UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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.
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
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.
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. |
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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 30, 2021 as reported by the NASDAQ Global Market on such date was approximately $
As of January 31, 2022, the Registrant had
Documents Incorporated by Reference
Table of Contents
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PART I |
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Item 1. |
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Item 1A. |
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Item 1B. |
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Item 2. |
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Item 3. |
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PART II |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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PART III |
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Item 11. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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PART IV |
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Item 16. |
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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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). 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,” “targets,” “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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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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PART I
Item 1. Business
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 is incorporated in Delaware.
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) 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 is 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 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 (each set consisting 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 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 June 2021, we extended our supply agreement with Proterra, Inc. (Proterra) to supply Proterra Catalyst® composite bus bodies through December 2024. In 2019, we made a capital investment of approximately $11.5 million to develop a highly automated manufacturing line for the electric vehicle market within our Warren, Rhode Island facility to enable us to further develop our technology, create defensible product and process intellectual property (IP) and demonstrate our capability to manufacture composite components cost effectively at automotive volume rates. In 2021, we began a production program to manufacture a composite component for an electric vehicle manufacturer using this automated production line and have commenced production of additional composites components for this manufacturer in 2022. We manufactured approximately 26,000 production components in 2021 and anticipate manufacturing 25,000 production components in the first half of 2022. We continue to expand our manufacturing capabilities and have received orders with a major OEM to produce approximately 450,000 production components in 2022 and approximately 1,000,000 in 2023.
Our wind blade and precision molding and assembly systems manufacturing businesses accounted for approximately 95%, 96%, and 96% of our total net sales for each of the years ended December 31, 2021, 2020 and 2019, respectively. As of February 24, 2022, our wind and transportation supply agreements provide for minimum aggregate volume commitments from our customers of approximately $2.2 billion and encourage our customers to purchase additional volume up to, in the aggregate, a total contract value of approximately $3.5 billion through the end of 2024.
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Financial Information about Segments and Geographic Areas
We divide our business operations into five geographic operating segments - (1) the United States (U.S.), (2) Asia, (3) Mexico, (4) Europe, the Middle East and Africa (EMEA) and (5) India as follows:
For additional information regarding our operating segments and geographic areas, see Note 21 – 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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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 75,000 wind blades since 2001 with a strong, long-term field performance record in a market where reliability is critical to our customers’ success. We manufacture or have manufactured wind blades ranging from 30 meters to approximately 80 meters in length 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 secure volumes that we believe will be required to fulfill our customers’ wind blade commitments for fixed prices with limited contractual price adjustment provisions. A portion of our raw materials are subject to price volatility, such as the resins and carbon reinforcements used in our manufacturing processes. During 2021, there have been both significant price increases and supply constraints with respect to resins and carbon fiber, which are key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. These increases in raw materials and related logistics adversely affected our results of operations by approximately $38 million for the year ended December 31, 2021.
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. Our largest customer, however, sources all of the critical raw materials that we use to produce such customers' wind blades. Since we do not source procurement of these raw materials for our largest customer, we have fewer controls and remedies to mitigate raw material and supply chain risks and disruptions relating to such raw materials. For example, we experienced production delays and reduced production volumes in 2021 at our Matamoros, Mexico and Izmir, Turkey manufacturing facilities due to carbon and other raw material shortages that were sourced by a customer.
Precision Molding and Assembly Systems
Over the last decade, we have produced hundreds of precision molding and assembly systems, ranging from 30 meters to approximately 80 meters in length, to support our global operations. In 2020, we transitioned our North American precision molding and assembly system production capabilities to a new facility in Juárez, Mexico, which serves customers globally. Our precision molding and assembly systems have been used to build tens of thousands of wind blades worldwide.
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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 fiber, 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 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.
Wind Blade Supply Agreements
Our current wind blade customers, which include Vestas, GE Wind, Nordex, and ENERCON GmbH (ENERCON), are some of the world’s largest wind turbine manufacturers. According to data from Bloomberg, our customers represented approximately 37% of the global onshore wind energy market, approximately 76% of that market excluding China, and 89% of the U.S. onshore wind turbine market over the three years ended December 31, 2020, 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 24, 2022, our existing wind blade supply agreements provide for minimum aggregate volume commitments from our customers of approximately $2.2 billion and encourage our customers to purchase additional volume up to, in the aggregate, a total contract value of approximately $3.5 billion through the end of 2024, 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 supply agreements with our customers generally provide downside protection for us through minimum annual volume commitments, as well as encourage our customers to maximize the volume of wind blades they purchase from us, since purchasing less than a specified amount typically triggers higher pricing. Some of our supply agreements also provide for annual sales price reductions reflecting assumptions regarding increases in our
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manufacturing efficiency and productivity. We work to continue to drive down or minimize the impact of increases in 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. Similarly, we typically share any raw material price increases with our customers. Our largest customer, however, sources all of the critical raw materials that we use to produce its wind blades and this customer assumes 100% of any such raw material price increases or decreases. 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 supply agreement with Vestas to supply wind blades from our manufacturing facility in Dafeng, China. Based on the success of this manufacturing arrangement, we expanded our relationship with Vestas through additional supply agreements to manufacture wind blades at our manufacturing facilities in Turkey, Matamoros, Mexico, Yangzhou, China and Chennai, India. In December 2021, we extended our supply agreement with Vestas at one of our Izmir, Turkey plants for an additional year through December 2023. We consolidated our manufacturing footprint for Vestas in China at the end of 2021 by stopping production at our Dafeng, China facility and agreeing to add four new manufacturing lines to our Yangzhou, China manufacturing facility. 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 have manufactured some of the model-specific tooling that we use to produce wind blades 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 multiple supply agreements with GE Wind to manufacture wind blades from two manufacturing facilities in Juárez, Mexico. 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 July 2020, GE Wind agreed to extend our existing supply agreement in one of our Mexico plants by two years to 2022 and added one additional wind blade manufacturing line in Mexico to provide blades for GE Wind’s turbine technologies in North America in 2021. We ceased production of GE Wind blades at our Iowa facility during the fourth quarter of 2021. Unless otherwise terminated or renewed, our supply agreements with GE Wind in Mexico are in effect until the end of 2022. 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.
Nordex
We supply wind blades to Nordex from our manufacturing facilities in Turkey, India and Matamoros, Mexico. In Matamoros, we took over a facility from Nordex, pursuant to a 3-year supply agreement. If the supply agreement for the Matamoros manufacturing facility is not extended, then Nordex will resume management and operation of the Matamoros wind blade manufacturing facility at the end of the 3-year term. Each of the supply agreements with Nordex provide for a minimum number of wind blade sets to be purchased by Nordex each year during the term, and we commit to dedicate a specific number of manufacturing lines to Nordex for each of the years under the supply agreements.
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Other Supply Agreements
We have a supply agreement in Turkey with ENERCON. With respect to this supply agreement, we have agreed to dedicate capacity for a set number of wind blades for each calendar year during the term of the agreement in exchange for a commitment to purchase minimum annual volumes of wind blade sets. Unless otherwise terminated, this supply agreement remains in effect for a period of several years and either party may terminate the supply agreement upon a material breach by the other party which goes uncured. This supply agreement contains provisions that allow for our customer to purchase less volume in later years of this supply agreement, 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— Some of our supply agreements with our customers are subject to early termination and volume reductions at the discretion of our customers, and any early termination of or reduced volumes of wind blades purchased under these agreements would materially harm our business, financial condition and results of operations” 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 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 of advanced manufacturing and other innovative programs. In 2021, we began a collaboration with the University of Maine pursuant to a grant from the U.S. DOE’s Advanced Manufacturing Office to develop a rapid, low-cost additive manufacturing solution (3D printing) for fabricating large, segmented wind blade molds. Additionally, we participate on collaborative programs as a working member of the Institute for Advanced Composite Manufacturing Innovation (IACMI), a US DOE National Network of Manufacturing Innovation consortium. Specifically, this effort includes new material systems focused on creating an economical solution to end-of-life reclamation of materials for reuse and recycling. This work includes cost sharing of engineering and laboratory support to develop new process technologies.
We employ a highly experienced workforce of engineers in various facets of our business, from 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 IP and hired a team of engineering resources from the EUROS group, based in Berlin, Germany. This team of technical experts focuses on blade design, tooling, materials and process technology development. This acquisition strengthened our technical capabilities in support of our global operations and growth. In addition, we established an advanced engineering center in Kolding, Denmark which provides technical and engineering resources to our manufacturing facilities and our customers.
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Competition
The wind blade market is highly concentrated, competitive and subject to evolving customer needs and expectations. Our competitors include LM Wind Power (a subsidiary of GE Renewable Energy) and 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.
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.
Competitive advantages in the wind blade service market include speed of response, local footprint, repair quality, competitive labor pricing and capacity to work across regions as demand adapts to the business seasonality. Our competitors include certain of our wind OEM customers, and a broad range of independent wind blade service companies. We have proven strong in many of these criteria and our ability to remain competitive will depend on such factors, including strengthening our response time, adding and managing labor resources, sourcing materials globally at competitive rates while further expanding into new countries, and offering additional value-added engineering support and technical solutions.
The transportation and automotive supply industry is highly competitive, and our composite solutions compete against alternative materials and a broad range of competitive suppliers. Our ability to remain competitive will depend on time to market, continuing to provide a lower upfront investment for our customers, and providing superior performance attributes with our composite solutions.
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 and components, are ideally suited for our advanced composite technology because of the benefits derived from weight reduction, corrosion resistance, strength, durability and lower upfront capital costs. 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.
Our facilities in Warren, Rhode Island and Juárez, Mexico manufacture products for customers in the transportation market using, in some cases, 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 last-mile delivery as well as automated people mover systems for airports. In November 2017, we signed a five-year supply agreement with Proterra to supply Proterra Catalyst® composite bus bodies. In June 2021, we extended our supply agreement with Proterra through December 2024.
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In 2019, we made a capital investment of approximately $11.5 million to develop a highly automated manufacturing line for the electric vehicle market within our Warren, Rhode Island facility to 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. In 2021, we began a production program to manufacture a composite component for an electric vehicle manufacturer using this automated production line and have commenced production of additional components for this manufacturer in 2022. We manufactured approximately 26,000 production components in 2021 and anticipate manufacturing an additional 25,000 production components in the first half of 2022. We continue to expand our manufacturing capabilities and have received orders with a major OEM to produce approximately 450,000 production components in 2022 and approximately 1,000,000 in 2023.
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 IP rights, including trademarks, copyrights and patents issued, filed and applied-for in a number of jurisdictions, including the U.S., 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 and not on our IP alone. 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 IP 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, 2021 and 2020, our backlog for wind blades and related wind products totaled $813.1 million and $1,197.7 million, respectively. Our backlog includes purchase orders issued in connection with our supply agreements. We generally record a purchase order into backlog when the following requirements have been met: a signed 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 wind 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 Environmental Protection Agency (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
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intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. As a U.S. corporation with global operations, we are also subject to foreign antibribery laws and regulations in the countries where we conduct business, including the U.K. Bribery Act.
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 U.S., the federal government has encouraged capital investment in renewable energy primarily 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 December 2020, Congress extended the PTC through the end of 2021, continuing the rate of 60% for projects that either commenced construction or met certain safe harbor requirements by the end of 2021 and are commissioned by the end of 2025. Although we believe that the onshore wind market will continue to grow over the long term, the expiration of the PTC at the end of 2021 has created uncertainty in the near term resulting in decreased demand for our wind blades in 2021 compared to 2020. We are monitoring legislative and regulatory policy proposals to extend or expand tax credits in the U.S. to promote wind energy.
At the state level, as of December 31, 2021, 30 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 2050).
In addition, there are also increasing regulatory efforts globally to promote renewable power. In December 2020, the European Union (EU) agreed to reduce EU greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Similarly, in December 2020, China announced its goal to reach carbon neutrality by 2060, and in November 2021, India targeted to increase its renewable energy capacity to 500 gigawatts by 2030 and to reach carbon neutrality by 2070. Additionally, Turkey enacted Law No. 5346 in 2005, which was recently amended and extended in January 2021, to promote renewable-based electricity generation within their domestic electricity market through feed-in- tariffs and purchase obligations for distribution companies requiring purchases from certified renewable energy producers.
Human Capital
As of December 31, 2021, we employed over 14,000 full-time employees, approximately 600 of whom were located in the U.S., 1,400 in China, 6,300 in Mexico, 4,100 in Turkey and 1,600 in India. Certain of our employees in Turkey and at our manufacturing facilities in Matamoros, Mexico are represented by labor unions. We believe that our relations with our employees are generally good.
Our human capital strategy focuses on creating an exceptional employee experience and ensuring that we foster a learning culture where our employees want to grow with us. Our primary focus areas of our human capital strategy are as follows:
Culture
We believe our unique culture is a key strategic advantage for us. Our associates are highly engaged and committed to the Company, their teams, and the jobs they perform based on our most recent employee engagement surveys. This strong employee engagement is due in part to a strong sense of purpose given our role in the broader
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renewable energy supply chain. We believe strong employee engagement translates into a strong quality focus and orientation. It is through the efforts of our approximately 14,000 employees at year-end 2021 that we have been able to continue to achieve high levels of performance. When we select new persons to join our team, we ensure that the individuals have high levels of commitment and adaptability in addition to the skills needed for the role. Our employees embrace our core values of safety, operational excellence, commitment, integrity and leadership. Our team members bring our values to life by applying their diverse backgrounds and skillsets to the jobs they are performing, demonstrating high discretionary effort, and embracing our values in their day-to-day lives.
Safety
Safety is our most important and first core value. We strongly believe that all accidents are preventable and that every associate should return at the end of their shift to their families in the same healthy condition in which they showed up for work. To help drive these beliefs it is our goal to continuously improve our zero-harm culture and implement a global behavior-based safety (BBS) program resulting in zero unsafe behaviors. All of our manufacturing facilities have safety management systems in place that cover their associates and activities. We ensure the safety of our associates to support our zero-harm culture in a variety of ways, starting with safety education. Safety education is the foundation for our other safety measures. Associates receive regular training on environmental, health and safety (EHS) related topics. This training includes but is not limited to:
Diversity, Equity and Inclusion
We value diversity in all forms, especially diversity of thought, and aspire to create an environment that recognizes and celebrates the benefits that come with a diverse workforce. We know that diversity of our employee population makes us better and strive to continue to improve and act with intention in these areas.
As a global business, we have an incredible opportunity to benefit from the diversity we have in our Company. We can and will do more to maximize the positive impact that diversity, equity, inclusion, and a feeling of belonging can bring. We believe that this and the rest of our vision statement for diversity, equity and inclusion is a solid representation of what we believe in, are committed to, and how we will hold associates and leaders accountable. We recognize that one of our greatest areas of opportunity is to increase the representation of women and overall racial and ethnic diversity at all levels of leadership as we add more talent to our leadership levels.
Talent
We market open jobs across multiple platforms such as our website, LinkedIn, internal postings and local job boards to ensure that our candidate pool is as diverse as possible. We promote having diversity on the interviewing and selection panel to ensure different points of view are considered as part of the final selection process. We enjoy high levels of retention across all of our geographies. Our overall turnover rate has continued to decline over the past three years on a global basis. We facilitate an annual talent review process in all regions and functional teams to promote the internal development and promotion of internal talent. We have enjoyed high participation in employee surveys, high engagement levels against industry normative data, and also facilitated a COVID-19 and diversity equity and inclusion survey in 2021.
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
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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 and our desire to eliminate unsafe behaviors in the workplace. 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 https://ir.tpicomposites.com/websites/tpicomposites/English/0/investor-relations.html 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 24, 2022:
Name, Age |
|
Position |
|
Year Appointed as Executive |
Business Experience since January 1, 2017 |
William Siwek, 59 |
|
President, Chief Executive Officer and Director |
|
2013 |
TPI Composites, Inc.: Chief Executive Officer since May 2020, President from May 2019 to May 2020, Chief Financial Officer from August 2013 to May 2019. |
Ramesh Gopalakrishnan, 54 |
|
President, Chief Operating Officer, Wind |
|
2019 |
TPI Composites, Inc.: President and Chief Operating Officer, Wind since January 2022, Chief Operating Officer, Wind from May 2019 to January 2022, Senior Vice President, Global Quality, Technology and Latin American Operations from February 2019 to May 2019, Senior Vice President, Technology and Industrialization from August 2017 to February 2019, Vice President Technology, Transfer and Launch from September 2016 to August 2017. |
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Adan Gossar, 49 |
|
Interim Chief Financial Officer |
|
2020 |
TPI Composites, Inc.: Interim Chief Financial Officer since December 2021, Chief Accounting Officer since July 2020. |
Lance Marram, 50 |
|
Chief Commercial Officer, Wind |
|
2022 |
TPI Composites, Inc.: Chief Commercial Officer since January 2022, Senior Vice President, Global Service from October 2019 to January 2022. |
Jerry Lavine, 53 |
|
President, Transportation |
|
2021 |
TPI Composites, Inc.: President, Transportation since June 2021. |
Steven Fishbach, 52 |
|
General Counsel and Secretary |
|
2015 |
TPI Composites, Inc.: General Counsel since January 2015. |
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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 Business
A significant portion of our business is derived from a small number of customers, and three 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 supply agreement renewals from these customers could materially harm our business.
Substantially all of our revenues are derived from three wind blade customers. Vestas, GE Wind and Nordex accounted for 40.4%, 24.7% and 22.4%, respectively, of our total net sales for the year ended December 31, 2021, and 49.7%, 23.4% and 15.3%, respectively, of our total net sales for the year ended December 31, 2020, and 46.1%, 25.7% and 16.1%, respectively, of our total net sales for the year ended December 31, 2019. Accordingly, we are substantially dependent on continued business from our current wind blade customers. 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 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, and our reserves for warranty expenses might not be sufficient to cover all future costs.
Defects in the wind blades we manufacture are unpredictable and an inherent risk in manufacturing technically advanced products that involve a significant amount of manual labor and processes. Defects may arise from multiple causes, including design, engineering, materials, manufacturing and components failures as well as deficiencies in our manufacturing processes. 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 experienced wind blade 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. Wind blades that we have manufactured have also failed in the field. Any wind blade 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 supply agreements or business relationships with current or new customers. Any of the foregoing could materially harm our business, operating results and financial condition.
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. 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.
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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 2020 and into 2021, we undertook model transitions at several of our facilities for various customer demands. In 2020, we had several manufacturing lines in transition which adversely impacted our revenue and profitability. We currently expect to have manufacturing lines in transition during 2022 which could adversely affect our revenue and profitability in 2022. We typically share transition costs with the customer in connection with these changing customer demands, but any sharing is usually 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, expansion or assumption 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 five manufacturing facilities in Mexico, one in Turkey, one in Yangzhou, China and one in Chennai, India. The construction of new plants and the expansion or assumption of existing plants involves significant time, cost and other risks. We generally expect our plants to generate losses in their first 12 to 18 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, defects or issues with product tooling, 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. Any delays or difficulties in plant startup, expansion or assumption 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, in 2019, 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 in 2019 and 2020. In 2021, we experienced significant production delays at the Matamoros, Mexico manufacturing facility that we took over from Nordex in July 2021, which adversely impacted our profitability and financial condition.
Some of our supply agreements with our customers are subject to early termination and volume reductions at the discretion of our customers, and any early termination of or reduced volumes of wind blades purchased under these agreements could materially harm our business, financial condition and results of operations.
Our supply agreements expire between the end of 2021 and the end of 2024. Some of our 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. Our 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. The amount of the annual purchase requirements typically decline in the later years of our supply agreements. Our customers may not continue to maintain supply agreements with us in the future. For example, Vestas did not renew its Dafeng, China supply agreement, and GE did not renew its Iowa supply agreement, both of which expired at the end of 2021. If one or more of our customers terminate, or reduce the number of manufacturing lines and volumes of wind blades purchased, or fail to renew their supply agreements with us, it may materially harm our business, financial condition and results of operations.
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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, which typically provide producers of wind energy with favorable prices for wind generated electricity, to unsubsidized, 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 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 U.S., our business is still heavily dependent upon the demand for wind energy in the U.S. and any downturn in demand for wind energy in the U.S. 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 U.S., China, Mexico, Turkey and India. Although a majority of our manufacturing facilities are located outside of the U.S., historically more than half of the wind blades that we produced were deployed in wind farms located within the U.S. Our Iowa and Mexico manufacturing facilities manufacture wind blades that are generally deployed within the U.S. In addition, many of our wind blades are exported from our China, Turkey and India manufacturing facilities to the U.S. In addition, tariffs imposed on components of wind turbines from China, including wind blades, has had a negative impact on demand for our wind blades manufactured in our Chinese manufacturing facilities. Consequently, demand for wind energy and our wind blade sales could be adversely affected by a variety of reasons and factors, and any downturn in demand for wind energy in the U.S. could materially harm our business. We expect that demand for wind turbine blades in 2022 will remain at similar levels or decline compared to 2021 due in large part to continued regulatory uncertainty in the U.S. regarding whether the PTC will be extended or other clean energy legislation is enacted.
We have recently experienced significant price increases and supply constraints of raw materials and components that are critical to our manufacturing needs, and we may continue to, or in the future, experience such price increases and supply constraints, which may hinder our ability to perform under our supply agreements and adversely impact our profitability and financial condition.
We rely upon third parties for raw materials, such as fiberglass, carbon fiber, 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. During 2021, there have been both significant price increases and supply constraints with respect to resin and carbon fiber, which are key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. The resin price increases and supply constraints are due to a multitude of factors, including the extreme cold weather in Texas in February 2021, fires at resin manufacturing facilities in China and unplanned maintenance outages at resin manufacturing facilities in Europe. Carbon fiber prices have increased primarily due to the cost of raw material inputs as well as increased global demand for carbon fiber across multiple industries. Although we are able to a pass a portion of these cost increases onto our customers, these raw material price and logistics cost increases adversely affected our results of operations by approximately $38 million for the year ended December 31, 2021.
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, closely monitor and manage inventory and acquire raw materials and components as needed and with consideration to lead time factors. Due to significant international demand for these raw materials from many industries, and extended logistics lead times, we may be unable to acquire sufficient quantities or secure a stable supply for our manufacturing needs. Our largest customer sources all of the critical raw materials that we use to produce its wind blades and in some instances, our customers source the purchase of certain key raw materials and components. Since we do not source the procurement of these raw materials for our largest customer, we have fewer controls and remedies to mitigate
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raw material and supply chain risks and disruptions relating to these raw materials. For example, we experienced production delays and reduced production volumes in 2021 at our Matamoros, Mexico and Izmir, Turkey manufacturing facilities due to carbon and other raw material shortages that were sourced by a customer.
In 2021, we procured approximately 22% of our raw materials from China so any ocean logistic delays, weather events, strikes, other force majeure events or geopolitical developments impacting China could disrupt our supply chain. 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.
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:
In 2021, we experienced a decline in demand for our wind turbine blades due primarily to regulatory uncertainty regarding whether the PTC would be extended beyond 2021 in the U.S., which adversely impacted our operating results. We expect that demand for wind turbine blades in 2022 will remain at similar levels or decline compared to 2021. 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.
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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:
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 supply agreements or penalties for regulatory non-compliance, any of which could materially harm our business, operating results and financial condition.
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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 U.S., China, Mexico, Turkey, and India. Since the third quarter of 2016, we have commenced operations at five new manufacturing facilities in Mexico, one in Turkey, one in Yangzhou, China and one in Chennai, India. For the years ended December 31, 2021, 2020 and 2019, approximately 90%, 89% and 88%, respectively, of our net sales were derived from our international 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:
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, diversify our product and service offerings 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, diversifying our product and service offerings and adding 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 or engage us to provide field service inspection and repair services or ancillary products and services. Our collaborative dedicated supplier
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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 entered into 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 and related product and service offerings, 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 traditional (i.e. thermal) and other renewable energy sources. Decreases in the prices of electricity from traditional or 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. 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.
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 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. The competitive environment in the wind energy industry recently has become more challenging primarily due to ongoing regulatory uncertainty and supply chain constraints and significant raw material price increases. This challenging environment may lead to further consolidation in the industry, which could lead to us having even fewer customers. 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 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 supply agreements with potential new and existing customers may be materially harmed.
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Various legislation, regulations and incentives that are expected to support the growth of wind energy in the U.S. 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 has been dependent in part upon governmental support through certain incentives including federal tax incentives and state RPS programs and may not be economically viable if a large number of these incentives are not continued. Government-sponsored tax incentive programs including the PTC, and the Investment Tax Credit (ITC) have supported the U.S. growth of wind energy. The PTC and ITC were extended for an additional year through the end of 2021. Although we believe that the onshore wind market will continue to grow over the long term, the expiration of the PTC at the end of 2021 has created uncertainty in the near term resulting in decreased demand for our wind blades in 2021 compared to 2020. We are monitoring legislative and regulatory policy proposals to extend or expand tax credits in the U.S. to promote wind energy.
Because of the long lead times necessary to develop wind energy projects, any uncertainty or delay in reinstituting the PTC and ITC or adopting, extending or renewing other incentives promoting wind energy 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 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 U.S. 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.
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. We have experienced startup challenges and incurred significant losses to date in connection with the supply of bus bodies to Proterra. 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.
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 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.
Risks Related to Our Business as a Whole
Our business, operations and financial condition during the years ended December 31, 2021 and 2020 were adversely affected by the COVID-19 pandemic and we cannot estimate the duration of the COVID-19 pandemic and our business may be adversely affected in the future if the COVID-19 pandemic persists.
The COVID-19 pandemic adversely affected our business and operations during the years ended December 31, 2021 and 2020. During the first quarter of 2020, our China manufacturing facilities were adversely impacted by the COVID-19 pandemic in the form of reduced production levels and COVID-19 related costs associated with the health and safety of our associates and non-productive labor. During the second quarter of 2020, all of our manufacturing facilities with the exception of our China manufacturing facilities and our Rhode Island
23
manufacturing facility were required to temporarily suspend production or operate at reduced production levels due primarily to certain applicable government-mandated stay at home orders in response to the COVID-19 pandemic, demands from certain of our labor unions to suspend or reduce production and general safety concerns of our associates. By the end of the second quarter of 2020, most of our manufacturing facilities had returned to operating at or near normal production levels. During the third quarter of 2021, our manufacturing facility in Yangzhou, China was required to temporarily suspend production due to a COVID-19 outbreak in Yangzhou City. We may be required to reinstate temporary production suspensions or volume reductions at our other manufacturing facilities to the extent there is a resurgence of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities.
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. The factors that are likely to cause these variations include:
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
24
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. To the extent our future revenues and expenses are generated outside of the U.S. 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.
Our current wind blade manufacturing activities and future growth will require substantial capital investment. For the years ended December 31, 2021 and 2020, our capital expenditures were $38.9 million and $65.9 million, respectively, including assets acquired under finance leases in 2021 and 2020 of $1.8 million and $0.2 million, respectively. We have recently entered into lease agreements with third parties to lease new manufacturing facilities in China, India and Mexico. We plan to make continued investments 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 or access capital to acquire new businesses. 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 our business 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.
Our business and reputation could be adversely impacted by any violations of the FCPA, the U.K. Bribery Act, and other foreign anti-corruption laws.
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. Other countries in which we operate also have anti-corruption laws, some of which prohibit improper payments to government and non-government persons and entities, and others extend their application to activities outside their country of origin. 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 policies, 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 or other anti-corruption laws, 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 similar laws, which could provide them with a competitive advantage in some jurisdictions.
25
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.
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:
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. We were not in compliance with certain financial covenants of our senior secured credit facility as of September 30, 2021, primarily due to the Mexico production delays, increased raw material costs and constraints described above. On November 8, 2021 (the Waiver Effective Date), we and the lenders that are parties to the senior secured credit facility executed a limited waiver pursuant to which the lenders agreed to temporarily waive our compliance with this financial covenant from the Waiver Effective Date through December 8, 2021. If we are not able to pay our debts as they become due, we could be in default under our senior secured 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
26
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.
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 IP rights, including patents, trademarks and copyrights, but much of our most important IP rights consist of trade secrets and know-how and effective IP protection may be unavailable, limited or outside the scope of the IP rights we pursue in the U.S. and in foreign countries such as China where we operate. Although we strive to protect our IP 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 IP rights, but it is possible that a customer, supplier, employee or contractor might breach the agreement, intentionally or unintentionally. 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 IP 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 IP 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.
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’s Occupational Safety and Health Administration, 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.
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.
27
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 48% of our workforce as of December 31, 2021, are covered by collective bargaining agreements. Our collective bargaining agreement for our Turkey facilities are in effect through the end of 2022.
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 were 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 our labor union. We amended this Matamoros collective bargaining agreement to adjust the salaries and bonuses payable to our associates for calendar year 2022 that are covered by this agreement. This collective bargaining agreement is in effect through March 2023.
In July 2021, we took over a manufacturing facility from Nordex in Matamoros, Mexico pursuant to a 3-year supply agreement. We have a collective bargaining agreement for the associates at this facility that is in effect through April 2023 and we expect this collective bargaining agreement will be amended during the first half of 2022.
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, or other challenges with negotiating and extending our collective bargaining agreements with our unionized employees, 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.
Risks Related to Our Series A Preferred Stock
Holders of our Series A Preferred Stock may exercise influence over us, including through their ability to designate a member of our board of directors.
In November 2021, we issued 350,000 shares of Series A Preferred Stock to certain funds affiliated with Oaktree Capital Management, L.P. (the Series A Preferred Stockholders) for an aggregate purchase price of $350 million. The Series A Preferred Stockholders are entitled to designate one representative to be appointed to our board of directors so long as 33% of the Series A Preferred Stock originally issued remains outstanding. Notwithstanding the fact that all directors are subject to fiduciary duties to us and subject to applicable law, the interests of the director designated by the Series A Preferred Stockholders may differ from the interests of holders of our common stock or of our other directors.
Although the Series A Preferred Stockholders do not have any voting rights or rights to convert such preferred shares into shares of common stock, we must obtain the prior written consent of holders of a majority of the outstanding shares of Series A Preferred Stock for, among other things: (i) amending our organizational documents to the extent such amendment has an adverse effect on the Series A Preferred Stockholders, (ii) effecting any change
28
of control, liquidation event or merger or consolidation of us unless the entirety of the applicable redemption price is paid with respect to all the then issued and outstanding Series A Preferred Stock (iii) increasing or decreasing the number of authorized shares of Series A Preferred Stock, (iv) making certain material acquisitions or dispositions or entering into joint ventures or similar transactions, (v) incurring indebtedness except for indebtedness incurred under our existing loan facilities and agreements so long as the total amount of such indebtedness does not exceed $80 million, and (vi) committing to any capital expenditures or agreements to construct or acquire new manufacturing facilities, and (vii) certain other specified actions.
As a result, the Series A Preferred Stockholders have the ability to influence the outcome of certain matters affecting our governance and capitalization. The sponsors of the Series A Preferred Stockholders are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that diverge from, or even conflict with, those of our other stockholders. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. Our obligations to the Series A Preferred Stockholders could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our results of operations and financial condition.
Our Series A Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition.
The Series A Preferred Stockholders have certain liquidation, dividend and redemption rights requiring us, among other things, to repurchase their shares of Series A Preferred Stock under specified circumstances, and these rights are senior to the rights of holders of our common stock. We may not be able to generate sufficient cash flow from our operations to satisfy our dividend, liquidation and redemption obligations to the Series A Preferred Stockholder and could impact our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the Series A Preferred Stockholders could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. If we fail to meet our dividend, liquidation redemption and other material covenant obligations owing to the Series A Stockholders, the Series A Stockholders are entitled to additional rights and preferences, including an increased dividend rate, additional control rights over the management of our business and the right to require us to pursue a financing or other transaction to repay all outstanding dividend and redemption obligations owing to the Series A Preferred Stockholders.
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:
29
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, 2021, we had 37,180,004 shares of common stock outstanding. All shares can now be sold, subject to any applicable volume limitations under federal securities laws. We may issue debt or equity securities in other registered or unregistered convertible debt or equity offerings.
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, 2021, we had outstanding options to purchase 998,126 shares of our common stock, 636,606 restricted stock units and 378,661 performance stock units to our employees and non-employee directors. From time to time, we expect to grant additional options and other stock awards. We also issued warrants to purchase 4,666,667 shares of common stock at an exercise price of $0.01 per share to the Series A Preferred Stockholders. The Series A Preferred Stockholders may exercise their warrants at any time during the five-year term of the warrants and the number of shares issuable upon exercise of the warrants is subject to customary adjustments upon the occurrence of certain events such as stock splits, reclassifications, combinations, dividends, distributions, mergers and other similar events. 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.
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
30
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: 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.
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 U.S., China, Mexico, Turkey, India, Denmark, Germany and Spain. 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 various information regarding our facilities as of February 25, 2022:
|
|
Operating |
|
Year |
|
Leased or |
|
Approximate |
|
|
|
|
Location |
|
Segment |
|
Commenced |
|
Owned |
|
Square |
|
|
Description of Use |
|
Newton, IA, U.S. |
|
U.S. |
|
2008 |
|
Leased |
|
|
337,922 |
|
|
Wind Blade Manufacturing Facility |
Newton, IA, U.S. |
|
U.S. |
|
2018 |
|
Leased |
|
|
114,078 |
|
|
Transportation Manufacturing Facility |
Dafeng, China |
|
Asia |
|
2013 |
|
Leased |
|
|
381,102 |
|
|
Wind Blade Manufacturing Facility |
Dafeng, China |
|
Asia |
|
2015 |
|
Leased |
|
|
446,034 |
|
|
Wind Blade Manufacturing Facility |
Taicang Port, China |
|
Asia |
|
2007 |
|
Owned |
|
|
208,445 |
|
|
Precision Molding Facility |
Yangzhou, China |
|
Asia |
|
2018 |
|
Leased |
|
|
934,133 |
|
|
Wind Blade Manufacturing Facility |
Juárez, Mexico |
|
Mexico |
|
2013 |
|
Leased |
|
|
345,984 |
|
|
Wind Blade Manufacturing Facility |
Juárez, Mexico |
|
Mexico |
|
2016 |
|
Leased |
|
|
453,096 |
|
|
Wind Blade Manufacturing Facility |
Juárez, Mexico |
|
Mexico |
|
2017 |
|
Leased |
|
|
339,386 |
|
|
Wind Blade Manufacturing Facility |
Juárez, Mexico |
|
Mexico |
|
2018 |
|
Leased |
|
|
300,277 |
|
|
Precision Molding Manufacturing Facility |
Matamoros, Mexico |
|
Mexico |
|
2017 |
|
Leased |
|
|
527,442 |
|
|
Wind Blade Manufacturing Facility |
Izmir, Turkey |
|
EMEA |
|
2012 |
|
Leased |
|
|
343,000 |
|
|
Wind Blade Manufacturing Facility |
Izmir, Turkey |
|
EMEA |
|
2015 |
|
Leased |
|
|
817,078 |
|
|
Wind Blade Manufacturing Facility |
Warren, RI, U.S. |
|
U.S. |
|
2004 |
|
Leased |
|
|
108,750 |
|
|
Precision Molding Development and Manufacturing and Research and Development Facility, Transportation Manufacturing Facility |
31
Santa Teresa, NM, U.S. |
|
Mexico |
|
2014 |
|
Leased |
|
|
503,710 |
|
|
Wind Blade Storage Facility/Wind Blade Services Facility |
Scottsdale, AZ, U.S. |
|
U.S. |
|
2015 |
|
Leased |
|
|
22,508 |
|
|
Corporate Headquarters |
Kolding, Denmark |
|
U.S. |
|
2018 |
|
Leased |
|
|
2,583 |
|
|
Advanced Engineering Center |
Chennai, India |
|
India |
|
2019 |
|
Leased |
|
|
776,280 |
|
|
Wind Blade Manufacturing Facility |
Madrid, Spain |
|
U.S. |
|
2021 |
|
Leased |
|
|
26,124 |
|
|
Wind Blade Services Facility |
Berlin, Germany |
|
U.S. |
|
2019 |
|
Leased |
|
|
4,684 |
|
|
Engineering Center |
Item 3. Legal Proceedings
For a discussion of our legal proceedings, refer to Note 16 – Commitments and Contingencies – (b) Legal Proceedings of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
32
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 NASDAQ under the symbol “TPIC.” Prior to that time, there was no public market for our stock.
Performance Graph
The following graph and table illustrate the total stockholder return from July 22, 2016 through December 31, 2021, 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.
|
|
Base Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
7/22/16 |
|
|
12/30/16 |
|
|
12/29/17 |
|
|
12/31/18 |
|
|
12/31/19 |
|
|
12/31/20 |
|
12/31/21 |
|
|||||||
TPI Composites, Inc. |
|
$ |
100.00 |
|
|
$ |
118.29 |
|
|
$ |
150.88 |
|
|
$ |
181.27 |
|
|
$ |
136.50 |
|
|
$ |
389.23 |
|
$ |
110.32 |
|
Russell 2000 |
|
$ |
100.00 |
|
|
$ |
111.89 |
|
|
$ |
126.60 |
|
|
$ |
111.19 |
|
|
$ |
137.56 |
|
|
$ |
162.82 |
|
$ |
185.12 |
|
S&P Small Cap 600 Energy (Sector) |
|
$ |
100.00 |
|
|
$ |
133.11 |
|
|
$ |
97.60 |
|
|
$ |
55.64 |
|
|
$ |
47.19 |
|
|
$ |
28.17 |
|
$ |
44.86 |
|
NASDAQ Clean Edge Green Energy |
|
$ |
100.00 |
|
|
$ |
102.59 |
|
|
$ |
134.16 |
|
|
$ |
116.50 |
|
|
$ |
163.93 |
|
|
$ |
462.91 |
|
$ |
448.76 |
|
Holders
As of January 31, 2022, there were two stockholders of record of our common stock, although there is a much larger number of beneficial owners.
33
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 to holders of our common stock, will be at the discretion of the board of directors, junior to the rights of the Series A Preferred Stockholders to receive dividends, and 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 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 of this Annual Report on Form 10-K.
Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($26.7 million) of registered capital is contributed to a surplus reserve, our China 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 China operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. As of December 31, 2021, the amount of the surplus reserve fund was $10.0 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” included in Part II, Item 7 of this Annual Report on Form 10-K.
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
There were no unregistered sales of equity securities during the year ended December 31, 2021 and from the period from December 31, 2021 to the filing date of this Annual Report on Form 10-K which have not previously been disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the Issuer
The following table summarizes the total number of shares of our common stock that we repurchased during the three months ended December 31, 2021 from certain employees who surrendered common stock to pay the taxes in connection with the vesting of restricted stock units.
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Maximum Number of Shares That May |
|
||||
October (October 1 - October 31) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
November (November 1 - November 30) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
December (December 1 - December 31) |
|
|
30,664 |
|
|
|
14.96 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
30,664 |
|
|
$ |
14.96 |
|
|
|
— |
|
|
|
— |
|
Item 6. [Reserved]
34
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 deliver high-quality, cost-effective composite solutions through long term relationships with leading original equipment manufacturers in the wind and transportation markets. We also provide field service inspection and repair services to our OEM customers and wind farm owners and operators, and supply high strength, lightweight and durable composite products to the transportation market. We are headquartered in Scottsdale, Arizona and operate factories in the U.S., China, Mexico, Turkey, and India. We operate additional engineering development centers in Denmark and Germany and a services facility in Spain. For a further overview of our Company, refer to the discussion in “Business—Overview” included in Part I, Item 1 of this Annual Report on Form 10-K.
Our business operations are defined geographically into five geographic operating segments - (1) the U.S. (U.S.), (2) Asia, (3) Mexico, (4) Europe, the Middle East and Africa (EMEA) and (5) India. For further information regarding our operating segments, refer to Note 21 – Segment Reporting of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Key Trends Affecting our Business
We have identified the following material trends affecting our business:
35
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 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
36
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 unallocated 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, 2021, 2020 and 2019, total research and development expenses totaled $1.0 million, $1.0 million and $1.0 million, respectively.
Loss on Sale of Assets and Asset Impairments
Loss on sale of assets represents the losses on the sale of certain receivables, on a non-recourse basis under supply chain financing arrangements with our customers, to financial institutions and losses on the sale of other assets at our corporate and manufacturing facilities. Asset impairments represent the 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.
Other Income (Expense)
Other income (expense) consists of interest expense on our debt borrowings and the amortization of deferred financing costs on such borrowings, foreign currency income and losses, 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 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 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 produced, estimated megawatts of energy capacity to be generated by wind blade sets produced, utilization, dedicated manufacturing lines, and manufacturing lines installed, which help us evaluate our operational performance. We believe that these measures are useful to investors in evaluating our performance.
37
Key Financial Measures
The key financial measures as of and for the years ended December 31 are as follow:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Net sales |
|
$ |
1,732,583 |
|
|
$ |
1,670,137 |
|
|
$ |
1,436,500 |
|
Net income (loss) |
|
|
(159,548 |
) |
|
|
(19,027 |
) |
|
|
(15,708 |
) |
EBITDA(1) |
|
|
(66,573 |
) |
|
|
52,323 |
|
|
|
54,009 |
|
Adjusted EBITDA(1) |
|
|
2,377 |
|
|
|
94,498 |
|
|
|
85,841 |
|
Capital expenditures |
|
|
37,119 |
|
|
|
65,666 |
|
|
|
74,408 |
|
Free cash flow(1) |
|
|
(62,644 |
) |
|
|
(28,096 |
) |
|
|
(17,324 |
) |
Total debt, net of debt issuance costs |
|
|
74,646 |
|
|
|
216,867 |
|
|
|
141,389 |
|
Net cash (debt)(1) |
|
|
167,519 |
|
|
|
(88,061 |
) |
|
|
(71,779 |
) |
EBITDA and adjusted EBITDA
We define EBITDA, a non-GAAP financial measure, as net income or loss plus interest expense, income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any share-based compensation expense, plus or minus any foreign currency losses or income, plus or minus any losses or gains from the sale of assets and asset impairments, plus any restructuring charges. 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. We monitor adjusted EBITDA as a supplement to our GAAP 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:
38
In evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments noted herein. 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 accrued dividends and redemption obligations relating to our Series A Preferred Stock 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 manufacturing facilities and expanding existing manufacturing facilities, as well as for capital expenditure requirements.
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:
EBITDA and adjusted EBITDA for the years ended December 31 are reconciled as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Net income (loss) attributable to |
|
$ |
(165,588 |
) |
|
$ |
(19,027 |
) |
|
$ |
(15,708 |
) |
Preferred stock dividends and accretion |
|
|
6,040 |
|
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
|
(159,548 |
) |
|
|
(19,027 |
) |
|
|
(15,708 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
52,593 |
|
|
|
49,667 |
|
|
|
38,580 |
|
Interest expense (net of interest income) |
|
|
13,622 |
|
|
|
10,399 |
|
|
|
8,022 |
|
Income tax provision (benefit) |
|
|
26,760 |
|
|
|
11,284 |
|
|
|
23,115 |
|
EBITDA |
|
|
(66,573 |
) |
|
|
52,323 |
|
|
|
54,009 |
|
Share-based compensation expense |
|
|
8,407 |
|
|
|
10,352 |
|
|
|
5,681 |
|
Foreign currency loss, net |
|
|
23,671 |
|
|
|
19,986 |
|
|
|
4,107 |
|
Loss on sale of assets and asset impairments |
|
|
13,110 |
|
|
|
7,748 |
|
|
|
18,117 |
|
Restructuring charges, net |
|
|
23,762 |
|
|
|
4,089 |
|
|
|
3,927 |
|
Adjusted EBITDA |
|
$ |
2,377 |
|
|
$ |
94,498 |
|
|
$ |
85,841 |
|
39
Free cash flow for the years ended December 31 is reconciled as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Net cash provided by (used in) operating activities |
|
$ |
(25,525 |
) |
|
$ |
37,570 |
|
|
$ |
57,084 |
|
Less capital expenditures |
|
|
(37,119 |
) |
|
|
(65,666 |
) |
|
|
(74,408 |
) |
Free cash flow |
|
$ |
(62,644 |
) |
|
$ |
(28,096 |
) |
|
$ |
(17,324 |
) |
Net cash (debt) as of December 31 is reconciled as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Cash and cash equivalents |
|
$ |
242,165 |
|
|
$ |
129,857 |
|
|
$ |
70,282 |
|
Less total debt, net of debt issuance costs |
|
|
(74,646 |
) |
|
|
(216,867 |
) |
|
|
(141,389 |
) |
Less debt issuance costs |
|
|
— |
|
|
|
(1,051 |
) |
|
|
(672 |
) |
Net cash (debt) |
|
$ |
167,519 |
|
|
$ |
(88,061 |
) |
|
$ |
(71,779 |
) |
Key Operating Metrics (1)
The key operating metrics as of and for the year ended December 31 are as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Sets |
|
|
3,255 |
|
|
|
3,544 |
|
|
|
3,189 |
|
Estimated megawatts |
|
|
12,989 |
|
|
|
12,080 |
|
|
|
9,598 |
|
Utilization |
|
|
76 |
% |
|
|
81 |
% |
|
|
79 |
% |
Dedicated manufacturing lines |
|
|
54 |
|
|
|
53 |
|
|
|
52 |
|
Manufacturing lines installed |
|
|
54 |
|
|
|
55 |
|
|
|
48 |
|
Sets represents the number of wind blade sets, consisting of three wind blades each, which we produced 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.
Estimated megawatts are the energy capacity to be generated by wind blade sets produced during 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 the number of wind blades produced during the period compared to the total potential wind blade capacity of the manufacturing lines installed during 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 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 supply agreements in any given period. Lines become dedicated upon the execution of a supply agreement; this means that lines are typically dedicated before they are installed.
40
Manufacturing lines installed represents the number of wind blade manufacturing lines installed and either in operation, startup or transition during 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. From time to time, we have manufacturing lines installed that are not dedicated to our customers pursuant to a supply agreement.
RESULTS OF OPERATIONS
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table summarizes certain of our operating results as a percentage of net sales for the years ended December 31 that have been derived from our consolidated statements of operations:
|
2021 |
|
|
2020 |
|
||
Net sales |
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
98.9 |
|
|
|
93.5 |
|
Startup and transition costs |
|
2.9 |
|
|
|
2.7 |
|
Total cost of goods sold |
|
101.8 |
|
|
|
96.2 |
|
Gross profit |
|
(1.8 |
) |
|
|
3.8 |
|
General and administrative expenses |
|
1.7 |
|
|
|
2.0 |
|
Loss on sale of assets and asset impairments |
|
0.8 |
|
|
|
0.5 |
|
Restructuring charges, net |
|
1.4 |
|
|
|
0.2 |
|
Income from operations |
|
(5.7 |
) |
|
|
1.1 |
|
Total other expense |
|
(2.0 |
) |
|
|
(1.6 |
) |
Income (loss) before income taxes |
|
(7.7 |
) |
|
|
(0.5 |
) |
Income tax provision |
|
(1.5 |
) |
|
|
(0.6 |
) |
Net loss |
|
(9.2 |
)% |
|
|
(1.1 |
)% |
Net sales
Consolidated discussion
The following table summarizes our net sales by product/service for the years ended December 31:
|
|
|
|
|
|
|
|
Change |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
1,610,943 |
|
|
$ |
1,580,055 |
|
|
$ |
30,888 |
|
|
|
2.0 |
% |
Precision molding and |
|
|
34,919 |
|
|
|
28,073 |
|
|
|
6,846 |
|
|
24.4 |
|
|
Transportation sales |
|
|
37,312 |
|
|
|
36,196 |
|
|
|
1,116 |
|
|
3.1 |
|
|
Field service, inspection and |
|
|
35,128 |
|
|
|
15,125 |
|
|
|
20,003 |
|
|
132.3 |
|
|
Other sales |
|
|
14,281 |
|
|
|
10,688 |
|
|
|
3,593 |
|
|
33.6 |
|
|
Total net sales |
|
$ |
1,732,583 |
|
|
$ |
1,670,137 |
|
|
$ |
62,446 |
|
|
|
3.7 |
% |
The increase in net sales of wind blades was primarily driven by a higher average sales price due to the mix of wind blade models produced and foreign currency fluctuations. Net sales from the manufacturing of precision molding and assembly systems increased, primarily in Asia, during the year ended December 31, 2021 as compared to the same period in 2020, primarily due to the adverse impact that COVID-19 pandemic had on our net sales in the prior year period. Additionally, there was an increase in our field service, inspection and repair service sales during the year ended December 31, 2021 as compared to the same period in 2020 due to an increase in demand for such services. The total increase in net sales was partially offset by a decrease in net sales due to extensions of our customer contracts during the year ended December 31, 2021. These extensions increased the total contract value and contract duration but resulted in less revenue recognized in the year ended December 31, 2021, as the revenue is recognized over the extended terms. The fluctuating U.S. dollar against the Euro in our Turkey operations and the
41
Chinese Renminbi in our China operations had a favorable impact of 0.1% on consolidated net sales for the year ended December 31, 2021 as compared to 2020. Our net sales for 2021 were adversely impacted by reduced production volumes at one of our Matamoros, Mexico manufacturing facilities due to carbon and other raw material shortages that were sourced by a customer.
Segment discussion
The following table summarizes our net sales by our five geographic operating segments for the years ended December 31:
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
U.S. |
|
$ |
181,839 |
|
|
$ |
181,941 |
|
|
$ |
(102 |
) |
|
|
-0.1 |
% |
Asia |
|
|
260,197 |
|
|
|
527,083 |
|
|
|
(266,886 |
) |
|
-50.6 |
|
|
Mexico |
|
|
608,098 |
|
|
|
495,839 |
|
|
|
112,259 |
|
|
22.6 |
|
|
EMEA |
|
|
482,220 |
|
|
|
373,545 |
|
|
|
108,675 |
|
|
29.1 |
|
|
India |
|
|
200,229 |
|
|
|
91,729 |
|
|
|
108,500 |
|
|
118.3 |
|
|
Total net sales |
|
$ |
1,732,583 |
|
|
$ |
1,670,137 |
|
|
$ |
62,446 |
|
|
|
3.7 |
% |
U.S. Segment
The following table summarizes our net sales by product/service for the U.S. segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
130,455 |
|
|
$ |
135,415 |
|
|
$ |
(4,960 |
) |
|
|
-3.7 |
% |
Transportation sales |
|
|
26,812 |
|
|
|
33,849 |
|
|
|
(7,037 |
) |
|
-20.8 |
|
|
Field service, inspection and |
|
|
24,525 |
|
|
|
12,128 |
|
|
|
12,397 |
|
|
102.2 |
|
|
Other sales |
|
|
47 |
|
|
|
549 |
|
|
|
(502 |
) |
|
-91.4 |
|
|
Total net sales |
|
$ |
181,839 |
|
|
$ |
181,941 |
|
|
$ |
(102 |
) |
|
|
-0.1 |
% |
The decrease in the U.S. segment’s net sales of wind blades was primarily due to a 5% decrease in the number of wind blades produced in the year ended December 31, 2021 as compared to the same period in 2020, and was partially offset by a higher average sales price of wind blade models produced in the two comparative periods. The increase in the U.S. segment's field service, inspection and repair services sales was primarily due to increases in overall volume and demand for such services for the year ended December 31, 2021 as compared to the same period in 2020.
42
Asia Segment
The following table summarizes our net sales by product/service for the Asia segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
240,891 |
|
|
$ |
511,090 |
|
|
$ |
(270,199 |
) |
|
|
-52.9 |
% |
Precision molding and |
|
|
16,622 |
|
|
|
13,134 |
|
|
|
3,488 |
|
|
26.6 |
|
|
Field service, inspection and |
|
|
2,403 |
|
|
|
821 |
|
|
|
1,582 |
|
|
192.7 |
|
|
Other sales |
|
|
281 |
|
|
|
2,038 |
|
|
|
(1,757 |
) |
|
-86.2 |
|
|
Total net sales |
|
$ |
260,197 |
|
|
$ |
527,083 |
|
|
$ |
(266,886 |
) |
|
|
-50.6 |
% |
The decrease in the Asia segment’s net sales of wind blades was primarily due to a 53% net decrease in the number of wind blades produced in the year ended December 31, 2021 as compared to the same period in 2020, primarily due to the removal of five contracted manufacturing lines that expired in China at the end of 2020 and a further reduction of contracted manufacturing lines in 2021. This was partially offset by the adverse impact that the COVID-19 pandemic had on our net sales in the prior year period and also by an increase in the average sales price of wind blades due to a change in the mix of wind blades produced in the two comparative periods. The fluctuating U.S. dollar against the Chinese Renminbi in our China operations had a favorable impact of 0.2% on consolidated net sales for the year ended December 30, 2021, as compared to the same period in 2020.
Mexico Segment
The following table summarizes our net sales by product/service for the Mexico segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
567,721 |
|
|
$ |
472,994 |
|
|
$ |
94,727 |
|
|
|
20.0 |
% |
Precision molding and |
|
|
18,297 |
|
|
|
14,939 |
|
|
|
3,358 |
|
|
22.5 |
|
|
Transportation sales |
|
|
10,500 |
|
|
|
2,347 |
|
|
|
8,153 |
|
|
347.4 |
|
|
Field service, inspection and |
|
|
2,835 |
|
|
|
— |
|
|
|
2,835 |
|
|
NM |
|
|
Other sales |
|
|
8,745 |
|
|
|
5,559 |
|
|
|
3,186 |
|
|
57.3 |
|
|
Total net sales |
|
$ |
608,098 |
|
|
$ |
495,839 |
|
|
$ |
112,259 |
|
|
|
22.6 |
% |
The increase in the Mexico segment’s net sales of wind blades reflects an increase in the average sales price of wind blades due to the mix of wind blades produced in the two comparative periods. These net sales increases were partially offset by a 3% net decrease in overall wind blade volume. In addition, during the third quarter of 2021, we experienced production delays at one of our Juarez, Mexico manufacturing facilities related to customer supplied specialized equipment and supply constraints affecting carbon reinforcements in connection with the ongoing transition to a new blade for one of our customers and production delays resulting from one of our customer's challenges in procuring adequate supplies of carbon reinforcements at one of our Matamoros, Mexico manufacturing facilities.
43
EMEA Segment
The following table summarizes our net sales by product/service for the EMEA segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
472,059 |
|
|
$ |
368,907 |
|
|
$ |
103,152 |
|
|
|
28.0 |
% |
Field service, inspection and |
|
|
5,332 |
|
|
|
2,160 |
|
|
|
3,172 |
|
|
146.9 |
|
|
Other sales |
|
|
4,829 |
|
|
|
2,478 |
|
|
|
2,351 |
|
|
94.9 |
|
|
Total net sales |
|
$ |
482,220 |
|
|
$ |
373,545 |
|
|
$ |
108,675 |
|
|
|
29.1 |
% |
The increase in the EMEA segment’s net sales of wind blades was driven by a 25% net increase in wind blade production at our two Turkey plants, primarily due to transitions and the adverse impact of the COVID-19 pandemic in the prior year period, as well as an increase in the average sales price of wind blades produced in the two comparative periods and foreign currency fluctuations. These net sales increases were partially offset by reduced production volumes due to one of our customer’s challenges in procuring adequate supplies of resin and carbon reinforcements. The fluctuating U.S. dollar relative to the Euro had a favorable impact of 0.1% on net sales during the year ended December 31, 2021 as compared to the 2020 period.
India Segment
The following table summarizes our net sales by product/service for the India segment for the years ended December 31:
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Wind blade sales |
|
$ |
199,817 |
|
|
$ |
91,649 |
|
|
$ |
108,168 |
|
|
|
118.0 |
% |
Field service, inspection and |
|
|
33 |
|
|
|
16 |
|
|
|
17 |
|
|
106.3 |
|
|
Other sales |
|
|
379 |
|
|
|
64 |
|
|
|
315 |
|
|
492.2 |
|
|
Total net sales |
|
$ |
200,229 |
|
|
$ |
91,729 |
|
|
$ |
108,500 |
|
|
|
118.3 |
% |
The increase in the India segment’s net sales of wind blades during the year ended December 31, 2021, as compared to the same period in 2020, was primarily driven by the commencement of production for one of our customers in 2020, and the ramp up of such production in 2021.
Total cost of goods sold
The following table summarizes our total cost of goods sold for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Cost of sales |
|
$ |
1,713,331 |
|
|
$ |
1,561,432 |
|
|
$ |
151,899 |
|
|
|
9.7 |
% |
Startup costs |
|
|
18,597 |
|
|
|
25,857 |
|
|
|
(7,260 |
) |
|
-28.1 |
|
|
Transition costs |
|
|
32,235 |
|
|
|
18,749 |
|
|
|
13,486 |
|
|
71.9 |
|
|
Total cost of goods sold |
|
$ |
1,764,163 |
|
|
$ |
1,606,038 |
|
|
$ |
158,125 |
|
|
|
9.8 |
% |
% of net sales |
|
|
101.8 |
% |
|
|
96.2 |
% |
|
|
|
|
|
5.6 |
% |
|
Total cost of goods sold as a percentage of net sales increased by approximately ten percentage points during the year ended December 31, 2021 as compared to the same period in 2020, driven primarily by increases in direct
44
materials costs, direct labor costs and foreign currency fluctuations, partially offset by a decrease in warranty costs. The fluctuating U.S. dollar against the Euro and Turkish Lira had a combined favorable impact of 3.7%, offset by an unfavorable impact against the Chinese Renminbi and Mexican Peso of 3.9% and 0.9%, respectively, on consolidated cost of goods sold for the year ended December 31, 2021 as compared to 2020.
General and administrative expenses
The following table summarizes our general and administrative expenses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
General and |
|
$ |
29,246 |
|
|
$ |
33,496 |
|
|
$ |
(4,250 |
) |
|
|
-12.7 |
% |
% of net sales |
|
|
1.7 |
% |
|
|
2.0 |
% |
|
|
|
|
|
-0.3 |
% |
|
The decrease in general and administrative expenses as a percentage of net sales for the year ended December 31, 2021 as compared to the same period in 2020, was primarily driven by our continued focus on reducing costs.
Loss on sale of assets and asset impairments
The following table summarizes our loss on sale of assets and asset impairments for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Loss on sale of receivables |
|
$ |
5,223 |
|
|
$ |
6,207 |
|
|
$ |
(984 |
) |
|
|
-15.8 |
% |
Loss on sale of other assets |
|
|
798 |
|
|
|
1,292 |
|
|
|
(494 |
) |
|
-38.2 |
|
|
Asset impairment charges |
|
|
7,088 |
|
|
|
249 |
|
|
|
6,839 |
|
|
NM |
|
|
Total loss on sale of assets |
|
$ |
13,110 |
|
|
$ |
7,748 |
|
|
$ |
5,362 |
|
|
|
69.2 |
% |
% of net sales |
|
|
0.8 |
% |
|
|
0.5 |
% |
|
|
|
|
|
0.3 |
% |
|
NM - not meaningful.
The increase in asset impairment charges for the year ended December 31, 2021 as compared to the same period in 2020, was primarily driven by asset impairment charges incurred at our Newton, Iowa blade facility related to the plant’s shutdown at the end of 2021.
Restructuring charges, net
The following table summarizes our restructuring charges, net, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Severance |
|
$ |
23,027 |
|
|
$ |
3,960 |
|
|
$ |
19,067 |
|
|
NM |
|
|
Other restructuring costs |
|
|
735 |
|
|
|
129 |
|
|
|
606 |
|
|
469.8 |
|
|
Total restructuring charges, net |
|
$ |
23,762 |
|
|
$ |
4,089 |
|
|
$ |
19,673 |
|
|
NM |
|
|
% of net sales |
|
|
1.4 |
% |
|
|
0.2 |
% |
|
|
|
|
|
1.2 |
% |
|
As a result of management’s focus on the optimization of our global footprint and reducing operating costs, the Company incurred significant restructuring charges in 2021. These charges primarily related to severance benefits to terminated employees as a result of the closure of our Newton, Iowa; Taicang City, China; and Dafeng,
45
China manufacturing facilities and the stop of production in one of our Juarez, Mexico facilities. The restructuring charges incurred in 2020 primarily related to downsizing at our Dafeng, China manufacturing facility.
Income (loss) from operations
Segment discussion
The following table summarizes our income (loss) from operations by our five geographic operating segments for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
U.S. |
|
$ |
(49,246 |
) |
|
$ |
(40,991 |
) |
|
$ |
(8,255 |
) |
|
|
-20.1 |
% |
Asia |
|
|
(13,025 |
) |
|
|
62,869 |
|
|
|
(75,894 |
) |
|
-120.7 |
|
|
Mexico |
|
|
(74,191 |
) |
|
|
(9,611 |
) |
|
|
(64,580 |
) |
|
-671.9 |
|
|
EMEA |
|
|
39,609 |
|
|
|
23,331 |
|
|
|
16,278 |
|
|
69.8 |
|
|
India |
|
|
(845 |
) |
|
|
(16,832 |
) |
|
|
15,987 |
|
|
95 |
|
|
Total income from |
|
$ |
(97,698 |
) |
|
$ |
18,766 |
|
|
$ |
(116,464 |
) |
|
NM |
|
|
% of net sales |
|
|
-5.6 |
% |
|
|
1.1 |
% |
|
|
|
|
|
-6.7 |
% |
|
U.S. Segment
The increase in the loss from operations in the U.S. segment for the year ended December 31, 2021 as compared to the same period in 2020 was primarily due to a decrease in wind blade volume and an increase in direct material and labor costs. In addition, the increase in the loss from operations was due to impairment and restructuring charges incurred at our Newton, Iowa blade facility related to the plant’s shutdown at the end of 2021, partially offset by an increase in the average sales price of wind blades produced.
Asia Segment
The decrease in the income from operations in the Asia segment for the year ended December 31, 2021 as compared to the same period in 2020, was primarily due to the decrease in wind blade volume, an increase in restructuring costs, and foreign currency fluctuations. The fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact of 3.9% on cost of goods sold for the year ended December 31, 2021 as compared to the 2020 period.
Mexico Segment
The increase in loss from operations in the Mexico segment for the year ended December 31, 2021 as compared to the same period in 2020, was primarily due to an increase in direct material costs, restructuring charges, a decrease in wind blade volume, and startup and transition costs related to the Matamoros and Juarez, Mexico production delays described above, partially offset by an increase in the average sales price of wind blades, and a decrease in warranty costs. The fluctuating U.S. dollar relative to the Mexican Peso had a unfavorable impact of 0.9% on cost of goods sold for the year ended December 31, 2021 as compared to the 2020 period.
EMEA Segment
The increase in income from operations in the EMEA segment for the year ended December 31, 2021 as compared to the same period in 2020, was primarily driven by increased wind blade production at our two Turkey manufacturing facilities, an increase in the average sales price of wind blades produced, a decrease in startup and transition costs, and a decrease in warranty costs, partially offset by an increase in direct material costs. The fluctuating U.S. dollar relative to the Turkish Lira and Euro had a favorable impact of 3.7% on cost of goods sold for the year ended December 31, 2021 as compared to the 2020 period.
46
India Segment
The decrease in the loss from operations in the India segment for the year ended December 31, 2021 as compared to the same period in 2020, was driven by the commencement of production for one of our customers in 2020, and the ramp up of such production in 2021.
Other income (expense)
The following table summarizes our total other income (expense) for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Interest expense, net |
|
$ |
(13,622 |
) |
|
$ |
(10,399 |
) |
|
$ |
(3,223 |
) |
|
|
-31.0 |
% |
Foreign currency loss, net |
|
|
(23,671 |
) |
|
|
(19,986 |
) |
|
|
(3,685 |
) |
|
-18.4 |
|
|
Miscellaneous income |
|
|
2,203 |
|
|
|
3,876 |
|
|
|
(1,673 |
) |
|
-43.2 |
|
|
Total other expense |
|
$ |
(35,090 |
) |
|
$ |
(26,509 |
) |
|
$ |
(8,581 |
) |
|
|
-32.4 |
% |
The increase in the total other expense for the year ended December 31, 2021 as compared to the same period in 2020 was primarily due to increases in interest expense, net, as a result of the settlement of the interest rate swap in 2021, and increases in the foreign currency loss, net, primarily due to net Euro liability exposure against the Turkish Lira in the current year period as compared to the same period in 2020.
Income taxes
The following table summarizes our income taxes for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Change |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands) |
|
|
|
|
||||||||||
Income tax provision |
|
$ |
26,760 |
|
|
$ |
11,284 |
|
|
$ |
15,476 |
|
|
|
137.1 |
% |
Effective tax rate |
|
|
-20.2 |
% |
|
|
-145.7 |
% |
|
|
|
|
|
|
||
The increase in the income tax provision for the year ended December 31, 2021 as compared to the same period in 2020, was primarily due to a change in the mix of earnings of foreign jurisdictions and U.S. tax on foreign earnings, and an increase in our uncertain tax positions in the current year period.
Net loss
The following table summarizes our net loss for the years ended December 31:
|
|
|
|
|
Change |
|||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|||
|
|
(in thousands) |
|
|
|
|||||||||
Net loss |
|
$ |
159,548 |
|
|
$ |
19,027 |
|
|
$ |
140,521 |
|
|
NM |
The increase in the net loss for the year ended December 31, 2021 as compared to the same period in 2020 was primarily due to the reasons set forth above.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For a comparison of our results of operations for the years ended December 31, 2020 and 2019, 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, 2020, filed with the SEC on February 25, 2021 incorporated herein by reference.
47
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources were adversely affected by certain events that occurred during the year ended December 31, 2021. We experienced significant production delays that occurred at the Matamoros, Mexico manufacturing facility that we took over from Nordex in July 2021, as well as significant production delays in one of our Juarez, Mexico manufacturing facilities in connection with the ongoing transition to a new blade for one of our customers. We also experienced production delays and reduced production volumes in 2021 at our other Matamoros, Mexico and Izmir, Turkey manufacturing facilities due to carbon and other raw materials shortages that were sourced by a customer. Although we continued to stabilize production at our Matamoros manufacturing facility, we expect that this transition will continue to have an adverse impact on our liquidity in 2022 due in large part to increased raw materials costs associated with producing blades at these facilities. We also expect decreased demand for our wind blades from our customers during 2022. We believe this decrease in demand is due to the continued global renewable energy regulatory and policy uncertainty and raw material cost increases and constraints. We believe this decreased demand will also adversely impact our profitability and liquidity for 2022.
We were not in compliance with certain covenants of our senior secured credit facility as of September 30, 2021, primarily due to the Mexico production delays and increased raw material costs and constraints described above. On November 8, 2021 (the Waiver Effective Date), we and the lenders that are parties to the senior secured credit facility executed a limited waiver pursuant to which the lenders agreed to temporarily waive our compliance with this financial covenant from the Waiver Effective Date through December 8, 2021.
Given these near-term liquidity challenges, in November 2021, we entered into a Series A Preferred Stock Purchase Agreement, pursuant to which we issued and sold to the Purchasers 350,000 shares of our newly designated Series A Preferred Stock, par value $0.01 per share, for an aggregate purchase price of $350.0 million. In connection with the transaction, we also issued warrants to purchase 4,666,667 shares of common stock at an exercise price of $0.01 per share to the Series A Preferred Stockholders. We used $181.2 million of the net proceeds from the issuance and sale of the Series A Preferred Stock to repay all outstanding indebtedness under our existing senior secured credit facility and terminated this credit facility. We plan to use the remainder of the net proceeds for general corporate purposes. We also may elect, at our option, to require the Purchasers to purchase an additional $50.0 million of Series A Preferred Stock upon the same terms and conditions as the initial issuance of the Series A Preferred Stock during the two-year period following the closing date of the issuance and sale of the Series A Preferred Stock. See Note 14 Mezzanine Equity, to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, for further discussion on Series A Preferred Stock Purchase Agreement.
Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, purchases of raw materials, new facility startup costs, the impact of transitions, working capital, debt service costs, warranty costs and restructuring costs associated with the optimization of our global footprint. 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. We had net repayments under our financing arrangements of $145.1 million for the year ended December 31, 2021 as compared to net borrowings of $75.7 million for the year ended December 31, 2020. As of December 31, 2021 and 2020, we had $74.6 million and $217.9 million in outstanding indebtedness, excluding debt issuance costs, respectively. As of December 31, 2021, we had an aggregate of $65.9 million of remaining capacity and $43.4 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. 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. The Certificate of Designations for the Series A Preferred Stock contains certain covenants and consent rights including, but not limited to, obtaining approval from the Purchasers to incur indebtedness above certain specified levels, a cash on hand balance requirement of $50.0 million in the U.S., an individual limit of $10.0 million for any single capital expenditure project, and an annual total capital expenditure limit of $30.0 million in the event of non-compliance
48
with a fixed charge coverage ratio target. At December 31, 2021 and 2020, we had unrestricted cash, cash equivalents and short-term investments totaling $242.2 million and $129.9 million, respectively. The December 31, 2021 balance includes $76.8 million of cash located outside of the U.S., including $25.9 million in China, $42.6 million in Turkey, $5.7 million in India, $2.1 million in Mexico and $0.5 million in other countries.
Our ability to repatriate funds from China to the U.S. 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 IP 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 China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($26.7 million) of registered capital is contributed to a surplus reserve, our China 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 China operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31, 2021 and 2020, the amount of the surplus reserve fund was $10.0 million and $7.0 million, respectively. In July 2021, our subsidiary in China paid a dividend of approximately $19.5 million, net of withholding taxes, to our subsidiary in Switzerland.
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 the consolidated financial statements and related notes.
Our segments enter into accounts receivable assignment agreements with various financial institutions. Under these agreements, the financial institution buys, on a non-recourse basis, the accounts receivable amounts related to our segment’s customers at an agreed-upon discount rate.
The following table summarizes certain key details of each of the accounts receivable assignment agreements in place as of December 31, 2021:
Year Of Initial Agreement |
|
Segment(s) Related To |
|
Current Annual Interest Rate |
2014 |
|
Mexico |
|
LIBOR plus 0.75% |
2018 |
|
Mexico |
|
LIBOR plus 1.25% |
2018 |
|
EMEA |
|
EURIBOR plus 0.75% |
2019 |
|
Asia and Mexico |
|
LIBOR plus 1.00% |
2019 |
|
Asia |
|
Fixed rate of 3.85% |
2020 |
|
EMEA |
|
EURIBOR plus 1.95% |
2020 |
|
India |
|
LIBOR plus 1.00% |
2020 |
|
U.S. |
|
LIBOR plus 1.25% |
2021 |
|
Mexico |
|
LIBOR plus 1.25% |
As the receivables are purchased by the financial institutions under the agreements noted above, the receivables are removed from our consolidated balance sheet. During the years ended December 31, 2021 and 2020, $1,347.8 million and $1,251.5 million, respectively, of receivables were sold under the accounts receivable assignment agreements described above.
49
Cash Flow Discussion
The following table summarizes our key cash flow activity for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Net cash provided by (used in) operating activities |
|
$ |
(25,525 |
) |
|
$ |
37,570 |
|
|
$ |
(63,095 |
) |
Net cash used in investing activities |
|
|
(37,119 |
) |
|
|
(65,666 |
) |
|
|
28,547 |
|
Net cash provided by financing activities |
|
|
198,919 |
|
|
|
88,612 |
|
|
|
110,307 |
|
Impact of foreign exchange rates on cash, cash |
|
|
(14,253 |
) |
|
|
(2,069 |
) |
|
|
(12,184 |
) |
Net change in cash, cash equivalents |
|
$ |
122,022 |
|
|
$ |
58,447 |
|
|
$ |
63,575 |
|
Operating Cash Flows
Net cash provided by operating activities decreased by $63.1 million for the year ended December 31, 2021 as compared to the same period in 2020 primarily as the result of decreased operating results and certain changes in our working capital.
Investing Cash Flows
Net cash used in investing activities decreased by $28.5 million for the year ended December 31, 2021 as compared to the same period in 2020 primarily as the result of a decrease in capital expenditures.
We anticipate fiscal year 2022 capital expenditures of approximately $30 million plus we estimate that the cost that we will incur after December 31, 2021 to complete our current projects in process will be approximately $9.4 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 building improvements and additional storage space to our manufacturing facility in Chennai, India and the continued investment in our existing Turkey, Mexico, and U.S. facilities.
Financing Cash Flows
Net cash provided by financing activities increased by $110.3 million for the year ended December 31, 2021 as compared to the same period in 2020 primarily as the result of proceeds from the issuance of Series A Preferred Stock, offset by repayment of the outstanding senior revolving credit facility.
Our Indebtedness
For a discussion of our indebtedness, refer to Note 11 – Long-Term Debt, Net of Current Maturities of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Other Contingencies
For a discussion of our legal proceedings, refer to Note 16 – Commitments and Contingencies – (b) Legal Proceedings of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
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
50
December 31, 2021 and 2020, we had accrued warranty reserves totaling $42.0 million and $50.9 million, respectively.
As of December 31, 2021, we had no material operating expenditures for environmental matters, including government imposed remedial or corrective actions, during the year ended December 31, 2021.
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 supply agreements associated with manufacturing of wind blades and related services. We account for a supply agreement 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. Our manufacturing services are customer specific and involve production of items that cannot be sold to other customers due to the customers’ protected IP.
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’ supply agreements. Because control transfers over time, revenue is recognized based on the extent of progress towards the completion of the performance obligation under the cost-to-cost input measure of progress as this method provides the best representation of the production progress towards satisfaction of the performance obligation. 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 supply agreements involves judgments and estimates relating to the total consideration to be received and the expected direct costs to complete the performance obligation. 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.
Under the cost-to-cost method, contract assets established primarily relate to our rights to consideration for work completed but not billed at the reporting date on our supply agreements. 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.
See Note 1 – Summary of Operations and Summary of Significant Accounting Policies – (c) Revenue Recognition of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, for further discussion of our accounting policies related to revenue recognition, including accounting policies surrounding our non-manufacturing related services.
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
51
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 is required in determining our annual tax rate, the allocation of earnings to various jurisdictions and the evaluation of our tax positions.
In the normal course of business, we establish valuation allowances for our deferred tax assets when the realization of the assets is not more likely than not. We intend to maintain such valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowances. In 2019 a full valuation allowance was recorded in Taicang and India. Given our anticipated future earnings in India after becoming fully operational in 2020, we reversed the valuation allowance in that jurisdiction in 2020. In 2021 we determined that a valuation allowance for all of our U.S. deferred tax assets was appropriate. The effect of a change in judgment concerning the realizability of deferred tax assets is included in our income tax provision.
As of December 31, 2021, we have U.S. federal net operating losses (NOLs) of approximately $167.0 million, state NOLs of approximately $211.7 million, foreign NOLs of approximately $31.0 million and foreign tax credits of approximately $1.9 million available to offset future taxable income in the U.S., China and India. 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 the U.S. and numerous foreign jurisdictions in which we operate, principally, China, Mexico, India 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. is 21% and the tax rates in China, Mexico, India and Turkey are 25%, 30%, 17% and 25%, respectively. Our second Turkey facility is located in a tax-free zone and is not subject to income taxes on earnings recognized from its manufacturing activities.
Warranty Expense. 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 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 did not experience any material warranty expenses beyond the provision described above in the year ended December 31, 2021. In 2020, we accrued additional warranty expenses of approximately $12.9 million beyond the normal warranty expense describe above related to a remediation campaign for a specific wind blade model for one of our customers. We did not experience any material warranty expenses beyond the provision described above in the year ended December 31, 2019. 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 Operations and 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.
52
Foreign Currency Risk. We conduct international manufacturing 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 $33.2 million and $46.2 million for the years ended December 31, 2021 and 2020, 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 57% of the resin and resin systems we use are purchased under contracts either controlled or borne 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. Prior to taking into account any contractual obligations of our customers to share with us the cost savings or increases resulting from a change in the price of resin and resin systems, 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 $12.4 million and $10.1 million for the years ended December 31, 2021 and 2020, respectively. Under our supply agreements, our customers typically receive 70% of the cost savings or increases resulting from a change in the price of resin and resin systems.
Interest Rate Risk. As of December 31, 2021, all outstanding working capital loans, secured and unsecured financing and finance lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates.
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 Part IV, Item 15 of this Annual Report on Form 10-K.
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 Interim 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 Interim Chief Financial Officer, evaluated the design and operating effectiveness as of December 31, 2021 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 Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.
53
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, 2021. 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, 2021 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, 2021 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, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
54
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 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the fiscal year ended December 31, 2021.
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 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the fiscal year ended December 31, 2021.
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 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the fiscal year ended December 31, 2021.
The information required by this Item is incorporated by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the fiscal year ended December 31, 2021.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is
The information required by this Item is incorporated by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the fiscal year ended December 31, 2021.
55
PART IV
Item 15. Exhibits and Financial Statement Schedules
The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K. All financial statement schedules have been omitted as the required information is not applicable or is not material to require presentation of the schedule, or because the information required is included in the Consolidated Financial Statements and notes thereto of this Annual Report on Form 10-K.
See Exhibit Index.
Item 16. Form 10-K Summary
Not applicable.
56
INDEX 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, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in mezzanine equity and stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 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 judgments. 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.
Variable consideration and direct costs to complete performance obligations for wind blade sales
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 sales that includes estimates of future contract volumes. Wind blade sales under long-term contracts was $1,610,943 thousand compared to total net sales of $1,732,583 thousand in fiscal 2021.
We identified the evaluation of estimates of future contract volumes and direct costs to complete performance obligations for wind blade sales as a critical audit matter. Evaluating these estimates required 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 following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to recognize revenue from wind blade sales. This included controls related to estimates of future contract volumes and direct costs to complete the performance obligation. We read a selection 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 costs. We compared the estimated future direct cost per blade to historical direct costs per blade and assessed the potential impact of future manufacturing efficiencies. Further, we evaluated historical direct labor cost by wind blade type and manufacturing plant, and analyzed jurisdiction-specific inflation rates based on publicly available 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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2008.
Phoenix, Arizona
February 25, 2022
F-4
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31, |
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|||||
|
|
2021 |
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2020 |
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||
|
|
(In thousands, except par value data) |
|
|||||
Assets |
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||
Current assets: |
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Cash and cash equivalents |
|
$ |
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$ |
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||
Restricted cash |
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Accounts receivable |
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Contract assets |
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Prepaid expenses |
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Other current assets |
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Inventories |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right of use assets |
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|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets and deferred costs, net |
|
|
|
|
|
|
||
Other noncurrent assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities, Mezzanine Equity 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 current maturities |
|
|
|
|
|
|
||
Noncurrent operating lease liabilities |
|
|
|
|
|
|
||
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Mezzanine equity: |
|
|
|
|
|
|
||
Series A Preferred Stock, $ |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Common shares, $ |
|
|
|
|
|
|
||
Paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Treasury stock, at cost, |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities, mezzanine equity and stockholders’ equity |
|
$ |
|
|
$ |
|
||
See accompanying notes to consolidated financial statements.
F-5
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cost of sales |
|
|
|
|
|
|
|
|
|
|||
Startup and transition costs |
|
|
|
|
|
|
|
|
|
|||
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|||
Gross profit (loss) |
|
|
( |
) |
|
|
|
|
|
|
||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|||
Loss on sale of assets and asset impairments |
|
|
|
|
|
|
|
|
|
|||
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|||
Income (loss) from operations |
|
|
( |
) |
|
|
|
|
|
|
||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign currency loss, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Miscellaneous income |
|
|
|
|
|
|
|
|
|
|||
Total other expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income tax benefit (provision) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred stock dividends and accretion |
|
|
( |
) |
|
|
|
|
|
|
||
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
|
|
|
|
|
|
|
|||
Diluted |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
See accompanying notes to consolidated financial statements.
F-6
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(In thousands) |
|
|||||||||
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unrealized loss on hedging derivatives, net of taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
See accompanying notes to consolidated financial statements.
F-7
TPI COMPOSITES, INC. AND SUBSIDIARIES
|
|
Series A Preferred Stock |
|
|
|
Common |
|
|
Paid-in |
|
|
Accumulated other comprehensive |
|
|
Accumulated |
|
|
Treasury stock, |
|
|
Total stockholders' |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
loss |
|
|
deficit |
|
|
at cost |
|
|
equity |
|
|||||||||
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|||||||||||||||||||||||||||
Balance at December 31, 2018 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock repurchased for treasury |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuances under share-based |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||||
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at December 31, 2019 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock repurchased for treasury |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuances under share-based |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at December 31, 2020 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Preferred stock dividends |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock repurchased for treasury |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuances under share-based |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of Series A Preferred Stock, net |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Issuance of warrants to purchase common stock |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Accretion of Series A Preferred Stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
See accompanying notes to consolidated financial statements.
F-8
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(In thousands) |
|
|||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Loss on sale of assets and asset impairments |
|
|
|
|
|
|
|
|
|
|||
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|||
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
|||
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 |
|
|
|
|
|
|
|
|
( |
) |
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|||
Proceeds from revolving and term loans |
|
|
|
|
|
|
|
|
|
|||
Repayments of revolving and term loans |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Proceeds from the issuance of Series A Preferred Stock |
|
|
|
|
|
|
|
|
|
|||
Equity issuance costs |
|
|
( |
) |
|
|
|
|
|
|
||
Net 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 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash provided by 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 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
See accompanying notes to consolidated financial statements.
F-9
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|||
Cash paid for interest |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash paid for income taxes, net of refunds |
|
|
|
|
|
|
|
|
|
|||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|||
Right of use assets obtained in exchange for new operating |
|
|
|
|
|
|
|
|
|
|||
Property, plant, and equipment obtained in exchange for new |
|
|
|
|
|
|
|
|
|
|||
Accrued capital expenditures in accounts payable |
|
|
|
|
|
|
|
|
|
|||
Paid-in-kind preferred stock dividends and accretion |
|
|
|
|
|
|
|
|
|
|||
Reconciliation of Cash, Cash Equivalents and |
|
December 31, |
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2021 |
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2020 |
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2019 |
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2018 |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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Restricted cash |
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Restricted cash included within other noncurrent assets |
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Total cash, cash equivalents and restricted cash shown |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
F-10
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary of Operations and Summary of 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 is incorporated in Delaware, 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; Berlin, Germany and Madrid, Spain.
(b) Basis of Presentation
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) Revenue Recognition
The majority of our revenue is generated from supply agreements associated with manufacturing of wind blades and related services. We account for a supply agreement 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 supply agreement, 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 IP; 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.
F-11
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Determining the revenue to be recognized for services performed under our supply agreements 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, and payments expected to be received or paid in the form of liquidated damages, for missed production deadlines which are paid over a negotiated timeline. 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 consideration 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.
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.
Each reporting period, we evaluate the progress towards satisfaction of each performance obligation based on any contract modifications that have occurred, costs incurred to date, and an estimate of the expected future consideration and costs to be incurred to complete the performance obligation. Based on this analysis, any changes in estimates of total consideration to be received and direct costs to complete the performance obligation 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 supply agreements 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 total consideration to be received.
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.
F-12
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Contract assets primarily relate to our rights to consideration for work completed but not billed at the reporting date on supply agreements.
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 wind blade sales.
Revenue related to field service inspection and repair services, non-recurring engineering and freight services provided under our supply agreements 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 cost, 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.
(d) 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 satisfaction of the related performance obligations for which we have an enforceable right to payment upon termination and we may not use or sell the product to fulfill other customers’ contracts. 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, as well as the allocated portion of costs incurred at our corporate headquarters and our research facilities. 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, excluding non-productive 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 products 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-13
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) 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 unallocated 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, 2021, 2020 and 2019, total research and development expenses totaled $
(f) Loss on Sale of Assets and Asset Impairments
(g) Restructuring Charges, Net
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. The determination of when we accrue for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. Ongoing benefit arrangements are recognized over the service period or when termination becomes reasonably probable, and one-time benefit arrangements are recognized in the period the arrangement is approved and formally communicated to employees. If applicable, we record such costs into operating expense over the terminated employee’s future service period beyond any minimum retention period. Restructuring charges that have been incurred but not yet paid are recorded in accrued expenses in the accompanying consolidated balance sheets.
(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, 2021 and 2020, our China locations collectively had unrestricted cash totaling $
As of December 31, 2021 and 2020, we had provided for cash deposits for letters of guarantee used for customs clearance related to our China locations totaling $
As of December 31, 2021 and 2020, we had $
F-14
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
location, that were previously collateralized with our senior secured credit facility. These amounts are reported as restricted cash in our consolidated balance sheets.
(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 creditworthiness 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
(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 6, Property, Plant and Equipment, Net.
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Estimated |
Machinery and equipment |
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Buildings |
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Leasehold improvements |
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Office equipment and software |
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Furniture |
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Vehicles |
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(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) Assets Held for Sale
We classify long-lived assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the
F-15
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
asset or disposal group; (2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups; (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5) the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.
Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, we cease depreciation and report long-lived assets and/or the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale, respectively, in our consolidated balance sheets.
As of December 31, 2021, we met the criteria to classify $
(n) Goodwill, Intangible Assets and Deferred Costs, Net
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 2021 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.
In addition, we recognize 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. See Note 7, Intangible Assets and Deferred Costs, Net.
(o) Mezzanine Equity
We have issued Series A Preferred Stock that we have determined is a financial instrument with both equity and debt characteristics and is classified as mezzanine equity in our consolidated financial statements. The instrument was initially recognized at fair value net of issuance costs. We reassess whether the instrument is currently redeemable or probable to become redeemable in the future as of each reporting date, in which, if the instrument meets either criterion, we will accrete the carrying value to the estimated maximum redemption value
F-16
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
based on the effective interest method over the remaining period to the expected redemption date. To assess classification, we review all features of the instrument, including all mandatory and optional redemption features that may be substantive. All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as freestanding instruments or bifurcated embedded derivatives that are material are recognized separately as a derivative asset or liability in the consolidated financial statements. We have evaluated our Series A Preferred Stock and determined that its nature is that of a debt host and embedded derivatives exist that require bifurcation on our balance sheet. Mezzanine equity is presented net of related issuance costs and discounts resulting from bifurcated instruments and embedded features issued in conjunction with the host. See Note 14, Mezzanine Equity.
(p
We provide a limited warranty for our mold, wind blade, and transportation products, including materials and workmanship, with terms and conditions that vary depending on the product sold, generally for periods that range from to
(q) Treasury Stock
Common stock purchased for treasury is recorded at historical cost. Transactions in treasury shares relate to shares withheld in lieu of income taxes associated with share-based compensation plans and are recorded at weighted-average cost.
(r) Foreign Currency Translation and Income and Losses
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, 2021, 2020 and 2019 amounted to other comprehensive losses of $
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.
Foreign currency transaction gains and losses are reported in foreign currency loss, net in our consolidated statements of operations.
F-17
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(s) Share-Based Compensation
We maintain
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. 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, 2021, we utilized a weighted-average volatility of
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. The expected volatility assumption reflects an average of our historical volatility and the 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
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.
(t) Leases
In accordance with FASB ASC Topic 842, 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,
F-18
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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.
(u) 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. See Note 17, Income Taxes.
(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 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 future contract volumes and the direct costs to complete the performance obligation for revenue recognition, fair value of stock options, performance-based restricted stock units and warrants, features related to our Series A Preferred Stock, 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.
F-19
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The carrying amounts of our 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 our short-term unsecured 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 our 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. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. These inputs are observable in active markets over the contract term of the derivative instruments we hold, including the compound derivative associated with our Series A Preferred Stock and accordingly, we classify the valuation techniques as Level 2. See Note 14, Mezzanine Equity.
(x) Earnings Per Share
We calculate basic earnings per share by dividing net income, after deducting dividends on and accretion of preferred stock by the average number of common shares outstanding during the period, which includes unissued common shares associated with vested equity awards for which little or no consideration is required prior to issuance, net of any treasury shares. We calculate diluted earnings per share in a similar manner after consideration of the potential dilutive effect of common stock equivalents on the average number of common shares outstanding during the period. Common stock equivalents include warrants, stock options, restricted stock awards and units, and performance share awards and units. Common stock equivalents are calculated based upon the treasury stock method using an average market price of common shares during the period. Dilution is not considered when a net loss is reported. Common stock equivalents that have an antidilutive effect are excluded from the computation of diluted earnings per share. See Note 18, Net Income (Loss) Per Share.
(y) Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted in 2021
Convertible Instruments
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. This ASU removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. This ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method.
This ASU is effective for all public business entities (other than smaller reporting companies) for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. An entity should adopt the guidance at the beginning of its annual fiscal year. We adopted this standard on January 1, 2021 on a modified retrospective basis and it did not have a material effect on our consolidated financial statements and related disclosures.
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU only applies to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective for all entities beginning on March 12, 2020 and entities
F-20
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
may elect to apply the ASU prospectively through December 31, 2022. The FASB later issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related disclosures.
Note 2 – Net Sales
The following tables represents the disaggregation of our net sales by product for each of our reportable segments:
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Year Ended December 31, 2021 |
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U.S. |
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Asia |
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Mexico |
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EMEA |
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India |
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Total |
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(in thousands) |
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Wind blade sales |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Precision molding and |
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|
|
||||||
Transportation sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Field service, inspection and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
|
|
Year Ended December 31, 2020 |
|
|||||||||||||||||||||
|
|
U.S. |
|
|
Asia |
|
|
Mexico |
|
|
EMEA |
|
|
India |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Wind blade sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Precision molding and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transportation sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Field service, inspection and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Year Ended December 31, 2019 |
|
|||||||||||||||||||||
|
|
U.S. |
|
|
Asia |
|
|
Mexico |
|
|
EMEA |
|
|
India |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Wind blade sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Precision molding and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transportation sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Field service, inspection and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
F-21
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In addition, most of our net sales are made directly to our customers, primarily large multi-national wind turbine manufacturers, under our supply agreements.
For further information regarding our reportable segments, refer to Note 21, Segment Reporting.
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 time it takes to produce a single wind blade is typically between
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 as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Gross contract assets |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Less: reclassification from contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Contract assets |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Gross contract liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Less: reclassification to contract assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Contract liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract assets decreased by $
For the years ended December 31, 2021, 2020 and 2019, we recognized revenue of $
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 Summary of Significant Accounting Policies – (c) Revenue Recognition, 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-22
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations to be satisfied in future periods was approximately $
|
|
$ |
|
|
% of Total |
|
||
|
|
(in thousands) |
|
|||||
Year Ending December 31, |
|
|
|
|
|
|
||
2022 |
|
$ |
|
|
|
% |
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
Total remaining performance obligations |
|
$ |
|
|
|
% |
||
For the year ended December 31, 2021, net revenue recognized from our performance obligations satisfied in previous periods decreased by $
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, 2021, the cost and accumulated amortization of such assets totaled $
In applying the practical expedient as permitted under FASB ASU 2014-09, Revenue from Contracts with Customers (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 earned from a small number of customers. As such, our production levels are dependent on these customers’ orders. See Note 20, Concentration of Customers.
The COVID-19 pandemic adversely affected our business and operations during the year ended December 31, 2020. During the first quarter of 2020, our China manufacturing facilities were adversely impacted by the COVID-19 pandemic in the form of reduced production levels and COVID-19 related costs associated with the health and safety of our associates and non-productive labor. During the second quarter of 2020, all of our manufacturing facilities with the exception of our China manufacturing facilities and our Rhode Island manufacturing facility were required to temporarily suspend production or operate at reduced production levels due primarily to certain applicable government-mandated stay at home orders in response to the COVID-19 pandemic, demands from certain of our labor unions to suspend or reduce production and general safety concerns of our associates. By the end of the second quarter of 2020, most of our manufacturing facilities had returned to operating at or near normal production levels.
F-23
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Although none of our manufacturing facilities are currently operating below normal capacity due to COVID-19 we may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. For example, during the year ended December 31, 2021 our manufacturing facility in Yangzhou, China was shut down for approximately three weeks due to a small outbreak of positive COVID-19 cases in Yangzhou City. In addition, our global supply chain has been adversely affected by the COVID-19 pandemic during 2021 and may continue to be adversely affected if the COVID-19 pandemic persists.
The after-effects of the pandemic continue to evolve and affect supply chain performance and underlying assumptions in various ways – specifically with volatility in the commodity and logistics spaces. During 2021, there were both significant price increases and supply constraints with respect to resin and carbon, key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. We expect carbon fiber and related product supply will remain constrained. Production of carbon products is very energy intensive and continued rising energy costs could continue to adversely impact cost of materials. If the supply of resin feedstocks and carbon fiber continue to be constrained and the prices for these raw materials remain elevated for an extended period of time, such constraints and elevated price levels will have a further material adverse impact on our results of operations.
Although we believe that the onshore wind market will continue to grow over the long term, the expiration of the PTC at the end of 2021 has created uncertainty in the near term. We are monitoring legislative and regulatory policy proposals to extend or expand tax credits in the United States to promote wind energy.
We maintain our U.S. cash in bank deposit and money market 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 $
We also maintain cash in bank deposit accounts outside the U.S. with no insurance. As of December 31, 2021, this included $
Note 4. Accounts Receivable
Accounts receivable as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Trade accounts receivable |
|
$ |
|
|
$ |
|
||
Other accounts receivable |
|
|
|
|
|
|
||
Total accounts receivable |
|
$ |
|
|
$ |
|
||
F-24
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5. Other Current Assets
Other current assets as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Refundable value-added tax |
|
$ |
|
|
$ |
|
||
Deposits |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
$ |
|
|
$ |
|
||
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
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 |
|
$ |
|
|
$ |
|
||
As of December 31, 2021, the projects in construction in progress included the continued investment in of our manufacturing facility in Chennai, India and in our other existing manufacturing facilities.
Total depreciation for the years ended December 31, 2021, 2020 and 2019 was $
Note 7. Intangible Assets and Deferred Costs, Net
Carrying values and estimated useful lives of intangible assets and deferred costs as of December 31, 2021, consisted of the following:
|
|
Estimated |
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
|
|
|
|
(in thousands) |
|
|||||||||
Pre-production investments (1) |
|
Various |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Patents |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Acquired development tools |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks |
|
Indefinite |
|
|
|
|
|
— |
|
|
|
|
||
Total intangible assets and deferred costs, net |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
F-25
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Carrying values and estimated useful lives of intangible assets and deferred costs as of December 31, 2020, consisted of the following:
|
|
Estimated |
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
|
|
|
|
(in thousands) |
|
|||||||||
Pre-production investments (1) |
|
Various |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Patents |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Acquired development tools |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks |
|
Indefinite |
|
|
|
|
|
— |
|
|
|
|
||
Total intangible assets and deferred costs, net |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
During the years ended December 31, 2021, 2020 and 2019, we recorded amortization expense for the intangible assets and deferred costs of $
Note 8. Other Noncurrent Assets
Other noncurrent assets as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Deferred tax assets |
|
$ |
|
|
$ |
|
||
Deposits |
|
|
|
|
|
|
||
Land use right ( |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other noncurrent assets |
|
$ |
|
|
$ |
|
||
Note 9. Accrued Warranty
Warranty accrual as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Warranty accrual at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accrual during the year |
|
|
|
|
|
|
|
|
|
|||
Cost of warranty services provided during the year |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Changes in estimate for pre-existing warranties, |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Warranty accrual at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Note 10. Share-Based Compensation
The share-based compensation expense recognized in the consolidated statements of operations for the years ended December 31 was as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Cost of goods sold |
|
$ |
|
|
$ |
|
|
$ |
|
|||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|||
Total share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-26
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The share-based compensation expense recognized by award type for the years ended December 31 was as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
RSUs |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Stock options |
|
|
|
|
|
|
|
|
|
|||
PSUs |
|
|
|
|
|
|
|
|
|
|||
Total share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Included in total share-based compensation expense for the year ended December 31, 2020 is $
The summary of activity for our incentive plans is as follows:
|
|
|
|
|
Stock Options |
|
|
RSUs |
|
|
PSUs |
|
||||||||||||||||||||
|
|
Shares |
|
|
Shares |
|
|
Weighted- |
|
|
Options |
|
|
Units |
|
|
Weighted- |
|
|
Units |
|
|
Weighted- |
|
||||||||
Balance as of December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Increase in shares authorized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Granted |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Exercised/vested |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Forfeited/cancelled |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||||
Balance as of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Increase in shares authorized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Granted |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Exercised/vested |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||||
Forfeited/cancelled |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||||
Balance as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Granted |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Exercised/vested |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||||
Forfeited/cancelled |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||||
Balance as of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
The fair value of RSUs, based on the share price on the date of vesting, which vested during the years ended December 31, 2021, 2020 and 2019 was $
The following table summarizes the outstanding and exercisable stock option awards as of December 31, 2021:
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
Range of Exercise Prices: |
|
Shares |
|
|
Weighted- |
|
|
Weighted- |
|
|
Shares |
|
|
Weighted- |
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
F-27
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table contains additional information pertaining to stock options for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Total intrinsic value of stock options outstanding |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total intrinsic value of stock options exercisable |
|
|
|
|
|
|
|
|
|
|||
Cash received from the exercise of stock options |
|
|
|
|
|
|
|
|
|
|||
Intrinsic fair value of stock options vested |
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2021, the unamortized cost of the outstanding RSUs and PSUs was $
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:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Weighted-average fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Expected volatility |
|
|
% |
|
|
% |
|
|
% |
|||
Expected life |
|
|
|
|
|
|
||||||
Risk-free interest rate |
|
|
% |
|
|
% |
|
|
% |
|||
Dividend yield |
|
|
% |
|
|
% |
|
|
% |
|||
Note 11. Long-Term Debt, Net of Current Maturities
Long-term debt, net of current maturities, as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
||
Senior revolving loan—US |
|
$ |
|
|
$ |
|
||
Unsecured financing—EMEA |
|
|
|
|
|
|
||
Equipment financing—EMEA |
|
|
|
|
|
|
||
Secured and unsecured working capital—India |
|
|
|
|
|
|
||
Unsecured term loan—India |
|
|
|
|
|
|
||
Equipment finance lease—Mexico |
|
|
|
|
|
|
||
Equipment finance lease—EMEA |
|
|
|
|
|
|
||
Other equipment finance leases |
|
|
|
|
|
|
||
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 |
|
$ |
|
|
$ |
|
||
F-28
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes borrowings under these facilities as of December 31:
|
|
|
|
2021 |
|
|
2020 |
|
||||||||||
Credit Facilities |
|
Interest Rates |
|
Total Borrowing Capacity |
|
|
Outstanding Balance |
|
|
Total Borrowing Capacity |
|
|
Outstanding Balance |
|
||||
|
|
|
|
(in thousands) |
|
|||||||||||||
Senior revolving loan—US |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Unsecured financing—EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Secured and unsecured working capital—India |
|
|
|
|
|
|
|
|
|
|
|
|||||||
Unsecured financing—Asia |
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total credit facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equipment financing and term debt |
|
Interest Rates |
|
Total Facility |
|
|
Outstanding Balance |
|
|
Total Facility |
|
|
Outstanding Balance |
|
||||
Unsecured term loan—India |
|
|
|
|
|
|
|
|
— |
|
|
|
||||||
Equipment financing—EMEA |
|
EURIBOR+ |
|
|
|
|
|
|
|
|
|
|
||||||
Equipment finance lease—Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equipment finance lease—EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other equipment finance leases |
|
|
|
|
|
|
|
|
|
|||||||||
Total equipment financing and term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total debt—principal |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S.:
In November 2021, we used the net proceeds from the issuance and sale of the Series A Preferred Stock to repay all outstanding indebtedness under our senior revolving loan and letter of credit sub-facility (the Credit Agreement) and terminated our Credit Agreement.
As of December 31, 2021 and 2020, there was $
EMEA:
In general, all of the credit agreements which the EMEA segment enters into have provisions which allow them to borrow in either U.S. dollars, Turkish Lira or Euro, regardless of the currency in which the agreement is denominated. In addition, none of the credit agreements have an expiration date, however each credit agreements’ limits are reviewed annually to establish available capacity, and every time we draw under one of the credit agreements a term is set for the respective draw's repayment.
As of December 31, 2021 and 2020, available capacity under the EMEA unsecured financing agreements was reduced by $
In addition to the total borrowing capacity above, as of December 31, 2021 and 2020, the various EMEA general credit agreements provided for additional financing up to approximately $
Due to the short-term nature of the unsecured financings in the EMEA segment, we estimate that fair-value approximates the face value of the notes.
F-29
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Asia:
In August 2021, we amended our credit agreement with a Chinese financial institution to increase the amount available under the unsecured credit line from
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
Mexico:
In September 2021, we entered into a sale-lease agreement with a leasing company for the initial lease of up to $
India:
In May 2021, we entered into a three-year unsecured term loan with an Indian financial institution to provide up to
In June 2021, we entered into a general credit agreement with an Indian financial institution to provide up to
In October 2021, we entered into a general credit agreement to provide up to $
The average interest rate on our short-term borrowings as of December 31, 2021 and 2020 was approximately
F-30
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The future aggregate annual principal maturities of debt as of December 31, 2021 are as follows:
|
|
|
|
|
Year Ending December 31, |
|
(in thousands) |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total debt—principal |
|
$ |
|
|
Note 12. 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 and
The components of lease cost for the years ended December 31 were as follows:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Total operating lease cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease cost |
|
|
|
|
|
|
||
Amortization of assets under finance leases |
|
$ |
|
|
$ |
|
||
Interest on finance leases |
|
|
|
|
|
|
||
Total finance lease cost |
|
$ |
|
|
$ |
|
||
Total lease liabilities as of December 31 were as follows:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Operating Leases |
|
|
|
|
|
|
||
Operating lease right of use assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Current operating lease liabilities |
|
$ |
|
|
$ |
|
||
Noncurrent operating lease liabilities |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance Leases |
|
|
|
|
|
|
||
Property, plant and equipment, gross |
|
$ |
|
|
$ |
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
Total finance lease liabilities |
|
$ |
|
|
$ |
|
||
F
F-31
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
Operating |
|
|
Finance |
|
||
|
|
Leases |
|
|
Leases |
|
||
|
|
(in thousands) |
|
|||||
Year Ending December 31, |
|
|
|
|
|
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future minimum lease payments |
|
|
|
|
|
|
||
Less: interest |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information related to leases for the years ended December 31 was as follows:
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
Cash paid for amounts included in the |
|
|
|
|
|
|
||
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 |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Other information related to leases as of December 31 was as follows:
|
|
2021 |
|
|
2020 |
|
||
Weighted-Average Remaining Lease Term |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted-Average Discount Rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
% |
||
Note 13. Financial Instruments
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. We do not use such forward contracts for speculative or trading purposes.
Mexican Peso
All of our remaining outstanding foreign exchange forward contracts (excluding those with call options) expired during the year ended December 31, 2021. As of December 31, 2020, the notional values associated with
F-32
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
our foreign exchange forward contracts qualifying as cash flow hedges were approximately
With regards to our foreign exchange call option contracts, for the years ended December 31, 2021, 2020 and 2019, $
As of December 31, 2021, and 2020 the notional values associated with our foreign exchange call option contracts qualifying as cash flow hedges were approximately
Chinese Renminbi
With regards to our foreign exchange forward contracts, for which hedge accounting does not apply, for the years ended December 31, 2021, 2020 and 2019 $
India Rupee
In November 2020, we entered into a monthly foreign exchange forward contract to hedge our exposure to exchange rate fluctuations on certain balance sheet amounts recorded on our India entities that are not the entities' functional currency. Hedge accounting does not apply to the foreign exchange forward contracts, all of which expired during the year ended December 31, 2021. For the year ended December 31, 2020, $
Beginning June 2021, we entered into a monthly foreign exchange call option contract to hedge the same exposure. Hedge accounting does not apply to the foreign exchange call option contract. For the year ended December 31, 2021, $
All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy. For a detailed discussion of the fair value hierarchy, refer to the discussion in Note 1, Summary of Operations and Summary of Significant Accounting Policies – Fair Value of Financial Instruments.
The fair values and location of financial instruments in our consolidated balance sheets as of December 31, were as follows:
|
|
Consolidated Balance |
|
|
|
|
|
|
||
Financial Instrument |
|
Sheet Line Item |
|
2021 |
|
|
2020 |
|
||
|
|
|
|
(in thousands) |
|
|||||
Foreign exchange forward contracts |
|
Other current assets |
|
$ |
|
|
$ |
|
||
Foreign exchange forward contracts |
|
Accounts payable and accrued |
|
|
|
|
|
|
||
Interest rate swap |
|
Other noncurrent liabilities |
|
|
— |
|
|
|
|
|
The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our consolidated statements of operations:
Comprehensive Income |
|
Consolidated Statement of |
|
|
|
|
|
|
|
|
|
|||
(Loss) Component |
|
Operations Line Item |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
|
|
(in thousands) |
|
|||||||||
Foreign exchange forward |
|
Cost of sales |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
F-33
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14. Mezzanine Equity
On November 22, 2021 (“Series A Preferred Stock Closing Date”), we issued
Our Series A Preferred Stock is classified as mezzanine equity in our consolidated financial statements as redemption has been deemed probable. We have determined there are embedded features that require recognition as a compound derivative liability (“Compound Derivative”).
We allocated the gross proceeds of $
As of December 31, 2021, the carrying value of our Series A Preferred Stock, net of issuance costs, is $
Dividends—The holders of our Series A Preferred Stock are entitled to dividends. The dividend rate is
Voting Rights— The holders of Series A Preferred Stock do not have any voting rights or rights to convert such preferred shares into shares of Common Stock. We must obtain the prior written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock for, among other things: (i) amending our organizational documents to the extent such amendment has an adverse effect on the holders of the Series A Preferred Stock, (ii) effecting any change of control, liquidation event or merger or consolidation of us unless the entirety of the applicable Series A Preferred Stock price is paid with respect to all the then issued and outstanding Series A Preferred Stock, (iii) increasing or decreasing the number of authorized shares of Series A Preferred Stock, (iv) making certain material acquisitions or dispositions or entering into joint ventures or similar transactions, (v) incurring indebtedness except for indebtedness incurred under its existing loan facilities and agreements so long as the total amount of such indebtedness does not exceed $
Redemption— We will have the right to redeem all or any portion of the Series A Preferred Stock at any time by paying the applicable redemption price; provided, however, that no optional redemption will be permitted that would result in less than
The holders of the Series A Preferred Stock will have the option to require us to redeem any portion of the Series A Preferred Stock at any time after the fifth anniversary of the Series A Preferred Stock Closing Date or an event of noncompliance occurs. We will be required to redeem all of the outstanding shares of Series A Preferred Stock automatically upon the occurrence of a change of control, liquidation or insolvency event. We shall be
F-34
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
required to redeem all of the outstanding shares of Series A Preferred Stock automatically upon the occurrence of (i) a change of control or a liquidation event, or (ii) any insolvency event. Upon consummation of any such mandatory redemption, we shall pay to the holders from whom such shares were redeemed an amount that would equal the applicable redemption price effective as of the date of the event.
The redemption price includes a redemption premium, which varies based on the date of redemption. Upon redemption prior to the third anniversary of the Series A Preferred Stock Closing Date, the Company is required to pay all dividends that would have otherwise accrued from the date of redemption through the third anniversary of the Series A Preferred Stock Closing Date.
Liquidation Rights—Upon our liquidation, dissolution, or winding up, holders of our Series A Preferred Stock will be entitled to receive cash out of our assets prior to holders of the common stock.
Financial Covenants—We must maintain cash on hand of $
Warrants— The Warrants are fully vested and are exercisable at any time from the Series A Preferred Stock Closing Date to the close of business on the fifth anniversary of the Series A Preferred Stock Closing Date. The Warrants include customary anti-dilution adjustments.
Compound Derivative— Certain features embedded with the Series A Preferred Stock are required to be bifurcated as derivative instruments. The compound derivative instrument is recorded at fair value and marked-to-market each reporting period with changes in fair value being reflected in earnings. As of December 31, 2021, the compound derivative had a value of $
Note 15. Restructuring charges, net
Restructuring charges, net for the years ended December 31 were as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(In thousands) |
|
|||||||||
Severance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other restructuring costs |
|
|
|
|
|
|
|
|
|
|||
Total restructuring charges, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following is a summary of our restructuring liability activity for the periods presented:
|
|
Severance and other costs |
|
|
Balance at December 31, 2020 |
|
$ |
|
|
Restructuring charges, net |
|
|
|
|
Payments |
|
|
( |
) |
Balance at December 31, 2021 |
|
$ |
|
|
Note 16. Commitments and Contingencies
Legal Proceedings
From time to time, we may be involved in disputes or litigation relating to claims arising out of its operations.
In January 2021, we received a complaint that was filed by the administrator for the Senvion Gmbh (Senvion) insolvency estate in German insolvency court. The complaint asserts voidance against us in the aggregate amount of $
F-35
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the alleged voidance claims. Due to the early stage of this claim, we have determined that the ultimate outcome cannot be estimated at this time.
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.
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.
Dividend Restrictions
Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until
Collective Bargaining Agreements
Certain of our employees in Turkey and Matamoros, Mexico are covered by collective bargaining agreements. We have a collective bargaining agreement with our employees in Turkey through the end of 2022. We have separate collective bargaining agreements for each of our Matamoros, Mexico manufacturing facilities. We amended a collective bargaining agreement at one of our Matamoros, Mexico manufacturing facilities to adjust the salaries and bonuses payable to our associates for calendar year 2022, and this collective bargaining agreement is in effect through March 2023. We have a collective bargaining agreement for our other facility in Matamoros, Mexico that we took over from Nordex, which is in effect through April 2023, and we expect this collective bargaining agreement for the associates at this manufacturing facility will be amended during the first half of 2022.
Escheat Audit
In November 2020, we were notified by the state of Delaware that they intend to examine our books and records to determine compliance with Delaware escheat laws. Since that date, additional states have joined with Delaware in the audit process and additional states may join in the audit process. The audit is conducted by an outside firm on behalf of the states and covers the period from 2005 to 2019. We believe that the audits may take several years to complete. Due to the preliminary stage of this audit, we have determined that the ultimate outcome cannot be reasonably estimated at this time. Any claims or liabilities resulting from these audits could have a material impact on our financial condition, results of operations and cash flows.
F-36
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17. Income Taxes
Geographic sources of income (loss) before income taxes are as follows for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
United States |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
China |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Turkey |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Mexico |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
( |
) |
|
|
|
|
|
|
||
Total income (loss) before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Tax Reform
The Tax Cuts and Jobs Act (Tax Reform) enacted a new minimum tax on U.S. companies’ foreign operations called global intangible low tax income (GILTI). 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.
The Internal Revenue Service published final regulations in July 2020 to address the application of the high-tax exclusion from GILTI under the Tax Reform allowing us to make an annual election to exclude GILTI of our foreign subsidiaries with an effective tax rate greater than
We do not provide deferred taxes related to U.S. GAAP basis in excess of outside tax basis in the investment in our foreign subsidiaries to the extent such amounts relate to indefinitely reinvested earnings and profits of such foreign subsidiaries. In 2021, management classified the Taicang subsidiary as held for sale, therefore the company no longer asserts permanent reinvestment in Taicang and has accrued for the estimated tax on disposal. As of December 31, 2021, our undistributed earnings of certain of our foreign subsidiaries amounted to approximately $
The income tax provision includes U.S. federal, state, and local taxes, Turkey, China, Mexico and India 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 (benefit) for the years ended December 31 are as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
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) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
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:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
United States statutory income tax rate |
|
|
% |
|
|
% |
|
|
% |
|||
Foreign rate differential |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign permanent differences |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Tax rate change |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Withholding taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Subpart F / GILTI income |
|
|
( |
) |
|
|
|
|
|
|
||
Unrecognized tax benefits |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
Share-based compensation |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Valuation allowance |
|
|
( |
) |
|
|
|
|
|
|
||
State taxes |
|
|
|
|
|
|
|
|
( |
) |
||
Deferred tax adjustments |
|
|
( |
) |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign currency / inflationary adjustments |
|
|
|
|
|
|
|
|
( |
) |
||
Other |
|
|
|
|
|
( |
) |
|
|
|
||
Effective income tax rate |
|
|
( |
)% |
|
|
( |
)% |
|
|
% |
|
T
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|||
Net operating loss and credit carry forwards |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Deferred revenue |
|
|
|
|
|
|
|
|
|
|||
Non-deductible accruals |
|
|
|
|
|
|
|
|
|
|||
Equity compensation |
|
|
|
|
|
|
|
|
|
|||
Lease liabilities |
|
|
|
|
|
|
|
|
|
|||
Non-deductible interest |
|
|
|
|
|
|
|
|
|
|||
Tax credits |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Gross deferred tax assets |
|
|
|
|
|
|
|
|
|
|||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total deferred tax assets |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|||
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Lease assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The deferred tax valuation allowance as of December 31 consisted of the following:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Valuation allowance at beginning of year |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Benefits obtained (costs accumulated) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Valuation allowance at end of year |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The valuation allowance as of December 31, 2021 primarily relates to the U.S. federal and state deferred tax assets and certain foreign net operating losses (NOLs) that we believe do not meet the more-likely-than-not criteria
F-38
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
for recording the related benefits. 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 $
As of December 31, 2021, we have U.S. federal and state NOL carryforwards of $
We recognize the impact of a tax position in the 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 include the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized portion of affirmative claims. Included in the balance of unrecognized tax benefits as of December 31, 2021 are $
The following is a reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Unrecognized tax benefits at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Increases related to prior year tax positions |
|
|
|
|
|
|
|
|
|
|||
Decreases related to prior year tax positions |
|
|
|
|
|
|
|
|
|
|||
Increases related to current year tax positions |
|
|
|
|
|
|
|
|
|
|||
Increases (decreases) due to currency translation |
|
|
|
|
|
|
|
|
|
|||
Decreases relating to settlements with authorities |
|
|
|
|
|
( |
) |
|
|
|
||
Decreases from laps in statute of limitations |
|
|
|
|
|
|
|
|
|
|||
Unrecognized tax benefits at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-39
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18. Net Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands, except per share data) |
|
|||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Preferred stock dividends and accretion |
|
|
( |
) |
|
|
|
|
|
|
||
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Denominator: |
|
|
|
|
|
|
|
|
|
|||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Effect of dilutive awards |
|
|
|
|
|
|
|
|
|
|||
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Basic net loss per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted net loss per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Dilutive shares excluded from the calculation |
|
|
|
|
|
|
|
|
|
|||
Anti-dilutive share-based compensation awards |
|
|
|
|
|
|
|
|
|
|||
For the year ended December 31, 2021, the weighted average number of common shares outstanding during the period includes
F-40
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19. Stockholders’ Equity
Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss (AOCL) by component for the years ended December 31, 2021, 2020 and 2019:
|
|
Foreign |
|
|
|
|
|
Foreign |
|
|
|
|
||||
|
|
currency |
|
|
|
|
|
exchange |
|
|
|
|
||||
|
|
translation |
|
|
Interest rate |
|
|
forward |
|
|
Total |
|
||||
|
|
adjustments |
|
|
swap |
|
|
contracts |
|
|
AOCL |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Balance at December 31, 2018 |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amounts reclassified from AOCL |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net tax effect |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at December 31, 2019 |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from AOCL |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net tax effect |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at December 31, 2020 |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from AOCL |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net tax effect |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net current period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at December 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Note 20. Concentration of Customers
Revenues from certain customers (in thousands) in excess of
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||||||||||||||
Customer |
|
Revenues |
|
|
% of Total |
|
|
Revenues |
|
|
% of Total |
|
|
Revenues |
|
|
% of Total |
|
||||||
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
||||||
Customer 1—Vestas |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Customer 2—GE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer 3—Nordex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
F-41
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Trade accounts receivable from certain customers in excess of
|
|
2021 |
|
|
2020 |
|
||
Customer |
|
% of Total |
|
|
% of Total |
|
||
Customer 1—Vestas |
|
|
% |
|
|
% |
||
Customer 3—Nordex |
|
|
|
|
|
|
||
Customer 5—Enercon |
|
|
|
|
|
|
||
Note 21. Segment Reporting
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, Mexico, Turkey and India.
The Company’s reportable segments are (1) the United States (U.S.), (2) Asia, (3) Mexico, (4) Europe, the Middle East and Africa (EMEA) and (5) India. These reportable segments are reflective of how the Company’s chief operating decision maker reviews operating results for the purposes of allocating resources and assessing performance.
As further described below, our operating segments are defined geographically as the U.S., Asia, Mexico, EMEA and India. All of our segments operate in their local currency except for the Mexico and Asia segments, which both include a U.S. parent company, and India, which operate in the U.S. dollar.
We divide our business operations into
Our U.S. segment includes (1) the manufacturing of wind blades at our Newton, Iowa facility, (2) the manufacturing of precision molding and assembly systems used for our transportation business at our Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation industry, which we also conduct at our Warren, Rhode Island facility, (4) wind blade inspection and repair services, (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 and () 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, (2) the manufacturing of precision molding and assembly systems at our Taicang Port, China facility and (
Our Mexico segment includes (1) the manufacturing of wind blades at our three facilities in Juárez, Mexico and two facilities in Matamoros, Mexico, (2) the manufacturing of precision molding and assembly systems and composite solutions for the transportation industry at our fourth Juárez, Mexico facility and () wind blade inspection and repair services.
Our EMEA segment includes (1) the manufacturing of wind blades at our facilities in Izmir, Turkey and wind blade inspection and repair services, and (2) our wind blade inspection and repair service facility in Madrid, Spain.
Our India segment manufactures wind blades from our new manufacturing facility in Chennai, , which commenced operations in the first quarter of 2020.
The following tables set forth certain information regarding each of our segments as of or for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(in thousands) |
|
|||||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Asia |
|
|
|
|
|
|
|
|
|
|||
F-42
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Mexico |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net sales by geographic location(1): |
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|||
China |
|
|
|
|
|
|
|
|
|
|||
Mexico |
|
|
|
|
|
|
|
|
|
|||
Turkey |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Asia |
|
|
|
|
|
|
|
|
|
|||
Mexico |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Asia |
|
|
( |
) |
|
|
|
|
|
|
||
Mexico |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
EMEA |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Asia |
|
|
|
|
|
|
|
|
|
|||
Mexico |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Tangible long-lived assets: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
|
|
|||
Asia (China) |
|
|
|
|
|
|
|
|
|
|||
Mexico |
|
|
|
|
|
|
|
|
|
|||
EMEA (Turkey) |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total tangible long-lived assets |
|
$ |
|
|
$ |
|
|
|
|
|||
Total assets: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
|
|
|||
Asia (China) |
|
|
|
|
|
|
|
|
|
|||
Mexico |
|
|
|
|
|
|
|
|
|
|||
EMEA (Turkey) |
|
|
|
|
|
|
|
|
|
|||
India |
|
|
|
|
|
|
|
|
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
|
|
|||
F-43
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Exhibit Index
Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
4.5 |
|
|
|
|
|
10.1‡ |
|
|
|
|
|
10.2‡ |
|
|
|
|
|
10.3† |
|
|
|
|
|
10.4† |
|
|
|
|
|
10.5† |
|
|
|
|
|
10.6† |
|
|
|
|
|
F-44
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 |
|
|
|
|
|
F-45
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10.21 |
|
|
|
|
|
10.22 |
|
|
|
|
|
10.23 |
|
|
|
|
|
10.24 |
|
|
|
|
|
10.25 |
|
|
|
|
|
10.26 |
|
|
|
|
|
10.27 |
|
|
|
|
|
10.28 |
|
|
|
|
|
10.29 |
|
|
|
|
|
10.30 |
|
|
|
|
|
10.31 |
|
Second Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K (File No. 001-37839) filed on February 25, 2021) |
|
|
|
10.32 |
|
|
|
|
|
10.33 |
|
|
|
|
|
10.34 |
|
|
|
|
|
F-46
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10.35 |
|
|
|
|
|
10.36 |
|
|
|
|
|
10.37 |
|
|
|
|
|
10.38 |
|
|
|
|
|
10.39 |
|
|
|
|
|
10.40 |
|
|
|
|
|
10.41 |
|
|
|
|
|
10.42 |
|
|
|
|
|
10.43 |
|
|
|
|
|
10.44 |
|
|
|
|
|
10.45 |
|
|
|
|
|
10.46 |
|
|
|
|
|
10.47 |
|
|
|
|
|
F-47
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10.48 |
|
|
|
|
|
21.1* |
|
|
|
|
|
23.1* |
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm |
|
|
|
24.1 |
|
|
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2* |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1** |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2** |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 * |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
* 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
F-48
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
SIGNATURES
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.
|
|
TPI COMPOSITES, INC. |
||
|
|
|
|
|
Date: February 25, 2022 |
|
By: |
|
/s/ Adan Gossar |
|
|
|
|
Adan Gossar |
|
|
|
|
Interim Chief Financial Officer (Principal Financial Officer) |
We, the undersigned officers and directors of TPI Composites, Inc., hereby severally constitute and appoint William E. Siwek and Adan Gossar 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-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
F-49
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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/ William E. Siwek |
|
President, Chief Executive Officer and Director |
|
February 25, 2022 |
William E. Siwek |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Adan Gossar |
|
Interim Chief Financial Officer |
|
February 25, 2022 |
Adan Gossar |
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ Jayshree S. Desai |
|
Director |
|
February 25, 2022 |
Jayshree S. Desai |
|
|
|
|
|
|
|
|
|
/s/ Philip J. Deutch |
|
Director |
|
February 25, 2022 |
Philip J. Deutch |
|
|
|
|
|
|
|
|
|
/s/ Paul G. Giovacchini |
|
Lead Independent Director |
|
February 25, 2022 |
Paul G. Giovacchini |
|
|
|
|
|
|
|
|
|
/s/ Jack A. Henry |
|
Director |
|
February 25, 2022 |
Jack A. Henry |
|
|
|
|
|
|
|
|
|
/s/ Bavan M. Holloway |
|
Director |
|
February 25, 2022 |
Bavan M. Holloway |
|
|
|
|
|
|
|
|
|
/s/ Linda P. Hudson |
|
Director |
|
February 25, 2022 |
Linda P. Hudson |
|
|
|
|
|
|
|
|
|
/s/ James A. Hughes |
|
Director |
|
February 25, 2022 |
James A. Hughes |
|
|
|
|
|
|
|
|
|
/s/ Tyrone M. Jordan |
|
Director |
|
February 25, 2022 |
Tyrone M. Jordan |
|
|
|
|
|
|
|
|
|
/s/ Peter Jonna |
|
Director |
|
February 25, 2022 |
Peter Jonna |
|
|
|
|
|
|
|
|
|
/s/ Steven C. Lockard |
|
Director and Chairman of the Board |
|
February 25, 2022 |
Steven C. Lockard |
|
|
|
|
|
|
|
|
|
/s/ Daniel G. Weiss |
|
Director |
|
February 25, 2022 |
Daniel G. Weiss |
|
|
|
|
F-50