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Item 1A. Risk Factors

2024-03-05 compared with 2023-03-09 · 169 added, 147 removed, 185 unchanged (63% of the section changed)

RISKS RELATED TO OUR INDUSTRIES

Our financial and operating performance is subject to certain factors out of our control, including the state of the wind energy market in North America.

Our results of operations (like those of our customers) are subject to general economic conditions, and specifically to the state of the wind energy market.

In addition to the state and federal government policies supporting renewable energy described below, the growth and development of the larger wind energy market in North America is subject to a number of factors, including, among other things:

the availability and cost of financing for the estimated pipeline of wind energy development projects;

the cost of electricity, which may be affected by a number of factors, including government regulation, power transmission, seasonality, fluctuations in demand, and the cost and availability of fuel, particularly natural gas;

the cost of raw materials used to make wind turbines, particularly steel

the general increase in demand for electricity or “load growth”;

the costs of competing power sources, including natural gas, nuclear power, solar power and other power sources;

the development of new power generating technology, advances in existing technology or discovery of power generating natural resources;

the development of electrical transmission infrastructure;

state and federal laws and regulations regarding avian protection plans and noise or turbine setback requirements;

other state and federal laws and regulations, particularly those favoring low carbon energy generation alternatives;

administrative and legal challenges to proposed wind energy development projects;

the effects of global climate change such as more frequent or more extreme weather events, changes in temperature and precipitation patterns, changes to ground and surface water and other related phenomena;

the improvement in efficiency and cost of wind energy, as influenced by advances in turbine design and operating efficiencies;

public perception and localized community responses to wind energy projects.

Consolidation among wind turbine manufacturers could increase our customer concentration and/or disrupt our supply chain relationships.

Wind turbine manufacturers are among our primary customers.

There has been consolidation among these manufacturers, and more consolidation may occur in the future.

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.

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

We face competition from industry participants who may have greater resources than we do.

Our businesses are subject to risks associated with competition from new or existing industry participants who may have more resources and better access to capital.

Certain of our competitors and potential competitors may have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do.

Among other things, these industry participants compete with us based upon price, quality, location and available capacity.

We cannot be sure that we will have the resources or expertise to compete successfully in the future.

We also cannot be sure that we will be able to match cost reductions by our competitors or that we will be able to succeed in the face of current or future competition.

OPERATIONAL RISKS

We may be unable to keep pace with rapidly changing technology in wind turbine and other industrial component manufacturing.

The global markets for wind turbines and our other manufactured industrial components are rapidly evolving technologically.

Our component manufacturing equipment and technology may not be suited for future generations of products being developed by wind turbine companies.

As turbines grow in size, particularly to support the development of offshore windfarms, tower manufacturing becomes more complicated and may require investments in new manufacturing equipment.

For example, some wind turbine manufacturers are using wind turbine towers made partially or wholly from concrete instead of steel.

Additionally, if we implement emerging technologies such as artificial intelligence and machine learning into our products and services, we may not be able to anticipate vulnerabilities, flaws or security threats resulting from the use of such technology and develop adequate protection measures.

To maintain a successful business in our field, we must keep pace with technological developments and the changing standards of our customers and potential customers and meet their constantly evolving demands.

If we fail to adequately respond to the technological changes in our industry, make the necessary capital investments or are not suited to provide components for new types of wind turbines, our business, financial condition and operating results may be adversely affected.

We are substantially dependent on a few significant customers and the ordering levels for our products may vary based on customer needs.

Historically, the majority of our revenues are highly concentrated with a limited number of customers. 

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

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.

Further, we face significant risks associated with changes in our relationship with these significant customers.

Historically, the majority of our revenues are highly concentrated with a limited number of customers.

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

In 2023, one customer, GE Renewable Energy, accounted for more than 10% of our consolidated revenues, and our five largest customers accounted for 65% 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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Because of this variability, we believe that comparisons of our operating results in any particular quarterly period may not be a reliable indicator of future performance.

We face significant risks associated with uncertainties resulting from changes to policies and laws with the periodic changes in the U.S.

administration as well as risks associated with changes in our relationship with our significant customers. 

Changes of administration in the U.S.

federal government may affect our business in a manner that currently cannot be reliably predicted, especially given the potentially significant changes to various laws and regulations that affect us.

These uncertainties may include changes in laws and policies in areas such as corporate taxation, taxation on imports of internationally sourced products, international trade including trade treaties such as the United States-Mexico-Canada Agreement, environmental protection and workplace safety laws, labor and employment law, immigration and health care, which individually or in the aggregate could materially and adversely affect our business, results of operations or financial condition.

Additionally, if our relationships with significant customers should change materially, it could be difficult for us to immediately and profitably replace lost sales in a market with such concentration, which could have a material adverse effect on our operating and financial results.

We could be adversely impacted by decreased customer demand for our products due to (i) the impact of current or future economic conditions on our customers, (ii) our customers’

loss of market share to their competitors that do not use our products, and (iii) our loss of market share with our customers.

Additionally, if our relationships with our significant customers should change materially, it could be difficult for us to immediately and profitably replace lost sales in a market with such concentration, which could have a material adverse effect on our operating and financial results.

We could be adversely impacted by decreased customer demand for our products due to (i) the impact of current or future economic conditions on our customers, (ii) our customers’ loss of market share to their competitors that do not use our products, and (iii) our loss of market share with our customers.

We could lose market share with our customers to our competitors or to our customers themselves, should they decide to become more vertically integrated and produce the products that we currently provide.

In addition, even if our customers continue to do business with us, we could be adversely affected by a number of other potential developments with our customers.

The inability or failure of our customers to meet their contractual obligations could have a material adverse effect on our business, financial position and results of operations.

The inability or failure of our customers to meet their contractual obligations could have a material adverse effect on our business, financial position and results of operations and in the event of a dispute, these customers may have more significant resources than we do, which could result in protracted litigation and the incurrence of material costs.

Certain customer contracts provide the customer with the opportunity to cancel a substantial portion of its volume obligation by providing us with notice of such election prior to commencement of production.

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Although the liquidated damages provisions are generally capped, they can become significant and may have a negative impact on our profit margins and financial results.

A material change in payment terms with a significant customer could have a material adverse effect on our short-term cash flows.   

The concentration of our customer base may enable our customers to demand pricing and other terms unfavorable to us and make us more vulnerable to changes in demand by or issues with a given customer.

Because our industry is capital intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes in volume.

The property, plants and equipment needed to manufacture products for our customers and provide our processes and solutions can be very expensive.

We must spend a substantial amount of capital to purchase and maintain such property, plant and equipment.

Although we believe our current cash balance, along with our projected internal cash flows and available financing sources, will provide sufficient cash to support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to purchase and maintain the property, plant and equipment necessary to operate our business, we may be required to reduce or delay planned capital expenditures or to incur additional indebtedness.

We face significant risks associated with uncertainties resulting from changes to policies and laws with the periodic changes in the U.S.

administration.

Changes of administration in the U.S.

These uncertainties may include changes in laws and policies in areas such as corporate taxation, taxation on imports of internationally sourced products, international trade including trade treaties such as the United States-Mexico-Canada Agreement, environmental protection and workplace safety laws, labor and employment law, immigration and health care, which individually or in the aggregate could materially and adversely affect our business, results of operations or financial condition.

Disruptions in the supply of parts and raw materials, or changes in supplier relations, may negatively impact our operating results.

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However, limitations on availability of raw materials or increases in the cost of raw materials (including steel), energy, transportation and other necessary services may impact our operating results if our manufacturing businesses are not able to fully pass on the costs associated with such increases to their respective customers.

Alternatively, we will not realize material improvements from any decline in steel prices as the terms of our contracts generally require that we pass these cost savings through to our customers.

Alternatively, we will not realize material improvements from any decline in steel prices as the terms of our contracts generally require that we pass these cost savings through to our customers.

In addition, we may encounter supplier constraints, be unable to maintain favorable supplier arrangements and relations or be affected by disruptions in the supply chain caused by events such as natural disasters, pandemics, shipping delays, power outages and labor strikes.

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We depend on the services of unionized labor and have collective bargaining agreements with certain of our operations workforce at our Cicero, Illinois and Neville Island, Pennsylvania Gearing facilities.

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.

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 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.

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, 2023, these collective bargaining units represented approximately 18% 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 and following 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.

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 and following the COVID-19 pandemic and current inflationary pressures.

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.

In the event prevailing wage rates continue to increase in the markets in which we operate, we may be required to concurrently increase the wages paid to our employees to maintain the quality of our workforce and customer service.

If the supply of skilled labor is constrained or our costs of attracting and maintaining a workforce increase, our profit margins could decrease, and our growth potential and brand image could be impaired.

We may be unable to keep pace with rapidly changing technology in wind turbine and other industrial component manufacturing.

The global markets for wind turbines and our other manufactured industrial components are rapidly evolving technologically.

Our component manufacturing equipment and technology may not be suited for future generations of products being developed by wind turbine companies.

As turbines grow in size, particularly to support the development of offshore windfarms, tower manufacturing becomes more complicated and may require investments in new manufacturing equipment.

For example, some wind turbine manufacturers are using wind turbine towers made partially or wholly from concrete instead of steel.

If the supply of skilled labor is constrained or our costs of attracting and maintaining a workforce increase, our profit margins could decrease, and our growth potential and brand image could be impaired.

If our estimates for warranty expenses differ materially from actual claims made, or if we are unable to reasonably estimate future warranty expense for our products, our business and financial results could be adversely affected.

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In some instances, our customers have interpreted the scope and coverage of certain of our warranty provisions differently from our interpretation of such provisions.

The expenses associated with remediation activities in the wind energy industry can be substantial, and if we are required to pay such costs in connection with a customer’s warranty claim, we could be subject to additional unplanned cash expenditures.

If our estimates prove materially incorrect, or if we are required to cover remediation expenses in addition to our regular warranty coverage, we could be required to incur additional expenses and could face a material unplanned cash expenditure, which could adversely affect our business, financial condition and results of operations.

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A successful claim against us could have a material adverse effect on our business.

Because our industry is capital intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes in volume.

The property, plants and equipment needed to manufacture products for our customers and provide our processes and solutions can be very expensive.

We must spend a substantial amount of capital to purchase and maintain such property, plant and equipment.

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’

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 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.

Cybersecurity incidents could disrupt our business and result in the compromise of confidential information.

Our business is at risk from and may be impacted by information security incidents, including attempts to gain unauthorized access to our confidential data, ransomware, malware, phishing emails, and other electronic security events.

Our business is at risk from and may be impacted by information security incidents, including attempts to gain unauthorized access to our confidential data and data systems, ransomware, malware, business email compromise, phishing attacks, and other electronic security events.

Such incidents can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats.

They can also result from internal compromises, such as human error, or malicious acts.

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.

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.

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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.

In addition, historically we have carried a significant amount of variable rate debt which is subject to fluctuations in interest rates.

Certain government agencies, including the U.S.

Treasury, have previously implemented and may implement policies that have resulted and may continue to result in significantly increased interest rates and borrowing costs.

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  

Our plans for growth and diversification may not be successful, and could result in poor financial performance.

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

RISKS RELATED TO OUR INDUSTRIES

Our financial and operating performance is subject to certain factors out of our control, including the state of the wind energy market in North America.

Our results of operations (like those of our customers) are subject to general economic conditions, and specifically to the state of the wind energy market.

the availability and cost of financing for the estimated pipeline of wind energy development projects;

the cost of raw materials used to make wind turbines, particularly steel;

the general increase in demand for electricity or “load growth;”

the costs of competing power sources, including natural gas, nuclear power, solar power and other power sources;

the development of new power generating technology, advances in existing technology or discovery of power generating natural resources;

the development of electrical transmission infrastructure;

state and federal laws and regulations regarding avian protection plans and noise or turbine setback requirements;

other state and federal laws and regulations, particularly those favoring low carbon energy generation alternatives;

administrative and legal challenges to proposed wind energy development projects;

the improvement in efficiency and cost of wind energy, as influenced by advances in turbine design and operating efficiencies;

public perception and localized community responses to wind energy projects.

Consolidation among wind turbine manufacturers could increase our customer concentration and/or disrupt our supply chain relationships.

Wind turbine manufacturers are among our primary customers.

There has been consolidation among these manufacturers, and more consolidation may occur in the future.

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.

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

We face competition from industry participants who may have greater resources than we do.

Our businesses are subject to risks associated with competition from new or existing industry participants who may have more resources and better access to capital.

Among other things, these industry participants compete with us based upon price, quality, location and available capacity.

We cannot be sure that we will have the resources or expertise to compete successfully in the future.

We also cannot be sure that we will be able to match cost reductions by our competitors or that we will be able to succeed in the face of current or future competition.

RISKS RELATED TO OUR CORPORATE STRATEGY

Our plans for growth and diversification may not be successful, and could result in poor financial performance.

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 may require additional investments in personnel, equipment and operational infrastructure.

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Our diversification outside of the wind energy market exposes us to business risks associated with the gas turbine, O&G, and mining industries, among others, which may slow our growth or penetration in these markets.

Although we have experience in the gas turbine, O&G and mining industry markets, these markets have not historically been our primary focus.

Although we have experience in the gas turbine, O&G and mining industry markets, these markets have not historically been our primary focus.

In further diversifying our business to serve these markets, we face competitors who may have more resources, longer operating histories and more well-established relationships than we do, and we may not be able to successfully or profitably generate additional business opportunities in these industries.

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Additionally, customers may change production quantities or delay production with little advance notice.

Therefore, we rely on and plan our production and inventory levels based on our customers’

advance orders, commitments and/or forecasts, as well as our internal assessments and forecasts of customer demand.

Therefore, we rely on and plan our production and inventory levels based on our customers’ advance orders, commitments and/or forecasts, as well as our internal assessments and forecasts of customer demand.

The variations in volume and timing of sales make it difficult to schedule production and optimize utilization of manufacturing capacity.

This uncertainty may require us to increase staffing and incur other expenses in order to meet an unexpected increase in customer demand, potentially placing a significant burden on our resources.

An inability to respond to such changes in a timely manner may also cause customer dissatisfaction, which may negatively affect our customer relationships. 

Our growth strategies could be ineffective due to the risks of acquisitions and risks relating to integration.

Our growth strategy includes acquiring complementary businesses.

In regards to any other future acquisitions, we could fail to identify, finance or complete suitable acquisitions on acceptable terms and prices.

Acquisitions and the related integration processes could increase a number of risks, including diversion of operations personnel, financial personnel and management’s attention, difficulties in integrating systems and operations, potential loss of key employees and customers of the acquired companies and exposure to unanticipated liabilities.

In regards to any other future acquisitions, we could fail to identify, finance or complete suitable acquisitions on acceptable terms and prices, particularly with interest rates at comparatively high levels.

The price we pay for a business may exceed the value realized and we cannot provide any assurance that we will realize the expected synergies and benefits of any acquisitions.

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Our failure to meet the challenges involved in integrating a new business to realize the anticipated benefits of an acquisition could cause an interruption or loss of momentum in our existing activities and could adversely affect our profitability.

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.

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;

We 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.

We did not reach an agreement with WM Argyle in connection with its nomination, and there was a contested election at the Company’s 2023 Annual Meeting of Stockholders, in which none of WM Argyle’s candidates were elected as directors.

The cumulative cost to the Company of responding to the proxy contest was approximately $1.8 million.

We value input from all stockholders and remain open to ongoing engagement with our stockholders.

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

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;

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 Amended and Restated 2015 Equity Incentive Plan (as amended, the “2015 EIP”), and underlying award agreements 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;

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Although we anticipate deriving revenues from the sale of our products, no assurance can be given that these products can be sold on a profitable basis.

We cannot give any assurance that we will be able to sustain or increase profitability on a quarterly or annual basis in the future. 

We may continue to incur significant losses in the future for a number of reasons, including other risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors.

We have significant indebtedness and we may incur additional debt in the future.

Servicing our indebtedness requires a significant amount of cash, and the terms of our current indebtedness, and the terms of any future indebtedness, may restrict the activities of the Company.

We have significant indebtedness, including the indebtedness under the 2022 Credit Facility (as defined and further discussed in Note 10 “Debt and Credit Agreements” of our consolidated financial statements).

Our debt obligations could potentially have important consequences to us and our investors, including:

(1) requiring a substantial portion of our cash flows from operations to make debt service payments or to refinance our indebtedness as it becomes due, making it more difficult for us to satisfy our other priorities and obligations;

(2) resulting in higher interest expenses, (3) increasing our vulnerability to general adverse economic and industry conditions;

(4) reducing the cash flows available to fund capital expenditures and other corporate purposes and to grow our business;

(5) limiting our flexibility in pursuing strategic opportunities or planning for, or reacting to, changes in our business and the industry;

(6) placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged;

and (7) limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, regulatory factors, and factors beyond our control.

Our cash flow from operations in the future may be insufficient to service our indebtedness, including if our actual cash requirements in the future are greater than expected.

If we are unable to generate the necessary cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, incurring new debt or issuing additional equity on terms that may be unfavorable, onerous or highly dilutive.

Our ability to refinance our indebtedness or incur new debt will depend on the capital markets and our financial condition at such time.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

As described in Note 10 “Debt and Credit Agreements” of our consolidated financial statements, the agreements governing our indebtedness contain covenants restricting our operations and limiting our financial flexibility.

In addition, some of the agreements governing our indebtedness require that we maintain minimum EBITDA requirements, not exceed a maximum fixed charge coverage ratio and contain certain customary events of default.

Our ability to comply with such restrictions and covenants may be affected by various factors, some of which factors may be beyond our control.

If we breach any of these restrictions or covenants and do not obtain a waiver from the lenders or holders, as applicable, then, subject to the applicable cure periods and conditions, any outstanding indebtedness could be declared immediately due and payable.

Our PPP Loans were forgiven, but we may still be subject to audit and any resulting adverse audit financings of non-compliance could result in the repayment of a portion or all of the PPP Loans and may restrict our flexibility in operating our business or otherwise adversely affect our results of operations.

On April 15, 2020, we received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 in response to the COVID-19 pandemic and is administered by the U.S.

Small Business Administration (the “SBA”).

We received total proceeds of $9,530 from the PPP Loans and made repayments of $379 on May 13, 2020.

On April 15, 2020, we received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 in response to the COVID-19 pandemic and is administered by the U.S.

Small Business Administration (the “SBA”).

We received total proceeds of $9,530 from the PPP Loans and made repayments of $379 on May 13, 2020.

We used at least 60% of our PPP Loan proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the PPP.

We submitted our forgiveness applications to CIBC Bank, USA in the first quarter of 2021, and during the second quarter of 2021, all PPP Loans were forgiven by the SBA.

During the second quarter of 2021, all of our PPP Loans were forgiven by the SBA.

However, the U.S.

Department of the Treasury has announced that it will conduct audits for PPP Loans that exceed $2,000 for a period of six years after forgiveness.

Should we be audited or reviewed by the U.S.

Department of the Treasury or the SBA, such audit or review could result in the diversion of management’s time and attention and cause us to incur significant costs.

If we were to be audited and receive an adverse outcome in such an audit, we could be required to return the full amount of the PPP Loans and may potentially be subject to civil and criminal fines and penalties. 

If it is subsequently determined that the PPP Loans must be repaid, we may be required to use a substantial portion of our available cash and/or cash flows from operations to pay interest and principal on the PPP Loans, and any future repayment of such loans, would adversely impact our operations and financial results.

Department of the Treasury or the SBA, such audit or review could result in the diversion of management’s time and attention and cause us to incur significant costs.

If it is subsequently determined that the PPP Loans must be repaid, we may be required to use a substantial portion of our available cash and/or cash flows from operations to pay interest and principal on the PPP Loans, and any future repayment of such loans, would adversely impact our operations and financial results.

RISKS RELATED TO OWNING OUR COMMON STOCK

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Our common stock trades on the Nasdaq Capital Market.

Historically, we have not had an active trading market for our common stock.

Historically, we have not had an active trading market for our common stock.

The absence of an active trading market increases price volatility and reduces the liquidity of our common stock.

The market price and level of trading of our common stock could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control.

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 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.

In 2023, the closing price of our common stock varied from a high of $5.92 per share to a low of $1.77 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.

We may not be able to utilize all of our NOLs.

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However, if we do not achieve sufficient profitability prior to their expiration, we will not be able to fully utilize our NOLs to offset income.

Section 382 of the IRC (“Section 382”) generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership.

Our ability to utilize NOL carryforwards and built-in losses may be limited, under Section 382 or otherwise, by our issuance of common stock or by other changes in ownership of our stock.

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However, subsequent changes in our stock ownership could further limit our ability to use our NOL carryforwards and our income could be subject to taxation earlier than it would if we were able to use NOL carryforwards and built-in losses without an annual limitation, which could result in lower profits.

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, which was subsequently approved 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. 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.

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, 2019, and 2022 for additional three-year periods (as amended, the “Rights Plan”), designed to preserve our substantial tax assets associated with NOL carryforwards under Section 382.

See Note 14, “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.

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.

INTELLECTUAL PROPERTY RISKS

Any failure to protect our customers’

intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.

The products we manufacture for our customers often contain our customers’

intellectual property, including copyrights, patents, trade secrets and know-how.

Our success depends, in part, on our ability to protect our customers’

intellectual property.

The steps we take to protect our customers’

intellectual property may not adequately prevent its disclosure or misappropriation.

If we fail to protect our customers’

intellectual property, our customer relationships could be harmed and we may experience difficulty in establishing new customer relationships.

Any failure to protect our customers’ intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.

The products we manufacture for our customers often contain our customers’ intellectual property, including copyrights, patents, trade secrets and know-how.

Our success depends, in part, on our ability to protect our customers’ intellectual property.

The steps we take to protect our customers’ intellectual property may not adequately prevent its disclosure or misappropriation.

If we fail to protect our customers’ intellectual property, our customer relationships could be harmed and we may experience difficulty in establishing new customer relationships.

Additionally, our customers might pursue legal claims against us for any failure to protect their intellectual property, possibly resulting in harm to our reputation and our business, financial condition and operating results.

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wind energy industry is significantly impacted by tax and other economic incentives.

A significant change in these incentives could significantly impact our results of operations and growth. 

We sell towers to wind turbine manufacturers who supply wind energy generation facilities.

wind energy industry is significantly impacted by federal tax incentives and state Renewable Portfolio Standards (“RPSs”).

Despite recent reductions in the cost of wind energy, due to variability in wind quality and consistency, and other regional differences, wind energy may not be economically viable in certain parts of the country absent such incentives.

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On December 27, 2020, COVID IV was signed into law.

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.

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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. 

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 AMP credits for manufacturers of eligible components, including wind and solar components.

Manufacturers qualify for the AMP 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 elect a direct pay option where they can receive a payment equal to the full value of the tax credits from the Internal Revenue Service anytime during the ten-year period.

That election lasts for five years, after which the AMP credits can be used against tax obligations or transferred to third parties in exchange for cash.

We expect certain financial benefits as a result of tax incentives provided by the IRA.

If these expected financial benefits vary significantly from our assumptions, our business, financial condition, and results of operations could be adversely affected.

Any modifications to the law or its effects arising, for example, through (i) technical guidance and regulations from the IRS and U.S.

Treasury Department, (ii) subsequent amendments to or interpretations of the law, and/or iii) future laws or regulations rendering certain provisions of the IRA less effective or ineffective, in whole or in part, could result in material adverse changes to the benefits we have recognized and expect to recognize.

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 Build Back Better 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 President Biden’s 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 existence of government subsidies available to our competitors in certain countries may affect our ability to compete on a price basis.

In 2013, the USITC determined that wind towers from China and Vietnam were being sold in the U.S.

at less than fair value. Imports from China and Vietnam have declined following a determination by the USITC in 2013 that wind towers from those countries were being sold in the U.S.

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 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.

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, and Vietnam and an antidumping order on imports of towers from Korea. 

The Indonesia countervailing duty order was later revoked after an appeal to the U.S.

Court of International Trade (“CIT”).

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.

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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. 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.

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 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.

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.

Certain other geopolitical conflicts, including the war between Israel and Hamas may also lead to material disruptions to certain supply chains and volatility in prices.

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.

Our operations are subject to a variety of EHS laws and regulations in the jurisdictions in which we operate and sell products governing, among other things, health, safety, pollution and protection of the environment and natural resources, including the use, handling, transportation and disposal of non-hazardous and hazardous materials and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water, groundwater and soil, product content, performance and packaging.

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Such costs and expenditures could have a material adverse effect on our business, financial condition or results of operations.

Under certain circumstances, violation of such EHS laws and regulations could result in us being disqualified from eligibility to receive federal government contracts or subcontracts under the federal government’s debarment and suspension system.

We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment.

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The presence of contamination from hazardous substances or wastes could interfere with ongoing operations or adversely affect our ability to sell, lease or use our properties as collateral for financing.

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.

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 2023, 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.

As a manufacturer and distributor of wind and other energy industry products we are subject to the requirements of federal, state, local and foreign regulatory authorities.

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Additionally, other ESG-related laws, regulations, treaties, and similar initiatives and programs are being proposed, adopted and implemented throughout the world.

If we were to violate or become liable under environmental or certain ESG-related laws or if our products become non-compliant with such laws or market access requirements, our customers may refuse to purchase our products, and we could incur costs or face other sanctions, such as restrictions on our products entering certain jurisdictions, fines, and/or civil or criminal sanctions.

In addition to potential implementation of ESG laws, investor advocacy groups, certain institutional investors, investment funds, other market participants, stockholders, and customers have focused increasingly on the ESG practices of companies, including those associated with climate change.

If our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our brand, reputation and employee retention may be negatively impacted based on an assessment of our ESG practices.

UNRESOLVED STAFF COMMENTS

If we were to violate or become liable under environmental or certain ESG-related laws or if our products become non-compliant with such laws or market access requirements, our customers may refuse to purchase our products, and we could incur costs or face other sanctions, such as restrictions on our products entering certain jurisdictions, fines, and/or civil or criminal sanctions.

In addition to potential implementation of ESG laws, investor advocacy groups, certain institutional investors, investment funds, other market participants, political figures, stockholders, and customers have focused increasingly on the ESG practices of companies, including those associated with climate change.

If our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our brand, reputation and employee retention may be negatively impacted based on an assessment of our ESG practices.

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