06
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 20202021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 001-37839
TPI Composites, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 20-1590775 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
8501 N. Scottsdale Rd.
Gainey Center II, Suite 100
Scottsdale, AZ85253
(480) (480) 305-8910
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 | TPIC | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2020,29, 2021, there were 35,740,79637,070,744 shares of common stock outstanding.
TPI COMPOSITES, INC. AND SUBSIDIARIES
INDEX
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ITEM 1. | 4 | |||
Condensed Consolidated Balance Sheets as of September 30, |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities law. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the potential impact of the COVID-19 pandemic on our business and results of operations; competition from other wind blade and wind blade turbine manufacturers; our ability to procure adequate supplies of raw materials and components in a cost-effective manner to fulfill our volume commitments to our customers; the discovery of defects in our products and our ability to estimate the future cost of warranty campaigns; growth of the wind energy and electric vehicle markets and our addressable markets for our products and services; the potential impact of the increasing prevalence of auction-based tenders in the wind energy market and increased competition from solar energy on our gross margins and overall financial performance; our future financial performance, including our net sales, cost of goods sold, gross profit or gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve or maintain profitability; changes in domestic or international government or regulatory policy, including without limitation, changes in trade policy and a potential extension of the Production Tax Credit in the United States; the sufficiency of our cash and cash equivalents and our ability to raise additional capital to meet our liquidity needs; our ability to attract and retain customers for our products, and to optimize product pricing; our ability to effectively manage our growth strategy and future expenses, including our startup and transition costs; our ability to successfully expand in our existing wind energy markets and into new international wind energy markets, including our ability to expand our field service inspection and repair services business and manufacture wind blades for offshore wind energy projects; our ability to successfully open new manufacturing facilities, take over existing facilities of our customers and expand our existing facilities on time and on budget; the impact of the accelerated pace of new product and wind blade model introductions on our business and our results of operations; our ability to successfully expand our transportation business and execute upon our strategy of entering new markets outside of wind energy; worldwide economic conditions and their impact on customer demand; our ability to maintain, protect and enhance our intellectual property; our ability to comply with existing, modified or new laws and regulations applying to our business, including the imposition of new taxes, duties or similar assessments on our products; the attraction and retention of qualified employees and key personnel; our ability to maintain good working relationships with our employees, and avoid labor disruptions, strikes and other disputes with labor unions that represent certain of our employees; and the potential impact of one or more of our customers becoming bankrupt or insolvent, or experiencing other financial problems.
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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
2
implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 2, 2020February 25, 2021 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 Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
3
PART I—I. FINANCIAL INFORMATION
ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| September 30, |
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| December 31, |
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| September 30, |
| December 31, |
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| 2020 |
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| 2019 |
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| 2021 |
| 2020 |
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| (in thousands, except par value data) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 149,422 |
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| $ | 70,282 |
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| $ | 119,005 |
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| $ | 129,857 |
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Restricted cash |
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| 1,987 |
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| 992 |
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| 153 |
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| 339 |
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Accounts receivable |
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| 149,985 |
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| 184,012 |
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| 178,104 |
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| 132,768 |
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Contract assets |
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| 211,569 |
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| 166,515 |
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| 244,774 |
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| 216,928 |
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Prepaid expenses |
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| 15,950 |
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| 10,047 |
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| 22,916 |
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| 29,507 |
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Other current assets |
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| 21,794 |
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| 29,843 |
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| 22,613 |
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| 27,921 |
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Inventories |
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| 14,569 |
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| 6,731 |
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| 11,251 |
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| 10,839 |
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Total current assets |
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| 565,276 |
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| 468,422 |
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| 598,816 |
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| 548,159 |
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Property, plant, and equipment, net |
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| 210,024 |
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| 205,007 |
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Property, plant and equipment, net |
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| 192,326 |
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| 209,001 |
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Operating lease right of use assets |
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| 168,590 |
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| 122,351 |
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| 146,794 |
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| 158,827 |
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Other noncurrent assets |
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| 41,794 |
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| 30,897 |
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| 24,653 |
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| 40,270 |
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Total assets |
| $ | 985,684 |
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| $ | 826,677 |
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| $ | 962,589 |
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| $ | 956,257 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 310,344 |
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| $ | 293,104 |
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| $ | 346,272 |
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| $ | 295,992 |
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Accrued warranty |
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| 53,596 |
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| 47,639 |
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| 42,479 |
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| 50,852 |
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Current maturities of long-term debt |
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| 35,788 |
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| 13,501 |
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| 251,563 |
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| 32,551 |
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Current operating lease liabilities |
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| 25,569 |
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| 16,629 |
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| 22,939 |
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| 26,099 |
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Contract liabilities |
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| 2,010 |
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| 3,008 |
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| 0 |
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| 614 |
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Total current liabilities |
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| 427,307 |
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| 373,881 |
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| 663,253 |
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| 406,108 |
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Long-term debt, net of debt issuance costs and current maturities |
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| 201,780 |
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| 127,888 |
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Long-term debt, net of current maturities |
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| 10,566 |
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| 184,316 |
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Noncurrent operating lease liabilities |
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| 165,551 |
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| 113,883 |
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| 149,742 |
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| 155,925 |
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Other noncurrent liabilities |
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| 9,594 |
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| 5,975 |
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| 7,964 |
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| 8,873 |
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Total liabilities |
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| 804,232 |
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| 621,627 |
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| 831,525 |
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| 755,222 |
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Commitments and contingencies (Note 12) |
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Stockholders’ equity: |
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Common shares, $0.01 par value, 100,000 shares authorized, 35,916 shares issued and 35,740 shares outstanding at September 30, 2020 and 100,000 shares authorized, 35,326 shares issued and 35,181 shares outstanding at December 31, 2019 |
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| 359 |
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| 353 |
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Common shares, $0.01 par value, 100,000 shares authorized, 37,279 |
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| 373 |
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| 368 |
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Paid-in capital |
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| 338,355 |
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| 322,906 |
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| 361,987 |
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| 349,472 |
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Accumulated other comprehensive loss |
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| (37,946 | ) |
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| (23,612 | ) |
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| (43,176 | ) |
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| (32,990 | ) |
Accumulated deficit |
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| (114,900 | ) |
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| (90,689 | ) |
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| (181,987 | ) |
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| (109,716 | ) |
Treasury stock, at cost, 176 shares at September 30, 2020 and 145 shares at December 31, 2019 |
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| (4,416 | ) |
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| (3,908 | ) | ||||||||
Treasury stock, at cost, 208 shares at September 30, 2021 and 207 shares at |
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| (6,133 | ) |
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| (6,099 | ) | ||||||||
Total stockholders’ equity |
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| 181,452 |
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| 205,050 |
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| 131,064 |
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| 201,035 |
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Total liabilities and stockholders’ equity |
| $ | 985,684 |
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| $ | 826,677 |
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| $ | 962,589 |
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| $ | 956,257 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
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| September 30, |
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| September 30, |
| September 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
| 2020 |
| 2021 |
| 2020 |
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| (in thousands, except per share data) |
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Net sales |
| $ | 474,113 |
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| $ | 383,836 |
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| $ | 1,204,566 |
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| $ | 1,014,387 |
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| $ | 479,599 |
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| $ | 474,113 |
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| $ | 1,343,120 |
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| $ | 1,204,566 |
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Cost of sales |
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| 425,064 |
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| 335,778 |
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| 1,141,183 |
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| 904,135 |
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| 472,188 |
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| 425,064 |
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| 1,295,660 |
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| 1,141,183 |
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Startup and transition costs |
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| 8,576 |
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| 22,127 |
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| 31,530 |
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| 63,206 |
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| 14,541 |
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| 8,576 |
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| 38,994 |
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| 31,530 |
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Total cost of goods sold |
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| 433,640 |
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| 357,905 |
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| 1,172,713 |
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| 967,341 |
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| 486,729 |
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| 433,640 |
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| 1,334,654 |
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| 1,172,713 |
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Gross profit |
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| 40,473 |
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| 25,931 |
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| 31,853 |
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| 47,046 |
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Gross profit (loss) |
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| (7,130 | ) |
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| 40,473 |
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| 8,466 |
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| 31,853 |
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General and administrative expenses |
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| 9,263 |
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| 10,608 |
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| 25,646 |
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| 27,801 |
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| 8,185 |
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| 9,263 |
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| 23,819 |
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| 25,646 |
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Realized loss on sale of assets and asset impairments |
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| 2,160 |
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| 3,354 |
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| 5,518 |
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| 10,561 |
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Restructuring charges (reversals), net |
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| 45 |
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| (149 | ) |
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| 343 |
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| 3,725 |
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Income from operations |
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| 29,005 |
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| 12,118 |
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| 346 |
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| 4,959 |
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Loss on sale of assets and asset impairments |
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| 7,250 |
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| 2,160 |
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| 9,998 |
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| 5,518 |
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Restructuring charges, net |
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| 1,422 |
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| 45 |
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| 3,876 |
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| 343 |
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Income (loss) from operations |
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| (23,987 | ) |
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| 29,005 |
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| (29,227 | ) |
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| 346 |
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Other income (expense): |
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Interest income |
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| 15 |
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| 43 |
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| 55 |
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| 125 |
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Interest expense |
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| (3,108 | ) |
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| (2,130 | ) |
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| (7,464 | ) |
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| (6,403 | ) | ||||||||||||||||
Realized gain (loss) on foreign currency remeasurement |
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| (17,127 | ) |
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| 3,719 |
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| (18,095 | ) |
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| (1,050 | ) | ||||||||||||||||
Interest expense, net |
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| (2,662 | ) |
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| (3,093 | ) |
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| (8,057 | ) |
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| (7,409 | ) | ||||||||||||||||
Foreign currency income (loss) |
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| 3,958 |
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| (17,127 | ) |
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| (6,273 | ) |
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| (18,095 | ) | ||||||||||||||||
Miscellaneous income |
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| 1,259 |
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| 517 |
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| 2,893 |
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| 2,235 |
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| 262 |
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| 1,259 |
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| 1,322 |
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| 2,893 |
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Total other income (expense) |
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| (18,961 | ) |
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| 2,149 |
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| (22,611 | ) |
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| (5,093 | ) |
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| 1,558 |
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| (18,961 | ) |
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| (13,008 | ) |
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| (22,611 | ) |
Income (loss) before income taxes |
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| 10,044 |
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| 14,267 |
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| (22,265 | ) |
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| (134 | ) |
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| (22,429 | ) |
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| 10,044 |
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| (42,235 | ) |
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| (22,265 | ) |
Income tax benefit (provision) |
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| 32,338 |
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| (18,838 | ) |
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| (1,946 | ) |
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| (14,713 | ) |
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| (8,248 | ) |
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| 32,338 |
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| (30,036 | ) |
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| (1,946 | ) |
Net income (loss) |
| $ | 42,382 |
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| $ | (4,571 | ) |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
| $ | (30,677 | ) |
| $ | 42,382 |
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| $ | (72,271 | ) |
| $ | (24,211 | ) |
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Weighted-average common shares outstanding: |
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Basic |
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| 35,546 |
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| 35,131 |
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| 35,354 |
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| 35,024 |
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| 37,052 |
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| 35,546 |
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| 36,846 |
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| 35,354 |
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Diluted |
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| 37,423 |
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| 35,131 |
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| 35,354 |
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| 35,024 |
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| 37,052 |
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| 37,423 |
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| 36,846 |
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| 35,354 |
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Net income (loss) per common share: |
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Basic |
| $ | 1.19 |
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| $ | (0.13 | ) |
| $ | (0.68 | ) |
| $ | (0.42 | ) |
| $ | (0.83 | ) |
| $ | 1.19 |
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| $ | (1.96 | ) |
| $ | (0.68 | ) |
Diluted |
| $ | 1.13 |
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| $ | (0.13 | ) |
| $ | (0.68 | ) |
| $ | (0.42 | ) |
| $ | (0.83 | ) |
| $ | 1.13 |
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| $ | (1.96 | ) |
| $ | (0.68 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
5
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
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|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
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|
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
| 2020 |
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| 2021 |
| 2020 |
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| (in thousands) |
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| (in thousands) |
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Net income (loss) |
| $ | 42,382 |
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| $ | (4,571 | ) |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
| $ | (30,677 | ) |
| $ | 42,382 |
|
| $ | (72,271 | ) |
| $ | (24,211 | ) | |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments |
|
| (1,662 | ) |
|
| (895 | ) |
|
| (13,175 | ) |
|
| (3,765 | ) |
|
| (889 | ) |
|
| (1,662 | ) |
|
| (6,184 | ) |
|
| (13,175 | ) | |
Unrealized gain (loss) on hedging derivatives, net of taxes of $(1,100), $202, $0, and $967, respectively |
|
| 2,961 |
|
|
| (754 | ) |
|
| (1,159 | ) |
|
| (3,635 | ) | |||||||||||||||||
Unrealized gain (loss) on hedging derivatives, net of taxes of |
|
| (728 | ) |
|
| 2,961 |
|
|
| (4,002 | ) |
|
| (1,159 | ) | |||||||||||||||||
Comprehensive income (loss) |
| $ | 43,681 |
|
| $ | (6,220 | ) |
| $ | (38,545 | ) |
| $ | (22,247 | ) |
| $ | (32,294 | ) |
| $ | 43,681 |
|
| $ | (82,457 | ) |
| $ | (38,545 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
6
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Common |
|
| Paid-in |
|
| other comprehensive |
|
| Accumulated |
|
| Treasury stock, |
|
| Total stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| loss |
|
| deficit |
|
| at cost |
|
| equity |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 35,326 |
|
| $ | 353 |
|
| $ | 322,906 |
|
| $ | (23,612 | ) |
| $ | (90,689 | ) |
| $ | (3,908 | ) |
| $ | 205,050 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (492 | ) |
|
| — |
|
|
| (492 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,970 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,970 |
|
Issuances under share-based compensation plan |
|
| 109 |
|
|
| 1 |
|
|
| 861 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 862 |
|
Common stock repurchased for treasury |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (459 | ) |
|
| (459 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,893 | ) |
|
| — |
|
|
| — |
|
|
| (16,893 | ) |
Balance at March 31, 2020 |
|
| 35,435 |
|
|
| 354 |
|
|
| 326,737 |
|
|
| (40,505 | ) |
|
| (91,181 | ) |
|
| (4,367 | ) |
|
| 191,038 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (66,101 | ) |
|
| — |
|
|
| (66,101 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,186 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,186 |
|
Issuances under share-based compensation plan |
|
| 81 |
|
|
| 1 |
|
|
| 510 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 511 |
|
Common stock repurchased for treasury |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (49 | ) |
|
| (49 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,260 |
|
|
| — |
|
|
| — |
|
|
| 1,260 |
|
Balance at June 30, 2020 |
|
| 35,516 |
|
|
| 355 |
|
|
| 329,433 |
|
|
| (39,245 | ) |
|
| (157,282 | ) |
|
| (4,416 | ) |
|
| 128,845 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42,382 |
|
|
| — |
|
|
| 42,382 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,434 |
|
Issuances under share-based compensation plan |
|
| 395 |
|
|
| 4 |
|
|
| 6,488 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,492 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,299 |
|
|
| — |
|
|
| — |
|
|
| 1,299 |
|
Balance at September 30, 2020 |
|
| 35,911 |
|
| $ | 359 |
|
| $ | 338,355 |
|
| $ | (37,946 | ) |
| $ | (114,900 | ) |
| $ | (4,416 | ) |
| $ | 181,452 |
|
|
| Nine Months Ended September 30, 2021 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| |||||||
|
| Common |
|
| Paid-in |
|
| other comprehensive |
|
| Accumulated |
|
| Treasury stock, |
|
| Total stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| loss |
|
| deficit |
|
| at cost |
|
| equity |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance at December 31, 2020 |
|
| 36,771 |
|
| $ | 368 |
|
| $ | 349,472 |
|
| $ | (32,990 | ) |
| $ | (109,716 | ) |
| $ | (6,099 | ) |
| $ | 201,035 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,797 | ) |
|
| — |
|
|
| (1,797 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,494 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,494 |
|
Issuances under share- |
|
| 149 |
|
|
| 1 |
|
|
| 1,235 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,236 |
|
Common stock repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34 | ) |
|
| (34 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,326 | ) |
|
| — |
|
|
| — |
|
|
| (8,326 | ) |
Balance at March 31, 2021 |
|
| 36,920 |
|
|
| 369 |
|
|
| 353,201 |
|
|
| (41,316 | ) |
|
| (111,513 | ) |
|
| (6,133 | ) |
|
| 194,608 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (39,797 | ) |
|
| — |
|
|
| (39,797 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,836 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,836 |
|
Issuances under share- |
|
| 328 |
|
|
| 3 |
|
|
| 3,490 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,493 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (243 | ) |
|
| — |
|
|
| — |
|
|
| (243 | ) |
Balance at June 30, 2021 |
|
| 37,248 |
|
|
| 372 |
|
|
| 359,527 |
|
|
| (41,559 | ) |
|
| (151,310 | ) |
|
| (6,133 | ) |
|
| 160,897 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,677 | ) |
|
| — |
|
|
| (30,677 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 1,946 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,946 |
|
Issuances under share- |
|
| 31 |
|
|
| 1 |
|
|
| 514 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 515 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,617 | ) |
|
| — |
|
|
| — |
|
|
| (1,617 | ) |
Balance at September 30, 2021 |
|
| 37,279 |
|
| $ | 373 |
|
| $ | 361,987 |
|
| $ | (43,176 | ) |
| $ | (181,987 | ) |
| $ | (6,133 | ) |
| $ | 131,064 |
|
See accompanying notes to unaudited condensed consolidated financial statements.7
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - CONTINUED
(Unaudited)
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Common |
|
| Paid-in |
|
| other comprehensive |
|
| Accumulated |
|
| Treasury stock, |
|
| Total stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| loss |
|
| deficit |
|
| at cost |
|
| equity |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance at December 31, 2018 |
|
| 34,745 |
|
| $ | 347 |
|
| $ | 311,771 |
|
| $ | (14,392 | ) |
| $ | (74,981 | ) |
| $ | (1,788 | ) |
| $ | 220,957 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,104 | ) |
|
| — |
|
|
| (12,104 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 821 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 821 |
|
Issuances under share-based compensation plan |
|
| 355 |
|
|
| 4 |
|
|
| 4,635 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,639 |
|
Common stock repurchased for treasury |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (559 | ) |
|
| (559 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (477 | ) |
|
| — |
|
|
| — |
|
|
| (477 | ) |
Balance at March 31, 2019 |
|
| 35,100 |
|
|
| 351 |
|
|
| 317,227 |
|
|
| (14,869 | ) |
|
| (87,085 | ) |
|
| (2,347 | ) |
|
| 213,277 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,828 |
|
|
| — |
|
|
| 1,828 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,057 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,057 |
|
Issuances under share-based compensation plan |
|
| 41 |
|
|
| — |
|
|
| 144 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 144 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,274 | ) |
|
| — |
|
|
| — |
|
|
| (5,274 | ) |
Balance at June 30, 2019 |
|
| 35,141 |
|
|
| 351 |
|
|
| 319,428 |
|
|
| (20,143 | ) |
|
| (85,257 | ) |
|
| (2,347 | ) |
|
| 212,032 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,571 | ) |
|
| — |
|
|
| (4,571 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,905 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,905 |
|
Issuances under share-based compensation plan |
|
| 158 |
|
|
| 2 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Common stock repurchased for treasury |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,561 | ) |
|
| (1,561 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,649 | ) |
|
| — |
|
|
| — |
|
|
| (1,649 | ) |
Balance at September 30, 2019 |
|
| 35,299 |
|
| $ | 353 |
|
| $ | 321,340 |
|
| $ | (21,792 | ) |
| $ | (89,828 | ) |
| $ | (3,908 | ) |
| $ | 206,165 |
|
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| |||||||
|
| Common |
|
| Paid-in |
|
| other comprehensive |
|
| Accumulated |
|
| Treasury stock, |
|
| Total stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| loss |
|
| deficit |
|
| at cost |
|
| equity |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 35,326 |
|
| $ | 353 |
|
| $ | 322,906 |
|
| $ | (23,612 | ) |
| $ | (90,689 | ) |
| $ | (3,908 | ) |
| $ | 205,050 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (492 | ) |
|
| — |
|
|
| (492 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,970 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,970 |
|
Issuances under share- |
|
| 109 |
|
|
| 1 |
|
|
| 861 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 862 |
|
Common stock repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (459 | ) |
|
| (459 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,893 | ) |
|
| — |
|
|
| — |
|
|
| (16,893 | ) |
Balance at March 31, 2020 |
|
| 35,435 |
|
|
| 354 |
|
|
| 326,737 |
|
|
| (40,505 | ) |
|
| (91,181 | ) |
|
| (4,367 | ) |
|
| 191,038 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (66,101 | ) |
|
| — |
|
|
| (66,101 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,186 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,186 |
|
Issuances under share- |
|
| 81 |
|
|
| 1 |
|
|
| 510 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 511 |
|
Common stock repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (49 | ) |
|
| (49 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,260 |
|
|
| — |
|
|
| — |
|
|
| 1,260 |
|
Balance at June 30, 2020 |
|
| 35,516 |
|
|
| 355 |
|
|
| 329,433 |
|
|
| (39,245 | ) |
|
| (157,282 | ) |
|
| (4,416 | ) |
|
| 128,845 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42,382 |
|
|
| — |
|
|
| 42,382 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,434 |
|
Issuances under share- |
|
| 395 |
|
|
| 4 |
|
|
| 6,488 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,492 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,299 |
|
|
| — |
|
|
| — |
|
|
| 1,299 |
|
Balance at September 30, 2020 |
|
| 35,911 |
|
| $ | 359 |
|
| $ | 338,355 |
|
| $ | (37,946 | ) |
| $ | (114,900 | ) |
| $ | (4,416 | ) |
| $ | 181,452 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| |||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
| $ | (72,271 | ) |
| $ | (24,211 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net loss to net cash provided by (used in) |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 36,675 |
|
|
| 27,732 |
|
|
| 37,399 |
|
|
| 36,675 |
|
Realized loss on sale of assets and asset impairments |
|
| 5,518 |
|
|
| 10,561 |
| ||||||||
Restructuring charges, net |
|
| 343 |
|
|
| 3,725 |
| ||||||||
Loss on sale of assets and asset impairments |
|
| 9,998 |
|
|
| 5,518 |
| ||||||||
Share-based compensation expense |
|
| 7,947 |
|
|
| 4,604 |
|
|
| 7,267 |
|
|
| 7,947 |
|
Amortization of debt issuance costs |
|
| 237 |
|
|
| 155 |
|
|
| 342 |
|
|
| 237 |
|
Deferred income taxes |
|
| (9,375 | ) |
|
| 3,296 |
|
|
| 17,201 |
|
|
| (9,375 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| 27,723 |
|
|
| 15,583 |
|
|
| (51,617 | ) |
|
| 27,723 |
|
Contract assets and liabilities |
|
| (48,185 | ) |
|
| (55,952 | ) |
|
| (31,715 | ) |
|
| (48,185 | ) |
Operating lease right of use assets and operating lease liabilities |
|
| 14,370 |
|
|
| 3,511 |
|
|
| 2,690 |
|
|
| 14,370 |
|
Inventories |
|
| (7,986 | ) |
|
| (6,044 | ) |
|
| (560 | ) |
|
| (7,986 | ) |
Prepaid expenses |
|
| (6,066 | ) |
|
| (10,419 | ) |
|
| 6,288 |
|
|
| (6,066 | ) |
Other current assets |
|
| 7,827 |
|
|
| (10,296 | ) |
|
| 5,007 |
|
|
| 7,827 |
|
Other noncurrent assets |
|
| 338 |
|
|
| (5,178 | ) |
|
| (1,857 | ) |
|
| 338 |
|
Accounts payable and accrued expenses |
|
| 19,167 |
|
|
| 82,421 |
|
|
| 52,869 |
|
|
| 19,510 |
|
Accrued warranty |
|
| 5,957 |
|
|
| 11,517 |
|
|
| (8,373 | ) |
|
| 5,957 |
|
Other noncurrent liabilities |
|
| 3,586 |
|
|
| 2,366 |
|
|
| (909 | ) |
|
| 3,586 |
|
Net cash provided by operating activities |
|
| 33,865 |
|
|
| 62,735 |
| ||||||||
Net cash provided by (used in) operating activities |
|
| (28,241 | ) |
|
| 33,865 |
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
| (53,428 | ) |
|
| (59,092 | ) |
|
| (30,138 | ) |
|
| (53,428 | ) |
Acquisition of a business |
|
| — |
|
|
| (1,102 | ) | ||||||||
Net cash used in investing activities |
|
| (53,428 | ) |
|
| (60,194 | ) |
|
| (30,138 | ) |
|
| (53,428 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Proceeds from revolving loans |
|
| 80,000 |
|
|
| 16,000 |
| ||||||||
Repayments of revolving loans |
|
| (7,199 | ) |
|
| — |
| ||||||||
Proceeds from revolving and term loans |
|
| 18,109 |
|
|
| 80,000 |
| ||||||||
Repayments of revolving and term loans |
|
| 0 |
|
|
| (7,199 | ) | ||||||||
Net repayments of accounts receivable financing |
|
| (3,979 | ) |
|
| (5,415 | ) |
|
| 0 |
|
|
| (3,979 | ) |
Proceeds from working capital loans |
|
| — |
|
|
| 3,535 |
|
|
| 10,334 |
|
|
| 0 |
|
Repayments of working capital loans |
|
| — |
|
|
| (2,828 | ) | ||||||||
Principal repayments of finance leases |
|
| (4,592 | ) |
|
| (7,621 | ) |
|
| (4,249 | ) |
|
| (4,592 | ) |
Net proceeds (repayments) of other debt |
|
| 32,311 |
|
|
| (3,919 | ) | ||||||||
Net proceeds from other debt |
|
| 18,909 |
|
|
| 32,311 |
| ||||||||
Debt issuance costs |
|
| (730 | ) |
|
| — |
|
|
| 0 |
|
|
| (730 | ) |
Proceeds from exercise of stock options |
|
| 7,124 |
|
|
| 4,726 |
|
|
| 5,211 |
|
|
| 7,124 |
|
Repurchase of common stock including shares withheld in lieu of income taxes |
|
| (508 | ) |
|
| (2,120 | ) |
|
| (34 | ) |
|
| (508 | ) |
Net cash provided by financing activities |
|
| 102,427 |
|
|
| 2,358 |
|
|
| 48,280 |
|
|
| 102,427 |
|
Impact of foreign exchange rates on cash, cash equivalents and restricted cash |
|
| (3,204 | ) |
|
| (115 | ) |
|
| (939 | ) |
|
| (3,204 | ) |
Net change in cash, cash equivalents and restricted cash |
|
| 79,660 |
|
|
| 4,784 |
|
|
| (11,038 | ) |
|
| 79,660 |
|
Cash, cash equivalents and restricted cash, beginning of year |
|
| 71,749 |
|
|
| 89,376 |
|
|
| 130,196 |
|
|
| 71,749 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 151,409 |
|
| $ | 94,160 |
|
| $ | 119,158 |
|
| $ | 151,409 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
9
TPI COMPOSITES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| |||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 6,871 |
|
| $ | 6,397 |
|
| $ | 7,818 |
|
| $ | 6,871 |
|
Cash paid for income taxes, net of refunds |
|
| 11,642 |
|
|
| 15,033 |
|
|
| 19,487 |
|
|
| 11,642 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Right of use assets obtained in exchange for new operating lease liabilities |
|
| 67,705 |
|
|
| 12,205 |
|
|
| 9,190 |
|
|
| 67,705 |
|
Property, plant, and equipment obtained in exchange for new finance lease liabilities |
|
| 131 |
|
|
| 5,122 |
|
|
| 1,817 |
|
|
| 131 |
|
Accrued capital expenditures in accounts payable |
|
| 7,769 |
|
|
| 6,594 |
|
|
| 4,966 |
|
|
| 7,769 |
|
Reconciliation of Cash, Cash Equivalents and Restricted Cash: |
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| September 30, |
|
| December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
| 2020 |
| 2020 |
| 2019 |
| |||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Condensed Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 149,422 |
|
| $ | 70,282 |
|
| $ | 92,085 |
|
| $ | 85,346 |
|
| $ | 119,005 |
|
| $ | 129,857 |
|
| $ | 149,422 |
|
| $ | 70,282 |
|
Restricted cash |
|
| 1,987 |
|
|
| 992 |
|
|
| 1,600 |
|
|
| 3,555 |
|
|
| 153 |
|
|
| 339 |
|
|
| 1,987 |
|
|
| 992 |
|
Restricted cash included within other noncurrent assets |
|
| — |
|
|
| 475 |
|
|
| 475 |
|
|
| 475 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 475 |
|
Condensed Consolidated Statements Of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total cash, cash equivalents and restricted cash |
| $ | 151,409 |
|
| $ | 71,749 |
|
| $ | 94,160 |
|
| $ | 89,376 |
| ||||||||||||||||
Total cash, cash equivalents and restricted cash shown in |
| $ | 119,158 |
|
| $ | 130,196 |
|
| $ | 151,409 |
|
| $ | 71,749 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
10
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Recently Issued Accounting Pronouncements
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 20192020 included in our Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of our management, all normal recurring adjustments necessary to present fairly our financial position at September 30, 2020,2021, and the results of our operations, comprehensive income (loss) and cash flows for the periods presented. Interim results for the three and nine months ended September 30, 20202021 and 20192020 are not necessarily indicative of the results to be expected for the full years. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The preparation of these condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying condensed consolidated financial statements include the accounts of TPI Composites, Inc. and all of our majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
References to TPI Composites, Inc, the “Company,” “we,” “us” or “our” in these notes refer to TPI Composites, Inc. and its consolidated subsidiaries.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements Adopted in
Convertible Instruments
In August 2020,
Financial Instruments
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, 2020-06, FinancialDebt—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 – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentsand Contracts in an Entity’s Own Equity.. The new standard This ASU is intended to provide financial statement userssimplify the accounting for certain convertible instruments with more decision-useful information aboutcharacteristics of both liability and equity. This ASU removes certain accounting models which separate the expected credit losses on financialembedded 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 other commitments to extend credit held at each reporting date. simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method.
This standard wasASU is effective for all public business entities (other than smaller reporting companies) for annual and interim periodsfiscal years beginning after December 15, 2019,2021, with early adoption permitted.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, 20202021 on a modified retrospective basis and it did not have a material effect on our condensed consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements in Topic 820.
This standard was effective for all public business entities for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We adopted this standard on January 1, 2020 and it did not have a material effect on our condensed consolidated financial statements.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which primarily removes specific exemptions to the general principles in Topic 740 in GAAP and improves the financial statement preparers’ application of income tax-related guidance and simplifies GAAP.
We adopted this standard on January 1, 2020 and it did not have a material effect on our condensed consolidated financial statements.
12
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Pronouncements Not Yet Adopted
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. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance, 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. The amendments applyThis ASU only applies to contracts, and hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due tobecause of reference rate reform. These amendments areThis ASU is effective immediatelyfor all entities beginning on March 12, 2020 and entities may be appliedelect to apply the ASU prospectively to contract modifications made and hedging relationships entered into or evaluated on or beforethrough December 31, 2022. The FASB later issued ASU 2021-01, Reference Rate
11
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 contractscondensed consolidated financial statements and the optional expedients provided by the new standard.related disclosures.
Note 2. Revenue From Contracts with Customers
For a detailed discussion of our revenue recognition policy, refer to the discussion in Note 1, Summary of Operations and Summary of Significant Accounting Policies – (c) Revenue Recognition, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.
The following tables represents the disaggregation of our net sales revenue by product for each of our reportable segments:
|
| Three Months Ended September 30, 2020 |
|
| Three Months Ended September 30, 2021 |
| ||||||||||||||||||||||||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEAI |
|
| Total |
|
| U.S. |
| Asia |
| Mexico |
| EMEA |
| India |
| Total |
| ||||||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||
Wind blade sales |
| $ | 37,272 |
|
| $ | 158,120 |
|
| $ | 153,575 |
|
| $ | 101,168 |
|
| $ | 450,135 |
|
| $ | 35,154 |
|
| $ | 47,187 |
|
| $ | 191,499 |
|
| $ | 126,705 |
|
| $ | 50,180 |
|
| $ | 450,725 |
|
Precision molding and assembly systems sales |
|
| — |
|
|
| 4,451 |
|
|
| 6,090 |
|
|
| — |
|
|
| 10,541 |
|
|
| 0 |
|
|
| 3,869 |
|
|
| 4,514 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,383 |
|
Transportation sales |
|
| 6,206 |
|
|
| — |
|
|
| 801 |
|
|
| — |
|
|
| 7,007 |
|
|
| 3,621 |
|
|
| 0 |
|
|
| 3,194 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,815 |
|
Other sales |
|
| 3,321 |
|
|
| 887 |
|
|
| 1,097 |
|
|
| 1,125 |
|
|
| 6,430 |
|
|
| 8,927 |
|
|
| 813 |
|
|
| 1,125 |
|
|
| 2,739 |
|
|
| 72 |
|
|
| 13,676 |
|
Total net sales |
| $ | 46,799 |
|
| $ | 163,458 |
|
| $ | 161,563 |
|
| $ | 102,293 |
|
| $ | 474,113 |
|
| $ | 47,702 |
|
| $ | 51,869 |
|
| $ | 200,332 |
|
| $ | 129,444 |
|
| $ | 50,252 |
|
| $ | 479,599 |
|
|
| Three Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEA |
|
| India |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Wind blade sales |
| $ | 37,272 |
|
| $ | 158,120 |
|
| $ | 153,575 |
|
| $ | 82,550 |
|
| $ | 18,618 |
|
| $ | 450,135 |
|
Precision molding and |
|
| 0 |
|
|
| 4,451 |
|
|
| 6,090 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,541 |
|
Transportation sales |
|
| 6,206 |
|
|
| 0 |
|
|
| 801 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,007 |
|
Other sales |
|
| 3,321 |
|
|
| 887 |
|
|
| 1,097 |
|
|
| 1,090 |
|
|
| 35 |
|
|
| 6,430 |
|
Total net sales |
| $ | 46,799 |
|
| $ | 163,458 |
|
| $ | 161,563 |
|
| $ | 83,640 |
|
| $ | 18,653 |
|
| $ | 474,113 |
|
|
| Nine Months Ended September 30, 2021 |
| |||||||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEA |
|
| India |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Wind blade sales |
| $ | 114,208 |
|
| $ | 202,181 |
|
| $ | 431,129 |
|
| $ | 340,933 |
|
| $ | 160,157 |
|
| $ | 1,248,608 |
|
Precision molding and |
|
| 0 |
|
|
| 15,467 |
|
|
| 15,446 |
|
|
| 0 |
|
|
| 0 |
|
|
| 30,913 |
|
Transportation sales |
|
| 22,272 |
|
|
| 0 |
|
|
| 7,589 |
|
|
| 0 |
|
|
| 0 |
|
|
| 29,861 |
|
Other sales |
|
| 17,269 |
|
|
| 2,255 |
|
|
| 7,797 |
|
|
| 6,227 |
|
|
| 190 |
|
|
| 33,738 |
|
Total net sales |
| $ | 153,749 |
|
| $ | 219,903 |
|
| $ | 461,961 |
|
| $ | 347,160 |
|
| $ | 160,347 |
|
| $ | 1,343,120 |
|
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEA |
|
| India |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Wind blade sales |
| $ | 99,514 |
|
| $ | 385,536 |
|
| $ | 346,954 |
|
| $ | 258,193 |
|
| $ | 44,338 |
|
| $ | 1,134,535 |
|
Precision molding and |
|
| 0 |
|
|
| 13,088 |
|
|
| 11,110 |
|
|
| 0 |
|
|
| 0 |
|
|
| 24,198 |
|
Transportation sales |
|
| 27,424 |
|
|
| 0 |
|
|
| 1,374 |
|
|
| 0 |
|
|
| 0 |
|
|
| 28,798 |
|
Other sales |
|
| 9,371 |
|
|
| 1,889 |
|
|
| 3,795 |
|
|
| 1,945 |
|
|
| 35 |
|
|
| 17,035 |
|
Total net sales |
| $ | 136,309 |
|
| $ | 400,513 |
|
| $ | 363,233 |
|
| $ | 260,138 |
|
| $ | 44,373 |
|
| $ | 1,204,566 |
|
|
| Three Months Ended September 30, 2019 |
| |||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEAI |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Wind blade sales |
| $ | 25,857 |
|
| $ | 98,406 |
|
| $ | 111,855 |
|
| $ | 116,084 |
|
| $ | 352,202 |
|
Precision molding and assembly systems sales |
|
| 1,479 |
|
|
| 8,915 |
|
|
| 4,655 |
|
|
| — |
|
|
| 15,049 |
|
Transportation sales |
|
| 8,061 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,061 |
|
Other sales |
|
| 5,246 |
|
|
| 793 |
|
|
| 1,180 |
|
|
| 1,305 |
|
|
| 8,524 |
|
Total net sales |
| $ | 40,643 |
|
| $ | 108,114 |
|
| $ | 117,690 |
|
| $ | 117,389 |
|
| $ | 383,836 |
|
For a further discussion regarding our operating segments, see Note 14, Segment Reporting. The geographic regions of Europe, the Middle East and Africa comprises the EMEA segment.
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEAI |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Wind blade sales |
| $ | 99,514 |
|
| $ | 385,536 |
|
| $ | 346,954 |
|
| $ | 302,531 |
|
| $ | 1,134,535 |
|
Precision molding and assembly systems sales |
|
| — |
|
|
| 13,088 |
|
|
| 11,110 |
|
|
| — |
|
|
| 24,198 |
|
Transportation sales |
|
| 27,424 |
|
|
| — |
|
|
| 1,374 |
|
|
| — |
|
|
| 28,798 |
|
Other sales |
|
| 9,371 |
|
|
| 1,889 |
|
|
| 3,795 |
|
|
| 1,980 |
|
|
| 17,035 |
|
Total net sales |
| $ | 136,309 |
|
| $ | 400,513 |
|
| $ | 363,233 |
|
| $ | 304,511 |
|
| $ | 1,204,566 |
|
1312
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||
|
| U.S. |
|
| Asia |
|
| Mexico |
|
| EMEAI |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Wind blade sales |
| $ | 84,328 |
|
| $ | 238,947 |
|
| $ | 278,685 |
|
| $ | 328,956 |
|
| $ | 930,916 |
|
Precision molding and assembly systems sales |
|
| 2,845 |
|
|
| 20,856 |
|
|
| 15,475 |
|
|
| — |
|
|
| 39,176 |
|
Transportation sales |
|
| 20,717 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,717 |
|
Other sales |
|
| 14,239 |
|
|
| 1,728 |
|
|
| 3,557 |
|
|
| 4,054 |
|
|
| 23,578 |
|
Total net sales |
| $ | 122,129 |
|
| $ | 261,531 |
|
| $ | 297,717 |
|
| $ | 333,010 |
|
| $ | 1,014,387 |
|
Most of our net sales are made directly to our customers, primarily large multi-national wind turbine manufacturers, under our long-term contracts which are typically five years in length.
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 takesmajority of the contract asset balance relates to produce a single blade is typically between 5 to 7 days. The time it takes to produce a mold is typically between 3 to 6 months.materials procured based on customer specifications. The contract assets are recorded as current assets in the condensed consolidated balance sheets. Contract liabilities consist of advance payments in excess of revenue earned. These amounts were historically recorded as customer deposits which usually relate toprimarily represent progress payments received as precision molding and assembly systems wereare being manufactured. The contract liabilities are recorded as current liabilities in the condensed consolidated balance sheets and are reduced as we record revenue over time.
These contract assets and liabilities are reported on the condensed consolidated balance sheets net on a contract-by-contract basis at the end of each reporting period, as demonstrated in the table below.period.
Contract assets and contract liabilities consisted of the following:
|
| September 30, |
|
| December 31, |
|
|
|
| |||
|
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
|
| (in thousands) |
| |||||||||
Gross contract assets |
| $ | 253,878 |
|
| $ | 223,428 |
|
| $ | 30,450 |
|
Less: reclassification from contract liabilities |
|
| (9,104 | ) |
|
| (6,500 | ) |
|
| (2,604 | ) |
Contract assets |
| $ | 244,774 |
|
| $ | 216,928 |
|
| $ | 27,846 |
|
|
| September 30, |
|
| December 31, |
|
|
|
|
| ||
|
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
|
| (in thousands) |
| |||||||||
Gross contract assets |
| $ | 214,586 |
|
| $ | 170,973 |
|
| $ | 43,613 |
|
Less: reclassification from contract liabilities |
|
| (3,017 | ) |
|
| (4,458 | ) |
|
| 1,441 |
|
Contract assets |
| $ | 211,569 |
|
| $ | 166,515 |
|
| $ | 45,054 |
|
|
| September 30, |
|
| December 31, |
|
|
|
| |||
|
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
|
| (in thousands) |
| |||||||||
Gross contract liabilities |
| $ | 9,104 |
|
| $ | 7,114 |
|
| $ | 1,990 |
|
Less: reclassification to contract assets |
|
| (9,104 | ) |
|
| (6,500 | ) |
|
| (2,604 | ) |
Contract liabilities |
| $ | 0 |
|
| $ | 614 |
|
| $ | (614 | ) |
|
| September 30, |
|
| December 31, |
|
|
|
|
| ||
|
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
|
| (in thousands) |
| |||||||||
Gross contract liabilities |
| $ | 5,027 |
|
| $ | 7,466 |
|
| $ | (2,439 | ) |
Less: reclassification to contract assets |
|
| (3,017 | ) |
|
| (4,458 | ) |
|
| 1,441 |
|
Contract liabilities |
| $ | 2,010 |
|
| $ | 3,008 |
|
| $ | (998 | ) |
Contract assets increased by $45.1$27.8 million from December 31, 20192020 to September 30, 20202021 due to an increase in customer specific material purchases and incremental unbilled production which includes materials acquired under long-term contracts, during the nine months ended September 30, 2020.2021. Contracts liabilities decreased by $1.0$0.6 million from December 31, 20192020 to September 30, 20202021 primarily due to the revenue earned related to precision molding and assembly systems and wind blades being produced exceeding the amounts billed to customers induring the nine months ended September 30, 2020.2021.
For the three and nine months ended September 30, 2020,2021, we recognized 0 revenue$0.5 million and $3.0$0.6 million, respectively, of revenue respectively, related to precision molding and assembly systems and wind blades, which werewas included in the corresponding contract liability balance at the beginning of the period.
14
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Performance Obligations
Remaining performance obligations represent the transaction price for which work has not been performed and excludes any unexercised contract options. 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.
13
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2020,2021, the aggregate amount of the transaction price allocated to the remaining performance obligations to be satisfied in future periods was approximately $3.8$3.1 billion. We estimate that we will recognize thesethe remaining performance obligations as revenue as follows:
|
| $ |
|
| % of Total |
| ||
|
| (in thousands) |
|
|
|
|
| |
Year Ending December 31, |
|
|
|
|
|
|
|
|
Remainder of 2020 |
| $ | 448,348 |
|
|
| 11.9 | % |
2021 |
|
| 1,609,674 |
|
|
| 42.5 | % |
2022 |
|
| 1,095,947 |
|
|
| 29.0 | % |
2023 |
|
| 554,245 |
|
|
| 14.6 | % |
2024 |
|
| 75,954 |
|
|
| 2.0 | % |
Total remaining performance obligations |
| $ | 3,784,168 |
|
|
| 100.0 | % |
|
| $ |
|
| % of Total |
|
| ||
|
| (in thousands) |
|
|
|
|
| ||
Year Ending December 31, |
|
|
|
|
|
|
| ||
Remainder of 2021 |
| $ | 418,708 |
|
|
| 13.4 |
| % |
2022 |
|
| 1,632,634 |
|
|
| 52.1 |
|
|
2023 |
|
| 898,126 |
|
|
| 28.6 |
|
|
2024 |
|
| 186,034 |
|
|
| 5.9 |
|
|
Total remaining performance obligations |
| $ | 3,135,502 |
|
|
| 100.0 |
| % |
The transaction price allocated to the remaining performance obligations excludes approximately $178.0 million of variable consideration over the contractual guaranteed minimum volume obligations under current contracts with customers which has been constrained primarily due to uncertainty associated with production volume during the remaining term of the agreements. We estimate the constraint will be resolved in subsequent periods when our customers provide additional information relevant to forecasted future production.
For the three and nine months ended September 30, 2020,2021, net revenue recognized from our performance obligations satisfied in previous periods increaseddecreased by $14.8$7.3 million and $15.4$19.8 million, respectively, as compared to decreasesincreases of $3.5$14.8 million and $16.0$15.4 million, respectively, in the same periods of 2019.in 2020. The current year increasedecreases primarily relatedrelates to changes in certain of our estimated total contract values and related direct costs to complete the performance obligations.
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 13, Concentration of Customers.
The COVID-19 pandemic adversely impacted our operations and results of operations for the nine months ended September 30, 2020 due to reduced production levels at a majority of our manufacturing facilities primarily during the first and second quarters of 2020 as a result of 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. For the third quarter of 2020, the COVID-19 pandemic did not have a material adverse impact on our operations and results of operations.
However, several of our manufacturing facilities are operating in regions with high levels of reported COVID-19 positive cases. As such, weWe may be required to reinstate temporary production suspensions or volume reductions at these manufacturing facilities or at our other manufacturing facilities to the extent there is a resurgenceare 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 three months ended September 30, 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.
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. We expect that the price of resin and carbon fiber will remain at elevated levels for the remainder of 2021. Approximately 55% of the resin and resin systems we use are purchased under contracts either controlled or borne by 2 of our customers and therefore these customers receive/bear 100% of any decrease or increase in resin prices. With respect to our other customer supply agreements, our customers typically receive/bear 70% of any raw material price decreases or increases. If the supply of resin feedstocks and carbon fiber continue to be constrained for an extended period of time, such shortages could impact our ability to meet our customers’ forecasted demand for our products for the remainder of 2021 and have a further material adverse impact on our results of operations for the remainder of 2021.
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 $250,000$250,000 during 20202021 and 2019.2020. U.S. money market accounts are not guaranteed by the FDIC. At September 30, 20202021 and December 31, 2019,2020, we had $76.0$70.5 million and $45.8$68.9 million, respectively, of cash in bank deposit and money market accounts in U.S. banks, which was in excess of FDIC limits. We have not experienced losses in any such accounts.
We also maintain cash in bank deposit accounts outside the U.S. with no insurance. At September 30, 2020,2021, this included $47.2$20.7 million in China, $18.8$17.9 million in Turkey, $6.2$7.3 million in India, $1.0$1.9 million in Mexico and $0.2$0.7 million in other countries. As of December 31, 2020, this included $47.4 million in China, $6.0 million in Turkey, $5.0 million in India, $2.1 million in Mexico and $0.5 million in other countries. We have
15
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
not experienced losses in these accounts. In addition, at September 30, 2021 and December 31, 2020, we had short-term deposits in interest bearing accounts of $1.7 million in the U.S., and $0.3 million in China of $0.2 million and $0.3 million, respectively, which are reported as restricted cash in our condensed consolidated balance sheets.
14
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain of our debt agreements are either tied to LIBOR or the Euro Interbank Offered Rate (EURIBOR) and certain of them have associated interest rate hedges. Due to the relatively low LIBOR and EURIBOR rates in effect as of September 30, 2021, a 10% change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or cash flows.
Note 4. Accrued Warranty
We provide a limited warranty for our wind blades and related precision molding and assembly systems, including materials and workmanship, with terms and conditions that vary depending on the product sold, generally for periods that range from two to five years. We also provide a limited warranty for our transportation products, including materials and workmanship, with terms and conditions that vary depending on the product sold, generally for a period of approximately two years. Warranty expense is recorded based upon estimates of future repairs using a probability-based methodology that considers previous warranty claims, identified quality issues and industry practices. Once the warranty period has expired, any remaining unused warranty accrual for the specific products is generally reversed against the current year warranty expense amount. As of September 30, 2020, a change in the estimated warranty accrual rate of 1% across all products would change the warranty accrual by approximately $39.5 million.
The warranty accrual activity for the periods noted consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||
|
| September 30, |
|
| September 30, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
| 2020 |
| ||||
|
| (in thousands) |
| ||||||||||||
Warranty accrual at beginning of period |
| $ | 47,462 |
|
| $ | 56,772 |
|
| $ | 50,852 |
| $ | 47,639 |
|
Accrual during the period |
|
| 5,285 |
|
|
| 5,963 |
|
|
| 15,532 |
|
| 14,337 |
|
Cost of warranty services provided during the period |
|
| (9,826 | ) |
|
| (10,895 | ) |
|
| (21,178 | ) |
| (19,377 | ) |
Changes in estimate for pre-existing warranties, |
|
| (442 | ) |
|
| 1,756 |
|
|
| (2,727 | ) |
| 10,997 |
|
Warranty accrual at end of period |
| $ | 42,479 |
|
| $ | 53,596 |
|
| $ | 42,479 |
| $ | 53,596 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||
|
| September 30, |
|
| September 30, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
| 2019 |
| ||||
|
| (in thousands) |
| ||||||||||||
Warranty accrual at beginning of period |
| $ | 56,772 |
|
| $ | 42,834 |
|
| $ | 47,639 |
| $ | 36,765 |
|
Accrual during the period |
|
| 5,963 |
|
|
| 7,390 |
|
|
| 14,337 |
|
| 18,413 |
|
Cost of warranty services provided during the period |
|
| (10,895 | ) |
|
| 36 |
|
|
| (19,377 | ) |
| (2,409 | ) |
Changes in estimate for pre-existing warranties, including expirations during the period |
|
| 1,756 |
|
|
| (1,978 | ) |
|
| 10,997 |
|
| (4,487 | ) |
Warranty accrual at end of period |
| $ | 53,596 |
|
| $ | 48,282 |
|
| $ | 53,596 |
| $ | 48,282 |
|
Note 5. Long-Term Debt, Net of Debt Issuance Costs and Current Maturities
Long-term debt, net of debt issuance costs and current maturities, consisted of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Senior revolving loan—U.S. |
| $ | 185,215 |
|
| $ | 112,414 |
|
Accounts receivable financing—EMEAI |
|
| — |
|
|
| 3,805 |
|
Unsecured financing—EMEAI |
|
| 34,743 |
|
|
| — |
|
Equipment financing—EMEAI |
|
| 5,165 |
|
|
| 7,903 |
|
Equipment finance lease—U.S. |
|
| 147 |
|
|
| 288 |
|
Equipment finance lease—EMEAI |
|
| 4,488 |
|
|
| 5,732 |
|
Equipment finance lease—Mexico |
|
| 8,975 |
|
|
| 11,919 |
|
Total debt - principal |
|
| 238,733 |
|
|
| 142,061 |
|
Less: Debt issuance costs |
|
| (1,165 | ) |
|
| (672 | ) |
Total debt, net of debt issuance costs |
|
| 237,568 |
|
|
| 141,389 |
|
Less: Current maturities of long-term debt |
|
| (35,788 | ) |
|
| (13,501 | ) |
Long-term debt, net of debt issuance costs and current maturities |
| $ | 201,780 |
|
| $ | 127,888 |
|
Senior Revolving Loan - U.S.:
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Senior revolving loan—U.S. |
| $ | 181,154 |
|
| $ | 171,154 |
|
Unsecured financing—EMEA |
|
| 52,683 |
|
|
| 30,040 |
|
Equipment financing—EMEA |
|
| 1,027 |
|
|
| 4,335 |
|
Secured and unsecured working capital—India |
|
| 10,334 |
|
|
| 0 |
|
Unsecured term loan—India |
|
| 8,109 |
|
|
| 0 |
|
Equipment finance lease—Mexico |
|
| 6,927 |
|
|
| 8,038 |
|
Equipment finance lease—EMEA |
|
| 2,459 |
|
|
| 4,119 |
|
Other equipment finance leases |
|
| 145 |
|
|
| 232 |
|
Total debt—principal |
|
| 262,838 |
|
|
| 217,918 |
|
Less: Debt issuance costs |
|
| (709 | ) |
|
| (1,051 | ) |
Total debt, net of debt issuance costs |
|
| 262,129 |
|
|
| 216,867 |
|
Less: Current maturities of long-term debt |
|
| (251,563 | ) |
|
| (32,551 | ) |
Long-term debt, net of debt issuance costs and |
| $ | 10,566 |
|
| $ | 184,316 |
|
As of September 30, 2021, we were not in compliance with our Total Net Leverage Ratio financial covenant (as defined in our Credit Agreement) and as a result the lender would have the right to request immediate payment of the senior revolving loan. Our liquidity and capital resources were adversely affected by certain events that occurred during the three months ended September 30, 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 an innovative new blade for one of our customers. Although we expect that production will be stabilized in both of these manufacturing facilities by the end of the year, we expect that these transitions will continue to have an adverse impact on our liquidity for the remainder of the year. We also expect decreased demand for our wind blades from our customers during the remainder of 2021 and 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 the remainder of 2021 and 2022. Absent any other action or failure to close on item (i) discussed below, we will require additional liquidity to continue operations over the next 12 months.
In February 2020,response to these conditions, we entered into an Incremental Facility Agreement with the current lenders to our Credit(i) a $350 million Series A Preferred Stock Purchase Agreement and an additional lender, pursuant to which(ii) executed a limited 30-day credit agreement waiver through December 8, 2021. Per the aggregate principal amountterms of our revolving credit facility under the Credit Agreement wasSeries A Preferred Stock Purchase
1615
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
increased from $150.0 million(Unaudited)
Agreement, a portion of the funds raised through the Series A Preferred Stock Purchase Agreement will be used to $205.0 million. All borrowings andrepay in full amounts outstanding under the Credit Agreement are scheduledAgreement. We also may elect at our option to mature in require the purchaser to purchase an additional $April 202350.0.
In June 2020, we entered into an amendment to our Credit Agreement which made certain adjustments to one million of Series A Preferred Stock upon the financial covenants, added new covenants related to minimum liquidity and mandatory repayment triggers, provided for certain modifications to the affirmative and negative covenants and changed the interest rate during the Adjustment Period (as defined in the Credit Agreement) to a LIBOR floor of 0.75% plus a margin of 3.0% per annum. The interest rate following the end of the Adjustment Period would be equal to a LIBOR floor of 0.75% plus a margin ranging between 1.75% to 2.50% per annum. All other materialsame terms and conditions as the initial issuance of the Credit Agreement remainedSeries A Preferred Stock during the same.
Unsecured Financing - EMEAI:
Intwo-year period following the fourth quarter of 2019,closing date. Accordingly, we entered intohave reclassified the balance outstanding under our senior revolving loan as a credit agreement with a Turkish financial institution to provide up to 100.0 million Turkish Lira (approximately $12.8 millioncurrent liability as of September 30, 2020)2021. We believe our plans are probable of unsecured financing. Interest accrues atoccurring and sufficient to support ongoing operations for the foreseeable future. See Note 15, Subsequent Events, for a fixed rate of 2.0% and is payable at the endfurther discussion of the term whenSeries A Preferred Stock Purchase Agreement and the loan is repaid. The credit agreement does not have an expiration date, however the limits are reviewed in January of each year to establish available capacity. As of September 30, 2020, there was $3.5 million outstanding under this agreement. The amount outstanding was repaid in October 2020. NaN amounts were outstanding under this credit agreement as of December 31, 2019.limited waiver.
In the first quarter of 2020, we entered into a credit agreement, as amended, with a Turkish financial institution to provide up to $18.0 million of unsecured financing. Interest accrues at a fixed rate of 2.4% and is payable quarterly. The maturity date for amounts currently outstanding is March 2023. The credit agreement does not have an expiration date, however the limits are reviewed in December of each year to establish available capacity. As of September 30, 2020, there was $14.7 million outstanding under this credit agreement.
In the first quarter of 2020, we entered into a credit agreement with a Turkish financial institution to provide up to 5.0 million Euro (approximately $5.9 million as of September 30, 2020) of unsecured financing. Interest accrues at a fixed rate of 5.0% and is payable at the end of the term when the loan is repaid. The credit agreement does not have an expiration date, however the limits are reviewed in February of each year to establish available capacity. As of September 30, 2020, there were 0 amounts outstanding under this credit agreement.
In the second and third quarters of 2020, we amended an existing credit agreement with a Turkish financial institution to provide up to 31.0 million Euro (approximately $36.3 million as of September 30, 2020) of financing of which 11.0 million Euro (approximately $12.9 million as of September 30, 2020) is comprised of unsecured financing, letters of credit and other non-cash items and 20.0 million Euro (approximately $23.4 million as of September 30, 2020) related to an unsecured revolving credit facility. Interest on the 11.0 million Euro facility was determined based upon the term of the loan utilizing the one-month Euro Interbank Offered Rate (EURIBOR) plus 1.50% (1.50%) and was fully paid on the loan origination date. Interest on the 20.0 million Euro facility accrues at a fixed rate of 4.75% and is payable at the end of the term when the loan is repaid. The maturity date for amounts currently outstanding under the 11.0 million Euro facility is April 2021. The facilities do not have an expiration date, however the limits are reviewed in July of each year to establish available capacity. As of September 30, 2020, there was approximately 9.1 million Euro, or $10.7 million, outstanding under the 11.0 million Euro facility and 0ne outstanding under the 20.0 million Euro facility.
In the third quarter of 2020, we amended an existing credit agreement with a Turkish financial institution to provide up to $21.0 million of unsecured financing. Interest on the unsecured financing accrues at a fixed rate of 3.0% and is payable at the end of the term when the loan is repaid. The maturity date for amounts currently outstanding is February 2021. The unsecured financing agreement does not have an expiration date, however the limits are reviewed in September of each year to establish available capacity. As of September 30, 2020, there was $5.8 million outstanding under the credit agreement.
Note 6. Share-Based Compensation Plans
During the nine months ended September 30, 2020,2021, we issued to certain employees and non-employee directors an aggregate of 461,732168,993 timed-based restricted stock units (RSUs), 122,75258,396 performance-based restricted stock units (PSUs) that vest upon achievement of a cumulative, three-year Adjusted EBITDA target measured from January 1, 20202021 through December 31, 2022,2023, and 198,82679,784 PSUs that vest upon achievement of certain stock price hurdles for the period of the grant date through December 31, 2022.2023. All of the time-based RSUs vest on the third anniversary date of the grant date. Each of the time-based and performance-based awards are subject to the recipient’s continued service with us, the terms and conditions of the 2015 Planour stock option and incentive plan and the applicable award agreement.
17
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition, during the nine months ended September 30, 2020, we issued 261,181 stock options to certain employees and non-employee directors.
The share-based compensation expense recognized in the condensed consolidated statements of operations was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
| |||||||||||||
Cost of goods sold |
| $ | 678 |
|
| $ | 479 |
|
| $ | 2,010 |
|
| $ | 1,115 |
|
General and administrative expenses |
|
| 1,265 |
|
|
| 2,152 |
|
|
| 5,257 |
|
|
| 6,832 |
|
Total share-based compensation expense |
| $ | 1,943 |
|
| $ | 2,631 |
|
| $ | 7,267 |
|
| $ | 7,947 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Cost of goods sold |
| $ | 479 |
|
| $ | (35 | ) |
| $ | 1,115 |
|
| $ | 313 |
|
General and administrative expenses |
|
| 2,152 |
|
|
| 1,717 |
|
|
| 6,832 |
|
|
| 4,291 |
|
Total share-based compensation expense |
| $ | 2,631 |
|
| $ | 1,682 |
|
| $ | 7,947 |
|
| $ | 4,604 |
|
The share-based compensation expense recognized by award type was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
RSUs |
| $ | 1,262 |
|
| $ | 869 |
|
| $ | 3,399 |
|
| $ | 2,800 |
|
| $ | 1,506 |
|
| $ | 1,262 |
|
| $ | 4,533 |
|
| $ | 3,399 |
|
Stock options |
|
| 700 |
|
|
| 225 |
|
|
| 2,952 |
|
|
| 955 |
|
|
| 466 |
|
|
| 700 |
|
|
| 1,657 |
|
|
| 2,952 |
|
PSUs |
|
| 669 |
|
|
| 588 |
|
|
| 1,596 |
|
|
| 849 |
|
|
| (29 | ) |
|
| 669 |
|
|
| 1,077 |
|
|
| 1,596 |
|
Total share-based compensation expense |
| $ | 2,631 |
|
| $ | 1,682 |
|
| $ | 7,947 |
|
| $ | 4,604 |
|
| $ | 1,943 |
|
| $ | 2,631 |
|
| $ | 7,267 |
|
| $ | 7,947 |
|
Included in total share-based compensation expense forDuring the ninethree months ended September 30, 2020 is $1.72021, we derived a $0.7 million benefit related to the reduction of compensation expense associated with the modificationprobability to zero of certain employee and non-employee awards during the nine month period. The modifications primarily provided for the extensionPSUs that vest upon achievement of the post termination exercise period of outstanding stock options, resulting in a one-time charge in the nine months ended September 30, 2020.cumulative, three-year Adjusted EBITDA target.
Note 7. Leases
We have operating and finance leases for our manufacturing facilities, warehouses, offices, automobiles and certain of our machinery and equipment. Our leases have remaining lease terms of between one and 15 years, some of which may include options to extend the leases up to five years.years.
16
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The components of lease cost were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
| |||||||||||||
Total operating lease cost |
| $ | 9,768 |
|
| $ | 9,546 |
|
| $ | 29,129 |
|
| $ | 27,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of assets under finance leases |
| $ | 870 |
|
| $ | 1,529 |
|
| $ | 2,676 |
|
| $ | 4,489 |
|
Interest on finance leases |
|
| 144 |
|
|
| 240 |
|
|
| 502 |
|
|
| 775 |
|
Total finance lease cost |
| $ | 1,014 |
|
| $ | 1,769 |
|
| $ | 3,178 |
|
| $ | 5,264 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Total operating lease cost |
| $ | 9,546 |
|
| $ | 7,893 |
|
| $ | 27,265 |
|
| $ | 23,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of assets under finance leases |
| $ | 1,529 |
|
| $ | 1,749 |
|
| $ | 4,489 |
|
| $ | 4,970 |
|
Interest on finance leases |
|
| 240 |
|
|
| 323 |
|
|
| 775 |
|
|
| 1,119 |
|
Total finance lease cost |
| $ | 1,769 |
|
| $ | 2,072 |
|
| $ | 5,264 |
|
| $ | 6,089 |
|
18
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Total lease assets and liabilities as of September 30, 2020 were as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Operating Leases |
|
|
|
|
|
| ||
Operating lease right of use assets |
| $ | 146,794 |
|
| $ | 158,827 |
|
|
|
|
|
|
|
| ||
Current operating lease liabilities |
| $ | 22,939 |
|
| $ | 26,099 |
|
Noncurrent operating lease liabilities |
|
| 149,742 |
|
|
| 155,925 |
|
Total operating lease liabilities |
| $ | 172,681 |
|
| $ | 182,024 |
|
|
|
|
|
|
|
| ||
Finance Leases |
|
|
|
|
|
| ||
Property, plant and equipment, gross |
| $ | 26,958 |
|
| $ | 28,462 |
|
Less: accumulated depreciation |
|
| (14,065 | ) |
|
| (12,461 | ) |
Total property, plant and equipment, net |
| $ | 12,893 |
|
| $ | 16,001 |
|
|
|
|
|
|
|
| ||
Current maturities of long-term debt |
| $ | 6,296 |
|
| $ | 6,018 |
|
Long-term debt, net of debt issuance costs and current maturities |
|
| 3,235 |
|
|
| 6,371 |
|
Total finance lease liabilities |
| $ | 9,531 |
|
| $ | 12,389 |
|
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
|
| (in thousands) |
| |||||
Current operating lease liabilities |
| $ | 25,569 |
|
| $ | — |
|
Current maturities of long-term debt |
|
| — |
|
|
| 5,855 |
|
Noncurrent operating lease liabilities |
|
| 165,551 |
|
|
| — |
|
Long-term debt, net of debt issuance costs and current maturities |
|
| — |
|
|
| 7,755 |
|
Total lease liabilities |
| $ | 191,120 |
|
| $ | 13,610 |
|
As of September 30, 2020, the cost and accumulated depreciation of property, plant and equipment that we are leasing under finance lease arrangements were $42.7 million and $20.4 million, respectively. As of December 31, 2019, the cost and accumulated depreciation of property, plant and equipment that we are leasing under finance lease arrangements were $45.0 million and $17.0 million, respectively.
Future minimum lease payments under noncancelable leases as of September 30, 20202021 were as follows:
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
|
| (in thousands) |
| |||||
Year Ending December 31, |
|
|
|
|
|
| ||
Remainder of 2021 |
| $ | 9,576 |
|
| $ | 1,407 |
|
2022 |
|
| 34,392 |
|
|
| 6,241 |
|
2023 |
|
| 31,995 |
|
|
| 1,353 |
|
2024 |
|
| 27,789 |
|
|
| 710 |
|
2025 |
|
| 27,199 |
|
|
| 379 |
|
Thereafter |
|
| 101,634 |
|
|
| 6 |
|
Total future minimum lease payments |
|
| 232,585 |
|
|
| 10,096 |
|
Less: interest |
|
| (59,904 | ) |
|
| (565 | ) |
Total lease liabilities |
| $ | 172,681 |
|
| $ | 9,531 |
|
17
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
|
| (in thousands) |
| |||||
Year Ending December 31, |
|
|
|
|
|
|
|
|
Remainder of 2020 |
| $ | 8,413 |
|
| $ | 1,317 |
|
2021 |
|
| 35,295 |
|
|
| 6,544 |
|
2022 |
|
| 32,796 |
|
|
| 5,763 |
|
2023 |
|
| 31,010 |
|
|
| 865 |
|
2024 |
|
| 27,787 |
|
|
| 222 |
|
Thereafter |
|
| 130,592 |
|
|
| 7 |
|
Total future minimum lease payments |
|
| 265,893 |
|
|
| 14,718 |
|
Less: interest |
|
| (74,773 | ) |
|
| (1,108 | ) |
Total lease liabilities |
| $ | 191,120 |
|
| $ | 13,610 |
|
Supplemental cash flow information related to leases was as follows:
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Cash paid for amounts included in the measurement of lease |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 27,116 |
|
| $ | 22,308 |
|
Operating cash flows from finance leases |
|
| 502 |
|
|
| 775 |
|
Financing cash flows from finance leases |
|
| 4,249 |
|
|
| 4,592 |
|
Other information related to leases was as follows:
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 22,308 |
|
| $ | 22,977 |
|
Operating cash flows from finance leases |
|
| 775 |
|
|
| 1,119 |
|
Financing cash flows from finance leases |
|
| 4,592 |
|
|
| 7,621 |
|
|
|
|
|
|
|
|
|
|
Right of use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 67,705 |
|
|
| 12,205 |
|
Finance leases |
|
| 131 |
|
|
| 5,122 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Weighted-Average Remaining Lease Term (In Years): |
|
|
|
|
|
| ||
Operating leases |
|
| 7.1 |
|
|
| 7.7 |
|
Finance leases |
|
| 2.0 |
|
|
| 2.2 |
|
|
|
|
|
|
|
| ||
Weighted-Average Discount Rate: |
|
|
|
|
|
| ||
Operating leases |
|
| 8.0 | % |
|
| 7.9 | % |
Finance leases |
|
| 5.9 | % |
|
| 6.4 | % |
19
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Weighted-Average Remaining Lease Term (In Years): |
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.9 |
|
|
| 7.6 |
|
Finance leases |
|
| 2.5 |
|
|
| 3.2 |
|
|
|
|
|
|
|
|
|
|
Weighted-Average Discount Rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.9 | % |
|
| 7.5 | % |
Finance leases |
|
| 6.4 | % |
|
| 6.4 | % |
As of September 30, 2020,2021, there were 0 material additional leases related to newour manufacturing facilities, thatwarehouses, offices, automobiles or our machinery and equipment which have not yet commenced.
Note 8. Financial Instruments
Interest Rate Swap
We use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with our U.S. senior revolving credit agreement (the Credit Agreement) that we entered into in April 2018.. We do not use such swap contracts for speculative or trading purposes.
To partially offset the variabilityAs of future interest payments on the Credit Agreement arising from changes in LIBOR, in April 2018, we entered into anSeptember 30, 2021, 0 interest rate swap agreement with a financial institutionswaps originally designated for a notional amount of $75.0 million with an expiration date of April 2023. Thishedge accounting were de-designated or terminated. No ineffectiveness on our interest rate swap effectively hedges $75.0 millionswaps was recognized as of September 30, 2021, and none is anticipated over the remaining term of the future variable rate LIBOR interest expense converting it to a fixed rate interest expense. The derivative instrument qualified for accounting as a cash flow hedge in accordance with FASB Accounting Standard Codification (ASC) Topic 815, agreement.Derivatives and Hedging, and we designated it as such.
Foreign Exchange Forward Contracts
We use foreign exchange forward contracts to mitigate our exposure to fluctuations in exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact. In September 2019, we entered into the first of these foreign exchange forward contracts. We do not use such forward contracts for speculative or trading purposes.
We expect certainMexican Peso
All of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter intoremaining outstanding foreign exchange forward contracts to hedge a portion of these forecasted cash flows.(excluding those with call options) expired during the three months ended March 31, 2021. As of September 30, 2020, these foreign exchange forward contracts hedge our forecasted cash flows for periods up to six months. These foreign exchange forward contracts qualified for accounting as cash flow hedges in accordance with ASC Topic 815, and we designated them as such.
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 Significant Accounting Policies – Fair Value of Financial Instruments, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.
As of September 30, 2020 and December 31, 2019,2020, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were 0.8approximately 0.3 billion Mexican Pesos (approximately $32.2$14.0 million).
With regards to our foreign exchange call option contracts, for the three and 1.1 billion Mexican Pesos (approximately $54.8 million), respectively.
The fair valuesnine months ended September 30, 2021, $0.8 million and location$2.2 million, respectively, of financial instruments in our condensed consolidated balance sheets were as follows:
|
| Condensed Consolidated |
| September 30, |
|
| December 31, |
| ||
Financial Instrument |
| Balance Sheet Line Item |
| 2020 |
|
| 2019 |
| ||
|
|
|
| (in thousands) |
| |||||
Interest rate swap |
| Other noncurrent liabilities |
|
| 4,882 |
|
|
| 2,723 |
|
Foreign exchange forward contracts |
| Other current assets |
|
| 1,696 |
|
|
| 820 |
|
Foreign exchange forward contracts |
| Accounts payable and accrued expenses |
|
| — |
|
|
| 124 |
|
20
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For cash flow hedges, the gain or loss is reported as a componentpremium amortization was recorded through cost of accumulated other comprehensive loss insales within our condensed consolidated statements of changes in stockholders’ equity and reclassified into earnings in our condensed consolidated statements of operations in the same period or periods during which the hedged transaction affects earnings.operations. The net income (loss) recognized in accumulated other comprehensive loss in our condensed consolidated statements of changes in stockholders’ equity for our foreign exchange forwardcall option contracts is expected to be recognized in Costcost of Salessales in our condensed consolidated statements of operations during the next six months. The gain or loss on
18
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2021 and December 31, 2020, the notional values associated with our interest rate swap isforeign exchange call option contracts qualifying as cash flow hedges were approximately 1.0 billion Mexican Pesos (approximately $48.5 million) and approximately 0.4 billion Mexican Pesos (approximately $17.3 million), respectively.
Chinese Renminbi
With regards to our foreign exchange forward contracts, for which hedge accounting does not apply, for the three and nine months ended September 30, 2021, $0.6 million and $1.2 million, respectively, in gains were recorded in accumulated other comprehensive loss and subsequently reclassified into Interest Expense inthrough foreign currency income (loss) within our condensed consolidated statements of operations inoperations.
India Rupee
With regards to our foreign exchange forward contracts and our foreign exchange call option contracts, for which hedge accounting does not apply, for the period in which the hedged transaction affects earnings. As ofthree and nine months ended September 30, 2020, 0 interest rate swaps originally designated2021, $1.3 million and $2.5 million, respectively, in gains were recorded through foreign currency income (loss) within our condensed consolidated statements of operations. Additionally, with regards to our foreign exchange call option contracts, for hedge accounting were de-designated or terminated. No ineffectiveness on our interest rate swaps was recognized as ofthe three and nine months ended September 30, 2020,2021, $0.4 million and none is anticipated over the term$0.7 million, respectively, of the agreement.premium amortization was recorded as losses through foreign currency income (loss) within our condensed consolidated statements of operations.
The fair values and location of our financial instruments in our condensed consolidated balance sheets were as follows:
|
| Condensed Consolidated |
| September 30, |
|
| December 31, |
| ||
Financial Instrument |
| Balance Sheet Line Item |
| 2021 |
|
| 2020 |
| ||
|
|
|
| (in thousands) |
| |||||
Foreign exchange forward contracts |
| Other current assets |
| $ | 2,028 |
|
| $ | 5,832 |
|
Foreign exchange forward contracts |
| Accounts payable and accrued |
|
| 1,184 |
|
|
| 2,096 |
|
Interest rate swap |
| Other noncurrent liabilities |
|
| 2,928 |
|
|
| 4,414 |
|
The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations:
Accumulated |
| Condensed Consolidated |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
Other Comprehensive |
| Statement of Operations |
| September 30, |
|
| September 30, |
| ||||||||||
Loss Component |
| Line Item |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
| (in thousands) |
| |||||||||||||
Foreign exchange forward |
| Cost of sales |
| $ | 0 |
|
| $ | 1,546 |
|
| $ | (3,037 | ) |
| $ | 4,062 |
|
|
| Condensed |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
Comprehensive Income |
| Consolidated Statement |
| September 30, |
|
| September 30, |
| ||||||||||
(Loss) Component |
| of Operations Line Item |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
| (in thousands) |
| |||||||||||||
Foreign exchange forward contracts |
| Cost of sales |
| $ | 1,546 |
|
| $ | — |
|
| $ | 4,062 |
|
| $ | — |
|
Note 9. Income Taxes
Income taxes
For the three months ended September 30, 2021, our income tax provision increased to $8.2 million as compared to a benefit of $32.3 million in the comparative prior year period, and for the three and nine months ended September 30, 20202021, our income tax provision increased to $30.0 million as compared to a provision of $1.9 million in the comparative prior year period. These income tax increases were lower than for the corresponding periods ended September 30, 2019 primarily due to the impact of a change in the forecasted annual effectivemix of earnings of foreign jurisdictions and U.S. tax rates andon foreign earnings in the earnings mix by jurisdictioncurrent year periods. In addition, the increase in 2020the nine months ended September 30, 2021 as compared to 2019. The forecasted effectivethe same period in 2020 was due to the recording of a full U.S. valuation allowance and an increase in our uncertain tax rate forpositions in the current year differs from the U.S. statutory income tax rate primarily due to earnings in foreign jurisdictions with income tax rates that exceed the U.S. statutory income tax rate, losses incurred by an entity in a tax-free zone, and the establishment of a full valuation allowance on U.S. deferred items. period.
The Internal Revenue Service (IRS) issued final regulations in July 2020 to clarify Global Intangible Low Tax Income (GILTI) under the Tax Cuts and Jobs Act allowing us to make an annual election to exclude GILTI of our foreign subsidiaries with an effective tax rate greater than 90% of the U.S. corporate rate. The impact for this change in legislation was offset by the establishment of a full valuation allowance in the U.S. during the quarter.
No additional changes in tax law occurred during the quarternine months ended September 30, 2021, which havehad a material impact on our income tax provision.
We do not record a deferred tax liability related to unremitted foreign earnings as we maintain our assertion to indefinitely reinvest our unremitted foreign earnings.
19
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Net Income (Loss) Per Common Share Calculation
Basic net income (loss) per common share is computed by dividingThe following table sets forth the net income (loss) by the weighted-average numbercomputation of common shares outstanding during a period. Diluted net income per common share is computed by giving effect to all potentially dilutive securities, unless there is a net loss for the period and/or performance-based awards which are not included until performance conditions are met. In computing diluted net income per common share, we use the treasury stock method. The table below reflects the
21
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
calculation of the weighted-average number of common shares outstanding, using the treasury stock method, used in computing basic and diluted net income (loss) per common share:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| (in thousands) |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||||||||||||
|
| (in thousands, except per share data) |
| |||||||||||||||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income (loss) |
| $ | (30,677 | ) |
| $ | 42,382 |
|
| $ | (72,271 | ) |
| $ | (24,211 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic weighted-average shares outstanding |
|
| 35,546 |
|
|
| 35,131 |
|
|
| 35,354 |
|
|
| 35,024 |
|
|
| 37,052 |
|
|
| 35,546 |
|
|
| 36,846 |
|
|
| 35,354 |
|
Effect of dilutive awards |
|
| 1,877 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,877 |
|
|
| 0 |
|
|
| 0 |
|
Diluted weighted-average shares outstanding |
|
| 37,423 |
|
|
| 35,131 |
|
|
| 35,354 |
|
|
| 35,024 |
|
|
| 37,052 |
|
|
| 37,423 |
|
|
| 36,846 |
|
|
| 35,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic net income (loss) per common share |
| $ | (0.83 | ) |
| $ | 1.19 |
|
| $ | (1.96 | ) |
| $ | (0.68 | ) | ||||||||||||||||
Diluted net income (loss) per common share |
| $ | (0.83 | ) |
| $ | 1.13 |
|
| $ | (1.96 | ) |
| $ | (0.68 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Potentially dilutive shares excluded from the calculation |
|
| 1,312 |
|
|
| 0 |
|
|
| 1,693 |
|
|
| 1,399 |
| ||||||||||||||||
Anti dilutive share-based compensation awards excluded |
|
| 13 |
|
|
| 1 |
|
|
| 0 |
|
|
| 33 |
| ||||||||||||||||
Performance-based restricted stock units excluded from |
|
| 265 |
|
|
| 192 |
|
|
| 265 |
|
|
| 192 |
|
Since there were net losses for the nine months ended September 30, 2020, approximately 1,400,000 potentially dilutive shares were excluded from the calculation. Additionally, since there were net losses for the three and nine months ended September 30, 2019, approximately 980,000 and 1,304,000 potentially dilutive shares were excluded from the calculation. In addition, the table below summarizes the approximate number of share-based compensation awards which were excluded from the computation of net income (loss) per common share because their effect would be anti-dilutive:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Anti-dilutive shares |
|
| 1,000 |
|
|
| 27,000 |
|
|
| 33,000 |
|
|
| 14,000 |
|
Note 11. Stockholders’ Equity
Accumulated Other Comprehensive Loss
The following tables presents the changes in accumulated other comprehensive loss (AOCL) by component:
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2021 |
| |||||||||||||
|
| Foreign |
|
|
|
|
|
| Foreign |
|
|
|
|
|
| Foreign |
|
|
|
| Foreign |
|
|
|
| |||||||
|
| currency |
|
|
|
|
|
| exchange |
|
|
|
|
|
| currency |
|
|
|
| exchange |
|
|
|
| |||||||
|
| translation |
|
| Interest rate |
|
| forward |
|
| Total |
|
| translation |
|
| Interest rate |
| forward |
|
| Total |
| |||||||||
|
| adjustments |
|
| swap |
|
| contracts |
|
| AOCL |
|
| adjustments |
| swap |
| contracts |
| AOCL |
| |||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Balance at December 31, 2019 |
| $ | (22,012 | ) |
| $ | (2,145 | ) |
| $ | 545 |
|
| $ | (23,612 | ) | ||||||||||||||||
Balance at December 31, 2020 |
| $ | (30,111 | ) |
| $ | (3,443 | ) |
| $ | 564 |
|
| $ | (32,990 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (9,223 | ) |
|
| (2,550 | ) |
|
| (6,936 | ) |
|
| (18,709 | ) |
|
| (5,291 | ) |
|
| 597 |
|
|
| (2,281 | ) |
|
| (6,975 | ) |
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| (222 | ) |
|
| (222 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (2,002 | ) |
|
| (2,002 | ) |
Net tax effect |
|
| — |
|
|
| 535 |
|
|
| 1,503 |
|
|
| 2,038 |
|
|
| 0 |
|
|
| (139 | ) |
|
| 790 |
|
|
| 651 |
|
Net current period other comprehensive income (loss) |
|
| (9,223 | ) |
|
| (2,015 | ) |
|
| (5,655 | ) |
|
| (16,893 | ) |
|
| (5,291 | ) |
|
| 458 |
|
|
| (3,493 | ) |
|
| (8,326 | ) |
Balance at March 31, 2020 |
|
| (31,235 | ) |
|
| (4,160 | ) |
|
| (5,110 | ) |
|
| (40,505 | ) | ||||||||||||||||
Balance at March 31, 2021 |
|
| (35,402 | ) |
|
| (2,985 | ) |
|
| (2,929 | ) |
|
| (41,316 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (2,290 | ) |
|
| — |
|
|
| 1,750 |
|
|
| (540 | ) |
|
| (4 | ) |
|
| 452 |
|
|
| 259 |
|
|
| 707 |
|
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| 2,738 |
|
|
| 2,738 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,035 | ) |
|
| (1,035 | ) |
Net tax effect |
|
| — |
|
|
| — |
|
|
| (938 | ) |
|
| (938 | ) |
|
| 0 |
|
|
| (105 | ) |
|
| 190 |
|
|
| 85 |
|
Net current period other comprehensive income (loss) |
|
| (2,290 | ) |
|
| — |
|
|
| 3,550 |
|
|
| 1,260 |
|
|
| (4 | ) |
|
| 347 |
|
|
| (586 | ) |
|
| (243 | ) |
Balance at June 30, 2020 |
|
| (33,525 | ) |
|
| (4,160 | ) |
|
| (1,560 | ) |
|
| (39,245 | ) | ||||||||||||||||
Balance at June 30, 2021 |
|
| (35,406 | ) |
|
| (2,638 | ) |
|
| (3,515 | ) |
|
| (41,559 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (1,662 | ) |
|
| 391 |
|
|
| 2,124 |
|
|
| 853 |
|
|
| (889 | ) |
|
| 437 |
|
|
| (771 | ) |
|
| (1,223 | ) |
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| 1,546 |
|
|
| 1,546 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Net tax effect |
|
| — |
|
|
| (535 | ) |
|
| (565 | ) |
|
| (1,100 | ) |
|
| 0 |
|
|
| 244 |
|
|
| (638 | ) |
|
| (394 | ) |
Net current period other comprehensive income (loss) |
|
| (1,662 | ) |
|
| (144 | ) |
|
| 3,105 |
|
|
| 1,299 |
|
|
| (889 | ) |
|
| 681 |
|
|
| (1,409 | ) |
|
| (1,617 | ) |
Balance at September 30, 2020 |
| $ | (35,187 | ) |
| $ | (4,304 | ) |
| $ | 1,545 |
|
| $ | (37,946 | ) | ||||||||||||||||
Balance at September 30, 2021 |
| $ | (36,295 | ) |
| $ | (1,957 | ) |
| $ | (4,924 | ) |
| $ | (43,176 | ) |
22
20
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||
|
| Foreign |
|
|
|
|
| Foreign |
|
|
|
| ||||
|
| currency |
|
|
|
|
| exchange |
|
|
|
| ||||
|
| translation |
|
| Interest rate |
|
| forward |
|
| Total |
| ||||
|
| adjustments |
|
| swap |
|
| contracts |
|
| AOCL |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance at December 31, 2019 |
| $ | (22,012 | ) |
| $ | (2,145 | ) |
| $ | 545 |
|
| $ | (23,612 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (9,223 | ) |
|
| (2,550 | ) |
|
| (6,936 | ) |
|
| (18,709 | ) |
Amounts reclassified from AOCL |
|
| 0 |
|
|
| 0 |
|
|
| (222 | ) |
|
| (222 | ) |
Net tax effect |
|
| 0 |
|
|
| 535 |
|
|
| 1,503 |
|
|
| 2,038 |
|
Net current period other comprehensive income (loss) |
|
| (9,223 | ) |
|
| (2,015 | ) |
|
| (5,655 | ) |
|
| (16,893 | ) |
Balance at March 31, 2020 |
|
| (31,235 | ) |
|
| (4,160 | ) |
|
| (5,110 | ) |
|
| (40,505 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (2,290 | ) |
|
| 0 |
|
|
| 1,750 |
|
|
| (540 | ) |
Amounts reclassified from AOCL |
|
| 0 |
|
|
| 0 |
|
|
| 2,738 |
|
|
| 2,738 |
|
Net tax effect |
|
| 0 |
|
|
| 0 |
|
|
| (938 | ) |
|
| (938 | ) |
Net current period other comprehensive income (loss) |
|
| (2,290 | ) |
|
| 0 |
|
|
| 3,550 |
|
|
| 1,260 |
|
Balance at June 30, 2020 |
|
| (33,525 | ) |
|
| (4,160 | ) |
|
| (1,560 | ) |
|
| (39,245 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (1,662 | ) |
|
| 391 |
|
|
| 2,124 |
|
|
| 853 |
|
Amounts reclassified from AOCL |
|
| 0 |
|
|
| 0 |
|
|
| 1,546 |
|
|
| 1,546 |
|
Net tax effect |
|
| 0 |
|
|
| (535 | ) |
|
| (565 | ) |
|
| (1,100 | ) |
Net current period other comprehensive income (loss) |
|
| (1,662 | ) |
|
| (144 | ) |
|
| 3,105 |
|
|
| 1,299 |
|
Balance at September 30, 2020 |
| $ | (35,187 | ) |
| $ | (4,304 | ) |
| $ | 1,545 |
|
| $ | (37,946 | ) |
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
| Foreign |
|
|
|
|
| ||
|
| currency |
|
|
|
|
|
| exchange |
|
|
|
|
| ||
|
| translation |
|
| Interest rate |
|
| forward |
|
| Total |
| ||||
|
| adjustments |
|
| swap |
|
| contracts |
|
| AOCL |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance at December 31, 2018 |
| $ | (14,986 | ) |
| $ | 594 |
|
| $ | — |
|
| $ | (14,392 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 1,333 |
|
|
| (2,291 | ) |
|
| — |
|
|
| (958 | ) |
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net tax effect |
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| 481 |
|
Net current period other comprehensive income (loss) |
|
| 1,333 |
|
|
| (1,810 | ) |
|
| — |
|
|
| (477 | ) |
Balance at March 31, 2019 |
|
| (13,653 | ) |
|
| (1,216 | ) |
|
| — |
|
|
| (14,869 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (4,203 | ) |
|
| (1,355 | ) |
|
| — |
|
|
| (5,558 | ) |
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net tax effect |
|
| — |
|
|
| 284 |
|
|
| — |
|
|
| 284 |
|
Net current period other comprehensive income (loss) |
|
| (4,203 | ) |
|
| (1,071 | ) |
|
| — |
|
|
| (5,274 | ) |
Balance at June 30, 2019 |
|
| (17,856 | ) |
|
| (2,287 | ) |
|
| — |
|
|
| (20,143 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (895 | ) |
|
| (395 | ) |
|
| (561 | ) |
|
| (1,851 | ) |
Amounts reclassified from AOCL |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net tax effect |
|
| — |
|
|
| 84 |
|
|
| 118 |
|
|
| 202 |
|
Net current period other comprehensive income (loss) |
|
| (895 | ) |
|
| (311 | ) |
|
| (443 | ) |
|
| (1,649 | ) |
Balance at September 30, 2019 |
| $ | (18,751 | ) |
| $ | (2,598 | ) |
| $ | (443 | ) |
| $ | (21,792 | ) |
Note 12. Commitments and Contingencies
Legal Proceedings
From time to time, we are party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business, some of which aremay not be covered by insurance. Upon resolution of any pending legal matters, we may incur charges in excess of presently established reserves or our insurance policy limits.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.
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 $13.3 million. The alleged voidance claims relate to payments that Senvion made to us for wind blades that we produced prior to Senvion filing for insolvency protection. We filed a response to these alleged voidance claims in August 2021 and we believe we have meritorious defenses to 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.
Note 13. Concentration of Customers
RevenuesNet sales from certain customers (in thousands) in excess of 10 percent of our total consolidated revenuesnet sales are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
| September 30, |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||||||||||||||||||||||||||||||||||
Customer |
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
|
| Net sales |
| % of Total |
| Net sales |
| % of Total |
| Net sales |
| % of Total |
| Net sales |
| % of Total |
| |||||||||||||||||||||||
Vestas |
| $ | 240,710 |
|
|
| 50.8 | % |
| $ | 176,018 |
|
|
| 45.9 | % |
| $ | 591,548 |
|
|
| 49.1 | % |
| $ | 446,733 |
|
|
| 44.0 | % |
| $ | 176,107 |
|
|
| 36.7 | % |
| $ | 240,710 |
|
|
| 50.8 | % |
| $ | 554,112 |
|
|
| 41.3 | % |
| $ | 591,548 |
|
|
| 49.1 | % |
GE |
|
| 124,523 |
|
|
| 26.3 | % |
|
| 96,312 |
|
|
| 25.1 | % |
|
| 295,831 |
|
|
| 24.6 | % |
|
| 272,859 |
|
|
| 26.9 | % |
|
| 122,347 |
|
|
| 25.5 | % |
|
| 124,523 |
|
|
| 26.3 | % |
|
| 333,136 |
|
|
| 24.8 | % |
|
| 295,831 |
|
|
| 24.6 | % |
Nordex |
|
| 53,182 |
|
|
| 11.2 | % |
|
| 61,514 |
|
|
| 16.0 | % |
|
| 168,697 |
|
|
| 14.0 | % |
|
| 170,044 |
|
|
| 16.8 | % |
|
| 123,373 |
|
|
| 25.7 | % |
|
| 53,182 |
|
|
| 11.2 | % |
|
| 281,421 |
|
|
| 21.0 | % |
|
| 168,697 |
|
|
| 14.0 | % |
21
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Trade accounts receivable from certain customers in excess of 10 percent of our total consolidated trade accounts receivable are as follows:
|
| September 30, |
|
| December 31, |
|
| September 30, |
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| |||||
Customer |
| % of Total |
|
| % of Total |
|
| % of Total |
| % of Total |
| |||||
Nordex |
|
| 43.5 | % |
|
| 40.8 | % | ||||||||
Vestas |
|
| 41.3 | % |
|
| 41.9 | % |
|
| 27.7 | % |
|
| 35.0 | % |
Nordex |
|
| 32.4 | % |
|
| 31.3 | % | ||||||||
Enercon |
|
| 10.7 | % |
|
| 8.3 | % |
23
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 14. Segment Reporting
Our operating segments are defined geographically into 45 geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, (4) EMEA and (4) Europe, the Middle East, Africa and India (EMEAI).(5) India. For a detailed discussion of our operating segments, refer to the discussion in Note 1, 19, Summary of Operations and Significant Accounting Policies – Basis of PresentationSegment Reporting, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.
Financial results are aggregated into these 4 reportable segments based on quantitative thresholds. All of our segments operate in their local currency howeverexcept for the Mexico and Asia segments, which both include a portion ofU.S. parent company, and India and Switzerland, which operate in the revenue attributable to our Asia and Mexico segments is derived in U.S. dollars because certain of our domestic subsidiaries are the contracting parties to the associated customer supply agreements.dollar.
The following tables set forth certain information regarding each of our segments:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| (in thousands) |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||||||||||||
Revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
U.S. |
| $ | 46,799 |
|
| $ | 40,643 |
|
| $ | 136,309 |
|
| $ | 122,129 |
|
| $ | 47,702 |
|
| $ | 46,799 |
|
| $ | 153,749 |
|
| $ | 136,309 |
|
Asia |
|
| 163,458 |
|
|
| 108,114 |
|
|
| 400,513 |
|
|
| 261,531 |
|
|
| 51,869 |
|
|
| 163,458 |
|
|
| 219,903 |
|
|
| 400,513 |
|
Mexico |
|
| 161,563 |
|
|
| 117,690 |
|
|
| 363,233 |
|
|
| 297,717 |
|
|
| 200,332 |
|
|
| 161,563 |
|
|
| 461,961 |
|
|
| 363,233 |
|
EMEAI |
|
| 102,293 |
|
|
| 117,389 |
|
|
| 304,511 |
|
|
| 333,010 |
| ||||||||||||||||
Total revenues |
| $ | 474,113 |
|
| $ | 383,836 |
|
| $ | 1,204,566 |
|
| $ | 1,014,387 |
| ||||||||||||||||
Revenues by geographic location (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. |
| $ | 46,799 |
|
| $ | 40,643 |
|
| $ | 136,309 |
|
| $ | 122,129 |
| ||||||||||||||||
EMEA |
|
| 129,444 |
|
|
| 83,640 |
|
|
| 347,160 |
|
|
| 260,138 |
| ||||||||||||||||
India |
|
| 50,252 |
|
|
| 18,653 |
|
|
| 160,347 |
|
|
| 44,373 |
| ||||||||||||||||
Total net sales |
| $ | 479,599 |
|
| $ | 474,113 |
|
| $ | 1,343,120 |
|
| $ | 1,204,566 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales by geographic location (1): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
United States |
| $ | 47,702 |
|
| $ | 46,799 |
|
| $ | 153,749 |
|
| $ | 136,309 |
| ||||||||||||||||
China |
|
| 163,458 |
|
|
| 108,114 |
|
|
| 400,513 |
|
|
| 261,531 |
|
|
| 51,869 |
|
|
| 163,458 |
|
|
| 219,903 |
|
|
| 400,513 |
|
Mexico |
|
| 161,563 |
|
|
| 117,690 |
|
|
| 363,233 |
|
|
| 297,717 |
|
|
| 200,332 |
|
|
| 161,563 |
|
|
| 461,961 |
|
|
| 363,233 |
|
Turkey and India |
|
| 102,293 |
|
|
| 117,389 |
|
|
| 304,511 |
|
|
| 333,010 |
| ||||||||||||||||
Total revenues |
| $ | 474,113 |
|
| $ | 383,836 |
|
| $ | 1,204,566 |
|
| $ | 1,014,387 |
| ||||||||||||||||
Turkey |
|
| 129,444 |
|
|
| 83,640 |
|
|
| 347,160 |
|
|
| 260,138 |
| ||||||||||||||||
India |
|
| 50,252 |
|
|
| 18,653 |
|
|
| 160,347 |
|
|
| 44,373 |
| ||||||||||||||||
Total net sales |
| $ | 479,599 |
|
| $ | 474,113 |
|
| $ | 1,343,120 |
|
| $ | 1,204,566 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. (2) |
| $ | (6,360 | ) |
| $ | (17,510 | ) |
| $ | (33,991 | ) |
| $ | (54,235 | ) |
| $ | (24,598 | ) |
| $ | (6,360 | ) |
| $ | (36,070 | ) |
| $ | (33,991 | ) |
Asia |
|
| 25,779 |
|
|
| 13,448 |
|
|
| 49,343 |
|
|
| 4,779 |
|
|
| (3,607 | ) |
|
| 25,779 |
|
|
| 7,207 |
|
|
| 49,343 |
|
Mexico |
|
| 11,986 |
|
|
| (4,954 | ) |
|
| (1,106 | ) |
|
| (1,258 | ) |
|
| (3,802 | ) |
|
| 11,986 |
|
|
| (33,082 | ) |
|
| (1,106 | ) |
EMEAI |
|
| (2,400 | ) |
|
| 21,134 |
|
|
| (13,900 | ) |
|
| 55,673 |
| ||||||||||||||||
Total income from operations |
| $ | 29,005 |
|
| $ | 12,118 |
|
| $ | 346 |
|
| $ | 4,959 |
| ||||||||||||||||
EMEA |
|
| 9,423 |
|
|
| 1,795 |
|
|
| 29,993 |
|
|
| 3,314 |
| ||||||||||||||||
India |
|
| (1,403 | ) |
|
| (4,195 | ) |
|
| 2,725 |
|
|
| (17,214 | ) | ||||||||||||||||
Total loss from operations |
| $ | (23,987 | ) |
| $ | 29,005 |
|
| $ | (29,227 | ) |
| $ | 346 |
|
22
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Property, plant and equipment, net: |
|
|
|
|
|
| ||
U.S. |
| $ | 27,258 |
|
| $ | 31,811 |
|
Asia (China) |
|
| 37,555 |
|
|
| 46,075 |
|
Mexico |
|
| 75,573 |
|
|
| 78,813 |
|
EMEA (Turkey) |
|
| 20,776 |
|
|
| 28,312 |
|
India |
|
| 31,164 |
|
|
| 23,990 |
|
Total property, plant and equipment, net |
| $ | 192,326 |
|
| $ | 209,001 |
|
(1) Net sales are attributable to countries based on the location where the product is manufactured or the services are performed.
(2) The losses from operations in our U.S. segment includes corporate general and administrative costs of $8.2 million and $9.3 million for the three months ended September 30, 2021 and 2020, respectively, and $23.8 million and $25.6 million for the nine months ended September 30, 2021 and 2020, respectively.
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Property, plant and equipment, net: |
|
|
|
|
|
|
|
|
U.S. |
| $ | 32,088 |
|
| $ | 36,410 |
|
Asia (China) |
|
| 48,276 |
|
|
| 50,603 |
|
Mexico |
|
| 80,601 |
|
|
| 81,654 |
|
EMEAI (Turkey and India) |
|
| 49,059 |
|
|
| 36,340 |
|
Total property, plant and equipment, net |
| $ | 210,024 |
|
| $ | 205,007 |
|
Note 15. Subsequent Events
Credit Agreement Limited Waiver
On November 8, 2021 (the Waiver Effective Date), we executed a limited waiver in connection with our Credit Agreement, dated as of April 6, 2018 (as amended, restated, supplemented or otherwise modified from time to time), by and among ourselves, JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the Administrative Agent), and the lenders from time to time party thereto, with respect to our failure to comply with the Total Net Leverage Ratio (as defined in the Credit Agreement) financial covenant as of September 30, 2021. Pursuant to the terms of the limited waiver, the lenders have agreed to temporarily waive our compliance with this financial covenant from the Waiver Effective Date through December 8, 2021 (the Waiver Period). We also must maintain domestic U.S. cash of at least $20.0 million and global available liquidity (as defined in the Credit Agreement) of at least $50.0 million as of the close of business on each Friday commencing as of November 5, 2021 through the maturity date of the Credit Agreement. From and after the Waiver Effective Date, we may not allow any of our subsidiaries that are not loan parties to the Credit Agreement to incur any additional indebtedness and we may not make any investment in any of our subsidiaries that are not loan parties to the Credit Agreement in an aggregate amount greater than $5.0 million. We had $68.3 million of domestic U.S cash and $132.9 million of global available liquidity as of October 29, 2021.
Series A Preferred Stock Purchase Agreement
On November 8, 2021, we entered into a Series A Preferred Stock Purchase Agreement (the Purchase Agreement) with Oaktree Power Opportunities Fund V (Delaware) Holdings, L.P., OPPS TPIC Holdings, LLC, and Oaktree Phoenix Investment Fund L.P. (collectively, the Purchasers). Pursuant to the Purchase Agreement, we agreed to issue and sell to the Purchasers an aggregate of 350,000 shares of our newly designated Series A Preferred Stock, par value $0.01 per share (the Series A Preferred Stock), for an aggregate purchase price of $350.0 million, with the Series A Preferred Stock having the powers, designations, preferences, and other rights set forth in the Certificate of Designations (as defined below). The issuance and sale of the Series A Preferred Stock will occur on or after the date upon which customary closing conditions set forth in the Purchase Agreement have been satisfied (the Closing Date), which we expect will occur prior to December 8, 2021. We also may elect at our option to require Oaktree 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. We intend to use the net proceeds from the issuance and sale of the Series A Preferred Stock on the Closing Date to repay all outstanding indebtedness under our Credit Agreement, which is a condition to closing, and the remainder for general corporate purposes.
Warrant
On the Closing Date, we will also issue the Purchasers a warrant to purchase an aggregate of 4,666,667 shares of our Common Stock, at an exercise price of $0.01 per share (the “Warrant”). The Warrant will have a five-year term and may be exercised at any time
23
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
during that period. The number of shares issuable upon exercise of the Warrant is subject to customary adjustments upon the occurrence of certain events such as stock splits, reclassifications, combinations, dividends, distributions, mergers and other similar events.
Certificate of Designations
The Series A Preferred Stock will have the powers, designations, preferences, and other rights as set forth in a Certificate of Designations of the Series A Preferred Stock that will be filed by us with the Secretary of State of the State of Delaware on or before the Closing Date (the Certificate of Designations).
Voting and Consent Rights
The Series A Preferred Stock will not have any voting or rights to convert such preferred shares into shares of Common Stock (the 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 holders of our 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 Redemption Price (as defined below) has been paid with respect to all 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 $100.0 million as of the Closing Date through December 31, 2021 and $80.0 million thereafter, (vi) committing to any capital expenditures to construct or acquire new manufacturing facilities, subject to limited exceptions; and (vii) certain other specified actions.
Dividends
The dividend rate with respect to the Series A Preferred Stock is 11.0% per annum and will compound on a quarterly basis. The dividend rate will increase by 2.0% per annum: (i) on the fifth anniversary date of the Closing Date and on each anniversary thereafter, (ii) to the extent that we fail to pay any dividend that is required to be paid in cash, if we are in material breach of its covenants under the Purchase Agreement, the Certificate of Designations or Investor Rights Agreement, or if we experience a bankruptcy or insolvency event, or if certain other Events of Non-compliance (as defined in the Certificate of Designations) occur; (iv) in the event we fail to maintain a specified fixed charge dividend coverage ratio, and (v) in respect of any Series A Preferred Stock issued as curative equity in accordance with the Investor Rights Agreement (each, an “Incremental Dividend”); provided that in no event shall the dividend rate exceed 20.0%. On or prior to the second anniversary of the Closing Date, we may pay dividends on the Series A Preferred Stock either in cash or “in kind”, through accrual to the liquidation preference of the Series A Preferred Stock or a combination thereof.Following the second anniversary of the Closing Date, dividends shall be payable only in cash.Incremental Dividends must be made in cash.
Ranking and Liquidation Preference
The Series A Preferred Stock ranks senior to the Common Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution or winding up of our affairs (a Liquidation). Upon a Liquidation, each share of our Series A Preferred Stock would be entitled to the applicable Series A Redemption Price. The initial liquidation preference of the Series A Preferred Stock shall be equal to $1,000 plus any dividends that have accrued as the date of determination (the Series A Liquidation Preference).
Redemption Rights and Series A Redemption Price
We will have the right to redeem all or any portion of the Series A Preferred Stock at any time by paying the applicable Series A Redemption Price; provided, however, that no optional redemption will be permitted that would result in less than 10% of the shares of Series A Preferred Stock that are issued on the Closing Date remaining outstanding following such redemption unless all remaining shares of Series A Preferred Stock are redeemed.
24
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Each holder of 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 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.
The following table sets forth the procedure for calculating the Series A Redemption Price at which the Series A Preferred Stock may be redeemed under the Certificate of Designations:
|
|
|
|
From the First Optional Call Date until the first anniversary of the First Optional Call Date………… | 102% of the Series A Liquidation Preference |
From and | 101% of the |
The “Make-Whole Amount” means, with respect to any redemption of any share of the Series A Preferred Stock prior to the third anniversary of the Closing Date (the First Optional Call Date) is defined in the Certificate of Designations as an amount equal to the present value (calculated as provided below) as of the redemption date of the sum of (A) the remaining dividends that would accrue on such shares being redeemed from the day immediately following the redemption date to the First Optional Call Date plus (B) 102% of the Liquidation Preference of such shares being redeemed on the redemption date assuming that, for purposes of calculating clauses (A) and (B), such shares were to remain outstanding through the First Optional Call Date, and with the present value of such sum being computed using an annual discount rate (applied quarterly) equal to the rate on U.S. Treasury notes with maturity closest to the applicable redemption date plus 50 basis points.
Minimum Cash Balance
We are also required to maintain a minimum cash balance of $50.0 million, which will be measured on a monthly basis, so long as the Series A Preferred Stock remains outstanding.
Investor Rights Agreement
As a condition to the closing of the transactions contemplated by the Purchase Agreement, In connection with the Purchase Agreement, we and the Purchasers will enter into an Investor Rights Agreement (the Investor Rights Agreement) pursuant to which, among other things, we will grant the Purchasers certain customary registration rights with respect to the shares of Common Stock underlying the Warrants and certain other securities that may be issued to the Purchasers in respect of the Warrant. Pursuant to the Investors Rights Agreement, the Purchasers will be entitled to designate one representative (the Series A Director) to be appointed to our board of directors (the Board) or to appoint one non-voting observer to the Board, in each case so long as 33% of the Series A Preferred Stock issued on the Closing Date remains outstanding.. The Investor Rights Agreement further contains a number of other customary covenants and agreements, including certain standstill provisions, preemptive rights, rights of first refusal with respect to future debt financing transactions, and information rights.
The Investor Rights Agreements provides that the Purchasers will be restricted from transferring the Series A Preferred Stock to parties unaffiliated with the Purchasers without our prior written consent, which consent shall not be unreasonably withheld by us.
25
ITEM 2. 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 condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to plans and strategy for our business, 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 Form 10-Q or in our previously filed Annual Report on Form 10-K, particularly those under “Risk Factors.”
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 (OEM) 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 throughout the U.S., China, Mexico, Turkey, and India. We operate additional engineering development centers in Denmark and Germany.
Our business operations are defined geographically into fourfive geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, and (4) Europe, the Middle East and Africa (EMEA) and India (EMEAI).(5) India. See Note 14, Segment Reporting, to our condensed consolidated financial statements for more details about our operating segments.
KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS
The COVID-19 pandemic adversely impacted our operations andOur results of operations for the three months ended September 30, 2021 were adversely affected by 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 an innovative new blade for one of our customers. We expect that production will be stabilized in both of these manufacturing facilities by the end of the year.
Our results of operations for the three and nine months ended September 30, 2021 were adversely impacted by continued supply chain challenges, raw material shortages and increased logistics costs. 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. These raw material price and logistics cost increases adversely affected our results of operations by approximately $20 million and $24 million for the three and nine months ended September 30, 2021, respectively. We expect that the price of resin and carbon fiber will remain at elevated levels for the remainder of 2021 and into 2022. Approximately 55% of the resin and resin systems we use are purchased under contracts either controlled or borne by two of our customers and therefore these customers receive/bear 100% of any decrease or increase in resin prices. With respect to our other customer supply agreements, our customers typically receive/bear 70% of any raw material price decreases or increases. After taking into account our contractual share of any price increases for resin and carbon fiber, we estimate that the impact of these raw materials price increases, together with increased logistics costs, will adversely impact our results of operations by approximately $30 million for 2021. If the supply of resin feedstocks and carbon fiber continue to be constrained for an extended period of time, such shortages could impact our ability to meet our customers’ forecasted demand for our products for the remainder of 2021and into 2022 and have a further material adverse impact on our results of operations for the remainder of 2021 and 2022.
Our manufacturing facility in Yangzhou, China was shut down for approximately three weeks during the three months ended September 30, 2021 due to an outbreak of positive COVID-19 cases in Yangzhou City, which had an adverse impact on our results of operations for the three months ended September 30, 2021. We expect to make up the lost volume from this shut down in the fourth quarter of 2021.
26
Despite this shutdown, the COVID-19 pandemic has not materially adversely affected our manufacturing operations during the nine months ended September 30, 2020 due to reduced production levels at our manufacturing facilities primarily during the first and second quarters of 2020 as a result of 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, most2021. Although all of our manufacturing facilities had returned tocurrently are operating at or near normal production levels. For the third quarter of 2020, the COVID-19 pandemic did not have a material adverse impact on our operations and results of operations.
Several of our manufacturing facilities are operating in regions with high levels, of reported COVID-19 positive cases. As such, we may be required to reinstate temporary production suspensions or volume reductions at these manufacturing facilities or at our other manufacturing facilities to the extent there is a resurgenceare 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.
We continue to manageHowever, our liquidity to ensure our long-term viability untilglobal supply chain has been adversely affected by the COVID-19 pandemic abates. Duringin 2021 and our global supply chain may continue to be adversely affected if the nine months endedCOVID-19 pandemic persists. In addition, certain of our customers directly control the purchase of certain key raw materials and components, including resin and carbon. In 2021, these customers have had challenges procuring adequate supplies of resin and carbon, which has had an adverse impact on our production volumes and results of operations.
We expect decreased demand for our wind blades from our customers during the remainder of 2021 and 2022. We believe this decrease in demand is due to the continued global renewable energy regulatory and policy uncertainty and raw material cost increases mentioned above. The result is an expected adverse impact to our Adjusted EBITDA in 2021 of approximately $33 million. We believe that general optimism around potential legislation in the U.S. to extend the Production Tax Credit (PTC) on a long-term basis is causing developers to delay project timelines in anticipation of being able to build projects at higher PTC levels once the expected extensions are in place.
We are forecasting to incur a total of approximately $45 million of restructuring and impairment charges associated with our global footprint alignment and consolidation in 2021 and 2022 relating to our China and North America operations, including our planned suspension of production at our Iowa manufacturing facility at the end of 2021. Approximately $30 million of the total is forecasted to be incurred in 2021, with the remainder in 2022. We are forecasting that approximately 15% of the restructuring charges will be non-cash.
We were not in compliance with our Total Net Leverage Ratio financial covenant as of September 30, 2020,2021, 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 Credit Agreement 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. We also must maintain domestic U.S. cash of at least $20.0 million and global available liquidity of at least $50.0 million as of the close of business on each Friday commencing as of November 5, 2021 through the maturity date of the Credit Agreement. From and after the Waiver Effective Date, we may not allow any of our subsidiaries that are not loan parties to the Credit Agreement to incur any additional indebtedness and we may not make any investment in any of its subsidiaries that are not loan parties to the Credit Agreement in an aggregate amount greater than $5.0 million. We had $68.3 million of domestic U.S cash and $132.9 million of global available liquidity as of October 29, 2021.
Given these near-term liquidity challenges, on November 8, 2021, we entered into a Series A Preferred Stock Purchase Agreement (the Purchase Agreement) with Oaktree Power Opportunities Fund V (Delaware) Holdings, L.P., OPPS TPIC Holdings, LLC, and Oaktree Phoenix Investment Fund L.P. (collectively, the Purchasers) pursuant to which we agreed to issue and sell 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. We expect the closing of this equity financing transaction to occur in the fourth quarter of 2021 and intend to use the net borrowingsproceeds from the issuance and sale of $72.8 millionthe Series A Preferred Stock to repay all outstanding indebtedness under our Credit Agreement. In addition,Agreement and the remainder for general corporate purposes. We also may elect at our option to require Oaktree 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 nine months ended September 30, 2020, we entered into or amended four unsecured credit agreements with four Turkishtwo-year period following the Closing Date.
See Note 15, Subsequent Events, to our condensed consolidated financial institutions resulting in net borrowings of $31.2 million and current availability of $44.0 million.
For the three and nine months ended September 30, 2020, we estimate that our net sales were adversely impacted by approximately $8 million and $142 million, based upon 13 and 342 wind blade sets which we had forecasted to produce in those periods under non-cancellable purchase orders associated with our long-term contracts but were unable to do so as a result of the COVID-19 pandemic.
For the three and nine months ended September 30, 2020 we estimate that our net income and net loss was adversely impacted by approximately $2 million, net of taxes, and $21 million, net of taxes, based upon the forecasted gross marginstatements for more details on the forecasted wind blade sets which we were planning to produce in those periods but were unable to do so as a result oflimited waiver and the COVID-19 pandemic. In addition, for the three and nine months ended September 30, 2020, we incurred approximately $4 million, net of taxes, and $11 million, net of taxes, of COVID-19 related costs associated with the health and safety of our associates and non-productive labor.Purchase Agreement.
For the three and nine months ended September 30, 2020, we estimate that our Adjusted EBITDA was adversely impacted by approximately $8 million and $55 million, respectively, based upon the forecasted Adjusted EBITDA margin on the forecasted wind blade sets which we were planning to produce in those periods but were unable to do so as a result of the COVID-19 pandemic and COVID-19 related costs associated with the health and safety of our associates and non-productive labor.
KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
For a detailed discussion of our key financial measures and our key operating metrics, refer to the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Metrics Used By Management To Measure Performance” included in Part II, Item 7 of our Annual Report on Form 10-K.
27
KEY FINANCIAL METRICSMEASURES
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net sales |
| $ | 479,599 |
|
| $ | 474,113 |
|
| $ | 1,343,120 |
|
| $ | 1,204,566 |
|
Net income (loss) |
|
| (30,677 | ) |
|
| 42,382 |
|
|
| (72,271 | ) |
|
| (24,211 | ) |
EBITDA (1) |
|
| (6,478 | ) |
|
| 27,168 |
|
|
| 3,221 |
|
|
| 21,819 |
|
Adjusted EBITDA (1) |
|
| 179 |
|
|
| 49,131 |
|
|
| 30,635 |
|
|
| 53,722 |
|
Capital expenditures |
|
|
|
|
|
|
|
| 30,138 |
|
|
| 53,428 |
| ||
Free cash flow (1) |
|
|
|
|
|
|
|
| (58,379 | ) |
|
| (19,563 | ) |
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Total debt, net of debt issuance costs |
| $ | 262,129 |
|
| $ | 216,867 |
|
Net debt (1) |
|
| (143,833 | ) |
|
| (88,061 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net sales |
| $ | 474,113 |
|
| $ | 383,836 |
|
| $ | 1,204,566 |
|
| $ | 1,014,387 |
|
Net income (loss) |
| $ | 42,382 |
|
| $ | (4,571 | ) |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
EBITDA (1) |
| $ | 27,168 |
|
| $ | 26,302 |
|
| $ | 21,819 |
|
| $ | 33,876 |
|
Adjusted EBITDA (1) |
| $ | 49,131 |
|
| $ | 27,470 |
|
| $ | 53,722 |
|
| $ | 53,816 |
|
Capital expenditures |
|
|
|
|
|
|
|
|
| $ | 53,428 |
|
| $ | 59,092 |
|
Free cash flow (1) |
|
|
|
|
|
|
|
|
| $ | (19,563 | ) |
| $ | 3,643 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Total debt, net of debt issuance costs |
| $ | 237,568 |
|
| $ | 141,389 |
|
Net debt (1) |
| $ | (89,311 | ) |
| $ | (71,779 | ) |
|
|
The following tables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:
EBITDA and adjusted EBITDA are reconciled as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
| September 30, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Net income (loss) |
| $ | 42,382 |
|
| $ | (4,571 | ) |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
| $ | (30,677 | ) |
| $ | 42,382 |
|
| $ | (72,271 | ) |
| $ | (24,211 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
| 14,031 |
|
|
| 9,948 |
|
|
| 36,675 |
|
|
| 27,732 |
|
|
| 13,289 |
|
|
| 14,031 | �� |
|
| 37,399 |
|
|
| 36,675 |
|
Interest expense (net of interest income) |
|
| 3,093 |
|
|
| 2,087 |
|
|
| 7,409 |
|
|
| 6,278 |
| ||||||||||||||||
Interest expense, net |
|
| 2,662 |
|
|
| 3,093 |
|
|
| 8,057 |
|
|
| 7,409 |
| ||||||||||||||||
Income tax provision (benefit) |
|
| (32,338 | ) |
|
| 18,838 |
|
|
| 1,946 |
|
|
| 14,713 |
|
|
| 8,248 |
|
|
| (32,338 | ) |
|
| 30,036 |
|
|
| 1,946 |
|
EBITDA |
|
| 27,168 |
|
|
| 26,302 |
|
|
| 21,819 |
|
|
| 33,876 |
|
|
| (6,478 | ) |
|
| 27,168 |
|
|
| 3,221 |
|
|
| 21,819 |
|
Share-based compensation expense |
|
| 2,631 |
|
|
| 1,682 |
|
|
| 7,947 |
|
|
| 4,604 |
|
|
| 1,943 |
|
|
| 2,631 |
|
|
| 7,267 |
|
|
| 7,947 |
|
Realized gain (loss) on foreign currency remeasurement |
|
| 17,127 |
|
|
| (3,719 | ) |
|
| 18,095 |
|
|
| 1,050 |
| ||||||||||||||||
Realized loss on sale of assets and asset impairments |
|
| 2,160 |
|
|
| 3,354 |
|
|
| 5,518 |
|
|
| 10,561 |
| ||||||||||||||||
Restructuring charges (reversals), net |
|
| 45 |
|
|
| (149 | ) |
|
| 343 |
|
|
| 3,725 |
| ||||||||||||||||
Foreign currency loss (income) |
|
| (3,958 | ) |
|
| 17,127 |
|
|
| 6,273 |
|
|
| 18,095 |
| ||||||||||||||||
Loss on sale of assets and asset |
|
| 7,250 |
|
|
| 2,160 |
|
|
| 9,998 |
|
|
| 5,518 |
| ||||||||||||||||
Restructuring charges, net |
|
| 1,422 |
|
|
| 45 |
|
|
| 3,876 |
|
|
| 343 |
| ||||||||||||||||
Adjusted EBITDA |
| $ | 49,131 |
|
| $ | 27,470 |
|
| $ | 53,722 |
|
| $ | 53,816 |
|
| $ | 179 |
|
| $ | 49,131 |
|
| $ | 30,635 |
|
| $ | 53,722 |
|
Free cash flow is reconciled as follows:
|
| Nine Months Ended |
| |||||||||||||
|
| September 30, |
|
| Nine Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| September 30, |
| |||||||
|
| (in thousands) |
|
| 2021 |
| 2020 |
| ||||||||
Net cash provided by operating activities |
| $ | 33,865 |
|
| $ | 62,735 |
| ||||||||
|
| (in thousands) |
| |||||||||||||
Net cash provided by (used in) operating activities |
| $ | (28,241 | ) |
| $ | 33,865 |
| ||||||||
Less capital expenditures |
|
| (53,428 | ) |
|
| (59,092 | ) |
|
| (30,138 | ) |
|
| (53,428 | ) |
Free cash flow |
| $ | (19,563 | ) |
| $ | 3,643 |
|
| $ | (58,379 | ) |
| $ | (19,563 | ) |
28
Net debt is reconciled as follows:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Cash and cash equivalents |
| $ | 149,422 |
|
| $ | 70,282 |
|
| $ | 119,005 |
|
| $ | 129,857 |
|
Less total debt, net of debt issuance costs |
|
| (237,568 | ) |
|
| (141,389 | ) |
|
| (262,129 | ) |
|
| (216,867 | ) |
Less debt issuance costs |
|
| (1,165 | ) |
|
| (672 | ) |
|
| (709 | ) |
|
| (1,051 | ) |
Net debt |
| $ | (89,311 | ) |
| $ | (71,779 | ) |
| $ | (143,833 | ) |
| $ | (88,061 | ) |
KEY OPERATING METRICS
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
| September 30, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||
Sets |
|
| 1,038 |
|
| �� | 858 |
|
|
| 2,556 |
|
|
| 2,236 |
|
|
| 830 |
|
|
| 1,037 |
|
|
| 2,487 |
|
|
| 2,556 |
|
Estimated megawatts |
|
| 3,576 |
|
|
| 2,491 |
|
|
| 8,555 |
|
|
| 6,381 |
|
|
| 3,395 |
|
|
| 3,571 |
|
|
| 9,770 |
|
|
| 8,555 |
|
Utilization |
|
| 93 | % |
|
| 88 | % |
|
| 78 | % |
|
| 74 | % |
|
| 76 | % |
|
| 93 | % |
|
| 78 | % |
|
| 78 | % |
Dedicated manufacturing lines |
|
| 55 |
|
|
| 52 |
|
|
| 55 |
|
|
| 54 |
|
|
| 54 |
|
|
| 55 |
|
|
| 54 |
|
|
| 55 |
|
Manufacturing lines installed |
|
| 54 |
|
|
| 48 |
|
|
| 54 |
|
|
| 48 |
|
|
| 54 |
|
|
| 54 |
|
|
| 54 |
|
|
| 54 |
|
Results of Operations RESULTS OF OPERATIONS
The following table summarizes our condensed consolidated statements of operationsoperating results as a percentage of net sales for the three and nine months ended September 30, 2021 and 2020 and 2019: that have been derived from our condensed consolidated statements of operations:
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||||||||||||
|
| September 30, |
|
|
| September 30, |
|
|
| September 30, |
| September 30, |
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||||||
Net sales |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
| 100.0 |
| % |
| 100.0 |
| % |
| 100.0 |
| % |
Cost of sales |
|
| 89.7 |
|
|
| 87.5 |
|
|
|
| 94.8 |
|
|
| 89.1 |
|
|
|
| 98.5 |
|
|
| 89.7 |
|
|
| 96.5 |
|
|
| 94.8 |
|
| ||
Startup and transition costs |
|
| 1.8 |
|
|
| 5.7 |
|
|
|
| 2.6 |
|
|
| 6.3 |
|
|
|
| 3.0 |
|
|
| 1.8 |
|
|
| 2.9 |
|
|
| 2.6 |
|
| ||
Total cost of goods sold |
|
| 91.5 |
|
|
| 93.2 |
|
|
|
| 97.4 |
|
|
| 95.4 |
|
|
|
| 101.5 |
|
|
| 91.5 |
|
|
| 99.4 |
|
|
| 97.4 |
|
| ||
Gross profit |
|
| 8.5 |
|
|
| 6.8 |
|
|
|
| 2.6 |
|
|
| 4.6 |
|
| |||||||||||||||||||
Gross profit (loss) |
|
| (1.5 | ) |
|
| 8.5 |
|
|
| 0.6 |
|
|
| 2.6 |
|
| ||||||||||||||||||||
General and administrative expenses |
|
| 2.0 |
|
|
| 2.8 |
|
|
|
| 2.1 |
|
|
| 2.7 |
|
|
|
| 1.7 |
|
|
| 2.0 |
|
|
| 1.8 |
|
|
| 2.1 |
|
| ||
Realized loss on sale of assets and asset impairments |
|
| 0.4 |
|
|
| 0.9 |
|
|
|
| 0.5 |
|
|
| 1.0 |
|
| |||||||||||||||||||
Restructuring charges (reversals), net |
|
| 0.0 |
|
|
| (0.1 | ) |
|
|
| 0.0 |
|
|
| 0.4 |
|
| |||||||||||||||||||
Income from operations |
|
| 6.1 |
|
|
| 3.2 |
|
|
|
| 0.0 |
|
|
| 0.5 |
|
| |||||||||||||||||||
Loss on sale of assets and asset impairments |
|
| 1.5 |
|
|
| 0.4 |
|
|
| 0.7 |
|
|
| 0.5 |
|
| ||||||||||||||||||||
Restructuring charges, net |
|
| 0.3 |
|
|
| 0.0 |
|
|
| 0.3 |
|
|
| 0.0 |
|
| ||||||||||||||||||||
Income (loss) from operations |
|
| (5.0 | ) |
|
| 6.1 |
|
|
| (2.2 | ) |
|
| 0.0 |
|
| ||||||||||||||||||||
Total other income (expense) |
|
| (4.0 | ) |
|
| 0.5 |
|
|
|
| (1.9 | ) |
|
| (0.5 | ) |
|
|
| 0.3 |
|
|
| (4.0 | ) |
|
| (1.0 | ) |
|
| (1.9 | ) |
| ||
Income (loss) before income taxes |
|
| 2.1 |
|
|
| 3.7 |
|
|
|
| (1.9 | ) |
|
| 0.0 |
|
|
|
| (4.7 | ) |
|
| 2.1 |
|
|
| (3.2 | ) |
|
| (1.9 | ) |
| ||
Income tax benefit (provision) |
|
| 6.8 |
|
|
| (4.9 | ) |
|
|
| (0.1 | ) |
|
| (1.5 | ) |
|
|
| (1.7 | ) |
|
| 6.8 |
|
|
| (2.2 | ) |
|
| (0.1 | ) |
| ||
Net income (loss) |
|
| 8.9 |
| % |
|
| (1.2 | ) | % |
|
| (2.0 | ) | % |
|
| (1.5 | ) | % |
|
| (6.4 | ) | % |
| 8.9 |
| % |
| (5.4 | ) | % |
| (2.0 | ) | % |
Net sales
Consolidated discussion
The following table summarizes our net sales by productproduct/service for the three and nine months ended September 30, 20202021 and 2019 :2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
Wind blade sales |
| $ | 450,135 |
|
| $ | 352,202 |
|
| $ | 97,933 |
|
|
| 27.8 | % |
| $ | 1,134,535 |
|
| $ | 930,916 |
|
| $ | 203,619 |
|
|
| 21.9 | % |
| $ | 450,725 |
|
| $ | 450,135 |
|
| $ | 590 |
|
|
| 0.1 | % |
| $ | 1,248,608 |
|
| $ | 1,134,535 |
|
| $ | 114,073 |
|
|
| 10.1 | % |
Precision molding and assembly systems sales |
|
| 10,541 |
|
|
| 15,049 |
|
|
| (4,508 | ) |
|
| -30.0 | % |
|
| 24,198 |
|
|
| 39,176 |
|
|
| (14,978 | ) |
|
| -38.2 | % |
|
| 8,383 |
|
|
| 10,541 |
|
|
| (2,158 | ) |
|
| -20.5 | % |
|
| 30,913 |
|
|
| 24,198 |
|
|
| 6,715 |
|
|
| 27.8 | % |
Transportation sales |
|
| 7,007 |
|
|
| 8,061 |
|
|
| (1,054 | ) |
|
| -13.1 | % |
|
| 28,798 |
|
|
| 20,717 |
|
|
| 8,081 |
|
|
| 39.0 | % |
|
| 6,815 |
|
|
| 7,007 |
|
|
| (192 | ) |
|
| -2.7 | % |
|
| 29,861 |
|
|
| 28,798 |
|
|
| 1,063 |
|
|
| 3.7 | % |
Other sales |
|
| 6,430 |
|
|
| 8,524 |
|
|
| (2,094 | ) |
|
| -24.6 | % |
|
| 17,035 |
|
|
| 23,578 |
|
|
| (6,543 | ) |
|
| -27.8 | % |
|
| 13,676 |
|
|
| 6,430 |
|
|
| 7,246 |
|
|
| 112.7 | % |
|
| 33,738 |
|
|
| 17,035 |
|
|
| 16,703 |
|
|
| 98.1 | % |
Total net sales |
| $ | 474,113 |
|
| $ | 383,836 |
|
| $ | 90,277 |
|
|
| 23.5 | % |
| $ | 1,204,566 |
|
| $ | 1,014,387 |
|
| $ | 190,179 |
|
|
| 18.7 | % |
| $ | 479,599 |
|
| $ | 474,113 |
|
| $ | 5,486 |
|
|
| 1.2 | % |
| $ | 1,343,120 |
|
| $ | 1,204,566 |
|
| $ | 138,554 |
|
|
| 11.5 | % |
The increase in the net29
Net sales of wind blades was primarily driven by a 20% increase in the number of wind blades produced during the three months ended September 30, 20202021, as compared to the same period in 2019 as a result2020, were relatively flat. Net sales of increased production at our China, Mexico, Iowa and India facilities. This increase was also due towind blades during the three months ended September 30, 2021 were positively impacted by a higher average sales price due to the mix of wind blade models produced, duringan increase in the three months ended September 30, 2020 compared toyear over year number of wind blades still in the sameproduction process at the end of the period, in 2019. Net sales from the manufacturing of precision molding and assembly systems during the three months ended September 30, 2020 decreased by $4.5 million as compared to the same period in 2019.foreign currency fluctuations. Additionally, there was a $3.1 million decrease in transportation and otherwhen comparing our net sales during the three months ended September 30, 2021, against the comparable prior year period, our current year net sales were negatively impacted by the removal of five contracted manufacturing lines that expired in China at the end of 2020 as comparedwell as a further reduction of two contracted manufacturing lines in China in 2021, reduced production volumes resulting from certain of our customers’ challenges in procuring adequate supplies of resin and carbon, significant production delays that occurred at one of our Juarez, Mexico manufacturing facilities related to an ongoing transition, and a temporary shutdown of our Yangzhou manufacturing facility due to a COVID-19 outbreak in Yangzhou City, which was partially offset by the same periodadverse impact that the COVID-19 pandemic had on our net sales in 2019.the prior year period. The reasons set forth above were the primary drivers of the 20% decrease in the number of wind blades produced year over year. The fluctuating U.S. dollar against the Euro in our Turkey operations and the Chinese Renminbi in our China operations had a favorable impact of 0.7%0.3% on consolidated net sales for the three months ended September 30, 2021, as compared to the 2020 period.
The increase in net sales of wind blades during the nine months ended September 30, 2021, as compared to the same period in 2019. Although our net sales increased for the three months ended September 30, 2020, compared to the same period in 2019, we estimate that our net sales were adversely impacted by approximately $8 million, based upon 13 wind blade sets, which we had forecasted to produce in the period under non-cancellable purchase orders associated with our long-term contracts but were unable to do so as a result of the COVID-19 pandemic.
The increase in the net sales of wind blades was primarily driven by a 14% increase in the number of wind blades produced during the nine months ended September 30, 2020 compared to the same period in 2019 as a result of increased production at our China, Mexico, Iowa and India facilities. The increase was also due to a higher average sales price due to the mix of wind blade models produced during the nine months ended September 30, 2020 compared to the same period in 2019. Net sales from the manufacturing of precision molding and assembly systems during the nine months ended September 30, 2020 decreased by $15.0 million as compared to the same period in 2019. foreign currency fluctuations.
Additionally, there was a $1.5 million increase in transportation and otherwhen comparing our net sales during the nine months ended September 30, 2021, against the comparable prior year period, our current year net sales were negatively impacted by the removal of five contracted manufacturing lines that expired in China at the end of 2020 as comparedwell as a further reduction of two contracted manufacturing lines in China in 2021, reduced production volumes resulting from certain of our customers’ challenges in procuring adequate supplies of resin and carbon, and significant production delays that occurred at one of our Juarez, Mexico manufacturing facilities related to an ongoing transition, which was partially offset by the same periodadverse impact that the COVID-19 pandemic had on our net sales in 2019.the prior year period. The reasons set forth above, mostly offset by increased production at our India, Turkey and Mexico facilities were the primary drivers of the 3% decrease in the number of wind blades produced year over year. The fluctuating U.S. dollar against the Euro in our Turkey operations and the Chinese Renminbi in our China operations had an unfavorablea favorable impact of 0.1%1.2% on consolidated net sales for the nine months ended September 30, 20202021, as compared to 2019. Although our net sales increased for the nine months ended September 30, 2020 compared to the same periods in 2019, we estimate that our net sales were adversely impacted by approximately $142 million, based upon 342 wind blade sets, which we had forecasted to produce at our Mexico, China, Iowa, Turkey and India manufacturing facilities in the periods under non-cancellable purchase orders associated with our long-term contracts but were unable to do so as a result of the COVID-19 pandemic. The COVID-19 pandemic required these manufacturing facilities to either temporarily suspend production or operate at reduced production levels period.primarily during the first and second quarters of 2020 as a result of 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.
Segment discussion
The following table summarizes our net sales by our fourfive geographic operating segments for the three and nine months ended September 30, 20202021 and 2019 :2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
U.S. |
| $ | 46,799 |
|
| $ | 40,643 |
|
| $ | 6,156 |
|
|
| 15.1 | % |
| $ | 136,309 |
|
| $ | 122,129 |
|
| $ | 14,180 |
|
|
| 11.6 | % |
| $ | 47,702 |
|
| $ | 46,799 |
|
| $ | 903 |
|
|
| 1.9 | % |
| $ | 153,749 |
|
| $ | 136,309 |
|
| $ | 17,440 |
|
|
| 12.8 | % |
Asia |
|
| 163,458 |
|
|
| 108,114 |
|
|
| 55,344 |
|
|
| 51.2 | % |
|
| 400,513 |
|
|
| 261,531 |
|
|
| 138,982 |
|
|
| 53.1 | % |
|
| 51,869 |
|
|
| 163,458 |
|
|
| (111,589 | ) |
|
| -68.3 | % |
|
| 219,903 |
|
|
| 400,513 |
|
|
| (180,610 | ) |
|
| -45.1 | % |
Mexico |
|
| 161,563 |
|
|
| 117,690 |
|
|
| 43,873 |
|
|
| 37.3 | % |
|
| 363,233 |
|
|
| 297,717 |
|
|
| 65,516 |
|
|
| 22.0 | % |
|
| 200,332 |
|
|
| 161,563 |
|
|
| 38,769 |
|
|
| 24.0 | % |
|
| 461,961 |
|
|
| 363,233 |
|
|
| 98,728 |
|
|
| 27.2 | % |
EMEAI |
|
| 102,293 |
|
|
| 117,389 |
|
|
| (15,096 | ) |
|
| -12.9 | % |
|
| 304,511 |
|
|
| 333,010 |
|
|
| (28,499 | ) |
|
| -8.6 | % | ||||||||||||||||||||||||||||||||
EMEA |
|
| 129,444 |
|
|
| 83,640 |
|
|
| 45,804 |
|
|
| 54.8 | % |
|
| 347,160 |
|
|
| 260,138 |
|
|
| 87,022 |
|
|
| 33.5 | % | ||||||||||||||||||||||||||||||||
India |
|
| 50,252 |
|
|
| 18,653 |
|
|
| 31,599 |
|
|
| 169.4 | % |
|
| 160,347 |
|
|
| 44,373 |
|
|
| 115,974 |
|
| NM |
| |||||||||||||||||||||||||||||||||
Total net sales |
| $ | 474,113 |
|
| $ | 383,836 |
|
| $ | 90,277 |
|
|
| 23.5 | % |
| $ | 1,204,566 |
|
| $ | 1,014,387 |
|
| $ | 190,179 |
|
|
| 18.7 | % |
| $ | 479,599 |
|
| $ | 474,113 |
|
| $ | 5,486 |
|
|
| 1.2 | % |
| $ | 1,343,120 |
|
| $ | 1,204,566 |
|
| $ | 138,554 |
|
|
| 11.5 | % |
NM - not meaningful
U.S. Segment
The following table summarizes our net sales by productproduct/service for the U.S. segment for the three and nine months ended September 30, 2021 and 2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||||||||||||||||||||
Wind blade sales |
| $ | 35,154 |
|
| $ | 37,272 |
|
| $ | (2,118 | ) |
|
| -5.7 | % |
| $ | 114,208 |
|
| $ | 99,514 |
|
| $ | 14,694 |
|
|
| 14.8 | % |
Transportation sales |
|
| 3,621 |
|
|
| 6,206 |
|
|
| (2,585 | ) |
|
| -41.7 | % |
|
| 22,272 |
|
|
| 27,424 |
|
|
| (5,152 | ) |
|
| -18.8 | % |
Other sales |
|
| 8,927 |
|
|
| 3,321 |
|
|
| 5,606 |
|
|
| 168.8 | % |
|
| 17,269 |
|
|
| 9,371 |
|
|
| 7,898 |
|
|
| 84.3 | % |
Total net sales |
| $ | 47,702 |
|
| $ | 46,799 |
|
| $ | 903 |
|
|
| 1.9 | % |
| $ | 153,749 |
|
| $ | 136,309 |
|
| $ | 17,440 |
|
|
| 12.8 | % |
30
The decrease in the U.S. segment’s net sales of wind blades during the three months ended September 30, 2021, as compared to the same period in 2020, and 2019:was primarily due to a 9% decrease in the number of wind blades produced, primarily related to volume reductions in anticipation of the suspension of production at our Newton, Iowa facility by the end of 2021. This net sales decrease was partially offset by a higher average sales price of wind blade models produced in the two comparative periods.
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||
Wind blade sales |
| $ | 37,272 |
|
| $ | 25,857 |
|
| $ | 11,415 |
|
|
| 44.1 | % |
| $ | 99,514 |
|
| $ | 84,328 |
|
| $ | 15,186 |
|
|
| 18.0 | % |
Precision molding and assembly systems sales |
|
| — |
|
|
| 1,479 |
|
|
| (1,479 | ) |
| NM |
|
|
| — |
|
|
| 2,845 |
|
|
| (2,845 | ) |
| NM |
| ||
Transportation sales |
|
| 6,206 |
|
|
| 8,061 |
|
|
| (1,855 | ) |
|
| -23.0 | % |
|
| 27,424 |
|
|
| 20,717 |
|
|
| 6,707 |
|
|
| 32.4 | % |
Other sales |
|
| 3,321 |
|
|
| 5,246 |
|
|
| (1,925 | ) |
|
| -36.7 | % |
|
| 9,371 |
|
|
| 14,239 |
|
|
| (4,868 | ) |
|
| -34.2 | % |
Total net sales |
| $ | 46,799 |
|
| $ | 40,643 |
|
| $ | 6,156 |
|
|
| 15.1 | % |
| $ | 136,309 |
|
| $ | 122,129 |
|
| $ | 14,180 |
|
|
| 11.6 | % |
NM - not meaningful
The increase in the U.S. segment’s net sales of wind blades during the nine months ended September 30, 2021, as compared to the same period in 2020, was primarily due to a 7% increase in the number of wind blades produced, primarily due to the adverse impact of the COVID-19 pandemic in the prior year period, as well as a higher average sales price due to the mix of wind blade models produced in the two comparative periods as well as a 57% increase in the number of wind blades produced in the three months ended September 30, 2020 as compared to the same period in 2019. Net sales from the manufacturing of precision molding and assembly systems during the three months ended September 30, 2020 decreased by $1.5 million as compared to the same period in 2019. Additionally, there was a $3.8 million decrease in transportation and other sales during the three months ended September 30, 2020 as compared to the same period in 2019.periods.
The increase in the U.S. segment’s net sales of wind blades was primarily due to a higher average sales price due to the mix of wind blade models produced in the two comparative periods as well as a 17% increase in the number of wind blades produced in the nine months ended September 30, 2020 as compared to the same period in 2019. Although our U.S. net sales increased for the nine months ended September 30, 2020 compared to the same period in 2019, our U.S. net sales were adversely impacted due to reduced production levels at our U.S. manufacturing facilities due to the COVID-19 pandemic primarily during the second quarter of 2020. Net sales from the manufacturing of precision molding and assembly systems during the nine months ended September 30, 2020 decreased by $2.8 million as compared to the same period in 2019. Additionally, there was a $1.8 million increase in transportation and other sales during the nine months ended September 30, 2020 as compared to the same period in 2019.
Asia Segment
The following table summarizes our net sales by productproduct/service for the Asia segment for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
Wind blade sales |
| $ | 158,120 |
|
| $ | 98,406 |
|
| $ | 59,714 |
|
|
| 60.7 | % |
| $ | 385,536 |
|
| $ | 238,947 |
|
| $ | 146,589 |
|
|
| 61.3 | % |
| $ | 47,187 |
|
| $ | 158,120 |
|
| $ | (110,933 | ) |
|
| -70.2 | % |
| $ | 202,181 |
|
| $ | 385,536 |
|
| $ | (183,355 | ) |
|
| -47.6 | % |
Precision molding and assembly systems sales |
|
| 4,451 |
|
|
| 8,915 |
|
|
| (4,464 | ) |
|
| -50.1 | % |
|
| 13,088 |
|
|
| 20,856 |
|
|
| (7,768 | ) |
|
| -37.2 | % |
|
| 3,869 |
|
|
| 4,451 |
|
|
| (582 | ) |
|
| -13.1 | % |
|
| 15,467 |
|
|
| 13,088 |
|
|
| 2,379 |
|
|
| 18.2 | % |
Other sales |
|
| 887 |
|
|
| 793 |
|
|
| 94 |
|
|
| 11.9 | % |
|
| 1,889 |
|
|
| 1,728 |
|
|
| 161 |
|
|
| 9.3 | % |
|
| 813 |
|
|
| 887 |
|
|
| (74 | ) |
|
| -8.3 | % |
|
| 2,255 |
|
|
| 1,889 |
|
|
| 366 |
|
|
| 19.4 | % |
Total net sales |
| $ | 163,458 |
|
| $ | 108,114 |
|
| $ | 55,344 |
|
|
| 51.2 | % |
| $ | 400,513 |
|
| $ | 261,531 |
|
| $ | 138,982 |
|
|
| 53.1 | % |
| $ | 51,869 |
|
| $ | 163,458 |
|
| $ | (111,589 | ) |
|
| -68.3 | % |
| $ | 219,903 |
|
| $ | 400,513 |
|
| $ | (180,610 | ) |
|
| -45.1 | % |
The increasedecrease in the Asia segment’s net sales of wind blades reflectsduring the three months ended September 30, 2021, as compared to the same period in 2020, was primarily due to a 32%71% decrease in the number of wind blades produced, primarily due to the removal of five contracted manufacturing lines that expired in China at the end of 2020, a further reduction of contracted manufacturing lines in 2021 in China, and a temporary shutdown of our Yangzhou manufacturing facility due to a COVID-19 outbreak in Yangzhou City. Additionally, for the three months ended September 30, 2021, there was a decrease in the period over period number of wind blades still in the production process at the end of the period. The net increase in overall wind blade volume andsales decrease during the three months ended September 30, 2021 was partially offset 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. Net sales from the manufacturing of precision molding and assembly systems decreased by $4.5 million during the three months ended September 30, 2020 as compared to the same period in 2019.
The increasedecrease in the Asia segment’s net sales of wind blades during the nine months ended September 30, 2021, as compared to the same period in 2020, was primarily due to a 37% net increase49% decrease in the number of wind blades produced, 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 in China, which was partially offset by the adverse impact that the COVID-19 pandemic had on our net sales in the prior year period. The net sales decrease during the nine months ended September 30, 2020 as compared to the same period in 2019 and2021 was partially offset 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. AlthoughThe fluctuating U.S. dollar against the Chinese Renminbi in our AsiaChina operations had a favorable impact of 0.1% on consolidated net sales increased for the nine months ended September 30, 2020 compared to the same period in 2019, our Asia net sales were adversely impacted due to reduced production levels at our Asia manufacturing facilities due to the COVID-19 pandemic primarily during the first quarter of 2020. Net sales from the manufacturing of precision molding and assembly systems decreased by $7.8 million during the 2020 period2021, as compared to the same period in 2019.2020 period.
Mexico Segment
The following table summarizes our net sales by productproduct/service for the Mexico segment for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
Wind blade sales |
| $ | 153,575 |
|
| $ | 111,855 |
|
| $ | 41,720 |
|
|
| 37.3 | % |
| $ | 346,954 |
|
| $ | 278,685 |
|
| $ | 68,269 |
|
|
| 24.5 | % |
| $ | 191,499 |
|
| $ | 153,575 |
|
| $ | 37,924 |
|
|
| 24.7 | % |
| $ | 431,129 |
|
| $ | 346,954 |
|
| $ | 84,175 |
|
|
| 24.3 | % |
Precision molding and assembly systems sales |
|
| 6,090 |
|
|
| 4,655 |
|
|
| 1,435 |
|
|
| 30.8 | % |
|
| 11,110 |
|
|
| 15,475 |
|
|
| (4,365 | ) |
|
| -28.2 | % |
|
| 4,514 |
|
|
| 6,090 |
|
|
| (1,576 | ) |
|
| -25.9 | % |
|
| 15,446 |
|
|
| 11,110 |
|
|
| 4,336 |
|
|
| 39.0 | % |
Transportation sales |
|
| 801 |
|
|
| — |
|
|
| 801 |
|
| NM |
|
|
| 1,374 |
|
|
| — |
|
|
| 1,374 |
|
| NM |
|
|
| 3,194 |
|
|
| 801 |
|
|
| 2,393 |
|
| NM |
|
| 7,589 |
|
|
| 1,374 |
|
|
| 6,215 |
|
| NM |
| |||||
Other sales |
|
| 1,097 |
|
|
| 1,180 |
|
|
| (83 | ) |
|
| -7.0 | % |
|
| 3,795 |
|
|
| 3,557 |
|
|
| 238 |
|
|
| 6.7 | % |
|
| 1,125 |
|
|
| 1,097 |
|
|
| 28 |
|
|
| 2.6 | % |
|
| 7,797 |
|
|
| 3,795 |
|
|
| 4,002 |
|
|
| 105.5 | % |
Total net sales |
| $ | 161,563 |
|
| $ | 117,690 |
|
| $ | 43,873 |
|
|
| 37.3 | % |
| $ | 363,233 |
|
| $ | 297,717 |
|
| $ | 65,516 |
|
|
| 22.0 | % |
| $ | 200,332 |
|
| $ | 161,563 |
|
| $ | 38,769 |
|
|
| 24.0 | % |
| $ | 461,961 |
|
| $ | 363,233 |
|
| $ | 98,728 |
|
|
| 27.2 | % |
31
The increase in the Mexico segment’s net sales of wind blades reflects a 26% increase in overall wind blade volume and 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. Net sales from the manufacturing of precision molding and assembly systems during the three months ended September 30, 2020 increased by $1.4 million2021, as compared to the same period in 2019.
The increase in the Mexico segment’s net sales of wind blades2020, reflects a 17% net increase in overall wind blade volume, an increase in the average sales price of wind blades due to a change in the mix of wind blades produced in the two comparative periods and the Matamoros strike in 2019. Although our Mexico net sales increased for the nine months ended September 30, 2020 compared to the same period in 2019, our Mexico net sales were adversely impacted due to reduced production levels at our Mexico manufacturing facilities due to the COVID-19 pandemic primarily during the second quarter of 2020. Net sales from the manufacturing of precision molding and assembly systems during the nine months ended September 30, 2020 decreased by $4.4 million as compared to the sameover period in 2019.
EMEAI Segment
The following table summarizes our net sales by product for the EMEAI segment for the three and nine months ended September 30, 2020 and 2019:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||
Wind blade sales |
| $ | 101,168 |
|
| $ | 116,084 |
|
| $ | (14,916 | ) |
|
| -12.8 | % |
| $ | 302,531 |
|
| $ | 328,956 |
|
| $ | (26,425 | ) |
|
| -8.0 | % |
Other sales |
|
| 1,125 |
|
|
| 1,305 |
|
|
| (180 | ) |
|
| -13.8 | % |
|
| 1,980 |
|
|
| 4,054 |
|
|
| (2,074 | ) |
|
| -51.2 | % |
Total net sales |
| $ | 102,293 |
|
| $ | 117,389 |
|
| $ | (15,096 | ) |
|
| -12.9 | % |
| $ | 304,511 |
|
| $ | 333,010 |
|
| $ | (28,499 | ) |
|
| -8.6 | % |
The decrease in the EMEAI segment’s net sales of wind blades was driven by a 10% net decrease in wind blade volume primarily at our two Turkey manufacturing facilities due to transitions and a decrease in the year over year number of wind blades still in the production process at the end of the period. The decrease was partially offset byperiod, as well as an increase in the average sales price of wind blades due to the mix of wind blades produced in the two comparative periods and foreign currency fluctuations. The fluctuating U.S. dollar relative to the Euro had a favorable impact of 3.2% onperiods. These net sales during the three months ended September 30, 2020 as compared to 2019.
Theincreases were partially offset by a 17% net decrease in overall wind blade volume, primarily due to significant production delays that occurred at one of our Juarez, Mexico manufacturing facilities related to customer supplied specialized equipment and supply constraints affecting carbon in connection with the EMEAIongoing transition to an innovative new blade for one of our customers and production delays resulting from one of our customer's challenges in procuring adequate supplies of carbon at one of our Matamoros, Mexico manufacturing facilities.
The increase in the Mexico segment’s net sales of wind blades was driven byduring the nine months ended September 30, 2021, as compared to the same period in 2020, reflects a 14%5% net decreaseincrease in overall wind blade productionvolume, primarily at our two Turkey manufacturing facilities due to transitions and reduced production levels at these manufacturing facilities due to the adverse impact of the COVID-19 pandemic primarily duringin the second quarter of 2020. The decrease wasprior year period partially offset by the production delays described above, an increase in the average sales price of wind blades delivered in the comparative periods and an increase in the yearperiod over yearperiod number of wind blades still in the production process at the end of the period.period, as well as an increase in the average sales price of wind blades due to the mix of wind blades produced in the two comparative periods.
EMEA Segment
The following table summarizes our net sales by product/service for the EMEA segment for the three and nine months ended September 30, 2021 and 2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||||||||||||||||||||
Wind blade sales |
| $ | 126,705 |
|
| $ | 82,550 |
|
| $ | 44,155 |
|
|
| 53.5 | % |
| $ | 340,933 |
|
| $ | 258,193 |
|
| $ | 82,740 |
|
|
| 32.0 | % |
Other sales |
|
| 2,739 |
|
|
| 1,090 |
|
|
| 1,649 |
|
|
| 151.3 | % |
|
| 6,227 |
|
|
| 1,945 |
|
|
| 4,282 |
|
| NM |
| |
Total net sales |
| $ | 129,444 |
|
| $ | 83,640 |
|
| $ | 45,804 |
|
|
| 54.8 | % |
| $ | 347,160 |
|
| $ | 260,138 |
|
| $ | 87,022 |
|
|
| 33.5 | % |
The increase in the EMEA segment’s net sales of wind blades during the three and nine months ended September 30, 2021, as compared to the same periods in 2020, was driven by a 32% and 20% increase in wind blade production at our two Turkey plants, respectively, primarily due to transitions and the adverse impact of the COVID-19 pandemic in the prior year, 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 resulting from one of our customer's challenges in procuring adequate supplies of resin and carbon. The fluctuating U.S. dollar relative to the Euro had an unfavorablea favorable impact of 0.2%1.0% and 4.5% on net sales during the three and nine months ended September 30, 20202021, respectively, as compared to the 2019 period.2020 periods.
India Segment
The following table summarizes our net sales by product/service for the India segment for the three and nine months ended September 30, 2021 and 2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
| |||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change | |||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % | |||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
| |||||||||||||||||||
Wind blade sales |
| $ | 50,180 |
|
| $ | 18,618 |
|
| $ | 31,562 |
|
|
| 169.5 | % |
| $ | 160,157 |
|
| $ | 44,338 |
|
| $ | 115,819 |
|
| NM |
Other sales |
|
| 72 |
|
|
| 35 |
|
|
| 37 |
|
|
| 105.7 | % |
|
| 190 |
|
|
| 35 |
|
|
| 155 |
|
| NM |
Total net sales |
| $ | 50,252 |
|
| $ | 18,653 |
|
| $ | 31,599 |
|
|
| 169.4 | % |
| $ | 160,347 |
|
| $ | 44,373 |
|
| $ | 115,974 |
|
| NM |
The increase in the India segment’s net sales of wind blades during the three and nine months ended September 30, 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.
32
Total cost of goods sold
The following table summarizes our total cost of goods sold for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
Cost of sales |
| $ | 425,064 |
|
| $ | 335,778 |
|
| $ | 89,286 |
|
|
| 26.6 | % |
| $ | 1,141,183 |
|
| $ | 904,135 |
|
| $ | 237,048 |
|
|
| 26.2 | % |
| $ | 472,188 |
|
| $ | 425,064 |
|
| $ | 47,124 |
|
|
| 11.1 | % |
| $ | 1,295,660 |
|
| $ | 1,141,183 |
|
| $ | 154,477 |
|
|
| 13.5 | % |
Startup and transition costs |
|
| 8,576 |
|
|
| 22,127 |
|
|
| (13,551 | ) |
|
| -61.2 | % |
|
| 31,530 |
|
|
| 63,206 |
|
|
| (31,676 | ) |
|
| -50.1 | % | ||||||||||||||||||||||||||||||||
Startup costs |
|
| 4,521 |
|
|
| 5,142 |
|
|
| (621 | ) |
|
| -12.1 | % |
|
| 13,577 |
|
|
| 19,895 |
|
|
| (6,318 | ) |
|
| -31.8 | % | ||||||||||||||||||||||||||||||||
Transition costs |
|
| 10,020 |
|
|
| 3,434 |
|
|
| 6,586 |
|
|
| 191.8 | % |
|
| 25,417 |
|
|
| 11,635 |
|
|
| 13,782 |
|
|
| 118.5 | % | ||||||||||||||||||||||||||||||||
Total startup and transition |
|
| 14,541 |
|
|
| 8,576 |
|
|
| 5,965 |
|
|
| 69.6 | % |
|
| 38,994 |
|
|
| 31,530 |
|
|
| 7,464 |
|
|
| 23.7 | % | ||||||||||||||||||||||||||||||||
Total cost of goods sold |
| $ | 433,640 |
|
| $ | 357,905 |
|
| $ | 75,735 |
|
|
| 21.2 | % |
| $ | 1,172,713 |
|
| $ | 967,341 |
|
| $ | 205,372 |
|
|
| 21.2 | % |
| $ | 486,729 |
|
| $ | 433,640 |
|
| $ | 53,089 |
|
|
| 12.2 | % |
| $ | 1,334,654 |
|
| $ | 1,172,713 |
|
| $ | 161,941 |
|
|
| 13.8 | % |
% of net sales |
|
| 91.5 | % |
|
| 93.2 | % |
|
|
|
|
|
| -1.7 | % |
|
| 97.4 | % |
|
| 95.4 | % |
|
|
|
|
|
| 2.0 | % |
|
| 101.5 | % |
|
| 91.5 | % |
|
|
|
| 10.0 | % |
|
| 99.4 | % |
|
| 97.4 | % |
|
|
|
| 2.0 | % |
Total cost of goods sold for the three months ended September 30, 2020 was $433.6 million and included $5.2 million related to lines in startup and $3.4 million of transition costs related to lines in transition during the quarter. This compares to total cost of goods sold for the three months ended September 30, 2019 of $357.9 million and included $13.1 million related to lines in startup and $9.0 million of transition costs related to lines in transition during the quarter. Total cost of goods sold as a percentage of net sales decreasedincreased by approximately 2%ten percentage points during the three months ended September 30, 20202021, as compared to the same period in 2019,2020, driven primarily by the decreaseincreases in direct materials, the impact of savings in raw material costs, the decrease in startup and transitiondirect labor costs and foreign currency fluctuations. The significant production delays that occurred at the Matamoros, Mexico manufacturing facility, which we took over from Nordex in July 2021, during the three months ended September 30, 2021 were a major contributor to this increase. The fluctuating U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso had a favorablean unfavorable impact of 1.1%0.5% on consolidated cost of goods sold for the three months ended September 30, 20202021 as compared to the same period in 2019.2020 period.
Total cost of goods sold for the nine months ended September 30, 2020 was $1,172.7 million and included $19.9 million related to lines in startup and $11.6 million of transition costs related to the lines in transition during the period. This compares to total cost of goods sold for the nine months ended September 30, 2019 of $967.3 million and included $43.9 million related to lines in startup and $19.3 million of transition costs related to lines in transition during the period. Cost of goods sold as a percentage of net sales increased by approximately 2%two percentage points during the nine months ended September 30, 20202021, as compared to the same period in 2019,2020, driven primarily by thean increase in warrantydirect material costs primarily relating to a remediation campaign for a specific wind blade model for one of our customers, and COVID-19 related costs associated with the health and safety of our associates and non-productive labor,foreign currency fluctuations, partially offset by a decrease in startup and transition costs, the impact of savings in raw material costs and foreign currency fluctuations.warranty costs. The fluctuating U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso had a favorablean unfavorable impact of 2.0%1.2% on consolidated cost of goods sold for the nine months ended September 30, 20202021, as compared to 2019.the 2020 period.
General and administrative expenses
The following table summarizes our general and administrative expenses for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
|
|
| |||||||||||||||||||||||||||||||||||||||||
General and administrative expenses |
| $ | 9,263 |
|
| $ | 10,608 |
|
| $ | (1,345 | ) |
|
| -12.7 | % |
| $ | 25,646 |
|
| $ | 27,801 |
|
| $ | (2,155 | ) |
|
| -7.8 | % |
| $ | 8,185 |
|
| $ | 9,263 |
|
| $ | (1,078 | ) |
|
| -11.6 | % |
| $ | 23,819 |
|
| $ | 25,646 |
|
| $ | (1,827 | ) |
|
| -7.1 | % |
% of net sales |
|
| 2.0 | % |
|
| 2.8 | % |
|
|
|
|
|
| -0.8 | % |
|
| 2.1 | % |
|
| 2.7 | % |
|
|
|
|
|
| -0.6 | % |
|
| 1.7 | % |
|
| 2.0 | % |
|
|
|
| -0.3 | % |
|
| 1.8 | % |
|
| 2.1 | % |
|
|
|
| -0.3 | % |
The decrease in general and administrative expenses as a percentage of net sales in both periods of 2020for the three and nine months ended September 30, 2021, as compared to the same periods in 2019 was2020, were primarily driven by lower travel and training costs due to the COVID-19 pandemic. our continued focus on reducing costs.
Realized lossLoss on sale of assets and asset impairments
The following table summarizes our realizedincrease in the loss on sale of assets and asset impairments for the three and nine months ended September 30, 2020 and 2019:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||
Realized loss on sale of assets and asset impairments |
| $ | 2,160 |
|
| $ | 3,354 |
|
| $ | (1,194 | ) |
|
| -35.6 | % |
| $ | 5,518 |
|
| $ | 10,561 |
|
| $ | (5,043 | ) |
|
| -47.8 | % |
% of net sales |
|
| 0.5 | % |
|
| 0.9 | % |
|
|
|
|
|
| -0.4 | % |
|
| 0.5 | % |
|
| 1.0 | % |
|
|
|
|
|
| -0.5 | % |
The decrease in the realized loss on sale of assets and asset impairments for the three months ended September 30, 2020 was primarily the result of lower realized losses on the sale of receivables under supply chain financing arrangements with our customers in the current year period due to decreasing interest rates2021, as compared to the equivalent prior year period.same periods in 2020, were primarily driven by asset impairment charges of $5.9 million incurred at our Newton, Iowa blade facility related to the plant's expected shutdown at the end of the year.
Restructuring costs, net
The decreaseincrease in the realized loss on sale of assets and asset impairmentsrestructuring costs, net for the three and nine months ended September 30, 2020 was primarily due to $5.0 million of realized losses on the sale of assets at our corporate and manufacturing facilities in the 2019 period as compared to $0.8 million of such losses in the 2020 period, as well as the result of lower realized losses on the sale of receivables under supply chain financing arrangements with our customers in the current year period due to decreasing interest rates2021, as compared to the equivalent prior year period.same periods in 2020, were associated with the optimization of our global footprint, comprised of $1.4 million and $3.9 million, respectively, of
33
Restructuring charges (reversals), net
Restructuring charges forseverance benefits to terminated employees. We expect that all of the three months ended September 30, 2020 totaled $0.1 million compared to a reversal of $0.1 million for the same period in 2019. The 2019 reversal relatedseverance benefits will be paid to the wind downterminated employees by the end of our Fall River, Massachusetts facility.November 2021.
Restructuring charges for the nine months ended September 30, 2020 totaled $0.3 million compared to $3.7 million for the same period in 2019. The 2019 restructuring costs primarily related to the closing and moving of our Taicang City, China tooling facility to our Taicang Port, China facility.
Income (loss) from operations
Segment discussion
The following table summarizes our income (loss) from operations by our fourfive geographic operating segments for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
| ||||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||||||||||||||||||||||||||||||||||||||||
U.S. |
| $ | (6,360 | ) |
| $ | (17,510 | ) |
| $ | 11,150 |
|
|
| 63.7 | % |
| $ | (33,991 | ) |
| $ | (54,235 | ) |
| $ | 20,244 |
|
|
| 37.3 | % |
| $ | (24,598 | ) |
| $ | (6,360 | ) |
| $ | (18,238 | ) |
| NM |
| $ | (36,070 | ) |
| $ | (33,991 | ) |
| $ | (2,079 | ) |
|
| -6.1 | % | ||
Asia |
|
| 25,779 |
|
|
| 13,448 |
|
|
| 12,331 |
|
|
| 91.7 | % |
|
| 49,343 |
|
|
| 4,779 |
|
|
| 44,564 |
|
| NM |
|
|
| (3,607 | ) |
|
| 25,779 |
|
|
| (29,386 | ) |
|
| -114.0 | % |
|
| 7,207 |
|
|
| 49,343 |
|
|
| (42,136 | ) |
|
| -85.4 | % | |
Mexico |
|
| 11,986 |
|
|
| (4,954 | ) |
|
| 16,940 |
|
| NM |
|
|
| (1,106 | ) |
|
| (1,258 | ) |
|
| 152 |
|
|
| 12.1 | % |
|
| (3,802 | ) |
|
| 11,986 |
|
|
| (15,788 | ) |
|
| -131.7 | % |
|
| (33,082 | ) |
|
| (1,106 | ) |
|
| (31,976 | ) |
| NM |
| ||
EMEAI |
|
| (2,400 | ) |
|
| 21,134 |
|
|
| (23,534 | ) |
|
| -111.4 | % |
|
| (13,900 | ) |
|
| 55,673 |
|
|
| (69,573 | ) |
|
| -125.0 | % | ||||||||||||||||||||||||||||||||
Total income from operations |
| $ | 29,005 |
|
| $ | 12,118 |
|
| $ | 16,887 |
|
|
| 139.4 | % |
| $ | 346 |
|
| $ | 4,959 |
|
| $ | (4,613 | ) |
|
| -93.0 | % | ||||||||||||||||||||||||||||||||
EMEA |
|
| 9,423 |
|
|
| 1,795 |
|
|
| 7,628 |
|
| NM |
|
| 29,993 |
|
|
| 3,314 |
|
|
| 26,679 |
|
| NM |
| |||||||||||||||||||||||||||||||||||
India |
|
| (1,403 | ) |
|
| (4,195 | ) |
|
| 2,792 |
|
|
| 66.6 | % |
|
| 2,725 |
|
|
| (17,214 | ) |
|
| 19,939 |
|
|
| 115.8 | % | ||||||||||||||||||||||||||||||||
Total income (loss) |
| $ | (23,987 | ) |
| $ | 29,005 |
|
| $ | (52,992 | ) |
|
| -182.7 | % |
| $ | (29,227 | ) |
| $ | 346 |
|
| $ | (29,573 | ) |
| NM |
| |||||||||||||||||||||||||||||||||
% of net sales |
|
| 6.1 | % |
|
| 3.2 | % |
|
|
|
|
|
| 2.9 | % |
|
| 0.0 | % |
|
| 0.5 | % |
|
|
|
|
|
| -0.5 | % |
|
| -5.0 | % |
|
| 6.1 | % |
|
|
|
| -11.1 | % |
|
| -2.2 | % |
|
| 0.0 | % |
|
|
|
| -2.2 | % |
U.S. Segment
The decreaseincrease in the loss from operations in the U.S. segment for the three months ended September 30, 20202021, as compared to the same period in 20192020, was primarily due to the decreased costs related to the shutdown of our Newton, Iowa transportation facility, the decrease in transitionwind blade volume, an increase in direct material and direct labor costs and impairment charges incurred at our Newton, Iowa blade facility a decrease in direct material costs, andrelated to the increase in wind blade volume andsuspension of production by the end of 2021, partially offset by an increase in the average sales price of wind blades noted above.produced.
The decreaseincrease in the loss from operations in the U.S. segment for the nine months ended September 30, 20202021, as compared to the same period in 20192020, was primarily due to the decreasedan increase in direct material costs related to the shutdown of our Newton, Iowa transportation facility and the decrease in transition costsimpairment charges incurred at our Newton, Iowa blade facility related to the increase in wind blade volume and increase insuspension of production by the average sales
priceend of wind blades noted above,2021, partially offset by increased direct material and direct labor costs and at our Newton, Iowa blade facility. Although our U.S. loss from operations decreased for the nine months ended September 30, 2020 compared to the same period in 2019, our income from operations for the nine months ended September 30, 2020 was adversely impacted due to reduced production levels at our U.S. blade manufacturing facility due to the COVID-19 pandemic during the second quarter of 2020 and COVID-19 related costs associated with the health and safety of our associates and non-productive labor.
Asia Segment
The increase in the income from operations in the Asia segment for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the net increase in overall wind blade volume, an increase in the average sales price of wind blades noted above, a decrease in startup and transition costs, and lower direct labor costs, partially offset by increased direct material costs due to a change in the mix of wind blade models produced in the two periods. The fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact of 1.3% on cost of goods sold for the three months ended September 30, 2020 as compared to the same period in 2019.
The increase in the income from operations in the Asia segment for the nine months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the net increase in overall wind blade volume, an increase in the average sales price of wind blades noted above, a decrease in the startup and transition costs, foreign currency fluctuations and lower direct labor costs. The fluctuating U.S. dollar against the Chinese Renminbi had a favorable impact of 1.2% on cost of goods sold for the nine months ended September 30, 2020 as compared to the 2019 period. Although our Asia income from operations increased for the nine months ended September 30, 2020 compared to the same period in 2019, our income from operations was adversely impacted due to reduced production levels at our Asia manufacturing facilities due to the COVID-19 pandemic during the first quarter of 2020 and COVID-19 related costs associated with the health and safety of our associates and non-productive labor.
Mexico Segment
The increase in the income from operations in the Mexico segment for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the net increase in overall wind blade volume, an increase in the average sales price of wind blades noted above, a decrease in the startup and transition costs, foreign currency fluctuations, savings in raw material costs and lower direct labor costs. The fluctuating U.S. dollar relative to the Mexican Peso had a favorable impact of 2.0% on cost of goods sold for the three months ended September 30, 2020 as compared to 2019.
The slight decrease in the loss from operations in the Mexico segment for the nine months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the overall increase in wind blade volume, an increase in the average sales price of wind blades noted above, decreasedproduced and a decrease in direct labor costs.
Asia Segment
The decrease in the income from operations in the Asia segment for the three and nine months ended September 30, 2021, as compared to the same periods in 2020, was primarily due to the decrease in the net sales of wind blades, an increase in direct material costs and foreign currency fluctuations. The fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact of 4.9% and 5.9% on cost of goods sold for the three and nine months ended September 30, 2021, respectively, as compared to the 2020 periods.
Mexico Segment
The increase in the loss from operations in the Mexico segment for the three and nine months ended September 30, 2021, as compared to the same periods in 2020, was primarily due to an increase in direct material costs and startup and transition costs foreign currency fluctuations as well as from savings in raw material costs. These increases were mostlyrelated to the Matamoros and Juarez, Mexico production delays described above, partially offset by an increase in the reducedperiod over period number of wind blades still in the production levelsprocess at our Mexico manufacturing facilities duethe end of the period, an increase in the average sales price of wind blades, and a decrease in warranty costs as compared to the COVID-19 pandemic during the second quarter of 2020 and COVID-19 related costs associated with the health and safety of our associates and non-productive labor.periods. The fluctuating U.S. dollar relative to the Mexican Peso had a favorablean unfavorable impact of 2.1%1.5% and 1.2% on cost of goods sold for the three and nine months ended September 30, 20202021, respectively, as compared to 2019.the 2020 periods.
EMEAIEMEA Segment
The increase in the lossincome from operations in the EMEAIEMEA segment for the three and nine months ended September 30, 20202021, as compared to the same periodperiods in 20192020, was primarily driven by the decreasedincreased wind blade production at our two Turkey manufacturing facilities increasedand an increase in the average sales price of wind blades produced. In addition, for the three and nine months ended September 30, 2021, there was a decrease in startup and transition costs at one of our Turkey manufacturing facilities, and increased startupan increase in direct material costs at our India manufacturing facility, partially offset by favorable foreign currency fluctuations.as compared to the 2020 period. Additionally, for the nine months ended September 30, 2021, there was a decrease in warranty costs as compared to the
34
2020 period. The fluctuating U.S. dollar relative to the Turkish Lira and Euro had aan favorable impact of 3.4%2.8% and 0.9% on cost of goods sold for the three and nine months ended September 30, 20202021, respectively, as compared to 2019.the 2020 periods.
India Segment
The increasedecrease in the loss from operations in the EMEAIIndia segment for the three and nine months ended September 30, 20202021, as compared to the same periodperiods in 20192020, was primarily driven by increased warranty costs, decreased wind bladethe commencement of production at our two Turkey manufacturing facilities due to the COVID-19 pandemic during the second quarter of 2020 and COVID-19 related costs associated with the health and safety of our associates and non-productive labor, the increased startup costs at our India manufacturing facility and transition costs atfor one of our Turkey manufacturing facilities, partially offset by favorable foreign currency fluctuations. The fluctuating U.S. dollar relative tocustomers in 2020, and the Turkish Lira and Euro had a favorable impactramp up of 3.5% on cost of goods sold for the nine months ended September 30, 2020 as compared to 2019.such production in 2021.
Other income (expense)
The following table summarizes our total other income (expense) for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||
Interest income |
| $ | 15 |
|
| $ | 43 |
|
| $ | (28 | ) |
|
| -65.1 | % |
| $ | 55 |
|
| $ | 125 |
|
| $ | (70 | ) |
|
| -56.0 | % |
Interest expense |
|
| (3,108 | ) |
|
| (2,130 | ) |
|
| (978 | ) |
|
| -45.9 | % |
|
| (7,464 | ) |
|
| (6,403 | ) |
|
| (1,061 | ) |
|
| -16.6 | % |
Realized gain (loss) on foreign currency remeasurement |
|
| (17,127 | ) |
|
| 3,719 |
|
|
| (20,846 | ) |
| NM |
|
|
| (18,095 | ) |
|
| (1,050 | ) |
|
| (17,045 | ) |
| NM |
| ||
Miscellaneous income |
|
| 1,259 |
|
|
| 517 |
|
|
| 742 |
|
|
| 143.5 | % |
|
| 2,893 |
|
|
| 2,235 |
|
|
| 658 |
|
|
| 29.4 | % |
Total other income (expense) |
| $ | (18,961 | ) |
| $ | 2,149 |
|
| $ | (21,110 | ) |
| NM |
|
| $ | (22,611 | ) |
| $ | (5,093 | ) |
| $ | (17,518 | ) |
| NM |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| September 30, |
|
| Change |
|
| September 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||||||||||||||||||||
Interest expense, net |
| $ | (2,662 | ) |
| $ | (3,093 | ) |
| $ | 431 |
|
|
| 13.9 | % |
| $ | (8,057 | ) |
| $ | (7,409 | ) |
| $ | (648 | ) |
|
| -8.7 | % |
Foreign currency income |
|
| 3,958 |
|
|
| (17,127 | ) |
|
| 21,085 |
|
|
| 123.1 | % |
|
| (6,273 | ) |
|
| (18,095 | ) |
|
| 11,822 |
|
|
| 65.3 | % |
Miscellaneous income |
|
| 262 |
|
|
| 1,259 |
|
|
| (997 | ) |
|
| -79.2 | % |
|
| 1,322 |
|
|
| 2,893 |
|
|
| (1,571 | ) |
|
| -54.3 | % |
Total other income |
| $ | 1,558 |
|
| $ | (18,961 | ) |
| $ | 20,519 |
|
|
| 108.2 | % |
| $ | (13,008 | ) |
| $ | (22,611 | ) |
| $ | 9,603 |
|
|
| 42.5 | % |
The increasedecrease in the total other expense in bothfor the three and nine months ended September 30, 2021, as compared to the same periods ofin 2020, was primarily due to increasesa decrease in realized losses onthe foreign currency remeasurementloss primarily due to net Euro liability exposure against the Turkish Lira in the current year periods as compared to the same periods in 2019.2020.
Income taxes
The following table summarizes our income taxes for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
| |||||||||||||||||||||||||||||
|
| September 30, |
|
| Change |
| September 30, |
|
| Change |
|
| September 30, |
| Change |
|
| September 30, |
| Change | ||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
| 2020 |
| $ |
| % |
|
| 2021 |
| 2020 |
| $ |
| % | ||||||||||||||||||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||
Income tax benefit (provision) |
| $ | 32,338 |
|
| $ | (18,838 | ) |
| $ | 51,176 |
|
| NM |
| $ | (1,946 | ) |
| $ | (14,713 | ) |
| $ | 12,767 |
|
|
| 86.8 | % |
| $ | (8,248 | ) |
| $ | 32,338 |
|
| $ | (40,586 | ) |
|
| -125.5 | % |
| $ | (30,036 | ) |
| $ | (1,946 | ) |
| $ | (28,090 | ) |
| NM |
Effective tax rate |
|
| 322.0 | % |
|
| -132.0 | % |
|
|
|
|
|
|
|
| 8.7 | % |
| NM |
|
|
|
|
|
|
|
|
|
|
| -36.8 | % |
|
| -322.0 | % |
|
|
|
|
|
| -71.1 | % |
|
| -8.7 | % |
|
|
|
The decrease in the provision during the three and nine months ended September 30, 2020 was primarily dueSee Note 9, Income Taxes, to the impact of a change in the forecasted annual effective tax rates and the earnings mix by jurisdiction in 2020 as compared to 2019. The forecasted effective tax rateour condensed consolidated financial statements for the current year differs from the U.S. statutorymore details about our income tax rate primarily due to earnings in foreign jurisdictions with income tax rates that exceed the U.S. statutory income tax rate, losses incurred by an entity in a tax-free zone, and the establishment of a full valuation allowance on U.S. deferred items.
Net income (loss)
The following table summarizes our net income (loss)taxes for the three and nine months ended September 30, 20202021 and 2019:2020.
|
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Change |
| September 30, |
|
| Change |
| |||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||
Net income (loss) |
| $ | 42,382 |
|
| $ | (4,571 | ) |
| $ | 46,953 |
|
| NM |
| $ | (24,211 | ) |
| $ | (14,847 | ) |
| $ | (9,364 | ) |
|
| -63.1 | % |
The increase in the net income for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the reasons set forth above. In addition, we estimateLIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources were adversely affected by certain events that our net incomeoccurred during the three months ended September 30, 2020 was2021. 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 an innovative new blade for one of our customers. Although we expect that production will be stabilized in both of these manufacturing facilities by the end of the year, we expect that these transitions will continue to have an adverse impact on our liquidity for the remainder of the year. We also expect decreased demand for our wind blades from our customers during the remainder of 2021 and 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 impacted by approximately $2 million, netimpact our profitability and liquidity for the remainder of taxes based upon the forecasted gross margin on the wind blade sets we had forecasted to produce2021 and 2022.
We were not in the period under non-cancellable purchase orders associatedcompliance with our long-term contracts but were unable to do soTotal Net Leverage Ratio financial covenant as a result of the COVID-19 pandemic. In addition, during the period we incurred $4 million, net of taxes, of COVID-19 related costs associated with the health and safety of our associates and non-productive labor. The diluted net income per share was $1.13 for the three months ended September 30, 2020, compared to a diluted net loss per share of $0.13 for the three months ended September 30, 2019.
The increase in the net loss for the nine months ended September 30, 2020 as compared to the same period in 2019 was2021, primarily due to the reasons set forthMexico production delays and increased raw material costs and constraints described above. In addition,On November 8, 2021 (the Waiver Effective Date), we estimateand the lenders that are parties to the Credit Agreement executed a limited waiver pursuant to which the lenders
35
agreed to temporarily waive our net loss duringcompliance with this financial covenant from the nine months ended September 30, 2020 was adversely impacted by approximately $21Waiver Effective Date through December 8, 2021. We also must maintain domestic U.S. cash of at least $20.0 million netand global available liquidity of taxes, based uponat least $50.0 million as of the forecasted gross marginclose of business on each Friday commencing as of November 5, 2021 through the wind blade setsmaturity date of the Credit Agreement. From and after the Waiver Effective Date, we may not allow any of our subsidiaries that are not loan parties to the Credit Agreement to incur any additional indebtedness and we may not make any investment in any of its subsidiaries that are not loan parties to the Credit Agreement in an aggregate amount greater than $5.0 million. We had forecasted$68.3 million of domestic U.S cash and $132.9 million of global available liquidity as of October 29, 2021.
Given these near-term liquidity challenges, on November 8, 2021, we entered into the Purchase Agreement pursuant to produce atwhich we agreed to issue and sell to the Purchasers 350,000 shares of our Mexico, China, Iowa, Turkey and India manufacturing facilitiesnewly designated Series A Preferred Stock, par value $0.01 per share, for an aggregate purchase price of $350.0 million. We expect the closing of this equity financing transaction to occur in the period under non-cancellable purchase orders associated with our long-term contracts but were unablefourth quarter of 2021 and intend to do so as a resultuse the net proceeds from the issuance and sale of the COVID-19 pandemic. The COVID-19 pandemic required these manufacturing facilitiesSeries A Preferred Stock to either 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. In addition, during the period we incurred $11 million, net of taxes, of COVID-19 related costs associated with the health and safety of our associates and non-productive labor. The diluted net loss per share was $0.68 for the nine months ended September 30, 2020, compared to a diluted net loss per share of $0.42 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
As a result of the uncertainty relating to: (i) the rapidly evolving nature, magnitude and duration of the COVID-19 pandemic, (ii) the variety of measures implemented by governments around the world to address its effects and (iii) the impact on our manufacturing operations, we are managing our liquidity to ensure our long-term viability until the COVID-19 pandemic abates. During the nine months ended September 30, 2020, we had net borrowings of $72.8 millionrepay all outstanding indebtedness under our Credit Agreement. In addition,Agreement and the remainder for general corporate purposes. We also may elect at our option to require Oaktree 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 nine months ended September 30, 2020, we entered into or amended four unsecured credit agreements with four Turkishtwo-year period following the Closing Date.
See Note 15, Subsequent Events, to our condensed consolidated financial institutions resulting in net borrowings of $31.2 millionstatements for more details on the limited waiver and current availability of $44.0 million.the Purchase Agreement.
Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, new facility startup costs, the impact of transitions, working capital, debt service costs, warranty costs and warranty costs.restructuring costs associated with the optimization of our global footprint. Our capital expenditures have been primarily related to machinery and equipment forat our new facilities or facility expansions.and expansion and improvements at our existing facilities. 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 borrowingsproceeds under our financing arrangements of $96.5$43.1 million for the nine months ended September 30, 20202021 as compared to net repaymentsproceeds under our financing arrangements of $0.2$96.5 million in the comparable period of 2019.2020. As of September 30, 20202021 and December 31, 2019,2020, we had $238.7$262.8 million and $142.1$217.9 million in outstanding indebtedness, excluding debt issuance costs, respectively. As of September 30, 2020,2021, we had an aggregate of $88.0$103.6 million of remaining capacity and $71.4$66.2 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.increased, as well as increased raw material costs primarily related to resin, carbon fiber and logistics. Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities, the anticipated net proceeds from the preferred equity financing described above, which we believe is probable, and cash flowflows from operations will be adequate to fund our working capital and capital expenditure requirements and to make required payments of principal and interest on our indebtedness over the next twelve months.
We anticipate that any new facilities and future facility expansions will be funded through cash flows from operations, the incurrence of other indebtedness and other potential sources of liquidity. At September 30, 20202021 and December 31, 2019,2020, we had unrestricted cash, cash equivalents and short-term investments totaling $149.4$119.0 million and $70.3$129.9 million, respectively. The September 30, 20202021 balance includes $73.4$48.5 million of cash located outside of the United States, including $47.2$20.7 million in China, $18.8$17.9 million in Turkey, $6.2$7.3 million in India, $1.0$1.9 million in Mexico and $0.2$0.7 million in other countries. In February 2020, we entered into an Incremental Facility Agreement with the current lenders to our Credit Agreement and an additional lender, pursuant to which the aggregate principal amount of our revolving credit facility under the Credit Agreement was increased from $150.0 million to $205.0 million.
Our ability to repatriate funds from China to the United States is subject to a number of restrictions imposed by the Chinese government. We repatriate funds through several technology license and corporate/administrative service agreements. We are compensated quarterly based on agreed upon royalty rates for such intellectual property licenses and quarterly fees for those services. Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($26.526.6 million as of September 30, 2021 and December 31, 2019)2020) of registered capital is contributed to a surplus reserve, our ChineseChina 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 ChineseChina operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At September 30, 2021 and December 31, 2019,2020, the amount of the surplus reserve fund was $6.6 million. $9.4 million and $7.0 million, respectively. In July 2021, China paid a dividend of approximately $19.5 million, net of withholding taxes, to our subsidiary in Switzerland.
36
Financing Facilities
Our total principal amount of debt outstanding as of September 30, 2021 was $262.8 million, including our Credit Agreement, secured and unsecured financing, working capital and term loan agreements and equipment finance leases. See Note 5, Long-Term Debt, Net of Current Maturities, and Note 15, Subsequent Events, to our condensed consolidated financial statements for more details on our debt balances.
Cash Flow Discussion
The following table summarizes our key cash flow activity for the nine months ended September 30, 20202021 and 2019:2020:
|
| Nine Months Ended |
|
|
|
|
| |||||||||||||||||
|
| September 30, |
|
|
|
|
|
| Nine Months Ended |
|
|
|
| |||||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| September 30, |
|
|
|
| |||||||||
|
| (in thousands) |
|
|
|
|
|
| 2021 |
| 2020 |
|
| $ Change |
| |||||||||
Net cash provided by operating activities |
| $ | 33,865 |
|
| $ | 62,735 |
|
| $ | (28,870 | ) | ||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||
Net cash provided by (used in) operating activities |
| $ | (28,241 | ) |
| $ | 33,865 |
|
| $ | (62,106 | ) | ||||||||||||
Net cash used in investing activities |
|
| (53,428 | ) |
|
| (60,194 | ) |
|
| 6,766 |
|
|
| (30,138 | ) |
|
| (53,428 | ) |
|
| 23,290 |
|
Net cash provided by financing activities |
|
| 102,427 |
|
|
| 2,358 |
|
|
| 100,069 |
|
|
| 48,280 |
|
|
| 102,427 |
|
|
| (54,147 | ) |
Impact of foreign exchange rates on cash, cash equivalents |
|
| (939 | ) |
|
| (3,204 | ) |
|
| 2,265 |
| ||||||||||||
Net change in cash, cash equivalents and restricted cash |
| $ | (11,038 | ) |
| $ | 79,660 |
|
| $ | (90,698 | ) |
Operating Cash Flows
Net cash provided by operating activities decreased by $28.9$62.1 million for the nine months ended September 30, 20202021, as compared to the same period in 20192020, primarily as a result of lower operating results and certain changes in ourunfavorable working capital.capital usage.
Investing Cash Flows
Net cash used in investing activities decreased by $6.8$23.3 million for the nine months ended September 30, 20202021, as compared to the same period in 2019 primarily2020, as a result of a decrease in capital expenditures.
We anticipate fiscal year 20202021 capital expenditures of between $80$40 million to $90$45 million and we estimate that the cost that we will incur after September 30, 20202021 to complete our current projects in process will be approximately $13.0$7.0 million. We are deferring non-critical capital expenditures in light of the COVID-19 uncertainty. 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 new manufacturing facilities in Chennai, India and the continued investment in our existing Tukey, Mexico, China and U.S. facilities as well as in our pilot line in Warren, Rhode Island. facilities.
Financing Cash Flows
Net cash provided by financing activities increaseddecreased by $100.1$54.1 million for the nine months ended September 30, 20202021, as compared to the same period in 20192020, primarily as a result of increaseddecreased net borrowings on our revolving loans and other growth-related debt.loans.
OFF-BALANCE SHEET TRANSACTIONS
Financing Facilities
Our total principal amount of debt outstanding as of September 30, 2020 was $238.7 million, including our Credit Agreement, unsecured financing agreements and equipment finance leases. See Note 5, Long-Term Debt, Net of Debt Issuance Costs and Current Maturities, to our condensed consolidated financial statements for a discussion of our debt balances.
Off-Balance Sheet Transactions
We are not presently involved in any off-balance sheet arrangements, including transactions with unconsolidated special-purpose or other entities that would materially affect our financial position, results of operations, liquidity or capital resources, other than our accounts receivable assignment agreements described below. Furthermore, we do not have any relationships with special-purpose or other entities that provide off-balance sheet financing; liquidity, market risk or credit risk support; or engage in leasing or other services that may expose us to liability or risks of loss that are not reflected in the condensed 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.
37
The following table summarizes certain key details of each of the accounts receivable assignment agreements in place as of September 30, 2020:2021:
Year Of Initial Agreement | Segment(s) Related To | Current | ||
2014 | Mexico | LIBOR plus 0.75% | ||
|
| LIBOR plus | ||
|
|
| ||
|
|
| ||
|
|
| ||
|
| Fixed rate of 3.85% | ||
2020 |
| 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 wereare removed from our condensed consolidated balance sheet. During the three months ended September 30, 2021 and 2020, $346.3 million and $343.0 million, respectively, and during the nine months ended September 30, 2021 and 2020, $343.0$1,001.2 million and $802.9 million, respectively, of receivables were sold under the accounts receivable assignment agreements described above, respectively.above.
Critical Accounting Policies and EstimatesCRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no other significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K.
Recent Accounting PronouncementsRECENT ACCOUNTING PRONOUNCEMENTS
See Note 1, Recently Issued Accounting PronouncementsBasis of Presentation, under the heading “Accounting Pronouncements” to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Contractual ObligationsCONTRACTUAL OBLIGATIONS
During the nine months ended September 30, 2020,2021, there have been no material changes to the contractual obligations reported in our Annual Report on Form 10-K, other than in the ordinary course of business.
Item 3. Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE 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. We currently do not hedge our exposure to these risks.
Foreign Currency Risk. We conduct international operations in China, Mexico, Turkey and India. Our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars for inclusion in our condensed 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 $33.6$21.5 million for the nine months ended September 30, 2020.2021.
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 most of our key raw materials for 12 months which protects us from price increases within that period.period, which we believe helps to mitigate the impact of raw material price increases. As many of our raw material supply agreements have meet or release clauses, if raw materials prices go down,decrease, we are able to benefit from the reductions in price. We believe that this adequately protects us from increases in raw material prices and also enables us to take full advantage of decreases.
Resin and resin systems are the primary commodities for which we do not have fixed pricing. Approximately 40%55% of the resin and resin systems we use are purchased under contracts either controlled or borne by onetwo of our customers and therefore they receive/bear 100% of any increasedecrease or decreaseincrease in resin costs further limiting our exposure to price fluctuations. We
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 current forecasted price of resin and resin systems, we believe that a 10% change in the current forecasted 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
38
operations of approximately $7.7$12.4 million for the nine months ended September 30, 2020. Furthermore, this amount does not include the portion of any increase or decrease that would be shared withfull year 2021. With respect to our other customer supply agreements, our customers under our long-term supply agreements, which is generallytypically receive/bear 70%.
In late 2019, worldwide demand for balsa wood increased as of the cost savings or increases resulting from a result of shortages of other types of core materials. In addition, our supply chain for balsa wood, which is primarily sourced from Ecuador, has been further stressed due to the COVID-19 pandemic. As a result of this increased demand and supply chain disruption, we currently do not have fixed pricing for a portion of our contracts and purchases orders for balsa wood for the remainder of 2020. We believe that a 10% change in the price of balsa wood would have had an impact to income from operations of approximately $6.1 million for the nine months ended September 30, 2020. resin and resin systems.
Interest Rate Risk. As of September 30, 2020, our EMEAI segment has one general credit agreement, as amended, with a Turkish financial institution which is tied to EURIBOR. This agreement had collateralized financing of capital expenditures and unsecured financing outstanding as of September 30, 2020 totaling $15.8 million. In addition, as of September 30, 2020,2021, our Credit Agreement includes interest on the unhedged principal amount of $110.2$106.2 million which is tied to LIBOR.the London Interbank Offered Rate (LIBOR), our India segment has two credit agreements outstanding which are tied to LIBOR, and our EMEA segment has one general credit agreement outstanding which is tied to the Euro Interbank Offered Rate (EURIBOR). For a discussion of the interest rate swap arrangement we entered into related to our Credit Agreement, see Note 13, Financial Instruments, to the notes to the consolidated financial statements within our 2020 Annual Report on Form 10-K. The EMEAI financingsIndia credit agreements had secured and unsecured working capital financing of $10.3 million and unsecured term loan financing of $8.1 million outstanding as of September 30, 2021. The two EMEA credit agreements had unsecured financing of $5.7 million and financing of capital expenditures of $1.0 million outstanding as of September 30, 2021. Our Credit Agreement, the two India credit agreements, and the Credit Agreement noted aboveone EMEA general credit agreement are the only variable rate debt agreements that we had outstanding as of September 30, 20202021 as all remaining working capital loans, accounts receivable financing,secured and unsecured financing and capitalfinance lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates. Due to the relatively low LIBOR and EURIBOR rates in effect as of September 30, 2020,2021, a 10% change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or cash flows.
Item 4. Controls and ProceduresCONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of September 30, 20202021 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.2021.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39
PART II—II. OTHER INFORMATION
Item 1. Legal ProceedingsLEGAL PROCEEDINGS
See Note 12, Commitments and Contingencies, under the heading “Legal Proceedings” to our condensed consolidated financial statements for a discussion of legal proceedings and other related matters.
Item 1A. RISK FACTORSRisk Factors
Except as noted below, there have been no material changes to the Risk Factors (Part I, Item 1A) in our Annual Report on Form 10-K, which could materially affect our business, financial condition, and/or future results.
The pending Series A Preferred Stock financing may not be completed, which could adversely affect our business, results of operations and/or financial condition or the price of our shares of Common Stock.
On November 8, 2021, we entered into a Series A Preferred Stock Purchase Agreement (the Purchase Agreement) with Oaktree Power Opportunities Fund V (Delaware) Holdings, L.P., OPPS TPIC Holdings, LLC, and Oaktree Phoenix Investment Fund L.P. (collectively, the Purchasers), pursuant to which we have agreed to issue and sell to the Purchasers an aggregate of 350,000 shares of our newly designated Series A Preferred Stock, par value $0.01 per share (the Series A Preferred Stock), for an aggregate purchase price of $350.0 million. On the closing date for the sale of the Series A Preferred Stock, we will also issue the Purchasers a warrant to purchase an aggregate of 4,666,667 shares of our Common Stock, at an exercise price of $0.01 per share. The transaction is expected to close in the fourth quarter of 2021, subject to the conditions set forth in the Purchase Agreement. We cannot assure that all closing conditions will be satisfied or waived. The Purchase Agreement will expire if the closing has not occurred by the 60th day following the date of the Purchase Agreement. If the transaction is not completed, we will be subject to a number of risks, including: we must pay costs related to the transaction, including legal and financial advisory fees, whether the transaction is completed or not; the trading price of our shares of Common Stock may decline if the transaction is not completed, to the extent that the market price reflects a market assumption that the transaction will be completed; we may be required to seek alternative sources of liquidity, as to the availability or terms of which we cannot provide assurance, and we could be subject to litigation related to the failure to complete the transaction or other factors, all of which may adversely affect our business, results of operations and/or financial results and the price of our shares of Common Stock.
Our business, operations and financial condition forduring the nine months ended September 30, 2020 have been2021 were not materially adversely affected by the COVID-19 pandemic andhowever we cannot estimate the duration and magnitude of the COVID-19 pandemic onand our business operations and financial condition at this time.may be adversely affected in the future if the COVID-19 pandemic persists.
The COVID-19 pandemic hasdid not materially adversely affectedaffect our business andmanufacturing operations forduring the nine months ended September 30, 2020. During2021. However, our manufacturing facility in Yangzhou, China was shut down for approximately three weeks during the first quarterthree months ended September 30, 2021 due to an outbreak of 2020,positive COVID-19 cases in Yangzhou City, which had an adverse impact on our China manufacturing facilities were adversely impacted byresults of operations for 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,three months ended September 30, 2021. Although 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 tocurrently are operating at or near normal production levels. However, several of our manufacturing facilities are operating in regions with high levels, of reported COVID-19 positive cases. As such, we may be required to reinstate temporary production suspensions or volume reductions at these manufacturing facilities or at our other manufacturing facilities to the extent there is a resurgenceare 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. In addition, although we currently have not experienced any significant disruptions inHowever, our global supply chain due tohas been adversely affected by the COVID-19 pandemic in 2021 and our global supply chain may in the futurecontinue to be adversely affected if the COVID-19 pandemic persists.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Not applicable.
Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES
Not applicable.
40
Item 4. Mine Safety DisclosuresMINE SAFETY DISCLOSURES
Not applicable.
Item 5. Other InformationOTHER INFORMATION
None.
41
Item 6. EXHIBITSExhibits
Exhibit Number |
| Exhibit Description |
|
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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 |
| 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 Quarterly Report on Form 10-Q 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. 42 SIGNATURES
|
|
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: November | By: | /s/ Adan Gossar | ||
Adan Gossar | ||||
Chief Accounting Officer | ||||
(Principal Accounting Officer) |
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