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 in the wind and transportation markets. 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 four geographic
operating segments-(1) the United States (U.S.), (2) Asia, (3) Mexico and (4)
Europe, the Middle East, Africa and India (EMEAI). 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 and results of
operations for 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, 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.
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 resurgence of COVID-19 cases in the regions where we operate or there
is an outbreak of positive COVID-19 cases in any of our manufacturing
facilities.
We continue to manage 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 million under our Credit Agreement. In addition,
during the nine months ended September 30, 2020, we entered into or amended four
unsecured credit agreements with four Turkish 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 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. 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.
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 and 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.
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KEY FINANCIAL METRICS
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 )
(1) See below for a reconciliation of EBITDA, adjusted EBITDA, free cash flow
and net debt to net income (loss), net income (loss), net cash provided by
(used in) operating activities and total debt, net of debt issuance costs,
respectively, the most directly comparable financial measures calculated
and presented in accordance with GAAP.
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
September 30, September 30,
2020 2019 2020 2019
(in thousands)
Net income (loss) $ 42,382$ (4,571 )$ (24,211 )$ (14,847 )
Adjustments:
Depreciation and amortization 14,031 9,948 36,675 27,732
Interest expense (net of
interest income) 3,093 2,087 7,409 6,278
Income tax provision (benefit) (32,338 ) 18,838 1,946 14,713
EBITDA
27,168 26,302 21,819 33,876
Share-based compensation expense 2,631 1,682 7,947 4,604
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
Adjusted EBITDA $ 49,131$ 27,470$ 53,722$ 53,816
Free cash flow is reconciled as follows:
Nine Months Ended
September 30,
2020 2019
(in thousands)
Net cash provided by operating activities $ 33,865$ 62,735
Less capital expenditures (53,428 ) (59,092 )
Free cash flow $ (19,563 )$ 3,643
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Net debt is reconciled as follows:
September 30, December 31,
2020 2019
(in thousands)
Cash and cash equivalents $ 149,422$ 70,282
Less total debt, net of debt issuance costs (237,568 ) (141,389 )
Less debt issuance costs (1,165 ) (672 )
Net debt $ (89,311 )$ (71,779 )
KEY OPERATING METRICS
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Sets 1,038 858 2,556 2,236
Estimated megawatts 3,576 2,491 8,555 6,381
Utilization 93 % 88 % 78 % 74 %
Dedicated manufacturing lines 55 52 55
54
Manufacturing lines installed 54 48 54 48
Results of Operations
The following table summarizes our condensed consolidated statements of
operations as a percentage of net sales for the three and nine months ended
September 30, 2020 and 2019:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 89.7 87.5 94.8 89.1
Startup and transition costs 1.8 5.7 2.6 6.3
Total cost of goods sold 91.5 93.2 97.4 95.4
Gross profit 8.5 6.8 2.6 4.6
General and administrative expenses 2.0 2.8 2.1 2.7
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
Total other income (expense) (4.0 ) 0.5 (1.9 ) (0.5 )
Income (loss) before income taxes 2.1 3.7 (1.9 ) 0.0
Income tax benefit (provision) 6.8 (4.9 ) (0.1 ) (1.5 )
Net income (loss) 8.9 % (1.2 ) % (2.0 ) % (1.5 ) %
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Net sales
Consolidated discussion
The following table summarizes our net sales by product 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 $ 450,135$ 352,202$ 97,933 27.8 % $ 1,134,535$ 930,916$ 203,619 21.9 %
Precision molding and
assembly systems sales 10,541 15,049 (4,508 ) -30.0 % 24,198 39,176 (14,978 ) -38.2 %
Transportation sales 7,007 8,061 (1,054 ) -13.1 % 28,798 20,717 8,081 39.0 %
Other sales 6,430 8,524 (2,094 ) -24.6 % 17,035 23,578 (6,543 ) -27.8 %
Total net sales $ 474,113$ 383,836$ 90,277 23.5 % $ 1,204,566$ 1,014,387$ 190,179 18.7 %
The increase in the 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, 2020 compared to the same period in 2019 as a result of increased
production at our China, Mexico, Iowa and India facilities. This increase was
also due to a higher average sales price due to the mix of wind blade models
produced during the three 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 three months ended September 30, 2020 decreased by
$4.5 million as compared to the same period in 2019. Additionally, there was a
$3.1 million decrease in transportation and other sales during the three months
ended September 30, 2020 as compared to the same period in 2019. 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% on consolidated net sales
for the three months ended September 30, 2020 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. Additionally, there was a
$1.5 million increase in transportation and other sales during the nine months
ended September 30, 2020 as compared to the same period in 2019. The fluctuating
U.S. dollar against the Euro in our Turkey operations and the Chinese Renminbi
in our China operations had an unfavorable impact of 0.1% on consolidated net
sales for the nine months ended September 30, 2020 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
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 four geographic operating
segments 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)
U.S. $ 46,799$ 40,643$ 6,156 15.1 % $ 136,309$ 122,129$ 14,180 11.6 %
Asia 163,458 108,114 55,344 51.2 % 400,513 261,531 138,982 53.1 %
Mexico 161,563 117,690 43,873 37.3 % 363,233 297,717 65,516 22.0 %
EMEAI 102,293 117,389 (15,096 ) -12.9 %
304,511 333,010 (28,499 ) -8.6 %
Total net sales $ 474,113$ 383,836$ 90,277 23.5 % $ 1,204,566$ 1,014,387$ 190,179 18.7 %
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U.S. Segment
The following table summarizes our net sales by product for the U.S. 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 $ 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 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 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.
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 product for the Asia 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 $ 158,120$ 98,406$ 59,714 60.7 % $ 385,536$ 238,947$ 146,589 61.3 %
Precision molding
and
assembly
systems sales 4,451 8,915 (4,464 ) -50.1 % 13,088 20,856 (7,768 ) -37.2 %
Other sales 887 793 94 11.9 % 1,889 1,728 161 9.3 %
Total net sales $ 163,458$ 108,114$ 55,344 51.2 % $ 400,513$ 261,531$ 138,982 53.1 %
The increase in the Asia segment's net sales of wind blades reflects a 32% net
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 decreased by $4.5 million during the three months ended
September 30, 2020 as compared to the same period in 2019.
The increase in the Asia segment's net sales of wind blades was primarily due to
a 37% net increase in the number of wind blades produced in the nine months
ended September 30, 2020 as compared to the same period in 2019 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. Although our Asia 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 period as compared to the same period in 2019.
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Mexico Segment
The following table summarizes our net sales by product for the Mexico 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 $ 153,575$ 111,855$ 41,720 37.3 % $ 346,954$ 278,685$ 68,269 24.5 %
Precision molding
and
assembly systems
sales 6,090 4,655 1,435 30.8 % 11,110 15,475 (4,365 ) -28.2 %
Transportation
sales 801 - 801 NM 1,374 - 1,374 NM
Other sales 1,097 1,180 (83 ) -7.0 %
3,795 3,557 238 6.7 %
Total net sales $ 161,563$ 117,690$ 43,873 37.3 % $ 363,233$ 297,717$ 65,516 22.0 %
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 million as compared to the same period in 2019.
The increase in the Mexico segment's net sales of wind blades 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 same
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 by an increase in the average sales price of wind
blades in the comparative periods and foreign currency fluctuations. The
fluctuating U.S. dollar relative to the Euro had a favorable impact of 3.2% on
net sales during the three months ended September 30, 2020 as compared to 2019.
The decrease in the EMEAI segment's net sales of wind blades was driven by a 14%
net decrease in wind blade production primarily at our two Turkey manufacturing
facilities due to transitions and reduced production levels at these
manufacturing facilities due to the COVID-19 pandemic primarily during the
second quarter of 2020. The decrease was partially offset by an increase in the
average sales price of wind blades delivered in the comparative periods and an
increase in the year over year number of wind blades still in the production
process at the end of the period. The fluctuating U.S. dollar relative to the
Euro had an unfavorable impact of 0.2% on net sales during the nine months ended
September 30, 2020 as compared to the 2019 period.
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Total cost of goods sold
The following table summarizes our total cost of goods sold 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)
Cost of sales $ 425,064$ 335,778$ 89,286 26.6 % $ 1,141,183$ 904,135$ 237,048 26.2 %
Startup and
transition costs 8,576 22,127 (13,551 ) -61.2 %
31,530 63,206 (31,676 ) -50.1 %
Total cost of
goods sold $ 433,640$ 357,905$ 75,735 21.2 % $ 1,172,713$ 967,341$ 205,372 21.2 %
% of net sales 91.5 % 93.2 % -1.7 % 97.4 % 95.4 % 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
decreased by approximately 2% during the three months ended September 30, 2020
as compared to the same period in 2019, driven primarily by the decrease in
direct materials, the impact of savings in raw material costs, the decrease in
startup and transition costs, and foreign currency fluctuations. The fluctuating
U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso
had a favorable impact of 1.1% on consolidated cost of goods sold for the three
months ended September 30, 2020 as compared to the same period in 2019.
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% during the nine months ended September 30, 2020 as compared to
the same period in 2019, driven primarily by the increase in warranty 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, partially offset by a
decrease in startup and transition costs, the impact of savings in raw material
costs and foreign currency fluctuations. The fluctuating U.S. dollar against the
Euro, Turkish Lira, Chinese Renminbi and Mexican Peso had a favorable impact of
2.0% on consolidated cost of goods sold for the nine months ended September 30,
2020 as compared to 2019.
General and administrative expenses
The following table summarizes our general and administrative expenses 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)
General and
administrative
expenses $ 9,263$ 10,608$ (1,345 ) -12.7 % $ 25,646$ 27,801$ (2,155 ) -7.8 %
% of net sales 2.0 % 2.8 % -0.8 % 2.1 % 2.7 % -0.6 %
The decrease in general and administrative expenses as a percentage of net sales
in both periods of 2020 as compared to the same periods in 2019 was primarily
driven by lower travel and training costs due to the COVID-19 pandemic.
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Realized loss on sale of assets and asset impairments
The following table summarizes our realized 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 rates as compared to the equivalent prior year period.
The decrease in the realized loss on sale of assets and asset impairments for
the 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 rates as compared to the
equivalent prior year period.
Restructuring charges (reversals), net
Restructuring charges for 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 related to the wind down of our Fall River, Massachusetts
facility.
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 four
geographic operating segments 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)
U.S. $ (6,360 )$ (17,510 )$ 11,150 63.7 %
$ (33,991 )$ (54,235 )$ 20,244 37.3 %
Asia
25,779 13,448 12,331 91.7 % 49,343 4,779 44,564 NM
Mexico 11,986 (4,954 ) 16,940 NM
(1,106 ) (1,258 ) 152 12.1 %
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 %
% of net sales 6.1 % 3.2 % 2.9 % 0.0 % 0.5 % -0.5 %
U.S. Segment
The decrease in the loss from operations in the U.S. segment for the three
months ended September 30, 2020 as compared to the same period in 2019 was
primarily due to the decreased costs related to the shutdown of our Newton, Iowa
transportation facility, the decrease in transition costs at our Newton, Iowa
blade facility, a decrease in direct material costs, and the increase in wind
blade volume and increase in the average sales price of wind blades noted above.
The decrease in the loss from operations in the U.S. segment for the nine months
ended September 30, 2020 as compared to the same period in 2019 was primarily
due to the decreased costs related to the shutdown of our Newton, Iowa
transportation facility and the decrease in transition costs at our Newton, Iowa
blade facility, the increase in wind blade volume and increase in the average
sales
32
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price of wind blades noted above, 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, decreased startup and transition
costs, foreign currency fluctuations as well as from savings in raw material
costs. These increases were mostly offset by the reduced production levels at
our Mexico 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 fluctuating U.S. dollar
relative to the Mexican Peso had a favorable impact of 2.1% on cost of goods
sold for the nine months ended September 30, 2020 as compared to 2019.
EMEAI Segment
The increase in the loss from operations in the EMEAI segment for the three
months ended September 30, 2020 as compared to the same period in 2019 was
primarily driven by the decreased wind blade production at our two Turkey
manufacturing facilities, increased transition costs at one of our Turkey
manufacturing facilities, and increased startup costs at our India manufacturing
facility, partially offset by favorable foreign currency fluctuations. The
fluctuating U.S. dollar relative to the Turkish Lira and Euro had a favorable
impact of 3.4% on cost of goods sold for the three months ended September 30,
2020 as compared to 2019.
The increase in the loss from operations in the EMEAI segment for the nine
months ended September 30, 2020 as compared to the same period in 2019 was
primarily driven by increased warranty costs, decreased wind blade 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 at one of our Turkey
manufacturing facilities, partially offset by favorable foreign currency
fluctuations. The fluctuating U.S. dollar relative to the Turkish Lira and Euro
had a favorable impact of 3.5% on cost of goods sold for the nine months ended
September 30, 2020 as compared to 2019.
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Other income (expense)
The following table summarizes our total other income (expense) 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)
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
The increase in the total other expense in both periods of 2020 was primarily
due to increases in realized losses on foreign currency remeasurement primarily
due to net Euro liability exposure against the Turkish Lira in the current year
periods as compared to the same periods in 2019.
Income taxes
The following table summarizes our income taxes 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)
Income tax benefit
(provision) $ 32,338$ (18,838 )$ 51,176 NM $ (1,946 )$ (14,713 )$ 12,767 86.8 %
Effective tax rate 322.0 % -132.0 %
8.7 % NM
The decrease in the provision during the three and nine months ended September
30, 2020 was primarily due 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 rate for 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.
Net income (loss)
The following table summarizes our net income (loss) 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)
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 estimate that our net income during the three months
ended September 30, 2020 was adversely impacted by approximately $2 million, net
of taxes based upon the forecasted gross margin on the wind blade sets 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. 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.
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The increase in the net loss for the nine 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 estimate that our net loss during the nine months ended
September 30, 2020 was adversely impacted by approximately $21 million, net of
taxes, based upon the forecasted gross margin on the wind blade sets we had
forecasted to produce at our Mexico, China, Iowa, Turkey and India manufacturing
facilities 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 COVID-19 pandemic required these manufacturing facilities 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 million under
our Credit Agreement. In addition, during the nine months ended September 30,
2020, we entered into or amended four unsecured credit agreements with four
Turkish financial institutions resulting in net borrowings of $31.2 million and
current availability of $44.0 million.
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 and warranty costs. Our capital expenditures
have been primarily related to machinery and equipment for new facilities or
facility expansions. Historically, we have funded our working capital needs
through cash flows from operations, the proceeds received from our credit
facilities and from proceeds received from the issuance of stock. We had net
borrowings under our financing arrangements of $96.5 million for the nine months
ended September 30, 2020 as compared to net repayments under our financing
arrangements of $0.2 million in the comparable period of 2019. As of
September 30, 2020 and December 31, 2019, we had $238.7 million and $142.1
million in outstanding indebtedness, excluding debt issuance costs,
respectively. As of September 30, 2020, we had an aggregate of $88.0 million of
remaining capacity and $71.4 million of remaining availability under our various
credit facilities. Working capital requirements have increased as a result of
our overall growth and the need to fund higher accounts receivable and inventory
levels as our business volumes have increased. Based upon current and
anticipated levels of operations, we believe that cash on hand, available credit
facilities and cash flow from operations will be adequate to fund our working
capital and capital expenditure requirements and to make required payments of
principal and interest on our indebtedness over the next twelve months.
We anticipate that any new facilities and future facility expansions will be
funded through cash flows from operations, the incurrence of other indebtedness
and other potential sources of liquidity. At September 30, 2020 and December 31,
2019, we had unrestricted cash, cash equivalents and short-term investments
totaling $149.4 million and $70.3 million, respectively. The September 30, 2020
balance includes $73.4 million of cash located outside of the United States,
including $47.2 million in China, $18.8 million in Turkey, $6.2 million in
India, $1.0 million in Mexico and $0.2 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% ($26.5 million as of December 31, 2019) of registered capital is
contributed to a surplus reserve, our Chinese operations can only pay dividends
equal to 90% of after-tax profits (10% must be contributed to the surplus
reserve). Once the surplus reserve fund requirement is met, our Chinese
operations can pay dividends equal to 100% of after-tax profit assuming other
conditions are met. At December 31, 2019, the amount of the surplus reserve fund
was $6.6 million.
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Cash Flow Discussion
The following table summarizes our key cash flow activity for the nine months
ended September 30, 2020 and 2019:
Nine Months Ended
September 30,
2020 2019 $ Change
(in thousands)
Net cash provided by operating activities $ 33,865$ 62,735$ (28,870 )
Net cash used in investing activities (53,428 ) (60,194 ) 6,766
Net cash provided by financing activities 102,427 2,358 100,069
Operating Cash Flows
Net cash provided by operating activities decreased by $28.9 million for the
nine months ended September 30, 2020 as compared to the same period in 2019
primarily as a result of lower operating results and certain changes in our
working capital.
Investing Cash Flows
Net cash used in investing activities decreased by $6.8 million for the nine
months ended September 30, 2020 as compared to the same period in 2019 primarily
as a result of a decrease in capital expenditures.
We anticipate fiscal year 2020 capital expenditures of between $80 million to
$90 million and we estimate that the cost that we will incur after September 30,
2020 to complete our current projects in process will be approximately
$13.0 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 for major
projects currently being undertaken, which include new manufacturing facilities
in Chennai, India, the continued investment in our existing Tukey, Mexico, China
and U.S. facilities as well as in our pilot line in Warren, Rhode Island.
Financing Cash Flows
Net cash provided by financing activities increased by $100.1 million for the
nine months ended September 30, 2020 as compared to the same period in 2019
primarily as a result of increased net borrowings on our revolving loans and
other growth-related debt.
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 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.
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The following table summarizes certain key details of each of the accounts
receivable assignment agreements in place as of September 30, 2020:
Year Of Initial Agreement Segment(s) Related To Current Discount Rate
2014 Mexico LIBOR plus 0.75%
2018 U.S and Mexico LIBOR plus 1.25%
2018 EMEAI EURIBOR plus 0.75%
2019 Asia and Mexico LIBOR plus 1.00%
2019 Asia LIBOR plus 1.00%
2019 Asia Fixed rate of 3.85%
2020 EMEAI EURIBOR plus 1.95%
As the receivables are purchased by the financial institutions under the
agreements noted above, the receivables were removed from our balance sheet.
During the three and nine months ended September 30, 2020, $343.0 million and
$802.9 million of receivables were sold under the accounts receivable assignment
agreements described above, respectively.
Critical 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 Pronouncements
See Note 1, Recently Issued Accounting Pronouncements, to our condensed
consolidated financial statements for a discussion of recent accounting
pronouncements.
Contractual Obligations
During the nine months ended September 30, 2020, 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.
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