferred tax assets
Deposits
Land use right
Restricted cash
Other
Total other noncurrent assets
2019
2018
(in thousands)
11,209 $
8,437
1,521
475
2,278
23,920 $
15,296
3,845
2,378
475
1,976
23,970
$
$
The historical land use right asset was purchased during 2007 and permits us to use the land where the
Taicang Port, China facility, owned by us, is situated. Amortization of the land use right began upon the opening of
the plant in 2008. An additional land use right asset was purchased during 2018 which permits us to use additional
land where the Taicang Port, China facility is situated. In the fourth quarter of 2019 we determined that we were not
going to utilize this additional land use right asset and wrote off approximately $0.8 million to depreciation expense
in our consolidated statement of operations. We are still amortizing the historical land use right asset on a straight-
line basis over its 50 year life.
As of December 31, 2019 and 2018, we maintained long-term deposits in interest bearing accounts related to
fully cash-collateralized letter of credit in connection with an equipment lessor in Iowa totaling approximately
$0.5 million.
Note 10. Accrued Warranty
Warranty accrual at December 31 consisted of the following:
Warranty accrual at beginning of year
Accrual during the year
Cost of warranty services provided during the year
Reduction of reserves
Warranty accrual at end of year
2019
2018
(in thousands)
2017
$
$
36,765 $
22,345
(6,220 )
(5,251 )
47,639 $
30,419 $
14,605
(4,457 )
(3,802 )
36,765 $
21,089
15,443
(1,986 )
(4,127 )
30,419
Note 11. Share-Based Compensation
Since 2015, we have granted awards of stock options, RSUs and PSUs to certain employees and non-
employee directors under the 2015 Plan. Each award granted prior to the consummation of our IPO included a
performance condition that required the completion of an initial public offering by us and a required vesting period
of one to four years commencing upon achievement of the performance condition. As the IPO was consummated in
July 2016, we began recording compensation expense in July 2016 for the requisite service period from the grant
date through the IPO date with the balance of the share-based compensation to be expensed over the remaining
vesting period.
F-27
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The share-based compensation expense recognized in the consolidated statements of operations for the years
ended December 31 was as follows:
2019
2018
(in thousands)
2017
Cost of goods sold
General and administrative expenses
Total share-based compensation expense
$
386 $ 1,281 $ 1,070
6,054
6,514
$ 5,681 $ 7,795 $ 7,124
5,295
The share-based compensation expense recognized by award type for the years ended December 31 was as
follows:
RSUs
Stock options
PSUs
Total share-based compensation expense
2019
2017
2018
(in thousands)
$ 3,658 $ 4,209 $ 2,808
4,316
—
$ 5,681 $ 7,795 $ 7,124
1,501
522
2,463
1,123
The summary of activity for our incentive plans is as follows:
Stock Options
RSUs
PSUs
Shares
Available
for Grant Shares
Weighted-
Average
Exercise
Price
Options
Exercisable Shares
Weighted-
Average
Grant
Date Fair
Value
Weighted-
Average
Grant
Date Fair
Value
Shares
Balance as of December 31,
2016
Increase in shares authorized 1,349,475
Granted
Exercised/vested
Forfeited/cancelled
Balance as of December
31, 2017
3,587,692 3,331,418 $ 12.72 25,828 636,120 $ 10.90 —
— —
220,500 22.42 —
(218,040 ) 10.95 —
(25,200 ) 10.87 —
—
(433,700 ) 213,200 19.70
— (138,878 ) 10.83
227,650 (202,450 ) 11.54
—
—
—
—
—
—
—
Increase in shares authorized 1,360,826
Granted
(451,212 )
Exercised/vested
Forfeited/cancelled
Balance as of December
31, 2018
—
9,652 22.67
— (354,153 ) 12.10
339,874 (258,095 ) 14.72
—
4,731,117 3,203,290 13.34 890,433 613,380 15.02 —
— —
—
—
—
149,012 23.37 292,548 22.67
(298,036 ) 13.03 —
—
(38,480 ) 21.51 (43,299 ) 22.67
5,980,605 2,600,694 13.41 1,415,948 425,876 18.75 249,249 22.67
—
196,418 26.99 281,969 29.25
(236,187 ) 15.42 —
—
(31,680 ) 24.91 (39,500 ) 25.60
—
(875,557 ) 397,170 20.94
— (345,475 ) 15.14
129,341 (58,161 ) 15.23
— —
—
—
Increase in shares authorized 1,387,123
Granted
Exercised/vested
Forfeited/cancelled
Balance as of December
31, 2019
6,621,512 2,594,228 14.29 1,697,272 354,427 24.99 491,718 26.20
F-28
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of RSUs which vested during the years ended December 31, 2019 and 2018 was $6.2 million
and $8.4 million, respectively. In addition, during 2019 and 2018, we repurchased 79,040 and 100,891 shares for
$2.1 million and $2.9 million, respectively, related to tax withholding requirements on vested RSU awards.
The following table summarizes the outstanding and exercisable stock option awards as of December 31,
2019:
Range of Exercise Prices:
$8.49
$10.87
$11.00 to $16.53
$18.70
$18.77 to $29.26
$8.49 to $29.26
Options Exercisable
Options Outstanding
Weighted-
Average
Remaining
Contractual Life
(in years)
0.6
5.4
6.1
6.5
8.9
6.4
Shares
16,397
1,470,972
320,001
188,560
598,298
2,594,228
Weighted-
Average
Exercise Price Shares
$
Weighted-
Average
Exercise Price
8.49
10.87
16.02
18.70
19.99
12.90
8.49 16,397 $
10.87 1,169,598
15.95 249,800
18.70 150,081
20.59 111,396
14.29 1,697,272
The following table contains additional information pertaining to stock options for the years ended
December 31:
Total intrinsic value of stock options outstanding
Total intrinsic value of stock options exercisable
Cash received from the exercise of stock options
Fair value of stock options vested
$ 12,219 $ 29,045 $
15,949
4,284
4,566
9,718
5,223
8,796
22,804
6,688
1,430
4,931
2019
2018
(in thousands)
2017
As of December 31, 2019, the unamortized cost of the outstanding RSUs and PSUs was $4.2 million and $2.4
million, respectively, which we expect to recognize in the consolidated financial statements over weighted-average
periods of approximately 1.8 years and 1.9 years, respectively. Additionally, the total unrecognized cost related to
non-vested stock option awards was $2.3 million, which we expect to recognize in the consolidated financial
statements over a weighted-average period of approximately 1.8 years.
The fair value of the stock options granted during the years ended December 31 were calculated using the
Black-Scholes option pricing model with the following assumptions:
Weighted-average fair value
Expected volatility
Expected life
Risk-free interest rate
Dividend yield
2019
$
2018
6.80 $ 10.36 $
42.8 %
28.0 %
2017
9.10
45.0 %
6.3 years 6.3 years 6.3 years
1.9 %
0.0 %
2.7 %
0.0 %
1.5 %
0.0 %
F-29
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12. Long-Term Debt, Net of Debt Issuance Costs and Current Maturities
Long-term debt, net of debt issuance costs and current maturities, as of December 31 consisted of the
following:
2019
2018
(in thousands)
Senior revolving loan—US
Accounts receivable financing—EMEAI
Equipment financing—EMEAI
Equipment finance lease—U.S.
Equipment finance lease—EMEAI
Equipment finance lease—Mexico
Total debt - principal
Less: Debt issuance costs
Total debt, net of debt issuance costs
Less: Current maturities of long-term debt
Long-term debt, net of debt issuance costs
and current maturities
$ 112,414 $
3,805
7,903
288
5,732
11,919
90,414
14,524
12,197
111
6,738
14,517
142,061 138,501
(878 )
141,389 137,623
(27,058 )
(13,501 )
(672 )
$ 127,888 $ 110,565
Senior Financing Agreements (U.S.):
In April 2018, we entered into a new credit agreement, the Credit Agreement, with four lenders consisting of a
multi-currency, revolving credit facility in an aggregate principal amount of $150.0 million, including a $25.0
million letter of credit sub-facility. On the closing date, we drew down $75.4 million on the revolving credit facility
in connection with the closing of the transactions contemplated by the Credit Agreement and used the proceeds to
pay all outstanding amounts due and payable under our previous credit agreement, various fees and expenses and
accrued interest. All borrowings and amounts outstanding under the Credit Agreement are scheduled to mature in
April 2023. In May 2019, the Credit Agreement was further amended to revise the definition of Consolidated
EBITDA as utilized in certain of the financial covenants of the Credit Agreement.
In connection with the Credit Agreement, in the second quarter of 2018 we expensed $2.0 million of deferred
financing costs associated with the previous credit agreement and a $1.4 million prepayment penalty within the
caption “Loss on extinguishment of debt” in the accompanying consolidated statements of operations. In addition,
we incurred debt issuance costs related to the Credit Agreement totaling $1.0 million which will be amortized to
interest expense over the five-year term of the Credit Agreement using the effective interest method.
Interest accrues at a variable rate equal to LIBOR plus a margin of 1.75% (3.3% as of December 31, 2019),
which may vary based on our total net leverage ratio as defined in the Credit Agreement. Interest is paid monthly
and we are not obligated to make any principal repayments prior to the maturity date provided we are not in default
under the Credit Agreement. We may prepay the borrowings under the Credit Agreement without penalty.
In April 2018, we also entered into an interest rate swap arrangement to fix a notional amount of $75.0 million
of the Credit Agreement at an effective interest rate of 4.2% for a period of five years. See Note 1, Summary of
Operations and Significant Accounting Policies - (s) Financial Instruments, for more details on this interest rate
swap arrangement.
As of December 31, 2019 and 2018, there was $112.4 million and $90.4 million outstanding under the Credit
Agreement, respectively.
F-30
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Due to the revolving credit facility’s variable interest rate of LIBOR plus a competitive spread, we estimate
that fair-value approximates the face value of these notes.
Accounts Receivable, Secured and Unsecured Financing:
EMEAI: During 2014, we renewed a general credit agreement, as amended, with a financial institution in
Turkey to provide up to 21.0 million Euro of short-term collateralized financing on invoiced accounts receivable of
one of our customers in Turkey. Interest originally accrued annually at a fixed rate of 9.1% and was paid quarterly.
In December 2014, and later amended, we obtained an additional $8.0 million of unsecured financing in Turkey
under the credit agreement with interest accruing annually at a fixed rate of 2.0% and payable at the end of the term
when the loan is repaid. All other credit agreement terms remained the same. The credit agreement does not have a
maturity date, however the limits are reviewed in September of each year. During the fourth quarter of 2018, we
replaced the accounts receivable financing facility with the accounts receivable assignment agreement discussed
below. As of December 31, 2019 and 2018, there were no amounts outstanding under the unsecured financing
facility.
In 2014, we entered into a credit agreement with a Turkish financial institution to provide up to $16.0 million
of short-term financing of which $10.0 million is collateralized financing on invoiced accounts receivable of one of
our customers in Turkey, $5.0 million is unsecured financing and $1.0 million is related to letters of guarantee.
Interest accrues at a variable rate of the three month Euro Interbank Offered Rate (EURIBOR) plus 6.5%. During
the first quarter of 2018, the collateralized financing on invoiced accounts receivables and unsecured financing
facilities were retired and the letters of guarantee limit was adjusted, later amended to 1.4 million Euro
(approximately $1.6 million as of December 31, 2019). No amounts were outstanding under this letter of guarantee
agreement as of December 31, 2019 or 2018.
In 2016, we entered into a general credit agreement, as amended, with a Turkish financial institution to
provide up to 39.0 million Euro (approximately $43.7 million as of December 31, 2019) of short-term financing of
which 28.0 million Euro (approximately $31.4 million as of December 31, 2019) is collateralized financing based on
invoiced accounts receivables of one of our customers in Turkey, 10.0 million Euro (approximately $11.2 million as
of December 31, 2019) for the collateralized financing of capital expenditures and 1.0 million Euro (approximately
$1.1 million as of December 31, 2019) related to letters of guarantee. Interest on the collateralized financing based
on invoiced accounts receivables of one of our customers in Turkey accrues at a fixed rate of 2.75% as of December
31, 2019 and is paid quarterly with a maturity date equal to four months from the applicable invoice date. Interest on
the collateralized capital expenditures financing accrues at the one month EURIBOR plus 6.75% (6.75% as of
December 31, 2019) with monthly principal repayments beginning in October 2017 with a final maturity date of
December 2021. Interest on the letters of guarantee accrues at 2.00% annually with an amended final maturity date
of July 2020. As of December 31, 2019 and 2018, there was $7.9 million and $12.2 million outstanding under the
collateralized financing of capital expenditures line, respectively. Additionally, as of December 31, 2019 and 2018,
there was $3.8 million and $14.5 million, respectively, outstanding under the collateralized financing based on
invoiced accounts receivables.
In the fourth quarter of 2018, we entered into a credit agreement, as amended, with a Turkish financial
institution to provide up to 118.6 million Turkish Lira (approximately $20.6 million as of June 30, 2019) of
collateralized financing on invoiced accounts receivable of one of our customers in Turkey. Interest accrued at a
fixed rate of 3.9% and was to be paid quarterly. The credit agreement did not have a maturity date, however the limit
would be reviewed in October of each year. In September 2019 this credit agreement was cancelled. No amounts
were outstanding under this agreement as of December 31, 2018.
In the fourth quarter of 2019, we entered into a credit agreement with a Turkish financial institution to provide
up to $10.0 million Euro (approximately $11.2 million as of December 31, 2019) of unsecured financing. Interest
accrues at a fixed rate of 2.5% and is payable at the end of the term when the loan is repaid. No amounts were
outstanding under this agreement as of December 31, 2019.
Due to the short-term nature of the unsecured financings in the EMEAI segment, we estimate that fair-value
approximates the face value of the notes.
F-31
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Asia: In February 2017, we entered into a credit agreement, as amended, with a Chinese financial institution
to provide an unsecured credit line of up to 210.0 million Renminbi (approximately $30.5 million as of June 30,
2019) which can be used for the purpose of domestic and foreign currency loans, issuing customs letters of
guarantee or other transactions approved by the lender. Interest on the credit line accrues at the Chinese central bank
interest rate plus an applicable margin (4.8% as of June 30, 2019) and can be paid monthly, quarterly or at the time
of the debt’s maturity (extended to January 2020). In August 2019, except as noted below, we replaced this credit
agreement with the credit agreement discussed below. In connection with the August 2019 transaction, the financial
institution agreed to allow the working capital loans which were then outstanding, totaling 5.0 million Renminbi (or
approximately $0.7 million as of September 30, 2019) to be repaid on their due date of October 1, 2019. As of
December 31, 2018, there were 92.8 million Renminbi (approximately $13.5 million) of letters of guarantee used for
customs clearance outstanding. As of December 31, 2018, there were no working capital loan amounts outstanding.
In August 2019, we entered into a credit agreement with a Chinese financial institution to provide an
unsecured credit line of up to 315.0 million Renminbi (approximately $45.2 million as of December 31, 2019)
related to two of our China facilities which can be used for the purpose of issuing customs letters of guarantee and
covering the related deposits on such letters of guarantee, project financing and certain other transactions approved
by the lender. Interest on the credit line accrues at the Chinese central bank interest rate plus an applicable margin
(4.8% as of December 31, 2019) and can be paid monthly, quarterly or at the time of the debt’s maturity (August
2021). As of December 31, 2019, there were 25.7 million Renminbi (approximately $3.7 million) of letters of
guarantee and related deposits used for customs clearance outstanding.
In March 2018, we entered into a credit agreement, as amended, with a Chinese financial institution to provide
an unsecured credit line of up to 100.0 million Renminbi (approximately $14.3 million as of December 31, 2019)
which can be used as customs letters of guarantee. Interest on the credit line accrues at the Chinese central bank
interest rate plus an applicable margin (4.8% at December 31, 2019) and can be paid monthly, quarterly or at the
time of the debt’s maturity (in March 2023). As of December 31, 2019, there were 71.9 million Renminbi
(approximately $10.3 million) of letters of guarantee used for customs clearance outstanding. As of December 31,
2018, there were no amounts outstanding under this credit agreement.
Equipment Leases and Other Arrangements:
U.S.: In 2014, we entered into a lease agreement, as amended, with a leasing company for the lease of up to
$5.4 million of machinery and equipment at our Iowa facility. The lease included an implied effective interest rate of
4.3% annually and required monthly payments during each 24 month term. The amounts outstanding under this
agreement as of December 31, 2019 and 2018, were $0.1 million and $0.1 million, respectively.
EMEAI: In 2013, we entered into a finance lease agreement with a financial institution in Turkey for the
initial lease of up to $4.9 million of machinery, equipment and building improvements at our first Turkey facility.
The term of the lease was for four years at an effective interest rate of 6.0%. The loan was to be repaid in monthly
installments through 2017. The financing agreement was subsequently amended in 2017 to include our second
Turkey facility and increase the amount of machinery, equipment and building improvements available for lease to
$10.0 million. As a result of the amendment, and subsequent amendments, the loan is to be repaid in monthly
installments through 2023 at an effective interest rate of 8.0%. All other financing agreement terms remained the
same. The balance outstanding as of December 31, 2019 and 2018 was $5.6 million and $6.7 million, respectively.
Mexico: In 2016, we entered into a lease agreement, as amended, with a leasing company for the lease of up
to $10.0 million of machinery and equipment at our second Mexico facility. The lease includes an implied effective
interest rate of 4.3% annually and requires monthly payments during each 24 month term. There were no amounts
outstanding under this agreement as of December 31, 2019. The amount outstanding under this agreement as of
December 31, 2018 was $0.7 million.
In March 2017, we entered into a sale-lease agreement with a leasing company for the initial lease of up to
$12.0 million of machinery and equipment at our third Mexico facility. The lease includes an implied effective
interest rate of 4.3% annually and requires monthly payments during each 24 month term. There were no amounts
outstanding under this agreement as of December 31, 2019. The amount outstanding under this agreement as of
December 31, 2018 was $3.2 million.
F-32
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March 2018, we entered into a sale-lease agreement with a leasing company for the initial lease of up to
$15.0 million of machinery and equipment at our Matamoros, Mexico facility. The lease includes an implied
effective interest rate of 6.7% annually and requires monthly payments during each 48 month term. The amount
outstanding under this agreement as of December 31, 2019 and 2018 was $10.9 million and $10.5 million,
respectively.
Costs associated with the issuance of debt are presented net of the related debt and are amortized over the term
of the debt using the effective interest rate method. For the years ended December 31, 2019, 2018 and 2017, $0.2
million, $0.3 million and $0.6 million of debt issuance costs were amortized to interest expense in our consolidated
statements of operations, respectively.
The average interest rate on our short-term borrowings as of December 31, 2019 and 2018 was approximately
5.7% and 7.7%, respectively.
The future aggregate annual principal maturities of debt at December 31, 2019, are as follows (in thousands):
2020
2021
2022
2023
2024
Total debt - principal
$
13,501
9,519
5,130
113,720
191
$ 142,061
Note 13. Leases
We have operating and finance leases for our manufacturing facilities, warehouses, offices, automobiles and
certain of our machinery and equipment. Our leases have remaining lease terms of between one and 15 years, some
of which may include options to extend the leases up to five years.
The components of lease cost were as follows:
Operating lease cost
Finance lease cost
Amortization of assets under finance leases
Interest on finance leases
Total finance lease cost
2019
(in thousands)
30,957
$
$
$
6,351
1,414
7,765
Future minimum lease payments under noncancelable leases as of December 31, 2019 were as follows:
F-33
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Less: interest
Total lease liabilities
Total lease liabilities as of December 31, 2019 were as follows:
Current operating lease liabilities
Current maturities of long-term debt
Noncurrent operating lease liabilities
Long-term debt, net of debt issuance costs and current
maturities
Total lease liabilities
Operating
Leases
Finance
Leases
(in thousands)
$
$
25,425 $
22,669
21,618
20,978
17,519
66,584
174,793
(44,281 )
130,512 $
6,744
6,419
5,653
822
200
—
19,838
(1,900 )
17,938
Operating
Leases
Finance
Leases
(in thousands)
$
16,629 $
—
113,883
—
5,744
—
—
130,512 $
12,194
17,938
$
See Note 7, Property, Plant and Equipment, Net for a discussion of the cost and accumulated depreciation of
assets financed through finance leases.
Other information related to leases was as follows:
2019
(in thousands)
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
$
Right of use assets obtained in exchange for new lease obligations:
Operating leases
Finance leases
29,845
1,414
9,128
15,855
5,811
Weighted-Average Remaining Lease Term (In Years):
Operating leases
Finance leases
Weighted-Average Discount Rate:
Operating leases
Finance leases
F-34
December 31,
2019
7.6
3.2
7.5 %
6.4 %
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2019, we have an additional lease related to our new manufacturing facility in Chennai,
India of approximately $60 million which has not yet commenced, but which we expect will commence in the first
half of 2020 with an initial term of ten years.
Note 14. Commitments and Contingencies
(a) Operating Leases
We lease various facilities and equipment under noncancelable operating leases with terms ranging from
12 months to 120 months. Scheduled rent increases are recorded on a straight-line basis over the entire term of the
lease.
Rental expense charged under all operating leases (including leases with terms of less than one year) was
$31.0 million, $25.5 million and $19.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
See Note 13, Leases for a listing of the future minimum lease payments under noncancelable operating leases with
terms of one year or more as of December 31, 2019.
(b) Legal Proceedings
From time to time, we may be involved in disputes or litigation relating to claims arising out of its operations.
From time to time, we are party to various lawsuits, claims, and other legal proceedings that arise in the ordinary
course of business, some of which are covered by insurance. Upon resolution of any pending legal matters, we may
incur charges in excess of presently established reserves. Our management does not believe that any such charges
would, individually or in the aggregate, have a material adverse effect on our financial condition, results of
operations or cash flows.
(c) Insurance/Self-Insurance
We use a combination of insurance and self-insurance for a number of risks, including claims related to our
employee health care, workers’ compensation and general liability. Liabilities associated with these risks are
estimated based on, among other things, historical claims experience, severity factors, and other actuarial
assumptions. Our loss exposure related to self-insurance is limited by stop loss coverage on a per occurrence and
aggregate basis. We regularly analyze our reserves for incurred but not reported claims, and for reported but not paid
claims related to our self-funded insurance programs. While we believe our reserves are adequate, significant
judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the
claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be
differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in
expense once a probable amount is known.
(d) Dividend Restrictions
Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory
restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory
accounting requirements. Until 50% ($26.5 million) of registered capital is contributed to a surplus reserve, our
Chinese operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus
reserve). Once the surplus reserve fund requirement is met, we can pay dividends equal to 100% of after-tax profit
assuming other conditions are met. At December 31, 2019, the amount of the surplus reserve fund was $6.6 million.
(e) Collective Bargaining Agreements
In 2016, we entered into a three-year collective bargaining agreement with certain of our employees at our
first Turkey facility. The agreement resulted in an average increase in pay of approximately 20% for employees
covered by the agreement. In addition, beginning in July 2017, this collective bargaining arrangement also covered
similarly situated employees at our second Turkey facility. In 2019, the collective bargaining agreement with the
Turkey facilities was renewed. In March 2018, we entered into a collective bargaining agreement with a labor union
for certain of our employees at the Matamoros, Mexico facility. In the first quarter of 2020, we amended our
F-35
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Matamoros collective bargaining agreement to adjust the salaries and bonuses payable to our associates for calendar
year 2020 that are covered by this agreement. Currently, there are no other employees covered by collective
bargaining agreements. We believe that our relations with employees are generally good.
Note 15. Defined Contribution Plan
We maintain a 401(k) plan for all of our U.S. employees. Under the 401(k) plan, eligible employees may
contribute, subject to statutory limitations, a percentage of their salaries. We currently match 50 percent of the
participants’ contributions up to eight percent of eligible compensation.
Participant vesting occurs in our matching contributions according to the schedule below:
Years of service
1-year anniversary
2-year anniversary
3-year anniversary
Vesting
Percentage
34 %
66 %
100 %
Our matching contributions to the 401(k) plan were $0.6 million, $0.6 million and $0.6 million for the years
ended December 31, 2019, 2018 and 2017, respectively. Our matching contributions are accrued and recorded as
expense during each payroll period. Effective January 1, 2017, we changed the 401(k) plan to include an auto
enrollment feature, increased our match from 25% of the first 8% to 50% of the first 8% and reduced the vesting
period from six years to three years.
In Mexico, we maintain an annual savings fund, which matches the employee contribution each week, based
on the Mexican statutory maximum of 13% of actual minimum salary rates. The savings fund period runs from
November to October each year, and is distributed to employees in full, during the first week of November each
year. For the years ended December 31, 2019, 2018 and 2017, we incurred matched savings expense of $2.7 million,
$1.8 million and $1.3 million, respectively.
In Turkey, we maintain a retirement fund that is based on a formula of annual salary multiplied by the number
of years of service with us. We accrue a retirement fund liability for this each month. As of December 31, 2019 and
2018, we accrued $2.0 million and $1.0 million, respectively, based on the service periods of eligible employees
greater than one year.
Note 16. Income Taxes
Geographic sources of income (loss) before income taxes are as follows for the years ended December 31:
2019
2018
(in thousands)
2017
United States
China
Turkey
Mexico
India
Other
Total income before income taxes
2017 Tax Reform
$ (41,255 ) $ (33,034 ) $
(4 )
31,955
3,329
—
—
6,272
44,563
56
3,641
—
—
2,246 $ 54,532
(3,777 )
47,579
8,434
(3,970 )
396
7,407 $
$
During the fourth quarter of 2017, we recorded a net tax expense of $0.1 million (net of valuation allowance)
related to the enactment of the Tax Cuts and Jobs Act (Tax Reform). The expense was primarily related to applying
the federal income tax rate change to certain of our deferred tax liabilities, and the realization of a benefit from our
F-36
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
alternative minimum tax credit carryover. This provisional amount was subject to adjustment during the
measurement period of up to one year following the December 2017 enactment of Tax Reform, as provided by SEC
guidance.
As of December 31, 2018, we completed the accounting for the enactment-date income tax effects of Tax
Reform, which resulted in an immaterial impact to our financial statements. Upon further analyses of certain aspects
of Tax Reform, and refinement of calculations during 2018, we increased our provisional amount of previously
untaxed foreign earnings by $13.8 million, to $88.1 million. This resulted in no change to our U.S. federal income
tax expense due to the impact of foreign tax credits. In addition, the provisional net tax expense discussed above was
unchanged.
Tax Reform enacted a new minimum tax on U.S. companies’ foreign operations called Global Intangible Low
Tax Income (GILTI). Beginning in 2018, GILTI provisions will be applied providing an incremental tax on low
taxed foreign income. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary
earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. We have made a policy election
to account for any ongoing impacts of GILTI tax in the period in which it is incurred. At December 31, 2019, we
recorded $15.7 million of federal income tax impacts of GILTI.
Undistributed earnings of certain of our foreign subsidiaries amounted to approximately $181.9 million at
December 31, 2019, and we consider those earnings reinvested indefinitely. As a result of the deemed mandatory
repatriation provision pursuant to Tax Reform, we included undistributed earnings in income subject to U.S. tax at
reduced tax rates in 2017. In addition, we recognized GILTI income reduced by net operating losses in 2018 and
2019 as part of the changes from Tax Reform. As a result, we do not have material basis differences related to
cumulative unremitted earnings for U.S. income tax purposes.
The income tax provision includes U.S. federal, state, and local taxes, Turkey, China and Mexico taxes
currently payable and those deferred because of temporary differences between the financial statement and the tax
bases of assets and liabilities. The components of the income tax provision for the years ended December 31 are as
follows:
Current:
U.S. federal
U.S. state and local taxes
Foreign
Total current
Deferred:
U.S. federal
U.S. state and local taxes
Foreign
Total deferred
Total income tax provision (benefit)
2019
2018
(in thousands)
2017
$
— $
(7 )
18,171
18,164
— $
4
11,875
11,879
(49 )
(3 )
14,200
14,148
6,277
(950 )
(376 )
4,951
$ 23,115 $
(7,596 )
(36 )
(7,280 )
(14,912 )
(20 )
—
1,670
1,650
(3,033 ) $ 15,798
F-37
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a reconciliation from the U.S. statutory income tax rate to our effective income tax rate for
the years ended December 31:
United States statutory income tax rate
Foreign rate differential
Foreign permanent differences
Tax rate change
Withholding taxes
Foreign tax credits
Subpart F / GILTI income
IRC Section 965 dividend
Foreign tax credits - 965 dividend
Share-based compensation
Valuation allowance
State taxes
Deferred tax adjustments
Research and development
Turkey incentive credits
Foreign currency / inflationary adjustments
Other
Effective income tax rate
2019
2018
2017
21.0 %
(40.8 )
2.9
(0.3 )
24.5
—
212.3
—
—
(9.1 )
115.5
(10.2 )
2.1
(13.4 )
—
(0.5 )
8.1
312.1 %
21.0 %
(14.4 )
31.7
—
27.3
—
539.8
—
—
(89.0 )
(483.1 )
(1.7 )
4.6
(59.8 )
—
(90.6 )
(20.8 )
(135.0 )%
35.0 %
(7.2 )
1.2
10.3
5.2
(5.2 )
—
21.1
(13.7 )
—
(16.6 )
—
3.8
(1.2 )
(5.5 )
—
1.8
29.0 %
The following is a summary of the components of deferred tax assets and liabilities at December 31:
2019
2018
(in thousands)
2017
$ 23,065 $ 17,360 $ 18,913
178
9,860
3,489
—
390
320
—
4,760
3,424
41,334
(18,680 )
22,654
1,792
16,111
3,274
1,062
—
—
—
1,931
4,480
51,715
(18,505 )
33,210
149
10,850
3,607
—
—
—
1,452
2,212
4,548
40,178
(8,520 )
31,658
(17,081 )
(4,196 )
(32 )
(827 )
(22,136 )
(13,781 )
(2,636 )
—
(406 )
(16,823 )
$ 11,074 $ 14,835 $
(15,564 )
(3,489 )
—
(1,972 )
(21,025 )
1,629
Deferred tax assets:
Net operating loss and credit carry forwards
Deferred revenue
Non-deductible accruals
Equity compensation
Lease assets and liabilities
Equity investment
Amortization of intangible assets
Non-deductible interest
Tax credits
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Deferred revenue
Depreciation
Lease assets and liabilities
Other
Total deferred tax liabilities
Net deferred tax assets
F-38
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The deferred tax valuation allowance at December 31 consisted of the following:
Allowance at beginning of year
Benefits obtained (costs accumulated)
Allowance at end of year
2019
2018
(in thousands)
2017
$
(8,520 ) $ (18,680 ) $ (23,618 )
10,160
4,938
(9,985 )
(8,520 ) $ (18,680 )
$ (18,505 ) $
The valuation allowance as of December 31, 2019 primarily relates to certain state and foreign net operating
losses (NOLs) that we believe do not meet the more-likely-than-not criteria for recording the related benefits.
During 2018, we released the valuation allowance recorded against deferred tax assets reported in the United
States. The release of this valuation allowance resulted in the recognition of a non-cash tax benefit of $10.8 million
for the year. Additionally, during 2018, there was an increase in the valuation allowance of $0.6 million primarily
related to state NOLs. During 2019, we increased the valuation allowance recorded against deferred tax assets in
Taicang, China and India. The increase of this valuation allowance resulted in tax expense of $8.5 million for the
year.
We have U.S. federal NOL of approximately $20.9 million, state NOLs of approximately $158.0 million,
foreign NOLs of approximately $31.3 million and foreign tax credits of approximately $1.9 million available to
offset future U.S., China and India taxable income. The U.S. federal and state net operating loss carryforwards
expire in varying amounts through 2039 and the foreign tax credits expire in 2026. We also have foreign NOLs that
expire in varying amounts through 2027.
Sections 382 and 383 of the Internal Revenue Code of 1986, contain rules that limit the ability of a company that
undergoes an “ownership change” to utilize its net operating loss and tax credit carry forwards and certain built-in
losses recognized in years after the “ownership change.” An “ownership change” is generally defined as any change in
ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly
or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an
ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change
NOLs to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the
applicable long-term tax exempt rate and the value of our stock immediately before the ownership change. This annual
limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains
and losses for the year. In addition, Section 383 generally limits the amount of tax liability in any post-ownership
change year that can be reduced by pre-ownership change tax credit carryforwards.
In June of 2018, we experienced an ownership change. The pre-ownership change NOLs existing at the date of
change of $47.7 million are subject to an annual limitation. We do not believe that the Section 382 and 383 annual
limitation will materially impact our ability to utilize the tax attributes that existed as of the date of the ownership
change. Certain of these NOLs may be at risk of limitation in the event of a future ownership change.
We recognize the impact of a tax position in its financial statements if that position is more-likely-than-not to
be sustained on audit, based on the technical merits of the position. We disclose all unrecognized tax benefits, which
includes the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized portion of
affirmative claims. Our policy regarding uncertain tax positions is to recognize potential accrued interest and
penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2019, we
had not identified any unrecognized tax benefits.
We operate in and file income tax returns in various jurisdictions in China, Mexico, Turkey, India, U.S.,
Denmark, Germany and Switzerland, which are subject to examination by tax authorities. In the U.S., the federal tax
returns for 2017 and 2018 remain open to examination. For U.S. state and local taxes as well as in non-U.S.
jurisdictions, the statute of limitations generally varies between three and ten years. However, to the extent
allowable by law, the tax authorities may have a right to examine and make adjustment to prior periods when
amended returns have been filed, or when net operating losses or tax credits were generated and carried forward for
subsequent utilization.
F-39
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17. Concentration of Customers
Revenues from certain customers (in thousands) in excess of 10 percent of total consolidated Company
revenues for the years ended December 31 are as follows:
Customer
Customer 1 - Vestas
Customer 2 - GE
Customer 3 - Nordex
Customer 4 - Siemens Gamesa
2018
Revenues % of Total
2017
Revenues % of Total
2019
Revenues % of Total
$ 662,302
369,067
230,563
73,426
46.1 % $ 329,472
25.7 % 325,962
16.1 % 195,156
5.1 % 115,779
32.0 % $ 266,276
31.7 % 426,133
19.0 % 153,227
11.2 % 92,394
27.9 %
44.6 %
16.0 %
9.7 %
Trade accounts receivable from certain customers in excess of 10 percent of total consolidated Company trade
accounts receivable at December 31 are as follows:
Customer
Customer 1 - Vestas
Customer 3 - Nordex
Note 18. Segment Reporting
2019
% of Total
2018
% of Total
41.9 %
31.3 %
46.7 %
25.7 %
FASB ASC Topic 280, Segment Reporting, establishes standards for the manner in which companies report
financial information about operating segments, products, services, geographic areas and major customers. In managing
our business, management focuses on growing our revenues and earnings in select geographic areas serving primarily
the wind energy market. We have operations in the United States, China, Turkey, Mexico and India. Our operating
segments are defined geographically as the United States, Asia, EMEAI and Mexico. Financial results are aggregated
into four reportable segments based on quantitative thresholds. All of our segments operate in their local currency
except for the Mexico and Asia segments, which both include a U.S. parent company.
F-40
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following tables set forth certain information regarding each of our segments for the years ended
December 31:
Net sales by segment:
U.S.
Asia
Mexico
EMEAI
Total net sales
Net sales by geographic location(1):
United States
China
Mexico
Turkey and India
Total net sales
Depreciation and amortization:
U.S.
Asia
Mexico
EMEAI
Total depreciation and amortization
Capital expenditures
U.S.
Asia
Mexico
EMEAI
Total capital expenditures
Income (loss) from operations:
U.S.
Asia
Mexico
EMEAI
Total income from operations
Tangible long-lived assets:
U.S.
Asia (China)
Mexico
EMEAI (Turkey and India)
Total tangible long-lived assets
Total assets:
U.S.
Asia
Mexico
EMEAI
Total assets
2019
2018
(in thousands)
2017
$ 169,317 $ 163,716 $ 191,025
393,809 306,255 372,520
435,606 268,756 206,563
437,768 290,897 185,090
$ 1,436,500 $ 1,029,624 $ 955,198
$ 169,317 $ 163,716 $ 191,025
393,809 306,255 372,520
435,606 268,756 206,563
437,768 290,897 185,090
$ 1,436,500 $ 1,029,624 $ 955,198
$
$
$
$
$
$
9,223 $
10,699
12,577
6,081
38,580 $
4,822
6,795 $
6,272
6,765
5,994
7,891
4,978
4,610
26,429 $ 21,698
8,321 $
22,471
25,842
17,774
74,408 $
21,305 $ 10,575
7,000
11,218
20,033
18,928
1,237
7,220
52,688 $ 44,828
(78,278 ) $
24,132
3,533
66,501
15,888 $
(67,357 ) $ (33,231 )
76,332
28,147
14,430
12,154
51,774
12,567
24,718 $ 70,098
$
36,410 $
50,603
81,654
36,340
34,825
31,924
65,981
26,693
$ 205,007 $ 159,423
$ 107,918 $ 115,435
210,438 194,088
275,646 142,412
232,675 152,920
$ 826,677 $ 604,855
(1) Net sales are attributable to countries based on the location where the product is manufactured or the services
are performed.
F-41
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19. Selected Quarterly Financial Data (Unaudited)
The following tables set forth certain unaudited financial information for each quarter of 2019 and 2018. The
unaudited quarterly information includes all normal recurring adjustments that, in the opinion of management, are
necessary for the fair presentation of the information for the periods presented. The operating results for any quarter
are not necessarily indicative of the results for any future period. The unaudited quarterly results are as follows:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2019
Net sales
Gross profit (loss)
Net income (loss)
Net income (loss) per common share:
Basic(1)
Diluted(1)
Net sales
Gross profit
Net income (loss)
Net income (loss) per common share:
Basic(1)
Diluted(1)
(in thousands, except per share data)
$ 299,780 $ 330,771 $ 383,836 $ 422,113
30,802
(861 )
(1,436 )
(12,104 )
25,931
(4,571 )
22,551
1,828
$
$
(0.35 ) $
(0.35 ) $
0.05 $
0.05 $
(0.13 ) $
(0.13 ) $
(0.02 )
(0.02 )
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2018
(in thousands, except per share data)
$ 253,981 $ 230,610 $ 254,976 $ 290,057
12,565
(8,848 )
16,967
9,532
15,051
(4,053 )
28,258
8,648
$
$
0.25 $
0.24 $
(0.12 ) $
(0.12 ) $
0.28 $
0.26 $
(0.26 )
(0.26 )
(1) The sum of the quarterly net income (loss) per common share amounts may not equal the annual net
income (loss) per common share amount due to rounding.
Note 20 – Subsequent Events
In January 2020, we announced that we are planning to close our Newton, Iowa bus body manufacturing
facility and plan to consolidate our bus body manufacturing operations into our Warren, Rhode Island
manufacturing facility. In connection with these plans, we assessed the recoverability of the carrying value of assets
associated with the Newton, Iowa facility as of December 31, 2019. As a result of this assessment, we recorded $4.4
million in impairment charges for the year ended December 31, 2019 as follows; $1.7 million associated with
property, plant and equipment, $1.2 million in impairment of the right of use asset for the manufacturing facility
lease and certain leased equipment and a $1.5 million write-off of the pre-production related assets. The impairment
charges are included in realized loss on sale of assets and asset impairments within the consolidated statement of
operations.
In February 2020, we entered into an Incremental Facility Agreement with the current lenders to our Credit
Agreement and an additional lender, pursuant to which the aggregate principal amount of our revolving credit
facility under the Credit Agreement was increased from $150.0 million to $205.0 million. All other material terms
and conditions of the Credit Agreement remained the same. We did not make any draw downs on the revolving
credit facility in connection with the execution of the Incremental Facility Agreement.
F-42
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5*
10.1‡
10.2‡
10.3†
10.4†
10.5†
10.6†
Exhibit Index
Description
Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
(incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (File
No. 333-212093) filed on July 11, 2016)
Second Amended and Restated By-laws of the Registrant, as currently in effect (incorporated by
reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-212093)
filed on July 11, 2016)
Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-212093) filed on July 11, 2016)
Third Amended and Restated Investor Rights Agreement by and among the Registrant and the
investors named therein, dated June 17, 2010, as amended (incorporated by reference to Exhibit 4.2 to
the Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Form of senior indenture, to be entered into between the Registrant and the trustee designated therein
(incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File
No. 333-220307) filed on September 1, 2017)
Form of subordinated indenture, to be entered into between the Registrant and the trustee designated
therein (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form
S-3 (File No. 333-220307) filed on September 1, 2017)
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Act of 1934
2008 Stock Option and Grant Plan, as amended by Amendment No. 1, dated August 14, 2008 and
Amendment No. 2, dated December 30, 2008, and forms of award agreements thereunder
(incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
Amended and Restated 2015 Stock Option and Incentive Plan and forms of award agreements
thereunder (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-212093) filed on June 17, 2016)
Amendment No. 5 to Financing Agreement dated as of August 19, 2014, entered into as of December
30, 2016, by and among the Registrant, certain of its domestic subsidiaries, HPS Investment Partners,
LLC as Administrative Agent and Collateral Agent, Capital One, N.A., as Revolving Loan
Representative and the lenders from time to time party thereto, as amended (incorporated by reference
to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K/A (File No. 001-37839) filed on
May 5, 2017)
Amended and Restated Financing Agreement entered into as of December 30, 2016, by and among
the Registrant, certain of its domestic subsidiaries, HPS Investment Partners, LLC as Administrative
Agent and Collateral Agent, Capital One, N.A., as Revolving Loan Representative and the lenders
from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K/A (File No. 001-37839) filed on April 20, 2017)
Supply Agreement between General Electric International, Inc. and TPI Mexico III, LLC, entered into
as of October 4, 2016 (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on
Form 8-K/A (File No. 001-37839) filed on April 20, 2017)
Amended and Restated Supply Agreement between General Electric International, Inc. and TPI Iowa,
LLC, entered into as of October 4, 2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s
Current Report on Form 8-K/A (File No. 001-37839) filed on April 20, 2017)
Number
10.7†
10.8†
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Description
Supply Agreement between General Electric International, Inc. and TPI Mexico, LLC, entered into as
of October 18, 2013, as amended (incorporated by reference to Exhibit 10.10 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
First Amendment to Supply Agreement between General Electric International, Inc. and TPI Mexico,
LLC, entered into as of October 4, 2016 (incorporated by reference to Exhibit 10.2 of the Registrant’s
Current Report on Form 8-K/A (File No. 001-37839) filed on April 20, 2017)
Lease between TPI Iowa, LLC and Opus Northwest L.L.C., dated November 13, 2007, as amended
(incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
Commencement Date Memorandum between TPI Iowa LLC and Opus Northwest, L.L.C., entered
into as of July 25, 2008 (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Kompozit Kanat Sanayi ve Ticaret A.S. and Med Union Containers A.S., dated
March 16, 2012 (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Wind Blade Dafeng Company Limited and Jiangsu Erhuajie Energy Equipment
Co., Ltd, dated November 27, 2013, as amended (incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between the Registrant (f/k/a LCSI Holding, Inc.) and Gainey Center II LLC, dated June 12,
2007, as amended (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI, Inc. (f/k/a TPI Composites, Inc.) and Borden & Remington Fall River LLC, dated
as of December 1, 2008, as superseded by Standard Industrial Lease between TPI, Inc. and Borden &
Remington Fall River LLC, dated June 28, 2010, as amended (incorporated by reference to Exhibit
10.16 to the Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on
June 17, 2016)
Lease between Composite Solutions, Inc. and TN Realty, LLC, dated September 30, 2004, as
amended (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI-Composites S. de R.L. de C.V. and Deutsche Bank México, S.A. Institución de
Banca Múltiple, Division Fiduciaria, as Trustee of Trust F/1638, dated April 15, 2013, as amended
(incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
Amendment Agreement, among Macquarie Mexico Real Estate Management S.A. de. C.V., TPI-
Composites, S. de R.L. de C.V. and TPI Composites, Inc., dated November 27, 2018 (incorporated by
reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K (File No. 001-37839)
filed on March 5, 2019)
Lease between TPI-Composites S. de R.L. de C.V. and The Bank of New York Mellon, S.A., as
Trustee in the Trust F/00335, dated September 25, 2013 (incorporated by reference to Exhibit 10.19 to
the Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Mexico, LLC and Trailer Transfer, Inc., dated October 16, 2013 (incorporated by
reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
212093) filed on June 17, 2016)
Lease between TPI Mexico, LLC and Lanestone 1, LLC, dated April 14, 2014 (incorporated by
reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
212093) filed on June 17, 2016)
Number
10.21
10.22‡
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Description
Plant and Equipment Lease between TPI Composites (Taicang) Co., Ltd. and Suzhou Tianneng Power
Wind Mold Co., Ltd, dated May 1, 2014 (incorporated by reference to Exhibit 10.22 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Form of Employment Agreement between the Registrant and each of its executive officers
(incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Contract between TPI Composites (Taicang) Co. Ltd. and Mr. Jun Ji, dated August 4, 2015
(incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
Lease between TPI Composites, S. de R.L. de C.V. and Vesta Baja California, S. de R.L. de C.V.,
dated November 20, 2015 (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Turkey IZBAS, LLC and Dere Konstruksiyon Demir Celik Insaat Taahhut
Muhendislik Musavirlik Sanayi ve Ticaret Anonim Sirketi, dated December 9, 2015 (incorporated by
reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
212093) filed on June 17, 2016)
Lease between TPI Composites (Taicang) Co., Ltd. and Suzhou Suchen Chemical & Plastics Co.,
Ltd., dated August 5, 2014 (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Wind Blade Dafeng Co., Ltd. and Jiangsu Jianhao Transmission Machinery Co.,
Ltd., commencing January 1, 2016 (incorporated by reference to Exhibit 10.29 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Lease between TPI Kompozit Kanat San. ve Tic. A.S. and BORO Insaat Yatirim Sanayi ve Ticaret
A.S., dated October 16, 2015 (incorporated by reference to Exhibit 10.30 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-212093) filed on June 17, 2016)
Sublease between TPI Inc. and Nordex Energy GmbH, dated April 24, 2015 (incorporated by
reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
212093) filed on June 17, 2016)
10.31†
Settlement Agreement and Release between the Registrant and Nordex SE, dated June 3, 2016
(incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1
(File No. 333-212093) filed on June 17, 2016)
10.32
10.33
10.34
10.35
10.36
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.34 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-212093) filed on July 11, 2016)
Lease between Phoenix Newton LLC and TPI Iowa II, LLC, dated January 5, 2018 (incorporated by
reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K (File No. 001-37839)
filed on March 8, 2018)
Master Lease Agreement Subject to Condition between TPI Composites II, S. de R.L. de C.V. and
QVC II, S. de. R.L. de C.V. dated May 25, 2017, as amended (incorporated by reference to Exhibit
10.34 to the Registrant’s Annual Report on Form 10-K (File No. 001-37839) filed on March 8, 2018)
Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to
Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K (File No. 001-37839) filed on March
5, 2019)
Agreement to Lease between Aarush (Phase III) Logistics Park Private Limited, Aarush (Phase IV)
Logistics Parks Private Limited, Aarush (Phase V) Logistics Parks Private Limited, Aarush Logistics
Number
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
21.1*
23.1*
24.1
31.1*
31.2*
32.1**
32.2**
Description
Parks Private Limited, Aarush (Phase II) Logistics Parks Private Limited and Prospect One
Manufacturing LLP, dated February 4, 2019 (incorporated by reference to Exhibit 10.36 to the
Registrant’s Annual Report on Form 10-K (File No. 001-37839) filed on March 5, 2019)
Credit Agreement entered into as of April 6, 2018, by and among the Registrant, JPMorgan Chase
Bank, N.A., as Administrative Agent, and Well Fargo Bank, National Association and Capital One
National Association, as Co-Syndication Agents, and the lenders from time to time party thereto
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File
No. 001-37839) filed on May 3, 2018)
Form of Employee Restricted Stock Unit Award (Time-Based Vesting) under the Amended and
Restated 2015 Stock Option And Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3, 2018)
Form of Executive Restrictive Stock Unit Award (Time-Based Vesting) under the Amended and
Restated 2015 Stock Option And Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3, 2018)
Form of Employee Restricted Stock Unit Award (Adjusted EBITDA Performance-Based Vesting)
under the Amended and Restated 2015 Stock Option And Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3,
2018)
Form of Executive Restricted Stock Unit Award (Adjusted EBITDA Performance-Based Vesting)
under the Amended and Restated 2015 Stock Option And Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3,
2018)
Form of Employee Restricted Stock Unit Award (Stock Price Performance-Based Vesting) under the
Amended and Restated 2015 Stock Option And Incentive Plan (incorporated by reference to Exhibit
10.6 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3, 2018)
Form of Executive Restricted Stock Unit Award (Stock Price Performance-Based Vesting) under the
Amended and Restated 2015 Stock Option And Incentive Plan (incorporated by reference to Exhibit
10.7 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on May 3, 2018)
Amendment No. 1 dated as of May 24, 2019 to the Credit Agreement entered into as of April 6, 2018,
by and among the Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, and Well Fargo
Bank, National Association and the lenders party thereto (incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37839) filed on August 7, 2019)
List of Subsidiaries
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
101.SCH*
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
Number
101.DEF*
101.LAB*
101.PRE*
Description
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith.
*
** The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on
Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, except to the extent that the Registrant specifically incorporates it by reference.
†
‡
Confidential treatment has been granted for certain provisions of this Exhibit pursuant to Rule 406
promulgated under the Securities Act of 1933.
Indicates compensatory plan or arrangement
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 28, 2020
TPI COMPOSITES, INC.
By: /s/ Bryan Schumaker
Bryan Schumaker
Chief Financial Officer
(Principal Financial and Accounting Officer)
We, the undersigned officers and directors of TPI Composites, Inc., hereby severally constitute and appoint
Steven C. Lockard and Bryan Schumaker and each of them singly (with full power to each of them to act alone), our
true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for
him or her and, place and stead, and in any and all capacities, to sign conformed for us and in our names in the
capacities indicated below any and all signatures and amendments to this report, and to file the same, with all
exhibits thereto, filing date and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorneys-infact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
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 in the capacities and on the dates indicated.
Name
Title
Date
/s/ Steven C. Lockard
Steven C. Lockard
/s/ Bryan Schumaker
Bryan Schumaker
/s/ Stephen B. Bransfield
Stephen B. Bransfield
/s/ Michael L. DeRosa
Michael L. DeRosa
/s/ Jayshree S. Desai
Jayshree S. Desai
/s/ Philip J. Deutch
Philip J. Deutch
/s/ Paul G. Giovacchini
Paul G. Giovacchini
/s/ Jack A. Henry
Jack A. Henry
/s/ James A. Hughes
James A. Hughes
/s/ Tyrone M. Jordan
Tyrone M. Jordan
/s/ Daniel G. Weiss
Daniel G. Weiss
Chief Executive Officer and Director
(Principal Executive Officer)
February 28, 2020
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2020
Director
Director
Director
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
Director and Chairman of the Board
February 28, 2020
Director
Director
Director
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
®
TPI Composites, Inc.
8501 N Scottsdale Road, Suite 100
Scottsdale, AZ 85253
(480) 305-8910
www.tpicomposites.com