e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: June 30, 2011
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 0-19672
American Superconductor Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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04-2959321 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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64 Jackson Road, Devens, Massachusetts
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01434 |
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(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Shares outstanding of the Registrants common stock:
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Common Stock, par value $0.01 per share
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50,868,708 |
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Class
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Outstanding as of September 15, 2011 |
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
2
AMERICAN SUPERCONDUCTOR CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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June 30, |
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March 31, |
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2011 |
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2011 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
130,885 |
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$ |
123,783 |
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Marketable securities |
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25,894 |
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116,126 |
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Accounts receivable, net |
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11,652 |
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17,233 |
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Inventory |
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31,068 |
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25,828 |
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Prepaid expenses and other current assets |
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39,073 |
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30,785 |
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Advance payment for planned acquisition |
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20,551 |
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Restricted cash |
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6,516 |
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5,566 |
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Deferred tax assets |
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484 |
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484 |
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Total current assets |
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266,123 |
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319,805 |
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Property, plant and equipment, net |
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98,615 |
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96,494 |
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Intangibles, net |
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6,650 |
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7,054 |
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Restricted cash |
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2,857 |
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Deferred tax assets |
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5,840 |
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5,840 |
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Other assets |
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13,577 |
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12,016 |
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Total assets |
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$ |
393,662 |
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$ |
441,209 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
66,395 |
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$ |
90,273 |
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Adverse purchase commitments |
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40,292 |
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38,763 |
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Line of credit |
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4,641 |
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Deferred revenue |
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13,676 |
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10,304 |
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Deferred tax liabilities |
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5,840 |
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5,840 |
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Total current liabilities |
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130,844 |
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145,180 |
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Deferred revenue |
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2,063 |
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2,181 |
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Deferred tax liabilities |
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484 |
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484 |
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Other |
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530 |
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509 |
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Total liabilities |
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133,921 |
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148,354 |
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Commitments and contingencies (Note 10) |
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Stockholders equity: |
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Common stock |
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509 |
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507 |
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Additional paid-in capital |
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889,394 |
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885,704 |
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Treasury stock |
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(271 |
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Accumulated other comprehensive income |
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4,961 |
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3,817 |
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Accumulated deficit |
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(634,852 |
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(597,173 |
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Total stockholders equity |
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259,741 |
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292,855 |
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Total liabilities and stockholders equity |
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$ |
393,662 |
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$ |
441,209 |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three months ended June 30, |
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2011 |
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2010 |
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Revenues |
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$ |
9,058 |
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$ |
97,209 |
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Cost and operating expenses: |
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Cost of revenues |
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16,955 |
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58,224 |
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Research and development |
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8,136 |
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7,335 |
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Selling, general and administrative |
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21,990 |
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15,183 |
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Amortization of acquisition related intangibles |
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304 |
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386 |
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Total cost and operating expenses |
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47,385 |
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81,128 |
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Operating (loss) income |
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(38,327 |
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16,081 |
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Interest income, net |
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241 |
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175 |
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Other income, net |
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566 |
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171 |
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Income (loss) before income tax expense |
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(37,520 |
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16,427 |
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Income tax expense |
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159 |
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7,257 |
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Net (loss) income |
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$ |
(37,679 |
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$ |
9,170 |
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Net (loss) income per common share |
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Basic |
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$ |
(0.74 |
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$ |
0.20 |
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Diluted |
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$ |
(0.74 |
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$ |
0.20 |
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Weighted average number of common shares outstanding |
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Basic |
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50,709 |
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45,242 |
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Diluted |
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50,709 |
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45,983 |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
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Three months ended June 30, |
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2011 |
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2010 |
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Net (loss) income |
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$ |
(37,679 |
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$ |
9,170 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gains (losses) |
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1,134 |
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(12,336 |
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Unrealized gains (losses) on investments |
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10 |
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(165 |
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Total other comprehensive income (loss), net of tax |
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1,144 |
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(12,501 |
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Comprehensive loss |
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$ |
(36,535 |
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$ |
(3,331 |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Three months ended June 30, |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
(37,679 |
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$ |
9,170 |
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Adjustments to reconcile net (loss) income to net cash used in operations: |
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Depreciation and amortization |
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3,242 |
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2,654 |
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Stock-based compensation expense |
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3,466 |
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3,578 |
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Provision for excess and obsolete inventory |
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413 |
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Losses on purchase commitments |
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1,071 |
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Allowance for doubtful accounts |
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957 |
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Deferred income taxes |
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2,027 |
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Other non-cash items |
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827 |
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320 |
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Changes in operating asset and liability accounts: |
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Accounts receivable |
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670 |
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(35,848 |
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Inventory |
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(5,324 |
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(5,654 |
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Prepaid expenses and other current assets |
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(7,812 |
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(1,616 |
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Accounts payable and accrued expenses |
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(19,732 |
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(2,140 |
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Deferred revenue |
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3,084 |
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8,073 |
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Net cash used in operating activities |
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(57,774 |
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(18,479 |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
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(4,498 |
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(8,185 |
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Purchase of marketable securities |
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(15,061 |
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Proceeds from maturities of marketable securities |
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90,800 |
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24,189 |
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Change in restricted cash |
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(3,763 |
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257 |
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Purchase of intangible assets |
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(240 |
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(1,230 |
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Purchase of minority investments |
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(1,800 |
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Advance payment for planned acquisition |
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(20,551 |
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Change in other assets |
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(195 |
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(11 |
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Net cash provided by (used in) investing activities |
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59,753 |
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(41 |
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Cash flows from financing activities: |
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Payments in lieu of issuance of common stock for payroll taxes |
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(271 |
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Net borrowings on line of credit |
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4,626 |
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Proceeds from exercise of employee stock options and ESPP |
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21 |
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561 |
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Net cash provided by financing activities |
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4,376 |
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561 |
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Effect of exchange rate changes on cash and cash equivalents |
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747 |
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(4,791 |
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Net increase in cash and cash equivalents |
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7,102 |
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(22,750 |
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Cash and cash equivalents at beginning of period |
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123,783 |
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87,594 |
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Cash and cash equivalents at end of period |
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$ |
130,885 |
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$ |
64,844 |
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Supplemental schedule of cash flow information: |
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Cash paid for income taxes |
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$ |
12,485 |
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$ |
4,453 |
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Non-cash contingent consideration in connection with acquisitions |
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4,004 |
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Non-cash issuance of common stock |
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205 |
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189 |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Basis of Presentation
American Superconductor Corporation (the Company or AMSC) was founded on April 9, 1987.
The Company is a leading provider of megawatt-scale solutions that lower the cost of wind power and
enhance the performance of the power grid. In the wind power market, the Company enables
manufacturers to field wind turbines through its advanced engineering, support services and power
electronics products. In the power grid market, the Company enables electric utilities and
renewable energy project developers to connect, transmit and distribute power through its
transmission planning services and power electronics and superconductor based products. The
Companys wind and power grid products and services provide exceptional reliability, security,
efficiency and affordability to its customers. The Company operates in two business units: AMSC
Power Systems and AMSC Superconductors.
These unaudited condensed consolidated financial statements of the Company have been prepared
in accordance with the Securities and Exchange Commissions (SEC) instructions to Form 10-Q.
Certain information and footnote disclosures normally included in the financial statements prepared
in accordance with accounting principles generally accepted in the United States (GAAP) have been
condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was
derived from audited financial statements but does not include all disclosures required by GAAP.
The unaudited condensed consolidated financial statements, in the opinion of management, reflect
all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the
results for the interim periods ended June 30, 2011 and 2010 and the financial position at June 30,
2011. The unaudited condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. Certain reclassifications of prior year amounts have been made to
conform to current year presentation. These reclassifications had no effect on net income, cash
flows from operating activities or stockholders equity.
On March 12, 2011, the Company entered into a definitive agreement to acquire The Switch
Engineering Oy, (The Switch), headquartered in Vantaa, Finland. The Switch designs, manufactures
and markets wind power products, including permanent magnet generators and power converter systems,
as well as grid products such as commercial and small utility-scale solar inverters to customers in
Asia, including China, Europe and North America.
As of April 1, 2011, the Company segmented its operations into two new market-facing business
units: Wind and Grid. The Company believes this market-centric structure enables it to more
effectively anticipate and meet the needs of wind turbine manufacturers, power generation project
developers and electric utilities.
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Wind. Through the Windtec brand, the Wind business enables manufacturers to field
wind turbines with exceptional power output, reliability and affordability. The
Company licenses its highly engineered wind turbine designs, provides extensive
customer support services and supplies advanced power electronics and control systems
to wind turbine manufactures. The Companys design portfolio includes a broad range
of drive trains and power ratings up to 10 megawatts. The Company believes its
unique engineering capabilities, ranging from bearings to advanced synchronous
generators to blades, enables it to provide its partners with highly-optimized wind
turbine platforms. Furthermore, these designs and support services typically lead to
sales of its power electronics and software-based control systems, which are designed
for optimized performance, efficiency and grid compatibility. |
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Grid. The Grid segment enables electric utilities and renewable energy project
developers to connect, transmit and distribute power with exceptional efficiency,
reliability and affordability. The Company provides transmission planning services
that allows it to identify power grid congestion, poor power quality and other risks,
which helps it determine how its solutions can improve network performance. These
services often lead to sales of grid interconnection solutions for wind farms and
solar power plants, power quality systems and transmission and distribution cable
systems. |
Prior to April 1, 2011, the Company segmented its operations through two technology-centric
business units: AMSC Power Systems and AMSC Superconductors. AMSC Power Systems included all of
its Wind products, as well as Grid products that regulate voltage for wind farm voltage electric
utilities, renewable generation project developers and industrial operations. Solutions from the
Companys AMSC Superconductors business unit have been incorporated into its Grid business unit.
All prior period segment disclosures have been revised to conform to managements current view of
the Companys business segments.
7
At June 30, 2011, the Company had cash, cash equivalents, marketable securities and restricted
cash of $166.2 million. The Companys business plan anticipates a substantial decline in revenues
and a substantial use of cash from operations in its fiscal year ending March 31, 2012,
particularly in light of the difficult and uncertain current economic environment, the significant
restructuring actions undertaken and the uncertainty surrounding Sinovel Wind Group Co. Ltd.
(Sinovel), which has historically accounted for more than two-thirds of the Companys revenues,
and certain of its other customers in China. The Companys plan includes a significant
restructuring undertaken in August 2011, resulting in the elimination of approximately 150
positions worldwide. Since April 1, 2011, the Company has eliminated approximately 30% of its
workforce and it expects to save approximately $30 million annually as a result of these
reductions. Additional actions include further monitoring of its operating results against
expectations and, if required, further reducing operating costs and capital spending if events
warrant in order to enhance liquidity. Due to the disruption in its relationship with Sinovel, the
Company will need to raise additional capital in order to complete the planned acquisition of The
Switch in order to have sufficient cash to fund its working capital, capital expenditures and other
cash requirements. The Company may seek this financing through public or private equity offerings,
debt financings, or other financing alternatives, however, there can be no assurance that financing
will be available on acceptable terms or at all. If the Company fails to raise sufficient
additional funds and terminates the purchase agreement for the acquisition of The Switch, it will
likely forfeit the $20.6 million cash advance payment it paid to the shareholders of The Switch on
June 29, 2011. In the event that the Company does not receive any additional payments from Sinovel
and it neither completes the planned acquisition of The Switch, nor raises additional capital, the
Company believes that its available cash, together with additional reductions in operating costs
and capital expenditures as necessary will be sufficient to fund its operations, capital
expenditures and other cash requirements through at least March 31, 2012. The Companys long-term
liquidity is dependent on its ability to profitably grow its revenues or raise additional capital
as required.
The results of operations for an interim period are not necessarily indicative of the results
of operations to be expected for the fiscal year. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements for the
fiscal year ended March 31, 2011 (fiscal 2010) which are contained in the Companys Annual Report
on Form 10-K.
The Companys fiscal year begins on April 1 and ends on March 31. This document refers to
fiscal 2011, which is defined as the period beginning on April 1, 2011 and concluding on March 31,
2012. The first quarter of fiscal 2011 began on April 1, 2011 and concluded on June 30, 2011.
2. Restatement of Fiscal 2010 Unaudited Condensed Consolidated Financial Statements
The Company previously restated its unaudited condensed consolidated financial statements for
the fiscal quarters ended September 30, 2010 and December 31, 2010 as reflected in amended
Quarterly Reports on Form 10-Q for the applicable periods. The restatements related to the
Companys determination that revenues were incorrectly recorded in the second quarter of fiscal
2010 for certain of the Companys customers in China as the fee was not fixed or determinable or
collectability was not reasonably assured at the time of shipment. Further, as a result of aging
receivables and other negative events surrounding the customer relationship, the Company concluded
that revenue related to shipments to Sinovel was incorrectly recorded in the third quarter of
fiscal 2010 as collectability was not reasonably assured at the time of shipments. For Sinovel and
certain other customers in China, the Company has restated revenues based on a cash basis of
accounting with cash applied first against accounts receivable balances, as in the case of Sinovel
as of September 30, 2010, then costs of shipments (inventory and value added taxes) before
recognizing any gross margin. For certain Chinese customers other than Sinovel, the Company has
determined that this method of accounting should have been applied for shipments after August 31,
2010. For Sinovel, the Company has determined that this method of accounting should have been
applied for shipments after September 30, 2010. The Company had previously recognized revenues in
the quarters ended September 30, 2010 and December 31, 2010 based on the receipt of shipments by
these customers but prior to the Companys receipt of payment for such shipments.
In connection with the errors identified by the Company resulting in the restatement of the
Companys unaudited condensed consolidated financial statements for the quarterly periods ending
September 30, 2010 and December 31, 2010, the Company identified control deficiencies in its
internal controls that constitute material weaknesses. The deficiencies center on its controls over
its revenue and accounts receivable balances, as fees were not fixed or determinable or
collectability was not reasonably assured at the time revenue was recognized. As a result of these
deficiencies, the Company determined that its disclosure controls and procedures were ineffective
as of September 30, 2010, December 31, 2010, March 31, 2011, and June 30, 2011.
8
3. Stock-Based Compensation
The Company accounts for its stock-based compensation at fair value. The following table
summarizes stock-based compensation expense by financial statement line item for the three months
ended June 30, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Cost of revenues |
|
$ |
329 |
|
|
$ |
383 |
|
Research and development |
|
|
660 |
|
|
|
468 |
|
Selling, general and administrative |
|
|
2,477 |
|
|
|
2,727 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,466 |
|
|
$ |
3,578 |
|
|
|
|
|
|
|
|
During the three months ended June 30, 2011, the Company granted approximately 634,000
and 213,000 shares of stock options and restricted stock, respectively, to employees under the 2007
Stock Incentive Plan. The restricted stock granted during the three months ended June 30, 2011
includes approximately 5,000 shares of performance-based restricted stock, which will vest upon
achievement of certain financial performance measurements. At June 30, 2011, the Company determined
that achievement of the performance measures are probable and as such, will recognize the fair
value of the performance based awards over the estimated period of each award. The remaining
shares granted vest upon the passage of time, generally 3 years. For awards that vest upon the
passage of time, expense is being recorded over the vesting period.
In connection with the vesting of certain restricted stock awards issued to certain executive
officers of the Company, these employees paid withholding taxes due by returning 23,861 shares
valued at $0.3 million. The Company has recorded these shares as treasury stock as of June 30,
2011.
The estimated fair value of the Companys stock-based awards, less expected annual
forfeitures, is amortized over the awards service period. The total unrecognized compensation cost
for unvested outstanding stock options was $12.6 million for the three months ended June 30, 2011.
This expense will be recognized over a weighted average expense period of approximately 2.6 years.
The total unrecognized compensation cost for unvested outstanding restricted stock was $6.5 million
for the three months ended June 30, 2011. This expense will be recognized over a weighted average
expense period of approximately 2.3 years.
The weighted-average assumptions used in the Black-Scholes valuation model for stock
options granted during the three months ended June 30, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Expected volatility |
|
|
67.5 |
% |
|
|
66.4 |
% |
Risk-free interest rate |
|
|
1.9 |
% |
|
|
2.2 |
% |
Expected life (years) |
|
|
5.9 |
|
|
|
6.1 |
|
Dividend yield |
|
|
None |
|
|
|
None |
|
The expected volatility rate was estimated based on an equal weighting of the historical
volatility of the Companys common stock and the implied volatility of the Companys traded
options. The expected term was estimated based on an analysis of the Companys historical
experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based
on the average of the five and seven year U.S. Treasury rates
The Company recorded $0.6 million of stock compensation expense in the three months ended June
30, 2011 related to outstanding stock options of the former Chief Executive Officer as discussed in
Note 14, Chief Executive Officer Transition.
4. Computation of Net (Loss) Income per Common Share
Basic net (loss) income per share (EPS) is computed by dividing net (loss) income by the
weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS
is computed by dividing the net (loss) income by the weighted-average number of common shares and
dilutive common equivalent shares outstanding during the period, calculated using the treasury
stock method. Common equivalent shares include the effect of restricted stock, exercise of stock
options and warrants and contingently issuable shares. For the three months ended June 30, 2011 and
2010, common
9
equivalent shares of 3.0 million shares and 1.4 million shares, respectively, were not included in
the calculation of diluted EPS as they were considered anti-dilutive.
The following table reconciles the numerators and denominators of the earnings per share
calculation for the three months ended June 30, 2011 and 2010 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(37,679 |
) |
|
$ |
9,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding |
|
|
51,172 |
|
|
|
45,454 |
|
Weighted-average shares subject to repurchase |
|
|
(463 |
) |
|
|
(212 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation basic |
|
|
50,709 |
|
|
|
45,242 |
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee equity incentive plans |
|
|
|
|
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation diluted |
|
|
50,709 |
|
|
|
45,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share basic |
|
$ |
(0.74 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share diluted |
|
$ |
(0.74 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
5. Fair Value Measurements
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance
related to disclosures of fair value measurements. The guidance requires gross presentation of
activity within the Level 3 measurement roll-forward and details of transfers in and out of Level 1
and 2 measurements. It also clarifies two existing disclosure requirements on the level of
disaggregation of fair value measurements and disclosures on inputs and valuation techniques. A
change in the hierarchy of an investment from its current level will be reflected in the period
during which the pricing methodology of such investment changes. Disclosure of the transfer of
securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security
is significant to total cash and investments. The Company did not have any transfers of assets and
liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three
months ended June 30, 2011.
A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has
been established. This hierarchy prioritizes the inputs into three broad levels as follows:
|
Level 1 |
|
Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the
ability to access at the measurement date. |
|
|
Level 2 |
|
Inputs include quoted prices for similar assets and
liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are observable
for the asset or liability, and inputs that are derived
principally from or corroborated by observable market data
by correlation or other means (market corroborated inputs). |
|
|
Level 3 |
|
Unobservable inputs that reflect the Companys assumptions
that market participants would use in pricing the asset or
liability. The Company develops these inputs based on the
best information available, including its own data. |
A financial assets or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
10
The following table provides the assets carried at fair value, measured as of June 30, 2011
and March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Quoted Prices in |
|
|
Using Significant Other |
|
|
Using Significant |
|
|
|
Carrying |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
June 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
99,546 |
|
|
$ |
99,546 |
|
|
$ |
|
|
|
$ |
|
|
Short-term commercial paper |
|
|
5,373 |
|
|
|
|
|
|
|
5,373 |
|
|
|
|
|
Short-term
government-backed
securities |
|
|
20,521 |
|
|
|
|
|
|
|
20,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Quoted Prices in |
|
|
Using Significant Other |
|
|
Using Significant |
|
|
|
Carrying |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
March 31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
49,837 |
|
|
$ |
49,837 |
|
|
$ |
|
|
|
$ |
|
|
Short-term
government-backed
securities |
|
|
76,371 |
|
|
|
|
|
|
|
76,371 |
|
|
|
|
|
Short-term commercial paper |
|
|
39,755 |
|
|
|
|
|
|
|
39,755 |
|
|
|
|
|
Derivatives |
|
|
3,087 |
|
|
|
|
|
|
|
3,087 |
|
|
|
|
|
Valuation Techniques
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities of three months or less
that are regarded as high quality, low risk investments and are measured using such inputs as
quoted prices, and are classified within Level 1 of the valuation hierarchy. Cash equivalents
consist principally of certificates of deposits and money market accounts.
Marketable Securities
Marketable securities consist primarily of government-backed securities and commercial paper
and are measured using such inputs as quoted prices for identical or similar assets in markets that
are not active, inputs other than quoted prices that are observable for the asset (for example,
interest rates and yield curves observable at commonly quoted intervals), and inputs that are
derived principally from or corroborated by observable market data by correlation or other means,
and are classified within Level 2 of the valuation hierarchy. The Companys marketable
securities generally have maturities of greater than three months from original purchase date but
less than twelve months from the date of the balance sheet. The Company determines the appropriate
classification of its marketable securities at the time of purchase and re-evaluates such
classification as of each balance sheet date. All marketable securities are considered
available-for-sale and are carried at fair value. The Company periodically reviews the
realizability of each short-term and long-term marketable security when impairment indicators exist
with respect to the security. If an other-than-temporary impairment of value of the security
exists, the carrying value of the security is written down to its estimated fair value.
Derivatives
The derivatives entered into by the Company are valued using over-the-counter quoted market
prices for similar instruments, and are classified within Level 2 of the valuation hierarchy.
11
6. Accounts Receivable
Accounts receivable consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2011 |
|
Accounts receivable (billed) |
|
$ |
8,593 |
|
|
$ |
12,912 |
|
Accounts receivable (unbilled) |
|
|
3,747 |
|
|
|
5,004 |
|
Less: Allowance for doubtful accounts |
|
|
(688 |
) |
|
|
(683 |
) |
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
11,652 |
|
|
$ |
17,233 |
|
|
|
|
|
|
|
|
7. Inventory
The components of inventory are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2011 |
|
Raw materials |
|
$ |
19,800 |
|
|
$ |
17,100 |
|
Work-in-process |
|
|
4,423 |
|
|
|
2,432 |
|
Finished goods |
|
|
4,413 |
|
|
|
3,915 |
|
Deferred program costs |
|
|
2,432 |
|
|
|
2,381 |
|
|
|
|
|
|
|
|
Net inventory |
|
$ |
31,068 |
|
|
$ |
25,828 |
|
|
|
|
|
|
|
|
Deferred program costs as of June 30, 2011 and March 31 2011 primarily represent costs
incurred on D-VAR turnkey projects and programs accounted for under contract accounting where the
Company needs to complete development programs before revenue and costs will be recognized,
respectively.
8. Product Warranty
The Company generally provides a one to three year warranty on its products, commencing upon
installation. A provision is recorded upon revenue recognition to cost of revenues for estimated
warranty expense based on historical experience.
Product warranty activity was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Balance at beginning of period |
|
$ |
7,907 |
|
|
$ |
6,431 |
|
Accruals for warranties during the period |
|
|
(405 |
) |
|
|
2,305 |
|
Settlements during the period |
|
|
(168 |
) |
|
|
(2,361 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
7,334 |
|
|
$ |
6,375 |
|
|
|
|
|
|
|
|
9. Income Taxes
For the three months ended June 30, 2011 and 2010, the Company recorded an income tax expense
of $0.2 million and $7.3 million, respectively. The Company has provided a valuation allowance
against all deferred tax assets as of June 30, 2011, as it is more likely than not that its
deferred tax assets are not currently realizable due to the net operating losses incurred by the
Company since its inception.
12
10. Commitments and Contingencies
Commitments
The Company periodically enters into non-cancelable purchase contracts in order to ensure the
availability of materials to support production of its products. Purchase commitments represent
enforceable and legally binding agreements with suppliers to purchase goods or services. Any
commitments for products ordered but not yet received is included as purchase commitments in its
contractual obligations table. The Company periodically assesses the need to provide for
impairment on these purchase contracts and record a loss on purchase commitments when required. As
of June 30, 2011, the Company has $40.3 million of adverse purchase commitments in excess of its
estimated future demand from certain of its customers in China, which the Company has recorded as a
liability. During three months ended June 30, 2011, the Company recorded losses of $1.1 million to
cost of revenues as a result of commitments to purchase materials that were in excess of its
estimated future demand from certain of its customers in China.
Contingencies
From time to time, the Company is involved in legal and administrative proceedings and claims
of various types. The Company records a liability in its consolidated financial statements for
these matters when a loss is known or considered probable and the amount can be reasonably
estimated. The Company reviews these estimates each accounting period as additional information is
known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be
reasonably estimated, a liability is not recorded in its consolidated financial statements.
Between April 6, 2011 and April 29, 2011, six putative securities class action complaints were
filed against the Company and two of its officers in the United States District Court for the
District of Massachusetts. On May 12, 2011, an additional complaint was filed against the Company,
its officers and directors, and the underwriters who participated in the Companys November 12,
2010 securities offering. On June 7, 2011, the United States District Court for the District of
Massachusetts consolidated these actions under the caption Lenartz v. American Superconductor
Corporation, et al. Docket No. 1:11-cv-10582-WGY. On June 16, 2011, the court appointed the law
firm Robbins Geller Rudman & Dowd LLP as Lead Counsel and the Plumbers and Pipefitters National
Pension Fund as Lead Plaintiff. On August 31, 2011, the Lead Plaintiff filed a
consolidated amended complaint against the Company, its officers and directors, and the
underwriters who participated in the Companys November 12, 2010 securities offering, asserting
claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under the Securities Exchange Act of 1934, as well as under sections 11, 12(a)(2) and
15 of the Securities Act of 1933. The complaint alleges that during the relevant class period, the
Company and its officers omitted to state material facts and made materially false and misleading
statements relating to, among other things, the Companys projected and recognized revenues and
earnings, as well as the Companys relationship with Sinovel Wind Group Co., Ltd. that artificially
inflated the value of the Companys stock price. The complaint further alleges that the Companys
November 12, 2010 securities offering contained untrue statements of material facts and omitted to
state material facts required to be stated therein. The plaintiffs seek unspecified damages,
rescindment of the Companys November 12, 2010 securities offering, and an award of costs and
expenses, including attorneys fees.
On April 27, 2011, a putative shareholder derivative complaint was filed against the Company
(as a nominal defendant) and each of its current directors in Superior Court for the Commonwealth
of Massachusetts, Worcester County. The case is captioned Segel v. Yurek, et al., Docket No.
11-0787. Between May 4, 2011 and June 17, 2011, four additional putative shareholder derivative
complaints were filed in the United States District Court for the District of Massachusetts against
the Company and certain of its directors and officers. The cases are captioned Weakley v. Yurek,
et al., Docket No. 1:11-cv-10784; Marlborough Family Revocable Trust v. Yurek, et al., Docket No.
1:11-cv-10825; Connors v. Yurek, et al., Docket No. 1:11-cv-10910; and Hurd v. Yurek, et al.,
Docket No. 1:11-cv-11102. On June 1, 2011, the plaintiff in Marlborough Family Revocable Trust v.
Yurek, et al. moved to voluntarily dismiss its complaint and refiled its complaint in Superior
Court for the Commonwealth of Massachusetts, Middlesex County, on June 3, 2011. The case is now
captioned Marlborough Family Revocable Trust v. Yurek, et al., Docket No. 11-1961. The Superior
Court in Worcester County granted the plaintiffs motion to transfer in Segel v. Yurek et al. to
the Superior Court for the Commonwealth of Massachusetts, Middlesex County on June 23, 2011, and
that matter is now captioned Segel v. Yurek et al., Docket No. 11-2269. On July 5, 2011, the
Weakley, Connors and Hurd actions were consolidated in United States District Court for the
District of Massachusetts. That matter is now captioned In re American Superconductor Corporation
Derivative Litigation, Docket No. 1:11-cv-10784. On June 1, 2011, the plaintiff in Marlborough
Family Revocable Trust v. Yurek, et al. moved to voluntarily dismiss its complaint and, on June 3,
2011, refiled its complaint in Superior Court for the Commonwealth of Massachusetts, Middlesex
County. The Superior Court in Worcester County granted the plaintiffs motion to transfer in Segel
v. Yurek et al. to the Superior Court for the Commonwealth of Massachusetts, Middlesex County on
June 23, 2011. On September 7, 2011, the Marlborough and Segel actions were consolidated in Superior Court for the Commonwealth of Massachusetts,
Middlesex County. The case is
13
now captioned Marlborough Family Revocable Trust v. Yurek, et al.,
Docket No. 11-1961. The allegations of the derivative complaints mirror the allegations made in
the putative class action complaints described above. The plaintiffs purport to assert claims
against the director defendants for breach of fiduciary duty, abuse of control, gross mismanagement
and corporate waste. The plaintiffs seek unspecified damages on behalf of the Company, as well as
an award of costs and expenses, including attorneys fees.
If a matter is both probable to result in liability and the amounts of loss can be reasonably
estimated, the Company estimates and discloses the possible loss or range of loss. With respect to
the above referenced litigation matters, such an estimate cannot be made. There are numerous
factors that make it difficult to meaningfully estimate possible loss or range of loss at this
stage of these litigation matters, including that: the proceedings are in relatively early stages,
there are significant factual and legal issues to be resolved, information obtained or rulings made
during the lawsuits could affect the methodology for calculation of rescission and the related
statutory interest rate. In addition, with respect to claims where damages are the requested
relief, no amount of loss or damages has been specified. Therefore, the Company is unable at this
time to estimate possible losses. The Company believes that these litigations are without merit,
and it intends to defend these actions vigorously.
On September 13, 2011, the Company commenced a series of legal actions in China against
Sinovel Wind Group Co. Ltd. (Sinovel). The Companys Chinese subsidiary, Suzhou AMSC
Superconductor Co. Ltd. (AMSC China), filed a claim for arbitration with the Beijing Arbitration
Commission in accordance with the terms of the Companys supply contracts with Sinovel. On March
31, 2011, Sinovel refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine
core electrical components and spare parts that the Company was prepared to deliver. The Company
alleges that these actions constitute material breaches of its contracts because Sinovel did not
give the Company notice that it intended to delay deliveries as required under the contracts.
Moreover, the Company alleges that Sinovel has refused to pay past due amounts for prior shipments
of core electrical components and spare parts. The Company is seeking compensation for past product
shipments (including interest) and monetary damages due to Sinovels breaches of its contracts. The
Company is also seeking specific performance of our existing contracts as well as reimbursement of
all costs and reasonable expenses with respect to the arbitration.
The Company also submitted a civil action application to the Beijing No. 1 Intermediate
Peoples Court against Sinovel for software copyright infringement. The application alleges
Sinovels unauthorized use of portions of the Companys wind turbine control software source code
developed for Sinovels 1.5MW wind turbines and the binary code, or upper layer, of the Companys
software for the PM3000 power converters in 1.5MW wind turbines. In July 2011, a former employee of
the Companys AMSC Windtec GmbH subsidiary was arrested in Austria and is currently awaiting trial
on charges of economic espionage and fraudulent manipulation of data. As a result of the Companys
internal investigation and a criminal investigation conducted by Austrian authorities, the Company
believes that this former employee was contracted by Sinovel through an intermediary while employed
by the Company and improperly obtained and transferred to Sinovel portions of its wind turbine
control software source code developed for Sinovels 1.5MW wind turbines. Moreover, the Company
believes that the former employee illegally used source code to develop for Sinovel a software
modification to circumvent the encryption and remove technical protection measures on the PM3000
power converters in 1.5MW wind turbines in the field. The Company is seeking a cease and desist
order with respect to the unauthorized copying, installation and use of its software, monetary
damages for our economic losses and reimbursement of all costs and reasonable expenses. The court
must accept the application in order for the case to proceed, and there can be no assurance that
the court will do so.
The Company submitted a civil action application to the Beijing Higher Peoples Court against
Sinovel and certain of its employees for trade secret infringement. The application alleges the
defendants unauthorized use of portions of the Companys wind turbine control software source code
developed for Sinovels 1.5MW wind turbines as described above with respect to the Copyright
Action. The Company is seeking monetary damages for the trade secret infringement as well as
reimbursement of all costs and reasonable expenses. The court must accept the application in order
for the case to proceed, and there can be no assurance that the court will do so.
On September 16, 2011, the Company filed a civil copyright infringement complaint in the
Hainan Province No. 1 Intermediate Peoples Court against Dalian Guotong Electric Co. Ltd.
(Guotong), a supplier of power converter products to Sinovel, and Huaneng Hainan Power, Inc., a
wind farm operator that has purchased Sinovel wind turbines containing Goutong power converter
products. The application alleges that the Companys PM1000 converters in certain Sinovel wind
turbines have been replaced by converters produced by Guotong. Because the Guotong converters are
being used in wind turbines containing its wind turbine control software, the Company believes that
its copyrighted software is being infringed.
The Company is seeking a cease and desist order with respect to the unauthorized use of its
software, monetary damages for its economic losses (with respect to Guotong only) and reimbursement
of all costs and reasonable expenses.
14
Other
The Company enters into long-term construction contracts with customers that require the
Company to obtain performance bonds. The Company is required to deposit an amount equivalent to
some or all the face amount of the performance bonds into an escrow account until the termination
of the bond. When the performance conditions are met, amounts deposited as collateral for the
performance bonds are returned to the Company. In addition, the Company has various contractual
arrangements in which minimum quantities of goods or services have been committed to be purchased
on an annual basis.
As of June 30, 2011, the Company had nine performance bonds on behalf of AMSC Windtec and
its wholly-owned Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd (AMSC China), in support
of customer contracts to guarantee supply of core components and software. The total value of the
outstanding performance bonds is $2.3 million with various expiration dates through March 2014. In
the event that the payment is made in accordance with the requirements of any of these performance
bonds, the Company would record the payment as an offset to revenue.
At June 30, 2011, the Company had $6.5 million of restricted cash included in current assets.
At June 30, 2011, the Company had $2.9 million of restricted cash included in long term assets with
various expiration dates through March 2014. These amounts included in restricted cash represent
deposits to secure letters of credit for various supply contracts. These deposits are held in an
interest bearing account. The Company had an additional $2.5 million in unsecured letters of credit
at June 30, 2011 in support of various supply contracts.
The Company had unused, unsecured lines of credit consisting of RMB 114.8 million
(approximately $17.8 million) in China and 1.6 million (approximately $2.3 million) in Austria as
of June 30, 2011. In July 2011, the Bank of China informed the Company that its unsecured credit
line of approximately RMB 100.0 million (approximately $15.5 million), which expired in August
2011, would not be renewed. As of June 30, 2011, the Company had net borrowings on lines of credit
outstanding of $4.6 million.
11. Equity Investments
Investment in Tres Amigas
On October 9, 2009, the Company made an investment in Tres Amigas LLC, (Tres Amigas), a
merchant transmission company, for $1.8 million, consisting of $0.8 million in cash and $1.0
million in AMSC common stock. On January 6, 2011 and May 20, 2011, the Company increased its
minority position in Tres Amigas by an additional $1.8 million on each date. As of June 30, 2011,
the Company holds a 37% ownership interest.
The Company has determined that Tres Amigas is a variable interest entity (VIE) and that the
Company is not the primary beneficiary of the VIE. Therefore, the Company has not consolidated Tres
Amigas as of June 30, 2011. The investment is carried at the acquisition cost, plus the Companys
equity in undistributed earnings or losses. The Companys maximum exposure to loss is limited to
the Companys recorded investment in this VIE. The Companys investment in Tres Amigas is included
in other assets on the consolidated balance sheet and the equity in undistributed losses of Tres
Amigas is included in other income (expense), net, on the consolidated statements of operations.
The net investment activity for the three months ended June 30, 2011 is as follows (in
thousands):
|
|
|
|
|
Balance at April 1, 2011 |
|
$ |
3,026 |
|
Purchase of minority investment |
|
|
1,800 |
|
Minority interest in net losses |
|
|
(191 |
) |
|
|
|
|
Balance at June 30, 2011 |
|
$ |
4,635 |
|
|
|
|
|
Investment in Blade Dynamics Ltd.
On August 12, 2010, the Company acquired (through AMSC Windtec), a minority ownership position
in Blade Dynamics Ltd. (Blade Dynamics), a designer and manufacturer of advanced wind turbine
blades based on proprietary materials and structural technologies, for $8.0 million in cash. The
Company uses the equity method of accounting for this
15
investment since it does not have a
controlling ownership interest in the operating and financial policies of Blade Dynamics. As such,
the investment is carried at the acquisition cost, plus the Companys equity in undistributed
earnings or losses. The Companys investment is included in other assets on the unaudited condensed
consolidated balance sheet and the minority interest in net losses of Blade Dynamics is included in
other income (expense), net, on the unaudited condensed consolidated statements of operations. As
of June 30, 2011, the Company holds a 25% ownership interest. The net investment activity for the
three months ended June 30, 2011 is as follows (in thousands):
|
|
|
|
|
Balance at April 1, 2011 |
|
$ |
7,903 |
|
Minority interest in net losses |
|
|
(426 |
) |
Net foreign exchange rate impact |
|
|
164 |
|
|
|
|
|
Balance at June 30, 2011 |
|
$ |
7,641 |
|
|
|
|
|
12. Business Segments
Business segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or
decision-making group, in assessing performance and deciding how to allocate resources.
As of April 1, 2011, the Company segmented its operations into two new market-facing business
units: Wind and Grid. The Company believes this market-centric structure enables it to more
effectively anticipate and meet the needs of wind turbine manufacturers, power generation project
developers and electric utilities.
|
|
|
Wind. Through the Windtec brand, the Wind business unit enables manufacturers to
field wind turbines with exceptional power output, reliability and affordability.
The Company licenses its highly engineered wind turbine designs, provides extensive
customer support services and supplies advanced power electronics and control systems
to wind turbine manufactures. The Companys design portfolio includes a broad range
of drive trains and power ratings up to 10 megawatts. The Company believes its
unique engineering capabilities, ranging from bearings to advanced synchronous
generators to blades, enables it to provide its partners with highly-optimized wind
turbine platforms. Furthermore, these designs and support services typically lead to
sales of its power electronics and software-based control systems, which are designed
for optimized performance, efficiency and grid compatibility. |
|
|
|
|
Grid. The Grid segment enables electric utilities and renewable energy project
developers to connect, transmit and distribute power with exceptional efficiency,
reliability and affordability. The Grid business unit provides transmission planning
services that allow us to identify power grid congestion, poor power quality and
other risks, which helps the Company determine how its solutions can improve network
performance. These services often lead to sales of grid interconnection solutions
for wind farms and solar power plants, power quality systems and transmission and
distribution cable systems. |
Prior to April 1, 2011, the Company segmented its operations through two technology-centric
business units: AMSC Power Systems and AMSC Superconductors. AMSC Power Systems included all of its
Wind products, as well as Grid products that regulate voltage for wind farm voltage electric
utilities, renewable generation project developers and industrial operations. Solutions from the
Companys AMSC Superconductors business unit have been incorporated into its Grid business unit.
All prior period segment disclosures have been revised to conform to managements current view of
the Companys business segments.
16
The operating results for the two business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Wind |
|
$ |
4,262 |
|
|
$ |
83,006 |
|
Grid |
|
|
4,796 |
|
|
|
14,203 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,058 |
|
|
$ |
97,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Operating (loss) income: |
|
|
|
|
|
|
|
|
Wind |
|
$ |
(24,370 |
) |
|
$ |
31,339 |
|
Grid |
|
|
(10,552 |
) |
|
|
(11,764 |
) |
Unallocated corporate expenses |
|
|
(3,405 |
) |
|
|
(3,494 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(38,327 |
) |
|
$ |
16,081 |
|
|
|
|
|
|
|
|
The accounting policies of the business segments are the same as those for the
consolidated Company. The Companys business segments have been determined in accordance with the
Companys internal management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, of which the primary financial measures
are segment revenues and segment operating (loss) income. The disaggregated financial results of
the segments reflect allocation of certain functional expense categories consistent with the basis
and manner in which Company management internally disaggregates financial information for the
purpose of assisting in making internal operating decisions. In addition, certain corporate
expenses which the Company does not believe are specifically attributable or allocable to either of
the two business segments have been excluded from the segment operating income.
Unallocated corporate expenses include stock-based compensation expense of $3.5 million for
the three months ended June 30, 2011 and 2010.
Total assets for the two business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2011 |
|
Wind |
|
$ |
127,360 |
|
|
$ |
145,464 |
|
Grid |
|
|
64,252 |
|
|
|
67,081 |
|
Corporate assets |
|
|
202,050 |
|
|
|
228,664 |
|
|
|
|
|
|
|
|
Total |
|
$ |
393,662 |
|
|
$ |
441,209 |
|
|
|
|
|
|
|
|
The following table sets forth customers who represented 10% or more of the Companys
total revenues for the three months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Department of Energy |
|
|
17 |
% |
|
|
<10 |
% |
Doosan Heavy Industries & Construction Co Ltd. |
|
|
15 |
% |
|
|
<10 |
% |
Shenyang Blower Works Group Wind Power Co.,Ltd. |
|
|
13 |
% |
|
|
<10 |
% |
Sinovel Wind Co., Ltd |
|
|
|
% |
|
|
72 |
% |
17
13. Planned Acquisition of The Switch
On March 12, 2011, the Company entered into a Share Purchase Agreement (the Agreement), by
and among the Company and the shareholders of The Switch Engineering Oy, a power technologies
company headquartered in Finland (The Switch).
On June 29, 2011, the Company entered into an amendment agreement (the Amendment), by and
among the Company and the shareholders (the Shareholders) of The Switch, amending the Agreement.
Pursuant to the Agreement, as amended by the Amendment, the Company has agreed to acquire all of
the outstanding shares of The Switch for an aggregate purchase price (based on an exchange rate of
$1.44 per Euro) of (i) $273.6 million, payable as follows: (1) $20.6 million in cash in the form of
an advance payment (the Advance Payment), which was paid on June 29, 2011 and is classified as
advance payment for planned acquisition on the unaudited condensed consolidated balance sheet as of
June 30, 2011, (2) $171.0 million in cash at the closing of the acquisition and (3) the issuance at
the closing of the acquisition shares of our common stock, $0.01 par value per share, with a value
of $82.1 million based on the average closing price of the common stock during the 20 trading days
preceding the second business day prior to the closing of the acquisition and the U.S. dollar to
euro exchange rate on the second business day prior to the closing of the acquisition, and (ii) in
the event closing occurs after September 1, 2011, interest at an annual rate of 4% on $171.0
million, accruing from September 1, 2011 to and including the closing date, payable in cash at the
closing of the acquisition. In the event that the total number of shares of common stock issuable
to the shareholders of The Switch exceeds 19.9% of the total number of shares of common stock
outstanding prior to such issuance, in lieu of the issuance of such excess shares, the Company
agreed to pay additional cash at the closing to the Minor Sellers (as defined in the Agreement) and
issue to the remaining shareholders unsecured promissory notes for such excess amount, payable on
the first business day after the first anniversary of the closing date.
Pursuant to the Amendment, the parties agreed that the escrow would terminate on June 10, 2012
rather than twelve months after the closing date. The parties also agreed that the closing would
take place on the tenth business day after the date on which the Company informs the Shareholders
that a financing resulting in post-acquisition net cash available to the Company of at least $100
million has been completed, provided that all other closing conditions have been satisfied or
waived. In addition, pursuant to the Amendment, the parties agreed that the Advance Payment shall
constitute a termination fee payable to the Shareholders in the event the Agreement, as amended by
the Amendment, is terminated should the closing not take place on or before September 30, 2011
(subject to extension for up to two one-month periods, as described in Section 6.6), or 10 business
days thereafter in the case of a breach and/or failure to remedy by the Shareholders under Section
6.3.1, (i) by the Shareholders pursuant to Section 6.6(i), or (ii) the Company pursuant to Section
6.6(ii) (which, in the case of Sections 6.6(i) and 6.6(ii), includes upon the occurrence of a
Failed Financing Event (as defined in the Amendment) and, in the case of Section 6.6(ii), upon the
occurrence of a Material Adverse Effect (as defined in the Share Purchase Agreement)). Upon any
such termination and retention by the Shareholders of the Advance Payment, the parties shall have
no right to make any further claims against each other.
The Company will require proceeds from an additional financing to finance the planned
acquisition of The Switch. Closing of the transaction, which has been approved by both companies
Boards of Directors, is subject to customary closing conditions.
14. Chief Executive Officer Transition
On May 24, 2011, the Company announced that Daniel P. McGahn, President and Chief Operating
Officer, has been appointed Chief Executive Officer and a member of the Board of Directors,
effective June 1, 2011. Mr. McGahn succeeds Gregory J. Yurek, who resigned from his position as
Chief Executive Officer of the Company, effective on June 1, 2011. In connection with his
retirement and resignation, the Company entered into a retirement and services agreement (the
Agreement) with Mr. Yurek pursuant to which Mr. Yurek will serve as a senior advisor to the
Company for up to 24 months. The Agreement includes a general release of claims and customary
non-compete and non-solicit covenants for the three-year period ending May 31, 2014. Pursuant to
this agreement, Mr. Yurek is entitled to receive the following payments and benefits: (i) a total
of $2.0 million in cash, of which $83,333 is payable on the final day of each month from June 2011
to August 2012, $50,000 is payable on the final day of September 2012, and $50,000 is payable on
the final day of each month from April 2013 to May 2014; and (ii) continued group medical, dental
and vision insurance coverage through May 31, 2014. In accordance with the terms of Mr. Yureks
outstanding stock option and restricted stock agreements, the outstanding restricted stock that is
unvested as of June 1, 2011 will be forfeited and the outstanding stock options will continue to
vest for so long as he continues to serve as an advisor to the Company. Thereafter, any remaining unvested
portions of Mr. Yureks stock options will be cancelled for no consideration. Mr. Yurek agreed to
remain as Chairman of the Board until the annual meeting of stockholders or August 15, 2011,
whichever occurred first; and will not stand for reelection to the Board at the annual meeting. Mr.
Yurek ceased serving as our Chairman of the Board on August 15, 2011. The Agreement replaces and
supersedes the Amended and Restated Executive Severance Agreement, dated as of December 23, 2008,
between the Company and Mr. Yurek.
18
The Company recorded costs of $2.7 million within selling, general and administrative expenses
of the unaudited condensed consolidated statements of operations for the three months ended June
30, 2011 which consist of $2.1 million severance benefits under the Agreement and $0.6 million of
stock compensation expense related to outstanding stock options.
15. Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13,
Multiple-Deliverable Revenue Arrangements, pertaining to the accounting for revenue arrangements
with multiple deliverables. Specifically, the new standard requires an entity to allocate
consideration at the inception of an arrangement to all of its deliverables based on their relative
selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of
the selling prices, consideration must be allocated to the deliverables based on managements best
estimate of the selling prices. In addition, the new standard eliminates the use of the residual
method of allocation. The new accounting standard supersedes the prior multiple element revenue
arrangement accounting rules that were previously used by the Company. The Company adopted this
new accounting standard on April 1, 2010 using the prospective method and the adoption did not have
a material impact on its consolidated financial statements.
In January 2010, the Company adopted Accounting Standards Update (ASU) No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This
standard amends the disclosure guidance with respect to fair value measurements for both interim
and annual reporting periods. Specifically, this standard requires new disclosures for significant
transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy;
separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on
a gross, rather than net basis; and more robust disclosure of the valuation techniques and inputs
used to measure Level 2 and Level 3 assets and liabilities. The Company has included these new
disclosures, as applicable, in Note 3, Marketable Securities and Fair Value Disclosures, of the
consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805), Disclosure of Supplementary Pro forma Information for Business
Combinations a consensus of the FASB Emerging Issues Task Force (ASC 2010-29). This amendment
clarifies the periods for which pro forma financial information is presented. The disclosures
include pro forma revenue and earnings of the combined entity for the current reporting period as
though the acquisition date for all business combinations that occurred during the year had been as
of the beginning of the annual reporting period. If comparative financial statements are presented,
the pro forma revenue and earnings of the combined entity for the comparable prior reporting period
should be reported as though the acquisition date for all business combinations that occurred
during the current year had been as of the beginning of the comparable prior annual reporting
period. ASU 2010-29 is effective prospectively for business combinations that occur on or after
the beginning of the first annual reporting period beginning after December 15, 2010. The Company
does not expect the adoption of ASU 2011-04 to have a material impact on the Companys consolidated
results of operations, financial condition, or cash flows.
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 requires entities to present
net income and other comprehensive income in either a single continuous statement or in two
separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is
effective for fiscal years and interim periods beginning after December 15, 2011. The Company does
not expect the adoption of ASU 2011-04 to have a material impact on the Companys consolidated
results of operations, financial condition, or cash flows.
16. Subsequent Events
The Company has performed an evaluation of subsequent events through the time of filing this
Quarterly Report on Form 10-Q with the SEC.
NASDAQ Notices
On June 17, 2011, the Company received notice from the NASDAQ Stock Market (NASDAQ) stating
that the Company is not in compliance with Listing Rule 5250(c)(1) for continued listing due to the
Companys inability to file with the SEC the Companys Annual Report on Form 10-K for the year ended March 31, 2011 (the
Initial Delinquent Filing) on a timely basis. The notification was issued in accordance with
standard NASDAQ procedures and has no immediate effect on the listing or trading of the Companys
common stock on the NASDAQ Global Select Market. On August 16, 2011, the Company received notice
from the NASDAQ stating that the Company is not in compliance with Listing Rule 5250(c)(1) for
19
continued listing (i) due to the Companys inability to file with the SEC the Companys Quarterly
Report on Form 10-Q for the period ended June 30, 2011, and (ii) because the Company remained
delinquent in filing the Companys Annual Report on Form 10-K for the period ended March 31, 2011.
The notification was issued in accordance with standard NASDAQ procedures and had no immediate
effect on the listing or trading of the Companys common stock on the NASDAQ Global Select Market.
Pursuant to NASDAQs letter dated June 17, 2011, which was disclosed in the Companys Current
Report on Form 8-K filed with the SEC on June 21, 2011, the Company had until August 16, 2011 to
submit a plan to regain compliance with respect to the Initial Delinquent Filing. The NASDAQ letter
dated August 16, 2011 indicated that the Company had until August 30, 2011 to submit an updated
plan explaining how it expected to regain compliance. On August 16, 2011, the Company submitted its
plan to regain compliance. On August 31, 2011, the Company was informed that NASDAQ had granted an
exception to its rules to enable the Company to regain compliance by September 30, 2011. With the
filing of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, the Annual Report
on Form 10-K for the year ended March 31, 2011 and the Amended Quarterly Reports on Form 10-Q as of
and for the quarters ended September 30, 2010 and December 31, 2010 and subject to receipt of a
confirmation of compliance, the Company will be in compliance with the NASDAQ listing requirements.
Restructuring
The Company initiated a restructuring plan in August 2011 (the 2011 Plan) to reorganize
global operations, streamline various functions of the business, and reduce its global workforce to
match the demand for its products. The 2011 Plan resulted in a headcount reduction of approximately
150 employees. Coinciding with the 2011 Plan, on August 8, 2011, the Company and Charles W.
Stankiewicz, Executive Vice President, Operations and Grid Segment, and Angelo R. Santamaria,
Senior Vice President, Global Manufacturing Operations, mutually agreed to end their employment
effective on August 23, 2011 and August 12, 2011, respectively. From April 1, 2011 through the date
of this filing, the Company has reduced its global workforce by approximately 30%, which is
expected to result in annual savings of approximately $30.0 million. As a result of the 2011 Plan,
the Company expects to recognize restructuring charges of $3.0 million to $4.0 million in the
second quarter of fiscal 2011. These charges primarily relate to severance costs and are expected
to be paid through fiscal 2012.
20
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). For this
purpose, any statements contained herein that relate to future events or conditions, including
without limitation, the statements in Part II, Item 1A. Risk Factors and in Part I under Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations and located
elsewhere herein regarding industry prospects or our prospective results of operations or financial
position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words
believes, anticipates, plans, expects, and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements represent managements current
expectations and are inherently uncertain. There are a number of important factors that could
materially impact the value of our common stock or cause actual results to differ materially from
those indicated by such forward-looking statements. Such factors include: a significant portion of
our revenues has been derived from Sinovel Wind Group Co. Ltd., (Sinovel), which has stopped
accepting scheduled deliveries and refused to pay amounts outstanding; the disruption in our
relationship with Sinovel has materially and adversely affected our business and results of
operations and if, as we expect, Sinovel continues to refuse to accept shipments from us, our
business and results of operations will be further materially and adversely affected; we will
require significant additional funding and may be unable to raise capital when needed, which could
force us to delay, reduce or eliminate planned activities, including the planned acquisition of The
Switch Engineering Oy (The Switch); we have a history of operating losses, and we may incur
additional losses in the future; our operating results may fluctuate significantly from quarter to
quarter and may fall below expectations in any particular fiscal quarter; if we fail to complete
the planned acquisition of The Switch, our operating results and financial condition could be
harmed and the price of our common stock could decline; completion of the planned acquisition of
The Switch could present certain risks to our business; adverse changes in domestic and global
economic conditions could adversely affect our operating results; changes in exchange rates could
adversely affect our results from operations; we have identified material weaknesses in our
internal control over financial reporting and if we fail to remediate these weaknesses and maintain
proper and effective internal controls over financial reporting, our ability to produce accurate
and timely financial statements could be impaired and may lead investors and other users to lose
confidence in our financial data; if we fail to implement our business strategy successfully, our
financial performance could be harmed; we may not realize all of the sales expected from our
backlog of orders and contracts; many of our revenue opportunities are dependent upon
subcontractors and other business collaborators; our products face intense competition, which could
limit our ability to acquire or retain customers; our success is dependent upon attracting and
retaining qualified personnel and our inability to do so could significantly damage our business
and prospects; we may acquire additional complementary businesses or technologies, which may
require us to incur substantial costs for which we may never realize the anticipated benefits; our
international operations are subject to risks that we do not face in the United States, which could
have an adverse effect on our operating results; we depend on sales to customers in China, and
global conditions could negatively affect our operating results or limit our ability to expand our
operations outside of China; changes in Chinas political, social, regulatory and economic
environment may affect our financial performance; many of our customer relationships outside of the
United States are, either directly or indirectly, with governmental entities, and we could be
adversely affected by violations of the United States Foreign Corrupt Practices Act and similar
worldwide anti-bribery laws outside the United States; we rely upon third party suppliers for the
components and subassemblies of many of our Wind and Grid products, making us vulnerable to supply
shortages and price fluctuations, which could harm our business; we are becoming increasingly
reliant on contracts that require the issuance of performance bonds; problems with product quality
or product performance may cause us to incur warranty expenses and may damage our market reputation
and prevent us from achieving increased sales and market share; our success in addressing the wind
energy market is dependent on the manufacturers that license our designs; growth of the wind energy
market depends largely on the availability and size of government subsidies and economic
incentives; there are a number of technological challenges that must be successfully addressed
before our superconductor products can gain widespread commercial acceptance, and our inability to
address such technological challenges could adversely affect our ability to acquire customers for
our products; we have not manufactured our Amperium wire in commercial quantities, and a failure to
manufacture our Amperium wire in commercial quantities at acceptable cost and quality levels would
substantially limit our future revenue and profit potential; the commercial uses of superconductor
products are limited today, and a widespread commercial market for our products may not develop; we
have limited experience in marketing and selling our superconductor products and system-level
solutions, and our failure to effectively market and sell our products and solutions could lower
our revenue and cash flow; our contracts with the U.S. government are subject to audit,
modification or termination by the U.S. government and include certain other provisions in favor of
the government; the continued funding
21
of such contracts remains subject to annual congressional appropriation which, if not
approved, could reduce our revenue and lower or eliminate our profit; we may be unable to
adequately prevent disclosure of trade secrets and other proprietary information; we have filed a
demand for arbitration and other lawsuits against Sinovel regarding amounts we contend are due and
owing and are in dispute; we cannot be certain as to the outcome of the proceedings against
Sinovel; we have been named as a party to purported stockholder class actions and shareholder
derivative complaints, and we may be named in additional litigation, all of which will require
significant management time and attention, result in significant legal expenses and may result in
an unfavorable outcome, which could have a material adverse effect on our business, operating
results and financial condition; our technology and products could infringe intellectual property
rights of others, which may require costly litigation and, if we are not successful, could cause us
to pay substantial damages and disrupt our business; our patents may not provide meaningful
protection for our technology, which could result in us losing some or all of our market position;
third parties have or may acquire patents that cover the materials, processes and technologies we
use or may use in the future to manufacture our Amperium products, and our success depends on our
ability to license such patents or other proprietary rights; and our common stock has experienced,
and may continue to experience, significant market price and volume fluctuations, which may prevent
our stockholders from selling our common stock at a profit and could lead to costly litigation
against us that could divert our managements attention. These and the important factors discussed
under the caption Risk Factors in Part II. Item 1A and Part 1. Item 1A of our Form 10-K for the
fiscal year ended March 31, 2011, among others, could cause actual results to differ materially
from those indicated by forward-looking statements made herein and presented elsewhere by
management from time to time. Any such forward-looking statements represent managements estimates
as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such
forward-looking statements at some point in the future, we disclaim any obligation to do so, even
if subsequent events cause our views to change. These forward-looking statements should not be
relied upon as representing our views as of any date subsequent to the date of this Quarterly
Report on Form 10-Q.
American Superconductor® and design, Revolutionizing the Way the World Uses Electricity®,
AmperiumTM, AMSC®, Powered by AMSC®, D-VAR®, dSVCTM,
FaultBlockerTM, PowerModuleTM, PowerPipelinesTM, PQ-IVR®, PQ-SVC®,
SeaTitanTM, SolarTieTM, Windtec and SuperGEARTM are trademarks or
registered trademarks of American Superconductor Corporation or its subsidiaries. The Windtec logo
and design is a registered European Union Community Trademark. We reserve all of our rights with
respect to our trademarks or registered trademarks regardless of whether they are so designated in
this Quarterly Report on Form 10-Q by an ® or TM symbol. All other brand names, product
names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property
of their respective holders.
Executive Overview
American Superconductor Corporation was founded in 1987. We are a leading provider of
megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power
grid. In the wind power market, we enable manufacturers to field wind turbines through our
advanced engineering, support services and power electronics products. In the power grid market,
we enable electric utilities and renewable energy project developers to connect, transmit and
distribute power through our transmission planning services and power electronics and
superconductor based products. Our wind and power grid products and services provide exceptional
reliability, security, efficiency and affordability to our customers.
Our wind and power grid solutions help to improve energy efficiency, alleviate power grid
capacity constraints and increase the adoption of renewable energy generation. Demand for our
solutions is driven by the growing needs for renewable sources of electricity, such as wind and
solar energy, and for modernized smart grids that improve power reliability and quality. Concerns
about these factors have led to increased spending by corporations as well as supportive government
regulations and initiatives on local, state, national and global levels, including renewable
portfolio standards, tax incentives and international treaties.
We manufacture products using two proprietary core technologies: PowerModule programmable
power electronic converters and our Amperium HTS wires. These technologies and our system-level
solutions are protected by a broad and deep intellectual property portfolio consisting of hundreds
of patents and licenses worldwide.
On March 12, 2011, we entered into a definitive agreement to acquire The Switch Engineering
Oy, (The Switch). The Switch designs, manufactures and markets wind power products, including
permanent magnet generators and power converter systems, as well as grid products such as
commercial and small utility-scale solar inverters to customers in Asia, including China, Europe
and North America.
As of April 1, 2011, we are segmenting our operations into two new market-facing business
units: Wind and Grid. We believe this market-centric structure enables us to more effectively
anticipate and meet the needs of wind turbine manufacturers, power generation project developers
and electric utilities.
|
|
|
Wind. Through our Windtec brand, our Wind business enables manufacturers to field
wind turbines with exceptional power output, reliability and affordability. We
license our highly engineered wind turbine |
22
|
|
|
designs, provide extensive customer support services and supply advanced power
electronics and control systems to wind turbine manufactures. Our design portfolio
includes a broad range of drive trains and power ratings up to 10 megawatts. We
believe our unique engineering capabilities, ranging from bearings to advanced
synchronous generators to blades, enables us to provide our partners with
highly-optimized wind turbine platforms. Furthermore, these designs and support
services typically lead to sales of our power electronics and software-based control
systems, which are designed for optimized performance, efficiency and grid
compatibility. |
|
|
|
Grid. Our Grid segment enables electric utilities and renewable energy project
developers to connect, transmit and distribute power with exceptional efficiency,
reliability and affordability. We provide transmission planning services that allow
us to identify power grid congestion, poor power quality and other risks, which help
us determine how our solutions can improve network performance. These services often
lead to sales of grid interconnection solutions for wind farms and solar power
plants, power quality systems and transmission and distribution cable systems. |
Prior to April 1, 2011, we segmented our operations through two technology-centric business
units: AMSC Power Systems and AMSC Superconductors. AMSC Power Systems included all of our Wind
products, as well as Grid products that regulate voltage for wind farm voltage electric utilities,
renewable generation project developers and industrial operations. Solutions from our AMSC
Superconductors business unit have been incorporated into our Grid business unit.
Our fiscal year begins on April 1 and ends on March 31. This document refers to fiscal 2011,
which is defined as the period beginning on April 1, 2011 and concluding on March 31, 2012. The
first quarter of fiscal 2011 began on April 1, 2011 and concluded on June 30, 2011.
Our cash requirements depend on numerous factors, including successful completion of our
product development activities, ability to commercialize our product prototypes, rate of customer
and market adoption of our products, collecting receivables according to established terms, and the
continued availability of U.S. government funding during the product development phase. Significant
deviations to our business plan with regard to these factors, which are important drivers to our
business, could have a material adverse effect on our operating performance, financial condition,
and future business prospects. We expect to pursue the expansion of our operations through internal
growth and potential strategic alliances and acquisitions.
As of June 30, 2011 and March 31, 2011, we had backlog of approximately $225.4 million and
$228.4 million, respectively, excluding Sinovel. Including Sinovel, as of June 30, 2011 and March
31, 2011, we had backlog of approximately $925.7 million and $921.5 million, respectively. On
March 31, 2011, Sinovel refused to accept contracted shipments of 1.5-MW and 3-MW wind turbine core
electrical components and spare parts that we were prepared to deliver. As a result, we have not
made shipments to Sinovel since February 2011. If Sinovel continues not to accept these shipments,
or terminates, reduces or defers firm orders, we will not be able to complete these shipments and
we may not generate the revenue supported by these contracts.
During March 2011, we engaged in discussions with Sinovel regarding the acceptance of its
scheduled shipments, outstanding receivables, and the delivery of a custom solution desired by
Sinovel for low voltage ride through (LVRT) that required a modification to our existing LVRT
design. The custom design required modified software and additional hardware. Toward the end of
March, Sinovel requested that we provide them with the additional hardware without additional cost.
On March 31, 2011, we proposed to Sinovel that we would provide the additional hardware without
additional cost if Sinovel would accept the scheduled shipments. Sinovel rejected this proposal
due to what we were told was excess inventory of our components. Since Sinovel did not give us the
requisite notice under our contracts that they intended to delay deliveries, we believe that these
actions constitute material breaches of our contracts.
While we have had several discussions with Sinovel since March 31, 2011, as of the date of
this filing, we have not received payment for any outstanding receivables nor have we been notified
as to when, if ever, they will accept contracted shipments that were scheduled for delivery after
March 31, 2011. Additionally, based in part upon evidence obtained through an internal
investigation and a criminal investigation conducted by Austrian authorities regarding the actions
of a former employee of our AMSC Windtec subsidiary, we believe that Sinovel illegally obtained and
used our intellectual property in violation of civil and criminal intellectual property laws. In
July 2011, the former employee was arrested in Austria and is currently awaiting trial on charges
of economic espionage and fraudulent manipulation of data. As a result of the investigations, we
believe that this former employee was contracted by Sinovel through an intermediary while employed
by us and improperly obtained and transferred to Sinovel portions of our wind turbine control
software source code developed for Sinovels 1.5MW wind turbines. Except for portions of this 1.5
MW wind turbine software, we do not believe that the source code for any other turbines, such as
the 3MW, 5MW and 6MW wind turbines that were designed by and co-developed with us have been
transferred to Sinovel. Moreover, we believe the former employee illegally used source code to
23
develop for Sinovel a software modification to circumvent the encryption and remove technical
protection measures on the PM3000 power converters in 1.5MW wind turbines in the field. We believe
that only the binary code, or upper layer, of the PM3000 software developed to circumvent the
encryption and remove technical protection measures was transferred to Sinovel. We do not believe
that any PM3000 source code was transferred to Sinovel. These actions potentially enable Sinovel to
deploy, independent of us, wind turbine control software, including a low voltage ride through
solution, on all of its 1.5MW wind turbines in the field. In addition, by having the wind turbine
control source code, Sinovel could potentially modify the source code to allow the use of core
electrical components, including power converters, from other manufacturers.
On September 13, 2011, we commenced a series of legal actions in China against Sinovel. We
filed a claim for arbitration in Beijing, China to compel Sinovel to pay us for past product
shipments and to accept all contracted but not yet delivered core electrical components and spare
parts under all existing contracts with us. The arbitration claim was filed with the Beijing
Arbitration Commission in accordance with the terms of our supply contracts with Sinovel. We are
also in the process of filing civil and criminal complaints against Sinovel. On September 16,
2011, we filed a civil complaint in China against Dalian Guotong Electric, Co., Ltd. and other
parties. The complaints allege the illegal use of our intellectual property. We are seeking to
compel Sinovel and the other parties to cease and desist from infringing our intellectual property
and are also seeking monetary damages to compensate us for our economic losses resulting from the
infringement.
We cannot provide any assurance as to the outcome of these legal actions. We are now
operating our business under the assumption that Sinovel will not be a customer.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires that we
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base our estimates on
historical experience and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ under different assumptions or conditions. There were no significant changes in the first
quarter of fiscal 2011 in the critical accounting policies that were disclosed in our Form 10-K for
fiscal 2010, which ended on March 31, 2011.
Results of Operations
Three months ended June 30, 2011 compared to the three ended June 30, 2010
Beginning on April 1, 2011, management revised its reportable business segments into Wind and
Grid as a result in changes in the manner in which we disaggregate the Companys operations for
making operating decisions and assessing performance business segments. Previously, we had two
reportable business segments, AMSC Power Systems and AMSC Superconductors. All prior period
segment disclosures have been revised to conform to managements current view of its business
segments.
As discussed above, the disruption in our relationship with Sinovel has materially and
adversely affected our business and results of operations. Because Sinovel has accounted for more
than two-thirds of our revenues over each of the past three fiscal years, we experienced
significantly lower revenues and significant operating losses during the three months ended June
30, 2011. Revenues to Sinovel represented 0% and 72% of total revenues for the three months ended
June 30, 2011 and 2010, respectively. Since no cash payments were made by Sinovel in the three
months ended June 30, 2011, no revenue was recognized from Sinovel in the three months ended June
30, 2011.
Revenues
Total revenues decreased by 91% to $9.1 million for the three months ended June 30, 2011,
compared to $97.2 million for the three months ended June 30, 2010. Our revenues are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Wind |
|
$ |
4,262 |
|
|
$ |
83,006 |
|
Grid |
|
|
4,796 |
|
|
|
14,203 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,058 |
|
|
$ |
97,209 |
|
|
|
|
|
|
|
|
24
Our Wind business unit accounted for 47% of total revenues for the three months ended
June 30, 2011, compared to 85% for the three months ended June 30, 2010. Revenues in the Wind
business unit decreased 95% to $4.3 million in the three months ended June 30, 2011 from $83.0
million in the three months ended June 30, 2010. The decrease in Wind business unit revenues was
primarily due to the disruption in our relationship with Sinovel, as described above, which
accounted for $70.3 million of revenue for the first quarter of fiscal 2010.
Our Grid business unit accounted for 53% of total revenues for the three months ended June 30,
2011, compared to 15% for the three months ended June 30, 2010. Our Grid business unit revenues
decreased 66% to $4.8 million in the three months ended June 30, 2011 from $14.2 million for the
three months ended June 30, 2010. The decrease in Grid business unit revenues were due primarily
to reduced DVAR product sales, due in part to strong shipments in the fourth quarter of quarter of
fiscal 2010.
Revenues from significant government-funded contracts are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Earned |
|
|
|
|
|
|
Expected total |
|
|
through |
|
|
Three months ended June 30, |
|
Project name |
|
contract value |
|
|
June 30, 2011 |
|
|
2011 |
|
|
2010 |
|
HYDRA |
|
$ |
24,908 |
|
|
$ |
10,963 |
|
|
$ |
411 |
|
|
$ |
121 |
|
LIPA I and II |
|
|
40,141 |
|
|
|
39,710 |
|
|
|
1,309 |
|
|
|
782 |
|
DOE-FCL |
|
|
7,898 |
|
|
|
6,785 |
|
|
|
232 |
|
|
|
571 |
|
NAVSEA Motor Study |
|
|
6,511 |
|
|
|
6,492 |
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
79,458 |
|
|
$ |
63,950 |
|
|
$ |
1,952 |
|
|
$ |
1,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These significant projects represented 41% and 11% of the Grid business unit revenues for
the three months ended June 30, 2011 and 2010.
Project HYDRA is a contract with Consolidated Edison, Inc. which is being partially funded by
the U.S. Department of Homeland Security (DHS). DHS is expected to invest up to a total of $24.9
million in the development of a new high temperature superconductor power grid technology called
FaultBlocker cable systems. FaultBlocker cable systems are designed to utilize customized
Amperium HTS wires, and ancillary controls to deliver more power through the grid while also being
able to suppress power surges that can disrupt service. Of the total $24.9 million in funding
expected from DHS, it has committed funding of $12.6 million to us as of June 30, 2011. On
September 15, 2011, the DHS committed an additional $3.0 million in funding on Project HYDRA.
Consolidated Edison and Southwire Company are subcontractors to us on this project.
LIPA I, completed in the first quarter of fiscal 2009, was a project to install an HTS power
cable system at transmission voltage using our first generation HTS wire for the Long Island Power
Authority. LIPA II is a project to install an HTS power cable utilizing our Amperium wire for the
Long Island Power Authority. DOE-FCL is a project to develop and demonstrate a transmission
voltage SuperLimiter fault current limiter (FCL). The NAVSEA Motor Study is a project designed to
test the 36.5 MW superconductor motor developed for the U.S. Navy.
Based on the average Euro and renminbi exchange rates for the first quarter of fiscal
2011, revenues denominated in these foreign currencies translated into U.S. dollars were $0.3
million higher compared to the translation of these revenues using the average exchange rates of
these currencies for the first quarter of fiscal 2010.
The following table sets forth customers who represented 10% or more of our total revenues for
the three months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Department of Energy/NETL |
|
|
17 |
% |
|
|
<10 |
% |
Doosan Heavy Industries & Construction Co Ltd. |
|
|
15 |
% |
|
|
<10 |
% |
Shenyang Blower Works Group Wind Power Co.,Ltd. |
|
|
13 |
% |
|
|
<10 |
% |
Sinovel Wind Co., Ltd |
|
|
|
% |
|
|
72 |
% |
25
Cost of Revenues and Gross Margin
Cost of revenues decreased by 71% to $17.0 million for the three months ended June 30, 2011,
compared to $58.2 million for the three months ended June 30, 2010. Gross margin was (87.2%) and
40.1% for the three months ended June 30, 2011 and 2010, respectively. The decrease in gross margin
and cost of revenues in the three months ended June 30, 2011 as compared to the same period in
fiscal 2010 was a result of lower sales due to the disruption in our relationship with Sinovel and
unabsorbed fixed overhead due to idle capacity. This is expected to improve in the future quarters
as the wind market in China recovers.
Based on the average Euro and renminbi exchange rates for the first quarter of fiscal 2011,
cost of revenues denominated in these foreign currencies translated into U.S. dollars was $0.5
million higher compared to the translation of cost of revenues using the average exchange rates of
these currencies for the first quarter of fiscal 2010.
Operating Expenses
Research and development
A portion of our R&D expenditures related to externally funded development contracts has been
classified as cost of revenues (rather than as R&D expenses). Additionally, a portion of R&D
expenses was offset by cost-sharing funding. Our R&D expenditures are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
R&D expenses per unaudited condensed consolidated statements of operations |
|
$ |
8,136 |
|
|
$ |
7,335 |
|
R&D expenditures reclassified as cost of revenues |
|
|
4,040 |
|
|
|
3,369 |
|
R&D expenditures offset by cost-sharing funding |
|
|
34 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Aggregated R&D expenses |
|
$ |
12,210 |
|
|
$ |
10,845 |
|
|
|
|
|
|
|
|
R&D expenses (exclusive of amounts classified as cost of revenues and amounts offset by
cost-sharing funding) increased by 11% to $8.1 million for the three months ended June 30, 2011
from $7.3 million for the three months ended June 30, 2010. The increase in R&D expenses was driven
primarily by labor, material and overhead spending to support new product development in our Wind
business segment. The increase in R&D expenditures reclassified to costs of revenue was a result of
increased efforts under license and development contracts for wind turbine designs at AMSC Windtec
compared to the prior year. Aggregated R&D expenses, which include amounts classified as cost of
revenues and amounts offset by cost-sharing funding, increased 13% to $12.2 million for the three
months ended June 30, 2011, compared to $10.8 million for the three months ended June 30, 2010. The
increases in fiscal 2010 were driven primarily by the net impact of the factors described above.
Growth in R&D expenses is expected to moderate going forward as a result of the restructuring
actions undertaken in fiscal 2011.
We present aggregated R&D, which is a non-GAAP measure, because we believe this presentation
provides useful information on our aggregate R&D spending and because R&D expenses as reported on
the unaudited condensed consolidated statements of income have been, and may in the future, be
subject to significant fluctuations solely as a result of changes in the level of externally funded
contract development work, resulting in significant changes in the amount of the costs recorded as
costs of revenues rather than as R&D expenses, as discussed above.
Selling, general, and administrative
SG&A expenses increased by 45% to $22.0 million in the three months ended June 30, 2011, from
$15.2 in the three months ended June 30, 2010. The increases in SG&A expenses were due primarily
to increases in legal fees associated with ongoing litigation as discussed in Part II, Item 1,
Legal Proceedings, of this Quarterly Report on Form 10-Q and severance and stock compensation
costs for our former Chief Executive Officer. Higher legal expenses are expected for the next
several quarters as we expect to continue pursuing litigation against Sinovel.
26
Amortization of acquisition related intangibles
We recorded amortization expense related to our core technology and know-how, trade names and
trademark intangible assets of $0.3 million and $0.4 million in the three months ended June 30,
2011 and 2010, respectively. These intangible assets are primarily as a result of our AMSC Windtec
acquisition.
Operating (loss) income
|
|
Our operating (loss) income is summarized as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Wind |
|
$ |
(24,370 |
) |
|
$ |
31,339 |
|
Grid |
|
|
(10,552 |
) |
|
|
(11,764 |
) |
Unallocated corporate expenses |
|
|
(3,405 |
) |
|
|
(3,494 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(38,327 |
) |
|
$ |
16,081 |
|
|
|
|
|
|
|
|
Operating (loss) income for the Wind business unit decreased to an operating loss of
$24.4 million in the three months ended June 30, 2011, from an operating income of $31.3 million in
the three months ended June 30, 2010. The decrease in Wind business unit operating income was
primarily due to the disruption in our relationship with Sinovel, as described above.
Operating loss for the Grid business unit decreased to $10.6 million in the three months ended
June 30, 2011, compared to $11.8 million in the three months ended June 30, 2010. The decrease in
Grid business unit operating loss was primarily due to lower operating expenses as a result of the
reductions in force and reduced discretionary spending, partially offset by reduced DVAR revenues.
Unallocated corporate expenses also include stock-based compensation expense of $3.5 million
and $3.5 million for the three months ended June 30, 2011 and 2010, respectively.
Interest income, net
Interest income, net, was $0.2 million in the three months ended June 30, 2011 and 2010. Due
to recent economic conditions and the United States monetary policy intended to promote growth, the
yields of our interest bearing assets are low as compared to prior periods.
Other income, net
Other income, net, was income of $0.6 million in the three months ended June 30, 2011 compared
to income of $0.2 million for the three months ended June 30, 2010. The increase in other income,
net primarily relates to an increase in foreign currency translation gains of $0.9 million,
partially offset by an increase in losses on minority interest investments of $0.5 million.
Income Taxes
In the three months ended June 30, 2011, we recorded income tax expense of $0.2 million
compared to $7.3 million in the three months ended June 30, 2010. Income tax expense decreased due
to the pretax loss in the three months ended June 30, 2011 and a full valuation allowance against
our deferred tax assets.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance,
financial position or cash flow that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure calculated and presented in accordance
with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in
addition to, and not as a substitute for or superior to the comparable measure prepared in
accordance with GAAP.
We define non-GAAP net (loss) income as net (loss) income before amortization of
acquisition-related intangibles, restructuring and impairments, stock-based compensation, other
unusual charges and any tax effects related to these items.
27
We believe non-GAAP net (loss) income assists management and investors in comparing our
performance across reporting periods on a consistent basis by excluding these non-cash or
non-recurring charges that we do not believe are indicative of our core operating performance. We
also regard non-GAAP net (loss) income as a useful measure of operating performance which more
closely aligns net (loss) income with cash used in/provided by continuing operations. In addition,
we use non-GAAP net (loss) income as a factor in evaluating managements performance when
determining incentive compensation and to evaluate the effectiveness of our business strategies. A
reconciliation of non-GAAP to GAAP net (loss) income is set forth in the table below (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Net (loss) income |
|
$ |
(37,679 |
) |
|
$ |
9,170 |
|
Stock-based compensation |
|
|
3,466 |
|
|
|
3,499 |
|
Severance costs |
|
|
2,066 |
|
|
|
|
|
Losses on purchase commitments |
|
|
1,071 |
|
|
|
|
|
Amortization of acquisition-related intangibles |
|
|
304 |
|
|
|
386 |
|
Tax effects |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
|
Non-GAAP net (loss) income |
|
$ |
(30,772 |
) |
|
$ |
12,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (loss) earnings per share |
|
$ |
(0.61 |
) |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding * |
|
|
50,710 |
|
|
|
45,983 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Diluted shares are used for periods where net income is generated. |
We incurred non-GAAP net loss of ($30.8) million, or ($0.61) per share, for the three
months ended June 30, 2011, compared to a non-GAAP net income of $13.0 million, or $0.28 per
diluted share, for the three months ended June 30, 2010. The decrease in non-GAAP net income was
driven primarily by a decrease in net income, partially offset by severance costs and losses on
purchase commitments.
Liquidity and Capital Resources
At June 30, 2011, we had cash, cash equivalents, marketable securities and restricted cash of
$166.2 million, compared to $245.5 million at March 31, 2011, a decrease of $79.3 million. Our
cash and cash equivalents, marketable securities and restricted cash are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2011 |
|
Cash and cash equivalents |
|
$ |
130,885 |
|
|
$ |
123,783 |
|
Marketable securities |
|
|
25,894 |
|
|
|
116,126 |
|
Restricted cash |
|
|
9,373 |
|
|
|
5,566 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents, marketable securities and restricted cash |
|
$ |
166,152 |
|
|
$ |
245,475 |
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011, net cash used in operating activities was $57.8
million compared to $18.5 million in the three months ended June 30, 2010. The increase in net cash
used in operations is due primarily to a decrease in net income of $46.8 million, partially offset
by a decrease in cash used for working capital of $8.1 million
For the three months ended June 30, 2011, net cash provided by investing activities was $59.8
million compared to net cash used in investing activities of less than $0.1 million in the three
months ended June 30, 2010. The increase in net cash provided by investing activities for the three
months ended June 30, 2011 was driven primarily by an increase in net maturities and sales of
marketable securities of $81.7 million and a decrease in capital expenditures of $3.7 million,
partially offset by the $20.6 million advance payment to The Switch, an increase in restricted cash
of $4.0 million and an increase in purchased minority investments of $1.8 million.
For the three months ended June 30, 2011, net cash provided by financing activities was $4.4
million compared to $0.6 million in the three months ended June 30, 2010. The increase in net cash
provided by financing activities is primarily due to net borrowings on lines credit of $4.6
million, partially offset by payments in lieu of issuance of common stock for payroll taxes of $0.3
in the three months ended June 30, 2011.
28
As of June 30, 2011, we had nine performance bonds on behalf of AMSC Windtec and our
wholly-owned Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd (AMSC China), in support of
customer contracts to guarantee supply of core components and software. The total value of the
outstanding performance bonds is $2.3 million with various expiration dates through March 2014. In
the event that the payment is made in accordance with the requirements of any of these performance
bonds, we would record the payment as an offset to revenue.
At June 30, 2011 and March 31, 2011, we had $6.5 million and $5.6 million, respectively, of
restricted cash included in current assets. At June 30, 2011, we had $2.9 million of restricted
cash included in long term assets with various expiration dates through March 2014. These amounts
included in restricted cash represent deposits to secure letters of credit for various supply
contracts. These deposits are held in an interest bearing account. We had an additional $2.5
million in unsecured letters of credit, at June 30, 2011 and March 31, 2011, also in support of
various supply contracts.
We had unused, unsecured lines of credit consisting of RMB 114.8 million (approximately $17.8
million) in China and 1.6 million (approximately $2.3 million) in Austria as of June 30, 2011. In
July 2011, the Bank of China informed us that our unsecured credit line of approximately RMB 100.0
million (approximately $15.5 million), which expired in August 2011, would not be renewed. As of
June 30, 2011, we had net borrowings on lines of credit outstanding of $4.6 million.
At June 30, 2011, we had cash, cash equivalents, marketable securities and restricted cash of
$166.2 million. Our business plan anticipates a substantial decline in revenues and a substantial
use of cash from operations in our fiscal year ending March 31, 2012, particularly in light of the
difficult and uncertain current economic environment, the significant restructuring actions
undertaken and the uncertainty surrounding Sinovel and certain of our other customers in China. Our
plan includes a significant restructuring undertaken in August 2011, resulting in the elimination
of approximately 150 positions worldwide. Since April 1, 2011, we have eliminated approximately
30% of our workforce and we expect to save approximately $30 million annually as a result of these
reductions. Additional actions include further monitoring of our operating results against
expectations and, if required, further reducing operating costs and capital spending if events
warrant in order to enhance liquidity. Due to the disruption in our relationship with Sinovel, we
will need to raise additional capital in order to complete the planned acquisition of The Switch in
order to leave sufficient cash to fund our working capital, capital expenditures and other cash
requirements. We may seek this financing through public or private equity offerings, debt
financings, or other financing alternatives, however, there can be no assurance that financing will
be available on acceptable terms or at all. If we fail to raise sufficient additional funds and
terminate the purchase agreement for the acquisition of The Switch, we will likely forfeit the
$20.6 million cash advance payment we paid to the shareholders of The Switch on June 29, 2011. In
the event that we do not receive any additional payments from Sinovel and we neither complete the
planned acquisition of The Switch, nor raise additional capital, we believe that our available
cash, together with additional reductions in operating costs and capital expenditures as necessary
will be sufficient to fund our operations, capital expenditures and other cash requirements through
at least March 31 2012. Our long-term liquidity is dependent on our ability to profitably grow our
revenues or raise additional capital as required.
Between April 6, 2011 and April 29, 2011, six putative securities class action complaints were
filed against us and two of our officers in the United States District Court for the District of
Massachusetts. On May 12, 2011, an additional complaint was filed against us, our officers and
directors, and the underwriters who participated in our November 12, 2010 securities offering. On
June 7, 2011, the United States District Court for the District of Massachusetts consolidated these
actions under the caption Lenartz v. American Superconductor Corporation, et al. Docket No.
1:11-cv-10582-WGY. On June 16, 2011, the court appointed the law firm Robbins Geller Rudman & Dowd
LLP as Lead Counsel and the Plumbers and Pipefitters National Pension Fund as Lead Plaintiff.
On August 31, 2011, the Lead Plaintiff filed a consolidated amended complaint against us, our
officers and directors, and the underwriters who participated in our November 12, 2010 securities
offering, asserting claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as well as under sections 11,
12(a)(2) and 15 of the Securities Act of 1933. The complaint alleges that during the relevant
class period, we and our officers omitted to state material facts and made materially false and
misleading statements relating to, among other things, our projected and recognized revenues and
earnings, as well as our relationship with Sinovel Wind Group Co., Ltd. that artificially inflated
the value of our stock price. The complaint further alleges that our November 12, 2010 securities
offering contained untrue statements of material facts and omitted to state material facts required
to be stated therein. The plaintiffs seek unspecified damages, rescindment of our November 12, 2010
securities offering, and an award of costs and expenses, including attorneys fees.
On April 27, 2011, a putative shareholder derivative complaint was filed against us (as a
nominal defendant) and each of our current directors in Superior Court for the Commonwealth of
Massachusetts, Worcester County. The case is captioned Segel v. Yurek, et al., Docket No. 11-0787.
Between May 4, 2011 and June 17, 2011, four additional putative shareholder derivative complaints
were filed in the United States District Court for the District of Massachusetts against us and
certain of our directors and officers. The cases are captioned Weakley v. Yurek, et al., Docket
No. 1:11-cv-10784; Marlborough Family
29
Revocable Trust v. Yurek, et al., Docket No. 1:11-cv-10825; Connors v. Yurek, et al., Docket
No. 1:11-cv-10910; and Hurd v. Yurek, et al., Docket No. 1:11-cv-11102. On June 1, 2011, the
plaintiff in Marlborough Family Revocable Trust v. Yurek, et al. moved to voluntarily dismiss its
complaint and refiled its complaint in Superior Court for the Commonwealth of Massachusetts,
Middlesex County, on June 3, 2011. The case is now captioned Marlborough Family Revocable Trust v.
Yurek, et al., Docket No. 11-1961. The Superior Court in Worcester County granted the plaintiffs
motion to transfer in Segel v. Yurek et al. to the Superior Court for the Commonwealth of
Massachusetts, Middlesex County on June 23, 2011, and that matter is now captioned Segel v. Yurek
et al., Docket No. 11-2269. On July 5, 2011, the Weakley, Connors and Hurd actions were
consolidated in United States District Court for the District of Massachusetts. That matter is
now captioned In re American Superconductor Corporation Derivative Litigation, Docket No.
1:11-cv-10784. On June 1, 2011, the plaintiff in Marlborough Family Revocable Trust v. Yurek, et
al. moved to voluntarily dismiss its complaint and, on June 3, 2011, refiled its complaint in
Superior Court for the Commonwealth of Massachusetts, Middlesex County. The Superior Court in
Worcester County granted the plaintiffs motion to transfer in Segel v. Yurek et al. to the
Superior Court for the Commonwealth of Massachusetts, Middlesex County on June 23, 2011. On
September 7, 2011, the Marlborough and Segel actions were consolidated in Superior Court for the
Commonwealth of Massachusetts, Middlesex County. The case is now captioned Marlborough Family
Revocable Trust v. Yurek, et al., Docket No. 11-1961. The allegations of the derivative complaints
mirror the allegations made in the putative class action complaints described above. The
plaintiffs purport to assert claims against the director defendants for breach of fiduciary duty,
abuse of control, gross mismanagement and corporate waste. The plaintiffs seek unspecified damages
on behalf of us, as well as an award of costs and expenses, including attorneys fees.
If a matter is both probable to result in liability and the amounts of loss can be reasonably
estimated, we estimate and disclose the possible loss or range of loss. With respect to the above
referenced litigation matters, such an estimate cannot be made. There are numerous factors that
make it difficult to meaningfully estimate possible loss or range of loss at this stage of these
litigation matters, including that: the proceedings are in relatively early stages, there are
significant factual and legal issues to be resolved, information obtained or rulings made during
the lawsuits could affect the methodology for calculation of rescission and the related statutory
interest rate. In addition, with respect to claims where damages are the requested relief, no
amount of loss or damages has been specified. Therefore, we are unable at this time to estimate
possible losses. We believe that these litigations are without merit, and we intend to defend
these actions vigorously.
On September 13, 2011, we commenced a series of legal actions in China against Sinovel Wind
Group Co. Ltd. (Sinovel). Our Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd. (AMSC
China), filed a claim for arbitration with the Beijing Arbitration Commission in accordance with
the terms of our supply contracts with Sinovel. On March 31, 2011, Sinovel refused to accept
contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and
spare parts that we were prepared to deliver. We allege that these actions constitute material
breaches of our contracts because Sinovel did not give us notice that it intended to delay
deliveries as required under the contracts. Moreover, we allege that Sinovel has refused to pay
past due amounts for prior shipments of core electrical components and spare parts. We are seeking
compensation for past product shipments (including interest) and monetary damages due to Sinovels
breaches of our contracts. We are also seeking specific performance of our existing contracts as
well as reimbursement of all costs and reasonable expenses with respect to the arbitration.
We also submitted a civil action application to the Beijing No. 1 Intermediate Peoples Court
against Sinovel for software copyright infringement. The application alleges Sinovels
unauthorized use of portions of our wind turbine control software source code developed for
Sinovels 1.5MW wind turbines and the binary code, or upper layer, of our software for the PM3000
power converters in 1.5MW wind turbines. In July 2011, a former employee of our AMSC Windtec GmbH
subsidiary was arrested in Austria and is currently awaiting trial on charges of economic espionage
and fraudulent manipulation of data. As a result of our internal investigation and a criminal
investigation conducted by Austrian authorities, we believe that this former employee was
contracted by Sinovel through an intermediary while employed by us and improperly obtained and
transferred to Sinovel portions of our wind turbine control software source code developed for
Sinovels 1.5MW wind turbines. Moreover, we believe the former employee illegally used source code
to develop for Sinovel a software modification to circumvent the encryption and remove technical
protection measures on the PM3000 power converters in 1.5MW wind turbines in the field. We are
seeking a cease and desist order with respect to the unauthorized copying, installation and use of
our software, monetary damages for our economic losses and reimbursement of all costs and
reasonable expenses. The court must accept the application in order for the case to proceed, and
there can be no assurance that the court will do so.
We submitted a civil action application to the Beijing Higher Peoples Court against Sinovel
and certain of its employees for trade secret infringement. The application alleges the
defendants unauthorized use of portions of our wind turbine control software source code developed
for Sinovels 1.5MW wind turbines as described above with respect to the
30
Copyright Action. We are seeking monetary damages for the trade secret infringement as well as
reimbursement of all costs and reasonable expenses. The court must accept the application in order
for the case to proceed, and there can be no assurance that the court will do so.
On September 16, 2011, AMSC China filed a civil copyright infringement complaint in the Hainan
Province No. 1 Intermediate Peoples Court against Dalian Guotong Electric Co. Ltd. (Guotong), a
supplier of power converter products to Sinovel, and Huaneng Hainan Power, Inc., a wind farm
operator that has purchased Sinovel wind turbines containing Goutong power converter products. The
application alleges that our PM1000 converters in certain Sinovel wind turbines have been replaced
by converters produced by Guotong. Because the Guotong converters are being used in wind turbines
containing our wind turbine control software, we believe that our copyrighted software is being
infringed. We are seeking a cease and desist order with respect to the unauthorized use of our
software, monetary damages for our economic losses (with respect to Guotong only) and reimbursement
of all costs and reasonable expenses.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules, such as
relationships with unconsolidated entities or financial partnerships, which are often referred to
as structured finance or special purpose entities, established for the purpose of facilitating
transactions that are not required to be reflected on our balance sheet except as discussed below.
We occasionally enter into construction contracts that include a performance bond. As these
contracts progress, we continually assess the probability of a payout from the performance bond.
Should we determine that such a payout is probable, we would record a liability.
In addition, the Company has various contractual arrangements in which minimum quantities of
goods or services have been committed to be purchased on an annual basis.
Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13,
Multiple-Deliverable Revenue Arrangements, pertaining to the accounting for revenue arrangements
with multiple deliverables. Specifically, the new standard requires an entity to allocate
consideration at the inception of an arrangement to all of its deliverables based on their relative
selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of
the selling prices, consideration must be allocated to the deliverables based on managements best
estimate of the selling prices. In addition, the new standard eliminates the use of the residual
method of allocation. The new accounting standard supersedes the prior multiple element revenue
arrangement accounting rules that were previously used by us. We adopted this new accounting
standard on April 1, 2010 using the prospective method and the adoption did not have a material
impact on our consolidated financial statements.
In January 2010, we adopted Accounting Standards Update (ASU) No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This
standard amends the disclosure guidance with respect to fair value measurements for both interim
and annual reporting periods. Specifically, this standard requires new disclosures for significant
transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy;
separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on
a gross, rather than net basis; and more robust disclosure of the valuation techniques and inputs
used to measure Level 2 and Level 3 assets and liabilities. We have included these new disclosures,
as applicable, in Note 3, Marketable Securities and Fair Value Disclosures, of our consolidated
financial statements.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805), Disclosure of Supplementary Pro forma Information for Business
Combinations a consensus of the FASB Emerging Issues Task Force (ASC 2010-29). This amendment
clarifies the periods for which pro forma financial information is presented. The disclosures
include pro forma revenue and earnings of the combined entity for the current reporting period as
though the acquisition date for all business combinations that occurred during the year had been as
of the beginning of the annual reporting period. If comparative financial statements are presented,
the pro forma revenue and earnings of the combined entity for the comparable prior reporting period
should be reported as though the acquisition date for all business combinations that occurred
during the current year had been as of the beginning of the comparable prior annual reporting
period. ASU 2010-29 is effective prospectively for business combinations that occur on or after
the beginning of the first annual reporting period beginning after December 15, 2010. We do not
expect the adoption of ASU 2011-04 to have a material impact on our consolidated results of
operations, financial condition, or cash flows.
31
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 requires entities to present
net income and other comprehensive income in either a single continuous statement or in two
separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is
effective for fiscal years and interim periods beginning after December 15, 2011. We do not expect
the adoption of ASU 2011-04 to have a material impact on our consolidated results of operations,
financial condition, or cash flows.
32
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We face exposure to financial market risks, including adverse movements in foreign currency
exchange rates and changes in interest rates. These exposures may change over time as our business
practices evolve and could have a material adverse impact on our financial results.
Primary market risk
Our exposure to market risk through financial instruments, such as investments in marketable
securities, is limited to interest rate risk and is not material. Our investments in marketable
securities consist primarily of government-backed securities and commercial paper and are designed,
in order of priority, to preserve principal, provide liquidity, and maximize income. Investments
are monitored to limit exposure to mortgage-backed securities and similar instruments responsible
for the recent turmoil in the credit markets. Interest rates are variable and fluctuate with
current market conditions. We do not believe that a 10% change in interest rates would have a
material impact on our financial position or results of operations.
Foreign currency exchange risk
The functional currency of each of our foreign subsidiaries is the U.S. dollar, except for
AMSC Windtec, for which the local currency (Euro) is the functional currency, and AMSC China, for
which the local currency (Renminbi) is the functional currency. The assets and liabilities of AMSC
Windtec and AMSC China, are translated into U.S. dollars at the exchange rate in effect at the
balance sheet date and income and expense items are translated at average rates for the period.
Cumulative translation adjustments are excluded from net income (loss) and shown as a separate
component of stockholders equity.
We face exposure to movements in foreign currency exchange rates whenever we, or any of our
subsidiaries, enter into transactions with third parties that are denominated in currencies other
than our functional currency. Intercompany transactions between entities that use different
functional currencies also expose us to foreign currency risk. Gross margins of products we
manufacture in the U.S and sell in currencies other than the U.S. dollar are also affected by
foreign currency exchange rate movements. In addition, a portion of our earnings is generated by
our foreign subsidiaries, whose functional currencies are other than the U.S. dollar, and our
revenues and earnings could be materially impacted by movements in foreign currency exchange rates
upon the translation of the earnings of such subsidiaries into the U.S. dollar.
Foreign currency transaction gains included in net (loss) income were $1.2 million and $0.3
million for the three months ended June 30, 2011 and 2010, respectively.
33
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Overview
Our management previously identified material weaknesses in internal control over financial
reporting related to revenues and accounts receivable balances as fees were not fixed or
determinable or collectability was not reasonably assured at the time revenue was recognized, which
is described in our Annual Report on Form 10-K for the year ended March 31, 2011. During fiscal
2011 through the date of this filing, management has been focused on remediating these material
weaknesses. The remediation process is ongoing but it is not yet complete. There was no change in
internal control over financial reporting during the quarter ended June 30, 2011 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. The following discussion sets forth a summary of managements evaluation of
our disclosure controls and procedures as of June 30, 2011.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2011.
The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were not effective as of June 30, 2011 because of the previously
identified material weaknesses in internal control over financial reporting discussed below.
Notwithstanding the material weaknesses described below, management believes that the
unaudited condensed consolidated financial statements included in this Quarterly Report on Form
10-Q fairly present, in all material respects, our financial condition, results of operations and
cash flows for the periods presented in conformity with accounting principles generally accepted in
the United States (GAAP).
This section of Item 4, Controls and Procedures, should be read in conjunction with Item 9A.
Controls and Procedures, included in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2011.
Material Weaknesses
As of June 30, 2011, the unremediated material weaknesses were as follows:
|
|
|
we did not maintain adequately designed controls to ensure accurate recognition of
revenue in accordance with GAAP. Specifically, controls were not effective to ensure
that deviations from contractually established payment terms were identified,
communicated and authorized; |
|
|
|
we did not maintain adequate controls to ensure proper monitoring and evaluation of
customer creditworthiness, including the collectability of amounts due from customers
and appropriate revenue recognition; |
|
|
|
we did not maintain a sufficient complement of personnel involved with business in
our foreign locations with the appropriate level of knowledge, experience and training
in the application of GAAP to ensure revenue transactions were appropriately reflected
in the financial statements based on the terms and conditions of the sales contracts;
and |
|
|
|
we did not establish and maintain, procedures to ensure proper oversight and
review, by senior management, of customer relationships to ensure appropriate
communication of relevant considerations to determine accounting judgments with
respect to revenue recognition. |
34
Remediation of Material Weaknesses
|
|
We are in the process of remediating the above material weaknesses through the following
initiatives: |
|
|
|
establishing formal, written policies and procedures governing the customer credit
process; |
|
|
|
improving procedures to ensure the proper review and documentation of customer
creditworthiness; |
|
|
|
establishing a new worldwide revenue manager position in finance with GAAP
experience to ensure accuracy of revenue recognition; |
|
|
|
improving procedures to ensure the proper communication, approval and accounting
review of deviations from sales contracts; |
|
|
|
providing additional and on-going training to product managers and others involved
in negotiating contractual arrangements and accounting for revenue transactions, in
order to heighten awareness of revenue recognition concepts under GAAP; and |
|
|
|
improving the internal communication process for senior management. During monthly
operations reviews time will be devoted to senior management review of pending
operational and accounting issues for the current quarter. |
Management is committed to a strong internal control environment and believes that, when fully
implemented and tested, the measures described above will improve our internal control over
financial reporting. We will continue to assess the effectiveness of our remediation efforts in
connection with our future assessments of the effectiveness of internal control over financial
reporting.
Changes in Internal Control over Financial Reporting
Except as discussed above, there were no changes in our internal control over financial
reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
35
PART IIOTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
Between April 6, 2011 and April 29, 2011, six putative securities class action complaints were
filed against us and two of our officers in the United States District Court for the District of
Massachusetts. On May 12, 2011, an additional complaint was filed against us, our officers and
directors, and the underwriters who participated in our November 12, 2010 securities offering. On
June 7, 2011, the United States District Court for the District of Massachusetts consolidated these
actions under the caption Lenartz v. American Superconductor Corporation, et al. Docket No.
1:11-cv-10582-WGY. On June 16, 2011, the court appointed the law firm Robbins Geller Rudman & Dowd
LLP as Lead Counsel and the Plumbers and Pipefitters National Pension Fund as Lead Plaintiff.
On August 31, 2011, the Lead Plaintiff filed a consolidated amended complaint against us, our
officers and directors, and the underwriters who participated in our November 12, 2010 securities
offering, asserting claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as well as under sections 11,
12(a)(2) and 15 of the Securities Act of 1933. The complaint alleges that during the relevant
class period, we and our officers omitted to state material facts and made materially false and
misleading statements relating to, among other things, our projected and recognized revenues and
earnings, as well as our relationship with Sinovel Wind Group Co., Ltd. that artificially inflated
the value of our stock price. The complaint further alleges that our November 12, 2010 securities
offering contained untrue statements of material facts and omitted to state material facts required
to be stated therein. The plaintiffs seek unspecified damages, rescindment of our November 12, 2010
securities offering, and an award of costs and expenses, including attorneys fees.
On April 27, 2011, a putative shareholder derivative complaint was filed against us (as a
nominal defendant) and each of our current directors in Superior Court for the Commonwealth of
Massachusetts, Worcester County. The case is captioned Segel v. Yurek, et al., Docket No. 11-0787.
Between May 4, 2011 and June 17, 2011, four additional putative shareholder derivative complaints
were filed in the United States District Court for the District of Massachusetts against us and
certain of our directors and officers. The cases are captioned Weakley v. Yurek, et al., Docket
No. 1:11-cv-10784; Marlborough Family Revocable Trust v. Yurek, et al., Docket No. 1:11-cv-10825;
Connors v. Yurek, et al., Docket No. 1:11-cv-10910; and Hurd v. Yurek, et al., Docket No.
1:11-cv-11102. On June 1, 2011, the plaintiff in Marlborough Family Revocable Trust v. Yurek, et
al. moved to voluntarily dismiss its complaint and refiled its complaint in Superior Court for the
Commonwealth of Massachusetts, Middlesex County, on June 3, 2011. The case is now captioned
Marlborough Family Revocable Trust v. Yurek, et al., Docket No. 11-1961. The Superior Court in
Worcester County granted the plaintiffs motion to transfer in Segel v. Yurek et al. to the
Superior Court for the Commonwealth of Massachusetts, Middlesex County on June 23, 2011, and that
matter is now captioned Segel v. Yurek et al., Docket No. 11-2269. On July 5, 2011, the Weakley,
Connors and Hurd actions were consolidated in United States District Court for the District of
Massachusetts. That matter is now captioned In re American Superconductor Corporation Derivative
Litigation, Docket No. 1:11-cv-10784. On June 1, 2011, the plaintiff in Marlborough Family
Revocable Trust v. Yurek, et al. moved to voluntarily dismiss its complaint and, on June 3, 2011,
refiled its complaint in Superior Court for the Commonwealth of Massachusetts, Middlesex County.
The Superior Court in Worcester County granted the plaintiffs motion to transfer in Segel v. Yurek
et al. to the Superior Court for the Commonwealth of Massachusetts, Middlesex County on June 23,
2011. On September 7, 2011, the Marlborough and Segel actions were consolidated in Superior Court
for the Commonwealth of Massachusetts, Middlesex County. The case is now captioned Marlborough
Family Revocable Trust v. Yurek, et al., Docket No. 11-1961. The allegations of the derivative
complaints mirror the allegations made in the putative class action complaints described above.
The plaintiffs purport to assert claims against the director defendants for breach of fiduciary
duty, abuse of control, gross mismanagement and corporate waste. The plaintiffs seek unspecified
damages on behalf of us, as well as an award of costs and expenses, including attorneys fees.
If a matter is both probable to result in liability and the amounts of loss can be reasonably
estimated, we estimate and disclose the possible loss or range of loss. With respect to the above
referenced litigation matters, such an estimate cannot be made. There are numerous factors that
make it difficult to meaningfully estimate possible loss or range of loss at this stage of these
litigation matters, including that: the proceedings are in relatively early stages, there are
significant factual and legal issues to be resolved, information obtained or rulings made during
the lawsuits could affect the methodology for calculation of rescission and the related statutory
interest rate. In addition, with respect to claims where damages are the requested relief, no
amount of loss or damages has been specified. Therefore, we are unable at this time to estimate
possible losses. We believe that these litigations are without merit, and we intend to defend
these actions vigorously.
36
On September 13, 2011, we commenced a series of legal actions in China against Sinovel Wind
Group Co. Ltd. (Sinovel). Our Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd. (AMSC China),
filed a claim for arbitration with the Beijing Arbitration Commission in accordance with the terms
of our supply contracts with Sinovel. On March 31, 2011, Sinovel refused to accept contracted
shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts
that we were prepared to deliver. We allege that these actions constitute material breaches of our
contracts because Sinovel did not give us notice that it intended to delay deliveries as required
under the contracts. Moreover, we allege that Sinovel has refused to pay past due amounts for prior
shipments of core electrical components and spare parts. We are seeking compensation for past
product shipments (including interest) and monetary damages due to Sinovels breaches of our
contracts. We are also seeking specific performance of our existing contracts as well as
reimbursement of all costs and reasonable expenses with respect to the arbitration.
We also submitted a civil action application to the Beijing No. 1 Intermediate Peoples Court
against Sinovel for software copyright infringement. The application alleges Sinovels
unauthorized use of portions of our wind turbine control software source code developed for
Sinovels 1.5MW wind turbines and the binary code, or upper layer, of our software for the PM3000
power converters in 1.5MW wind turbines. In July 2011, a former employee of our AMSC Windtec GmbH
subsidiary was arrested in Austria and is currently awaiting trial on charges of economic espionage
and fraudulent manipulation of data. As a result of our internal investigation and a criminal
investigation conducted by Austrian authorities, we believe that this former employee was
contracted by Sinovel through an intermediary while employed by us and improperly obtained and
transferred to Sinovel portions of our wind turbine control software source code developed for
Sinovels 1.5MW wind turbines. Moreover, we believe the former employee illegally used source code
to develop for Sinovel a software modification to circumvent the encryption and remove technical
protection measures on the PM3000 power converters in 1.5MW wind turbines in the field. We are
seeking a cease and desist order with respect to the unauthorized copying, installation and use of
our software, monetary damages for our economic losses and reimbursement of all costs and
reasonable expenses. The court must accept the application in order for the case to proceed, and
there can be no assurance that the court will do so.
We submitted a civil action application to the Beijing Higher Peoples Court against Sinovel
and certain of its employees for trade secret infringement. The application alleges the
defendants unauthorized use of portions of our wind turbine control software source code developed
for Sinovels 1.5MW wind turbines as described above with respect to the Copyright Action. We are
seeking monetary damages for the trade secret infringement as well as reimbursement of all costs
and reasonable expenses. The court must accept the application in order for the case to proceed,
and there can be no assurance that the court will do so.
On September 16, 2011, AMSC China filed a civil copyright infringement complaint in the Hainan
Province No. 1 Intermediate Peoples Court against Dalian Guotong Electric Co. Ltd. (Guotong), a
supplier of power converter products to Sinovel, and Huaneng Hainan Power, Inc., a wind farm
operator that has purchased Sinovel wind turbines containing Goutong power converter products. The
application alleges that our PM1000 converters in certain Sinovel wind turbines have been replaced
by converters produced by Guotong. Because the Guotong converters are being used in wind turbines
containing our wind turbine control software, we believe that our copyrighted software is being
infringed. We are seeking a cease and desist order with respect to the unauthorized use of our
software, monetary damages for our economic losses (with respect to Guotong only) and reimbursement
of all costs and reasonable expenses.
Investing in our common stock involves a high degree of risk. In addition to the other
information set forth in this Quarterly Report on Form 10-Q, you should carefully consider factors
discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
March 31, 2011, which could materially affect our business, financial condition or future results.
To the best of our knowledge, as of the date of this report there has been no material change in
any risk factors described in our Annual Report on Form 10-K.
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ITEM 2 |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
In May 2011, in connection with the vesting of certain restricted stock awards issued to
certain executive officers of the Company, these employees paid withholding taxes due by returning
23,861 shares valued at $0.3 million. The Company has recorded these shares as treasury stock as of
June 30, 2011.
37
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits
filed as part of this quarterly report, which Exhibit Index is incorporated herein by this
reference.
38
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AMERICAN SUPERCONDUCTOR CORPORATION
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Date: September 23, 2011 |
By: |
/s/ David A. Henry
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David A. Henry |
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Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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39
EXHIBIT INDEX
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Exhibit No. |
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Description |
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10.1
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Retirement and Services Agreement, dated as of May 23, 2011, between the Registrant and Gregory J. Yurek (1) |
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10.2
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Amended and Restated Executive Severance Agreement, dated as of May 24, 2011, between the Registrant and Daniel P. McGahn (2) |
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10.3
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Letter Agreement, dated as of June 7, 2011, between the Registrant and The Switch Engineering Oy (3) |
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10.4
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Amendment Agreement, dated June 29, 2011, by and among the Registrant and the shareholders of The Switch Engineering Oy (4) |
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31.1
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Chief Executive OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Chief Financial OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1
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Chief Executive OfficerCertification pursuant to Rule13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2
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Chief Financial OfficerCertification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS
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XBRL Instance Document.** |
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101.SCH
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XBRL Taxonomy Extension Schema Document.** |
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101.CAL
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XBRL Taxonomy Calculation Linkbase Document.** |
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101.LAB
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XBRL Taxonomy Label Linkbase Document.** |
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101.PRE
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XBRL Taxonomy Presentation Linkbase Document.** |
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101.DEF
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XBRL Taxonomy Definition Linkbase Document.** |
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(1) |
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Incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed with the Commission on May 24,
2011 (Commission file No. 000-19672). |
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(2) |
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Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed with the Commission on May 24,
2011 (Commission file No. 000-19672). |
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(3) |
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Incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed with the Commission on June 13,
2011 (Commission file No. 000-19672). |
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(4) |
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Incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed with the Commission on June 30,
2011 (Commission file No. 000-19672). |
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** |
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submitted electronically herewith |
Attached as Exhibits 101 to this report are the following formatted in XBRL (Extensible Business
Reporting Language): (i) Condensed Consolidated Statements of Income for the three months ended
June 30, 2011 and 2010, (ii) Condensed Consolidated Balance Sheets as of June 30, 2011 and March
31, 2011, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income for the three
months ended June 30, 2011 and 2010, (iv) Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 2011 and 2010, and (v) Notes to Condensed Consolidated Financial
Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this
Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus
for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed
for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not
subject to liability under these sections.
40