Broadwind Energy, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone Q4 filing; it also provides unaudited quarterly results. Unless stated otherwise, dollar amounts below are in thousands.
Business context
Broadwind manufactures wind-turbine towers and industrial weldments, precision gearing, and wind-industry services. Its three reporting segments are Towers and Weldments, Gearing, and Services. Wind-related sales remained the majority of revenue: approximately 73% related to new wind installations and 7% to servicing the installed fleet; approximately 20% was primarily industrial gearing and weldments. Five customers accounted for 76% of 2011 revenue.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $185,854 | $136,896 |
| Gross profit / margin | $7,187 / 3.9% | $1,946 / 1.4% |
| Operating loss | $(20,429) | $(69,227) |
| Loss from continuing operations | $(20,742) | $(69,753) |
| Net loss | $(21,948) | $(85,175) |
| Net loss per share, basic and diluted | $(0.19) | $(0.80) |
| Adjusted EBITDA (non-GAAP) | $(2,129) | $(9,210) |
| Cash used in operating activities | $(10,304) | $(10,123) |
| Cash used in investing activities | $(2,588) | $(5,015) |
| Cash provided by financing activities | $11,305 | $31,953 |
| Cash and cash equivalents at year-end | $13,340 | $15,331 |
| Total assets | $172,891 | $183,506 |
| Long-term debt, net of current maturities | $4,797 | $9,671 |
| Stockholders’ equity | $117,859 | $126,196 |
Separately, restricted cash was $876 at year-end 2011. Debt and credit agreements totaled $6,999, including $2,202 due in 2012; an additional $4,833 of debt related to the Brandon facility was classified in liabilities held for sale. Operating working capital was $13,980, up $6,037 year over year. The company reported $200 million of firm backlog at year-end, of which $161 million was expected to be delivered in 2012.
Changes versus the prior year
- Revenue rose 35.8%, primarily from a 54% increase in Towers and Weldments revenue; higher industrial gearing and Services revenue also contributed.
- Gross margin improved to 3.9% from 1.4%, reflecting higher volumes and a more favorable gearing mix, partly offset by competitive tower pricing and low initial utilization at the Abilene service center.
- Net loss narrowed substantially, helped by the absence of $40,777 in 2010 impairment charges and improved operating results. FY2011 nevertheless remained loss-making, with negative operating cash flow.
- Segment results improved but remained uneven: Towers and Weldments generated $5,187 of operating income; Gearing had a $10,733 operating loss; Services had a $5,247 operating loss.
- Operating cash use was slightly higher than in 2010, with working-capital investment in receivables and inventory and lower accounts payable cited as key factors. Financing cash flow was lower, in part because FY2010 included a larger equity offering.
Outlook, risks, and unusual items
- Restructuring: The company plans to reduce its facility footprint by about 30% (approximately 440,000 square feet), including selling or closing the unused Brandon, South Dakota tower facility and consolidating Cicero, Illinois gearing operations. Estimated total restructuring costs are $13,600, including $5,200 of capital expenditures and $8,400 of expenses; $874 had been incurred by year-end. Management forecasts approximately $5,500 of annual savings and about $7,600 of net asset-sale proceeds to help fund cash costs.
- Liquidity: Management expected cash resources and 2012 operating cash generation to cover needs for at least 12 months, but cautioned that results depend on customer orders and collections, restructuring execution, and access to financing. Operating cash flow was negative in 2011; working-capital requirements were expected to grow.
- Market and customer exposure: Federal wind incentives were scheduled to expire at the end of 2012, and management said delayed or absent extensions could weaken demand. Customer concentration, changing order patterns, underused capacity, steel supply and pricing, and competition are material risks. Backlog beyond 2012 was expected to reflect only six to twelve months of future sales.
- Legal and regulatory matters: Shareholder class and derivative suits remained pending, and the company could not estimate a loss range. The SEC had subpoenaed records concerning Brad Foote accounting practices; the company could not predict the outcome. Federal authorities were investigating alleged wastewater disposal violations at the Cicero facility. Initial remediation costs had been incurred, but potential investigation outcomes and liabilities remained uncertain.
- Other items: Broadwind completed the sale of its Logistics business in March 2011. It raised approximately $12.2 million before other offering costs through a September 2011 stock offering of 32.5 million shares. The stock closed below Nasdaq’s $1 minimum bid-price requirement for a sustained period; a compliance extension was being sought. The company reported effective disclosure controls and internal control over financial reporting, and the auditor issued unqualified opinions.
Important facts for investors to verify
- Whether the $200 million backlog converts to shipments, revenue, and cash on the expected schedule, particularly the $161 million projected for 2012.
- Progress, cash costs, asset-sale proceeds, and realized savings from the restructuring plan.
- Liquidity and financing headroom as working-capital needs rise, alongside scheduled debt payments and the Brandon facility sale.
- Developments in the shareholder litigation, SEC inquiry, and environmental investigation, including any new loss estimates or required accruals.
- Wind-incentive policy changes, customer concentration, and evidence that industrial diversification is improving profitability.
- Nasdaq bid-price compliance and the potential consequences for trading and capital access.