United states

TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Redeemable Preferred Share Warrants

The details of the warrant activity for the years ended December 31, 2015 and 2014 is as follows:

 

		Number of Warrants				Weighted-Average Exercise Price
Outstanding as of December 31, 2013			120			$	8,749
2014 grants			128				8,749
2014 exercises			—				—
2014 forfeitures			—				—
2014 cancellations			—				—
2014 expirations			—				—
Outstanding as of December 31, 2014			248				8,749
2015 grants			—				—
2015 exercises			—				—
2015 forfeitures			—				—
2015 cancellations			—				—
2015 expirations			—				—
Outstanding as of December 31, 2015			248				8,749

The warrants are reported at fair value in the accompanying financial statements based on the value of the Series B Preferred Shares that may be purchased.

Common Stock Warrants

In connection with the note purchase agreement in December 2014 for the purchase of $10.0 million of subordinated convertible promissory notes, 61,720 warrants were issued to purchase common stock with an exercise price equal to the lesser of 85% of the price per share in an initial public offering or $24.30, subject to adjustment. The warrants are immediately exercisable and expire no later than eight years from the date of issuance. The fair value of the warrants was estimated on the date of grant using the Black-Scholes option pricing model assuming a common stock price of $11.03 per share, an exercise price of $9.38 per share, expected stock price volatility of 80 percent and a risk-free interest rate estimate of 0.71 percent.

 

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TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 16. Commitments and Contingencies

(a) Operating Leases

The Company leases various facilities and equipment under noncancelable operating leases with terms ranging from 12 months to 120 months. Scheduled rent increases are recorded on a straight-line basis over the entire term of the lease.

Rental expense charged under all operating leases (including leases with terms of less than one year) was $8.4 million, $7.1 million and $3.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. Future minimum lease payments under noncancelable operating leases with terms of one year or more as of December 31, 2015 are as follows (in thousands):

 

2016		$	10,622
2017			13,509
2018			12,272
2019			9,624
2020			9,184
Thereafter			36,492
Total		$	91,703

(b) Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

(c) Dividend Restrictions

Certain subsidiaries of the Company are limited in their ability to declare dividends without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory accounting requirements and the approval of one of the Company’s Chinese lenders. Until 50% ($5.2 million) of registered capital is contributed to a surplus reserve, the Company’s Chinese operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, the Company can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31, 2015, the amount of the surplus reserve fund was $2.9 million.

(d) Collective Bargaining Agreement

The Company is in the process of negotiating a collective bargaining agreement, which expires on December 31, 2015, with its Turkish employees for an expected term of three years, and there may be a retrospective application of its terms for the period between January 1, 2016 and the effective date of such new agreement. Currently, there are no other employees covered by collective bargaining agreements. The Company believes that its relations with employees are good, and there have been no major work stoppages in recent years.

 

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TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 17. Defined Contribution Plan

The Company maintains a 401(k) plan for all of its U.S. employees. Under the 401(k) plan, eligible employees may contribute, subject to statutory limitations, a percentage of their salaries. The Company currently matches 25 percent of the participants’ contributions up to 8 percent of eligible compensation.

Participant vesting occurs in the Company matching contributions according to the schedule below:

 

Years of service		Vesting Percentage
Less than 2 years			0	%
2-year anniversary			20	%
3-year anniversary			40	%
4-year anniversary			60	%
5-year anniversary			80	%
6-year anniversary			100	%

The Company’s matching contributions to the 401(k) plan were $0.2 million for each of the years ended December 31, 2015, 2014 and 2013. The Company’s matching contributions are accrued and recorded as expense during each payroll period.

In Mexico, the Company maintains an annual savings fund, which matches the employee contribution each week, based on the Mexican statutory maximum of 13% of actual minimum salary rates. The savings fund period runs from November to October each year, and is distributed to employees in full, during the first week of November each year. For the years ended December 31, 2015 and 2014, the Company incurred matched savings expense of $0.5 million and $0.3 million, respectively.

In Turkey, the Company maintains a retirement fund that is based on a formula of annual salary multiplied by the number of years of service for the Company. The Company accrues a retirement fund liability for this each month. As of December 31, 2015 and 2014, the Company had accrued $0.6 million and $0.3 million, respectively, based on the service periods of eligible employees greater than one year.

Note 18. Income Taxes

Geographic sources of net income (loss) before income taxes are as follows for the years ended December 31 (in thousands):

 

		2015				2014				2013
United States		$	(3,165	)		$	(7,733	)		$	4,231
China			18,420				5,832				2,238
Turkey			(4,552	)			(3,962	)			(10,835	)
Mexico			956				140				(6	)
Total		$	11,659			$	(5,723	)		$	(4,372	)

 

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