Form 10-Q TPI COMPOSITES, INC For: Jun 30

August 7, 2018 4:55 PM

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37839

 

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1590775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480) 305-8910

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2018, there were 34,412,503 shares of common stock outstanding.

 


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

 

1

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017

 

2

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017

 

3

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

 

4

 

 

 

 

 

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

 

44

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

 

45

 

 

 

 

 

ITEM 1A.

  

Risk Factors

 

45

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

 

46

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

 

46

 

 

 

 

 

ITEM 5.

  

Other Information

 

46

 

 

 

 

 

ITEM 6.

  

Exhibits

 

47

 

 

 

 

 

SIGNATURES

 

48

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities law. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

growth of the wind energy market and our addressable market;

 

the potential impact of the increasing prevalence of auction-based tenders in the wind energy market and increased competition from solar energy on our gross margins and overall financial performance;  

 

our ability to successfully expand our transportation business and execute upon our strategy of entering new markets outside of wind energy;

 

our future financial performance, including our net sales, cost of goods sold, gross profit or gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve or maintain profitability;

 

changes in domestic or international government or regulatory policy, including without limitation, changes in trade policy.  

 

the sufficiency of our cash and cash equivalents to meet our liquidity needs;

 

our ability to attract and retain customers for our products, and to optimize product pricing;

 

our ability to effectively manage our growth strategy and future expenses, including startup and transition costs;

 

competition from other wind blade and wind blade turbine manufacturers;

 

the discovery of defects in our products;

 

our ability to successfully expand in our existing wind energy markets and into new international wind energy markets;

 

worldwide economic conditions and their impact on customer demand;

 

our ability to maintain, protect and enhance our intellectual property;

 

our ability to comply with existing, modified or new laws and regulations applying to our business, including the imposition of new taxes, duties or similar assessments on our products;

 

the attraction and retention of qualified employees and key personnel; and

 

the potential impact of General Electric’s acquisition of LM Wind Power upon our business;

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 8, 2018 (the Annual Report on Form 10-K) the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to update any forward-looking statement to reflect events or developments after the date on which the statement is made or to reflect the occurrence of unanticipated events except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

 

 

 


 

PART I—FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TPI COMPOSITES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except par value data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

113,995

 

 

$

148,113

 

Restricted cash

 

 

4,431

 

 

 

3,849

 

Accounts receivable

 

 

119,479

 

 

 

121,576

 

Contract assets

 

 

131,371

 

 

 

105,619

 

Prepaid expenses and other current assets

 

 

26,622

 

 

 

27,507

 

Inventories

 

 

5,593

 

 

 

4,112

 

Total current assets

 

 

401,491

 

 

 

410,776

 

Property, plant, and equipment, net

 

 

145,348

 

 

 

123,480

 

Other noncurrent assets

 

 

25,045

 

 

 

22,306

 

Total assets

 

$

571,884

 

 

$

556,562

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

167,314

 

 

$

167,175

 

Accrued warranty

 

 

33,979

 

 

 

30,419

 

Current maturities of long-term debt

 

 

39,528

 

 

 

35,506

 

Contract liabilities

 

 

1,820

 

 

 

2,763

 

Total current liabilities

 

 

242,641

 

 

 

235,863

 

Long-term debt, net of debt issuance costs and current maturities

 

 

90,332

 

 

 

85,879

 

Other noncurrent liabilities

 

 

4,818

 

 

 

4,938

 

Total liabilities

 

 

337,791

 

 

 

326,680

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity: (Note 4)

 

 

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized and 34,260

   shares issued and 34,229 shares outstanding at June 30, 2018

   and 100,000 shares authorized and 34,049 shares issued and 34,021

   shares outstanding at December 31, 2017

 

 

343

 

 

 

340

 

Paid-in capital

 

 

307,324

 

 

 

301,543

 

Accumulated other comprehensive loss

 

 

(6,653

)

 

 

(558

)

Accumulated deficit

 

 

(66,337

)

 

 

(70,932

)

Treasury stock, at cost, 31 shares at June 30, 2018 and 28 shares at

  December 31, 2017

 

 

(584

)

 

 

(511

)

Total stockholders’ equity

 

 

234,093

 

 

 

229,882

 

Total liabilities and stockholders’ equity

 

$

571,884

 

 

$

556,562

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

1


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Net sales (Note 4)

 

$

230,610

 

 

$

239,582

 

 

 

$

484,591

 

 

$

448,197

 

Cost of sales

 

 

198,235

 

 

 

199,117

 

 

 

 

409,223

 

 

 

381,655

 

Startup and transition costs

 

 

17,324

 

 

 

10,540

 

 

 

 

32,059

 

 

 

16,699

 

Total cost of goods sold

 

 

215,559

 

 

 

209,657

 

 

 

 

441,282

 

 

 

398,354

 

Gross profit

 

 

15,051

 

 

 

29,925

 

 

 

 

43,309

 

 

 

49,843

 

General and administrative expenses

 

 

10,989

 

 

 

10,752

 

 

 

 

22,152

 

 

 

19,058

 

Income from operations

 

 

4,062

 

 

 

19,173

 

 

 

 

21,157

 

 

 

30,785

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

43

 

 

 

11

 

 

 

 

84

 

 

 

30

 

Interest expense

 

 

(2,715

)

 

 

(2,935

)

 

 

 

(6,053

)

 

 

(5,961

)

Loss on extinguishment of debt

 

 

(3,397

)

 

 

 

 

 

 

(3,397

)

 

 

 

Realized loss on foreign currency remeasurement

 

 

(765

)

 

 

(1,233

)

 

 

 

(4,776

)

 

 

(2,614

)

Miscellaneous income

 

 

674

 

 

 

258

 

 

 

 

1,492

 

 

 

578

 

Total other expense

 

 

(6,160

)

 

 

(3,899

)

 

 

 

(12,650

)

 

 

(7,967

)

Income (loss) before income taxes

 

 

(2,098

)

 

 

15,274

 

 

 

 

8,507

 

 

 

22,818

 

Income tax provision

 

 

(1,955

)

 

 

(5,697

)

 

 

 

(3,912

)

 

 

(8,028

)

Net income (loss)

 

$

(4,053

)

 

$

9,577

 

 

 

$

4,595

 

 

$

14,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,164

 

 

 

33,737

 

 

 

 

34,107

 

 

 

33,737

 

Diluted

 

 

34,164

 

 

 

33,828

 

 

 

 

35,766

 

 

 

33,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

0.28

 

 

 

$

0.13

 

 

$

0.44

 

Diluted

 

$

(0.12

)

 

$

0.28

 

 

 

$

0.13

 

 

$

0.44

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

2


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Net income (loss)

 

$

(4,053

)

 

$

9,577

 

 

$

4,595

 

 

$

14,790

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(8,177

)

 

 

1,300

 

 

 

(6,287

)

 

 

1,577

 

Unrealized gain on hedging derivative, net of taxes of $0

   for the three months ended June 30, 2018 and $0 for the

   six months ended June 30, 2018

 

 

192

 

 

 

 

 

 

192

 

 

 

 

Comprehensive income (loss)

 

$

(12,038

)

 

$

10,877

 

 

$

(1,500

)

 

$

16,367

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 


3


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

4,595

 

 

$

14,790

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,202

 

 

 

8,716

 

Share-based compensation expense

 

 

4,999

 

 

 

3,751

 

Loss on extinguishment of debt

 

 

3,397

 

 

 

 

Amortization of debt issuance costs

 

 

260

 

 

 

286

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,098

 

 

 

(49,360

)

Contract assets and liabilities

 

 

(26,695

)

 

 

3,477

 

Inventories

 

 

(1,481

)

 

 

852

 

Prepaid expenses and other current assets

 

 

884

 

 

 

5,169

 

Other noncurrent assets

 

 

(4,047

)

 

 

(1,942

)

Accounts payable and accrued expenses

 

 

1,940

 

 

 

34,706

 

Accrued warranty

 

 

3,560

 

 

 

5,566

 

Other noncurrent liabilities

 

 

(177

)

 

 

(141

)

Net cash provided by operating activities

 

 

2,535

 

 

 

25,870

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(42,310

)

 

 

(26,727

)

Net cash used in investing activities

 

 

(42,310

)

 

 

(26,727

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from term loans

 

 

74,435

 

 

 

 

Repayments of term loans

 

 

(74,972

)

 

 

(1,875

)

Net proceeds from accounts receivable financing

 

 

11,924

 

 

 

5,182

 

Proceeds from working capital loans

 

 

 

 

 

6,620

 

Repayments of working capital loans

 

 

 

 

 

(11,258

)

Net proceeds from (repayments of) other debt

 

 

(5,449

)

 

 

6,253

 

Debt issuance costs

 

 

(281

)

 

 

 

Proceeds from exercise of stock options

 

 

1,307

 

 

 

 

Repurchase of common stock including shares withheld in lieu of income taxes

 

 

(272

)

 

 

 

Net cash provided by financing activities

 

 

6,692

 

 

 

4,922

 

Impact of foreign exchange rates on cash, cash equivalents and restricted cash

 

 

(453

)

 

 

164

 

Net change in cash, cash equivalents and restricted cash

 

 

(33,536

)

 

 

4,229

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

152,437

 

 

 

129,863

 

Cash, cash equivalents and restricted cash, end of period

 

$

118,901

 

 

$

134,092

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

5,607

 

 

$

5,866

 

Cash paid for income taxes, net

 

 

2,425

 

 

 

9,982

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued capital expenditures in accounts payable

 

 

3,670

 

 

 

5,002

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

4


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 1. Summary of Operations and Significant Accounting Policies

Description of Business

TPI Composites, Inc. is the holding company that conducts substantially all of its business operations through its direct and indirect subsidiaries (collectively, the Company). The Company was founded in 1968 and has been producing composite wind blades since 2001. The Company’s knowledge and experience of composite materials and manufacturing originates with its predecessor company, Tillotson Pearson Inc., a leading manufacturer of high-performance sail and powerboats along with a wide range of composite structures used in other industrial applications. Following the separation from the boat building business in 2004, the Company reorganized in Delaware as LCSI Holding, Inc. and then changed its corporate name to TPI Composites, Inc. in 2008. Today, the Company is headquartered in Scottsdale, Arizona and has expanded its global footprint to include domestic facilities in Newton, Iowa; Fall River, Massachusetts; Warren, Rhode Island and Santa Teresa, New Mexico and international facilities in Dafeng, China; Taicang Port, China; Taicang City, China; Yangzhou, China; Juárez, Mexico; Matamoros, Mexico; Izmir, Turkey and Kolding, Denmark.

Public Offerings and Stock Split

In July 2016, the Company completed an initial public offering (IPO) of 7,187,500 shares of the its common stock at a price of $11.00 per share, which included 937,500 shares issued pursuant to the underwriters’ over-allotment option. Certain of the Company’s existing shareholders, a non-employee director and executive officers purchased an aggregate of 1,250,000 shares of common stock in the IPO included in the total issuance above. The net proceeds from the IPO were $67.2 million after deducting underwriting discounts and offering expenses. Immediately prior to the closing of the IPO, all shares of the then-outstanding redeemable preferred shares converted into an aggregate of 21,110,204 shares of common stock and the redeemable preferred share warrants converted on a net issuance basis into 120,923 shares of common stock. In addition, concurrent with the closing of the IPO, certain subordinated convertible promissory notes in the aggregate principal and interest amount of $11.9 million were converted into 1,079,749 shares of common stock at the public offering price of $11.00 per share.

Prior to the IPO, in July 2016 the Company amended its amended and restated certificate of incorporation to effect a 360-for-1 forward stock split of its common stock. As a result of the stock split, the Company has adjusted the share amounts authorized and issuable under the share-based compensation plans. All share and per share common stock information (including the share-based compensation plans) referenced throughout the unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect this stock split. The stock split did not cause an adjustment to the par value of the authorized shares of common stock.

In May 2017, the Company completed a secondary public offering of 5,075,000 shares of its common stock at a price of $16.35 per share, which included 575,000 shares issued pursuant to the underwriters’ option to purchase additional shares. All of the shares were sold by existing shareholders and certain of the Company’s executive officers. The selling shareholders received all of the net proceeds of $78.8 million from the secondary public offering. The Company did not sell any shares and did not receive any of the proceeds from the offering and the costs paid by the Company in connection with the offering of $0.8 million were recorded in general and administrative costs in the accompanying condensed consolidated statement of operations.  

Basis of Presentation

The Company divides its business operations into four geographic operating segments—the United States, Asia, Mexico and Europe, the Middle East and Africa (EMEA) as follows:

 

The U.S. segment includes (1) the manufacturing of wind blades at the Newton, Iowa plant, (2) the manufacturing of precision molding and assembly systems used for the manufacture of wind blades at the Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation industry, which the Company also conducts at its existing Rhode Island and Massachusetts facilities and at a new manufacturing facility in Newton, Iowa which commenced operations in the second quarter of 2018, (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 and (6) our corporate headquarters, the costs of which are included in general and administrative expenses.

 

The Asia segment includes (1) the manufacturing of wind blades at the facility in Taicang Port, China and at its two facilities in Dafeng, China, (2) the manufacturing of precision molding and assembly systems at the Taicang City, China facility and (3) wind blade inspection and repair services.  In March 2018, the Company entered into a new lease

5


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

agreement with a third party related to the lease of a new manufacturing facility in the Yangzhou Economic & Technical Development Zone in Yangzhou, China and we expect to commence operations at this facility in early 2019.

 

The Mexico segment manufactures wind blades from its three facilities in Juárez, Mexico, the most recent of which commenced operations in January 2017.  In April 2017, the Company entered into a new lease agreement with a third party for a new manufacturing facility in Matamoros, Mexico and the Company commenced operations at this facility in the third quarter of 2018. This segment also performs wind blade inspection and repair services.

 

The EMEA segment manufactures wind blades from its two facilities in Izmir, Turkey and also performs wind blade inspection and repair services.

The accompanying condensed consolidated financial statements include the accounts of TPI Composites, Inc. and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted, as permitted by the SEC, although the Company believes the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the Company’s financial position at June 30, 2018, and the results of the Company’s operations, comprehensive income and cash flows for the periods presented. The Company restated the December 31, 2017 condensed consolidated balance sheet and the June 30, 2017 condensed consolidated income and cash flow statements for the effect of the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, (Topic 606), see Note 13, Adjustments to Previously Reported Financial Statements from the Adoption of an Accounting Pronouncement, but does not include all disclosures required under GAAP.  Interim results for the three and six months ended June 30, 2018 and 2017 are not necessarily indicative of the results to be expected for the full years.

As previously announced, effective January 1, 2018, the Company adopted the requirements of Topic 606 using the full retrospective method as further described in Recently Issued Accounting Pronouncements - Revenue from Contracts with Customers and Note 2, Revenue from Contracts with Customers. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect the adoption of Topic 606 and differ from amounts previously reported for prior periods. See Note 13, Adjustments to Previously Reported Financial Statements from the Adoption of an Accounting Pronouncement, for further discussion of the adoption of Topic 606, including the impact on our previously reported financial statements.

Revenue Recognition

The majority of our revenue is generated from long-term contracts associated with manufacturing of wind blades and related services.  The Company accounts for a long-term contract when it has the approval from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and the collectability of consideration is probable.

To determine the proper revenue recognition method for each long-term contract, the Company evaluates whether the original contract should be accounted for as one or more performance obligations. This evaluation requires judgment and the decisions reached could change the amount of revenue and gross profit recorded in a given period. As most of the Company’s contracts contain multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company’s manufacturing services are customer specific and involve production of items that cannot be sold to other customers due to the customers’ protected intellectual property; therefore, the Company allocates the total transaction price under contracts with multiple performance obligations using the contractually stated prices, as these prices represent the relative standalone selling price based on an expected cost plus margin model.  

Revenue is primarily recognized over time as the Company has an enforceable right to payment upon termination and the Company may not use or sell the product to fulfill other customers’ contracts.  In addition, the customer does not have return or refund rights for items produced that conform to the specifications included in the contract. Because control transfers over time, revenue is recognized based on the extent of progress towards the completion of the performance obligation. The Company uses the cost-to-cost input measure of progress for its contracts as this method provides the best representation of the production progress towards satisfaction of the performance obligation as the materials are distinct to the product being manufactured because of customer specifications provided

6


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

for in the contract, the costs incurred are proportional to the progress towards completion of the product, and the products do not involve significant pre-fabricated component parts. Under the cost-to-cost method, progress and the related revenue recognition is determined by 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.

Determining the revenue to be recognized for services performed under the Company’s manufacturing contracts involves significant judgments and estimates relating to the total consideration to be received and the expected total costs to complete the performance obligation.  The judgments and estimates relating to the total consideration to be received include the amount of variable consideration as the Company’s contracts typically provide the customer with a range of production output options from guaranteed minimum volume obligations to the production capacity of the facility, and customers will provide periodic non-cancellable commitments for the number of wind blades to be produced over the term of the agreement.  The Company uses historical experience, customer commitments and forecasted future production based on the capacity of the plant to estimate the total revenue to be received to complete the performance obligation.  In addition, the amount of revenue per unit produced may vary based on the costs of production of the wind blades as the Company may be able to change the price per unit based on changes in the cost of production.  Further, some contracts provide opportunities for the Company to share in labor and material cost savings as well as absorb some additional costs as an incentive for more efficient production, both of which impact the margin realized on the contract and ultimately the total amount of revenue to be recognized.  Additionally, certain customer contracts provide for concessions by the Company for missed production deadlines.  

The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information available to the Company at the time of the estimate and may materially change as additional information becomes known.

Contracts may be modified to account for changes in specifications of products and changing requirements. If the contract modifications are for goods or services that are not distinct from the existing contract, they are accounted for as if they were part of the original contract. The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis. If contract modifications are for goods and services that are distinct from the existing contract and increases the amount of consideration reflecting the standalone sale price of the additional goods or services, then the contract modification is accounted for as a separate contract and is evaluated for one or more performance obligations.  

Each reporting period, the Company evaluates the progress towards satisfaction of each performance obligation based on any contract modifications that have occurred, cost incurred to date, and an estimate of the expected future revenue and costs to be incurred to complete the performance obligation. Based on this analysis, any changes in estimates of revenue, cost of sales, contract assets and liabilities and the related impact to operating income are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion.

Wind blade pricing is based on annual commitments of volume as established in the customer’s contract and orders less than committed volume may result in a higher price per wind blade to customers. Orders in excess of annual commitments may result in discounts to customers from the contracted price for the committed volume. Customers typically provide periodic purchase orders with the price per wind blade given the current cost of the bill of materials, labor requirements and volume desired.  The Company records an allowance for expected utilization of early payment discounts which are reported as a reduction of the related revenue.

Precision molding and assembly systems included in a customer’s contract are based upon the specific engineering requirements and design determined by the customer and are specific to the wind blade design and function desired. From the customer’s engineering specifications, a job cost estimate is developed along with a production plan, and the desired margin is applied based on the location the work is to be performed and complexity of the customer’s design. Precision molding and assembly systems are generally built to produce wind blades which may be manufactured by the Company in production runs specified in the customer contract.

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on manufacturing services contracts.  The contract assets are transferred to accounts receivable when the rights become unconditional, which generally occurs when customers are invoiced upon the determination that a product conforms to the contract specifications and invoices are due based on each customers negotiated payment terms, which range from 30 to 65 days.  The Company applies the

7


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

practical expedient that allows it to exclude payment terms under one year from the transfer of a promised good or service from consideration of a significant financing component in its contracts. With regards to the production of precision molding and assembly systems, the Company’s contracts generally call for progress payments to be made in advance of production. Generally, payment is made at certain percentage of completion milestones with the final payment due upon delivery to the manufacturing facility. These progress payments are recorded within contract liabilities as current liabilities in the condensed consolidated balance sheets and are reduced as the Company records revenue over time.  

The Company’s customers may request, in situations where they do not have space available to receive products or do not want to take possession of products immediately for other reasons, that their finished products be stored by the Company in one of its facilities. Most contracts provide for a limited number of wind blades to be stored during the period of the contract with any additional wind blades stored subject to additional storage fees, which are included in the wind blade performance obligation revenue.  

Revenue related to non-recurring engineering and freight services provided under customer contracts is recognized at a point in time following the transfer of control of the promised services to the customer. Customers usually pay the carrier directly for the cost of shipping associated with items produced.  When the Company pays the shipping costs, the Company applies the practical expedient that allows it to account for shipping and handling as a fulfillment costs and include the revenue in the associated performance obligation and the costs are included in cost of goods sold.

Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue-producing transactions, that are collected by the Company from a customer, are excluded from revenue.

Warranty Expense

The Company provides a limited warranty for its mold and wind blade products, including parts and labor, with terms and conditions that vary depending on the product sold, generally for periods that range from two to five years. Warranty expense is recorded based upon estimates of future repairs using a probability-based methodology that considers previous warranty claims, identified quality issues and industry practices. Once the warranty period has expired, any remaining unused warranty accrual for the specific products is reversed against the current year warranty expense amount.

Warranty accrual at June 30 consisted of the following:

 

 

 

2018

 

 

 

(in thousands)

 

Warranty accrual at beginning of year

 

$

30,419

 

Accrual during the period

 

 

6,136

 

Cost of warranty services provided during the period

 

 

(579

)

Reversal of reserves upon warranty expiration

 

 

(1,997

)

Warranty accrual at end of period

 

$

33,979

 

 

Treasury Stock

Common stock purchased for treasury is recorded at historical cost. Transactions in treasury shares relate to share-based compensation plans and are recorded at weighted-average cost.

8


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

Net Income (Loss) Per Common Share Calculation

The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding plus potentially dilutive securities using the treasury stock method. The table below reflects the calculation of the weighted-average number of common shares outstanding, using the treasury stock method, used in computing basic and diluted earnings (loss) per common share:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Basic weighted-average shares outstanding

 

 

34,164

 

 

 

33,737

 

 

 

34,107

 

 

 

33,737

 

Effect of dilutive stock options and warrants

 

 

 

 

 

91

 

 

 

1,659

 

 

 

90

 

Diluted weighted-average shares outstanding

 

 

34,164

 

 

 

33,828

 

 

 

35,766

 

 

 

33,827

 

 

 

Share-based compensation awards of 97,000 shares were excluded from the computation of diluted net income per share for the six months ended June 30, 2018 because the effect would be anti-dilutive. The Company had 1,851,000 potentially dilutive shares outstanding for the three months ended June 30, 2018 that were not included in the diluted net loss per share calculation because their affect would be anti-dilutive. In addition, the performance-based restricted stock units (PSUs) described below have been excluded from the computation of diluted net income per share for the six months ended June 30, 2018 as the performance conditions have not yet been met. The Company did not have any potential dilutive securities which were excluded from the computation of diluted net income per share for the three and six months ended June 30, 2017.

Financial Instruments

The Company uses interest rate swap contracts to mitigate its exposure to interest rate fluctuations associated with its new credit agreement (the Credit Agreement) that the Company entered in April 2018. The Company does not use such swap contracts for speculative or trading purposes.

To offset the variability of future interest payments on the Credit Agreement arising from changes in LIBOR rates, in April 2018, the Company entered into an interest rate swap agreement with a financial institution for a notional amount of $75.0 million with an expiration date of April 2023. This agreement effectively hedges $75.0 million of the $75.4 million of the future variable rate LIBOR interest expense to a fixed rate interest expense. The derivative instrument qualified for accounting as a cash flow hedge in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 815, Derivatives and Hedging, and the Company designated it as such.

 

The settlement value of the swap is $0.2 million as of June 30, 2018 and is included in other noncurrent assets in the condensed consolidated balance sheet.  The unrealized gain on the swap of $0.2 million is included in the condensed consolidated statement of other comprehensive income (loss).

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted in 2018

Revenue from Contracts with Customers

In May 2014, the FASB issued Topic 606, which provides new recognition and disclosure requirements for revenue from contracts with customers that supersedes the existing revenue recognition guidance. The new recognition requirements focus on when the customer obtains control of the goods or services, rather than the current risks and rewards model of recognition. The core

9


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

principle of the new standard is that an entity will recognize revenue when it transfers goods or services to its customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or services. The new disclosure requirements included in these financial statements contain information intended to communicate the nature, amount, timing and any uncertainty of revenue and cash flows from the applicable contracts, including any significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract.

The Company adopted Topic 606 as of January 1, 2018 with retrospective application to January 1, 2016 through December 31, 2017.  See Note 2, Revenue from Contracts with Customers and Note 13, Adjustments to Previously Reported Financial Statements from the Adoption of an Accounting Pronouncement, for further discussion of the adoption of this standard, including the impact on our previously reported financial statements.

Cash Flow Presentation

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, that clarifies how certain cash receipts and cash payments are presented and classified in the condensed consolidated statements of cash flows.  In addition, in November 2016, the FASB issued ASU 2016-18, Restricted Cash, that requires restricted cash and cash equivalents to be included with the amount of cash and cash equivalents that are reconciled on the condensed consolidated statements of cash flows. The Company adopted these ASUs as of January 1, 2018 with retrospective application to each period presented.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets which total the same such amounts in the condensed consolidated statements of cash flows:

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

113,995

 

 

$

148,113

 

 

$

130,834

 

 

$

119,066

 

Restricted cash

 

 

4,431

 

 

 

3,849

 

 

 

2,783

 

 

 

2,259

 

Restricted cash included within other noncurrent assets

 

 

475

 

 

 

475

 

 

 

475

 

 

 

8,538

 

Total cash, cash equivalents and restricted cash shown in the

   condensed consolidated statements of cash flows

 

$

118,901

 

 

$

152,437

 

 

$

134,092

 

 

$

129,863

 

See Note 13, Adjustments to Previously Reported Financial Statements from the Adoption of an Accounting Pronouncement, for further discussion of the adoption of these standards, including the impact on our previously reported financial statements.  

Income Taxes

In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides relief for companies that have not completed their accounting for the effects of The Tax Cuts and Jobs Act (Tax Reform Act) but can determine a reasonable estimate of those effects to allow them to include a provisional amount based on their reasonable estimate in their financial statements. The guidance in SAB 118 also allows companies to adjust the provisional amounts during a one-year “measurement period” which is similar to the measurement period used when accounting for business combinations. In the accompanying consolidated financial statements, the Company has not completed its accounting for all the tax effects associated with the enactment of the Tax Reform Act. However, the Company has, in certain cases made a reasonable estimate of the effects on its existing carryforward attributes and the one-time transition tax. See Note 9, Income Taxes, for further discussion.

Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 is a comprehensive new recognition model for leases requiring a lessee to recognize the asset and liability that arise from leases. For public companies, the amendment is effective for financial statements issued for annual periods beginning after December 16, 2018. Entities may elect to early adopt the lease standard in 2016. In adopting ASU 2016-02, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. Management is evaluating the provisions of ASU 2016-02 and has not yet selected a transition method nor determined what impact the adoption of ASU 2016-02 will have on the Company’s financial position or results of operations.

10


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 2. Revenue From Contracts with Customers

 

The following tables represents the disaggregation of revenue by contract type for each of our reportable segments (in thousands):

 

 

 

Three Months Ended June 30, 2018

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

Total

 

Wind blade sales

 

$

33,696

 

 

$

67,180

 

 

$

55,595

 

 

$

49,882

 

 

$

206,353

 

Precision molding and

   assembly systems sales

 

 

2,359

 

 

 

9,729

 

 

 

214

 

 

 

 

 

 

12,302

 

Transportation sales

 

 

7,459

 

 

 

 

 

 

 

 

 

 

 

 

7,459

 

Other sales

 

 

1,181

 

 

 

1,022

 

 

 

544

 

 

 

1,749

 

 

 

4,496

 

Total net sales

 

$

44,695

 

 

$

77,931

 

 

$

56,353

 

 

$

51,631

 

 

$

230,610

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

Total

 

Wind blade sales

 

$

72,641

 

 

$

135,351

 

 

$

111,638

 

 

$

120,903

 

 

$

440,533

 

Precision molding and

   assembly systems sales

 

 

4,222

 

 

 

17,908

 

 

 

978

 

 

 

 

 

 

23,108

 

Transportation sales

 

 

11,512

 

 

 

 

 

 

 

 

 

 

 

 

11,512

 

Other sales

 

 

2,444

 

 

 

2,342

 

 

 

1,701

 

 

 

2,951

 

 

 

9,438

 

Total net sales

 

$

90,819

 

 

$

155,601

 

 

$

114,317

 

 

$

123,854

 

 

$

484,591

 

 

 

 

Three Months Ended June 30, 2017

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

Total

 

Wind blade sales

 

$

42,568

 

 

$

83,713

 

 

$

48,469

 

 

$

51,003

 

 

$

225,753

 

Precision molding and

   assembly systems sales

 

 

1,608

 

 

 

3,400

 

 

 

134

 

 

 

 

 

 

5,142

 

Transportation sales

 

 

3,130

 

 

 

 

 

 

 

 

 

 

 

 

3,130

 

Other sales

 

 

309

 

 

 

2,170

 

 

 

1,865

 

 

 

1,213

 

 

 

5,557

 

Total net sales

 

$

47,615

 

 

$

89,283

 

 

$

50,468

 

 

$

52,216

 

 

$

239,582

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

Total

 

Wind blade sales

 

$

84,538

 

 

$

148,979

 

 

$

93,668

 

 

$

94,273

 

 

$

421,458

 

Precision molding and

   assembly systems sales

 

 

4,944

 

 

 

7,064

 

 

 

789

 

 

 

 

 

 

12,797

 

Transportation sales

 

 

5,708

 

 

 

 

 

 

 

 

 

 

 

 

5,708

 

Other sales

 

 

392

 

 

 

2,737

 

 

 

2,959

 

 

 

2,146

 

 

 

8,234

 

Total net sales

 

$

95,582

 

 

$

158,780

 

 

$

97,416

 

 

$

96,419

 

 

$

448,197

 

 

 

In addition, most of the Company’s net sales are made directly to the its customers, primarily wind turbine manufacturers, under long-term contracts which are typically five years in length.

 

Contract Assets and Liabilities

 

Contract assets consist of unbilled amounts typically resulting from revenue recognized over time for products in production and the revenue recognized exceeds the amount billed to the customer. The contract assets are recorded as current assets in the condensed consolidated balance sheets. Contract liabilities consist of advance payments in excess of costs incurred. These amounts were historically recorded as customer deposits which primarily related to progress payments received as precision molding and assembly systems were being manufactured. The contract liabilities are recorded as current liabilities in the condensed consolidated balance sheets and are reduced as the Company records revenue over time.  

 

11


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

These contract assets and liabilities are reported on the condensed consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

 

Contract assets and contract liabilities consisted of the following:

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

 

(in thousands)

 

Contract assets

 

$

131,371

 

 

$

105,619

 

 

$

25,752

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

 

(in thousands)

 

Contract liabilities

 

$

1,820

 

 

$

2,763

 

 

$

(943

)

 

 

Contracts assets increased by $25.8 million from December 31, 2017 to June 30, 2018 due to incremental unbilled production in the six months ended June 30, 2018. Contracts liabilities decreased by $0.9 million from December 31, 2017 to June 30, 2018 due to the amounts billed to customers exceeded the progress billings received related to precision molding and assembly systems being produced in the six months ended June 30, 2018.

 

The time it takes to produce a single blade is typically between 24 to 36 hours. The time it takes to produce a mold is typically between 3 to 6 months.

 

For the three and six months ended June 30, 2018, the Company recognized revenue of $0.1 million and $2.8 million, respectively, that was included in the corresponding contract liability balance at the beginning of the period.

 

Performance Obligations

 

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes any unexercised contract options.

 

For the three and six months ended June 30, 2018, net revenue recognized from our performance obligations satisfied in previous periods increased by $0.9 million and decreased by $4.0 million, respectively. This primarily relates to changes in certain of the Company’s estimated total contract values and related percentage of completion estimates.

 

As of June 30, 2018, the aggregate amount of the transaction price allocated to the remaining performance obligations was  approximately $5.4 billion. The Company expects to recognize the remaining performance obligations as revenue as follows: 10 percent in the remainder of 2018, 24 percent in 2019, 25 percent in 2020, 17 percent in 2021, 14 percent in 2022 and the remaining 10 percent in 2023.

 

Pre-Production Investments

The Company recognizes an asset from the costs incurred to fulfill a contract when those costs meet all of the following criteria:  (a) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify; (b) the costs generate or enhance resources of the Company that will be used in satisfying performance obligations in the future; and, (c) the costs are expected to be recovered.  The Company capitalizes the costs related to training its workforce to execute the manufacturing services and other facility set-up costs related to preparing for production.  The Company factors these costs into its estimated cost analysis for the overall contract.  Costs capitalized are amortized over the number of units produced during the contract term. As of June 30, 2018, the cost and accumulated amortization of such assets totaled $2.9 million and $1.7 million, respectively. As of December 31, 2017, the cost and accumulated amortization of such assets totaled $2.4 million and $1.4 million, respectively.

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.  These costs are included in cost of goods sold.

 

12


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 3. Significant Risks and Uncertainties

The Company’s revenues and receivables are from a small number of customers. As such, the Company’s production levels are dependent on these customers’ orders. See Note 11, Concentration of Customers.

The Company maintains its U.S. cash in bank deposit accounts that, at times, exceed U.S. federally insured limits. U.S. bank accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) in an amount up to $250,000 during 2018 and 2017. At June 30, 2018 and December 31, 2017, the Company had $81.0 million and $98.9 million, respectively, of cash in deposit accounts in high quality U.S. banks, which was in excess of FDIC limits. The Company has not experienced losses in any such accounts.

The Company also maintains cash in bank deposit accounts outside the U.S. with no insurance. At June 30, 2018, this includes $29.9 million in China, $0.5 million in Turkey and $2.6 million in Mexico. The Company has not experienced losses in these accounts. In addition, at June 30, 2018, the Company has short-term deposits in interest bearing accounts of $4.4 million in China, which are reported as restricted cash in the Company’s condensed consolidated balance sheets. At June 30, 2018, the Company also has long-term deposits in interest bearing accounts of $0.5 million in Iowa which are reported as restricted cash within the caption other noncurrent assets in the Company’s condensed consolidated balance sheets.

 

 

Note 4. Related-Party Transactions

Related party transactions include transactions between the Company and certain of its affiliates. The following transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.

The Company has entered into several agreements with subsidiaries of General Electric Company and its consolidated affiliates (GE) relating to the operation of its business. As a result of these agreements, GE has been a debtor, creditor and holder of both preferred and common shares. During the second quarter of 2017, GE reduced its holdings of the Company’s common shares to less than five percent of the total shares then outstanding and completely divested of the Company’s common shares during the third quarter of 2017.

The Company has entered into five separate supply agreements with GE to manufacture wind blades in Newton, Iowa; Taicang Port, China; Juárez, Mexico (2) and Izmir, Turkey. The supply agreements in Taicang Port, China and Izmir, Turkey expired on December 31, 2017 and GE did not renew or extend these two contracts. For the six months ended June 30, 2017, the Company recorded related-party sales with GE of $198.6 million. As disclosed in Note 11, Concentration of Customers, for the three months ended June 30, 2018 and 2017, the Company recorded sales with GE of $75.0 million and $107.1 million, respectively, and for the six months ended June 30, 2018 and 2017, the Company recorded sales with GE of $162.8 million and $198.6 million, respectively. As of June 30, 2018 and December 31, 2017, the Company had accounts receivables related to sales to GE of $22.8 million and $22.2 million, respectively.

Certain of the Company’s existing stockholders, consisting of entities associated with Element Partners, Angeleno Group and Landmark Partners, each of which is an affiliate of a member of the board of directors, as well as certain executive officers and a director, purchased an aggregate of 1,250,000 shares of common stock in the IPO. In addition, all outstanding obligations and accrued interest under the Company’s subordinated convertible promissory notes held by certain existing stockholders, including Element Partners, Angeleno Group and Landmark Partners, were converted into an aggregate of 1,079,749 shares of common stock concurrent with the closing of the IPO at the public offering price of $11.00 per share.  

In connection with the Company’s secondary offering in May 2017, certain entities associated with Element Partners, Angeleno Group, Landmark Partners and NGP Energy Technology Partners, L.P, as well as certain executive officers of the Company sold an aggregate of 5,075,000 shares of common stock at the public offering price of $16.35 per share.

 

 

13


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 5. Accounts Receivable

Accounts receivable consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Trade accounts receivable

 

$

116,979

 

 

$

117,794

 

Other accounts receivable

 

 

2,500

 

 

 

3,782

 

Total accounts receivable

 

$

119,479

 

 

$

121,576

 

 

 

Note 6. Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Machinery and equipment

 

$

99,564

 

 

$

100,681

 

Buildings