BWEN US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Company” refer to Broadwind, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its Subsidiaries.

(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)

We booked $148,882 in net new orders in 2020, down from $221,549 in 2019 which was predominately driven by a reduction in tower orders within our Heavy Fabrications segment, as certain tower customers secured production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020. Other industrial fabrication orders, also included in the Heavy Fabrications segment, decreased $5,036 or 24%, primarily due to weaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic. Gearing orders declined $349, primarily due to reduced global demand for O&G and mining customers reducing capital purchases due to the demand effects associated with the COVID-19 pandemic, partially offset by the timing of orders from aftermarket wind customers. Our Industrial Solutions segment had $17,922 in orders in 2020, an increase of $1,496 over 2019, primarily due to higher customer demand for gas turbine components, partially offset by the absence of a solar kitting project order received in the prior year. At December 31, 2020, total backlog was $92,854, down 35% from $142,302 at December 31, 2019 primarily due to the aforementioned reduction in tower and other industrial fabrication orders.

We recognized revenue of $198,496in 2020, up 11% from revenue of $178,220 in 2019. Within the Heavy Fabrications segment, tower revenue increased 20% primarily due to the expansion of the customer base and an overall increase in U.S. wind tower installations. Additionally, within the Heavy Fabrications segment, industrial fabrication product line revenues increased 22% from 2019, primarily as a result of our ongoing diversification efforts, where growth in material handling and mining markets offset declines in the construction market. Gearing revenue was down $9,741 from 2019, driven primarily by lower order intake during the current year due to reduced global demand for oil and general market uncertainty stemming from the COVID-19 pandemic. The COVID-19 pandemic also negatively impacted other cyclical end markets. Industrial Solutions revenue was up $3,635 or 25% primarily due to higher customer demand for new gas turbine content, partially offset by the absence of revenue associated with a solar kitting project in 2019.

We reported a net loss of $1,487, or $0.09 per share in 2020, compared to a net loss of $4,523 or $0.28 per share in 2019. The improvement in earnings was primarily due to higher capacity utilization in our Heavy Fabrications segment and improved operating performance in the Industrial Solutions segment. Partially offsetting this improvement was decreased revenue, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels in the Gearing segment.

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We use our credit facility to fund working capital requirements and believe that our credit facility, together with the operating cash generated by our businesses, and any potential proceeds from access to the public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve months. On December 31, 2020, we had $1,245 drawn under our $35,000 line of credit, and $3,372 of cash on hand, resulting in $24,050 of available liquidity. For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources” in this Annual Report on Form 10-K.

COVID-19 Pandemic

In March 2020, the World Health Organization recognized a novel strain of coronavirus (COVID-19) as a pandemic. In response to this pandemic, the United States and various foreign, state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. The pandemic and the various governments’ response have caused significant and widespread uncertainty, volatility and disruptions in the U.S. and global economies, including in the regions in which we operate.

Overall, through December 31, 2020, we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to the decline in order activity levels for Gearing and Heavy Fabrications. Additionally, throughout 2020, we incurred manufacturing inefficiencies associated with supply chain disruptions and realized employee staffing constraints due to the spread of the COVID-19 pandemic.

Our facilities have continued operations as essential businesses in light of the customers and markets served. In response to the pandemic, we continue to right-size our workforce and delay certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.

We continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company. We have been able to serve the needs of our customers while taking steps to protect the health and safety of our employees, customers, partners, and communities. Among these steps, we have followed the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of our employees.

KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures to analyze our performance. These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance.

Key Financial Measures

Year Ended

December 31,

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(4) Total debt at December 31, 2020 includes PPP loans totaling $9,151.

(5) Our backlog at December 31, 2020 is net of revenue recognized over time.

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:

Year Ended

December 31,

Net loss from continuing operations $ (1,487 ) $ (4,586 )

Income tax provision 48 38

Depreciation and amortization 6,279 7,497

Share-based compensation and other stock payments 1,161 1,956

Restructuring costs — 12

Changes in operating working capital 518 (580 )

Proceeds from disposal of property and equipment — 1

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RESULTS OF OPERATIONS

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.

% of Total % of Total

2020 Revenue 2019 Revenue $ Change % Change

Operating expenses

Other expense, net — %

Income from discontinued operations, net of tax — — % 63 0.0 % (63 ) (100.0 )%

Consolidated

Revenues increased by $20,276 during the year ended December 31, 2020. Higher capacity utilization in the Heavy Fabrications segment was driven primarily by an expansion of our customer base and an increase in wind tower deliveries to support industry-wide installation growth in the current year. Also, within the Heavy Fabrications segment, industrial fabrication product line revenues increased 22% from 2019 primarily as a result of our ongoing diversification efforts. Partially offsetting this improvement was a decrease in Gearing segment revenues of $9,741due primarily to lower order intake during the current year due to reduced global demand for oil and general market uncertainty stemming from the COVID-19 pandemic. Industrial Solutions revenue was up $3,635 or 25% primarily due to higher customer demand for new gas turbine content, partially offset by the absence of revenue associated with a solar kitting project recognized in 2019.

Gross profit increased by $2,589 during the year ended December 31, 2020. The increase in gross profit reflects improved capacity utilization in the Heavy Fabrications segment, partially offset by increased manufacturing inefficiencies associated with lower activity levels in the Gearing segment and supply chain constraints associated with the COVID-19 pandemic. As a result, our gross margin increased from 8.6% for the year ended December 31, 2019, to9.1% for the year ended December 31, 2020.

Operating expenses for the year ended December 31, 2020 were flat compared to the prior year as an increase in professional fees was more than offset by reduced amortization expenses attributable to the absence of the accelerated amortization of the Red Wolf trade name in the prior year. Operating expenses as a percentage of sales decreased from 10.0% to 8.9% in 2020 as compared to 2019.

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Loss from continuing operations improved significantly from $4,586 for the year ended December 31, 2019 to $1,487 for the year ended December 31, 2020, primarily as a result of the factors described above.

Heavy Fabrications Segment

The following table summarizes the Heavy Fabrications segment operating results for the twelve months ended December 31, 2020 and 2019:

Year Ended

December 31,

Operating margin 6.7 % 1.4 %

The reduction in Heavy Fabrications orders was a result of certain tower customers securing production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020. Other industrial fabrication orders decreased $5,036 or 24%, primarily due to weaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic, partially offset by growth in other industrial markets. Segment revenues increased by 21% during the year ended December 31, 2020 primarily due to a 23% increase in tower sections sold and a $3,553 increase in other industrial fabrication revenue, reflecting an expansion of our customer base and investments to broaden our manufacturing capabilities.

Heavy Fabrications segment operating results improved by $8,524 versus the prior year. The improvement primarily reflected the higher segment capacity utilization and a more profitable product mix sold. This improvement was partially offset by a more complex product mix sold and other manufacturing variances primarily attributable to supply chain constraints and other impacts of the COVID-19 pandemic. Operating profit margin was 6.7% during the year ended December 31, 2020 compared to 1.4% during the year ended December 31, 2019.

Gearing Segment

The following table summarizes the Gearing segment operating results for the twelve months ended December 31, 2020 and 2019:

Year Ended

December 31,

Operating margin (15.4 )% 9.3 %

Gearing segment orders for the year ended December 31, 2020 declined $349 compared to the year ended December 31, 2019 primarily due to reduced O&G orders attributable to decreased global demand for oil. Other markets within the Gearing segment, primarily mining, realized lower new order demand in 2020 as customers delayed or reduced capital purchases due to economic uncertainty stemming from the COVID-19 pandemic. These decreases were partially offset by the timing of orders from the aftermarket wind market, which are typically placed by customers to secure production capacity over multiple periods. Revenues decreased 28% during the year ended December 31, 2020 primarily due to lower order intake during recent periods due to the aforementioned low oil prices and reduction of customer orders due to general market uncertainty associated with the COVID-19 pandemic.

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The Gearing segment reported an operating loss of $3,883during the year ended December 31, 2020 primarily due to a decrease in sales, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. Operating margin was (15.4)% for the year ended December 31, 2020 compared to 9.3% during the year ended December 31, 2019.

Industrial Solutions Segment

The following table summarizes the Industrial Solutions segment operating results for the twelve months ended December 31, 2020 and 2019.

Year Ended

December 31,

Operating income (loss) 881 (1,059 )

Operating margin 4.8 % (7.2 )%

Industrial Solutions segment orders and revenues increased in 2020 primarily due to stronger demand for gas turbine content. This was partially offset by the absence of a solar kitting order received in 2019.

The Industrial Solutions segment operating results improved by $1,940 during the year ended December 31, 2020 as a result of the revenue growth and general operating efficiencies. In addition, the current year benefitted from the absence of $871 of accelerated amortization charges associated with the Red Wolf trade name. The operating margin improved from a loss of 7.2% during the year ended December 31, 2019, to 4.8% during the year ended December 31, 2020.

Corporate and Other

Corporate and Other expenses increased by $557 during the year ended December 31, 2020. The increase was primarily attributable to increased professional service expenses in the current year, partially offset by lower incentive compensation.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.

We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated financial statements. This section should also be read in conjunction with Note 1, “Description of Business and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements for further discussion of these and other significant accounting policies.

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Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be classified as reductions of revenue in our statement of operations.

In many instances within our Heavy Fabrications segment, wind towers are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment, due to our customers’ preference to ship products in batches to support efficient construction of wind farms. We recognize revenue under these arrangements when there is a substantive reason for the arrangement (i.e., the buyer requests the arrangement), the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we do not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

During 2020, we also recognized revenue over time, versus point in time, when products in the Gearing and Heavy Fabrications segments had no alternative use to us and we had an enforceable right to payment, including profit, upon termination of the contract by the customer. Since the projects are labor intensive, we use labor hours as the input measure of progress for the contract. Contract assets are recorded when performance obligations are satisfied but we are not yet entitled to payment. We recognize contract assets associated with this revenue which represents our rights to consideration for work completed but not billed at the end of the period. We did not recognize any revenue over time during the year ended December 31, 2019.

Warranty Liability

We provide warranty terms that generally range from one to five years for various products relating to workmanship and materials supplied by us. In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third parties for amounts paid to customers under warranty provisions. We estimate the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales.

Inventories

Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of components and parts for general production use. Work-in-process consists of labor and overhead, processing costs, purchased subcomponents, and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by us.

Inventories are stated at the lower of cost or net realizable value. Where necessary, we have recorded a reserve for the excess of cost over market value in our inventory allowance. Market value of inventory, and management’s judgment concerning the need for reserves, encompasses consideration of many business factors including physical condition, inventory holding period, contract terms and usefulness. Inventories are valued based either on actual cost or using a first-in, first out method.

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Long-Lived Assets

We review property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Due to the Gearing's segment recent operating losses, we continue to evaluate the recoverability of certain of the long-lived assets associated with that segment. During October 2020, we identified a triggering event associated with the Gearing's segment operating losses. In accordance with GAAP, we compared the carrying value of the Gearing asset group to the forecast undiscounted cash flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value resulting in no recorded impairment of this group.

Income Taxes

We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax liability for each of the tax jurisdictions in which we operate. This process involves estimating our actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. We also recognize the expected future income tax benefits of net operating loss (“NOL”) carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

We also account for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. We follow the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition related to the uncertainty in these income tax positions.

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LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of December 31, 2020, cash totaled $3,372, an increase of $956from December 31, 2019. We have in place a line of credit with CIBC Bank (the “Credit Facility”) under which we can borrow up to $35,000, depending on our borrowing base. Debt and finance lease obligations at December 31, 2020 totaled $14,210, and we had the ability to borrow up to $20,678 under the Credit Facility. We also utilize supply chain financing arrangements as a component of our funding for working capital, which accelerates receivable collections and helps to better manage cash flow. Under these agreements, we have agreed to sell certain of our accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements. The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense.

On October 29, 2020, we executed the First Amendment to the 2016 Amended and Restated Loan Agreement, implementing a payoff of a syndicated lender and a pricing grid based on our trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for LIBOR rate loans and 0.00% and 0.75% for base rate loans, and extending the term of the Credit Facility to July 31, 2023. We were in compliance with all covenants under the Credit Facility as of December 31, 2020.

On February 23, 2021, we executed the Second Amendment to the 2016 Amended and Restated Loan Agreement (the “Second Amendment”) which waived testing of the fixed charge coverage covenant for the quarters ending March 31, 2021 and June 30, 2021, added a new liquidity covenant applicable to the quarter ending March 31, 2021, and new minimum EBITDA covenants applicable to the quarters ending March 31, 2021 and June 30, 2021. For a more detailed description of the Second Amendment refer to Item 9B of this Form 10-K.

On April 15, 2020, we received unsecured funds under notes and related documents (“PPP Loans”) with CIBC under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (the “SBA”). We received total proceeds of $9,530 from the PPP loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities, which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such covered period. The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA conveys the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period). We used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the terms of the PPP and plan to submit our forgiveness applications to CIBC during the first quarter of 2021. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, we cannot provide assurance that we have not taken and will not take actions that could cause us to be ineligible for forgiveness of the PPP Loans, in whole or in part.

We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt and/or equity markets, including the option to raise additional capital from the sale of our securities under a “shelf” registration statement on Form S-3.

Other

In 2016, we entered into a $570 unsecured loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon us meeting and maintaining specific employment thresholds. During each of the years ended December 31, 2020 and 2019, $114 of the loan was forgiven. As of December 31, 2020, the loan balance was $228. In addition, we have outstanding notes payable for capital expenditures in the amount of $163 and $1,563 as of December 31, 2020 and 2019, respectively, with $161 and $1,400 included in the “Line of credit and other notes payable” line item of our consolidated financial statements as of December 31, 2020 and 2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from February2021 to August 2022.

Sources and Uses of Cash

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2020 and 2019:

Year Ended

December 31,

Total cash provided by (used in):

Discontinued operations — 5

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Operating Cash Flows

During the year ended December 31, 2020, net cash provided by operations was $5,191 compared to net cash provided by operating activities of $4,521 for the year ended December 31, 2019. The increase in net cash provided by operating activities was primarily due to improved operating performance and a decrease in inventory levels in the current year, partially offset by reductions in accounts payable and customer deposits.

Investing Cash Flows

During the year ended December 31, 2020, net cash used in investing activities was $1,547 compared to net cash used in investing activities of $1,843 for the year ended December 31, 2019. The decrease was the result of a $296 decrease of net purchases of property and equipment during the year as we deferred capital investments in response to general economic uncertainty associated with the COVID-19 pandemic.

Financing Cash Flows

During the year ended December 31, 2020, net cash used in financing activities totaled $2,688 compared to net cash used in financing activities of $1,444 for the year ended December 31, 2019. The increase in net cash used in financing activities was primarily due to increased net repayments on our Credit Facility in the current year, partially offset by PPP loan proceeds received in the current year.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

Off-Balance SheetArrangements

We have no off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND FINANCIAL STATEMENT SCHEDULES” of this Annual Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal year reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective as of December 31, 2020.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Report of Management on Internal Control Over Financial Reporting

Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that our internal control over financial reporting was effective as of December 31, 2020.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

On February 23, 2021, Broadwind, Inc. and its subsidiaries (collectively, the “Company”) entered into a Second Amendment (the “Second Amendment”) to the Amended and Restated Loan and Security Agreement dated February 25, 2019 between the Company and CIBC Bank USA, as administrative agent and sole lead arranger and the other financial institutions party thereto. Among other changes, the Second Amendment waived the fixed charge coverage covenant for the quarters ending March 31, 2021 and June 30, 2021, added a new liquidity covenant applicable to the quarter ending March 31, 2021, and new minimum EBITDA covenants applicable to the quarters ending March 31, 2021 and June 30, 2021.

The foregoing description of the Second Amendment is not intended to be complete and is qualified in its entirety by reference to the Second Amendment to Amended and Restated Loan and Security Agreement, which is attached hereto as Exhibit 10.33 to this Annual Report on Form 10-K and is incorporated herein by reference.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

With the exception of the description of our Code of Ethics and Business Conduct below, the information required by this item is incorporated herein by reference from the discussion under the headings “Directors and Director Compensation,” “Corporate Governance,” “Executive Officers” and “Other Matters—Delinquent Section 16(a) Reports” in our definitive Proxy Statement to be filed in connection with our 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”).

Code of Ethics and Business Conduct

We have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to all of our directors, executive officers and senior financial officers (including our principal executive officer, principal financial officer, principal accounting officer, controller, and any person performing similar functions). The Code is available on our website at www.bwen.com under the caption “Investors” and is available in print, free of charge, to any stockholder who sends a request for a paper copy to Broadwind, Inc., Attn: Investor Relations, 3240 South Central Avenue, Cicero, IL 60804. We intend to include on our website any amendment to, or waiver from, a provision of the Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding director and executive compensation is incorporated by reference from the discussion under the headings “Directors and Director Compensation” and “Executive Officers and Executive Compensation” in the 2021 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain of the information required by this item is incorporated herein by reference from the discussion under the heading “Security Ownership of Certain Beneficial Holders and Management” in the 2021 Proxy Statement.

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The following table provides information as of December 31, 2020, with respect to shares of our common stock that may be issued under our existing equity compensation plans:

EQUITY COMPENSATION PLAN INFORMATION

(a) (b) (c)

Number of securities

remaining available for

Number of securities future issuances under

to be issued upon Weighted‐average equity compensation

exercise of exercise price of plans (excluding

outstanding options, outstanding options, securities reflected in

Plan Category warrants, and rights warrants, and rights column (a))

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference from the discussion under the headings “Certain Transactions and Business Relationships” and “Corporate Governance” in the 2021 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference from the discussion under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the 2021 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

The financial statements listed on the Index to Financial Statements (page 34) are filed as part of this Annual Report.

2. Financial Statement Schedules

These schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required.

3. Exhibits

The exhibits listed on the Index to Exhibits (pages 70 through 71) are filed as part of this Annual Report.

ITEM 16. FORM 10-K SUMMARY

None.

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INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm 35

Consolidated Balance Sheets as of December 31, 2020 and 2019 37

Notes to Consolidated Financial Statements 41

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Broadwind, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Broadwind, Inc.(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

35

Long-Lived Assets

As described in Note 7 of the consolidated financial statements, the Company’s evaluation of long-lived asset impairment involves the comparison of the undiscounted future cash flows of a respective asset group to its corresponding carrying value. This requires management to make significant qualitative and quantitative estimates and assumptions including estimates of future revenue growth rates, operating margins, and capital expenditures. Changes in these assumptions could have a significant impact on the amount of undiscounted cash flows, which could have an impact on the impairment charge, if any.

The Company’s Gearing asset group experienced a decline in revenue and operating margin during the year-ended December 31, 2020. Company management determined that the carrying amount of the Gearing asset group may not be recoverable based on the change in operating performance. Accordingly, the Company performed an impairment assessment of the asset group as of October 31, 2020. As part of the impairment assessment, it was determined that the reporting unit had undiscounted future cash flows that exceeded its estimated carrying value. Additionally, there were no changes in facts or circumstances following the October 31, 2020 assessment through year-end which would alter the Company’s initial undiscounted future cash flows or carrying value estimates. As a result, no impairment charge was recorded in the consolidated statement of operations for the year ended December 31, 2020. Key financial assumptions used to determine the undiscounted cash flows of the asset group were developed by management.

We identified the long-lived asset impairment assessment of the Gearing asset group as a critical audit matter because of the high degree of judgement and subjectivity involved in auditing management’s assumptions regarding the primary asset determination, revenue growth rates, operating cash flow margins and capital expenditures utilized to determine the recoverability of the asset group’s long-lived assets.

How the Critical Audit Matter Was Addressed in the Audit

The audit procedures performed related to the evaluation of Company management’s assumptions and estimates relating to their determination of recoverability of the Gearing asset group included the following, among others:

/S/ RSM US LLP

We have served as the Company's auditor since 2016.

Chicago, Illinois

February 25, 2021

36

BROADWIND, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

As of December 31,

ASSETS

CURRENT ASSETS:

Contract assets 2,253 —

Prepaid expenses and other current assets 2,909 2,124

LONG-TERM ASSETS:

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Line of credit and other notes payable $ 1,406 $ 12,917

Current portion of finance lease obligations 1,427 546

Current portion of operating lease obligations 1,832 1,326

LONG-TERM LIABILITIES:

Long-term debt, net of current maturities 9,381 505

Long-term finance lease obligations, net of current portion 1,996 673

Long-term operating lease obligations, net of current portion 19,569 16,591

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 119,682 $ 122,866

The accompanying notes are an integral part of these consolidated financial statements.

37

BROADWIND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

For the Years Ended December 31,

OPERATING EXPENSES:

Operating income (loss) 422 (2,357 )

OTHER EXPENSE, net:

Total other expense, net (1,861 ) (2,191 )

Net loss before provision for income taxes (1,439 ) (4,548 )

Provision for income taxes 48 38

LOSS FROM CONTINUING OPERATIONS (1,487 ) (4,586 )

INCOME FROM DISCONTINUED OPERATIONS — 63

NET LOSS PER COMMON SHARE—BASIC:

Loss from continuing operations (0.09 ) (0.28 )

Income from discontinued operations — 0.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC 16,746 16,127

NET LOSS PER COMMON SHARE—DILUTED:

Loss from continuing operations (0.09 ) (0.28 )

Income from discontinued operations — 0.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED 16,746 16,127

The accompanying notes are an integral part of these consolidated financial statements.

38

BROADWIND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

Common Stock Treasury Stock

Shares Issued Issued Additional Accumulated

Issued Amount Shares Amount Paid-in Capital Deficit Total

Stock issued for restricted stock 223,580 1 — — — — 1

Share-based compensation — — — — 958 — 958

Stock issued for restricted stock 289,087 — — — — — —

Share-based compensation — — — — 1,156 — 1,156

The accompanying notes are an integral part of these consolidated financial statements.

39

BROADWIND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Income from discontinued operations — 63

Loss from continuing operations (1,487 ) (4,586 )

Adjustments to reconcile net cash provided by operating activities:

Depreciation and amortization expense 6,279 7,497

Deferred income taxes (4 ) (30 )

Change in fair value of interest rate swap agreements 167 34

Allowance for doubtful accounts 346 (63 )

Common stock issued under defined contribution 401(k) plan — 962

Gain on disposal of assets — (1 )

Changes in operating assets and liabilities, net of acquisition:

Contract assets (2,253 ) —

Prepaid expenses and other current assets (865 ) (585 )

Other non-current assets and liabilities 75 236

Net cash provided by operating activities 5,191 4,521

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (1,547 ) (1,844 )

Proceeds from disposals of property and equipment — 1

Net cash used in investing activities (1,547 ) (1,843 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term debt 9,530 —

Payments on long-term debt (1,186 ) (937 )

Principal payments on finance leases (992 ) (1,024 )

Proceeds from sale of common stock, net 232 —

Net cash used in financing activities (2,688 ) (1,444 )

DISCONTINUED OPERATIONS:

Operating cash flows — 5

Net cash provided by discontinued operations — 5

Supplemental cash flow information:

Income taxes paid $ 81 $ 49

Non-cash activities:

Issuance of restricted stock grants $ 1,156 $ 958

Equipment additions via finance lease $ 3,196 $ 704

Non-cash purchases of property and equipment $ 376 $ 552

The accompanying notes are an integral part of these consolidated financial statements.

40

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 and 2019

(in thousands, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Broadwind, Inc. (the “Company”) is a precision manufacturer of structures, equipment and components for clean tech and other specialized applications. The Company provides technologically advanced high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”). The Company’s most significant presence is within the U.S. wind energy industry, although the Company has increasingly diversified into other industrial markets. Within the U.S. wind energy industry, the Company provides products primarily to turbine manufacturers. The Company also provides precision gearing and heavy fabrications to a broad range of industrial customers for oil and gas (“O&G”), mining, steel and other industrial applications, in addition to supplying components for natural gas turbines. The Company has three reportable operating segments: Heavy Fabrications, Gearing, and Industrial Solutions.

Heavy Fabrications

The Company provides large, complex and precision fabrications to customers in a broad range of industrial markets. The Company’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the Company provides steel towers and adapters primarily to wind turbine manufacturers. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 550 towers (1650 tower sections), sufficient to support turbines generating more than 1,100 MW of power. The Company has expanded its production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and OEM components utilized in surface and underground mining, construction, material handling, O&G and other infrastructure markets.

41

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Gearing

The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Industrial Solutions

The Company provides supply chain solutions, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.

Liquidity

The Company meets its short term liquidity needs through cash generated from operations, its available cash balances, through its credit facility (as further discussed in Note 9 “Debt and Credit Agreements” of these consolidated financial statements), equipment financing, access to the public and private debt and/or equity markets, and has the option to raise capital under the Company’s registration statement on Form S-3 (as discussed below). The Company uses the Credit Facility to fund working capital requirements. Under the Credit Facility, borrowings are continuous and all cash receipts are usually applied to the outstanding borrowed balance. As of December 31, 2020, cash totaled $3,372, an increase of $956 from December 31, 2019. The Company had the ability to borrow up to $20,678 under the Credit Facility as of December 31, 2020.

The Company also utilizes supply chain financing arrangements as a component of our funding for working capital, which accelerates receivable collections and helps to better manage cash flow. Under these agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements. The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company.

42

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Debt and finance lease obligations at December 31, 2020 totaled $14,210, which includes current outstanding debt and finance lease obligations totaling $2,833, due over the next twelve months. The current outstanding debt includes $1,245 outstanding under the Credit Facility.

On August 18, 2020, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on October 13, 2020 (the “Form S-3”) and expires on October 12, 2023. This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus supplement accompanying the base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes. The Company's registration statement on Form S-3 filed on August 11, 2017, which was declared effective by the SEC on October 10, 2017 expired on October 10, 2020.

On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the "ATM Agreement") with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. The Company did not issue any shares of its common stock under the ATM Agreement in 2019. During the year ended December 31, 2020, the Company reinstated the ATM Agreement and issued 91,481 shares of the Company’s common stock thereunder. The net proceeds (before upfront costs) to the Company from the sale of such shares were approximately $321 after deducting commissions paid of approximately $10 and before deducting other expense of $89. The ATM Agreement was terminated in accordance with its terms on October 12, 2020.

In April 2020, the Company received $9,530 in funds under the U.S. Paycheck Protection Program (“PPP”) and made repayments of $379 on May 13, 2020. Refer to Note 9, “Debt and Credit Agreements,” of these consolidated financial statements for more information, including information regarding potential forgiveness of the PPP Loans.

The Company anticipates that current cash resources (which includes proceeds from the PPP Loans), amounts available under the Credit Facility, cash to be generated from operations and equipment financing, and any potential proceeds from the sale of further Company securities under the Form S-3 will be adequate to meet the Company’s liquidity needs for at least the next twelve months.

Summary of Significant Accounting Policies

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include inventory reserves, warranty reserves, impairment of long-lived assets, and allowance for doubtful accounts. Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates.

43

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Cash

Cash and cash equivalents typically comprise cash balances and readily marketable investments with original maturities of three months or less, such as money market funds, short-term government bonds, Treasury bills, marketable securities and commercial paper. As of December 31, 2020 and December 31, 2019, cash totaled $3,372 and $2,416, respectively. For the years ended December 31, 2020 and 2019, interest income was $0.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are presumed to be classified as reductions of revenue in the Company’s statement of operations.

For many tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment. The Company recognizes revenue under these arrangements only when there is a substantive reason for the agreement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

During 2020, the Company also recognized revenue over time, versus point in time, when products in the Gearing and Heavy Fabrications segments had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contract by the customer. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the contract. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment. The Company recognizes contract assets associated with this revenue which represents its rights to consideration for work completed but not billed at the end of the period. The Company did not recognize any revenue over time during the year ended December 31, 2019.

Cost of Sales

Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These costs include operation, repair and maintenance of equipment, materials, direct and indirect labor and benefit costs, rent and utilities, maintenance, insurance, equipment rentals, freight, and depreciation.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include all corporate and administrative functions such as sales and marketing, legal, human resource management, finance, investor and public relations, information technology and senior management. These functions serve to support the Company’s current and future operations and provide an infrastructure to support future growth. Major expense items in this category include management and staff wages and benefits, share-based compensation and professional services.

44

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Accounts Receivable (A/R)

The Company generally grants uncollateralized credit to customers on an individual basis based upon the customer’s financial condition and credit history. Credit is typically on net 30 day terms and customer deposits are frequently required at various stages of the production process to finance customized products and minimize credit risk.

Historically, the Company’s A/R is highly concentrated with a select number of customers. During the year ended December 31, 2020, the Company’s five largest customers accounted for 78% of its consolidated revenues and 65% of outstanding A/R balances, compared to the year ended December 31, 2019 when the Company’s five largest customers accounted for 79% of its consolidated revenues and 55% of its outstanding A/R balances.

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to A/R. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the realizability of its A/R. These factors include individual customer circumstances, history with the Company and other relevant criteria. A/R balances that remain outstanding after the Company has exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to A/R.

The Company monitors its collections and write-off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the realizability of its A/R, as noted above, or modifications to the Company’s credit standards, collection practices and other related policies may impact its allowance for doubtful accounts and its financial results.

Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the value that can be realized upon the sale of the inventory less a reasonable estimate of selling costs. Cost is determined either based on the first-in, first-out (“FIFO”) method, or on a standard cost basis that approximates the FIFO method. Any excess of cost over net realizable value is included in the Company’s inventory allowance. Net realizable value of inventory, and management’s judgment of the need for reserves, encompasses consideration of other business factors including physical condition, inventory holding period, contract terms and usefulness.

Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of components and parts for general production use. Work-in-process consists of labor and overhead, processing costs, purchased subcomponents and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by the Company that will be used to produce final customer products.

45

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Long-Lived Assets

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is recognized using the straight-line method over the estimated useful lives of the related assets for financial reporting purposes, and generally using an accelerated method for income tax reporting purposes. Depreciation expense related to property and equipment for the years ended December 31, 2020 and 2019 was $5,546 and $5,814, respectively. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed as incurred. Property or equipment sold or disposed of is removed from the respective property accounts, with any corresponding gains and losses recorded within the operating results of the Company’s consolidated statement of operations.

The Company reviews property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Asset recoverability is first measured by comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the assets are impaired.

In evaluating the recoverability of long-lived assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of such assets. If the Company’s fair value estimates or related assumptions change in the future, the Company may be required to record impairment charges related to property and equipment and other long-lived assets. If such assets are considered to be impaired, the impairment recognized is measured based on the amount by which the carrying amount of the assets exceeds the fair value. See Note 7, “Long-Lived Assets” of these consolidated financial statements for further discussion of long-lived assets.

Leases

The Company leases various property and equipment under operating lease arrangements. On January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and ASU 2018-11 using the cumulative effect method. Adopting the standard resulted in the Company recognizing operating lease assets and liabilities on the balance sheet. Rent expense for these types of leases is recognized on a straight-line basis over the lease term. In addition, the Company has entered into finance lease arrangements to finance property and equipment and assumed finance lease obligations in connection with certain acquisitions. The cost basis and accumulated amortization of assets recorded under finance leases are included in property and equipment, while the liabilities are included in finance lease obligations.

46

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Warranty liability is recorded in accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales. The changes in the carrying amount of the Company’s total product warranty liability for the years ended December 31, 2020 and 2019 were as follows, excluding activity related to the discontinued Services segment:

As of December 31,

Balance, beginning of period $ 163 $ 226

Reduction of warranty reserve (78 ) (32 )

Warranty claims (52 ) (21 )

Other adjustments — (10 )

Balance, end of period $ 33 $ 163

Income Taxes

The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of its consolidated financial statements, the Company is required to estimate its income tax liability for each of the tax jurisdictions in which the Company operates. This process involves estimating the Company’s actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. The Company also recognizes as deferred income tax assets the expected future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, the Company considers, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause its income tax provision to vary significantly among financial reporting periods.

47

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty in these income tax positions.

Share-Based Compensation

The Company grants incentive stock options, restricted stock units (“RSUs”) and/or performance awards (“PSUs”) to certain officers, directors, and employees. The Company accounts for share-based compensation related to these awards based on the estimated fair value of the equity award and recognizes expense ratably over the required vesting term of the award. The expense associated with PSUs is also based on the probability of achieving embedded targets. See Note 14 “Share-Based Compensation” of these consolidated financial statements for further discussion of the Company’s share-based compensation plans, the nature of share-based awards issued and the Company’s accounting for share-based compensation.

Net Loss Per Share

The Company presents both basic and diluted net income (loss) per share. Basic net income (loss) per share is based solely upon the weighted average number of common shares outstanding and excludes any dilutive effects of restricted stock, options, warrants and convertible securities. Diluted net income (loss) per share is based upon the weighted average number of common shares and common-share equivalents outstanding during the year excluding those common-share equivalents where the impact to basic net income (loss) per share would be anti-dilutive.

2. REVENUES

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for the years ended December 31, 2020 and 2019:

Year Ended December 31,

Eliminations (137 ) (7 )

The Company’s revenue is generally recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

48

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

For many tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment. The Company recognizes revenue under these arrangements only when there is a substantive reason for the arrangement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

During the year ended December 31, 2020, the Company recognized $1,438 of revenue from one customer within the Gearing segment and $815 from one customer in the Heavy Fabrications segment over time as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contract. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the contracts. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment. The Company recognized $2,253 of contract assets associated with this revenue which represents the Company's rights to consideration for work completed but not billed at the end of the period. The Company did not recognize any revenue over time during the year ended December 31, 2019.

The Company generally expenses sales commissions when incurred. These costs are recorded within selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations.

The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.

3. EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2020 and 2019 as follows:

For the Years Ended December 31,

Basic earnings per share calculation:

Basic net loss per share $ (0.09 ) $ (0.28 )

Diluted earnings per share calculation:

Common stock equivalents:

Non-vested stock awards (1) — —

Diluted net loss per share $ (0.09 ) $ (0.28 )

(1) Stock options and restricted stock units granted and outstanding of 1,332,884 and 1,411,277, respectively, are excluded from the computation of diluted earnings for the years ended December 31, 2020 and 2019 due to the anti-dilutive effect as a result of the Company’s net loss for those respective periods.

49

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

4. RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its consolidated financial statements.

5. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the accounts receivable allowance from operations for the years ended December 31, 2020 and 2019 consists of the following:

For the Year Ended December 31,

Balance at beginning of period $ 127 $ 190

Bad debt expense 227 (27 )

Write-offs (77 ) (36 )

Other adjustments 196 —

Balance at end of period $ 473 $ 127

6. INVENTORIES

The components of inventories from operations as of December 31, 2020 and 2019 are summarized as follows:

As of December 31,

50

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

7. LONG-LIVED ASSETS

The cost basis and estimated lives of property and equipment from continuing operations as of December 31, 2020 and 2019 are as follows:

As of December 31,

Leasehold improvements 9,305 8,974 Shorter of asset life or life of lease

Less accumulated depreciation and amortization (105,178 ) (99,669 )

As of December 31, 2020 and December 31, 2019, the Company had commitments of $463 and $758, respectively, related to the completion of projects within construction in progress.

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf. Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 2 to 7 years.

During 2019, the Company identified a triggering event associated with its continued operating losses within the Industrial Solutions segment. The Company relied upon an undiscounted cash flow analysis and concluded that no impairment to this asset group was indicated as of December 31, 2019. However, in conjunction with the Company’s rebranding initiative, during 2019 the Company decided it would no longer utilize the Red Wolf trade name. As a result, the Company accelerated the amortization of the trade name by $871 so that it was fully amortized in 2019. During October 2020, the Company also identified a triggering event associated with its continued operating losses within the Gearing segment. The Company relied upon an undiscounted cash flow analysis and concluded that no impairment to this asset group was indicated as of December 31, 2020.

51

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

As of December 31, 2020 and 2019, the cost basis, accumulated amortization and net book value of intangible assets were as follows:

Remaining Remaining

Weighted Weighted

Accumulated Net Average Accumulated Net Average

Basis Amortization Charges Value Period Cost Amortization Charges Value Period

Intangible assets:

Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 6 to 20 years. Amortization expense was $733 and $1,683 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, estimated future amortization expense is as follows:

8. ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2020 and 2019 consisted of the following:

December 31, December 31,

Accrued payroll and benefits $ 5,320 $ 3,870

Fair value of interest rate swap 148 78

Income taxes payable 78 61

Accrued professional fees 176 136

Accrued warranty liability 33 163

Self-insured workers compensation reserve 74 115

Total accrued liabilities $ 6,307 $ 4,911

52

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

9. DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of December 31, 2020 and 2019 consisted of the following:

December 31,

Long-term debt, net of current maturities $ 9,381 $ 505

As of December 31, 2020, future annual principal payments on the Company’s outstanding debt obligations were as follows:

Credit Facilities

On October 26, 2016, the Company established a three-year secured revolving line of credit with CIBC Bank USA (“CIBC”). This line of credit has been amended from time to time. On February 25, 2019, the line of credit was expanded and extended for three years when the Company and its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “2016 Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto (the “Lenders”), providing the Company and its subsidiaries with a $35,000 secured credit facility (as amended to date, the “Credit Facility”). The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower and Pittsburgh, Pennsylvania gearing facilities.

The Credit Facility is an asset-based revolving credit facility, pursuant to which the Lenders advance funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the subsidiaries, plus (b) the lesser of (i) 50% of the lower of cost or market value of eligible inventory of the Company, (ii) 85% of the orderly liquidation value of eligible inventory and (iii) $12.5 million, plus (c) the lesser of (i) the sum of (A) 75% of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50% of the fair market value of the Company’s mortgaged property and (ii) $12 million. Subject to certain borrowing base conditions, the aggregate Credit Facility limit under the Amended and Restated Loan Agreement is $35 million with a sublimit for letters of credit of $10 million. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, the one, two or three-month LIBOR rate or the base rate, plus a margin. The Company must also pay an unused facility fee equal to 0.50% per annum on the unused portion of the Credit Facility along with other standard fees. With the exception of the balance impacted by the interest rate swap (as described below), the Company is allowed to prepay in whole or in part advances under the Credit Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.

On October 29, 2020, the Company executed the First Amendment to the 2016 Amended and Restated Loan Agreement (the “First Amendment”), implementing a payoff of a syndicated lender and a pricing grid based on the Company's trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for LIBOR rate loans and 0.00% and 0.75% for base rate loans, and extending the term of the Credit Facility to July 31, 2023.

53

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

On February 23, 2021, the Company executed the Second Amendment to the 2016 Amended and Restated Loan Agreement (the “Second Amendment”) which waived testing of the fixed charge coverage covenant for the quarters ending March 31, 2021 and June 30, 2021, added a new liquidity covenant applicable to the quarter ending March 31, 2021, and new minimum EBITDA covenants applicable to the quarters ending March 31, 2021 and June 30, 2021.

The Credit Facility contains customary representations and warranties applicable to the Company and the subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain a minimum quarterly fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications. The Company was in compliance with all covenants under the Credit Facility as of December 31, 2020.

In conjunction with the 2016 Amended and Restated Loan Agreement, during June 2019, the Company entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notional amount of $6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering the Company’s risk premium. The interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility. The interest rate swap liability is included in the “Accrued liabilities” line item of the Company’s consolidated financial statements as of December 31, 2020 and December 31, 2019.

As of December 31, 2020, there was $1,245outstanding under the Credit Facility. The Company had the ability to borrow up to $20,678 under the Credit Facility as of December 31, 2020.

Other

In 2016, the Company entered into a $570 unsecured loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years ended December 31, 2020 and 2019, $114 of the loan was forgiven. As of December 31, 2020 and December 31, 2019, the loan balance was $228 and $342, respectively. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $163and $1,563 as of December 31, 2020 and 2019, respectively, with $161 and $1,400 included in the “Line of credit and other notes payable” line item of the Company’s consolidated financial statements as of December 31, 2020 and 2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from February 2021 to August 2022.

On April 15, 2020, the Company received unsecured funds under notes and related documents (“PPP Loans”) with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $9,530 from the PPP loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities, which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such covered period. The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA conveys the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period). The Company used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that the Company believes to be consistent with the terms of the PPP and plans to submit its forgiveness applications to CIBC during the first quarter of 2021. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, the Company cannot provide assurance that it has not taken and will not take actions that could cause the Company to be ineligible for forgiveness of the PPP Loans, in whole or in part.

​

54

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

10. LEASES

The Company leases various property and equipment under operating lease arrangements. On January 1, 2019, the Company adopted Topic 842 and ASU 2018-11 using the cumulative effect method and has elected to apply each available practical expedient. The standard requires companies to recognize operating lease assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. ASU 2018-11 also allows an exception so that companies do not have to make the new required lease disclosures for periods before the effective date. The Company has elected to apply the short-term lease exception to all leases of one year or less.

The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $19,508 with a corresponding right-of-use (“ROU”) asset of $17,613 based on the present value of the minimum rental payments of such leases. The variance between the ROU asset balance and the lease liability is a deferred rent liability that existed prior to the adoption of Topic 842 and was offset against the ROU asset balance during the adoption. As of December 31, 2020, the ROU asset had a balance of $19,321which is included in the “Operating lease right-of-use assets” line item of these consolidated financial statements and current and non-current lease liabilities relating to the ROU asset of $1,832and $19,569, respectively, and are included in the “Current portion of operating lease obligations” and “Long-term operating lease obligations, net of current portion” line items of these consolidated financial statements. The discount rates used for leases accounted for under Topic 842 are based on an interest rate yield curve developed for the leases in the Company’s lease portfolio.

Lease terms generally range from 3 to 15 years with renewal options for extended terms. Some of the Company’s facility leases include options to renew. The exercise of the renewal options is at the Company’s discretion. Therefore, the majority of renewals to extend the lease terms are not included in ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them. Certain leases contain rent escalation clauses that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight-line basis over the lease term. Operating rental expense for the years ended December 31, 2020 and 2019 was $4,396 and $4,264, respectively.

In addition, the Company has entered into finance lease arrangements to finance property and equipment and assumed finance lease obligations in connection with certain acquisitions. Finance rental expense for the years ended December 31, 2020 and 2019 was $829 and $666, respectively.

Amortization expense recorded in connection with assets recorded under finance leases was $619 and $560 for the years ended December 31, 2020 and 2019, respectively.

55

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Quantitative information regarding the Company’s leases is as follows:

Year Ended December 31,

Components of lease cost

Finance lease cost components:

Amortization of finance lease assets $ 619 $ 560

Interest on finance lease liabilities 210 106

Total finance lease costs 829 666

Operating lease cost components:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflow from operating leases $ 3,551 $ 3,505

Right-of-use assets obtained in exchange for new

Weighted-average discount rate-finance leases at end of period 8.3 % 8.4 %

Weighted-average discount rate-operating leases at end of period 8.7 % 9.0 %

Amortization associated with new right-of-use assets obtained in exchange for new operating lease liabilities is $291 and $1,633 for the years ended December 31, 2020 and 2019, respectively.

During January 2021, the Company entered into a contract for an additional operating lease of $907that will commence during fiscal year 2021 and carries a lease term of three years.

As of December 31, 2020, future minimum lease payments under finance leases and operating leases were as follows:

Finance Operating

Leases Leases Total

Less—current portion of lease obligations (1,427 ) (1,832 ) (3,259 )

56

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to legal proceedings or claims that arise in the ordinary course of its business. The Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. As of December 31, 2020, the Company is not aware of any material pending legal proceedings or threatened litigation that would have a material adverse effect on the Company’s results of operations, financial condition or cash flows, although no assurance can be given with respect to the ultimate outcome of pending actions. Refer to Note 18, “Legal Proceedings” of these consolidated financial statements for further discussion of legal proceedings.

Environmental Compliance and Remediation Liabilities

The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. Also, certain environmental laws can impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.

57

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Collateral

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations.

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions.

Liquidated Damages

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and dependent on actual losses sustained by the customer. When the damages are determined to be probable and estimable, the damages are recorded as a reduction to revenue. During 2020 and 2019, the Company incurred no liquidated damages and there was no reserve for liquidated damages as of December 31, 2020.

Workers’ Compensation Reserves

As of December 31, 2020 and 2019, the Company had $74and $115, respectively, accrued for self-insured workers’ compensation liabilities. At the beginning of the third quarter of 2013, the Company began to self-insure for its workers’ compensation liabilities, including reserves for self-retained losses. The Company entered into a guaranteed workers’ compensation cost program at the beginning of the third quarter of 2016, but still maintains a liability for the trailing claims for the self-insured policy periods. Although the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred, the Company does not believe that any additional potential exposure for such liabilities will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Health Insurance Reserves

As of December 31, 2020 and 2019, the Company had $550 and $344, respectively, accrued for health insurance liabilities. The Company self-insures for its health insurance liabilities, including establishing reserves for self-retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required health insurance reserves. The Company takes into account claims incurred but not reported when determining its health insurance reserves. Health insurance reserves are included in accrued liabilities. While the Company’s management believes that it has adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred.

58

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

Other

As of December 31, 2020, approximately 14% of the Company’s employees were covered by two collective bargaining agreements with local unions at the Company’s Cicero, Illinois and Neville Island, Pennsylvania locations. The current five-year collective bargaining agreement with the Neville Island union is expected to remain in effect through October 2022. A new collective bargaining agreement was negotiated and ratified with the Cicero Union and is effective from February 2018 and is expected to remain in effect through February 2022.

12. FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s corporate and municipal bonds, although quoted prices are available and used to value said assets, they are traded less frequently.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, which include cash, A/R, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.

59

BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020 and 2019

(in thousands, except share and per share data)

The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the variability of LIBOR for its floating rate debt described in Note 9, “Debt and Credit Agreements,” of these consolidated financial statements. The fair value of the interest rate swap is reported in “Accrued liabilities” and the change in fair value is reported in “Interest expense, net” of these consolidated financial statements. The fair value of the interest rate swap is estimated as the net present value of projected cash flows based on forward interest rates at the balance sheet date.

The following tables represent the fair values of the Company’s financial assets measured as of December 31, 2020 and 2019:

Level 1 Level 2 Level 3 Total

Liabilities measured on a recurring basis:

Interest rate swap $ — $ 148 $ — $ 148

Total liabilities at fair value $ — $ 148 $ — $ 148

Level 1 Level 2 Level 3 Total

Liabilities measured on a recurring basis:

Interest rate swap $ — $ 78 $ — $ 78

Total liabilities at fair value $ — $ 78 $ — $ 78

13. INCOME TAXES

The provision for income taxes for the years ended December 31, 2020 and 2019 consists of the following:

For the Years Ended Year Ended December 31,

Current provision

Federal $ — $ —

Foreign — —

Total current provision 51 57

Deferred provision