What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-02 compared with 2021-02-25 · 87 added, 69 removed, 158 unchanged (50% of the section changed)

As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind” and the “Company” refer to Broadwind, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its wholly-owned subsidiaries (the “Subsidiaries”).

As used in this Annual Report, the terms “we,”

“us,”

“our,”

“Broadwind”

and the “Company”

refer to Broadwind, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its wholly-owned subsidiaries (the “Subsidiaries”).

Dollars are presented in thousands unless otherwise stated.

1 unchanged sentence

Broadwind is a precision manufacturer of structures, equipment and components for clean tech and other specialized applications.

We provide technologically advanced high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”).

Our capabilities include, but are not limited to the following:

heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, heat treat, assembly, engineering and packaging solutions.

Our capabilities include but are not limited to the following:

heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, gearbox repair, heat treat, assembly, engineering and packaging solutions.

We were incorporated in 1996 in Nevada as Blackfoot Enterprises, Inc., and through a series of subsequent transactions, became Broadwind Energy, Inc., a Delaware corporation, in 2008.

15 unchanged sentences

The two facilities have a combined annual tower production capacity of up to approximately 550 towers (1650 tower sections), sufficient to support turbines generating more than 1,100 MW of power.

We have expanded our production capabilities and leveraged our manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets.

We manufacture components for buckets, shovels, car bodies, drill masts and other products that support mining and construction markets.

In other industrial markets, we provide crane components, pressure vessels, frames and other structures.

In other industrial markets, we provide crane components, pressure vessels, frames and other structures.

We provide gearing and gearboxes to a broad set of customers in diverse markets including;

1 unchanged sentence

We have manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century.

While a significant portion of our business is manufactured to our customer’s specifications, we employ design and metallurgical engineers to meet our customer’s stringent quality requirements, to improve product performance, and reliability and to develop custom products that are integrated into our customer’s product offerings.

While a significant portion of our business is manufactured to our customer’s specifications, we employ design and metallurgical engineers to meet our customer’s stringent quality requirements, to improve product performance, and reliability and to develop custom products that are integrated into our customer’s product offerings.

Industrial Solutions

We provide supply chain solutions, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.

We provide supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.

We have recently expanded our market reach into the solar power generation market by leveraging our existing core competencies.

We leverage a global supply chain to provide instrumentation & controls, valve assemblies, sensor devices, fuel system components, electrical junction boxes & wiring, energy storage services and electromechanical devices.

We also provide packaging solutions and fabricate panels and sub-assemblies to reduce our customers’ costs, improve manufacturing velocity and reliability.

We also provide packaging solutions and fabricate panels and sub-assemblies to reduce our customers’

costs, improve manufacturing velocity and reliability.

The following table summarizes the key markets served and product offering of our three segments:

13 unchanged sentences

-Wind Power Generation

-Steel Production

13 unchanged sentences

Crane Components

-Gearbox Repair

Pressure Vessels

3 unchanged sentences

We intend to capitalize on the markets for wind energy, gas turbines, O&G, mining, and other industrial verticals in North America by leveraging our core competencies in welding, manufacturing, assembling and kitting.

Our strategic objectives include the following, many of which are subject to risks and uncertainties that are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result:

Our strategic objectives include the following, many of which are subject to risks and uncertainties that are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result:

Diversify our customer and product line concentrations .

4 unchanged sentences

We have introduced a new product development process, a stage gate model, which provides a framework for evaluating opportunities and commercialization.

Additionally, we have adopted new customer and product revenues as metrics within our variable executive compensation programs.

Our diversification efforts are impacted in part by the end-market demand outlook.

Following the outbreak of the novel coronavirus disease (known as COVID-19) pandemic, customer orders weakened in the mining, construction and oil and gas markets, offset in part by increases in demand within industrial and gas turbine markets.

Additionally, we have adopted new customer and product revenues as metrics within our variable executive compensation programs. Our diversification efforts are impacted in part by the end-market demand outlook. 

Improve capacity utilization and broaden our manufacturing capabilities .

1 unchanged sentence

We are working to improve our capacity utilization and financial results by leveraging our existing manufacturing capacity and adjusting capacity where we can, in response to changing market conditions.

In our Heavy Fabrications segment, we are expanding production capabilities and leveraging our fabrication competencies to support growth in mining, material handling, and other industrial markets.

Within our Heavy Fabrication segment, tower sections sold increased from 540 sections in 2018 to 1,150 in 2020, a result of an improved demand environment and expansion of our customer base.

In our Gearing segment, we are broadening our customer base and markets served, while targeting revenue growth through gearbox design and manufacturing.

Expansion of our manufacturing capabilities was hampered in 2020 as a result of the impact of the COVID-19 pandemic.

In our Heavy Fabrications segment, we have expanded production capabilities and leveraged our fabrication competencies to support growth in mining, material handling, and other industrial markets. In late 2021, we resumed the expansion of our manufacturing capabilities which had been curtailed in 2020 as a result of the COVID-19 pandemic. 

Pursue opportunistic acquisitions as well as organic investments.

In addition to existing business and operating strategies, we are endeavoring to identify, and opportunistically execute on, accretive acquisitions and organic investments that will allow us to achieve further growth.

Our investment criteria for opportunistic acquisitions as well as organic investments include, among other things, our ability to:

improve manufacturing competencies, support our existing capacity utilization strategy, enhance our diversification strategy and/or augment our penetration into renewable markets.

For example, we are seeking to leverage our strong incumbent position in the onshore tower market into the emerging U.S.

offshore tower market.

We believe that execution of our investment strategy provides significant opportunity to generate stockholder value, through profitable growth and leveraging a significant unrealized economic asset, over $260 million of net operating losses (“NOLs”) as of December 31, 2020 which can be used to cover future perspective liabilities.

Streamline front-end processes to operational efficiency .

We believe that the proper coordination and integration of the supply chain, consistent use of systems to manage our production activities and “Continuous Improvement” initiatives are key factors that enable high operating efficiencies, increased reliability, better delivery and lower costs.

Our investment criteria for opportunistic acquisitions as well as organic investments include, among other things, our ability to:

improve manufacturing competencies, support our existing capacity utilization strategy, enhance our diversification strategy and/or augment our penetration into renewable markets. 

Additionally, we are developing new products such as PRS units which supply compressed natural gas to regions without established infrastructure as part of the virtual pipeline.

We believe that execution of our investment strategy provides significant opportunity to generate stockholder value, through profitable growth and leveraging a significant unrealized economic asset, over $277 million of net operating losses (“NOLs”) as of December 31, 2021 which can be used to cover future perspective tax liabilities. 

Streamline front-end processes to operational efficiency . We believe that the proper coordination and integration of the supply chain, consistent use of systems to manage our production activities and “Continuous Improvement”

initiatives are key factors that enable high operating efficiencies, increased reliability, better delivery and lower costs.

We have introduced robust Advanced Product Quality Processes (APQP) to support the introduction of new products.

2 unchanged sentences

We have staffed our operations with Continuous Improvement experts in order to optimize our production processes to increase output, leverage our scale and lower our costs while maintaining product quality.

During 2020, supply chain and staffing constraints caused by the COVID-19 pandemic resulted in increased manufacturing inefficiencies.

During 2021, supply chain and staffing constraints caused by the COVID-19 pandemic resulted in increased manufacturing inefficiencies. 

SALES AND MARKETING

We market our heavy fabrications, gearing, and industrial solutions through a direct sales force, supplemented with independent sales agents in certain markets.

We market our heavy fabrications, gearing, and industrial solutions through a direct sales force, supplemented with independent sales agents in certain markets.

Our sales and marketing strategy is to develop and maintain long-term relationships with our existing customers, and seek opportunities to expand these relationships across our business units.

Our business development team uses market data, including marketing databases, information gathered at industry and trade shows, internet research and website marketing to identify and target new customers.

We manufacture products for a variety of customers in the wind energy, O&G, mining and other industrial markets.

We manufacture products for a variety of customers in the wind energy, O&G, gas turbine, mining, and other industrial markets.

Within the wind energy industry, our customer base consists primarily of wind turbine manufacturers who supply end users and wind farm operators with wind turbines, and wind gearbox re-manufacturers who use our replacement gears in their replacement gearboxes.

The wind turbine market is very concentrated.

According to Wood Mackenzie Power & Renewables 2020 industry data, the top four wind turbine manufacturers comprised approximately 95% of the U.S.

According to Wood Mackenzie Power & Renewables 2021 industry data, the top four wind turbine manufacturers comprised approximately 97% of the U.S.

As a result, although we have historically produced towers for a broad range of wind turbine manufacturers, in any given year a limited number of customers have accounted for the majority of our revenues.

2 unchanged sentences

Within our other industrial markets served, our customer base includes steel producers, ship builders, and manufacturers of material handling, pulp and paper and other power generation equipment.

Sales to Siemens Gamesa Renewable Energy (“SGRE”) and Nordex USA Inc.

(“Nordex”) represented greater than 10% of our consolidated revenues for the year ended December 31, 2020 .

Sales to SGRE represented greater than 10% of our consolidated revenues for the year ended December 31, 2019 .

Sales to Siemens Gamesa Renewable Energy (“SGRE”) and GE Renewable Energy  

represented greater than 10% of our consolidated revenues for the year ended December 31, 2021 and sales to SGRE and Nordex USA Inc.

(“Nordex”) each represented greater than 10% of our consolidated revenues for the year ended December 31, 2020.

The loss of one of these customers could have a material adverse effect on our business, results of operation or financial condition.

1 unchanged sentence

Each of our businesses faces competition from both domestic and international companies.

The December 2015 extension of the production tax credit attracted additional investment and competition for wind towers.

The December 2015 extension of the production tax credit attracted additional investment and competition for wind towers.

In recent years, the industrial gearing industry has experienced consolidation of producers and acquisitions by strategic buyers in response to strong international competition, although recent tariff and trade uncertainties have caused buyers to shift more of their purchases to domestic gear manufacturers.

Within the wind tower product line of our Heavy Fabrications segment, the largest North American based competitor is Arcosa Inc., which was formerly a Trinity Industries company.

Other competitors include Vestas Wind Systems, which has periodically produced towers for third party customers in addition to meeting the majority of its own captive tower requirements, Marmen Industries, a Canadian company, and GRI Renewable Industries, a Spanish company, which both have production facilities in the U.S.

We also face competition from imported towers, although in recent years a number of trade cases have periodically significantly reduced competition from imports.

Imports from China and Vietnam have declined following a determination by the U.S.

International Trade Commission (“USITC”) in 2013 that wind towers from those countries were being sold in the U.S.

at less than fair value.

As a result of the determination, the U.S.

Department of Commerce (“USDOC”) issued antidumping and countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports of towers from Vietnam.

In May 2018, the U.S.

Court of Appeals affirmed the decision from the U.S.

Court of International Trade and at the same time excluded CS Wind Vietnam from the antidumping order.

Court of International Trade and at the same time excluded CS Wind Vietnam from the antidumping order.

In April 2019, the USDOC extended the term of these duties for an additional five-year period.

Following a renewed surge of tower imports from countries not impacted by existing tariffs, in July 2020, the “USDOC issued antidumping and countervailing duty orders on imports of wind towers from Canada, Indonesia, South Korea and Vietnam and an antidumping order on imports of towers from Vietnam.

Following a renewed surge of tower imports from countries not impacted by existing tariffs, in July 2020, the USDOC issued antidumping and countervailing duty orders on imports of wind towers from Canada, Indonesia, and Vietnam and an antidumping order on imports of towers from Korea. 

Then in September 2020, a new trade case was brought before the USDOC and USITC, to assess whether wind towers imported from India, Malaysia, and Spain were being sold in the U.S.

at less than fair value.

In November 2020, the USDOC issued an affirmative preliminary determination in the countervailing duty and anti-dumping investigations against each country listed in the case.

A final determination in the antidumping and countervailing duties investigations is expected to be issued by the USITC no later than November 2021.

Within our industrial fabrications product line of our Heavy Fabrications segment, our competitors in a fragmented market include Weldall Manufacturing and AT&F Advanced Metals, along with a large number of other regional competitors.

The USDOC and USITC issued affirmative final determinations in all three antidumping (India, Malaysia, and Spain) and two countervailing duty cases (India and Malaysia).

The USDOC imposed orders for two cases in August 2021 and the remainder in December 2021.

Within our industrial fabrications product line of our Heavy Fabrications segment, our competitors in a fragmented market include Weldall Manufacturing and AT&F Advanced Metals, along with a large number of other regional competitors.

The primary differentiator among fabricators is the range of manufacturing and machining capabilities, including lifting capacity, precision machining, heat treatment capacity and the sophistication of quality systems.

In our Gearing segment, which is focused on the O&G, wind energy, mining and steel markets, we compete with domestic and international manufacturers who produce gears greater than one meter in diameter.

Our key competitors include Overton Chicago Gear, Cincinnati Gearing Systems, Milwaukee Gear and Horsburgh & Scott.

Our key competitors include Overton Chicago Gear, Cincinnati Gearing Systems, Milwaukee Gear and Horsburgh & Scott.

In addition, we compete with the internal gear manufacturing capacity of relevant equipment manufacturers and face competition from foreign competitors.

In our Industrial Solutions segment, which is primarily focused on the gas turbine market, we compete with electrical supply distributors.

In our Industrial Solutions segment, which is primarily focused on the gas turbine market, we compete with electrical supply distributors.

Our key competitors include Gexpro and other small independent companies.

Production Tax Credit/Investment Tax Credit

The most impactful development incentive for our products has been the production tax credit (“PTC”) for new wind energy projects, which provides a supplemental payment based on electricity produced from each qualifying wind turbine.

Legislative support for the PTC has been intermittent since its introduction in 1992, which has caused volatility in the demand for new wind energy projects.

3 unchanged sentences

As part of a year-end tax extenders bill in 2019, the PTC was extended for an additional year, allowing for a 60% extension of the credit for projects commenced before the end of 2020.

On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 (“COVID IV”), a $2.3 trillion spending bill that combines a $1.4 trillion omnibus appropriations bill for federal fiscal year 2021 with $900 billion in supplemental appropriations to provide relief for the COVID-19 pandemic.

The legislation was signed into law on December 27, 2020.

As part of COVID IV, the PTC was extended for an additional year, allowing for a 60% credit for projects that start construction by the end of 2021.

In order to benefit from the PTC, qualifying projects must either be completed within four years from their start of construction, or the developer must demonstrate that its projects are in continuous construction between start of construction and completion.

As a result of COVID IV, the PTC will subsidize wind projects commenced as late as 2021 and completed by 2025, or later if continuous construction can be demonstrated.

Included in COVID IV is the addition of a new 30% investment tax credit (“ITC”) created for offshore wind projects that start construction by the end of 2025.

The provision will be retroactively applied to projects that started production in 2016.

Investment in Infrastructure

In November 2021, the federal Infrastructure Investment and Jobs Act (“IIJA”) was signed into law.

The IIJA provides for $548 billion in new infrastructure spending over the next five years and $650 billion in previously allocated funds.

The IIJA allocated $62 billion to the Department of Energy for various projects focused on clean energy resources and expanding renewable energy.

However the timing of the award of projects funded by the IIJA is uncertain thus the impact on our business is unknown.

Additionally, a $3.5 trillion “Build Back Better”

(“BBB”) framework was announced in March 2021 by the Biden Administration.

A sweeping $2.2 trillion version of the measure passed the House of Representatives last November but has been stalled in the Senate for months over scope of programs covered and overall cost.

Consequently, a BBB bill has not become law.

The House-passed BBB and various Senate iterations include policies to address climate change, including an energy efficiency and clean energy standard.

Efforts may resume in the Senate later this year to craft a smaller, more focused bill or set of bills that can pass both the Senate and the House.

We anticipate that clean energy provisions could be included as part of a BBB bill or series of smaller bills advancing the Biden Administration’s legislative and funding agenda.

We are closely monitoring both legislative and executive agency action regarding the BBB agenda.

Occupational Safety and Health Administration

6 unchanged sentences

Although it is our objective to maintain compliance with these laws and regulations, it may not be possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future.

We sell our towers under either supply agreements or individual purchase orders (“POs”), depending on the size and duration of the purchase commitment.

Under the supply agreements, we typically receive a purchase commitment for towers to be delivered in future fiscal quarters, then receive POs on a periodic basis depending upon the customer’s forecast of production volume requirements within the contract terms.

We sell our towers under either supply agreements or individual purchase orders (“POs”), depending on the size and duration of the purchase commitment.

For our Gearing and Industrial Solutions segments, sales are generally based on individual POs.

As of December 31, 2020 , the dollar amount of our backlog believed to be firm was approximately $93 million.

This represents a 35% decrease from the backlog at December 31, 2019 .

Backlog as of December 31, 2020 is net of revenue recognized over time as described in Note 2, “Revenues” of our consolidated financial statements.

As of December 31, 2021, the dollar amount of our backlog believed to be firm was approximately $106  

This represents a 15% increase from the backlog at December 31, 2020.

Backlog as of December 31, 2021 and 2020 is net of revenue recognized over time as described in Note 2, “Revenues”

of our consolidated financial statements.

The majority of our business is not affected by seasonality.

We had 512 U.S.-based employees at December 31, 2020 , of which 461 were in manufacturing related functions and 51 were in administrative functions.

We had 493 U.S.-based employees at December 31, 2021, of which 445 were in manufacturing related functions and 48 were in administrative functions.

As of December 31, 2021, approximately 18% of our employees were covered by collective bargaining agreements with local unions in our Cicero, Illinois and Neville Island, Pennsylvania locations.

The five-year collective bargaining agreement with the Neville Island union was renegotiated in November 2017, and is expected to remain in effect through October 2022.

A new four-year collective bargaining agreement with the Cicero union is effective from February 2018 and is expected to remain in effect through February 2022.

We anticipate that the collective bargaining agreements with our union members will be renewed through contract renegotiation near the contract expiration dates, although there can be no assurance that any such agreements will be concluded. The five-year collective bargaining agreement with the Neville Island union was renegotiated in November 2017 and is expected to remain in effect through October 2022.

A new four-year collective bargaining agreement in regards to the Cicero, Illinois facility was negotiated in February 2022 and is expected to remain in effect through February 2026.

We believe that our relationship with our employees is generally positive.

7 unchanged sentences

The market for tower steel and internal packages has become increasingly globalized.

Although we are generally responsible for procurement of the raw materials, our global tower customers often negotiate the prices and terms for purchases, and, through a “directed buy”, we purchase under these agreements.

We then pass the raw material cost through to our end customer plus a conversion margin.

2 unchanged sentences

We have made modifications to our supply chain management practices to deal more effectively with potential disruptions arising from these purchasing practices.

We believe that we will be able to obtain an adequate supply of steel and other raw materials in 2021 to meet our manufacturing requirements, although from time to time we have faced shortages of specific grades of steel, internal packages and delays associated with other materials from foreign sources including shortages and delays resulting from the impact of the COVID-19 pandemic.

Although we have been affected by global supply chain issues that are at least partially a result of the COVID-19 pandemic, we believe that we will be able to obtain an adequate supply of steel and other raw materials in 2022 to meet our manufacturing requirements. From time to time we have faced shortages of specific grades of steel, internal packages and delays associated with other materials from foreign sources including shortages and delays resulting from the impact of the COVID-19 pandemic.

QUALITY CONTROL

9 unchanged sentences

We provide information technology oversight and support from our corporate headquarters in Cicero, IL.

The operational information systems we employ throughout our company are industry-specific applications that in some cases have been internally developed or modified by the vendor and improved to fit our operations.

The operational information systems we employ throughout the Company are industry-specific applications that in some cases have been internally developed or modified by the vendor and improved to fit our operations.

Our enterprise resource planning software is integrated with our operational information systems wherever possible to deliver relevant and real-time operational data.

3 unchanged sentences

In general, we produce to order rather than to stock.

For wind towers, our largest product line, the industry has historically used customized contracts with varying terms and conditions between suppliers and customers, depending on the specific objectives of each party.

For wind towers, our largest product line, the industry has historically used customized contracts with varying terms and conditions between suppliers and customers, depending on the specific objectives of each party.

Our practices mirror this historical industry practice of negotiating agreements on a case- by-case basis.

As a result, working capital needs, including levels of accounts receivable (“A/R”), accounts payable (“A/P”), and inventory, can vary significantly from quarter to quarter based on the contractual terms associated with each quarter’s sales, such as whether and when we are required to purchase and supply steel to meet our contractual obligations.

Customer deposits can vary significantly from quarter to quarter based on customer mix, contractual terms associated with each quarter’s sales and the timing impacts associated with customers placing orders for future production.

In recent years, our larger customers have increasingly used supplier financing programs, whereby a third-party lender advances customer payments to us net of an interest charge.

The combination of customer deposits and supplier financing programs arrangements may significantly reduce our working capital requirements.

In analyzing our liquidity, an important short-term metric is our use of operating working capital (“OWC”) in relationship to revenue.

In analyzing our liquidity, an important short-term metric is our use of operating working capital (“OWC”) in relation to revenue.

OWC is comprised of A/R and inventories, net of A/P and customer deposits.

Our OWC at December 31, 2020 was $5,062, or 3% of trailing three months of sales annualized, in line with December 31, 2019 , when OWC was $5,580, or 3% of trailing three months of sales annualized.

Although OWC was relatively flat on a percent of trailing three months sales annualized basis year over year, OWC fluctuated materially during the year, driven primarily by the timing and level of customer deposits received for future scheduled production.

Our OWC at December 31, 2021 was $18,635, or 18% of trailing three months of sales annualized, compared to December 31, 2020, when OWC was $5,062, or 3% of trailing three months of sales annualized. 

The increase in  

OWC was driven primarily by an increase in inventory levels in the current year due to supply chain challenges and the timing and level of customer deposits received for future scheduled production.

CORPORATE INFORMATION

Our principal executive office is located at 3240 South Central Avenue, Cicero, IL 60804.

Our phone number is (708) 780-4800 and our website address is www.bwen.com.

Our principal executive office is located at 3240 South Central Avenue, Cicero, IL 60804.

Our phone number is (708) 780-4800 and our website address is www.bwen.com.

OTHER INFORMATION

On our website at www.bwen.com , we make available under the “Investors” menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8 K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

On our website at www.bwen.com , we make available under the “Investors”

menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8 K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

Also, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business