What changed in this filing

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Item 1A. Risk Factors

2023-03-09 compared with 2022-03-02 · 48 added, 22 removed, 284 unchanged (20% of the section changed)

20 unchanged sentences

For example, both Siemens Energy, Inc.

and Gamesa Wind US, LLC, were customers for our tower business until early 2017, at which time they merged into SGRE and became our largest customer.

and Gamesa Wind US, LLC, were customers for our tower business until early 2017, at which time they merged into SGRE.

Customer consolidation may result in pricing pressures, leading to downward pressure on our margins and profits, and may also disrupt our supply chain relationships.

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Some of the markets we serve have a limited number of customers. 

In 2021, two customers, SGRE and GE Renewable Energy, each accounted for more than 10% of our consolidated revenues, and our five largest customers accounted for 71% of our consolidated revenues.

In 2022, two customers, SGRE and GE Renewable Energy, each accounted for more than 10% of our consolidated revenues, and our five largest customers accounted for  

69% of our consolidated revenues.

Certain of our customers have periodically expressed their intent to scale back, delay or restructure existing customer agreements, which has led to reduced revenues from these customers and periodic deviations in expected ordering levels.

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The loss of the services of these and other personnel, whether through terminations, attrition, labor strike or otherwise, or a material change in our collective bargaining agreements, including a significant increase in labor costs, could have a material adverse impact on us and our future profitability.

In November 2017, a five-year collective bargaining agreement was ratified by the collective bargaining union in our Neville Island facility 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 expect to renegotiate a new collective bargaining agreement in regards to the Neville Island facility later in 2022.

Any failure to negotiate and conclude a new collective bargaining agreement with a union when the applicable agreement expires could result in strikes, boycotts, or other labor disruptions.

In November 2022, a four-year collective bargaining agreement was ratified by the collective bargaining union in our Neville Island facility and will remain in effect through October 2026.

A four-year collective bargaining agreement in regard to the Cicero, Illinois facility was negotiated in February 2022, and is expected to remain in effect through February 2026. Any failure to negotiate and conclude a new collective bargaining agreement with a union when the applicable agreement expires could result in strikes, boycotts, or other labor disruptions.

As of December 31, 2022, these collective bargaining units represented approximately 19% of our workforce.

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Many of the products we sell, and related services that we provide require that we have skilled labor in our manufacturing facilities.

The availability of labor in the markets in which we operate has declined in recent years and competition for such labor has increased, especially under the economic crises experienced throughout the COVID-19 pandemic.

A significant increase in wages paid by competitors, both within and outside the energy industry, for such work force could result in insufficient availability of workers or increase our labor costs, or both.

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The COVID-19 pandemic has had, and may continue to have, adverse effects on our operations.

In prior periods, we experienced adverse impacts from the COVID-19 pandemic including a decline in order activity levels within the Gearing and Heavy Fabrications segments and customers’

In prior periods, we experienced adverse impacts from the COVID-19 pandemic including a decline in order activity levels within the Gearing and Heavy Fabrications segments and customers’

postponement of scheduled purchases and project timing partially offset by the continued operation of our facilities as essential businesses in light of the customers and markets served.

We incurred manufacturing inefficiencies associated with severe supply chain disruptions and realized employee staffing constraints due to the continued spread of the COVID-19 pandemic.

In response to the pandemic, in 2020 and 2021, we right-sized our workforce, delayed certain capital expenditures and managed expenses where possible.

Due to the ongoing pandemic, including emerging variants, we may continue to experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional supply chain disruption, more employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact us and our business, operations and financial results.

The impacts and potential impacts of COVID-19 that could directly or indirectly materially affect our business also include, but are not limited to, the extent of dissemination and adoption of COVID-19 vaccines and their effectiveness against the evolving variants, additional widespread resurgences in COVID-19 infections, and evolving safety protocols such as requirements for proof of vaccination or regular testing in certain of our markets.

We continue to incur manufacturing inefficiencies associated with severe supply chain disruptions and realized employee staffing constraints due to the continued spread of the COVID-19 pandemic.

Although availability of vaccines and reopening of state and local economies have improved the outlook for recovery from the impact of the COVID-19 pandemic, due to the ongoing global pandemic, including emerging variants, we may again experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional supply chain disruption, more employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact us and our business, operations and financial results.

In addition, a possible recession or market correction resulting from the spread of COVID-19 or otherwise could materially affect our business and the value of our stock. 

The impacts and potential impacts of COVID-19 that could directly or indirectly materially affect our business also include, but are not limited to, effectiveness of the vaccines against the evolving variants, additional widespread resurgences in COVID-19 infections, and evolving safety protocols such as requirements for proof of vaccination or regular testing in certain of our markets.

As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.

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While we seek to employ measures to prevent, detect, and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cyber event. Cybersecurity incidents could disrupt our business and compromise confidential information belonging to us and third parties.

Recent increases in inflation and interest rates in the United States and elsewhere could adversely affect our business.

We are exposed to fluctuations in inflation and interest rates, which could negatively affect our business, financial condition and results of operations.

The United States and other jurisdictions have recently experienced high levels of inflation.

If the inflation rate continues to increase, it will likely affect our expenses, including, but not limited to, employee compensation and labor expenses and increased costs for supplies, and we may not be successful in offsetting such cost increases. In addition, historically we have carried a significant amount of variable rate debt which is subject to fluctuations in interest rates.

Recent increases in interest rates will result in increased interest expense to the extent we cannot limit our debt balances.

RISKS RELATED TO OUR CORPORATE STRATEGY  

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We continue to seek to strategically diversify and grow the business to improve operational efficiency and meet customer demand.

Our diversification efforts into the natural gas turbine power generation, O&G, mining and other industries, particularly within our gearing and industrial fabrication product lines and through our 2017 acquisition of Red Wolf Company, LLC, may require additional investments in personnel, equipment and operational infrastructure.

Our diversification efforts into the natural gas turbine power generation, O&G, mining and other industries may require additional investments in personnel, equipment and operational infrastructure.

Moreover, although we have historically participated in most of these lines of business, there is no assurance that we will be able to grow our presence in these markets at a rate sufficient to compensate for a potentially weaker wind energy market.

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Acquisitions also may result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could diminish our reported earnings and operating results.

We are subject to risks associated with proxy contests and other actions of activist stockholders.

Publicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as governance changes, financial restructurings, increased borrowings, special dividends, stock repurchases or even sales of assets or entire companies to third parties or the activists themselves.

We have received a notice dated January 18, 2023 from WM Argyle Fund, LLC (“WM Argyle”), which allegedly owned approximately 1.0% of the Company’s outstanding shares at the time of submission, purporting to nominate a slate of six candidates for election as directors at our 2023 Annual Meeting of Stockholders.

The Company values input from all stockholders, including WM Argyle, and remains open to ongoing engagement with WM Argyle.

However, if the Company and WM Argyle cannot reach an agreement in connection with its nomination, there will be a contested election at the Company’s 2023 Annual Meeting of Stockholders.

A proxy contest or related activities on the part of activist stockholders, including, among others, WM Argyle, could adversely affect our business for a number of reasons, including, without limitation, the following:

Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors (the “Board”), management and our employees;

Perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and others important to our success, any of which could negatively affect our business and our results of operations and financial condition;

Action by activist stockholders may be exploited by our competitors, cause concern to our current or potential customers and make it more difficult to attract and retain qualified personnel;

A successful proxy contest could result in a change in control of our Board, and such an event could subject us to certain contractual obligations under several material agreements, including our existing 2015 EIP agreement and certain employment agreements;

If nominees advanced by activist stockholders are elected or appointed to our Board with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans or to realize long-term value from our assets, and this could in turn have an adverse effect on our business and on our results of operations and financial condition;

Proxy contests may cause our stock price to experience periods of volatility.

FINANCIAL RISKS

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These factors include, among other things, our limited trading volume, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our business and the general state of the securities market, as well as general economic, political and market conditions and other factors that may affect our future results. 

In 2021, the closing price of our common stock varied from a high of $11.55 per share to a low of $1.88 per share. Stockholders may have incurred substantial losses with regard to any investment in our common stock adversely affecting stockholder confidence.

In 2022, the closing price of our common stock varied from a high of $3.59  

per share to a low of $1.47 per share. Stockholders may have incurred substantial losses with regard to any investment in our common stock adversely affecting stockholder confidence.

Limitations on our ability to utilize our NOLs may negatively affect our financial results.

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To address these concerns, in February 2013 we adopted a Section 382 Stockholder Rights Plan, which was subsequently approved by our stockholders and extended in 2016 and 2019 for additional three-year periods (as amended, the “Rights Plan”), designed to preserve our substantial tax assets associated with NOL carryforwards under Section 382.

The Rights Plan is intended to deter any person or group from being or becoming the beneficial owner of 4.9% or more of our common stock and thereby triggering a further limitation of our available NOL carryforwards. On February 3, 2022, the Board of Directors (the “Board”) approved an amendment which included an extension of the Rights Plan for an additional three years.

The amendment is subject to approval by our stockholders at our 2022 Annual Meeting of Stockholders.

See Note 13, “Income Taxes”

of our consolidated financial statements for further discussion of our Rights Plan.

There can be no assurance that the Rights Plan will be effective in protecting our NOL carryforwards or that it will be approved by our stockholders at our 2022 Annual Meeting of Stockholders. Additionally, because the Rights Plan subjects any person that acquires 4.9% of our common stock without the Board’s permission to significant dilution, it could make it harder for a third party to acquire us without the consent of the Board.

There can be no assurance that the Rights Plan will be effective in protecting our NOL carryforwards. Additionally, because the Rights Plan subjects any person that acquires 4.9% of our common stock without the Board’s permission to significant dilution, it could make it harder for a third party to acquire us without the consent of the Board.

In particular, the Rights Plan may deter a third party from completing or even initiating an acquisition of the Company, which may prevent stockholders from realizing a control premium from a potential acquirer, or from otherwise maximizing stockholder value.

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

On August 16, 2022, the IRA was enacted to reduce inflation and promote clean energy in the United States.

The IRA modifies and extends the PTC until the later of 2032 or when greenhouse gas emissions have been reduced by 75% compared to 2022.

It provides for tax credits up to a maximum of 30%, adjusted for inflation annually, for electricity generated from qualified renewable energy sources where taxpayers meet prevailing wage standards and employ a sufficient proportion of qualified apprentices from registered apprenticeship programs.

It also provides a bonus credit for qualifying clean energy production in energy communities. 

The IRA also includes advanced manufacturing tax credits for manufacturers of eligible components, including wind and solar components (“45X credits”).

Manufacturers qualify for the 45X credits based on the electricity output for each component produced and sold in the US starting in 2023 through 2032. The credit amount varies based on the eligible component, which includes solar components, wind energy components, inverters, qualifying battery components, and critical minerals. Tower manufacturers are eligible for credits of $0.03 per watt for applicable components produced.

Manufacturers can apply to the Internal Revenue Service for cash refunds of the 45X credits for up to five years. After the first five years, the 45X credits are transferable and can be sold to third parties for cash.

We are waiting for the Internal Revenue Service and the U.S.

Treasury Department to provide implementation guidance for the legislation. 

RPSs generally require or encourage state regulated electric utilities to supply a certain proportion of electricity from renewable energy sources or to devote a certain portion of their plant capacity to renewable energy generation.

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The enactment of RPSs in additional states or any changes to existing RPSs (including changes due to the failure to extend or renew the federal incentives described above), or the enactment of a federal RPS or imposition of other greenhouse gas regulations, may impact the demand for our products.

We cannot assure that government support for renewable energy will continue including any assurance regarding the adoption of any of the clean energy provisions of the BBB agenda.

We cannot assure that government support for renewable energy will continue including any assurance regarding the adoption of any of the clean energy provisions of the Build Back Better agenda.

The elimination of, or reduction in, state or federal government policies that support renewable energy could have a material adverse impact on our business, results of operations, financial performance and future development efforts.

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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.

Additionally, tensions between Russia and Ukraine have escalated in recent months.

This has led to economic sanctions imposed against Russia by the U.S.

and certain European nations.

The USDOC imposed orders for two cases in August 2021 and the remainder in December 2021. Appeals of several of the USDOC determinations are currently pending at the CIT and the CAFC.

Additionally, the war in Ukraine has led to economic sanctions imposed against Russia by the U.S.

and certain European nations, including a prohibition on doing business with certain Russian companies.

Such sanctions may impact companies in many sectors and could lead to volatility of prices in the global energy industry.

The extent and strength of the sanctions are still developing, and the corresponding effect on the Company remains uncertain.  

The extent and duration of the war and extent and strength of the sanctions are still developing, and the corresponding effect on the Company remains uncertain.  

We could incur substantial costs to comply with environmental, health and safety (“EHS”) laws and regulations and to address violations of or liabilities under these requirements.

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We also could be held liable under third-party claims for property damage, natural resource damage or personal injury and for penalties and other damages under such environmental laws and regulations, which could have a material adverse effect on our business, financial condition and results of operations.

During 2022, we did not incur significant remediation costs or penalties related to environmental matters. 

Our ability to comply with regulatory requirements and potential environmental, social and governance (“ESG”) regulations and trends is critical to our future success, and there can be no guarantee that our businesses are in full compliance with all such requirements.

11 unchanged sentences

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 1A. Risk Factors