You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and the related notes and other financial information appearing
elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q). Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Form 10-Q, including information with respect to plans and strategy for our
business, includes forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those described
in or implied by these forward-looking statements as a result of various
factors, including those discussed below and elsewhere in this Form 10-Q or in
our previously filed Annual Report on Form 10-K, particularly those under "Risk
Factors."
OVERVIEW
Our Company
We are the only independent manufacturer of composite wind blades for the wind
energy market with a global manufacturing footprint. We enable many of the
industry's leading wind turbine original equipment manufacturers (OEM), who have
historically relied on in-house production, to outsource the manufacturing of
some of their wind blades through our global footprint of advanced manufacturing
facilities strategically located to serve large and growing wind markets in a
cost-effective manner. Given the importance of wind energy capture, turbine
reliability and cost to power producers, the size, quality and performance of
wind blades have become highly strategic to our OEM customers. As a result, we
have become a key supplier to our OEM customers in the manufacture of wind
blades and related precision molding and assembly systems. We have entered into
long-term supply agreements pursuant to which we dedicate capacity at our
facilities to our customers in exchange for their commitment to purchase minimum
annual volumes of wind blade sets, which consist of three wind blades. As of May
6, 2020, our long-term wind and transportation supply agreements provide for
minimum aggregate volume commitments from our customers of approximately
$2.5 billion and encourage our customers to purchase additional volume up to, in
the aggregate, a total contract value of approximately $5.0 billion through the
end of 2023. This collaborative dedicated supplier model provides us with
contracted volumes that generate significant revenue visibility, drive capital
efficiency and allow us to produce wind blades at a lower total delivered cost,
while ensuring critical dedicated capacity for our customers. Our wind blade and
precision molding and assembly systems manufacturing businesses accounted for
approximately 96% of our total net sales for both the three months ended
March 31, 2020 and 2019. We also leverage our advanced composite technology and
history of innovation to supply high strength, lightweight and durable composite
products to the transportation market.
We divide our business operations into four geographic operating segments - (1)
the United States (U.S.), (2) Asia, (3) Mexico and (4) Europe, the Middle East,
Africa and India (EMEAI) as follows:
• Our U.S. segment includes (1) the manufacturing of wind blades at our
Newton, Iowa plant, (2) the manufacturing of precision molding and
assembly systems used to manufacture wind blades at our Warren, Rhode
Island facility, (3) the manufacturing of composite solutions for the
transportation industry, which we also conduct at our Rhode Island
facility , (4) wind blade inspection and repair services in North America,
(5) our advanced engineering center in Kolding, Denmark, which provides
technical and engineering resources to our manufacturing facilities, (6)
our engineering center in Berlin, Germany which we purchased in July 2019
and (7) our corporate headquarters, the costs of which are included in
general and administrative expenses.
• Our Asia segment includes (1) the manufacturing of wind blades at our
facilities in Dafeng, China and Yangzhou, China, the latter of which
commenced operations in March 2019, (2) the manufacturing of precision
molding and assembly systems at our Taicang Port, China facility and
(3) wind blade inspection and repair services.
• Our Mexico segment manufactures wind blades from three facilities in
Juárez, Mexico and a facility in Matamoros, Mexico. In addition, we have a
facility which manufactures precision molding and assembly systems and
composite solutions for the transportation industry in Juárez, Mexico and
we commenced operations at this facility in March 2019. This segment also
performs wind blade inspection and repair services.
• Our EMEAI segment manufactures wind blades from two facilities in Izmir,
Turkey and also performs wind blade inspection and repair services. In
February 2019, we entered into a new lease agreement with a third party
for a new manufacturing facility that was built in Chennai, India and we
commenced operations at this facility in the first quarter of 2020.
KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS
The COVID-19 pandemic adversely impacted our operations and results of
operations for the quarter ended March 31, 2020 due primarily to reduced
production levels at our China manufacturing facilities. We estimate that our
net sales were adversely impacted
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by approximately $38 million, our net loss by approximately $9 million, which is
net of approximately $2 million of income taxes, and our Adjusted EBITDA by
approximately $11 million due to reduced production levels at our China
manufacturing facilities due to the COVID-19 pandemic.
During the second quarter of 2020, several of our manufacturing facilities have
been required to temporarily suspend production or operate at reduced production
levels due primarily to certain applicable government-mandated stay at home
orders in response to the COVID-19 pandemic, demands from certain of our labor
unions to suspend or reduce production and general safety concerns of our
associates.
Currently, our manufacturing facilities in India and Matamoros, Mexico are
operating at limited production levels, our manufacturing facilities in Juárez,
Mexico are temporarily shutdown, our manufacturing facility in Iowa restarted
operations at a limited production level on May 6, 2020 after a temporary
shutdown and our manufacturing facilities in China, Turkey and Rhode Island are
operating at normal production levels.
Although our China and Turkey manufacturing facilities have resumed full
production and customer demand for our products remain strong, we expect that
the COVID-19 pandemic will have an adverse effect on our operations, results of
operations and financial condition for the balance of 2020 due to the impact of
the COVID-19 pandemic on our manufacturing production levels. As a result of the
uncertainty relating to: (i) the rapidly evolving nature, magnitude and duration
of the COVID-19 pandemic, (ii) the variety of measures implemented by
governments around the world to address its effects and (iii) the impact on our
manufacturing operations, we, however, are unable to currently estimate and
quantify the actual impact of COVID-19 on our business, results of operations
and financial condition for the balance of 2020.
As a result of such uncertainty, we are managing our liquidity to ensure our
long-term viability until the COVID-19 pandemic abates. During the three months
ended March 31, 2020, we drew down $50.0 million under our Credit Agreement and
an additional $30.0 million in April 2020.
COMPONENTS OF RESULTS OF OPERATIONS
Net Sales
We recognize revenue from manufacturing services over time as our customers
control the product as it is produced, and we may not use or sell the product to
fulfill other customers' contracts. Net sales include amounts billed to our
customers for our products, including wind blades, precision molding and
assembly systems and other products and services, as well as the progress
towards the completion of the performance obligation for products in progress,
which is determined on a ratio of direct costs incurred to date in fulfillment
of the contract to the total estimated direct costs required to complete the
performance obligation.
Cost of Goods Sold
Cost of goods sold includes the costs we incur at our production facilities to
make products saleable on both products invoiced during the period as well as
products in progress towards the completion of each performance obligation. Cost
of goods sold includes such items as raw materials, direct and indirect labor
and facilities costs, including purchasing and receiving costs, plant
management, inspection costs, production process improvement activities, product
engineering and internal transfer costs. In addition, all depreciation
associated with assets used in the production of our products is also included
in cost of goods sold. Direct labor costs consist of salaries, benefits and
other personnel related costs for employees engaged in the manufacturing of our
products and services.
Startup and transition costs are primarily unallocated fixed overhead costs and
underutilized direct labor costs incurred during the period production
facilities are transitioning wind blade models and ramping up manufacturing. All
direct labor costs are included in the measure of progress towards completion of
the relevant performance obligation when determining revenue to be recognized
during the period. The cost of sales for the initial wind blades from a new
model manufacturing line is generally higher than when the line is operating at
optimal production volume levels due to inefficiencies during ramp-up related to
labor hours per blade, cycle times per blade and raw material usage.
Additionally, these costs as a percentage of net sales are generally higher
during the period in which a facility is ramping up to full production capacity
due to underutilization of the facility. Manufacturing overhead at each of our
facilities includes virtually all indirect costs (including share-based
compensation costs) incurred at the plants, including engineering, finance,
information technology, human resources and plant management.
General and Administrative Expenses
General and administrative expenses primarily relate to the unallocated portion
of costs incurred at our corporate headquarters and our research facilities and
include salaries, benefits and other personnel related costs for employees
engaged in research and development, engineering, finance, internal audit,
information technology, human resources, business development, global
operational excellence,
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global supply chain, in-house legal and executive management. Other costs
include outside legal and accounting fees, risk management (insurance),
share-based compensation and certain other administrative and global resources
costs.
The research and development expenses incurred at our Warren, Rhode Island
location, our Kolding, Denmark advanced engineering center and our Berlin,
Germany engineering center are also included in general and administrative
expenses. For the three months ended March 31, 2020 and 2019, research and
development expenses totaled $0.2 million and $0.2 million, respectively.
Realized Loss on Sale of Assets and Asset Impairments
Realized loss on sale of assets represents the realized losses on the sale of
receivables under supply chain financing arrangements with our customers and
realized gains and losses on the sale of other assets and asset impairments at
our corporate and manufacturing facilities.
Restructuring Charges
Restructuring charges primarily consist of employee severance, one-time
termination benefits and ongoing benefits related to the reduction of our
workforce and other costs associated with exit activities, which may include
costs related to leased facilities to be abandoned and facility and employee
relocation costs.
Other Income (Expense)
Other income (expense) consists primarily of interest expense on our debt
borrowings and the amortization of deferred financing costs on such borrowings.
Other income (expense) also includes realized gains and losses on foreign
currency remeasurement, interest income, losses on extinguishment of debt and
miscellaneous income and expense.
Income Taxes
Income taxes consist of federal, state, provincial, local and foreign taxes
based on income in jurisdictions in which we operate, including in the U.S.,
China, Mexico, Turkey and India. The composite income tax rate, tax provisions,
deferred tax assets and liabilities vary according to the jurisdiction in which
the income or loss arises. Tax laws are complex and subject to different
interpretations by management and the respective governmental taxing
authorities, and require us to exercise judgment in determining our income tax
provision, our deferred tax assets and liabilities and the valuation allowance
recorded against our net deferred tax assets.
KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
In addition to measures of financial performance presented in our condensed
consolidated financial statements in accordance with GAAP, we use certain other
financial and operating metrics to analyze our performance. These "non-GAAP"
financial measures consist of EBITDA, adjusted EBITDA, free cash flow and net
cash (debt), which help us evaluate growth trends, establish budgets, assess
operational efficiencies, oversee our overall liquidity, and evaluate our
overall financial performance. The key operating metrics consist of wind blade
sets invoiced, estimated megawatts of energy capacity for wind blade sets
invoiced, utilization percentage, manufacturing lines dedicated to customers
under long-term supply agreements and manufacturing lines installed, which help
us evaluate our operational performance. We believe that these measures are
useful to investors in evaluating our performance.
KEY FINANCIAL METRICS
Three Months Ended
March 31,
2020 2019
(in thousands)
Net sales $ 356,636 $ 299,780
Net loss $ (492 ) $ (12,104 )
EBITDA (1) $ (2,721 ) $ (4,097 )
Adjusted EBITDA (1) $ 1,296 $ 2,925
Capital expenditures $ 26,983 $ 18,709
Free cash flow (1) $ (24,415 ) $ (30,800 )
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March 31, December 31,
2020 2019
(in thousands)
Total debt, net of debt issuance costs $ 206,174 $ 141,389
Net debt (1)
$ (97,499 ) $ (71,779 )
(1) See below for more information and a reconciliation of EBITDA, adjusted
EBITDA, free cash flow and net debt to net income (loss), net income
(loss), net cash provided by (used in) operating activities and total
debt, net of debt issuance costs, respectively, the most directly
comparable financial measures calculated and presented in accordance with
GAAP.
EBITDA and Adjusted EBITDA
We define EBITDA, a non-GAAP financial measure, as net income or loss plus
interest expense (including losses on extinguishment of debt and net of interest
income), income taxes and depreciation and amortization. We define adjusted
EBITDA as EBITDA plus any share-based compensation expense, any realized gains
or losses from foreign currency remeasurement, any gains or losses from the sale
of assets and asset impairments and any restructuring charges. Adjusted EBITDA
is the primary metric used by our management and our board of directors to
establish budgets and operational goals for managing our business and evaluating
our performance. In addition, our credit agreement (the Credit Agreement) that
we entered into in April 2018 contains minimum EBITDA (as defined in the Credit
Agreement) covenants with which we must comply. We monitor adjusted EBITDA as a
supplement to our GAAP measures, and believe it is useful to present to
investors, because we believe that it facilitates evaluation of our
period-to-period operating performance by eliminating items that are not
operational in nature, allowing comparison of our recurring core business
operating results over multiple periods unaffected by differences in capital
structure, capital investment cycles and fixed asset base. In addition, we
believe adjusted EBITDA and similar measures are widely used by investors,
securities analysts, ratings agencies, and other parties in evaluating companies
in our industry as a measure of financial performance and debt-service
capabilities.
Our use of EBITDA and adjusted EBITDA have limitations as analytical tools, and
you should not consider them in isolation or as substitutes for analysis of our
results as reported under GAAP.
In evaluating EBITDA and adjusted EBITDA, you should be aware that in the
future, we will incur expenses similar to the adjustments noted herein. Our
presentations of EBITDA and adjusted EBITDA should not be construed as
suggesting that our future results will be unaffected by these expenses or any
unusual or non-recurring items. When evaluating our performance, you should
consider EBITDA and adjusted EBITDA alongside other financial performance
measures, including our net income (loss) and other GAAP measures.
Free cash flow
We define free cash flow as net cash provided by (used in) operating activities
less capital expenditures. We believe free cash flow is a useful measure for
investors because it portrays our ability to generate cash from our business for
purposes such as repaying maturing debt and funding business acquisitions.
Net cash (debt)
We define net cash (debt) as total unrestricted cash and cash equivalents less
the total principal amount of debt outstanding. The total principal amount of
debt outstanding is comprised of the long-term debt and current maturities of
long-term debt as presented in our condensed consolidated balance sheets adding
back any debt issuance costs and discounts. We believe that the presentation of
net cash (debt) provides useful information to investors because our management
reviews net cash (debt) as part of our oversight of overall liquidity, financial
flexibility and leverage. Net cash (debt) is important when we consider opening
new plants and expanding existing plants, as well as for capital expenditure
requirements.
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The following tables reconcile our non-GAAP key financial measures to the most
directly comparable GAAP measures:
EBITDA and adjusted EBITDA are reconciled as follows:
Three Months Ended
March 31,
2020 2019
(in thousands)
Net loss $ (492 ) $ (12,104 )
Adjustments:
Depreciation and amortization 11,028 10,659
Interest expense (net of interest income) 1,771 1,948
Income tax benefit (15,028 ) (4,600 )
EBITDA (2,721 ) (4,097 )
Share-based compensation expense 2,942 985
Realized (gain) loss on foreign currency
remeasurement (960 ) 3,802
Realized loss on sale of assets and asset impairments 1,918 2,235
Restructuring charges, net 117 -
Adjusted EBITDA $ 1,296 $ 2,925
(1) Represents the effect of the difference in the exchange rates used by our
various foreign subsidiaries when converted to U.S. dollars on the net
sales and contract assets as of period-end.
Free cash flow is reconciled as follows:
Three Months Ended
March 31,
2020 2019
(in thousands)
Net cash provided by (used in) operating activities $ 2,568 $ (12,091 )
Less capital expenditures
(26,983 ) (18,709 )
Free cash flow $ (24,415 ) $ (30,800 )Net debt is reconciled as follows:
March 31, December 31,
2020 2019
(in thousands)
Cash and cash equivalents $ 109,473 $ 70,282
Less total debt, net of debt issuance costs (206,174 ) (141,389 )
Less debt issuance costs (798 ) (672 )
Net debt $ (97,499 ) $ (71,779 )
KEY OPERATING METRICS
Three Months Ended
March 31,
2020 2019
Sets 738 662
Estimated megawatts 2,329 1,861
Utilization 70 % 64 %
Dedicated manufacturing lines 52 54
Manufacturing lines installed 52 49
Key operating metrics consist of sets invoiced, estimated megawatts of energy
capacity for wind blade sets invoiced, utilization, dedicated manufacturing
lines and manufacturing lines installed.
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Sets represents the number of wind blade sets, consisting of three wind blades
each, which we invoiced worldwide during the period. We monitor sets and believe
that presenting sets to investors is helpful because we believe that it is the
most direct measurement of our manufacturing output during the period. Sets
primarily impact net sales.
Estimated megawatts are the energy capacity to be generated by wind blade sets
invoiced in the period. Our estimate is based solely on name-plate capacity of
the wind turbine on which the wind blades we manufacture are expected to be
installed. We monitor estimated megawatts and believe that presenting estimated
megawatts to investors is helpful because we believe that it is a commonly
followed measurement of energy capacity across our industry and provides an
indication of our share of the overall wind blade market.
Utilization represents the percentage of the number of wind blades invoiced
during the period compared to the total potential wind blade capacity
of manufacturing lines installed at the end of the period.
Dedicated manufacturing lines are the number of wind blade manufacturing lines
that we have dedicated to our customers pursuant to our long-term supply
agreements at the end of the period. We monitor dedicated manufacturing lines
and believe that presenting this metric to investors is helpful because we
believe that the number of dedicated manufacturing lines is the best indicator
of demand for the wind blades we manufacture for customers under our long-term
supply agreements in any given period. We believe that dedicated manufacturing
lines provide an understanding of additional capacity within an existing
facility. Dedicated manufacturing lines primarily impacts our net sales.
Manufacturing lines installed represents the number of wind blade manufacturing
lines installed and either in operation, startup or transition at the end of the
period. We believe that total manufacturing lines installed provides an
understanding of the number of manufacturing lines installed and either in
operation, startup or transition.
Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
The following table summarizes certain information relating to our operating
results and related percentage of net sales for the three months ended March 31,
2020 and 2019 that has been derived from our unaudited condensed consolidated
financial statements.
Three Months Ended
March 31,
2020 2019
(dollars in thousands)
Net sales $ 356,636 100.0 % $ 299,780 100.0 %
Cost of sales 348,475 97.7 283,038 94.4
Startup and transition costs 12,034 3.4 18,178 6.1
Total cost of goods sold 360,509 101.1 301,216 100.5
Gross loss (3,873 ) (1.1 ) (1,436 ) (0.5 )
General and administrative expenses 9,496 2.7 7,985 2.7
Realized loss on sale of assets and
asset impairments 1,918 0.5 2,235 0.7
Restructuring charges, net 117 0.0 - 0.0
Loss from operations (15,404 ) (4.3 ) (11,656 ) (3.9 )
Other expense (116 ) 0.0 (5,048 ) (1.6 )
Loss before income taxes (15,520 ) (4.3 ) (16,704 ) (5.5 )
Income tax benefit 15,028 4.2 4,600 1.5
Net loss $ (492 ) (0.1 )% $ (12,104 ) (4.0 )%
Net sales for the three months ended March 31, 2020 increased by $56.9 million
or 19.0% to $356.6 million compared to $299.8 million in the same period in
2019. Net sales of wind blades increased by 21.4% to $336.3 million for the
three months ended March 31, 2020 as compared to $277.0 million in the same
period in 2019. The increase was primarily driven by a 10.8% increase in the
number of wind blades produced during the three months ended March 31, 2020
compared to the same period in 2019 largely as a result of increased production
at our Mexico facilities. Although our net sales increased for the three months
ended March 31, 2020 compared to the same period in 2019, our net sales for the
three months ended March 31, 2020 were adversely impacted by approximately $38
million due to reduced production levels at our China manufacturing facilities
due to the COVID-19 pandemic. This increase was also due to a higher average
sales price due to the mix of wind blade models produced during the three months
ended March 31, 2020 compared to the same period in 2019 as well as an increase
in the year over year number of wind blades still in
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the production process at the end of the period. Net sales from the
manufacturing of precision molding and assembly systems during the three months
ended March 31, 2020 were $6.8 million as compared to $11.2 million in the same
period in 2019. Additionally, there was a $1.9 million increase in transporation
and other sales during the three months ended March 31, 2020 as compared to the
same period in 2019. The impact of the fluctuating U.S. dollar against the Euro
in our Turkey operations and the Chinese Renminbi in our China operations on
consolidated net sales for the three months ended March 31, 2020 was a decrease
of 0.9% as compared to the same period in 2019.
Total cost of goods sold for the three months ended March 31, 2020 was $360.5
million and included $7.8 million related to lines in startup in our plants in
India and China and $4.2 million of transition costs related to lines in
transition during the quarter. This compares to total cost of goods sold for the
three months ended March 31, 2019 of $301.2 million and included $16.1 million
related to lines in startup in our plants in Mexico, Iowa and China and the
startup of new wind blade models for a customer in Turkey and $2.1 million of
transition costs related to lines in transition during the quarter. Total cost
of goods sold as a percentage of net sales remained relatively consistent during
the three months ended March 31, 2020 as compared to the same period in 2019,
driven primarily by the increase in direct labor and warranty costs, offset by
the impact of savings in raw material costs, the decrease in startup and
transition costs and the impact of foreign currency. The impact of the
fluctuating U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and
Mexican Peso decreased consolidated cost of goods sold by 2.5% for three months
ended March 31, 2020 as compared to the same period in 2019.
General and administrative expenses for the three months ended March 31, 2020
totaled $9.5 million, or 2.7% of net sales, compared to $8.0 million, or 2.7% of
net sales, for the same period in 2019.
Realized loss on sale of assets and asset impairments for the three months ended
March 31, 2020 totaled $1.9 million and was comprised primarily of realized
losses on the sale of receivables under supply chain financing arrangements with
our customers. Realized loss on sale of assets and asset impairments for the
three months ended March 31, 2019 totaled $2.2 million and was comprised of $1.3
million of realized losses on the sale of receivables under supply chain
financing arrangements with our customers and $0.9 million of realized losses on
the sale of assets at our corporate and manufacturing facilities.
Restructuring charges for the three months ended March 31, 2020 totaled $0.1
million related to the closing of our Taicang City China manufacturing facility.
There were no restructuring charges in the comparable period in 2019.
Other expense totaled $0.1 million for the three months ended March 31, 2020 as
compared to other expense totaling $5.0 million for the same period in 2019. The
decrease in the expense was primarily due to a $4.8 million decrease in realized
losses on foreign currency remeasurement and a $0.2 million decrease in interest
expense in the three months ended March 31, 2020 as compared to the same period
in 2019.
Income taxes reflected a benefit of $15.0 million for the three months ended
March 31, 2020 as compared to a benefit of $4.6 million for the same period in
2019. The increase in the benefit was primarily due to the earnings mix by
jurisdiction in the three months ended March 31, 2020 as compared to the same
period in 2019.
Net loss for the three months ended March 31, 2020 was $0.5 million as compared
to a net loss of $12.1 million in the same period in 2019. The decrease in the
loss was primarily due to the reasons set forth above. Although our net loss
decreased for the three months ended March 31, 2020 compared to the same period
in 2019, our net loss for the three months ended March 31, 2020 was adversely
impacted by approximately $9 million, net of approximately $2 million of income
taxes, primarily due to reduced production levels at our China manufacturing
facilities due to the COVID-19 pandemic. The net loss per share was $0.01 for
the three months ended March 31, 2020, compared to a net loss per share of $0.35
for the three months ended March 31, 2019.
Segment Discussion
The following table summarizes our net sales and income (loss) from operations
by our four geographic operating segments for the three months ended March 31,
2020 and 2019 that has been derived from our unaudited condensed consolidated
financial statements.
Three Months Ended
March 31,
2020 2019
Net Sales (in thousands)
U.S. $ 47,431 $ 41,628
Asia 91,137 68,718
Mexico 118,250 84,665
EMEAI 99,818 104,769
Total net sales $ 356,636 $ 299,780
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Three Months Ended
March 31,
2020 2019
Income (Loss) from Operations (in thousands)
U.S. (1)
$ (15,586 ) $ (14,503 )
Asia 5,072 (8,800 )
Mexico (1,768 ) (424 )
EMEAI (3,122 ) 12,071
Total income from operations $ (15,404 ) $ (11,656 )
(1) Includes the costs of our corporate headquarters, our advanced engineering
center in Kolding, Denmark and our engineering center in Berlin, Germany
totaling $9.5 million and $8.0 million for the three months ended
March 31, 2020 and 2019, respectively.
U.S. Segment
Net sales for the three months ended March 31, 2020 increased by $5.8 million or
13.9% to $47.4 million compared to $41.6 million in the same period in 2019. Net
sales of wind blades increased to $35.9 million during the three months ended
March 31, 2020 as compared to $31.9 million in the same period of 2019. The
increase was primarily due to a higher average sales price due to the mix of
wind blade models produced in both periods and a 2% increase in the number of
wind blades produced in the three months ended March 31, 2020 as compared to the
same period in 2019. There were no net sales from the manufacturing of precision
molding and assembly systems during the three months ended March 31, 2020
compared to $0.1 million during the same period in 2019. Additionally, there was
a $1.9 million increase in transportation and other sales during the three
months ended March 31, 2020 as compared to the same period in 2019.
The loss from operations in the U.S. segment for the three months ended
March 31, 2020 was $15.6 million as compared to a loss from operations of $14.5
million in the same period in 2019. As previously discussed, the loss amounts
include corporate general and administrative costs of $9.5 million and $8.0
million for the three months ended March 31, 2020 and 2019, respectively. The
2020 operating results were also unfavorably impacted by increased direct labor
and direct material costs at our Newton, Iowa blade facility, offset by the
decreased costs related to the shutdown of our Newton, Iowa transportation
facility and by the higher average sale price of wind blade models produced and
wind blade volumes discussed above.
Asia Segment
Net sales for the three months ended March 31, 2020 increased by $22.4 million
or 32.6% to $91.1 million compared to $68.7 million in the same period in 2019.
Net sales of wind blades were $85.9 million in the three months ended March 31,
2020 compared to $62.1 million in the same period of 2019. This increase
reflects an increase in the year over year number of wind blades still in the
production process at the end of the period as well as an increase in the
average sales price of wind blades due to a change in the mix of wind blades
between the two periods, notwithstanding a 8% net decrease in overall wind blade
volume. Although our Asia net sales increased for the three months ended March
31, 2020 compared to the same period in 2019, our Asia net sales for the three
months ended March 31, 2020 were adversely impacted by approximately $38 million
due to reduced production levels at our China manufacturing facilities due to
the COVID-19 pandemic. Net sales from the manufacturing of precision molding and
assembly systems totaled $5.1 million during the three months ended March 31,
2020 compared to $6.2 million during the same period in 2019. The impact of the
fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact
of 0.9% on net sales during the three months ended March 31, 2020 as compared to
the same period in 2019.
The income from operations in the Asia segment for the three months ended
March 31, 2020 was $5.1 million as compared to a loss from operations of
$8.8 million in the same period in 2019. This increase was primarily due to the
increase in the year over year number of wind blades still in the production
process at the end of the period, an increase in the average sales price of wind
blades noted above and by the impact of savings in raw material costs. Although
our income from operations increased for the three months ended March 31, 2020
compared to the same period in 2019, our income from operations for the three
months ended March 31, 2020 was adversely impacted by approximately $11 million
due to reduced production levels at our China manufacturing facilities due to
the COVID-19 pandemic. The impact of the fluctuating U.S. dollar against the
Chinese Renminbi had a favorable impact of 1.6% on cost of goods sold for the
three months ended March 31, 2020 as compared to the same period in 2019.
Mexico Segment
Net sales in the three months ended March 31, 2020 increased by $33.6 million or
39.7% to $118.3 million compared to $84.7 million in the same period in 2019.
The increase reflects a 57% net increase in overall wind blade volume which was
partially related to the
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Matamoros strike during 2019 and an increase in the average sales price of wind
blades due to a change in the mix of wind blades between the two periods. Net
sales from the manufacturing of precision molding and assembly systems during
the three months ended March 31, 2020 were $1.7 million compared to $4.8 million
during the same period in 2019.
The loss from operations in the Mexico segment for the three months ended
March 31, 2020 was $1.8 million as compared to a loss from operations of $0.4
million in the same period in 2019. The increase was due primarily to the
underutilization of labor at certain of our Juarez facilities, partially offset
by the overall increase in wind blade volume noted, a decrease in startup and
transition costs as well as from savings in raw material costs. The fluctuating
U.S. dollar relative to the Mexican Peso had a favorable impact of 0.6% on cost
of goods sold for the three months ended March 31, 2020 as compared to 2019.
EMEAI Segment
Net sales during the three months ended March 31, 2020 decreased by $5.0 million
or 4.7% to $99.8 million compared to $104.8 million in the same period in 2019.
The decrease was driven by a 9% decrease in wind blade volume at our two Turkey
plants due to transitions and a decrease in the average sales price of wind
blades delivered in the comparative periods. The fluctuating U.S. dollar
relative to the Euro had an unfavorable impact of 2.4% on net sales during the
three months ended March 31, 2020 as compared to 2019.
The loss from operations in the EMEAI segment for the three months ended
March 31, 2020 was $3.1 million as compared to income from operations of $12.1
million in the same period in 2019. The decrease was primarily driven by
increased warranty costs at our second Turkey plant, the decreased wind blade
production at our two Turkey plants and the increased startup costs at our India
plant and transition costs at our second Turkey plant, partially offset by the
favorable impact on cost of goods sold of the fluctuation of the U.S. dollar
relative to the Turkish Lira and Euro of 5.7% for the three months ended
March 31, 2020 as compared to 2019.
Liquidity and Capital Resources
As a result of the uncertainty relating to: (i) the rapidly evolving nature,
magnitude and duration of the COVID-19 pandemic, (ii) the variety of measures
implemented by governments around the world to address its effects and (iii) the
impact on our manufacturing operations, we are managing our liquidity to ensure
our long-term viability until the COVID-19 pandemic abates. During the three
months ended March 31, 2020, we drew down $50.0 million under our Credit
Agreement and an additional $30.0 million in April 2020. In addition, in March
2020, we entered into two unsecured credit facilities with two Turkish financial
institutions resulting in aggregate net proceeds of $16.6 million and
availability of $5.5 million.
Our primary needs for liquidity have been, and in the future will continue to
be, capital expenditures, new facility startup costs, the impact of transitions,
working capital, debt service costs and warranty costs. Our capital expenditures
have been primarily related to machinery and equipment for new facilities or
facility expansions. Historically, we have funded our working capital needs
through cash flows from operations, the proceeds received from our credit
facilities and from proceeds received from the issuance of stock. We had net
borrowings on financing arrangements of $64.9 million for the three months ended
March 31, 2020 as compared to net borrowings on financing arrangements of
$17.1 million in the comparable period of 2019. As of March 31, 2020 and
December 31, 2019, we had $207.0 million and $142.1 million in outstanding
indebtedness, excluding debt issuance costs, respectively. As of March 31, 2020,
we had an aggregate of $158.4 million of remaining capacity and $67.9 million of
remaining availability under our various credit facilities. Working capital
requirements have increased as a result of our overall growth and the need to
fund higher accounts receivable and inventory levels as our business volumes
have increased as well as the increased level of transitions. Based upon current
and anticipated levels of operations, we believe that cash on hand, available
credit facilities and cash flow from operations will be adequate to fund our
working capital and capital expenditure requirements and to make required
payments of principal and interest on our indebtedness over the next twelve
months.
We anticipate that any new facilities and future facility expansions will be
funded through cash flows from operations, the incurrence of other indebtedness
and other potential sources of liquidity. At March 31, 2020 and December 31,
2019, we had unrestricted cash, cash equivalents and short-term investments
totaling $109.5 million and $70.3 million, respectively. The March 31, 2020
balance includes $37.9 million of cash located outside of the United States,
including $21.1 million in Turkey, $11.5 million in China, $3.5 million in
India, $1.6 million in Mexico and $0.2 million in other countries. In February
2020, we entered into an Incremental Facility Agreement with the current lenders
to our Credit Agreement and an additional lender, pursuant to which the
aggregate principal amount of our revolving credit facility under the Credit
Agreement was increased from $150.0 million to $205.0 million. Our ability to
repatriate funds from China to the United States is subject to a number of
restrictions imposed by the Chinese government. We repatriate funds through
several technology license and corporate/administrative service agreements. We
are compensated quarterly based on agreed upon royalty rates for such
intellectual property licenses and quarterly fees for those services. Certain of
our subsidiaries are limited in their ability to declare dividends without first
meeting statutory restrictions of the People's Republic of China, including
retained earnings as determined under Chinese-statutory accounting requirements.
Until 50% ($26.5 million as of December 31, 2019) of registered capital is
contributed to a surplus reserve, our Chinese operations can only pay dividends
equal to 90% of after-tax profits (10% must be contributed to the surplus
reserve). Once the surplus reserve fund requirement is met, our Chinese
operations can pay dividends equal to 100% of after-tax profit assuming other
conditions are met. At December 31, 2019, the amount of the surplus reserve fund
was $6.6 million.
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Operating Cash Flows
Three Months Ended
March 31,
2020 2019
(in thousands)
Net loss $ (492 ) $ (12,104 )
Depreciation and amortization 11,028 10,659
Realized loss on sale of assets and asset impairments 1,918 2,235
Restructuring charges
117 -
Share-based compensation expense 2,942 985
Other non-cash items 56 51
Changes in assets and liabilities (13,001 ) (13,917 )
Net cash provided by (used in) operating activities $ 2,568 $ (12,091 )
Net cash provided by operating activities totaled $2.6 million for the three
months ended March 31, 2020 and was primarily the result of a $13.0 million in
net changes in working capital and a $0.5 million net loss, mostly offset by
$11.0 million of depreciation and amortization, $2.9 million of share-based
compensation expense and a $1.9 million realized loss on sale of assets and
asset impairments. The key components of the net changes in working capital
include a $32.6 million increase in contract assets and liabilities, a $17.6
million decrease in accounts payable and accrued expenses, a $17.4 million
increase in other noncurrent assets, a $4.6 million increase in prepaid expenses
and a $3.5 million increase in inventories. These decreases were mostly offset
by a $50.3 million decrease in accounts receivable, a $4.6 million decrease in
other current assets, a $3.9 million increase in accrued warranty, a $2.0
million decrease in operating lease right of use assets and operating lease
liabilities and a $1.9 million increase in other noncurrent liabilities. The
changes in contract assets and liabilities, accounts receivable, accounts
payable and accrued expenses and accrued warranty are primarily the result of
the timing of production in the period.
Net cash used in operating activities totaled $12.1 million for the three months
ended March 31, 2019 and was primarily the result of a $13.9 million net
decrease in assets and liabilities and a $12.1 million net loss, partially
offset by $10.7 million of depreciation and amortization, $2.2 million loss on
sale of assets and $1.0 million of share-based compensation expense. The key
components of the net decrease in assets and liabilities include a $17.2 million
increase in prepaid expenses and other current assets, a $15.9 million increase
in contract assets and liabilities and a $14.1 million increase in other
noncurrent assets. These decreases were partially offset by a $17.8 million
increase in accounts payable and accrued expenses, an $8.5 million decrease in
accounts receivable, a $4.2 million decrease in operating lease right of use
assets and operating lease liabilities and a $2.8 million increase in accrued
warranty. The changes in contract assets and liabilities, accounts receivable,
accounts payable and accrued expenses and accrued warranty are primarily the
result of the timing of production in the period.
Investing Cash Flows
Three Months Ended
March 31,
2020 2019
(in thousands)
Purchases of property, plant and equipment $ (26,983 ) $ (18,709 )
Net cash used in investing activities $ (26,983 ) $ (18,709 )
Net cash used in investing activities totaled $27.0 million and $18.7 million
for the three months ended March 31, 2020 and 2019, respectively, driven
primarily by capital expenditures for new facilities and expansion or
improvements at existing facilities. The capital expenditures for the three
months ended March 31, 2020 primarily related to our new manufacturing
facilities in Chennai, India and Yangzhou, China, our second manufacturing
facility in Turkey and continued investments in our other existing facilities.
The capital expenditures for the three months ended March 31, 2019 primarily
related to our new manufacturing facility in Yangzhou, China, our second
manufacturing facility in Turkey, our new tooling facility and the expansion of
one of our blade manufacturing facilities in Juárez, Mexico and continued
investments in our other existing facilites.
We anticipate fiscal year 2020 capital expenditures of between $80 million to
$90 million and we estimate that the cost that we will incur after March 31,
2020 to complete our current projects in process will be approximately
$16.4 million. We are deferring non-critical capital expenditures in light of
the COVID-19 uncertainty. We have used, and will continue to use, cash flows
from operations, the proceeds received from our credit facilities and the
proceeds received from the issuance of stock for major projects currently being
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undertaken, which include new manufacturing facilities in Chennai, India, the
continued investment in our existing Tukey, Mexico and China facilities as well
as in our pilot line in Warren, Rhode Island.
Financing Cash Flows
Three Months Ended
March 31,
2020 2019
(in thousands)
Proceeds from revolving loans $ 50,000 $ 6,000
Net proceeds (repayments) of accounts receivable financing (101 ) 13,208
Proceeds from working capital loans
- 2,228
Principal repayments of finance leases (1,492 ) (2,929 )
Net proceeds (repayments) of other debt 16,505 (1,445 )
Debt issuance costs (183 ) -
Proceeds from exercise of stock options 812 4,572
Repurchase of common stock including shares
withheld in lieu of income taxes (459 ) (559 )
Net cash provided by financing activities $ 65,082 $ 21,075
The net cash provided by financing activities totaled $65.1 million for the
three months ended March 31, 2020 compared to $21.1 million of net cash provided
by financing activities in the comparable period of 2019. Net cash provided by
financing activities for the three months ended March 31, 2020 primarily
reflects the net proceeds from revolving loans and other growth-related debt,
partially offset by principal repayments of finance leases. Net cash provided by
financing activities for the three months ended March 31, 2019 primarily
reflects the net proceeds from accounts receivable financing and revolving
loans, proceeds from the exercise of stock options and proceeds from working
capital loans, partially offset by principal repayments of finance leases and
other debt.
Share Repurchases
During the three months ended March 31, 2020, we repurchased 26,099 shares of
our common stock for $0.5 million related to tax withholding requirements on
restricted stock units which vested during the period.
Description of Our Indebtedness
Senior Financing Agreements (U.S.):
In April 2018, we entered into a new credit agreement (the Credit Agreement)
with four lenders consisting of a multi-currency, revolving credit facility in
an aggregate principal amount of $150.0 million, including a $25.0 million
letter of credit sub-facility. On the closing date we drew down $75.4 million on
the revolving credit facility in connection with the closing of the transactions
contemplated by the Credit Agreement and used the proceeds to pay all
outstanding amounts due and payable under our previous credit agreement, various
fees and expenses and accrued interest. All borrowings and amounts outstanding
under the Credit Agreement are scheduled to mature in April 2023. In May 2019,
the Credit Agreement was further amended to revise the definition of
Consolidated EBITDA as utilized in certain of the financial covenants of the
Credit Agreement.
In connection with the Credit Agreement, in the second quarter of 2018 we
expensed $2.0 million of deferred financing costs associated with the previous
credit agreement and a $1.4 million prepayment penalty within the caption "Loss
on extinguishment of debt" in the condensed consolidated statement of
operations. In addition, we incurred debt issuance costs related to the Credit
Agreement totaling $1.0 million which will be amortized to interest expense over
the five-year term of the Credit Agreement using the effective interest method.
Interest accrues at a variable rate equal to LIBOR plus a margin of 1.50% (2.4%
as of March 31, 2020), which may vary based on our total net leverage ratio as
defined in the Credit Agreement. Interest is paid monthly and we are not
obligated to make any principal repayments prior to the maturity date provided
we are not in default under the Credit Agreement. We may prepay the borrowings
under the Credit Agreement without penalty.
In April 2018, we also entered into an interest rate swap arrangement to fix a
notional amount of $75.0 million of the Credit Agreement at an effective
interest rate of 4.2% for a period of five years. See Note 1, Summary of
Operations and Significant Accounting Policies - Financial Instruments, for more
details on this interest rate swap arrangement.
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In February 2020, we entered into an Incremental Facility Agreement with the
current lenders to our Credit Agreement and an additional lender, pursuant to
which the aggregate principal amount of our revolving credit facility under the
Credit Agreement was increased from $150.0 million to $205.0 million. All other
material terms and conditions of the Credit Agreement remained the same. In
connection with this Incremental Facility Agreement, we incurred additional debt
issuance costs totaling $0.2 million which will be amortized to interest expense
over the remaining term of the Credit Agreement using the effective interest
method.
As of March 31, 2020 and December 31, 2019, there was $162.4 million and $112.4
million outstanding under the Credit Agreement, respectively.
Due to the revolving credit facility's variable interest rate of LIBOR plus a
competitive spread, we estimate that fair-value approximates the face value of
these notes.
As a result of the uncertainty relating to: (i) the rapidly evolving nature,
magnitude and duration of the COVID-19 pandemic, (ii) the variety of measures
implemented by governments around the world to address its effects and (iii) the
impact on our manufacturing operations, we are managing our liquidity to ensure
our long-term viability until the COVID-19 pandemic abates. During the three
months ended March 31, 2020, we drew down $50.0 million under our Credit
Agreement and an additional $30.0 million in April 2020.
Accounts Receivable, Secured and Unsecured Financing:
EMEAI: During 2014, we renewed a general credit agreement, as amended, with a
financial institution in Turkey to provide up to 21.0 million Euro of short-term
collateralized financing on invoiced accounts receivable of one of our customers
in Turkey. Interest originally accrued annually at a fixed rate of 9.1% and was
paid quarterly. In December 2014, and later amended, we obtained an additional
$8.0 million of unsecured financing in Turkey under the credit agreement, with
interest accruing annually at a fixed rate of 5.0% and payable at the end of the
term when the loan is repaid. All other credit agreement terms remained the
same. The credit agreement does not have a maturity date, however the limits are
reviewed in September of each year. During the fourth quarter of 2018, we
replaced the accounts receivable financing facility with the accounts receivable
assignment agreement discussed below. As of March 31, 2020 and December 31,
2019, there were no amounts outstanding under the unsecured financing facility.
In 2014, we entered into a credit agreement with a Turkish financial institution
to provide up to $16.0 million of short-term financing of which $10.0 million is
collateralized financing on invoiced accounts receivable of one of our customers
in Turkey, $5.0 million is unsecured financing and $1.0 million is related to
letters of guarantee. Interest accrues at a variable rate of the three month
Euro Interbank Offered Rate (EURIBOR) plus 6.5%. During the first quarter of
2018, the collateralized financing on invoiced accounts receivables and
unsecured financing facilities were retired and the letters of guarantee limit
was adjusted, later amended to 1.4 million Euro (approximately $1.5 million as
of March 31, 2020). No amounts were outstanding under this letter of guarantee
agreement as of March 31, 2020 and December 31, 2019.
In 2016, we entered into a general credit agreement, as amended, with a Turkish
financial institution to provide up to 39.0 million Euro (approximately $43.1
million as of March 31, 2020) of short-term financing of which 28.0 million Euro
(approximately $31.0 million as of March 31, 2020) is collateralized financing
based on invoiced accounts receivables of one of our customers in Turkey,
10.0 million Euro (approximately $11.0 million as of March 31, 2020) for the
collateralized financing of capital expenditures and 1.0 million Euro
(approximately $1.1 million as of March 31, 2020) related to letters of
guarantee. Interest on the collateralized financing based on invoiced accounts
receivables of one of our customers in Turkey accrues at a fixed rate of 2.0% as
of March 31, 2020 and is paid quarterly with a maturity date equal to four
months from the applicable invoice date. Interest on the collateralized capital
expenditures financing accrues at the one month EURIBOR plus 6.75% (6.75% as of
March 31, 2020) with monthly principal repayments beginning in October 2017 with
a final maturity date of December 2021. Interest on the letters of guarantee
accrues at 2.00% annually with an amended final maturity date of July 2020. As
of March 31, 2020 and December 31, 2019, there was $6.8 million and $7.9 million
outstanding under the collateralized financing of capital expenditures line,
respectively. Additionally, as of March 31, 2020 and December 31, 2019, there
was $3.7 million and $3.8 million, respectively, outstanding under the
collateralized financing based on invoiced accounts receivables.
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In the fourth quarter of 2018, we entered into a credit agreement, as amended,
with a Turkish financial institution to provide up to 118.6 million Turkish Lira
(approximately $18.2 million as of March 31, 2020) of collateralized financing
on invoiced accounts receivable of one of our customers in Turkey. Interest
accrued at a fixed rate of 3.9% and was to be paid quarterly. The credit
agreement did not have a maturity date, however the limit would be reviewed in
October of each year. In September 2019 this credit agreement was cancelled.
Subsequently, in the first quarter of 2020, as a replacement to the original
credit agreement, we entered into an unsecured financing facility with the same
Turkish financial institution to provide up to 64.0 million Turkish Lira
(approximately $9.8 million as of March 31, 2020). Interest accrues at a fixed
rate of 2.5% and is to be paid quarterly. The credit agreement does not have a
maturity date, however the limit would be reviewed in October of each year. All
of the other terms of the original credit agreement remained the same.
In the fourth quarter of 2019, we entered into a credit agreement with a Turkish
financial institution to provide up to 10.0 million Euro (approximately $11.0
million as of March 31, 2020) of unsecured financing. Interest accrues at a
fixed rate of 3.75% and is payable at the end of the term when the loan is
repaid. As of March 31, 2020, there was $1.1 million outstanding under this
credit agreement. No amounts were outstanding under this agreement as of
December 31, 2019.
In the first quarter of 2020, we entered into a credit agreement with a Turkish
financial institution to provide up to 15.0 million Euro (approximately $16.6
million as of March 31, 2020) of unsecured financing. Interest accrues at a
fixed rate of 2.25% and is payable at the end of the term when the loan is
repaid. As of March 31, 2020, there was $16.6 million outstanding under this
credit agreement.
In the first quarter of 2020, we entered into a credit agreement with a Turkish
financial institution to provide up to 5.0 million Euro (approximately $5.5
million as of March 31, 2020) of unsecured financing. Interest accrues at a
fixed rate of 3.5% and is payable at the end of the term when the loan is
repaid. As of March 31, 2020, there were no amounts outstanding under this
credit agreement.
Due to the short-term nature of the unsecured financings in the EMEAI segment,
we estimate that fair-value approximates the face value of the notes.
Asia: In February 2017, we entered into a credit agreement, as amended, with a
Chinese financial institution to provide an unsecured credit line of up to 210.0
million Renminbi (approximately $30.5 million as of June 30, 2019) which can be
used for the purpose of domestic and foreign currency loans, issuing customs
letters of guarantee or other transactions approved by the lender. Interest on
the credit line accrues at the Chinese central bank interest rate plus an
applicable margin (4.8% as of June 30, 2019) and can be paid monthly, quarterly
or at the time of the debt's maturity (extended to January 2020). In August
2019, except as noted below, we replaced this credit agreement with the credit
agreement discussed below. In connection with the August 2019 transaction, the
financial institution agreed to allow the working capital loans which were then
outstanding, totaling 5.0 million Renminbi (or approximately $0.7 million as of
September 30, 2019) to be repaid on their due date of October 1, 2019.
In August 2019, we entered into a credit agreement with a Chinese financial
institution to provide an unsecured credit line of up to 315.0 million Renminbi
(approximately $44.5 million as of March 31, 2020) related to two of our China
facilities which can be used for the purpose of issuing customs letters of
guarantee and covering the related deposits on such letters of guarantee,
project financing and certain other transactions approved by the lender.
Interest on the credit line accrues at the Chinese central bank interest rate
plus an applicable margin (4.8% as of March 31, 2020) and can be paid monthly,
quarterly or at the time of the debt's maturity (August 2021). As of March 31,
2020, there were 10.1 million Renminbi (approximately $1.4 million) of letters
of guarantee and related deposits used for customs clearance outstanding. As of
December 31, 2019, there were 25.7 million Renminbi (approximately $3.7 million)
of letters of guarantee and related deposits used for customs clearance
outstanding.
In March 2018, we entered into a credit agreement, as amended, with a Chinese
financial institution to provide an unsecured credit line of up to 100.0 million
Renminbi (approximately $14.1 million as of March 31, 2020) which can be used as
customs letters of guarantee. Interest on the credit line accrues at the Chinese
central bank interest rate plus an applicable margin (4.8% at March 31, 2020)
and can be paid monthly, quarterly or at the time of the debt's maturity (in
March 2023). As of March 31, 2020, there were 71.9 million Renminbi
(approximately $10.1 million) of letters of guarantee used for customs clearance
outstanding. As of December 31, 2019, there were 71.9 million Renminbi
(approximately $10.3 million) of letters of guarantee used for customs clearance
outstanding.
Equipment Leases and Other Arrangements: We have entered into certain finance
lease, sale-leaseback and equipment financing arrangements in the U.S., Mexico
and EMEAI for equipment used in our operations as well as for office use. These
leases bear interest at rates ranging from 3.0% to 9.0% annually, and principal
and interest are payable monthly. As of March 31, 2020 and December 31, 2019,
there was an aggregate total of $16.3 million and $17.9 million outstanding
under these arrangements, respectively.
Operating Leases: We lease various facilities and equipment under non-cancelable
operating lease agreements. As of March 31, 2020, we leased a total of
approximately 6.8 million square feet in Dafeng, China; Yangzhou, China;
Chennai, India; Izmir, Turkey; Kolding, Denmark; Berlin, Germany, Newton, Iowa;
Juárez, Mexico; Matamoros, Mexico; Santa Teresa, New Mexico; Warren, Rhode
Island, as well as our corporate office in Scottsdale, Arizona. The terms of
these leases range from 12 months to 180 months with annual payments
approximating $30 million for the full year 2020.
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Off-Balance Sheet Transactions
We are not presently involved in any off-balance sheet arrangements, including
transactions with unconsolidated special-purpose or other entities that would
materially affect our financial position, results of operations, liquidity or
capital resources, other than our accounts receivable assignment agreements
described below. Furthermore, we do not have any relationships with
special-purpose or other entities that provide off-balance sheet financing;
liquidity, market risk or credit risk support; or engage in leasing or other
services that may expose us to liability or risks of loss that are not reflected
in consolidated financial statements and related notes.
Our Mexico segment has an existing accounts receivable assignment agreement with
a financial institution under which the financial institution buys, on a
non-recourse basis, the accounts receivable amounts related to one of our Mexico
segment's customers at a discount calculated based on an effective annual rate
of LIBOR plus 2.75%.
In September 2018, our U.S. and Mexico segments entered into an accounts
receivable assignment agreement, as amended, with a financial institution. Under
this agreement, the financial institution buys, on a non-recourse basis, the
accounts receivable amounts related to one of our U.S. (Iowa location) and
Mexico segment's customers at a discount calculated based on LIBOR plus 1.25%.
In the fourth quarter of 2018, our EMEAI segment entered into an accounts
receivable assignment agreement with a financial institution. Under this
agreement, the financial institution may buy, on a non-recourse revolving basis,
up to 15.0 million Euro (approximately $16.6 million as of March 31, 2020) of
the accounts receivable amounts related to one of our EMEAI segment's customers
at a discount calculated based on EURIBOR plus 2.65%. During the first quarter
of 2020, this program was discontinued by the financial institution.
In the fourth quarter of 2018, our EMEAI segment entered into an accounts
receivable assignment agreement with a financial institution. Under this
agreement, the financial institution buys, on a non-recourse basis, the accounts
receivable amounts related to one of our EMEAI segment's customers at a discount
calculated based on EURIBOR plus 0.75%.
In the first quarter of 2019, our Asia and Mexico segments entered into separate
accounts receivable purchase agreements, as amended, with a financial
institution. Under these agreements, the financial institution may buy, on a
non-recourse basis, and hold outstanding at any time up to $60.0 million of a
customer's accounts receivable amounts in our Asia segment and up to $50.0
million of a customer's accounts receivable amounts in our Mexico segment at a
discount calculated based on the three month LIBOR plus 1.0% and the number of
days from the date of purchase to maturity.
In the second quarter of 2019, our Asia segment entered into an accounts
receivable purchase agreement, as amended, with a financial institution. Under
this agreement, the financial institution may buy, on a non-recourse basis, and
hold outstanding at any time up to $45.0 million of a customer's accounts
receivable amounts in our Asia segment at a discount calculated based on the
three month LIBOR plus 1.0% and the number of days from the date of purchase to
maturity.
In the fourth quarter of 2019, our Asia segment entered into an accounts
receivable purchase agreement, as amended, with a financial institution. Under
this agreement, the financial institution may buy, on a non-recourse basis, and
hold outstanding at any time an unlimited amount of a customer's accounts
receivable amounts in our Asia segment at a discount calculated based on a fixed
rate of 4.05% and the number of days from the date of purchase to maturity.
As the receivables are purchased by the financial institutions under the
agreements as described in the preceding paragraphs, the receivables were
removed from our balance sheet. During the three months ended March 31, 2020,
$224.2 million of receivables were sold under the accounts receivable assignment
agreements described above.
Critical Accounting Policies and Estimates
There have been no other significant changes to our critical accounting policies
as disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1, Recently
Issued Accounting Pronouncements to our condensed consolidated financial
statements.
Contractual Obligations
During the three months ended March 31, 2020, there have been no material
changes to the contractual obligations reported in our Annual Report on
Form 10-K, other than in the ordinary course of business.
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