e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended March 31,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission file number
000-19672
American Superconductor
Corporation
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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04-2959321
(IRS Employer
Identification Number)
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Sixty Four Jackson Road
Devens, Massachusetts
(Address of Principal
Executive Offices)
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01434
(Zip
Code)
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Registrants telephone number, including area code:
(978) 842-3000
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, $0.01 par value, NASDAQ Global Market
LLC
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 232.405) is not contained herein, and will not be
contained, to the best of the Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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. (Check one):
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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)
Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants Common Stock
held by non-affiliates of the registrant on September 30,
2009, based on the closing price of the shares of Common Stock
on the Nasdaq Global Market on that date ($33.54 per share) was
$1,456.4 million.
Number of shares outstanding of the registrants Common
Stock, as of May 21, 2010 was 44,851,804.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Form 10-K Part
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Definitive Proxy Statement with respect to the Annual Meeting of
Stockholders for the fiscal year ended March 31, 2010, to
be filed with the Securities and Exchange Commission no later
than July 29, 2010
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Part III
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TABLE OF
CONTENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended. For this purpose, any statements contained herein that
relate to future events or conditions, including without
limitation, the statements under Item 1.
Business, Item 1A. Risk Factors and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and located
elsewhere herein regarding industry prospects and the
Companys 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. The important factors discussed below under the
caption Risk Factors in Item 1A, 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 Annual Report on
Form 10-K.
While the Company may elect to update such forward-looking
statements at some point in the future, it disclaims any
obligation to do so, even if subsequent events cause its views
to change. These forward-looking statements should not be relied
upon as representing the Companys views as of any date
subsequent to the date of this Annual Report on
Form 10-K.
PART I
Overview
We are a leading power technologies company, offering an array
of proprietary technologies and solutions spanning the electric
power infrastructure from generation to delivery to
end use. Our company is a leader in renewable energy, providing
proven, megawatt-scale wind turbine designs and electrical
control systems. We also offer a host of Smart Grid technologies
for power grid operators that enhance the reliability,
efficiency and capacity of the grid, and seamlessly integrate
renewable energy sources into the power infrastructure. These
technologies include superconductor power cable systems,
grid-level surge protectors and power electronics-based voltage
stabilization systems.
Our company manufactures two proprietary base products:
programmable power electronic converters and high temperature
superconductor (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. Our companys growth is
being driven by an increasing demand for clean and renewable
sources of electricity, such as wind energy, and the demand for
modernized, smart grids. These factors include
increasing electricity usage, power grid capacity constraints,
fossil fuel price volatility, and harmful levels of pollution
and greenhouse gases. In addition, our growing digital-based
economy demands better power reliability and quality. Concerns
about these factors have led to increased spending by
corporations and supportive government regulations and
initiatives on local, state, national and global levels,
including renewable portfolio standards, tax incentives and
international treaties.
We conduct our operations through two business units:
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AMSC Power Systems. AMSC Power Systems
(Power Systems) produces a broad range of products
to increase electrical grid capacity and reliability; provides
full electrical control systems or a subset of those systems
(core electrical components) to manufacturers of wind turbines;
sells power electronic products that regulate wind farm voltage
to enable their interconnection to the power grid; licenses
proprietary wind turbine designs to manufacturers of such
systems; provides consulting services to the wind industry; and
offers products that enhance power quality for industrial
operations.
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AMSC Superconductors. AMSC Superconductors
(Superconductors) designs and develops
superconductor products, such as power cables, fault current
limiters, generators, motors and degaussing systems; manages
large-scale superconductor projects; and manufactures HTS wire
and coils.
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Our fiscal year begins on April 1 and ends on March 31.
When we refer to a particular fiscal year, we are referring to
the fiscal year ending on March 31 of the following year. For
example, fiscal 2009 refers to the fiscal year ended
March 31, 2010. Likewise, fiscal 2008 began on
April 1, 2008 and concluded on March 31, 2009. Other
fiscal years follow similarly.
Competitive
Strengths
Our competitive strengths position us well to execute on our
growth plans in the markets we serve.
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Technology Leadership and Engineering
Expertise. We are a technology leader in the
development of power electronics and HTS wire-based solutions
for the wind energy and power grid markets. As of March 31,
2010, we owned more than 550 patents and patent applications
worldwide, and had rights through exclusive and non-exclusive
licenses to more than 425 additional patents and patent
applications. Our technology and manufacturing know-how,
customer and product knowledge and patent portfolio provide us
with a strong competitive position. We employ more than
20 years of development expertise toward the design and
commercialization of new products and solutions and toward the
implementation of proprietary manufacturing processes.
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Sophisticated, Flexible Product Design. Our
products are highly flexible, and their sophisticated design
allows for a high degree of customization. These products
leverage our proprietary software and hardware
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combinations that enable us to configure our power converters to
efficiently and quickly meet the specific requirements of
customers in a diverse range of markets. Furthermore, our
proprietary HTS wire design and product engineering capabilities
enable products with superior performance when compared to other
market alternatives. Our wire design, for instance, allows us to
tailor the lamination of our HTS wire to meet the electrical and
mechanical performance requirements of widely varying end-use
applications.
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Highly Scalable, Low Cost Manufacturing
Platform. Production of our proprietary power
electronics and superconductor products can be increased rapidly
at costs that we believe are low relative to our competitors.
For instance, over the course of the past three fiscal years, we
have increased our production of PowerModule power converters
from several hundred units to several thousand units annually to
meet the demand of our wind turbine manufacturing customers. Our
proprietary manufacturing technique for
344 superconductors, which is our brand name for what is
generically known as second generation (2G) HTS wire, is modular
in nature, which we believe will allow us to readily expand
manufacturing capacity at a relatively low incremental cost. All
of the equipment we have installed for the 344 superconductors
manufacturing line is designed with the capability to process
either 40 millimeter (mm) or 100 mm wide strips, which will
allow us to increase gross capacity by 2.5 times as we migrate
from 40 mm to 100 mm production. We believe our capacity
expansion on this manufacturing line will eventually enable us
to manufacture this wire at approximately one-fifth the cost of
our first generation (1G) HTS wire, which we no longer
manufacture.
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Close Consultative Relationships with
Customers. We have built a team of skilled
engineers with extensive experience in the design, structure and
modeling of power transmission and distribution grids and in the
operation of wind farms and industrial sites. We work closely
with our customers to understand their needs and develop
solutions to their unique operational challenges. By determining
solutions, our team is able to identify applications for our
technology. We are then able to customize and target our
offerings to specific customers.
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Highly Experienced Management and Technical
Team. Our senior management has extensive power
technologies experience. This team is composed of veterans of
the electrical equipment, utility and wind power markets and is
backed by our 714 employees worldwide as of March 31,
2010, 24 of whom hold Ph.D.s in materials science, physics,
metallurgy, engineering or other fields.
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Strategy
Our strategy is to drive revenue growth and enhance operating
results by increasing adoption of our products.
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Target High-Growth Segments with Commercial
Products. We target high-growth segments of the
power and utility industry. Our Power Systems offerings are
designed to meet the needs of the wind energy market, which is
expected to nearly triple in size from 2009 to 2015, according
to a recent report from industry research firm MAKE Consulting.
Our HTS and power electronics grid-support solutions fill the
needs of capacity-constrained transmission assets globally and
address the demand for more reliable, secure and efficient
transmission and distribution assets. The Brattle Group has
reported that the U.S. transmission grid alone will require
an investment of more than $230 billion from 2010 to 2030
and that the U.S. distribution grid will require an
additional $675 billion of investment over this timeframe.
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Pursue Emerging Overseas Markets. We are
increasingly focusing our sales efforts on overseas markets and
have been partially successful in targeting business in emerging
economies, such as China, India and South Korea. We also have
built significant sales momentum in countries where dynamic
voltage standards for wind farms have been put in place, such as
Australia, Canada, New Zealand and the United Kingdom. In fiscal
2009, 87 percent of our revenues came from sales outside
the United States compared with 84 percent in fiscal 2008.
In support of this expansion, we maintain operations in Austria,
China, India, South Korea and the United States and sales and
service support centers worldwide.
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Anticipate Customer Needs in the Development of
System-Level Solutions. We develop close
working relationships with our customers that enable us to
provide customized solutions and identify opportunities to
employ our products. Our Network Solutions team collects and
analyzes data regarding our customers
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systems from entire power grids to wind farms to
manufacturing operations dependent on premium quality power. For
example, our Network Solutions team carries out dynamic
simulations for customers on the effects power grid disturbances
may have on grid reliability under all operating conditions.
They then can quantify how the incorporation of Flexible AC
Transmission Systems (FACTS), such as static Volt Amp Reactive
(VAR) compensators (SVCs) and dynamic VAR (Statcom) systems, and
advanced technologies, such as superconductor cables and fault
current limiters (FCLs), can improve power grid operations. The
group performs similar analyses to determine the optimum power
quality solutions for industrial manufacturing sites and wind
farms.
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Strengthen Our Technology Leadership While Lowering
Cost. We work continuously to strengthen our
leadership position in terms of reliability, cost and total
product offering. We interact with our customers and suppliers
not only to improve the performance and efficiency of our Power
Systems solutions, but also to reduce material and manufacturing
costs. In addition, we maintain a vigorous research and
development effort that continues to yield increases in
electrical and mechanical performance of our 344
superconductors, which has been demonstrated at levels that are
comparable to or better than our 1G HTS wire. We continue to
achieve productivity enhancements in our manufacturing of 344
superconductors, which we believe will eventually enable us to
manufacture this wire at approximately one-fifth the cost of our
1G HTS wire.
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Pursue Targeted Strategic Acquisitions and
Alliances. We will continue to pursue strategic
business relationships and acquisitions that complement our
product portfolio and increase our rate of growth. We have built
strategic alliances and close corporate relationships with many
industry leaders including LS Cable, Nexans, Shanghai
Electric Cable Research Institute (SECRI), Siemens, Southwire,
TECO-Westinghouse Motor Company and Vestas to develop and
commercialize our products and to bring them to market. We also
have been successful in closing key acquisitions, including
Windtec and Power Quality Systems, Inc. in calendar 2007. The
Windtec acquisition has provided increased access to the growing
wind market and has complemented sales of our dynamic VAR
(D-VAR) and PowerModule power electronics products in the wind
market. The Power Quality Systems acquisition enhanced our
reactive compensation product offerings for utility and
industrial customers.
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Market
Opportunities
Our products and services address two substantial global demands:
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the demand for cleaner, renewable sources of electricity, such
as wind power, and
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the demand for a modernized, smart power grid
infrastructure to alleviate capacity constraints and improve
reliability, security, stability and efficiency of electricity.
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Wind
Energy
The market for wind-generated, zero-emission electricity has
been growing dramatically for more than a decade. According to
the Global Wind Energy Council (GWEC), more than
38,000 megawatts (MW) of wind generation capacity was added
worldwide in calendar 2009, increasing the global installed base
by approximately 32 percent. Industry research firm MAKE
Consulting expects global wind power capacity to more than
triple from 2009 to 2015. This growth is being driven in part by
the substantial government incentives and mandates that have
been established on local, state and national levels.
Additionally, wind power costs have been declining rapidly.
According to the GWEC, A modern wind turbine annually
produces 180 times more electricity at less than half the cost
per unit (kWh) than its equivalent twenty years ago. At good
locations, wind can compete with the cost of both coal and
gas-fired power. According to GWEC, approximately
$63 billion was spent on new wind power globally in 2009.
We offer our wind power solutions globally with a primary focus
on emerging economies such as China and India.
Most of our wind-related revenues today are generated in China,
the worlds fastest growing wind power market. In China,
the National Development and Reform Commission is promoting wind
power concessions for large-scale commercial development. The
program encourages local authorities to invite both local and
international investors to develop 100 MW size wind farms
at specific sites. In 2009, new feed-in tariffs were introduced
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and new policies were put in place requiring grid companies to
purchase a fixed share of their power generation from renewable
energy sources in China. GWEC estimates the installed base of
wind generated electricity in China grew more than
100 percent for the fourth consecutive year in 2009 to
25,805 MW. The Chinese governments official target is
to reach 100,000 MW of wind power capacity by the end of
2020, but industry research firms such as MAKE Consulting and
Emerging Energy Research expect Chinas wind power capacity
will exceed 200,000 MW by 2020.
GWEC estimates that Indias installed base of wind
generated electricity increased approximately 13 percent in
2009 to 10,926 MW. The fiscal incentives provided by the
government to the wind energy sector in India include direct
taxes (80 percent depreciation in the first year of
installation of a project), a tax holiday for 10 years and
no income tax paid on power sales to utilities. The Ministry of
New and Renewable Energy has also issued guidelines to all state
governments to create an attractive environment for the export,
purchase, wheeling and banking of electricity generated by wind
power projects.
The United States had the worlds largest installed base of
wind power at the end of 2009 with 35,064 MW. While growth
in the U.S. market is expected to slow in 2010 due to the
global economic downturn, the U.S. government is promoting
more aggressive renewable energy initiatives and spending. A
production tax credit (PTC) is in place through the end of
calendar year 2012, providing a $0.021 per-kilowatt-hour tax
credit for electricity generated with wind turbines over the
first 10 years of a projects operations. In addition,
at least half of the states in the U.S. have already
adopted renewable portfolio standards (RPS) that require local
utilities to obtain a specified percentage of their electricity
from renewable energy sources.
In 2009, GWEC estimates that over 10,000 MW of wind
generated electricity was installed in the European Union.
Supporting the growth of the European wind market is strong
policy support at the EU and national levels. In January 2007,
the European Commission released a proposal intended to enable
Europe to produce 20 percent of its energy needs from
renewable sources by 2020. Various incentive programs have been
established in Europe, including feed-in tariffs, fixed
premiums, and green certificate systems, which are often
complemented by tax incentives or environmental taxes.
Our
Approach to the Wind Energy Market
We address the wind energy market by providing services and
designing, developing, manufacturing and selling critical
components.
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Electrical Control Systems. We provide full
electrical control systems or a subset of those systems (core
electrical components) to manufacturers of wind turbines. These
electrical control systems and core components incorporate our
PowerModule power electronic converters as well as pitch and yaw
controllers, SCADA systems, programmable logic controllers and
proprietary control software. These power electronics are
utilized to regulate voltage, control power flows and maximize
wind turbine efficiency, among other functions.
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Wind Turbine-based Grid Interconnection
Solutions. Our Dynamic VAR Ride Through (D-VAR
RT) product enables individual wind turbines to continue
operating smoothly by riding through voltage
disturbances on power grids that might otherwise interrupt their
operation. The D-VAR RT product meets the worlds most
stringent grid interconnection requirements, including
Spains new Procedimiento de Operación 12.3
requirement for both existing and new wind turbines.
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Development Contracts. Our AMSC Windtec
subsidiary designs and develops entire
state-of-the-art
wind turbines for manufacturers who are in the business of
producing wind turbines or who plan to enter the business of
manufacturing wind turbines. These customers typically pay us
for the development work and purchase from us the core
electrical components or complete electrical control systems
needed to operate the wind turbines.
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Licensed Designs. We license our proprietary
wind turbine designs to companies that wish to manufacture such
systems. Companies that license our designs typically pay us for
the designs, pay royalties for each system they install up to a
certain number of wind turbines produced or commissioned, and
purchase from us
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the core electrical components or complete electrical control
systems needed to operate the wind turbines once in production.
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Service Contracts. We offer service contracts
to our customers who purchase our core electrical components or
complete electrical control systems as well as our D-VAR RT
systems.
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Consulting Services. We offer consulting
services to customers who want to improve their wind turbine
designs.
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Our AMSC Windtec offerings are well-suited for the wind turbine
industry, which requires local manufacturing to meet increasing
worldwide demands for renewable energy. AMSC Windtec is
currently designing wind turbines for, or licensing wind
turbines to, more than a dozen manufacturers around the world.
Smart
Grid Infrastructure Market
Until the early part of this decade, the U.S. transmission
grid investment experienced a prolonged decline caused by
uncertainties regarding the ownership of and return on
transmission grid investments. This period of underinvestment
resulted in an increasing number of grid disturbances and
blackouts, including the Northeast Blackout of August 14,
2003, which was the largest such event in U.S. history,
affecting over 50 million people and costing up to an
estimated $6 billion in lost business for
U.S. companies. A study conducted by researchers at
Lawrence Berkeley National Laboratory found that electric power
outages and blackouts cost America approximately
$80 billion annually.
Events and statistics such as these have been pivotal in
prompting broad recognition worldwide of the need for concerted
action to modernize and enhance the security of power grids.
Renewable energy targets also are being implemented, which
require vast new power grid investments. In addition, an
increasing number of nations including China, South Korea and
the U.S. are promoting the adoption of new Smart Grid
technologies and programs to enhance grid capacity, efficiency
and reliability. This includes promoting the adoption of Smart
Grid infrastructure technologies that make the grid stronger,
more resilient, more responsive and more fail-safe.
As these expenditures are being considered, power grid operators
are increasingly confronting reliability issues arising from the
capacity limitations of transmission and distribution lines
(overhead) and cables (underground). Pushing too much power
through a line or cable will heat it up to its thermal
limit. At that point, more power flow through the line or
cable will cause it to fault (forced to be taken out of service)
or, in severe cases, fail. Thus, as demand for power increases,
it is necessary to upgrade existing transmission and
distribution corridors with additional or higher capacity lines
or cables.
Traditional transmission lines and cables often reach their
voltage stability limit well below their thermal
threshold. Driving more power through a power grid when some of
its lines and cables are operating above their voltage stability
limit at peak demand times causes either low voltage in the
power grid (a brownout) or risk of a sudden,
uncontrollable voltage collapse (a blackout). The
Northeast Blackout of 2003 in the U.S. was ascribed to a
voltage collapse owing to operation of the grid above its
voltage stability limit.
The traditional way to increase power grid capacity and voltage
stability is to install more overhead power lines and
underground cables. This allows for redundancy of power flow
pathways and allows power grid operators to safely run systems
closer to the thermal limits of the weakest links in the power
grid. However, as a result of rising public resistance to new
overhead lines due to cost allocation issues and environmental,
aesthetic and health concerns, permitting processes of five to
10 years or more have become common for new projects.
In urban and metropolitan areas, installing additional
conventional underground copper cables is similarly challenging
for two important reasons: many existing underground corridors
carrying power distribution cables are already filled to their
physical capacity and cannot accommodate any additional
conventional cables; and adding new conduits requires expanding
or securing new corridors and digging up streets to lay new
conduit. These tasks are costly and impose significant
disruptions.
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Our
Approach to the Smart Grid Infrastructure Market
We currently address the Smart Grid infrastructure market
opportunity by providing components and solutions designed to
increase the power grids capacity, reliability, security,
stability and efficiency.
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Superconductor Cables. Our Superconductors
business manufactures HTS wire used in superconductor power
cables, which are a class of high-capacity, environmentally
benign and
easy-to-install
transmission and distribution cables that address power grid
capacity issues by increasing the thermal limit of existing or
new corridors. Superconductor power cables are cylindrically
shaped systems that consist of HTS wires, which conduct
electricity, surrounded by electrical insulation, which in turn
is encased in a metal or polymeric jacket. Today, power cables
are made primarily using copper wires. Because our HTS wire is
able to carry 150 times the electrical current of comparably
sized copper wire, power cables of the same diameter can use
significantly less HTS wire than copper wire and yet conduct up
to 10 times the current of copper cables of the same diameter.
These new cable systems also bring efficiency advantages.
Traditional cable systems heat up due to the electrical
resistance of copper, and this heat causes electrical losses. It
is estimated that, on average, eight percent of the electricity
produced at generation sites is lost due to resistance in the
power grid. Conversely, HTS materials carry direct current
(DC) with 100 percent efficiency and alternating
current (AC) with nearly 100 percent efficiency when they
are cooled below a critical temperature. As a result, AC HTS
power cables lose significantly less power to resistive heating
than copper cables, and DC HTS power cables have no energy
losses due to resistive heating. We believe approximately
$5 billion is spent each year on medium and high-voltage
cables systems worldwide.
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Flexible AC Transmission Systems (FACTS). The
power that flows through AC networks comprises both real power,
measured in watts, and reactive power, measured in VARs. In
simple terms, reactive power is required to support voltage in
the power network. Voltage is the pressure that
drives electrical current through the grid. Operators of AC
power networks must closely and continuously balance real power
and reactive power. Where reactive power support is inadequate,
grids must be operated with heightened caution. Many lines
within a power grid are rated well below their full thermal
capacity because when grids are stressed, even brief voltage
drops caused by transient events (e.g., line outages, plant
trips, lightning strikes) can trigger instability and voltage
collapse. Our Power Systems business offers FACTS solutions that
rapidly inject precise amounts of reactive power into
transmission grids to compensate for fluctuations in reactive
power. These solutions also help to connect sources of renewable
energy such as wind and solar to the power grid. We expect the
need for FACTS devices to support both steady-state and
transient power grid operation will continue to rise as the
demand for power increases and utilities increase their focus on
alternative energies and energy efficiency. Reliability-must-run
generators are used by utilities to support voltage during peak
load timeframes. These systems, which consume significant
amounts of fuel and emit greenhouse gases, can often be replaced
by reactive compensation solutions. Global Industry Analysts,
Inc. estimates that the global market for FACTS solutions was
$1.5 billion in 2009.
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Fault Current Limiters and Secure Super Grids
Systems. Our Superconductors business develops
stand-alone fault current limiter devices and Secure Super Grids
systems, which combine the advantages of HTS power cables with
fault current limiting capability in one system. Fault current
limiters are designed to protect the grid against power surges.
As grids continue to expand, the frequency and magnitude of
power surges or fault currents that arise from short
circuits also increase. In some cities, power surges are
approaching and surpassing the ratings of circuit breakers that
have been used to protect the power grid, resulting in an
increased risk of blackouts. We believe there is a need for new
Smart Grid infrastructure solutions that will be able to limit
fault currents and protect ancillary utility equipment. We
estimate that the worldwide addressable market for fault current
limiters and Secure Super Grids systems exceeds $1 billion
annually.
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AMSC
Power Systems
Our Power Systems business unit designs, develops, manufactures
and markets power electronic products, systems and solutions
that generate and rapidly switch, control and modulate power.
This business unit also provides proprietary wind turbine
designs and extensive support services to wind turbine
manufacturers. AMSC
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Power Systems offers products that service the needs of
customers in a broad array of industries, including the
transmission and distribution, wind power and manufacturing
industries. AMSC Power Systems business unit accounted for 96%,
92% and 86% of our revenues for fiscal 2009, 2008 and 2007,
respectively.
Core
Technologies
Power conversion and active grid management are enabled by power
electronic devices that convert or condition electric power for
specific electrical applications.
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PowerModule Power Converters. Our family of
PowerModule power electronic converters incorporates power
semiconductor devices that switch, control and move large
amounts of power faster and with far less disruption than the
electromechanical switches that have historically been used.
With power ratings from 60 to 1,000 kW per converter, these
products utilize a proprietary printed circuit board design that
incorporates a microprocessor, thereby making them programmable
for many uses. Programmability is important because individual
PowerModule converters and integrated stacks of PowerModule
converters can be programmed to meet the needs of different
customers to control and condition varying levels of power from
tens of kilowatts to megawatts across a wide range of
applications. We design, manufacture and sell converters for
specific applications including grid reliability and wind energy
systems, such as our PowerModule PM3000W product. The PM3000W,
which we introduced in fiscal 2008, is being used in wind
turbine electrical control systems and also sold as part of a
package of core electrical components. We also offer the
PowerModule PM1000 product, which has a flexible design that can
be applied in many market applications. In order to simplify the
adoption of PowerModule products, we also offer the PowerModule
PM1000 Product Developer Kit and PM1000 System Developer Kit to
enable potential new customers to more easily integrate and
adopt the product in their applications. In addition to
PowerModule power converter hardware, our AMSC Power Systems
business unit is responsible for software development for the
family of PowerModule power converters, as well as for the
software needed to integrate the PowerModule power converters
into larger scale systems.
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While our family of PowerModule systems today are used primarily
in wind and power grid applications, they also have been
incorporated into electric motor drives, distributed and
dispersed generation devices (micro-turbines, fuel cells and
photovoltaics), power quality solutions, batteries and
flywheel-based uninterruptible power supplies.
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Thyristor Switches. At the heart of several of
our grid reliability and power quality offerings is a thyristor
switching technology that we obtained in April 2007 through the
acquisition of Power Quality Systems, Inc. This is a modular
solid-state switch, or valve, that can be configured in a
variety of different ways for specific reactive compensation and
power quality needs. Today, these products are solely used as a
component in our static VAR compensator and power quality static
VAR compensator offerings and are not sold as a stand-alone
product.
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7
Grid
Reliability, Power Quality and Grid Interconnection
Systems
Our grid reliability, power quality and grid interconnection
systems consist of the following core reactive compensation and
voltage regulation offerings:
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Product
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Description
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D-VAR
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Our D-VAR (Dynamic VAR) reactive compensation systems are Smart
Grid infrastructure solutions that provide a powerful and
cost-effective source of dynamic reactive compensation for a
wide range of operational needs. Also known as STATCOMs, which
are considered a Flexible AC-Transmission System (FACTS) device,
our D-VAR solutions are customized to meet specific customer
needs and include inherent flexibility to accommodate changing
grid conditions. They can correct voltage instability problems
on transmission networks, provide dynamic voltage and power
factor control for regulating transmission and distribution
networks, and support a stable point of interconnection for
distributed generation facilities and wind farms. D-VAR systems
utilize our proprietary and advanced control and monitoring
system that detects and instantaneously compensates for voltage
disturbances by injecting leading or lagging reactive power
precisely where it is needed on the grid. D-VAR systems are
extremely flexible and scalable, ranging from 2 megaVAR (MVAR)
to more than 100 MVAR.
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SVC
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Our SVC (Static VAR Compensator) is a Smart Grid infrastructure
solution that utilizes thyristor switched capacitors and
reactors to alleviate power flow restraints on stability limited
lines, increase overall power grid reliability, and address
power system disturbances for industrial facilities. Benefits of
installing a transmission-level SVC include: stabilized voltages
on weaker networks, reduced transmission losses, increased
transmission capacity, reducing or delaying the need for new
lines, voltage control and stability, power swing damping and
higher transient stability limits. Benefits of installing a
distribution-level SVC include allowing large electric loads to
operate on the AC power system while minimizing the impacts of
voltage sags and flicker problems.
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PQ-IVR
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Our PQ-IVR (Power Quality-Industrial Voltage Restorer) systems
offer large industrial customers a superior solution to
disruptive power quality problems. PQ-IVR systems are voltage
protection solutions that can detect power quality problems
within milliseconds and counteract them before they turn into
costly productivity problems. PQ-IVR systems incorporate our
PowerModule power electronic converters and can be configured to
meet a wide range of customer requirements. Our system engineers
work with customers to find the optimum low-cost solution for
any industrial application.
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Our grid reliability, power quality and interconnection systems
have been purchased by more than 100 customers worldwide in
a variety of industries. Representative customers include:
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grid operators, such as American Electric Power, Bonneville
Power Authority and Northeast Utilities;
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wind farm developers, owners, operators and vendors, such as
Enbridge, Scottish Hydro and Suzlon; and
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industrial customers, such as Bridgestone, Micron Technologies
and Universal Compression.
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Wind
Energy Systems and Solutions
Through our AMSC Windtec subsidiary, AMSC Power Systems provides
a wide range of wind turbine designs and services. To date, we
have undertaken the design of turbines with power ratings
ranging from 600 KW to 10 MW for use both on- and
off-shore. We both license proprietary designs and sell custom
designs based on specific customer needs. We offer these designs
through development or licensing agreements. As part of these
agreements, we provide a wide range of services to enable our
customers to quickly get into wind turbine production. These
services include providing designs for their manufacturing
facilities, helping to develop and localize their supply chains,
and providing training on wind turbine manufacturing and
installation best practices. In addition to the
design/development work and support services, we sell wind
turbine electrical control systems and core electrical
components to our AMSC Windtec customers. These electrical
control systems and core components incorporate PowerModule
power electronic converters that we manufacture as well as many
other systems including pitch and yaw controllers, SCADA
systems, programmable logic controllers and proprietary control
software. These power electronics are utilized to regulate
voltage, control power flows and maximize wind turbine
efficiency, among other functions.
8
We currently are working with approximately a dozen wind turbine
manufacturers worldwide. Representative customers include the
following wind turbine manufacturers:
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Ghodawat Industries in India;
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Hyundai Heavy Industries in South Korea; and
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Sinovel in China.
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In 2008, we introduced our D-VAR RT solution. This product
enables individual wind turbines to continue operating smoothly
by riding through voltage disturbances on power
grids that might otherwise interrupt their operation. The D-VAR
RT product meets the worlds most stringent grid
interconnection requirements, including Spains
Procedimiento de Operación 12.3 requirement for both
existing and new wind turbines.
Facilities &
Manufacturing
Our Power Systems business unit currently operates out of
facilities in New Berlin and Middleton, Wisconsin; West Mifflin,
Pennsylvania; Klagenfurt, Austria; and Suzhou, China. In New
Berlin, Wisconsin, we design, develop, assemble and test our
PowerModule power electronic converters and D-VAR RT systems. We
also manufacture and test our PowerModule family of products at
our Suzhou, China manufacturing facility. We outsource the
manufacture of components of our PowerModule power converters,
allowing us to focus on our core competency of design and final
assembly and test of PowerModule systems. This also provides
Power Systems with the flexibility to utilize
best-of-breed
subcomponents in the assembly of our converters. We assemble and
test components and PowerModule power converters for
incorporation into our grid reliability, power quality and
interconnection, products such as D-VAR and PQ-IVR systems in
our Middleton, Wisconsin facility. Our West Mifflin,
Pennsylvania facility is responsible for the design,
manufacture, service and sale of our thyristor switch-based
technology that we integrate into our SVC products. Our AMSC
Windtec subsidiary operates out of Klagenfurt, Austria. This
location is home to AMSC Windtecs core engineering, design
and sales teams for wind turbine licensing and development
activities.
AMSC
Superconductors
Our Superconductors business unit designs, develops,
manufactures and sells HTS wire and products made with HTS wire.
We sell wire to original equipment manufacturers (OEMs) that
incorporate HTS wire into value-added products, which are, in
turn, sold to electric utilities, ship integrators and
industrial end-users, among others. We also develop power cable
systems, fault current limiters and rotating machines (including
electric motors, generators and synchronous condensers) based on
our HTS wire. In addition, the business unit manages projects
that utilize these value-added HTS products to create market
demand for HTS wire. AMSC Superconductors business unit
accounted for 4%, 8% and 14% of our revenues for fiscal 2009,
2008 and 2007, respectively.
HTS
Wire
We estimate that we have supplied approximately 80 percent
of the wire used in HTS product development and system
demonstrations worldwide over the past several years. In fiscal
2007, we initiated volume production of our proprietary 2G HTS
wire, which we have named 344 superconductors. Our 344
superconductors have been designed to be easily adopted by our
customers who have been developing products based on our 1G HTS
wire.
With the ability to carry more than 150 times the power of
copper wires of the same dimensions, our
344 superconductors have demonstrated electrical and
mechanical performance that is comparable to or better than our
1G HTS wire. We also expect our manufacturing costs for 344
superconductors to be significantly lower than those for 1G HTS
wire. The superconductor compound we utilize in our 2G HTS wire
is
YBa2Cu3O7,
commonly referred to as YBCO. We have an experienced
R&D team which continues to develop even higher performance
wire.
9
Our 344 superconductors are hair-thin, ribbon-shaped wires that
are approximately 4 mm wide. The core of our 344 superconductors
consists of multiple thin coatings of several materials,
including HTS material, on a base metal or alloy. A graphic
representation of the multiple coatings in our 344
superconductors is shown in the following figure:
Architecture
of the core of 344 superconductors (un-laminated, not to scale)
Many different manufacturing techniques can be utilized to
produce each of the thin coatings in a 2G HTS wire. We believe
we have chosen the optimal high-volume, low-cost manufacturing
processes for the production of each of the coatings in our
proprietary 344 superconductors, which we believe gives us a
competitive edge in the marketplace.
The final form of our 344 superconductors comprises a core
ribbon-shaped wire that is laminated on both sides with a thin
strip of a metal or alloy in the final step of manufacturing to
tailor the electrical, mechanical and thermal properties of the
product. Different end-use products require different
properties; so the ability to tailor these properties in the
final manufacturing step is important. We also believe our
ability to cost-effectively laminate our wires provides us with
a competitive advantage.
Because they have the same general dimensions, and because the
electrical and mechanical performance of 344 superconductors has
been demonstrated to equal or exceed that of 1G HTS wire, 344
superconductors can easily replace 1G HTS wire in applications
that have already adopted 1G HTS wire. However, the two
generations of HTS wire differ in the superconductor materials
of which they are comprised, their internal architecture, how
they are manufactured, and, in some instances, their end-use
applications because 344 superconductors possess unique physical
properties that enable a new class of superconductor products.
Our 344 superconductors are smart materials because
they are able to switch from a superconducting state with zero
resistance to the flow of electricity, to the resistive state
when the current passing through the wire exceeds a critical
value. Because a high resistance reduces current in an
electrical network, the smart switching feature of
superconductor wire can be used to limit high fault currents
that arise because of network short circuits. This is the basis
of fault current limiting devices for utility and military
applications. Our 344 superconductors are well suited for such
applications because the resistance of the other layers in its
structure can be kept high, thus decreasing the amount of wire
required to achieve the required resistance. By contrast, the
significant amount of silver in 1G HTS wire keeps the resistance
low. Our lamination process also permits the economical addition
of thick stabilizers to our 344 superconductors to minimize the
temperature rise during a fault event. This lamination process
is a further competitive advantage of our 344 superconductors
and associated manufacturing process as it allows us to
customize our product to meet the materials and performance
needs of our customers specific applications.
HTS
Wire-Based Products and Applications
Our HTS wire is now being used in the development and
commercialization of a broad array of products and applications.
The business is currently focused on the development and
commercialization of several main product
10
areas: superconductor power cables, Secure Super Grid systems,
stand-alone fault current limiters, rotating machines and
degaussing systems.
Superconductor Power Cables and Secure Super Grids
Systems. An important application for our HTS
wire is high-capacity AC and DC power cables. Because of the
high power capacity of HTS wire, superconductor power cables can
carry up to 10 times more power (depending on the design and
operating characteristics of the cable) than copper-based cables
of the same diameter. The performance levels and mechanical
properties of our HTS wire are sufficient today to meet the
technical requirements for cables that can alleviate congestion
in power transmission systems. We believe that superconductor
cables can be cost competitive on a project basis with
conventional transmission and distribution solutions today in
certain instances. We expect that the price of superconductor
cable systems will continue to decline as volumes grow,
expanding the addressable market for these systems.
There are several designs for superconductor power cables being
developed, tested and employed by cable manufacturers around the
world. In all cases, the cryogenic coolant for the HTS wires in
these cables is liquid nitrogen. Nitrogen, which comprises
approximately 79 percent of the air we breathe, is an
environmentally friendly, nonflammable material. When cooled by
standard industrial refrigeration techniques, nitrogen gas turns
into a relatively inexpensive liquid that is used in many
applications, ranging from steel making and freezing of foods,
to crushing of spices and cryogenic freezing of biological
materials on farms.
Key
components of a co-axial, cold dielectric superconductor power
cable.
Among the advantages presented by superconductor cables over
conventional copper cables are increased power density, ease of
installation, reduced voltage for comparable power and increased
reliability and security. In order for electric utilities and
power grid operators to realize these advantages, they must
first observe the successful testing and operation of
superconductor cables in high voltage test facilities and in
actual power grid installations. The first superconductor cable
demonstration project was undertaken more than a decade ago.
Since the summer of 2006, three superconductor power cables have
been energized in the live grid in the United States. One of
these, after a successful demonstration, has been
decommissioned. The other two of these systems are currently
operating and are powered with our HTS wire.
The most recent of these superconductor power cable projects is
located in Long Island, New York. In April 2008, we energized a
half-mile-long,
574 MW, 138 kilo-Volt (kV) superconductor cable system in
the power grid of the Long Island Power Authority (LIPA). This
is the worlds first in-grid deployment of a
transmission-voltage superconductor cable system and is expected
to remain as a permanent addition to the LIPA grid. The project
was led by us, and the cable, fabricated from our wire, was
provided by Nexans.
In addition to the U.S. superconductor cable projects, a
22.9 kV superconductor cable system will be installed in Korea
Electric Power Corporations grid near the city of Seoul
later in 2010. Capable of carrying 50 megawatts of power, the
cable system will be nearly a half mile in length, making it the
worlds longest distribution-voltage superconductor cable
system. This cable is being manufactured by LS Cable and we are
serving as the wire supplier. In May 2010, LS Cable and we
announced a further strengthening of our strategic partnership
with LS Cable, where
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we intend to work collaboratively to deploy more than 50
kilometers of superconductor power cables in commercial power
grids over the next five years. Additional demonstrations are
underway in China, Japan, Korea, Russia and Spain. We estimate
that we have supplied 80 percent of HTS wire for such
projects worldwide.
Fault Current Limiting Systems. The
availability of 344 superconductors with their smart
switching capability, coupled with our proprietary lamination
technology, opens a path for fault current limiting devices,
which serve as surge suppressors for the electric power grid.
Fault current limitation is becoming an increasingly critical
issue for utilities with growing and highly meshed urban grids,
and utility interest in finding a solution is high. Fault
currents today are reaching levels that could exceed the safe
operating levels of circuit breakers and other power equipment
in numerous locations around the world. This results in millions
of dollars in damaged utility equipment and is also a common
cause of brownouts and blackouts.
We have developed Secure Super Grids power cable systems that
can increase the capacity of power grids while also being able
to rapidly suppress fault currents. In May 2007, we announced
that we had begun working with Consolidated Edison, Inc. to
develop and deploy our Secure Super Grid technology in
Manhattan. Under a contract finalized in January 2008, the
Department of Homeland Security is investing up to
$24.9 million in the development of this technology. We
believe this technology has the potential to significantly
enhance the capacity, security and efficiency of electric power
infrastructures in urban and metropolitan areas around the
world, enabling Secure Super Grids.
Many different designs of stand-alone FCLs have been proposed.
The most widely investigated class is called a
resistive FCL in which a current exceeding the
critical current of the HTS material causes it to switch into a
resistive state. We have years of experience and a number of
patents in this area. As the first long-length
344 superconductors became available, we established, in
February 2005, a development agreement with Siemens Corporate
Technology in Erlangen, Germany to develop 344 superconductors
for a stand-alone FCL application. In January 2007, this
collaboration succeeded in demonstrating a single phase, 13
kV-class, 2.25 MVA-rated fault current limiter using our 344
superconductors and a proprietary bifilar coil concept. This
work led to a cooperative agreement award in fiscal 2007 from
the Department of Energy on a project to develop and perform
in-grid testing of a transmission-FCL for Southern California
Edisons (SCEs) grid. The team for this project
includes our company, Siemens, Nexans and SCE, and this
collaboration continues with the goal of developing more
advanced wire and a higher rated FCL system for commercial
application.
Rotating Machines. The use of HTS wire in
rotating machines provides significant competitive advantages by
enabling dramatic reductions in size, weight and manufacturing
costs relative to conventional machines. Because of the
manufacturing cost reductions associated with the reduced size
of our superconductor rotating machines, we expect the market
price for rotating machines using our design to eventually be
equivalent to that of copper-based machines at power ratings of
1 MW (1,333 horsepower) and above.
We have produced several such rotating machines in the past and
have pursued patent protection on many aspects of these
machines. In January 2009, we announced that the U.S. Navy
had successfully completed full-power testing of the
worlds first 36.5 MW (49,000 horsepower)
superconductor ship propulsion motor designed and built by us in
collaboration with Northrop-Grumman. The motor is less than half
the size of conventional motors used on the first two DDG-1000
hulls and can reduce ship weight by nearly 200 metric tons. It
can help make new ships more fuel-efficient and free up space
for additional war-fighting capability.
In February 2009, we announced a Cooperative Research and
Development Agreement (CRADA) with the U.S. Department of
Energys National Renewable Energy Laboratory (NREL) and
its National Wind Technology Center (NWTC) to validate the
economics of our SeaTitan wind turbine, a 10 MW-class
superconductor wind turbine. The core of this wind turbine will
be a superconductor generator, which builds on the technologies
developed in the Navy ship propulsion program. We are separately
developing full SeaTitan component and system designs and has an
ongoing research joint venture with TECO-Westinghouse Motor
Company, supported by the Advanced Technology Program of the
Department of Commerce, to develop core technologies for
superconductor generators that can power 10 MW-class wind
turbines.
We plan to license designs for such superconductor rotating
machines to companies that have the infrastructure to
manufacture these systems. We believe contracts of this kind
would yield license and consulting service fees from
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these companies and a growing stream of royalty payments and
revenues from the sale of HTS wire and coils to licensees.
Degaussing Systems. Degaussing systems cloak
the magnetic signature of naval ships, making them much more
difficult to be seen by magnetic sensors and
magnetically activated mines, thereby increasing survivability
for naval ships. Degaussing systems are composed of a network of
electrical cables installed in a loop formation around the
circumference of a ships hull. Historically, these cables
have utilized copper. Superconductor degaussing systems are much
smaller and lighter than conventional copper-based systems. We
estimate that superconductor degaussing systems for the LPD-17,
LCS, CG(X), DDG-1000, and CVN-21 classes of U.S. Navy ships
could yield a 50%-80% reduction in total system weight and a
reduced total ownership cost compared to current copper-based
systems. In July 2008, the U.S. Navy installed a system
powered by our HTS wire and magnet cable technology onboard the
USS Higgins (DDG 76), an 8,000-ton Arleigh Burke-class
destroyer. Testing of this HTS degaussing system is expected to
be completed in 2010.
HTS
Wire Manufacturing and Facilities
We have investigated many different techniques for manufacturing
each of the layers in our 344 superconductors. We have
discovered and demonstrated a combination of high-volume,
low-cost manufacturing steps that yield our proprietary 344
superconductors with very high electrical performance. The
manufacturing steps we currently utilize to manufacture our
proprietary 344 superconductors, are illustrated in the
following figure.
Ten
individual steps are utilized in our
reel-to-reel
manufacturing process for 344 superconductors
We believe the manufacturing steps we currently utilize will
produce 344 superconductors at substantially lower costs than
the 1G and generic 2G HTS wire manufacturing techniques being
pursued by competitors. We believe the performance and
manufacturing costs inherent in our manufacturing process,
composition and architecture for 344 superconductors will give
us a competitive edge in the commercial market for HTS wires. We
have also developed a strong portfolio of patents related to our
fabrication methodology for 344 superconductors, with 149
worldwide patents and patent applications pending, and licenses
to more than 45 worldwide patents and patent applications owned
by others, as of March 31, 2010. However, we can make no
assurances that we will be successful in fully scaling up our
proprietary manufacturing process for 344 superconductors.
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We now produce 40 mm wide strips of superconductor material by
our proprietary manufacturing process. One of the last steps of
manufacturing is to slit our wide base substrate into the
industry-standard width, which is approximately 4 mm. As shown
below, the result is that we produce multiple, ribbon-shaped
wires from one manufacturing operation, which reduces
manufacturing costs.
Multiple,
ribbon-shaped HTS wires with industry-standard dimensions can be
produced after
first producing coatings on a wider strip. Shown is a partially
slit 40 mm wide strip.
The equipment for our 344 superconductors manufacturing line is
designed with the capability to process either 40 mm wide or 100
mm wide strips. In November 2007, we initiated production of 344
superconductors on our new manufacturing line in Devens,
Massachusetts, and we are now producing finished product at a
rate of several hundred thousand meters per year. Because our
proprietary wire manufacturing technique is modular, we are able
to expand the current operation at a rate dictated by market
demand by commissioning additional production modules and by
widening the process strip from 40 mm to 100 mm, yielding a 2.5x
increase in output with the same manufacturing equipment once we
complete the migration to 100 mm strips. In January 2010, we
began our migration to 100 mm substrates to meet market demand.
In fiscal 2010, we plan to utilize cash generated from
operations to procure additional 100 mm capital equipment to
support our capacity expansion.
When fully outfitted, we estimate that our Devens, Massachusetts
production facility will be able to produce more than twenty
million meters of 344 superconductors annually.
Sales
and Marketing
We have a single, integrated sales force focused on accelerating
revenue growth and better serving our target markets. Our sales
force interacts closely with our Network Solutions Team, which
is comprised of skilled engineers who were previously employed
at electric utilities and who have extensive experience in the
design and structure of transmission and distribution grids and
in the operation of industrial sites and wind farms. This team
plays a key role in our sales process, providing us with an
in-depth understanding of customer needs. Using sophisticated
software programs, which are common to the utility industry, the
team performs analyses on the effects of disturbances in power
grids to determine grid reliability under normal and peak
loading conditions. This group also analyzes how the use of
standard technologies, such as capacitors, and advanced
technologies, such as superconductor cables, fault current
limiters, D-VAR STATCOM systems and SVCs, will enable the
reliable operation and improve the performance of power grids.
This team performs similar analyses to determine the optimum
power quality solution for industrial manufacturing sites and
the solution needed to meet grid interconnection standards for
wind farms. We believe our Network Solutions Team is a
competitive differentiator because it enables us to leverage a
thorough understanding of customer needs to offer highly
customized solutions.
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Our products are sold directly by our sales force, which
operates out of sales offices worldwide. We also utilize
manufacturers representatives for our AMSC Power Systems
products as well as distributors.
Sinovel represented approximately 70%, 67% and 51% of our total
revenue for fiscal 2009, 2008 and 2007, respectively. Sinovel
was the only customer exceeding 10% of total revenue for those
fiscal years.
The portion of total revenue derived from customers located
outside the United States was 87%, 84% and 74% for fiscal 2009,
2008 and 2007, respectively. Of the revenue derived from
customers outside the United States, 88%, 86% and 55% were
derived from customers in China in fiscal 2009, 2008 and 2007,
respectively. For additional financial information, see the
Notes to Consolidated Financial Statements included herein,
including Note 17, entitled Business Segment and
Geographic Information, regarding our business segments.
Backlog
We had backlog at March 31, 2010 (excluding amounts
included in accounts receivable) of approximately
$588.3 million from government and commercial customers,
compared to $557.7 million at March 31, 2009. Backlog
represents the value of contracts and purchase orders received,
less the revenue recognized to date on those contracts and
purchase orders.
Of the backlog amount of $588.3 million as of
March 31, 2010, approximately 65% is billable to and
collectable from our customers within the next 12 months.
Competition
Competition
for AMSC Power Systems
We face competition from companies offering power electronic
converters for use in applications for which we expect to sell
our PowerModule products. These companies include ABB,
Inverpower, SatCon, Semikron and Xantrex (a subsidiary of
Schneider Electric).
We face competition from companies offering wind turbine
electrical system components. These companies include ABB,
Converteam, Ingeteam, Mita-Teknik, The Switch, Woodward Governor
and Xantrex.
We face competition from other companies offering FACTS systems
similar to our D-VAR and SVC solutions. These include SVCs from
ABB, Alstrom, AREVA, Mitsubishi Electric and Siemens; adaptive
VAR compensators and STATCOMs produced by S&C Electric;
DVRs (dynamic voltage restorers) produced by companies such as
ABB and S&C Electric; and flywheels and battery-based UPS
systems offered by various companies around the world.
Our AMSC Windtec business faces competition for the supply of
wind turbine engineering design services from design engineering
firms, such as Garrad Hassan, and from licensors of wind turbine
systems, such as Aerodyn, AventisEnergy and Fuhrlander. We also
face indirect competition in the wind energy market from
manufacturers of wind energy systems, such as Gamesa, General
Electric, Suzlon and Vestas.
Competition
for AMSC Superconductors
We face competition both from vendors of traditional wires made
from materials such as copper and from companies who are
developing HTS wires. We also face competition for our 344
superconductors from a number of companies in the U.S. and
abroad who are developing 2G HTS wire technology. These include
Innova, MetOx, Superconductor Technologies and Superpower (a
subsidiary of Royal Philips Electronics) in the U.S.; Fujikura,
Furukawa, Showa and Sumitomo in Japan; SuNAM in South Korea; and
Bruker, evico GmbH, Nexans and Zenergy in Europe. We believe
that the proprietary processes we have adopted will prove to be
the best processes to provide not only high-performance wire,
but also commercial quantities at the lowest cost. Six
companies evico GmbH, Furukawa, Nexans, Showa,
Sumitomo Electric and Zenergy Power have been
focusing their research programs more recently on the
development of 2G HTS wire made by the same or similar processes
we have chosen to utilize to manufacture 2G HTS wire.
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We are developing a stand-alone FCL in collaboration with
Siemens and Nexans. We also are developing Secure Super Grids
technology, which incorporates fault-current-limiting capability
in superconductor power cables. The industrial competition for
stand-alone FCLs based on HTS includes Hypertech and SC Power
(Zenergy Power) in the U.S.; Nexans and Rolls-Royce in Europe;
Sumitomo Electric and Toshiba in Japan; Beijing Superconductor
and Innopower in China; and Hyundai and LS Industrial Systems in
Korea. Initial work on superconductor cables that incorporate
fault current limiting characteristics was carried out several
years ago by Bruker and Nexans using a different concept. The
competition for stand-alone FCLs also includes non-HTS systems
based on power electronics, including a system developed by
Powell and Silicon Power. We believe we have a strong
intellectual property position in Secure Super Grids technology
and also a strong position on stand-alone FCLs in collaboration
with Siemens.
Many of our competitors have substantially greater financial
resources, research and development, manufacturing and marketing
capabilities than we do. In addition, as our target markets
develop, other large industrial companies may enter these fields
and compete with us.
Patents,
Licenses and Trade Secrets
Patent
Background
An important part of our business strategy is to develop a
strong worldwide patent position in all of our technology areas.
Our intellectual property (IP) patent portfolio comprises both
patents we own and patents we license from others. We devote
substantial resources to building a strong patent position, and
we believe that we have significantly strengthened our position
in the past several years. As of March 31, 2010, we owned
(either alone or jointly) 108 U.S. patents and had 58
U.S. patent applications on file. We also hold licenses
from third parties covering 126 issued U.S. patents and 23
U.S. patent applications. Together with the international
counterparts of each of these patents and patent applications,
we own more than 550 patents and patent applications worldwide,
and have rights through exclusive and non-exclusive licenses to
more than 425 additional patents and patent applications.
We believe that our current patent position, together with our
expected ability to obtain licenses from other parties to the
extent necessary, will provide us with sufficient proprietary
rights to develop and sell our products. However, for the
reasons described below, there can be no assurance that this
will be the case.
Despite the strength of our patent position, a number of
U.S. and foreign patents and patent applications of third
parties relate to our current products, to products we are
developing, or to technology we are now using in the development
or production of our products. We may need to acquire licenses
to those patents, or to successfully contest the scope or
validity of those patents, or to design around patented
processes or applications.
If companies holding patents or patent applications that we need
to license are competitors, we believe the strength of our
patent portfolio will significantly improve our ability to enter
into license or cross-license arrangements with these companies.
We have already successfully negotiated cross-licenses with
several competitors. However, there can be no assurance that we
will be able to obtain all necessary licenses from competitors
on commercially reasonable terms, or at all.
We may be required to obtain licenses to some patents and patent
applications held by companies or other institutions, such as
national laboratories or universities, not directly competing
with us. Those organizations may not be interested in
cross-licensing or, if willing to grant licenses, may charge
unreasonable royalties. We have successfully obtained licenses
related to HTS wire from a number of such organizations with
royalties we consider reasonable. Based on past experience, we
expect that we will be able to obtain other necessary licenses
on commercially reasonable terms. However, there can be no
assurance that we will be able to do so.
Failure to obtain all necessary licenses upon reasonable terms
could significantly reduce the scope of our business and have a
materially adverse effect on our results of operations. We do
not now know the likelihood of successfully contesting the scope
or validity of patents held by others. In any event, we could
incur substantial costs in challenging the patents of other
companies. Moreover, third parties could challenge some of our
patents or patent applications, and we could incur substantial
costs in defending the scope and validity of our own patents or
patent applications whether or not a challenge is ultimately
successful.
16
There are no patents that we own or license expiring in the next
12 months that we consider to be material to our business
or competitiveness.
Power
Systems Patents
We have received patents and filed a significant number of
additional patent applications on power quality and reliability
systems, including D-VAR and PQ-IVR systems. Our Power Systems
products are covered by more than 85 patents and patents pending
worldwide on both our systems and power converter products. The
patents and applications are directed to inventions that
significantly improve product performance and reduce product
costs, thereby providing a competitive advantage. One invention
of note allows for a reduction in the number of power inverters
required in the system by optimally running the inverters in
overload mode, thereby significantly reducing overall system
costs. Another important invention utilizes inverters to offset
transients due to capacitor bank switching, which provides
improved system performance.
Our AMSC Windtec subsidiary designs a variety of wind turbine
systems and licenses these designs, including know-how and
patent rights, to third parties for an upfront fee and royalty
payments for each installation of a wind turbine system. AMSC
Windtecs wind turbine designs are covered by 84 patents
and patents pending worldwide on wind turbine technology. AMSC
Windtec has patent coverage on the unique design features of its
blade pitch control system, which ensures optimal aerodynamic
flow conditions on the turbine blades and improves system
efficiency and performance. The pitch system includes a patented
SafetyLOCKtm
feature that causes the blades to rotate to a feathered position
to prevent the rotor blades from spinning during a fault. We
have also focused our patent protection on AMSC Windtecs
SuperGEAR drive train technology, which provides additional
control over a wind turbines electrical output and
enhances its power quality.
With our Power Systems business growing rapidly now in China, we
recognize the importance of IP protection in that region. It is
our judgment that China is steadily moving in the direction of
recognizing and acting on international norms for IP. As such,
we have incorporated China in our patent strategy for all of our
various products. Nevertheless, we recognize that the risk of IP
piracy is still higher there than in most other developed
countries, and so we are careful to limit the technology we
provide through our product sales and other expansion plans in
China. While we take the steps necessary to ensure the safety of
our IP, there can be no assurance that that these measures will
be fully successful.
HTS
Patents
Since the discovery of high temperature superconductors in 1986,
the HTS industry has been characterized by rapid technical
advances, which in turn have resulted in a large number of
patents, including overlapping patents, relating to
superconductivity being applied for and granted worldwide. As a
result, the patent situation in the field of HTS technology and
products is unusually complex.
We have obtained licenses to patents and patent applications
covering some HTS materials. However, we may have to obtain
additional licenses to HTS materials.
We are focusing on the production of our 2G HTS wire, which we
call 344 superconductors, and we intend to continue to obtain a
proprietary position in 2G HTS wire through a combination of
patents, licenses and proprietary know-how. In addition to our
owned patents and patent applications in 2G HTS wire, we have
obtained licenses from MIT for the MOD process we use to deposit
the YBCO layer, Alcatel-Lucent on the YBCO material, and
University of Tennessee/Battelle to the
RABiTS®
process we use for the substrate and buffer layers for this
technology. If alternative processes become more promising in
the future, we will also seek to develop a proprietary position
in these alternative processes.
We have a significant number of patents and pending patents
covering applications of HTS wire, such as HTS fault current
limiters, Secure Super Grids technology, which includes both HTS
power cables and fault current limiting capability, and HTS
rotating machines. Since the superconductor rotating machine and
Secure Super Grids fields are relatively new fields, we believe
we are building a particularly strong patent position in these
areas. At present, we believe we have the broadest and most
fundamental patent position in superconductor rotating machines
technology. We have also filed a series of patents on our
concept for our proprietary Secure Super Grids technology.
17
However, there can be no assurance that that these patents will
be sufficient to assure our freedom of action in these fields
without further licensing from others.
Trade
Secrets
Some of the important technology used in our operations and
products is not covered by any patent or patent application
owned by or licensed to us. However, we take steps to maintain
the confidentiality of this technology by requiring all
employees and all consultants to sign confidentiality agreements
and by limiting access to confidential information. No assurance
can be given that these measures will prevent the unauthorized
disclosure or use of that information. In addition, there is no
assurance that others, including our competitors, will not
independently develop the same or comparable technology that is
one of our trade secrets.
Employees
As of March 31, 2010, we employed a total of
714 persons, 24 of whom have a Ph.D. in materials science,
physics or other fields. None of our employees are represented
by a labor union. Retaining our key employees is important for
achieving our goals, and we are committed to developing a
working environment that motivates and rewards our employees.
Corporate
Information
We file reports, proxy statements and other documents with the
Securities and Exchange Commission (SEC). You may
read and copy any document we file at the SEC Headquarters at
Office of Investor Education and Assistance,
100 F Street, NE, Washington, D.C. 20549. You
should call
1-800-SEC-0330
for more information on the public reference room. Our SEC
filings are also available to you on the SECs Internet
site at www.sec.gov.
American Superconductor Corporation was incorporated in Delaware
in 1987.
Our internet address is www.amsc.com. We are not including the
information contained in our website as part of, or
incorporating it by reference into, this annual report on
Form 10-K.
We make available free of charge through our web site our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, as soon as reasonably
practicable after we electronically file such materials with, or
furnish such materials to, the SEC.
We intend to disclose on our website any amendments to our code
of business conduct and ethics that are required to be disclosed
pursuant to the SEC rules.
American Superconductor and design, Revolutionizing the Way the
World Uses Electricity, AMSC, Powered by AMSC, D-VAR, dSVC,
PowerModule, PQ-IVR, Secure Super Grids, Windtec and SuperGEAR
are trademarks or registered trademarks of American
Superconductor Corporation or its subsidiaries. The Windtec logo
and design is a registered European Union Community Trademark.
All other brand names, product names, trademarks or service
marks appearing in this Annual Report on
Form 10-K
are the property of their respective holders.
18
EXECUTIVE
OFFICERS OF THE REGISTRANT
The table and biographical summaries set forth below contain
information with respect to our executive officers:
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Name
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Age
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Position
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Gregory J. Yurek
|
|
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63
|
|
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Chairman of the Board and Chief Executive Officer
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Daniel P. McGahn
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38
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President and Chief Operating Officer
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Charles W. Stankiewicz
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51
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Executive Vice President and General Manager, AMSC Power Systems
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David A. Henry
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48
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Senior Vice President, Chief Financial Officer and Treasurer
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Timothy D. Poor
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43
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Senior Vice President, Global Sales and Business Development
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Angelo R. Santamaria
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47
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Senior Vice President, Global Manufacturing Operations
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John R. Collett
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45
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Senior Vice President, Strategic Planning and Corporate
Development
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Susan J. DiCecco
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58
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Vice President, Corporate Administration
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Gregory J. Yurek co-founded American Superconductor in
1987 and has been chief executive officer since December 1989
and chairman of the board of directors since October 1991.
Dr. Yurek also served as president from March 1989 to
February 2004 and from June 2005 to December 2009, as vice
president and chief technical officer from August 1988 until
March 1989 and as chief operating officer from March 1989 until
December 1989. Prior to joining American Superconductor,
Dr. Yurek was a professor of Materials Science and
Engineering at MIT for 12 years. Dr. Yurek has been a
director of American Superconductor since 1987.
Daniel P. McGahn joined us in December 2006 and has
served as president and chief operating officer since December
2009. Mr. McGahn also served as senior vice president and
general manager of AMSC Superconductors, from May 2008 until
December 2009. He served in this role as vice president from
January 2008 to May 2008. Previously, Mr. McGahn was vice
president of strategic planning and development from December
2006 to January 2008. From 2003 to 2006, Mr. McGahn served
as executive vice president and chief marketing officer of
Konarka Technologies. Prior to 2003, Mr. McGahn served as
general manager and chief operating officer of Hyperion
Catalysis. He also held managerial positions at IGEN
International and Princeton Consultants.
Charles W. Stankiewicz joined us in July 1998 as general
manager of our Power Systems business unit based in Middleton
and New Berlin, Wisconsin. In March 2006, he was appointed to
senior vice president, AMSC Power Systems. He was promoted to
executive vice president in June 2007. Prior to joining American
Superconductor, Mr. Stankiewicz spent eighteen years in a
variety of technical and business management positions at
Westinghouse Electric Corporation and Asea Brown Boveri (ABB)
where he most recently was the vice president of power
development.
David A. Henry joined us in July 2007 as senior vice
president, chief financial officer and treasurer. He previously
served as chief financial officer of AMIS Holdings, Inc., the
parent company of AMI Semiconductor, from April 2004 to July
2007. For the previous seven years, Mr. Henry worked at
Fairchild Semiconductor International as vice president finance,
worldwide operations from November 2002 to April 2004 and as
corporate controller from March 1997 to November 2002. He was
appointed vice president, corporate controller in August 1999.
Timothy D. Poor joined us in September 2001 and serves as
senior vice president, global sales and business development,
responsible for our global sales, business development and
marketing. From May 2007 to March 2008, Mr. Poor was
the vice president and deputy general manager, Power Systems.
From September 2001 to May of 2007, Mr. Poor held the
position of director, Power Systems sales & business
development. He was promoted to managing director in March 2006.
Prior to joining our company, Mr. Poor worked at General
Electric (GE) in the GE Industrial Systems division for seven
years in various sales, six sigma, and sales management
positions. Prior to GE, Mr. Poor was an engineering
consultant at Arthur Andersen & Company.
19
Angelo R. Santamaria joined us in April 2004 as vice
president and general manager of the AMSC Superconductors
business unit. In August 2007, he was named vice president of
global manufacturing operations and was promoted to senior vice
president in May 2009. Prior to joining us, Mr. Santamaria
served as vice president and general manager at Microsemi
Corporation, a semiconductor manufacturer. Mr. Santamaria
had served in this role since 1997. Previously,
Mr. Santamaria held various management positions in
Operations and Engineering at Microsemi Corporation.
John R. Collett joined us in October 2009 as senior vice
president, strategic planning and corporate development and is
responsible for leading the development and implementation of
corporate strategies aimed at accelerating the companys
growth. In May 2010, Mr. Collett was appointed chief
strategy officer. Prior to joining American Superconductor,
Mr. Collett was a senior member of Deutsche Banks
Investment Banking Group from August 2003 to October 2009,
holding such positions as COO of Mergers and Acquisitions,
Managing Director and Co-Head of Large Cap Coverage and senior
partner of the Global Diversified Industrials Group. Previously,
he held positions in the energy sector and mergers and
acquisitions for J.P Morgan Securities and Goldman Sachs.
Susan J. DiCecco was named to the position of vice
president, corporate administration in August 2009 and is
responsible for worldwide human resources, information
technologies and environmental health and safety.
Mrs. DiCecco joined us in 2000 and was named vice president
of human resources in 2006. Previously, Mrs. DiCecco held a
number of human resources and operational positions at W.A.Wilde
Company, Kidde Fenwal Company and General Motors among others.
20
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I.
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Risks
related to our financial results and our common stock.
|
We
have a history of operating losses, and we may incur losses in
the future.
We incurred net losses in each year since our inception through
fiscal 2008, driven primarily by the research and development
activities in our AMSC Superconductors business unit. While we
achieved profitable results in fiscal 2009 and expect to achieve
profitable results in fiscal 2010, we cannot be certain that we
will sustain profitability.
We believe our available cash, cash equivalents, marketable
securities and restricted cash will be sufficient to fund our
working capital, capital expenditures and other cash
requirements for at least the next twelve months. However, we
may need additional funds if our performance deviates
significantly from our current business plan, if cash
accumulates in foreign countries that we are unable or unwilling
to repatriate, if there are significant changes in competitive
or other market factors, or if unforeseen circumstances arise.
Such funds may not be available, or may not be available under
terms acceptable to us.
Our
operating results may fluctuate significantly from quarter to
quarter and may fall below expectations in any particular fiscal
quarter.
Our operating results are difficult to predict and have at times
fluctuated from quarter to quarter due to a variety of factors,
many of which are outside of our control. As a result, comparing
our operating results on a
period-to-period
basis may not be meaningful, and you should not rely on our past
results as an indication of our future performance. If our
revenue or operating results fall below the expectations of
investors or any securities analysts that follow our company in
any period, the trading price of our common stock would likely
decline.
Our operating expenses do not always vary directly with revenue
and may be difficult to adjust in the short term. As a result,
if revenue for a particular quarter is below our expectations,
we may not be able to proportionately reduce operating expenses
for that quarter, and therefore such a revenue shortfall would
have a disproportionate effect on our operating results for that
quarter.
A
significant portion of our revenues are derived from a single
customer.
Revenue growth in fiscal 2009, 2008 and 2007 was driven largely
by our AMSC Power Systems business unit. Our largest customer is
Sinovel in China. Sinovel accounted for a majority of our total
revenues during these periods. Revenues from Sinovel are
supported by purchase orders and contracts for electrical system
core components as well as development contracts for the design
of wind turbines. If Sinovel cancelled purchase orders or
development contracts, or discontinued future purchases from us,
we would likely be unable to replace the related revenues. This
would have a serious negative impact on our operating results
and financial position.
Adverse
changes in domestic and global economic conditions could
adversely affect our operating results.
As our business has grown, we have become increasingly subject
to the risks arising from adverse changes in domestic and global
economic conditions. The state of both the domestic and global
economies has recently become increasingly uncertain due to a
significant reduction in the availability of credit, rising
interest rates and financial market volatility. If credit
continues to become more difficult to obtain, some customers may
delay or reduce purchases. This could result in reductions in
sales of our products, longer sales cycles, slower adoption of
new technologies, increased accounts receivable write-offs and
increased price competition. Any of these events would likely
harm our business, results of operations and financial condition.
Changes
in exchange rates could adversely affect our results from
operations.
Currency exchange rate fluctuations could have an adverse effect
on our revenues and results of operations, and we could
experience losses with respect to our hedging activities.
Unfavorable currency fluctuations could require us to increase
prices to foreign customers, which could result in lower
revenues by us from such customers. Alternatively, if we do not
adjust the prices for our products in response to unfavorable
currency fluctuations, our
21
results of operations could be adversely affected. In addition,
most sales made by our foreign subsidiaries are denominated in
the currency of the country in which these products are sold,
and the currency they receive in payment for such sales could be
less valuable at the time of receipt as a result of exchange
rate fluctuations. We enter into derivative instruments,
including forward foreign exchange contracts and currency
options to reduce currency exposure arising from intercompany
sales of inventory. However, we cannot be certain that our
efforts will be adequate to protect us against significant
currency fluctuations or that such efforts will not expose us to
additional exchange rate risks.
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.
The market price of our common stock has historically
experienced significant volatility and may continue to
experience such volatility in the future. Factors such as
technological achievements by us and our competitors, the
establishment of development or strategic relationships with
other companies, new customer orders and contracts, our
introduction of commercial products, and our financial
performance may have a significant effect on the market price of
our common stock. In addition, the stock market in general, and
the stock of high technology companies in particular, have in
recent years experienced extreme price and volume fluctuations,
which are often unrelated to the performance or condition of
particular companies. Such broad market fluctuations could
adversely affect the market price of our common stock. Due to
these factors, the price of our common stock may decline and
investors may be unable to resell their shares of our common
stock for a profit. Following periods of volatility in the
market price of a particular companys securities,
securities class action litigation has often been brought
against that company. If we become subject to this kind of
litigation in the future, it could result in substantial
litigation costs, a damages award against us and the diversion
of our managements attention.
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II.
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Risks
related to our business and industry.
|
General
If we
fail to implement our business strategy, our financial
performance and our growth could be materially and adversely
affected.
Our future financial performance and success are dependent in
large part upon our ability to implement our business strategy
successfully. Our business strategy envisions several
initiatives, including driving revenue growth and enhancing
operating results by increasing adoption of our products by
targeting high-growth segments with commercial products,
pursuing overseas markets, anticipating customer needs in the
development of system-level solutions, strengthening our
technology leadership while lowering cost and pursuing targeted
strategic acquisitions and alliances. We may not be able to
implement our business strategy successfully or achieve the
anticipated benefits of our business plan. If we are unable to
do so, our long-term growth and profitability may be adversely
affected. Even if we are able to implement some or all of the
initiatives of our business plan successfully, our operating
results may not improve to the extent we anticipate, or at all.
Implementation of our business strategy could also be affected
by a number of factors beyond our control, such as increased
competition, legal developments, government regulation, general
economic conditions or increased operating costs or expenses. In
addition, to the extent we have misjudged the nature and extent
of industry trends or our competition, we may have difficulty in
achieving our strategic objectives. Any failure to implement our
business strategy successfully may adversely affect our
business, financial condition and results of operations. In
addition, we may decide to alter or discontinue certain aspects
of our business strategy at any time.
We may
not realize all of the sales expected from our backlog of orders
and contracts.
Though we generally report significant backlog, there can be no
assurances that the revenue we expect to generate from this
backlog will be realized in the periods we expect to realize
such revenue, or at all. In addition, the backlog of orders, if
realized, may not result in profitable revenue. Backlog
represents the value of contracts and purchase orders received,
less the revenue recognized to date on those contracts and
purchase orders. Our customers have the right under some
circumstances and with some penalties or consequences to
terminate, reduce or defer firm
22
orders that we have in backlog. In addition, our government
contracts are subject to the risks described below. If our
customers terminate, reduce or defer firm orders, we may be
protected from certain costs and losses, but our sales will
nevertheless be adversely affected and we may not generate the
revenue we expect.
Although we strive to maintain ongoing relationships with our
customers, there is an ongoing risk that orders may be cancelled
or rescheduled due to fluctuations in our customers
business needs or purchasing budgets.
Our largest customer, Sinovel, has in recent years accounted for
a majority of our backlog. In the event that we either fail to
deliver product to Sinovel within 120 days after its
specific delivery time, or become bankrupt or insolvent, Sinovel
would have the right to terminate any remaining orders that we
have in backlog. If Sinovel cancelled orders, it would have a
material negative impact on our operating results and financial
position.
Many
of our revenue opportunities are dependent upon subcontractors
and other business collaborators.
Many of the revenue opportunities for our business involve
projects, such as the installation of superconductor cables in
power grids and electrical system hardware in wind turbines, in
which we collaborate with other companies, including suppliers
of cryogenic systems, manufacturers of electric power cables and
manufacturers of wind turbines. As a result, most of our current
and planned revenue-generating projects involve business
collaborators on whose performance our revenue is dependent. If
these business partners fail to deliver their products or
perform their obligations on a timely basis or fail to generate
sufficient demand for the systems they manufacture, our revenue
from the project may be delayed or decreased, and we may not be
successful in selling our products.
Our
products face intense competition, which could limit our ability
to acquire or retain customers.
The markets for our products are intensely competitive. Our AMSC
Power Systems business unit faces competition from companies
offering power electronic converters for use in applications for
which we expect to sell our PowerModule products. These
companies include ABB, Inverpower, SatCon, Semikron and Xantrex
(a subsidiary of Schneider Electric).
We face competition from companies offering wind turbine
electrical system components. These companies include ABB,
Converteam, Ingeteam, Mita-Teknik, The Switch, Woodward Governor
and Xantrex.
We face competition from other companies offering FACTS systems
similar to our D-VAR and SVC solutions. These include SVCs from
ABB, Alstrom, AREVA, Mitsubishi Electric and Siemens; adaptive
VAR compensators and STATCOMs produced by S&C Electric;
DVRs (dynamic voltage restorers) produced by companies such as
ABB and S&C Electric; and flywheels and battery-based UPS
systems offered by various companies around the world.
Our AMSC Windtec business faces competition for the supply of
wind turbine engineering design services from design engineering
firms, such as Garrad Hassan, and from licensors of wind turbine
systems, such as Aerodyn, AventisEnergy and Fuhrlander. We also
face indirect competition in the wind energy market from
manufacturers of wind energy systems, such as Gamesa, General
Electric, Suzlon and Vestas.
Our AMSC Superconductors business unit faces competition both
from vendors of traditional wires made from materials such as
copper and from companies who are developing HTS wires. We also
face competition for our 344 superconductors from a number
of companies in the U.S. and abroad who are developing 2G
HTS wire technology. These include Innova, MetOx, Superconductor
Technologies and Superpower (a subsidiary of Royal Philips
Electronics) in the U.S.; Fujikura, Furukawa, Showa and Sumitomo
in Japan; SuNAM in South Korea; and Bruker, evico GmbH, Nexans
and Zenergy in Europe. We believe that the proprietary processes
we have adopted will prove to be the best processes to provide
not only high-performance wire, but also commercial quantities
at the lowest cost. Six companies evico GmbH
Furukawa,, Nexans, Showa, Sumitomo Electric and Zenergy
Power have been focusing their research programs
more recently on the development of 2G HTS wire made by the same
or similar processes we have chosen to utilize to manufacture 2G
HTS wire.
We are developing a stand-alone FCL in collaboration with
Siemens and Nexans. We also are developing Secure Super Grids
technology, which incorporates fault-current-limiting capability
in superconductor power
23
cables. The industrial competition for stand-alone FCLs based on
HTS includes Hypertech and SC Power (Zenergy Power) in the U.S.;
Nexans and Rolls-Royce in Europe; Sumitomo Electric and Toshiba
in Japan; Beijing Superconductor and Innopower in China; and
Hyundai and LS Industrial Systems in Korea. Initial work on
superconductor cables that incorporate fault current limiting
characteristics was carried out several years ago by Bruker and
Nexans using a different concept. The competition for
stand-alone FCLs also includes non-HTS systems based on power
electronics, including a system developed by Powell and Silicon
Power. We believe we have a strong intellectual property
position in Secure Super Grids technology and also a strong
position on stand-alone FCLs in collaboration with Siemens.
Many of our competitors have substantially greater financial
resources, research and development, manufacturing and marketing
capabilities than we have. In addition, as the HTS wire,
superconductor electric motors and generators, and power
electronic systems markets develop, other large industrial
companies may enter those fields and compete with us. If we are
unable to compete successfully, it may harm our business, which
in turn may 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 have attracted a highly skilled management team and
specialized workforce, including scientists, engineers,
researchers, manufacturing, marketing and sales professionals.
If we were to lose the services of any of our executive officers
or key employees, our business could be materially and adversely
impacted.
Finding and retaining good personnel for our business is
challenging, and highly qualified technical personnel are likely
to remain a limited resource for the foreseeable future despite
current economic conditions and rising unemployment levels. We
may not be able to hire the necessary personnel to implement our
business strategy, or we may need to provide higher compensation
or more training to our personnel than we currently anticipate.
Moreover, any officer or employee can terminate his or her
relationship with us at any time.
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.
We may in the future acquire complementary businesses or
technologies. As a result of any acquisitions we pursue,
managements attention and resources may be diverted from
our other businesses. An acquisition may also involve a
significant purchase price, which could reduce our cash position
or dilute our stockholders, and significant transaction-related
expenses.
Achieving the benefits of any acquisition involves additional
risks, including:
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difficulty assimilating acquired operations, technologies and
personnel;
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inability to retain management and other key personnel of the
acquired business;
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changes in management or other key personnel that may harm
relationships with the acquired businesss customers and
employees;
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unforeseen liabilities of the acquired business; and
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diversion of management attention as a result of the integration
process.
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We cannot ensure that we will realize any of the anticipated
benefits of any acquisition, and if we fail to realize these
anticipated benefits, our operating performance could suffer.
Our
international operations are subject to risks that we do not
face in the U.S., which could have an adverse effect on our
operating results.
We are expanding our sales and service operations in Europe and
the Asia-Pacific region, including a new operation in China. We
expect our revenue and operations outside the United States will
continue to expand in the future. For fiscal years ended
March 31, 2010, 2009 and 2008, a majority of our
consolidated revenues were derived
24
from customers outside of the United States. Our international
operations are subject to a variety of risks that we do not face
in the U.S., including:
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|
|
difficulties in staffing and managing our foreign offices and
the increased travel, infrastructure and legal compliance costs
associated with multiple international locations;
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|
potentially longer payment cycles for sales in foreign countries
and difficulties in collecting accounts receivable;
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|
additional withholding taxes or other taxes on our foreign
income and repatriated cash, and tariffs or other restrictions
on foreign trade or investment, including export duties and
quotas, trade and employment restrictions;
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|
|
imposition of, or unexpected adverse changes in, foreign laws or
regulatory requirements;
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|
increased exposure to foreign currency exchange rate risk;
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|
reduced protection for intellectual property rights in some
countries; and
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political unrest, war or acts of terrorism.
|
Our overall success in international markets depends, in part,
upon our ability to succeed in differing legal, regulatory,
economic, social and political conditions. We may not be
successful in developing and implementing policies and
strategies that will be effective in managing these risks in
each country where we do business or conduct operations. Our
failure to manage these risks successfully could harm our
international operations and reduce our international sales,
thus adversely affecting our business, operating results and
financial condition.
AMSC
Power Systems Business Unit
We
have limited experience manufacturing our Power Systems products
in commercial quantities overseas.
We currently produce our primary Power Systems products,
including the PM3000, at our manufacturing facility in China. We
do not have significant experience managing foreign
manufacturing operations, and such operations are subject to
complexities that we may not be able to adequately anticipate or
manage. An inability to successfully manufacture our products at
acceptable cost and quality through our China facility may
affect our future revenue and profit.
We
rely upon third party suppliers for the components and
subassemblies of many of our products, making us vulnerable to
supply shortages and price fluctuations, which could harm our
business.
Many of the Power Systems components and subassemblies are
currently manufactured for us by a limited number of suppliers.
Any interruption in the supply of components or subassemblies,
or our inability to obtain substitute components or
subassemblies from alternate sources at acceptable prices in a
timely manner, could impair our ability to meet the demand of
our customers, which would have an adverse effect on our
business and operating results.
We are producing some Power Systems products in our
manufacturing facility in China. In order to minimize costs and
time to market, we have and will continue to identify local
suppliers that meet our quality standards to produce certain of
our subassemblies and components. These efforts may not be
successful. In addition, any event which negatively impacts our
supply, including, among others, wars, terrorist activities,
natural disasters and outbreaks of infectious disease, could
delay or suspend shipments of products or the release of new
products or could result in the delivery of inferior products.
Our revenues from the affected products would decline or we
could incur losses until such time as we are able to restore our
production processes or put in place alternative contract
manufacturers or suppliers. Even though we carry business
interruption insurance policies, we may suffer losses as a
result of business interruptions that exceed the coverage
available under our insurance policies.
25
We are
becoming increasingly reliant on contracts that require the
issuance of performance bonds.
While we have been required to provide performance bonds in the
form of surety bonds or letters of credit in the past, the size
of the bonds was not material. In recent years, we have entered
into contracts that require us to post bonds of significant
magnitude. In many instances, we are required to deposit cash in
escrow accounts as collateral for these instruments, which is
unavailable to us for general use for significant periods of
time. Should we be unable to obtain performance bonds in the
future, significant future potential revenue could become
unavailable to us. Further, should our working capital situation
deteriorate, we would not be able to access the escrowed cash to
meet working capital requirements.
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.
Consistent with customary practice in our industry, we warrant
our products
and/or
services to be free from defects in material and workmanship
under normal use and service. Warranties are generally for a
duration of twelve months from the date the products
and/or
services are put into service or 18 months from the date of
delivery, whichever occurs first. In some cases, the warranty
can be extended to twenty four months from date of delivery and
thirty six months from in-service activation. In rare cases
warranties can be for as long as five years. The possibility of
future product failures could cause us to incur substantial
expenses to repair or replace defective products. Furthermore,
widespread product failures may damage our market reputation and
reduce our market share and cause sales to decline.
Our
success in addressing the wind energy market is dependent on the
manufacturers that license our designs.
Because an important element of our strategy for addressing the
wind energy market involves the license of our wind turbine
designs to manufacturers of those systems, the financial
benefits to us from our products for the wind energy market are
dependent on the success of these manufacturers in selling wind
turbines based on our designs. We may not be able to enter into
marketing or distribution arrangements with third parties on
financially acceptable terms, and third parties may not be
successful in selling our products or applications incorporating
our products.
Growth
of the wind energy market depends largely on the availability
and size of government subsidies and economic
incentives.
At present, the cost of wind energy exceeds the cost of
conventional power generation in many locations around the
world. Various governments have used different policy
initiatives to encourage or accelerate the development and
adoption of wind energy and other renewable energy sources.
Renewable energy policies are in place in the European Union,
most notably Germany and Spain, certain countries in Asia,
including China, Japan and South Korea, and many of the states
in Australia and the United States. Examples of government
sponsored financial incentives include capital cost rebates,
feed-in tariffs, tax credits, net metering and other incentives
to end-users, distributors, system integrators and manufacturers
of wind energy products to promote the use of wind energy and to
reduce dependency on other forms of energy. Governments may
decide to reduce or eliminate these economic incentives for
political, financial or other reasons. Reductions in, or
eliminations of, government subsidies and economic incentives
before the wind energy industry reaches a sufficient scale to be
cost-effective in a non-subsidized marketplace could reduce
demand for our products and adversely affect our business
prospects and results of operations.
AMSC
Superconductors Business Unit
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.
Many of our superconductor products are in the early stages of
commercialization, while others are still under development.
There are a number of technological challenges that we must
successfully address to complete our development and
commercialization efforts for superconductor products. We also
believe that several years of
26
further demonstration in the cable, fault current limiter and
motor industries may be necessary before a substantial
commercial market could develop. We will also need to improve
the performance and reduce the cost of our HTS wire to expand
the number of commercial applications for it. We may be unable
to meet such technological challenges or to sufficiently improve
the performance and reduce the costs of our HTS wire. Delays in
development, as a result of technological challenges or other
factors, may result in the introduction or commercial acceptance
of our superconductor products later than anticipated.
We
have not manufactured our 344 superconductors in commercial
quantities, and a failure to manufacture our 344 superconductors
in commercial quantities at acceptable cost and quality levels
would substantially limit our future revenue and profit
potential.
We are developing commercial-scale manufacturing processes for
our 344 superconductors, which are very different from our 1G
HTS wire manufacturing processes and are complex and
challenging. In November 2007, we started initial production of
our 344 superconductors on a new manufacturing line that was
designed for an annual capacity of 720,000 meters. However, in
order to be able to offer our wire at pricing that we believe
will be commercially competitive, we estimate that we will need
to develop the capacity to millions of meters of our 344
superconductors annually. We may not be able to manufacture
satisfactory commercial quantities of 344 superconductors of
consistent quality with an acceptable yield and cost. Failure to
successfully scale up manufacturing of our 344 superconductors
would result in a significant limitation of the broad market
acceptance of our HTS products and of 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.
To date, there has been no widespread commercial use of HTS
products. Even if the technological hurdles currently limiting
commercial uses of HTS products are overcome, it is uncertain
whether a robust commercial market for those new and unproven
products will ever develop. To date, many projects to install
superconductor cables and products in power grids have been
funded or subsidized by the governmental authorities. If this
funding is curtailed, grid operators may not continue to utilize
superconductor cables and products in their projects.
In addition, we believe in-grid demonstrations of superconductor
power cables are necessary to convince utilities and power grid
operators of the benefits of this technology. Even if a project
is funded, completion of projects can be delayed as a result of
other factors. For example, a delay in the completion of project
Hydra, which involves the development and deployment of our
Secure Super Grids technology in Manhattan, occurred due to a
delay in construction by Consolidated Edison of a substation the
cable system would be connected to.
It is possible that the market demands we currently anticipate
for our HTS products will not develop and that they will never
achieve widespread commercial acceptance.
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 adversely affect our revenue and cash
flow.
To date, we have limited experience marketing and selling our
superconductor products and system-level solutions, and there
are few people who have significant experience marketing or
selling superconductor products and system-level solutions. Once
our products and solutions are ready for widespread commercial
use, we will have to develop a marketing and sales organization
that will effectively demonstrate the advantages of our products
over both more traditional products and competing superconductor
products or other technologies. We may not be successful in our
efforts to market this new technology, and we may not be able to
establish an effective sales and distribution organization.
We may decide to enter into arrangements with third parties for
the marketing or distribution of our products, including
arrangements in which our products, such as HTS wire, are
included as a component of a larger product, such as a power
cable system or a motor. By entering into marketing and sales
alliances, the financial benefits to us of commercializing our
products are dependent on the efforts of others.
27
Our
contracts with the U.S. government are subject to audit,
modification or termination by the U.S. government, include
certain other provisions in favor of the government, and the
continued funding of such contracts remains subject to annual
congressional appropriation which, if not approved, could
adversely affect our results of operations and financial
condition.
As a company that contracts with the U.S. government, we
are subject to financial audits and other reviews by the
U.S. government of our costs and performance, accounting
and general business practices relating to these contracts.
Based on the results of these audits, the U.S. government
may adjust our contract-related costs and fees. We cannot be
certain that adjustments arising from government audits and
reviews would not have a material adverse effect on our results
of operations.
Our U.S. government contracts customarily contain other
provisions that give the government substantial rights and
remedies, many of which are not typically found in commercial
contracts, including provisions that allow the government to:
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|
|
obtain certain rights to the intellectual property that we
develop under the contract;
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|
|
|
decline to award future contracts if actual or apparent
organizational conflicts of interest are discovered, or to
impose organizational conflict mitigation measures as a
condition of eligibility for an award;
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|
|
suspend or debar the contractor from doing business with the
government or a specific government agency; and
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|
|
pursue criminal or civil remedies under the False Claims Act,
False Statements Act and similar remedy provisions unique to
government contracting.
|
All of our U.S. government contracts can be terminated by
the U.S. government for its convenience.
Termination-for-convenience
provisions provide only for our recovery of costs incurred or
committed, and for settlement of expenses and profit on work
completed prior to termination. In addition to the right of the
U.S. government to terminate its contracts with us,
U.S. government contracts are conditioned upon the
continuing approval by Congress of the necessary spending to
honor such contracts. Congress often appropriates funds for a
program on a fiscal-year basis even though contract performance
may take more than one year. Consequently, at the beginning of
many major governmental programs, contracts often may not be
fully funded, and additional monies are then committed to the
contract only if, as and when appropriations are made by
Congress for future fiscal years. We cannot be certain that our
U.S. government contracts will not be terminated or
suspended in the future. The U.S. governments
termination of, or failure to fully fund, one or more of our
contracts would have a negative impact on our operating results
and financial condition. Further, in the event that any of our
government contracts are terminated for cause, it could affect
our ability to obtain future government contracts which could,
in turn, seriously harm our ability to develop our technologies
and products.
III.
Risks related to our intellectual property and legal
matters.
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.
In recent years, there has been significant litigation involving
patents and other intellectual property rights in many
technology-related industries. There may be patents or patent
applications in the United States or other countries that are
pertinent to our products or business of which we are not aware.
The technology that we incorporate into and use to develop and
manufacture our current and future products may be subject to
claims that they infringe the patents or proprietary rights of
others. The success of our business will also depend on our
ability to develop new technologies without infringing or
misappropriating the proprietary rights of others. Third parties
may allege that we infringe patents, trademarks or copyrights,
or that we misappropriated trade secrets. These allegations
could result in significant costs and diversion of the attention
of management. If a successful claim were brought against us and
we are found to infringe a third partys intellectual
property rights, we could be required to pay substantial
damages, including treble damages if it is determined that we
have willfully infringed such rights, or be enjoined from using
the technology deemed to be infringing or using, making or
selling products deemed to be
28
infringing. If we have supplied infringing products or
technology to third parties, we may be obligated to indemnify
these third parties for damages they may be required to pay to
the patent holder and for any losses they may sustain as a
result of the infringement. In addition, we may need to attempt
to license the intellectual property right from such third party
or spend time and money to design around or avoid the
intellectual property. Any such license may not be available on
reasonable terms, or at all. An adverse determination may
subject us to significant liabilities
and/or
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.
We own or have licensing rights under many patents and pending
patent applications. However, the patents that we own or license
may not provide us with meaningful protection of our
technologies and may not prevent our competitors from using
similar technologies, for a variety of reasons, such as:
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|
|
the patent applications that we or our licensors file may not
result in patents being issued;
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|
|
any patents issued may be challenged by third parties; and
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|
|
others may independently develop similar technologies not
protected by our patents or design around the patented aspects
of any technologies we develop.
|
Moreover, we could incur substantial litigation costs in
defending the validity of or enforcing our own patents. We also
rely on trade secrets and proprietary know-how to protect our
intellectual property. However, our non-disclosure agreements
and other safeguards may not provide meaningful protection for
our trade secrets and other proprietary information. If the
patents that we own or license or our trade secrets and
proprietary know-how fail to protect our technologies, our
market position may be adversely affected.
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 HTS products, and our success depends on our
ability to license such patents or other proprietary
rights.
We expect that some or all of the HTS materials, processes and
technologies we use in designing and manufacturing our products
are or will become covered by patents issued to other parties,
including our competitors. The owners of these patents may
refuse to grant licenses to us, or may be willing to do so only
on terms that we find commercially unreasonable. If we are
unable to obtain these licenses, we may have to contest the
validity or scope of those patents or re-engineer our products
to avoid infringement claims by the owners of these patents. It
is possible that we will not be successful in contesting the
validity or scope of a patent, or that we will not prevail in a
patent infringement claim brought against us. Even if we are
successful in such a proceeding, we could incur substantial
costs and diversion of management resources in prosecuting or
defending such a proceeding.
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Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
Our corporate headquarters and HTS wire manufacturing operations
are located in a 355,000-square-foot facility owned by us and
located in Devens, Massachusetts. In December 2007, we completed
the relocation of our corporate personnel and headquarters to
this facility from leased space located in Westborough,
Massachusetts.
Our AMSC Power Systems business unit operates out of leased
facilities located in Middleton and New Berlin, Wisconsin; West
Mifflin, Pennsylvania; Suzhou, China; and Klagenfurt, Austria
with a combined total of approximately 326,000 square feet
of space. The Middleton, Wisconsin facility comprises
approximately 52,000 square feet of space in two buildings
with leases expiring on December 31, 2010. The New Berlin,
Wisconsin facility comprises approximately 50,000 square
feet of space under a lease that expires on September 30,
2011. We operate at two West Mifflin, Pennsylvania facilities
including approximately 17,000 square feet of space under a
lease that expires on December 31, 2010 and a second lease
of approximately 19,000 square feet under a
29
lease that expires on May 31, 2010. Our Suzhou, China
facility comprises approximately 60,000 square feet of
space under a lease that expires on July 31, 2010 and an
additional 56,000 square feet of space under a lease that
expires on October 19, 2012. We operate our AMSC Windtec
subsidiary out of approximately 72,000 square feet in four
leased facilities in Klagenfurt, Austria. These leases can be
terminated at our request after a six month advance notice. In
May 2010, we consolidated operations of two of the leased
facilities in Klagenfurt, Austria equating to approximately
11,000 square feet and took possession of approximately
30,000 square feet of another leased facility in Klagenfurt.
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Item 3.
|
LEGAL
PROCEEDINGS
|
We are not currently involved in any legal proceedings other
than routine litigation or related proceedings incidental to our
business which we do not consider material.
|
|
Item 4.
|
[Removed
and Reserved]
|
30
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock has been quoted on the NASDAQ Global Market
under the symbol AMSC since 1991. The following
table sets forth the high and low price per share of our common
stock as reported on the NASDAQ Global Market for the two most
recent fiscal years:
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Common Stock
|
|
|
Price
|
|
|
High
|
|
Low
|
|
Fiscal year ended March 31, 2009:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
47.53
|
|
|
$
|
23.03
|
|
Second quarter
|
|
|
40.00
|
|
|
|
15.94
|
|
Third quarter
|
|
|
24.16
|
|
|
|
8.22
|
|
Fourth quarter
|
|
|
19.58
|
|
|
|
11.66
|
|
Fiscal year ended March 31, 2010:
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|
|
|
|
|
|
|
|
First quarter
|
|
|
30.25
|
|
|
|
16.99
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|
Second quarter
|
|
|
37.58
|
|
|
|
21.31
|
|
Third quarter
|
|
|
43.41
|
|
|
|
28.76
|
|
Fourth quarter
|
|
|
43.95
|
|
|
|
25.13
|
|
Holders
The number of shareholders of record on May 21, 2010 was
460.
Dividend
Policy
We have never paid cash dividends on our common stock. We
currently intend to retain earnings, if any, to fund the
development and growth of our business and do not anticipate
paying cash dividends for the foreseeable future. Payment of
future cash dividends, if any, will be at the discretion of our
board of directors after taking into account various factors,
including our financial condition, operating results, current
and anticipated cash needs and plans for expansion.
Securities
Authorized for Issuance Under Our Equity Compensation
Plans
The following table provides information about the securities
authorized for issuance under our equity compensation plans as
of March 31, 2010.
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|
|
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|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
for Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,714,916
|
|
|
$
|
21.15
|
|
|
|
4,692,888
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
1,000
|
(2)
|
|
|
28.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,715,916
|
|
|
$
|
21.15
|
|
|
|
4,692,888
|
|
|
|
|
|
|
|
|
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|
|
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(1) |
|
In addition to being available for future issuance upon exercise
of options that may be granted after March 31, 2010,
4,144,908 shares available for issuance under our 2007
Stock Incentive Plan may instead be issued in the form of
restricted stock, unrestricted stock, stock appreciation rights,
performance shares or other equity-based awards. Additionally,
244,000 shares are available under the 2007 Director
Stock Option Plan and 303,980 shares available under the
employee stock purchase plan on March 31, 2010. |
|
(2) |
|
Represents 1,000 shares subject to outstanding
non-qualified stock options granted to the former employees of
Integrated Electronics, LLC (IE) in connection with
our purchase of substantially all the assets of IE in June 2000. |
31
|
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Item 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data reflects the results of
operations and balance sheet data for the fiscal years ended
March 31, 2006 to 2010. The information set forth below is
not necessarily indicative of results of future operations and
should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the Consolidated
Financial Statements and notes thereto included in Item 8,
Financial Statements and Supplementary Data, of this
Form 10-K,
in order to understand further the factors that may affect the
comparability of the financial data presented below.
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|
|
|
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|
|
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|
|
Fiscal Year Ended March 31,
|
|
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2010
|
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2009
|
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2008
|
|
2007
|
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2006
|
|
|
(In thousands, except per share data)
|
|
Revenues
|
|
$
|
315,955
|
|
|
$
|
182,755
|
|
|
$
|
112,396
|
|
|
$
|
52,183
|
|
|
$
|
50,872
|
|
Net income (loss)
|
|
|
16,248
|
|
|
|
(16,635
|
)
|
|
|
(25,447
|
)
|
|
|
(34,675
|
)
|
|
|
(30,876
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)
|
Net income (loss) per common share basic
|
|
|
0.37
|
|
|
|
(0.39
|
)
|
|
|
(0.65
|
)
|
|
|
(1.04
|
)
|
|
|
(0.94
|
)
|
Net income (loss) per common share diluted
|
|
|
0.36
|
|
|
|
(0.39
|
)
|
|
|
(0.65
|
)
|
|
|
(1.04
|
)
|
|
|
(0.94
|
)
|
Total assets
|
|
|
400,184
|
|
|
|
309,106
|
|
|
|
261,234
|
|
|
|
132,433
|
|
|
|
133,470
|
|
Working capital
|
|
|
158,705
|
|
|
|
131,187
|
|
|
|
124,334
|
|
|
|
34,942
|
|
|
|
66,220
|
|
Cash, cash equivalents, short and long-term marketable
securities and restricted cash
|
|
|
155,118
|
|
|
|
117,207
|
|
|
|
119,404
|
|
|
|
35,324
|
|
|
|
65,669
|
|
Stockholders equity
|
|
|
280,965
|
|
|
|
221,861
|
|
|
|
208,452
|
|
|
|
101,621
|
|
|
|
115,100
|
|
Included in fiscal year ended March 31, 2010 net
income was $13.5 million in employee stock-based
compensation expense and a $0.5 million charge primarily
for restructuring related to our decision to consolidate our
Massachusetts operations into one facility in Devens,
Massachusetts. Fiscal year ended March 31, 2009 net
loss included $9.7 million in employee stock-based
compensation expense and a $1.0 million charge primarily
for restructuring related to our decision to consolidate our
Massachusetts operations into one facility in Devens,
Massachusetts. Fiscal year ended March 31, 2008 net
loss included $5.7 million in employee stock-based
compensation expense, a $6.7 million charge primarily for
restructuring related to our decision to consolidate our
Massachusetts operations into one facility in Devens,
Massachusetts, and $0.8 million for long-lived asset
impairments. Fiscal year ended March 31, 2007 net loss
included a $3.7 million in employee stock-based
compensation expense and a $0.7 million charge for
restructuring and long-lived asset impairments related to our
decision to re-align the AMSC Wires and AMSC SuperMachines
business units into the newly formed AMSC Superconductors
business unit.
On January 5, 2007, we completed the acquisition of Windtec
Consulting GmbH (Windtec). Windtec is an Austria-based designer
and licensor of wind energy systems. Windtec is now a
wholly-owned subsidiary and is operated by our AMSC Power
Systems business unit. The Windtec purchase price was
1.3 million shares of our common stock, valued at
approximately $13.1 million based on a
five-day
average stock price of $10.08 per share at the time of signing
the definitive acquisition agreements and public announcement of
the acquisition on November 28, 2006. The all-stock
transaction also included an earn-out opportunity with the
potential for the issuance of up to an additional
1.4 million shares of our common stock to be granted to the
former owner and founder based on the achievement by Windtec of
certain revenue growth targets for fiscal 2007 through 2010. As
of March 31, 2010, an additional 1,050,000 shares were
earned based on achieving the revenue growth targets for fiscal
years 2007, 2008 and 2009. These shares were valued at
approximately $28.7 million, and were recorded to goodwill.
Beginning on January 5, 2007, Windtecs results of
operations are included in our consolidated financial statements.
On April 27, 2007, we acquired Power Quality Systems, Inc.
(PQS), a Pennsylvania corporation. Pursuant to the merger
agreement, we acquired all of the issued and outstanding shares
of PQS, for which we issued 295,329 shares of our common
stock. We valued the acquisition at approximately
$4.3 million (excluding acquisition costs) using a value of
$14.73 per share, which represents the
five-day
average closing price of the common stock from the two trading
days before through two trading days after the signing of the
merger agreement and the public announcement of the acquisition.
The all-stock transaction also included an earn-out opportunity
32
with the potential for up to an additional 475,000 shares
of our common stock to be issued to PQSs former owners
based on the achievement of certain order growth targets for
existing PQS products for fiscal 2007 and 2008. As of
March 31, 2009, an additional 150,000 shares were
earned based on achieving the order growth targets for fiscal
2007 and fiscal 2008. These shares were valued at approximately
$3.0 million, and were recorded to goodwill. As a result of
this transaction, PQS is operated by AMSC Power Systems. The
results of PQSs operations are included in our
consolidated results from the date of acquisition of
April 27, 2007.
The impact of the above mentioned acquisitions is discussed
further in Note 15 to the Consolidated Financial Statements
included in Item 8 herein.
33
|
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Item 7.
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MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Executive
Overview
American Superconductor Corporation was founded in 1987. We
offer an array of proprietary technologies and solutions
spanning the electric power infrastructure from
generation to delivery to end use. Our company is a leader in
alternative energy, providing proven, megawatt-scale wind
turbine designs and electrical control systems for wind
turbines. We also offer a host of Smart Grid technologies for
power grid operators that enhance the reliability, efficiency
and capacity of the grid, and seamlessly integrate renewable
energy sources into the power infrastructure. These technologies
include superconductor power cable systems, grid-level surge
protectors and power electronics-based voltage stabilization
systems. Our technologies are protected by a broad and deep
intellectual property portfolio consisting of hundreds of
patents and licenses worldwide.
Our company manufactures products utilizing two primary,
proprietary technologies: programmable power electronic
converters and high temperature superconductor (HTS) wires. The
programmability and scalability of our power electronic
converters differentiates them from most competitive offerings.
Our power electronic converters increase the quantity, quality
and reliability of electric power that is produced by a
renewable source, such as wind, transmitted by electric
utilities or consumed by large industrial entities. Our HTS wire
can carry 150 times the electric current of comparatively sized
copper wire and therefore increases the electric current
carrying capacity of the transmission cables comprising these
power grids and provides current limiting functionality in
cables and stand-alone devices. In addition, our HTS wire, when
incorporated into primary electrical equipment such as motors
and generators, can provide increased manufacturing and
operating savings due to a significant reduction in the size and
weight of this equipment.
Our products are in varying stages of commercialization.
Thousands of our power electronic converters have been sold
commercially, as part of integrated systems, primarily to
electric utilities, wind turbine manufacturers and wind farm
developers, owners and operators, since 1999. We started
production of 344 superconductors, our brand name for
2G HTS wire, in November 2007. The principal
applications for HTS wire (power cables, fault current limiters,
rotating machines and specialty magnets) are currently in the
prototype stage. Some of these prototypes are funded by
U.S. government contracts, primarily with the Department of
Defense (DOD), Department of Energy
(DOE) and the Department of Homeland Security
(DHS).
Our fiscal year begins on April 1 and ends on March 31.
When we refer to a particular fiscal year, we are referring to
the fiscal year ending on March 31 of the following year. For
example, fiscal 2009 refers to the fiscal year ending
March 31, 2010. Other fiscal years follow similarly.
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 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.
Critical
Accounting Policies and Estimates
The preparation of consolidated financial statements requires
that we make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue 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. Our
accounting policies that involve the most significant judgments
and estimates are as follows:
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Revenue;
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Impairment of long-lived assets;
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34
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Inventory;
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Income taxes;
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Goodwill;
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Acquisition accounting; and
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Stock-based compensation.
|
Revenue. For certain arrangements, such as
prototype development contracts and certain product sales, we
record revenues using the
percentage-of-completion
method, measured by the relationship of costs incurred to total
estimated contract costs.
Percentage-of-completion
revenue recognition accounting is predominantly used on certain
turnkey power systems installations for electric utilities and
long-term prototype development contracts with the
U.S. government. We follow this method since reasonably
dependable estimates of the revenues and costs applicable to
various stages of a contract can be made. However, the ability
to reliably estimate total costs at completion is challenging,
especially on long-term prototype development contracts, and
could result in future changes in contract estimates. For
contracts where reasonably dependable estimates of the revenues
and costs cannot be made, we follow the completed-contract
method.
We recognize revenue for other product sales upon customer
acceptance, which can occur at the time of delivery,
installation, or post-installation, where applicable, provided
persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable and
collectability is reasonably assured. For multiple-element
arrangements, we use the residual method to allocate value to
the delivered item. Under the residual method, each undelivered
item is allocated value based on verifiable objective evidence
of fair value for that item and the remainder of the total
arrangement price is allocated to the delivered items. For a
delivered item to be considered a separate unit of accounting,
the delivered item must have value to the customer on a
standalone basis, there must be objective and reliable evidence
of fair value of the undelivered items in the arrangement and
the delivery or performance of the undelivered items must be
considered probable and substantially within our control. We do
not provide our customers with contractual rights of return for
any of our products. When other significant obligations remain
after products are delivered for which verifiable evidence
cannot be established, revenue is recognized only after such
obligations are fulfilled. The determination of what constitutes
a significant post-delivery performance obligation (if any
post-delivery performance obligations exist) is the primary
subjective consideration we systemically evaluate in the context
of each product shipment in order to determine whether to
recognize revenue on the order or to defer the revenue until all
post-delivery performance obligations have been completed.
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 likely, we would
record a liability and reduce revenue to the extent a liability
is recorded.
We enter into certain arrangements to license our technologies
and to provide training services. We have determined that the
license has no stand alone value to the customer and is not
separable from the training. Accordingly, we account for these
arrangements as a single unit of accounting, following the
revenue recognition pattern of the last deliverable of the
arrangement and recognize revenue over the period of our
performance and milestones that have been achieved. Costs for
these arrangements are expensed as incurred.
We have elected to record taxes collected from customers on a
net basis and do not include tax amounts in Revenue or Costs of
revenue.
Customer deposits received in advance of revenue recognition are
recorded as deferred revenue until customer acceptance is
received. Deferred revenue also represents the amount billed to
and/or
collected from commercial and government customers on contracts
which permit billings to occur in advance of contract
performance/revenue recognition.
Impairment of long-lived assets. We
periodically evaluate our long-lived assets consisting
principally of fixed and intangible assets for potential
impairment. We perform these evaluations whenever events or
circumstances suggest that the carrying amount of an asset or
group of assets is not recoverable. Our judgments regarding
35
the existence of impairment indicators are based on market and
operational performance. Indicators of potential impairment
include:
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a significant change in the manner in which an asset is used;
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|
a significant decrease in the market value of an asset;
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a significant adverse change in its business or the industry in
which it is sold;
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|
a current period operating cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
asset; and
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|
significant advances in our technologies that require changes in
our manufacturing process.
|
We test for potential impairment if we believe an indicator of
potential impairment exists. To analyze a potential impairment,
we project undiscounted future cash flows expected to result
from the use and eventual disposition of the asset or primary
asset in the asset group over its remaining useful life. If
these projected cash flows are less than the carrying amount, an
impairment loss is recognized in the Consolidated Statements of
Operations based on the difference between the carrying value of
the asset or asset group and its fair value, less any
disposition costs. Evaluating the impairment requires judgment
by our management to estimate future operating results and cash
flows. If different estimates were used, the amount and timing
of asset impairments could be affected.
Inventory. We write down inventory for
estimated obsolescence or unmarketable inventory in an amount
equal to the difference between the cost of the inventory and
the estimated realizable value based upon assumptions of future
demand and market conditions. If actual market conditions are
less favorable than those projected, additional inventory
write-downs may be required. Program costs may be deferred and
recorded as inventory on contracts on which costs are incurred
in excess of approved contractual amounts
and/or
funding, if future recovery of the costs is deemed probable.
Income taxes. Our provision for income taxes
is composed of a current and a deferred portion. The current
income tax provision is calculated as the estimated taxes
payable or refundable on tax returns for the current year. The
deferred income tax provision is calculated for the estimated
future tax effects attributable to temporary differences and
carryforwards using expected tax rates in effect in the years
during which the differences are expected to reverse.
We regularly assess our ability to realize our deferred tax
assets. Assessments of the realization of deferred tax assets
require that management consider all available evidence, both
positive and negative, make significant judgments about many
factors, including the amount and likelihood of future taxable
income. Based on all the available evidence, we have recorded a
valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realizable due to the
taxable losses incurred by us since our inception.
Accounting for income taxes requires a two-step approach to
recognizing and measuring uncertain tax positions. The first
step is to evaluate the tax position for recognition by
determining if, based on the technical merits, it is more likely
than not that the position will be sustained upon audit,
including resolution of related appeals or litigation processes,
if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized
upon ultimate settlement. We reevaluate these uncertain tax
positions on a quarterly basis. This evaluation is based on
factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues
under audit and new audit activity. Any changes in these factors
could result in the recognition of a tax benefit or an
additional charge to the tax provision. We include interest and
penalties related to gross unrecognized tax benefits within its
provision for income taxes.
See Note 10 of our consolidated financial statements for
further information regarding our income tax assumptions and
expenses.
Goodwill. Goodwill represents the excess of
cost over net assets of acquired businesses that are
consolidated. Goodwill is not amortized. We perform an
impairment review of our goodwill at least annually in our
fourth quarter or when events and changes in circumstances
indicate the need for such a detailed impairment analysis.
Goodwill is considered impaired when the carrying value of a
reporting unit exceeds its estimated fair value. In assessing
the recoverability of goodwill, we make assumptions regarding
estimated future cash flows and other factors to
36
determine the fair value of the reporting unit. To date, we have
determined that goodwill is not impaired, but we could in the
future determine that goodwill is impaired, which would result
in a charge to earnings.
Acquisition accounting. Acquisitions completed
prior to January 1, 2009 were accounted for using the
purchase method per generally accepted accounting principles.
Future acquisitions will be accounted for under the acquisition
method. Under the purchase method, contingent consideration is
recorded as goodwill only in the period in which the
consideration is earned. Under the acquisition method we are
required to estimate the fair value of contingent consideration
as an assumed liability on the acquisition date by estimating
the amount of the consideration and probability of the
contingencies being met. This estimate is recorded as goodwill
on the acquisition date and its value is assessed at each
reporting date. Any subsequent change to the estimated fair
value is reflected in earnings and not in goodwill. Under the
purchase method we were able to record transaction costs related
to the completion of the acquisition as goodwill. Under the
acquisition method we are required to expense these costs as
they are incurred.
Stock-based compensation. We measure
compensation cost arising from the grant of share-based payments
to employees at fair value and recognize such cost over the
period during which the employee is required to provide service
in exchange for the award, usually the vesting period. Total
stock-based compensation expense recognized during the fiscal
years ended March 31, 2010, 2009 and 2008 was
$13.5 million, $9.7 million and $5.7 million,
respectively, and is reflected in our unallocated corporate
expenses. For awards with service conditions only, we recognize
compensation cost on a straight-line basis over the requisite
service/vesting period. For awards with service and performance
conditions, we recognize compensation costs on an accelerated
basis over the requisite service/vesting period. We use the
lattice model to value market condition awards. For awards with
market conditions with a single cliff vest feature, we recognize
compensation costs on a straight-line basis over the requisite
service period.
Determining the appropriate fair value model and calculating the
fair value of share-based payment awards requires the input of
highly subjective assumptions, including the expected life of
the share-based payment awards and stock price volatility.
Management determined that expected volatility rates should be
estimated based on historical and implied volatilities of our
common stock. The expected term represents the average time that
the options that vest are expected to be outstanding based on
the vesting provisions and our historical exercise, cancellation
and expiration patterns. The assumptions used in calculating the
fair value of share-based payment awards represent
managements best estimates, but these estimates involve
inherent uncertainties and the application of management
judgment. As a result, if circumstances change and we use
different assumptions, our stock-based compensation expense
could be materially different in the future. In addition, we are
required to estimate an expected forfeiture rate and only
recognize expense for those shares expected to vest. If our
actual forfeiture rate is materially different from our
estimate, the stock-based compensation expense could be
significantly different from what we have recorded in the
current period.
See Note 11 of our consolidated financial statements for
further information regarding our stock-based compensation
assumptions and expenses.
Results
of Operations
We operate and report our financial results to the Chief
Executive Officer in two reportable business segments: AMSC
Power Systems and AMSC Superconductors.
AMSC Power Systems business unit produces a broad range of
products to increase electrical grid capacity and reliability;
supplies electrical systems used in wind turbines; sells power
electronic products that regulate wind farm voltage to enable
their interconnection to the power grid; licenses proprietary
wind turbine designs to manufacturers of such systems; provides
consulting services to the wind industry; and offers products
that enhance power quality for industrial operations.
AMSC Superconductors business unit manufactures HTS wire and
coils; designs and develops superconductor products, such as
power cables, fault current limiters and motors; and manages
large-scale superconductor projects.
37
Years
Ended March 31, 2010 and March 31, 2009
Revenues
Total revenues increased by 73% to $316.0 million in fiscal
2009, from $182.8 million for fiscal 2008. Our revenues are
summarized as follows (in thousands):
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|
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|
|
|
|
|
|
Fiscal Years Ended
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|
|
|
March 31,
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|
|
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2010
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|
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2009
|
|
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AMSC Power Systems
|
|
$
|
304,276
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$
|
168,008
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AMSC Superconductors
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11,679
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14,747
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|
|
|
|
|
|
|
|
Total
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$
|
315,955
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|
|
$
|
182,755
|
|
|
|
|
|
|
|
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|
|
Revenues in our AMSC Power Systems business unit consist of
revenues from wind turbine electrical systems and core
components, wind turbine license and development contracts as
well as D-VAR, D-VAR RT, SVC, and PowerModule product sales,
service contracts, and consulting arrangements. We also
engineer, install and commission our products on a turnkey basis
for some customers. Our Power Systems business unit accounted
for 96% and 92% of total revenues for fiscal 2009 and 2008,
respectively. Revenues in the Power Systems business unit
increased 81% to $304.3 million in fiscal 2009 from
$168.0 million in fiscal 2008. The increases in AMSC Power
Systems business unit revenues were primarily due to higher
sales of wind turbine electrical systems and core components,
primarily to customers in China, higher D-VAR system shipments,
as well as shipments of our D-VAR RT product to ACCIONA Energy
in Spain. Changes in foreign exchange rates from fiscal 2008 to
fiscal 2009 had a de minimis effect on revenue in fiscal 2009.
A substantial portion of our revenues are derived from one
customer, Sinovel Wind Co., Ltd., a manufacturer of wind energy
systems based in China. Sales to Sinovel represented 70% and 67%
of our total revenues for fiscal 2009 and 2008, respectively.
Revenues in our AMSC Superconductors business unit consist of
contract revenues, HTS wire sales, revenues under
government-sponsored electric utility projects, and other
prototype development contracts. AMSC Superconductors business
unit revenue is primarily recorded using the
percentage-of-completion
method. AMSC Superconductors accounted for 4% and 8% revenues
for fiscal 2009 and 2008, respectively. AMSC Superconductors
revenue decreased 21% to $11.7 million in fiscal 2009 from
$14.7 million in fiscal 2008. Revenues from significant
AMSC Superconductors government funded contract revenues are
summarized as follows (in thousands):
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Revenue Earned for
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Revenue Earned
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the Fiscal Years
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Expected Total
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through
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Ended March 31,
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Project Name
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Contract Value
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March 31, 2010
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2010
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|
2009
|
|
HYDRA
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$
|
24,908
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$
|
9,573
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|
|
$
|
1,721
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|
|
$
|
4,207
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|
LIPA I and II
|
|
|
40,141
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|
|
|
34,351
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|
|
|
3,616
|
|
|
|
2,934
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|
DOE-FCL
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|
|
7,898
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|
|
|
4,406
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|
|
|
1,403
|
|
|
|
2,080
|
|
NAVSEA Motor Study
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|
|
6,511
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|
|
|
6,212
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|
|
|
332
|
|
|
|
2,940
|
|
These significant projects represented 61% and 82% of AMSC
Superconductors revenue for fiscal 2009 and 2008, respectively.
The decrease in AMSC Superconductors business unit revenue for
the fiscal year ended March 31, 2010 was driven primarily
by lower HYDRA project revenues due to delays in project
milestones and the completion of the NAVSEA Motor Study. We
recognize superconductor cable project revenues from the Project
HYDRA contract with Consolidated Edison, Inc.
(ConEdison), which is being funded by 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 to enable Secure Super Grids. Secure Super Grids
utilize customized HTS wires, superconductor power cables 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
38
to us as of March 31, 2010. We recognized $1.7 million
in revenue related to the Project HYDRA during fiscal 2009,
compared to $4.2 million in fiscal 2008. ConEdison and
Southwire Company are subcontractors to us on this project. On
April 1, 2010, we received a modification to the contract
that re-aligns the project funding to correlate with our current
project plans to do further development and testing until
parties can evaluate future in-grid cable demonstration options.
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 second generation HTS 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.
Cost-sharing
funding
In addition to reported revenues, we also received funding of
$1.8 million for fiscal 2009 under U.S. government
cost-sharing agreements with the U.S. Air Force and DOE,
compared to $2.1 million for fiscal 2008. The decrease in
cost-sharing funding is primarily due to programs nearing
completion. All of our cost-sharing agreements provide funding
in support of development work on 344 superconductors being done
in our AMSC Superconductors business unit. We anticipate that a
portion of our funding in the future will continue to come from
cost-sharing agreements as we execute joint programs with
government agencies. Funding from government cost-sharing
agreements is recorded as an offset to research and development
(R&D) and selling, general and administrative
(SG&A) expenses, rather than as revenue. As of
March 31, 2010, we anticipate recognizing an additional
$0.3 million offset to R&D and SG&A expenses
related to these cost-sharing agreements over the next year.
Cost
of Revenues and Gross Margin
Cost of revenues increased by 54% to $201.0 million for
fiscal 2009, compared to $130.9 million for fiscal 2008.
Gross margin was 36.4% for fiscal 2009, compared to 28.4% for
fiscal 2008. The increases in gross margin in fiscal 2009 as
compared to fiscal 2008 was due primarily to a shift in mix
towards higher margin wind turbine core electrical component
shipments and material cost reductions, primarily resulting from
the localization of component supply in China for our power
electronic converters which are now manufactured there.
During the fourth quarter of the fiscal year ended
March 31, 2010, we adjusted our Cost of revenues by
$0.7 million for an understatement of Cost of revenues of
$0.4 million and $0.3 million, net of tax, in the
second and third quarters, respectively. The adjustment had no
impact to the full year results for the year ended
March 31, 2010. We evaluated this adjustment taking into
account both qualitative and quantitative factors and considered
the impact of this adjustment in relation to the fourth quarter
of the fiscal year ended March 31, 2010. Management
believes this adjustment is immaterial to both the consolidated
quarterly and annual financial statements for all periods
affected.
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):
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|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
R&D expenses per Consolidated Statements of Operations
|
|
$
|
23,593
|
|
|
$
|
19,675
|
|
R&D expenditures reclassified as cost of revenues
|
|
|
14,869
|
|
|
|
18,720
|
|
R&D expenditures offset by cost-sharing funding
|
|
|
971
|
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
Aggregated R&D expenses
|
|
$
|
39,433
|
|
|
$
|
39,524
|
|
|
|
|
|
|
|
|
|
|
39
R&D expenses (exclusive of amounts classified as cost of
revenues and amounts offset by cost-sharing funding) increased
by 20% to $23.6 million, or 7% of revenue, for fiscal 2009
from $19.7 million, or 11% of revenue, for fiscal 2008. The
increase in R&D expenses was driven primarily by increased
headcount and related labor spending, as well as added material
and overhead spending to support new product development in our
Power Systems business unit. The decrease in R&D
expenditures reclassified to cost of revenues was a result of
decreased efforts under our government funded contracts in our
AMSC Superconductors business unit compared to the prior year
periods. Aggregated R&D expenses, which include amounts
classified as cost of revenues and amounts offset by
cost-sharing funding, remained flat at $39.4 million or 12%
of revenue, for fiscal 2009, compared to $39.5 million, or
22% of revenue, for fiscal 2008.
Selling,
general, and administrative
A portion of the SG&A expenditures related to externally
funded development contracts has been classified as cost of
revenues (rather than as SG&A expenses). Additionally, a
portion of SG&A expenses was offset by cost-sharing
funding. Our SG&A expenditures are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
SG&A expenses per Consolidated Statements of Operations
|
|
$
|
50,446
|
|
|
$
|
37,516
|
|
SG&A expenditures reclassified as cost of revenues
|
|
|
352
|
|
|
|
617
|
|
SG&A expenditures offset by cost sharing funding
|
|
|
846
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
Aggregated SG&A expenses
|
|
$
|
51,644
|
|
|
$
|
39,116
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses (exclusive of amounts classified as cost of
revenues and amounts offset by cost-sharing funding) increased
by 34% to $50.4 million, or 16% of revenue, in fiscal 2009
from $37.5 million, or 21% of revenue, for fiscal 2008. The
increase in SG&A expenses was due primarily to higher
stock-based compensation expense and higher labor and related
costs driven by headcount growth, partially offset by a
reduction in bad debt expense. Aggregated SG&A expenses,
which include amounts classified as cost of revenues and amounts
offset by cost sharing funding, increased 32% to
$51.6 million, or 16% of revenue, for fiscal 2009 from
$39.1 million, or 21% of revenue, for fiscal 2008, for the
reasons described above.
We present Aggregated R&D and Aggregated SG&A
expenses, which are non-GAAP measures, because we believe this
presentation provides useful information on our aggregate
R&D and SG&A spending and because R&D and
SG&A expenses as reported on the Consolidated Statements of
Operations 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
cost of revenues rather than as R&D and SG&A expenses,
as discussed above.
We plan to continue to increase R&D and SG&A
expenditures in absolute terms in the coming quarters to provide
the platform for growth in subsequent years, but expect them to
decline in fiscal 2010 as a percent of revenue from fiscal 2009
levels.
Amortization
of acquisition related intangibles
In both fiscal 2009 and 2008, we recorded $1.8 million in
amortization related to our contractual relationships/backlog,
customer relationships, core technology and know-how, trade
names and trademark intangible assets. These intangible assets
are a result of our Windtec and PQS acquisitions.
Restructuring
and impairments
On October 25, 2007, our Board of Directors approved a
restructuring plan (the Fiscal 2007 Plan) to reduce
operating costs through the closure of our last remaining
facility in Westborough, Massachusetts and the
40
consolidation of operations there, including our corporate
headquarters, into our Devens, Massachusetts facility. No
headcount reductions were associated with this plan.
Aggregate restructuring charges associated with the Fiscal 2007
Plan were $7.9 million, of which $0.5 million was
recorded in fiscal 2009 and $1.0 million in fiscal 2008
related to the closure of our Westborough, Massachusetts
facility.
All restructuring charges associated with the Fiscal 2007 Plan
have resulted in cash disbursements and had been completed at
the end of the second quarter of fiscal 2009. Cash payments
under this plan in fiscal 2009 and 2008 were $2.6 million
and $3.9 million, respectively.
Operating
income (loss)
Our operating income (loss) is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
AMSC Power Systems
|
|
$
|
77,604
|
|
|
$
|
26,492
|
|
AMSC Superconductors
|
|
|
(24,432
|
)
|
|
|
(23,655
|
)
|
Unallocated corporate expenses
|
|
|
(14,511
|
)
|
|
|
(11,033
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,661
|
|
|
$
|
(8,196
|
)
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems operating income increased to
$77.6 million in fiscal 2009 from $26.5 million in
fiscal 2008. The increase in fiscal 2009 was primarily the
result of higher sales and gross margins, as described above.
AMSC Superconductors operating loss increased to
$24.4 million in fiscal 2009 from $23.7 million in
fiscal 2008. The increase in operating loss for the fiscal year
ended March 31, 2010 is primarily due to lower sales and
higher expensed material costs.
Unallocated corporate expenses include stock-based compensation
expense of $13.5 million for fiscal 2009 compared to
$9.7 million for fiscal 2008. Unallocated corporate
expenses also include $0.5 million and $1.0 million of
restructuring charges related primarily to the closure of our
facility in Westborough, Massachusetts for fiscal 2009 and 2008,
respectively.
Non-operating
expenses/Interest income
Interest income decreased to $0.8 million for fiscal 2009
from $2.8 million in fiscal 2008, primarily due to lower
interest rates, as we are investing in more conservative assets
due to the current economic environment.
Other expense, net, was $2.7 million in fiscal 2009,
compared to $2.5 million in fiscal 2008. Other income
(expense), net, for fiscal 2009 primarily relates to net foreign
currency transaction and translation gains and losses as well as
net realized and unrealized gains and losses on hedging
contracts. Other income (expense), net, for fiscal 2008
primarily relates to net foreign currency transaction and
translation gains and losses as well as $1.3 million
charged to expense from
mark-to-market
adjustments on a warrant that had been held by Provident Premier
Master Fund.
Income
Taxes
During fiscal 2009 and 2008, we recorded income tax expense of
$20.5 million and $8.7 million, respectively. Income
tax expense in both periods was driven by income generated in
foreign jurisdictions. We incurred losses in the U.S. in
fiscal 2009 and 2008 for which no tax benefit was recognized.
Section 382 of the Internal Revenue Code of 1986, as
amended (the IRC), provides limits on the extent to
which a corporation that has undergone an ownership change (as
defined) can utilize any net operating loss (NOL)
and general business tax credit carryforwards it may have. We
commissioned a study to determine whether Section 382 could
limit the use of our carryforwards in this manner. After
completing this study, we have concluded, that the limitation
will not have a material impact on our ability to utilize our
net operating loss carryforwards.
41
Please refer to the Risk Factors section in
Item 1A for a discussion of certain factors that may affect
our future results of operations and financial condition.
Years
Ended March 31, 2009 and March 31, 2008
Revenues
Total revenues increased by 63% to $182.8 million in fiscal
2008, from $112.4 million for fiscal 2007. Our revenues are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
AMSC Power Systems
|
|
$
|
168,008
|
|
|
$
|
96,823
|
|
AMSC Superconductors
|
|
|
14,747
|
|
|
|
15,573
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
182,755
|
|
|
$
|
112,396
|
|
|
|
|
|
|
|
|
|
|
Our Power Systems business unit accounted for 92% and 86% of
total revenues for fiscal 2008 and 2007, respectively. Revenues
in the Power Systems business unit increased 74% to
$168.0 million in fiscal 2008 from $96.8 million in
fiscal 2007. The increase in AMSC Power Systems revenues were
primarily due to higher sales of wind electrical systems and
core components, including our PowerModule product, primarily to
customers in China. Based on the average Euro and renminbi
exchange rates for fiscal 2008, revenue denominated in these
foreign currencies translated into U.S. dollars was
$2.3 million higher compared to the translation of these
revenues using the average exchange rates of these currencies
for fiscal 2007.
A substantial portion of our revenues are derived from one
customer, Sinovel Wind Co., Ltd., a manufacturer of wind energy
systems based in China. Sales to Sinovel represented 67% and 51%
of our total revenues for fiscal 2008 and 2007, respectively.
AMSC Superconductors accounted for 8% and 14% revenues for
fiscal 2008 and 2007, respectively. AMSC Superconductors revenue
decreased 5% to $14.7 million in fiscal 2008 from
$15.6 million in fiscal 2007. Revenues from significant
AMSC Superconductors government funded contract revenues are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Earned for
|
|
|
|
|
Revenue Earned
|
|
the Fiscal Years
|
|
|
Expected Total
|
|
through
|
|
Ended March 31,
|
Project Name
|
|
Contract Value
|
|
March 31, 2009
|
|
2009
|
|
2008
|
|
HYDRA
|
|
$
|
24,908
|
|
|
$
|
7,852
|
|
|
$
|
4,207
|
|
|
$
|
3,645
|
|
LIPA I and II
|
|
|
36,606
|
|
|
|
30,735
|
|
|
|
2,934
|
|
|
|
4,345
|
|
DOE-FCL
|
|
|
3,065
|
|
|
|
3,003
|
|
|
|
2,080
|
|
|
|
923
|
|
36.5 MW Motor
|
|
|
90,150
|
|
|
|
90,150
|
|
|
|
|
|
|
|
1,283
|
|
NAVSEA Motor Study
|
|
|
5,886
|
|
|
|
5,880
|
|
|
|
2,940
|
|
|
|
2,551
|
|
These significant projects represented 82% of AMSC
Superconductors revenue for both fiscal 2008 and fiscal 2007,
respectively.
The decrease in AMSC Superconductors revenue for fiscal 2008 was
driven primarily by lower LIPA I and II and 36.5 MW
motor project revenues due to the completion of these programs,
partially offset by higher revenues from our DOE-FCL and HYDRA
projects.
We recognized superconductor cable project revenues in fiscal
2008 from the Project HYDRA contract was signed on
January 22, 2008. Of the total $24.9 million in
funding expected from DHS, it committed funding of
$16.3 million to us through March 31, 2009. We
recognized $4.2 million in revenue related to the Project
HYDRA during fiscal 2008, compared to $3.6 million in
fiscal 2007.
42
Cost-sharing
funding
In addition to reported revenues, we also received funding of
$2.1 million for fiscal 2008 under U.S. government
cost-sharing agreements with the U.S. Air Force and DOE,
compared to $2.5 million for fiscal 2007. The decrease in
cost-sharing funding is primarily due to the DOE Wire Initiative
program nearing completion.
Cost
of Revenues and Gross Margin
Cost of revenues increased by 63% to $130.9 million for
fiscal 2008, compared to $80.4 million for fiscal 2007.
Gross margin was 28.4% for fiscal 2008, compared to 28.5% for
fiscal 2007. The slight decrease in gross margin in fiscal 2008
as compared to fiscal 2007 was due primarily to a loss recorded
in fiscal 2008 on a turnkey SVC contract of $1.3 million
and higher warranty expenses in Power Systems of
$3.6 million, as well as higher expensed material costs and
a full year of depreciation in our Superconductors manufacturing
operations. This was partially offset by a higher percentage of
higher-margin Power Systems sales as compared to Superconductor
sales.
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):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
R&D expenses per Consolidated Statements of Operations
|
|
$
|
19,675
|
|
|
$
|
15,651
|
|
R&D expenditures reclassified as cost of revenues
|
|
|
18,720
|
|
|
|
16,218
|
|
R&D expenditures offset by cost-sharing funding
|
|
|
1,129
|
|
|
|
1,323
|
|
|
|
|
|
|
|
|
|
|
Aggregated R&D expenses
|
|
$
|
39,524
|
|
|
$
|
33,192
|
|
|
|
|
|
|
|
|
|
|
R&D expenses (exclusive of amounts classified as cost of
revenues and amounts offset by cost-sharing funding) increased
by 26% to $19.7 million, or 11% of revenue, for fiscal 2008
from $15.7 million, or 14% of revenue, for fiscal 2007. The
increase in R&D expenses was driven primarily by internal
product development costs in our AMSC Power Systems business
unit to support future growth opportunities and our
next-generation product offerings. The increase in R&D
expenditures reclassified to cost of revenues were a result of
increased efforts under license and development contracts for
wind turbine designs in AMSC Windtec. Aggregated R&D
expenses, which include amounts classified as cost of revenues
and amounts offset by cost-sharing funding, increased 19% to
$39.5 million, or 22% of revenue, for fiscal 2008 compared
to $33.2 million, or 30% of revenue, for fiscal 2007. The
increase in fiscal 2008 was driven primarily by the factors
described above.
Selling,
general, and administrative
A portion of the SG&A expenditures related to externally
funded development contracts has been classified as cost of
revenues (rather than as SG&A expenses). Additionally, a
portion of SG&A expenses was offset by cost-sharing
funding. Our SG&A expenditures are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
SG&A expenses per Consolidated Statements of Operations
|
|
$
|
37,516
|
|
|
$
|
28,752
|
|
SG&A expenditures reclassified as costs of revenue
|
|
|
617
|
|
|
|
1,014
|
|
SG&A expenditures offset by cost sharing funding
|
|
|
983
|
|
|
|
1,216
|
|
|
|
|
|
|
|
|
|
|
Aggregated SG&A expenses
|
|
$
|
39,116
|
|
|
$
|
30,982
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses (exclusive of amounts classified as cost of
revenues and amounts offset by cost-sharing funding) increased
by 30% to $37.5 million, or 21% of revenue, in fiscal 2008
from $28.8 million, or 26% of revenue, for fiscal
43
2007. The increase in SG&A expenses were due primarily to
higher bad debt expense of $1.4 million and higher
stock-based compensation expense of $2.3 million. The
balance of the SG&A increase was due primarily to higher
labor and related costs driven by headcount growth. For these
same reasons, Aggregated SG&A expenses, which include
amounts classified as cost of revenues and amounts offset by
cost sharing funding, increased 26% to $39.1 million, or
21% of revenue, for fiscal 2008 from $31.0 million, or 28%
of revenue, for fiscal 2007.
Amortization
of acquisition related intangibles
We recorded $1.8 million and $5.1 million in fiscal
2008 and 2007, respectively, in amortization related to our
contractual relationships/backlog, customer relationships, core
technology and know-how, trade names and trademark intangible
assets. These intangible assets are a result of our Windtec and
PQS acquisitions. The decrease was primarily driven by lower
amortization related to Windtecs contractual
relationships/backlog intangible asset, which was nearly fully
amortized as of March 31, 2009.
Restructuring
and impairments
On October 25, 2007, our Board of Directors approved a
restructuring plan (the Fiscal 2007 Plan) to reduce
operating costs through the closure of our last remaining
facility in Westborough, Massachusetts and the consolidation of
operations there, including our corporate headquarters, into our
Devens, Massachusetts facility. No headcount reductions were
associated with this plan.
Aggregate structuring charges associated with the Fiscal 2007
Plan were $7.4 million, of which $1.0 million was
recorded in fiscal 2008 and $6.4 million in fiscal 2007.
All costs in both fiscal years were recorded to complete the
closure of our Westborough, Massachusetts facility. This
aggregate charge included an assumption that the Westborough
facility would not be subleased. The remaining $0.9 million
in restructuring and impairment charges in fiscal 2007 relates
primarily to a separate impairment charge for certain 1G
manufacturing assets associated with a prior restructuring plan.
All restructuring charges associated with the Fiscal 2007 Plan
are expected to result in the disbursement of cash. Cash
payments under this plan in fiscal 2008 and 2007 were
$3.9 million and $1.4 million, respectively.
Operating
income (loss)
Our operating income (loss) is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
AMSC Power Systems
|
|
$
|
26,492
|
|
|
$
|
10,865
|
|
AMSC Superconductors
|
|
|
(23,655
|
)
|
|
|
(21,784
|
)
|
Unallocated corporate expenses
|
|
|
(11,033
|
)
|
|
|
(13,971
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8,196
|
)
|
|
$
|
(24,890
|
)
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems operating income increased to
$26.5 million in fiscal 2008 from $10.9 million in
fiscal 2007. The increase in fiscal 2008 was primarily the
result of higher sales, partially offset by a loss recorded on a
turnkey SVC project of $1.3 million, higher warranty
expenses of $3.6 million and higher operating expenses,
primarily resulting from higher bad debt costs of
$1.4 million and costs from increased headcount to support
our growth.
AMSC Superconductors operating loss increased to
$23.7 million in fiscal 2008 from $21.8 million in
fiscal 2007. The increase in operating loss for the fiscal year
ended March 31, 2009 is primarily due to lower sales,
higher expensed material costs and a full year of depreciation
on the 2G manufacturing assets, partially offset by an
impairment charge of $0.8 million for 1G assets and
$0.3 million related to our fiscal 2006 restructuring plan
in the fiscal year ended March 31, 2008.
Unallocated corporate expenses include stock-based compensation
expense of $9.7 million for fiscal 2008 compared to
$5.7 million for fiscal 2007. Fiscal 2008 Unallocated
corporate expenses also include $1.0 million of
restructuring charges related primarily to the closure of our
facility in Westborough, Massachusetts. Unallocated corporate
expenses for fiscal 2007 included rent and occupancy costs
associated with the unoccupied portion of our Westborough,
Massachusetts headquarters facility of $1.3 million.
44
Non-operating
expenses/Interest income
Interest income decreased to $2.8 million for fiscal 2008
from $4.0 million in fiscal 2007, primarily due to lower
interest rates, as we invested in less risky assets due to the
deteriorating economic conditions in fiscal 2008.
Other expense, net, was $2.5 million in fiscal 2008
compared to $1.7 million in fiscal 2007. Other expense,
net, for fiscal 2008 and 2007 included
mark-to-market
adjustments on the revaluation of a warrant issued in April 2005
related to a litigation settlement, which was held by Provident
Premier Master Fund (Provident). In August 2008,
Provident exercised the entire warrant in exchange for
148,387 shares of our common stock. Amounts charged to
expense from
mark-to-market
adjustments on the warrant were $1.3 million and
$1.6 million for fiscal 2008 and 2007, respectively. The
remaining amounts charged to other expense, net, primarily
relate to foreign currency transaction gains and losses and
hedging impacts, particularly in fiscal 2008.
Income
Taxes
During fiscal 2008 and 2007, we recorded income tax expense of
$8.7 million and $2.9 million, respectively. Income
tax expense in both periods was driven by income generated in
foreign jurisdictions. We have provided a valuation allowance
against all deferred tax assets in the U.S. as it is more
likely than not that these deferred tax assets are not currently
realizable due to the net operating losses we have incurred
since inception.
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-K,
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 income (loss) as net income (loss) before
amortization of acquisition-related intangibles, restructuring
and impairments, stock-based compensation, re-valuation of stock
warrants, other unusual charges and any tax effects related to
these items. We believe non-GAAP net income (loss) is an
important measurement for management and investors given the
effect that these non-cash or non-recurring charges have on our
net income (loss). We regard non-GAAP net income (loss) as a
useful measure of operating performance which more closely
aligns net income with cash earnings generated by continuing
operations. A reconciliation of non-GAAP to GAAP net income
(loss) is set forth in the table below (in thousands, except per
share data):
Reconciliation
of GAAP Net Income (Loss) to Non-GAAP Net Income
(Loss)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
16,248
|
|
|
$
|
(16,635
|
)
|
|
$
|
(25,447
|
)
|
Amortization of acquisition-related intangibles
|
|
|
1,827
|
|
|
|
1,848
|
|
|
|
5,058
|
|
Restructuring and impairments
|
|
|
451
|
|
|
|
1,030
|
|
|
|
7,462
|
|
Stock-based compensation
|
|
|
13,494
|
|
|
|
9,672
|
|
|
|
5,665
|
|
Re-valuation of warrant
|
|
|
|
|
|
|
1,335
|
|
|
|
1,652
|
|
Tax effects
|
|
|
(367
|
)
|
|
|
(373
|
)
|
|
|
(1,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income (loss)
|
|
$
|
31,653
|
|
|
$
|
(3,123
|
)
|
|
$
|
(6,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP earnings (loss) per share
|
|
$
|
0.70
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding*
|
|
|
45,290
|
|
|
|
42,718
|
|
|
|
39,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Diluted shares are used for periods where non-GAAP net income is
generated. |
We generated non-GAAP net income of $31.7 million, or $0.70
per diluted share, for fiscal 2009, compared to a non-GAAP net
loss of $3.1 million, or $0.07 per share for fiscal 2008
and a non-GAAP net loss of $6.8 million, or $0.17 per
share, for fiscal 2007. The increase in non-GAAP net income in
fiscal 2009 over 2008 was driven primarily by higher net income
and higher stock-based compensation expense which was added back
to net income. The increase in stock-based compensation expense
was due primarily to higher stock prices at the time stock
grants
45
were made in fiscal 2009. The increase in non-GAAP net income in
fiscal 2008 over 2007 was driven primarily by lower net loss and
higher stock-based compensation expense partially offset by
lower restructuring and impairment costs which were added back
to net income.
Liquidity
and Capital Resources
At March 31, 2010, we had cash, cash equivalents,
marketable securities and restricted cash of
$155.1 million, compared to $117.2 million at
March 31, 2009, an increase of $37.9 million. Our
cash, cash equivalents, marketable securities and restricted
cash are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash and cash equivalents
|
|
$
|
87,594
|
|
|
$
|
70,674
|
|
Marketable securities
|
|
|
61,811
|
|
|
|
39,255
|
|
Restricted cash
|
|
|
5,713
|
|
|
|
7,278
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, marketable securities and
restricted cash
|
|
$
|
155,118
|
|
|
$
|
117,207
|
|
|
|
|
|
|
|
|
|
|
The increase in cash and cash equivalents, marketable securities
and restricted cash was primarily the result of increased net
income and improved collection of accounts receivable.
For fiscal 2009, net cash provided by operating activities was
$40.7 million, compared to a use of $2.4 million in
fiscal 2008. The increase in cash provided by operations is due
primarily to an improvement of net income by $32.9 million,
an increase in non-cash stock-based compensation expenses of
$3.8 million and cash provided by working capital in fiscal
2009, compared to cash used for working capital in fiscal 2008.
For fiscal 2009, net cash used in investing activities was
$40.0 million, compared to a use of $3.5 million in
fiscal 2008. The increase in cash used in investing activities
was driven primarily by higher capital expenditures for the
increase of our manufacturing capacity in both of our business
units, upgrade operations and facilities in Austria and
Wisconsin and IT infrastructure and a net increase in marketable
securities.
For fiscal 2009, cash provided by financing activities was
$19.0 million, compared to $12.5 million in fiscal
2008. The increase was due to proceeds from the exercise of
employee stock options.
Although our cash requirements fluctuate based on a variety of
factors, including customer adoption of our products and our
research and development efforts to commercialize our products,
we believe that our available cash will be sufficient to fund
our working capital, capital expenditures, and other cash
requirements for at least the next twelve months.
We also have unused, unsecured lines of credit of
0.5 million (approximately $0.7 million), which
is available until June 30, 2010, and CNY 12.9 million
(approximately $1.9 million) which is available until
June 30, 2012. We were able to reduce our long term
restricted cash in the U.S. during fiscal 2009 through the
establishment of credit relationships with a number of
U.S. banks. We also have an additional $1.8 million in
bank guarantees and letters of credit supported by unsecured
lines of credit.
The possibility exists that we may pursue additional acquisition
and joint venture opportunities in the future that may affect
liquidity and capital resource requirements.
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 likely, we would
record a liability. As of March 31, 2010, there were no
recorded performance-based liabilities.
46
Contractual
Obligations
As of March 31, 2010, we are committed to make the
following payments under contractual obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating leases (rent)
|
|
$
|
3,039
|
|
|
$
|
2,009
|
|
|
$
|
951
|
|
|
$
|
79
|
|
|
$
|
|
|
Operating leases (other)
|
|
|
228
|
|
|
|
78
|
|
|
|
121
|
|
|
|
29
|
|
|
|
|
|
Purchase obligations (subcontracts)
|
|
|
10,928
|
|
|
|
10,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations (purchase orders)
|
|
|
79,609
|
|
|
|
79,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
93,804
|
|
|
$
|
92,624
|
|
|
$
|
1,072
|
|
|
$
|
108
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Boards
(FASB) issued guidance in determining whether
instruments granted in share-based payment transactions are
participating securities for purposes of calculating earnings
per share. Under the provisions of this standard, unvested
awards of share-based payments with non-forfeitable rights to
receive dividends or dividend equivalents are considered
participating securities for purposes of calculating earnings
per share. This accounting standard is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years.
We adopted this standard on April 1, 2009. The adoption
required us to modify its prior year weighted average number of
common shares outstanding but did not have a material effect on
our financial condition or results of operations.
In April 2009, the FASB issued a standard, which amends and
clarifies a previous standard for business combinations, to
address application issues on initial recognition and
measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies
in a business combination. Under this standard, an acquirer is
required to recognize at fair value an asset acquired or
liability assumed in a business combination that arises from a
contingency if the acquisition date fair value can be determined
during the measurement period. If the acquisition date fair
value cannot be determined, then the acquirer applies the
recognition criteria in accounting for contingencies, and makes
a reasonable estimation of the amount of a loss, to determine
whether the contingency should be recognized as of the
acquisition date or after it. The adoption of this standard
could materially change the accounting for business combinations
consummated subsequent to its effective date of April 1,
2009. On April 1, 2009, we adopted the provisions of this
standard and the results of adoption did not have a material
effect on our financial condition or results of operations.
In June 2009, the FASB issued the FASB Accounting Standards
Codification (Codification). The Codification became
the single source for all authoritative U.S. generally
accepted accounting principles (U.S. GAAP)
recognized by the FASB to be applied for financial statements
issued for periods ending after September 15, 2009. The
Codification does not change U.S. GAAP and will not have an
effect on our financial condition or results of operations.
In July 2009, the FASB issued new guidance for all
U.S. GAAP financial statements for public and private
companies, which significantly amends the existing consolidation
accounting model for variable interest entities, and includes
extensive new disclosure requirements. This new guidance is
effective for fiscal years (and interim periods in those fiscal
years) beginning after November 15, 2009. We do not
currently have a variable interest entity and do not expect this
standard to have a material impact on our financial condition or
results of operations.
In September 2009, the Emerging Issues Task Force issued new
rules pertaining to the accounting for revenue arrangements with
multiple deliverables. The new rules provide an alternative
method for establishing fair value of a deliverable when vendor
specific objective evidence or third party evidence cannot be
determined. The rules provide for the determination of the best
estimate of selling price of separate deliverables and allow the
allocation of arrangement consideration using this relative
selling price model. The rules supersedes the prior multiple
element revenue arrangement accounting rules that are currently
used by us. The new rules can be prospectively applied beginning
January 1, 2011 or can be earlier or retrospectively
adopted. We are currently evaluating the impact of adopting the
rules.
47
|
|
Item 7A.
|
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.
Cash and
cash equivalents
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
sovereign debt 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 operation.
Foreign
currency exchange risk
Our earnings and cash flows are subject to fluctuations due to
changes in foreign currency exchange rates. Our most significant
foreign currency exposures relate to Austria and China. We enter
into derivative instruments, including forward foreign exchange
contracts and currency options, to manage this risk. We do not
enter into or hold foreign currency derivative financial
instruments for trading or speculative purposes.
The functional currency of all our foreign entities is the
U.S. dollar (USD), except for our wholly-owned
Austrian subsidiary, AMSC Windtec GmbH, for which the local
currency (Euro) is the functional currency, and our wholly-owned
Chinese subsidiary, Suzhou AMSC Superconductor Co., Ltd., for
which the local currency (renminbi) is the functional currency.
We monitor foreign currency exposures and hedge currency risk
when deemed appropriate. Cumulative translation adjustments are
excluded from net loss and reported as a separate component of
stockholders equity. Foreign currency transaction and
translation gains, excluding the effects from hedging, were
$0.8 million for the fiscal year ended March 31, 2010.
Future operating results could be impacted by material foreign
currency fluctuations. In the future, should foreign currency
fluctuations become material, management will review options to
limit the financial impact to our operations.
Our foreign currency risk management strategy is principally
designed to mitigate the potential financial impact of changes
in the value of transactions and balances denominated in foreign
currency, resulting from changes in foreign currency exchange
rates. Our foreign currency hedging program uses forward
contracts and currency options to manage the foreign currency
exposures that exist as part of our ongoing business operations.
The contracts primarily are denominated in Euros and Chinese
renminbi (CNY) and have maturities of less than six
months. On March 31, 2010, we had two forward contracts
outstanding to hedge our wholly-owned Austrian subsidiary, AMSC
Windtec GmbH (Windtec) USD exposure, with notional
values of $25.0 million each, which expired on
April 30, 2010. The forward contracts sold US dollars and
bought Euros at $1.3522 and $1.3523, respectively. We also had
two forward contracts outstanding to hedge receivables exposure
at our wholly-owned China subsidiary, Suzhou AMSC Superconductor
Co., Ltd., selling CNY and buying USD at $6.772 and $6.7615,
respectively, with notional values of $15.0 million and
$10.0 million, one of which expired on April 30, 2010
and the second of which expires on June 30, 2010,
respectively. In April 2010, we executed offsetting transactions
for both open CNY hedges effectively closing these contracts.
There were no hedging contracts outstanding as of March 31,
2009.
Generally, we do not designate forward contracts or currency
option contracts as hedges for accounting purposes, and changes
in the fair value of these instruments are recognized
immediately in earnings. Gains and losses on these contracts are
included in other income (expense), net.
48
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
American Superconductor Corporation:
In our opinion, the consolidated balance sheets and the related
consolidated statements of operations, comprehensive loss,
stockholders equity and cash flows present fairly, in all
material respects, the financial position of American
Superconductor Corporation and its subsidiaries at
March 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended March 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 27, 2010
49
AMERICAN
SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
87,594
|
|
|
$
|
70,674
|
|
Marketable securities
|
|
|
54,469
|
|
|
|
39,255
|
|
Accounts receivable, net
|
|
|
62,203
|
|
|
|
48,071
|
|
Inventory
|
|
|
35,858
|
|
|
|
35,129
|
|
Prepaid expenses and other current assets
|
|
|
15,381
|
|
|
|
12,345
|
|
Restricted cash
|
|
|
5,713
|
|
|
|
5,872
|
|
Deferred tax assets, net
|
|
|
1,776
|
|
|
|
1,160
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
262,994
|
|
|
|
212,506
|
|
Property, plant and equipment, net
|
|
|
64,315
|
|
|
|
54,838
|
|
Goodwill
|
|
|
36,696
|
|
|
|
26,233
|
|
Intangibles, net
|
|
|
7,770
|
|
|
|
8,859
|
|
Marketable securities
|
|
|
7,342
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
1,406
|
|
Other assets
|
|
|
21,067
|
|
|
|
5,264
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
400,184
|
|
|
$
|
309,106
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
84,319
|
|
|
$
|
60,253
|
|
Deferred revenue
|
|
|
19,970
|
|
|
|
21,066
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
104,289
|
|
|
|
81,319
|
|
Deferred revenue
|
|
|
13,302
|
|
|
|
4,902
|
|
Deferred tax liabilities, net
|
|
|
1,248
|
|
|
|
840
|
|
Other
|
|
|
380
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
119,219
|
|
|
|
87,245
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value Authorized shares
100,000,000; shares issued and outstanding 44,829,541 and
43,297,635 at March 31, 2010 and 2009, respectively
|
|
|
448
|
|
|
|
433
|
|
Additional paid-in capital
|
|
|
698,417
|
|
|
|
653,054
|
|
Deferred contract costs warrant
|
|
|
|
|
|
|
(2
|
)
|
Accumulated other comprehensive loss
|
|
|
(7,011
|
)
|
|
|
(4,487
|
)
|
Accumulated deficit
|
|
|
(410,889
|
)
|
|
|
(427,137
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
280,965
|
|
|
|
221,861
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
400,184
|
|
|
$
|
309,106
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
50
AMERICAN
SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
315,955
|
|
|
$
|
182,755
|
|
|
$
|
112,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
200,977
|
|
|
|
130,882
|
|
|
|
80,363
|
|
Research and development
|
|
|
23,593
|
|
|
|
19,675
|
|
|
|
15,651
|
|
Selling, general and administrative
|
|
|
50,446
|
|
|
|
37,516
|
|
|
|
28,752
|
|
Amortization of acquisition related intangibles
|
|
|
1,827
|
|
|
|
1,848
|
|
|
|
5,058
|
|
Restructuring and impairments
|
|
|
451
|
|
|
|
1,030
|
|
|
|
7,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
|
277,294
|
|
|
|
190,951
|
|
|
|
137,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
38,661
|
|
|
|
(8,196
|
)
|
|
|
(24,890
|
)
|
Interest income
|
|
|
788
|
|
|
|
2,785
|
|
|
|
3,977
|
|
Other income (expense), net
|
|
|
(2,693
|
)
|
|
|
(2,489
|
)
|
|
|
(1,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
36,756
|
|
|
|
(7,900
|
)
|
|
|
(22,567
|
)
|
Income tax expense
|
|
|
20,508
|
|
|
|
8,735
|
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,248
|
|
|
$
|
(16,635
|
)
|
|
$
|
(25,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,445
|
|
|
|
42,718
|
|
|
|
39,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,290
|
|
|
|
42,718
|
|
|
|
39,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
51
AMERICAN
SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,248
|
|
|
$
|
(16,635
|
)
|
|
$
|
(25,447
|
)
|
Adjustments to reconcile net income (loss) to net cash used in
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,789
|
|
|
|
8,403
|
|
|
|
10,095
|
|
Stock-based compensation expense
|
|
|
13,494
|
|
|
|
9,672
|
|
|
|
5,665
|
|
Stock-based compensation expense non-employee
|
|
|
138
|
|
|
|
7
|
|
|
|
232
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
757
|
|
Inventory write-down charges
|
|
|
|
|
|
|
|
|
|
|
933
|
|
Allowance for doubtful accounts
|
|
|
457
|
|
|
|
1,495
|
|
|
|
|
|
Re-valuation of warrant
|
|
|
|
|
|
|
1,335
|
|
|
|
1,652
|
|
Deferred income taxes
|
|
|
(2,717
|
)
|
|
|
|
|
|
|
(3,424
|
)
|
Other non-cash items
|
|
|
1,155
|
|
|
|
826
|
|
|
|
697
|
|
Changes in operating asset and liability accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(21,603
|
)
|
|
|
(18,845
|
)
|
|
|
(20,330
|
)
|
Inventory
|
|
|
(656
|
)
|
|
|
(24,382
|
)
|
|
|
(4,410
|
)
|
Prepaid expenses and other current assets
|
|
|
(6,421
|
)
|
|
|
(6,277
|
)
|
|
|
(2,853
|
)
|
Accounts payable and accrued expenses
|
|
|
23,775
|
|
|
|
27,210
|
|
|
|
11,635
|
|
Deferred revenue
|
|
|
7,021
|
|
|
|
14,765
|
|
|
|
6,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
40,680
|
|
|
|
(2,426
|
)
|
|
|
(17,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(16,541
|
)
|
|
|
(6,534
|
)
|
|
|
(8,598
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
2
|
|
|
|
1,360
|
|
Purchase of marketable securities
|
|
|
(81,980
|
)
|
|
|
(89,576
|
)
|
|
|
(174,650
|
)
|
Proceeds from the maturity of marketable securities
|
|
|
59,387
|
|
|
|
88,605
|
|
|
|
155,917
|
|
Change in restricted cash
|
|
|
1,602
|
|
|
|
5,699
|
|
|
|
(13,172
|
)
|
Acquisition costs, net of cash acquired in acquisitions
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
Purchase of intangible assets
|
|
|
(1,516
|
)
|
|
|
(1,120
|
)
|
|
|
(1,264
|
)
|
Change in other assets
|
|
|
(948
|
)
|
|
|
(566
|
)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(39,996
|
)
|
|
|
(3,490
|
)
|
|
|
(40,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from follow-on public offering, net
|
|
|
|
|
|
|
|
|
|
|
93,612
|
|
Proceeds from exercise of employee stock options and ESPP
|
|
|
19,003
|
|
|
|
12,463
|
|
|
|
14,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
19,003
|
|
|
|
12,463
|
|
|
|
108,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,767
|
)
|
|
|
(3,707
|
)
|
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
16,920
|
|
|
|
2,840
|
|
|
|
51,909
|
|
Cash and cash equivalents at beginning of year
|
|
|
70,674
|
|
|
|
67,834
|
|
|
|
15,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
87,594
|
|
|
$
|
70,674
|
|
|
$
|
67,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash issuance of common stock
|
|
$
|
1,915
|
|
|
$
|
556
|
|
|
$
|
362
|
|
Non-cash contingent consideration in connection with acquisitions
|
|
|
10,828
|
|
|
|
11,008
|
|
|
|
9,856
|
|
Issuance of common stock in connection with acquisitions
|
|
|
|
|
|
|
|
|
|
|
4,349
|
|
Cash paid for income taxes
|
|
|
12,387
|
|
|
|
5,269
|
|
|
|
34
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
52
AMERICAN
SUPERCONDUCTOR CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
Accumulated Other
|
|
|
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid-in
|
|
|
Contract
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Costs-Warrant
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance at March 31, 2007
|
|
|
35,016
|
|
|
|
350
|
|
|
|
486,194
|
|
|
|
(14
|
)
|
|
|
146
|
|
|
|
(385,055
|
)
|
|
|
101,621
|
|
Exercise of stock options
|
|
|
1,392
|
|
|
|
14
|
|
|
|
14,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,565
|
|
Exercise of warrants
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offering of common stock
|
|
|
4,700
|
|
|
|
47
|
|
|
|
93,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,612
|
|
Acquisition of Power Quality Systems
|
|
|
295
|
|
|
|
3
|
|
|
|
4,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,349
|
|
Issuance of common stock ESPP
|
|
|
14
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254
|
|
Issuance of common stock restricted shares
|
|
|
79
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,665
|
|
Non-employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
Issuance of stock for calendar 2007 401(k) match
|
|
|
20
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
9,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,856
|
|
Amortization of deferred warrant costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
264
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,112
|
|
|
|
|
|
|
|
3,112
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,447
|
)
|
|
|
(25,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
41,542
|
|
|
|
415
|
|
|
|
615,025
|
|
|
|
(8
|
)
|
|
|
3,522
|
|
|
|
(410,502
|
)
|
|
|
208,452
|
|
Exercise of stock options
|
|
|
738
|
|
|
|
7
|
|
|
|
12,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,174
|
|
Exercise of warrants
|
|
|
148
|
|
|
|
2
|
|
|
|
4,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,341
|
|
Issuance of common stock ESPP
|
|
|
17
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
Issuance of common stock restricted shares
|
|
|
404
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
9,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,672
|
|
Non-employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Issuance of stock for calendar 2008 401(k) match
|
|
|
25
|
|
|
|
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
Contingent consideration
|
|
|
424
|
|
|
|
5
|
|
|
|
11,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,008
|
|
Amortization of deferred warrant costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
(113
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,896
|
)
|
|
|
|
|
|
|
(7,896
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,635
|
)
|
|
|
(16,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
|
43,298
|
|
|
|
433
|
|
|
|
653,054
|
|
|
|
(2
|
)
|
|
|
(4,487
|
)
|
|
|
(427,137
|
)
|
|
|
221,861
|
|
Exercise of stock options
|
|
|
810
|
|
|
|
8
|
|
|
|
18,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,640
|
|
Issuance of common stock ESPP
|
|
|
14
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Issuance of common stock restricted shares
|
|
|
217
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
13,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,494
|
|
Non-employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
Issuance of stock for calendar 2009 401(k) match
|
|
|
33
|
|
|
|
1
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
Contingent consideration
|
|
|
426
|
|
|
|
4
|
|
|
|
10,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,828
|
|
Minority Interest Investment
|
|
|
32
|
|
|
|
|
|
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
Amortization of deferred warrant costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
(37
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,487
|
)
|
|
|
|
|
|
|
(2,487
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,248
|
|
|
|
16,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
44,830
|
|
|
$
|
448
|
|
|
$
|
698,417
|
|
|
$
|
|
|
|
$
|
(7,011
|
)
|
|
$
|
(410,889
|
)
|
|
$
|
280,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
AMERICAN
SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
16,248
|
|
|
$
|
(16,635
|
)
|
|
$
|
(25,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(2,487
|
)
|
|
|
(7,896
|
)
|
|
|
3,112
|
|
Unrealized gain (loss) on investments
|
|
|
(37
|
)
|
|
|
(113
|
)
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(2,524
|
)
|
|
|
(8,009
|
)
|
|
|
3,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
13,724
|
|
|
$
|
(24,644
|
)
|
|
$
|
(22,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
54
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Nature of
the Business and Operations
|
American Superconductor Corporation (the Company or
AMSC) was founded on April 9, 1987. The Company
offers an array of proprietary technologies and solutions
spanning the electric power infrastructure from
generation to delivery to end use. The Company is a leader in
alternative energy, providing proven, megawatt-scale wind
turbine designs and electrical control systems and components.
The Company also offers a host of Smart Grid technologies for
power grid operators that enhance the reliability, efficiency
and capacity of the power grid, and seamlessly integrate
renewable energy sources into the power infrastructure. These
technologies include superconductor power cable systems,
grid-level surge protectors and power electronics-based voltage
stabilization systems. The Company operates in two business
segments: AMSC Power Systems and AMSC Superconductors.
|
|
2.
|
Summary
of Significant Accounting Policies
|
A summary of the Companys significant accounting policies
follows:
Basis
of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions are eliminated. Certain
reclassifications of prior years amounts have been made to
conform to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. The Company bases its estimates on
historical experience and various other factors believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other
sources. On an ongoing basis, the Company evaluates its
estimates, including those related to revenue recognition,
accounting for the collectability of receivables, realizability
of inventory, goodwill and intangible assets, warranty
provisions, stock-based compensation and deferred tax assets.
Provisions for depreciation are based on their estimated useful
lives using the straight-line method. Some of these estimates
can be subjective and complex and, consequently, actual results
may differ from these estimates under different assumptions or
conditions. While for any given estimate or assumption made by
the Companys management there may be other estimates or
assumptions that are reasonable, the Company believes that,
given the current facts and circumstances, it is unlikely that
applying any such other reasonable estimate or assumption would
materially impact the financial statements.
Cash
Equivalents
The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents. Cash equivalents consist principally of money
market accounts and corporate debt instruments.
Marketable
Securities
Short-term marketable securities, with current maturities of
greater than three months from original purchase date but less
than twelve months from the date of the balance sheet, consist
primarily of government-backed securities and sovereign debt.
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. Fair values are based on quoted
market prices. The unrealized gains and losses related to these
securities are included in accumulated other comprehensive
income
55
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(loss). When securities are sold, the cost is determined based
on the specific identification method and realized gains and
losses are included in interest income. The Company periodically
reviews the realizability of each short 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.
Accounts
Receivable
The Companys accounts receivable are comprised of amounts
owed by commercial companies and government agencies. The
Company does not require collateral or other security to support
customer receivables.
Due to scheduled billing requirements specified under certain
contracts, a portion of the Companys accounts receivable
balance at March 31, 2010 and 2009 was unbilled (see
Note 5). As of March 31, 2010, the Company had one
customer that represented approximately 61% of the total
accounts receivable balance. At March 31, 2009, the same
customer represented approximately 48% of the Companys
total accounts receivable balance.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in
first-out basis) or market.
Derivatives
Derivatives are financial instruments whose values are derived
from one or more underlying financial instruments, such as
foreign currency. The Company enters into derivative
transactions, specifically forward contracts and foreign
currency option contracts, to manage its exposure to
fluctuations in foreign exchange rates that arise primarily from
its non-functional currency-denominated receivables and
payables. The contracts entered into during the year ended
March 31, 2010 were primarily denominated in Euros and
Chinese renminbi (CNY) and have maturities of less
than six months. The contracts were settled for
U.S. dollars at maturity of the contracts at rates agreed
to at inception of the contracts. The Company does not enter
into or hold derivatives for trading or speculative purposes.
Generally, the Company does not designate forward contracts or
currency option contracts as hedges for accounting purposes, and
changes in the fair value of these instruments are recognized
immediately in earnings. Net realized losses associated with
exchange rate fluctuations on forward contracts and currency
option contracts were $3.5 million and $0.2 million
for the fiscal years ended March 31, 2010 and 2009,
respectively.
All derivatives, whether designated in a hedging relationship or
not, are required to be recorded on the balance sheet at fair
value. This guidance also requires that changes in the
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met, and that the
Company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The
effectiveness of the derivative as a hedging instrument is based
on changes in its market value being highly correlated with
changes in the market value of the underlying hedged item.
56
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property,
Plant and Equipment
Property, plant and equipment are carried at cost less
accumulated depreciation and amortization. The Company accounts
for depreciation and amortization using the straight-line method
to allocate the cost of property, plant and equipment over their
estimated useful lives as follows:
|
|
|
Asset Classification
|
|
Estimated Useful Life in Years
|
|
Building
|
|
40
|
Process upgrades to the building
|
|
10-40
|
Machinery and equipment
|
|
3-10
|
Furniture and fixtures
|
|
3-5
|
Leasehold improvements
|
|
Shorter of the estimated useful life or the remaining lease term
|
Expenditures for maintenance and repairs are expensed as
incurred. Upon retirement or other disposition of assets, the
costs and related accumulated depreciation are eliminated from
the accounts and the resulting gain or loss is reflected in
operating expenses.
Goodwill
and Other Intangible Assets
The Company reviews its goodwill at least annually (in the
Companys fiscal fourth quarter) or when events or changes
in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. If the carrying amount of
the net tangible and intangible assets in a given reporting unit
exceeds the reporting units fair value, management will
perform a detailed analysis to calculate any impairment.
The Company has intangible assets consisting of licenses,
patents, contractual relationships/backlog, customer
relationships, trade names and trademarks, core technology and
know-how and goodwill.
The Company amortizes its licenses, patents, customer
relationships, trade names and trademarks, and core technology
and know-how, using the straight-line method over a period of 3
to 10 years, which approximates the expected economic
consumption of these assets. The Company amortizes its
contractual relationships/backlog using the economic consumption
method over an estimated period of 2 years.
Accounting
for Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets for
potential impairment. The Company performs these evaluations
whenever events or circumstances suggest that the carrying
amount of an asset or group of assets is not recoverable. The
Companys judgments regarding the existence of impairment
indicators are based on market and operational performance.
Indicators of potential impairment include:
|
|
|
|
|
a significant change in the manner in which an asset is used;
|
|
|
|
a significant decrease in the market value of an asset;
|
|
|
|
a significant adverse change in its business or the industry in
which it is sold;
|
|
|
|
a current period operating cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
asset; and
|
|
|
|
significant advances in the Companys technologies that
require changes in the manufacturing process.
|
If the Company believes an indicator of potential impairment
exists, it tests to determine whether impairment recognition
criteria in this guidance has been met. To analyze a potential
impairment, the Company projects undiscounted future cash flows
expected to result from the use and eventual disposition of the
asset or primary asset in the asset group over its remaining
useful life. If these projected cash flows are less than the
carrying amount, an
57
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impairment loss is recognized in the Consolidated Statements of
Operations based on the difference between the carrying value of
the asset or asset group and its fair value, less any
disposition costs. Evaluating the impairment requires judgment
by the Companys management to estimate future operating
results and cash flows. If different estimates were used, the
amount and timing of asset impairments could be affected.
Revenue
Recognition
For certain arrangements, such as contracts to perform research
and development, prototype development contracts and certain
product sales, the Company records revenues using the
percentage-of-completion
method, measured by the relationship of costs incurred to total
estimated contract costs. The Company uses the
percentage-of-completion
revenue recognition method. Percentage-of-completion revenue
recognition accounting is predominantly used on long-term
prototype development contracts with the U.S. government
and certain commercial turnkey contracts. The Company follows
this method since reasonably dependable estimates of the
revenues and costs applicable to various stages of a contract
can be made. However, the ability to reliably estimate total
costs at completion is challenging, especially on long-term
prototype development contracts, and could result in future
changes in contract estimates. For the fiscal years ended
March 31, 2010 and 2009, the Company recorded losses of
$2.1 million and $1.3 million, respectively, on a
turnkey static VAR compensator (SVC) contract as a
result of a cost overrun due to a change in design. No such loss
was recorded for the fiscal year ended March 31, 2008. For
contracts where reasonably dependable estimates of the revenues
and costs cannot be made, the Company follows the
completed-contract method.
The Company recognizes revenue for other product sales upon
customer acceptance, which can occur at the time of delivery,
installation or post-installation, provided persuasive evidence
of an arrangement exists, delivery has occurred, the sales price
is fixed or determinable and the collectibility is reasonably
assured. For multiple-element arrangements, the Company uses the
residual method to allocate value to each delivered item. Under
the residual method, each undelivered item is allocated value
based on verifiable objective evidence of fair value for that
item and the remainder of the total arrangement price is
allocated to the delivered items. For a delivered item to be
considered a separate unit, the delivered item must have value
to the customer on a standalone basis, there must be objective
and reliable evidence of fair value of the undelivered items in
the arrangement and the delivery or performance of the
undelivered items must be considered probable and substantially
within the Companys control. The Company does not provide
its customers with contractual rights of return for any of its
products. When other significant obligations remain after
products are delivered for which verifiable objective evidence
cannot be established, revenue is recognized only after such
obligations are fulfilled. The determination of what constitutes
a significant post-delivery performance obligation (if any
post-delivery performance obligations exist) is the primary
subjective consideration the Company systemically evaluates in
the context of each product shipment in order to determine
whether to recognize revenue on the order or to defer the
revenue until all post-delivery performance obligations have
been completed.
The Company occasionally enters into construction contracts that
include a performance bond. As these contracts progress, the
Company continually assesses the probability of a payout from
the performance bond. Should the Company determine that such a
payout is likely, the Company would record a liability. The
Company would reduce revenue to the extent a liability is
recorded.
The Company enters into certain arrangements to license its
technologies and to provide training services. The Company has
determined that the license has no stand alone value to the
customer and is not separable from the training. Accordingly,
the Company accounts for these arrangements as a single unit of
accounting, following the revenue recognition pattern of the
last deliverable of the arrangement and recognizes revenue over
the period of the Companys performance and milestones that
have been achieved. Costs for these arrangements are expensed as
incurred.
The Company has elected to record taxes collected from customers
on a net basis and does not include tax amounts in Revenue or
Costs of revenue.
58
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Customer deposits received in advance of revenue recognition are
recorded as deferred revenue until customer acceptance is
received. Deferred revenue also represents the amount billed to
and/or
collected from commercial and government customers on contracts
which permit billings to occur in advance of contract
performance/revenue recognition.
Research
and Development Costs
Research and development costs are expensed as incurred.
Income
Taxes
The Companys provision for income taxes is composed of a
current and a deferred portion. The current income tax provision
is calculated as the estimated taxes payable or refundable on
tax returns for the current year. The deferred income tax
provision is calculated for the estimated future tax effects
attributable to temporary differences and carryforwards using
expected tax rates in effect in the years during which the
differences are expected to reverse.
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each fiscal
year end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when necessary to reduce net deferred tax assets to the amount
expected to be realized. The Company has provided a valuation
allowance against its U.S. deferred income tax assets since
the Company believes that it is more likely than not that its
U.S. deferred tax assets are not currently realizable due
to the net operating losses incurred by the Company since its
inception. The Company has not provided a valuation allowance
against its other foreign deferred income tax assets since the
Company believes that it is more likely than not that those
deferred tax assets will be realized.
Accounting for income taxes requires a two-step approach to
recognizing and measuring uncertain tax positions. The first
step is to evaluate the tax position for recognition by
determining if, based on the technical merits, it is more likely
than not that the position will be sustained upon audit,
including resolution of related appeals or litigation processes,
if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized
upon ultimate settlement. The Company reevaluates these
uncertain tax positions on a quarterly basis. This evaluation is
based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, effectively settled issues
under audit and new audit activity. Any changes in these factors
could result in the recognition of a tax benefit or an
additional charge to the tax provision. The Company includes
interest and penalties related to gross unrecognized tax
benefits within its provision for income taxes.
Stock-Based
Compensation
The Company accounts for stock-based payment transactions using
a fair value-based method and recognizes the related expense in
the results of operations.
Stock-based compensation is estimated at the grant date based on
the fair value of the award and is recognized as expense over
the requisite service period of the award. The fair value of
restricted stock awards is determined by reference to the fair
market value of the Companys common stock on the date of
grant. The Company uses the Black-Scholes option pricing model
to estimate the fair value of awards with service and
performance conditions. For awards with service conditions, the
Company recognizes compensation cost on a straight-line basis
over the requisite service/vesting period. For awards with
service and performance conditions and graded-vesting features
(a certain percentage of stock awards vest each period), the
Company recognizes compensation costs on an accelerated,
graded-vesting basis over the requisite service/vesting period.
The Company uses the lattice model to value market condition
awards. For awards with market conditions with a single cliff
vest feature, the Company recognizes compensation costs on a
straight-line basis over the requisite service period.
59
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Determining the appropriate fair value model and related
assumptions requires judgment, including estimating stock price
volatilities of the Companys common stock and expected
terms. The expected volatility rates are estimated based on
historical and implied volatilities of the Companys common
stock. The expected term represents the average time that the
options that vest are expected to be outstanding based on the
vesting provisions and the Companys historical exercise,
cancellation and expiration patterns.
The Company estimates pre-vesting forfeitures when recognizing
compensation expense based on historical and forward-looking
factors. Changes in estimated forfeiture rates and differences
between estimated forfeiture rates and actual experience may
result in significant, unanticipated increases or decreases in
stock-based compensation expense from period to period. The
termination of employment of certain employees who hold large
numbers of stock-based awards may also have a significant,
unanticipated impact on forfeiture experience and, therefore, on
stock-based compensation expense. The Company will update these
assumptions on at least an annual basis and on an interim basis
if significant changes to the assumptions are warranted.
Computation
of Net Loss per Common Share
Basic earnings per share (EPS) is computed by dividing net
earnings (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed by dividing
the net earnings (loss) 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 fiscal years ended March 31, 2010,
2009, and 2008, common equivalent shares of 688,300, 3,316,629
and 4,306,699, respectively, were not included in the
calculation of diluted EPS as they were considered antidilutive.
The following table reconciles the numerators and denominators
of the earnings per share calculation for the fiscal years ended
March 31, 2010, 2009, and 2008 (in thousands except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,248
|
|
|
$
|
(16,635
|
)
|
|
$
|
(25,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
|
|
44,493
|
|
|
|
43,323
|
|
|
|
39,492
|
|
Weighted-average shares subject to repurchase
|
|
|
(48
|
)
|
|
|
(605
|
)
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation basic
|
|
|
44,445
|
|
|
|
42,718
|
|
|
|
39,137
|
|
Dilutive effect of employee equity incentive plans
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation diluted
|
|
|
45,290
|
|
|
|
42,718
|
|
|
|
39,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$
|
0.37
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
|
|
$
|
0.36
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 1, 2009, the Company began determining whether
instruments granted in share-based payment transactions are
participating securities. Under the applicable standard, the
unvested restricted stock awards that contain non-forfeitable
rights to receive dividends or dividend equivalents are
considered participating securities, and therefore, are included
in the computation of earnings per share pursuant to the two
class method. Application of the standard had an insignificant
effect on shares outstanding. This standard required
retrospective application. Net income allocable to participating
securities was immaterial for all periods presented.
60
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Translation
The functional currency of all the Companys foreign
subsidiaries is the U.S. dollar, except for Windtec, for
which the local currency (Euro) is the functional currency and
China, for which the local currency (renminbi) is the functional
currency. The assets and liabilities of Windtec, as well as
those of the Companys China operation, 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. Foreign currency
transaction losses, net of hedging losses, are included in net
income (loss) and were $2.5 million and $1.1 million
for the fiscal years ended March 31, 2010 and 2009
respectively. Foreign currency transactions were immaterial for
the fiscal year ended March 31, 2008.
Risks
and Uncertainties
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could materially differ from those
estimates and would impact future results of operations and cash
flows.
The Company invests its available cash with high-credit, quality
financial instruments and invests primarily in investment
grade-marketable securities, including, but not limited to,
government obligations, money market funds and corporate debt
instruments.
Several of the Companys government contracts are being
funded incrementally, and as such, are subject to the future
authorization, appropriation, and availability of government
funding. The Company has a history of successfully obtaining
financing under incrementally-funded contracts with the
U.S. government and it expects to continue to receive
additional contract modifications in the fiscal year ending
March 31, 2011 and beyond as incremental funding is
authorized and appropriated by the government.
Disclosure
of Fair Value of Financial Instruments
The Companys financial instruments consist principally of
cash and cash equivalents, marketable securities, accounts
receivable, accounts payable and accrued expenses. The carrying
amounts of its cash equivalents and marketable securities,
accounts receivable, accounts payable and accrued expenses
approximate fair value due to the short-term nature of these
instruments.
The following is a summary of marketable securities at
March 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Fair Market
|
|
|
Cost at
|
|
Unrealized
|
|
Unrealized
|
|
Value at
|
|
|
March 31, 2010
|
|
Gains
|
|
Losses
|
|
March 31, 2010
|
|
Short-term commercial paper
|
|
$
|
54,438
|
|
|
$
|
35
|
|
|
$
|
(4
|
)
|
|
$
|
54,469
|
|
Long-term commercial paper
|
|
$
|
7,267
|
|
|
$
|
75
|
|
|
$
|
|
|
|
$
|
7,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Fair Market
|
|
|
Cost at
|
|
Unrealized
|
|
Unrealized
|
|
Value at
|
|
|
March 31, 2009
|
|
Gains
|
|
Losses
|
|
March 31, 2009
|
|
Short-term commercial paper
|
|
$
|
39,099
|
|
|
$
|
157
|
|
|
$
|
(1
|
)
|
|
$
|
39,255
|
|
61
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys marketable securities are classified as
available-for-sale
securities and, accordingly, are recorded at fair value. The
difference between amortized cost and fair value is included in
stockholders equity. At March 31, 2010 and 2009,
respectively, there were investments with an immaterial gross
unrealized loss.
The Company adopted SFAS guidance for Fair Value
Measurements, as of April 1, 2008, with the exception of
the application of the statement to non-recurring nonfinancial
assets and nonfinancial liabilities. The Company has determined
that cash equivalents, short-term and long-term marketable
securities and derivative instruments for hedging activities are
the only assets affected by this guidance at this time.
Valuation
Hierarchy
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.
The following table provides the assets carried at fair value,
measured as of March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices in
|
|
Using Significant
|
|
Using Significant
|
|
|
Carrying
|
|
Active Markets
|
|
Other Observable
|
|
Unobservable
|
|
|
Value
|
|
(Level 1)
|
|
Inputs (Level 2)
|
|
Inputs (Level 3)
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
29,054
|
|
|
$
|
29,054
|
|
|
$
|
|
|
|
$
|
|
|
Short-term marketable securities
|
|
|
54,469
|
|
|
|
|
|
|
|
54,469
|
|
|
|
|
|
Long-term marketable securities
|
|
|
7,342
|
|
|
|
|
|
|
|
7,342
|
|
|
|
|
|
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
30,483
|
|
|
$
|
30,483
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
39,255
|
|
|
|
|
|
|
|
39,255
|
|
|
|
|
|
Valuation
Techniques
Cash equivalents consist of highly liquid instruments with
maturities of three months or less that are regarded as high
quality, low risk investments, are measured using such inputs as
quoted prices and are classified within Level 1 of the
valuation hierarchy.
Marketable securities 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.
62
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective April 1, 2009, the Company implemented a newly
issued accounting standard for fair value measurements of all
nonfinancial assets and nonfinancial liabilities not recognized
or disclosed at fair value in the financial statements on a
non-recurring basis. Adoption of the new accounting standard for
the Companys nonfinancial assets and nonfinancial
liabilities that are measured at fair value on a non-recurring
basis did not impact its financial position or results of
operations; however, could have an impact in future periods. The
Company may have additional disclosure requirements in the event
of a completed acquisition or if an impairment of these occurs
in a future period.
|
|
4.
|
Derivative
Financial Instruments
|
On April 1, 2009, the Company adopted a newly issued
accounting standard regarding disclosure of derivative
instruments and hedging activities. This statement improves
transparency in financial reporting by requiring enhanced
disclosures of an entitys derivative instruments and
hedging activities and their effects on the entitys
financial position, financial performance and cash flows.
The Companys foreign currency risk management strategy is
principally designed to mitigate the potential financial impact
of changes in the value of transactions and balances denominated
in non-functional currencies, resulting from changes in foreign
currency exchange rates. The Companys foreign currency
hedging program uses both forward contracts and currency options
to manage the foreign currency exposures that exist as part of
its ongoing business operations. The contracts primarily are
denominated in Euros and Chinese renminbi (CNY) and
have maturities of less than six months. On March 31, 2010,
the Company had two forward contracts outstanding to hedge its
wholly-owned Austrian subsidiary, AMSC Windtec GmbH
(Windtec) USD exposure, with notional values of
$25.0 million each, which expired on April 30, 2010.
The forward contract sold US dollars and bought Euros at $1.3522
and $1.3523, respectively. The Company also had two forward
contracts outstanding to hedge receivables exposure at its
wholly-owned China subsidiary, Suzhou AMSC Superconductor Co.,
Ltd., selling CNY and buying USD at $6.772 and $6.7615,
respectively, with notional values of $15.0 million and
$10.0 million, one of which expired on April 30, 2010
and the second of which expires on June 30, 2010,
respectively. In April 2010, the Company executed offsetting
transactions for both open CNY hedges effectively closing these
contracts. For the years ended March 31, 2010 and 2009, the
Company recorded realized losses of $3.5 million and
$0.2 million, respectively, associated with exchange rate
fluctuations on forward contracts and currency option contracts
in other expense, net. For the year ended March 31, 2010,
unrealized gains on such contracts had an immaterial effect on
the balance sheet. There were no hedging contracts outstanding
as of March 31, 2009.
Generally, the Company does not designate forward contracts or
currency option contracts as hedges for accounting purposes, and
changes in the fair value of these instruments are recognized
immediately in earnings. Gains and losses on these contracts are
included in other expense, net.
Accounts receivable at March 31, 2010 and 2009 consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts receivable (billed)
|
|
$
|
53,825
|
|
|
$
|
40,173
|
|
Accounts receivable (unbilled)
|
|
|
10,305
|
|
|
|
9,241
|
|
Less: Allowance for doubtful accounts
|
|
|
(1,927
|
)
|
|
|
(1,343
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
62,203
|
|
|
$
|
48,071
|
|
|
|
|
|
|
|
|
|
|
The Company recorded an allowance for doubtful accounts
provision of $0.5 million in the fiscal year ended
March 31, 2010 primarily due to customer disputes and the
unfavorable economic impact to several of the Companys
customers.
63
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company also recorded net long-term receivables of
$14.1 million and $4.1 million in the fiscal years
ended March 31, 2010 and 2009, respectively that are also
classified within long-term deferred revenue.
Inventory at March 31, 2010 and 2009 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
18,065
|
|
|
$
|
16,098
|
|
Work-in-progress
|
|
|
7,318
|
|
|
|
6,522
|
|
Finished goods
|
|
|
7,879
|
|
|
|
8,150
|
|
Deferred program costs
|
|
|
2,596
|
|
|
|
4,359
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
35,858
|
|
|
$
|
35,129
|
|
|
|
|
|
|
|
|
|
|
Finished goods inventory as of March 31, 2010 includes
$1.1 million which represents costs of product shipped to
customers on contracts for which revenue was deferred until
final customer acceptance.
Deferred program costs as of March 31, 2010 and 2009
primarily represent costs incurred on wind turbine development
programs where the Company needs to complete development
programs before revenue and costs will be recognized. Included
in deferred program costs as of March 31, 2009 is
$2.6 million reflecting costs incurred on a long-term
turnkey D-VAR system project and were subsequently recorded in
cost of revenue in the year ended March 31, 2010 when the
related revenue was recognized.
|
|
7.
|
Property,
Plant and Equipment
|
The cost and accumulated depreciation of property and equipment
at March 31, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
4,022
|
|
|
$
|
4,022
|
|
Construction in progress equipment
|
|
|
13,099
|
|
|
|
1,463
|
|
Buildings
|
|
|
36,599
|
|
|
|
36,587
|
|
Equipment
|
|
|
34,980
|
|
|
|
32,372
|
|
Furniture and fixtures
|
|
|
1,502
|
|
|
|
1,453
|
|
Leasehold improvements
|
|
|
3,389
|
|
|
|
3,097
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and equipment, gross
|
|
|
93,591
|
|
|
|
78,994
|
|
Less accumulated depreciation and amortization
|
|
|
(29,276
|
)
|
|
|
(24,156
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
64,315
|
|
|
$
|
54,838
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $7.1 million, $5.6 million
and $4.1 million for the fiscal years ended March 31,
2010, 2009 and 2008, respectively.
64
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible assets at March 31, 2010 and 2009 consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Estimated
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Useful Life
|
|
Licenses
|
|
$
|
1,924
|
|
|
$
|
(1,690
|
)
|
|
$
|
234
|
|
|
$
|
1,734
|
|
|
$
|
(1,666
|
)
|
|
$
|
68
|
|
|
7
|
Patents
|
|
|
7,531
|
|
|
|
(3,965
|
)
|
|
|
3,566
|
|
|
|
6,743
|
|
|
|
(3,602
|
)
|
|
|
3,141
|
|
|
7
|
Contractual relationships/ backlog
|
|
|
3,463
|
|
|
|
(3,416
|
)
|
|
|
47
|
|
|
|
3,401
|
|
|
|
(3,353
|
)
|
|
|
48
|
|
|
2
|
Customer relationships
|
|
|
2,638
|
|
|
|
(1,908
|
)
|
|
|
730
|
|
|
|
2,601
|
|
|
|
(1,284
|
)
|
|
|
1,317
|
|
|
3 - 5
|
Trade names and trademarks
|
|
|
1,223
|
|
|
|
(568
|
)
|
|
|
655
|
|
|
|
1,200
|
|
|
|
(385
|
)
|
|
|
815
|
|
|
7
|
Core technology and know-how
|
|
|
5,646
|
|
|
|
(3,108
|
)
|
|
|
2,538
|
|
|
|
5,572
|
|
|
|
(2,102
|
)
|
|
|
3,470
|
|
|
5 - 10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
22,425
|
|
|
$
|
(14,655
|
)
|
|
$
|
7,770
|
|
|
$
|
21,251
|
|
|
$
|
(12,392
|
)
|
|
$
|
8,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded intangible amortization expense of
$2.7 million, $2.8 million and $6.0 million for
the fiscal years ended March 31, 2010, 2009 and 2008,
respectively.
Amortization expense for the next five years is expected to be
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Amortization expense
|
|
$
|
2,523
|
|
|
$
|
2,072
|
|
|
$
|
1,046
|
|
|
$
|
806
|
|
|
$
|
500
|
|
Goodwill of $36.7 million and $26.2 million at
March 31, 2010 and 2009, respectively, primarily represents
the excess of the purchase price paid for the calendar year 2007
acquisitions of Windtec Consulting, GmbH and Power Quality
Systems, Inc. over the estimated fair value of the net assets
acquired. Goodwill at March 31, 2010 also includes
$10.8 million representing the fair value of common shares
earned as contingent consideration for the Windtec acquisition
and $11.0 million at March 31, 2009, representing the
fair value of common shares earned as contingent consideration
for the Windtec and Power Quality Systems acquisitions. The
following table presents Goodwill for the fiscal years ended
March 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
Power Systems
|
|
|
Balance March 31, 2008
|
|
$
|
18,530
|
|
Contingent Consideration
|
|
|
11,008
|
|
Currency Translation
|
|
|
(3,305
|
)
|
|
|
|
|
|
Balance March 31, 2009
|
|
|
26,233
|
|
Contingent Consideration
|
|
|
10,828
|
|
Currency Translation
|
|
|
(365
|
)
|
|
|
|
|
|
Balance March 31, 2010
|
|
$
|
36,696
|
|
|
|
|
|
|
65
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The geographic composition of goodwill and intangible assets is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Goodwill by geography:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
6,861
|
|
|
$
|
6,862
|
|
Europe
|
|
|
29,835
|
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,696
|
|
|
$
|
26,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Intangible assets by geography:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
4,475
|
|
|
$
|
4,444
|
|
Europe
|
|
|
3,295
|
|
|
|
4,415
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,770
|
|
|
$
|
8,859
|
|
|
|
|
|
|
|
|
|
|
The goodwill is associated with the Power Systems segment for
the fiscal years ended March 31, 2010 and 2009. The
business segment composition of intangible assets is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Intangible assets by business segments:
|
|
|
|
|
|
|
|
|
AMSC Power Systems
|
|
$
|
5,034
|
|
|
$
|
6,367
|
|
AMSC Superconductors
|
|
|
2,736
|
|
|
|
2,492
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,770
|
|
|
$
|
8,859
|
|
|
|
|
|
|
|
|
|
|
During the Companys annual testing for impairment, the
Company assessed Goodwill and concluded that Goodwill was not
impaired as of March 31, 2010 and 2009.
|
|
9.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses at March 31, 2010 and
2009 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts payable
|
|
$
|
33,762
|
|
|
$
|
23,881
|
|
Accrued miscellaneous expenses
|
|
|
9,047
|
|
|
|
7,920
|
|
Accrued subcontractor program costs
|
|
|
5,671
|
|
|
|
6,370
|
|
Accrued compensation
|
|
|
8,938
|
|
|
|
6,399
|
|
Income taxes payable
|
|
|
20,470
|
|
|
|
8,824
|
|
Accrued warranty
|
|
|
6,431
|
|
|
|
4,749
|
|
Accrued restructuring
|
|
|
|
|
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,319
|
|
|
$
|
60,253
|
|
|
|
|
|
|
|
|
|
|
66
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Product
Warranty
The Company generally provides a one to two 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. The following
is a summary of accrued warranty activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
4,749
|
|
|
$
|
1,775
|
|
Accruals for warranties during the period
|
|
|
6,232
|
|
|
|
6,531
|
|
Settlements during the period
|
|
|
(3,865
|
)
|
|
|
(3,443
|
)
|
Adjustments relating to preexisting warranties
|
|
|
(685
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,431
|
|
|
$
|
4,749
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes for the fiscal years ended
March 31, 2010, 2009 and 2008 are provided in the table as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss) before income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(43,672
|
)
|
|
$
|
(38,802
|
)
|
|
$
|
(32,242
|
)
|
Foreign
|
|
|
80,428
|
|
|
|
30,902
|
|
|
|
9,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,756
|
|
|
$
|
(7,900
|
)
|
|
$
|
(22,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense (benefit) attributable to
continuing operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
23,215
|
|
|
|
8,589
|
|
|
|
5,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
23,215
|
|
|
|
8,589
|
|
|
|
5,998
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
30
|
|
|
|
30
|
|
|
|
161
|
|
State
|
|
|
5
|
|
|
|
6
|
|
|
|
29
|
|
Foreign
|
|
|
(2,742
|
)
|
|
|
110
|
|
|
|
(3,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(2,707
|
)
|
|
|
146
|
|
|
|
(3,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
20,508
|
|
|
$
|
8,735
|
|
|
$
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation between the statutory federal income tax rate
and the Companys effective income tax rate is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
State income taxes, net of federal benefit
|
|
|
(6
|
)
|
|
|
(24
|
)
|
|
|
(9
|
)
|
State rate change
|
|
|
|
|
|
|
36
|
|
|
|
|
|
Foreign income tax rate differential
|
|
|
(20
|
)
|
|
|
(38
|
)
|
|
|
(3
|
)
|
Stock options
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
Nondeductible expenses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Research and development credit
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Valuation allowance
|
|
|
46
|
|
|
|
173
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
56
|
%
|
|
|
111
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the principal components of the
Companys deferred tax assets and liabilities (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
176,028
|
|
|
$
|
164,886
|
|
Research and development and other credits
|
|
|
7,439
|
|
|
|
6,501
|
|
Accruals and reserves
|
|
|
4,664
|
|
|
|
6,353
|
|
Fixed assets and intangibles
|
|
|
63
|
|
|
|
22
|
|
Other
|
|
|
9,373
|
|
|
|
5,301
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
197,567
|
|
|
|
183,063
|
|
Valuation allowance
|
|
|
(187,358
|
)
|
|
|
(174,695
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
10,209
|
|
|
|
8,368
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles from acquisitions
|
|
|
(710
|
)
|
|
|
(1,040
|
)
|
Fixed assets and intangibles
|
|
|
(5,946
|
)
|
|
|
(6,482
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(6,656
|
)
|
|
|
(7,522
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,553
|
|
|
$
|
846
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance against its net
U.S. deferred income tax assets since the Company believes
that 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. The Company has not
provided a valuation allowance against its net foreign deferred
income tax assets since the Company believes that it is more
likely than not that its deferred tax assets will be realized.
The Company has recorded a deferred tax asset of approximately
$14.9 million reflecting the benefit of deductions from the
exercise of stock options. This deferred tax asset has been
fully reserved since it is more likely than not that the tax
benefit from the exercise of stock options will not be realized.
The tax benefit will be recorded as a credit to additional
paid-in capital if realized.
68
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At March 31, 2010, the Company has aggregate net operating
loss carryforwards for its U.S. operations for federal and
state income tax purposes of approximately $517.3 million
and $318.4 million, respectively, which expire in the years
ending March 31, 2011 through 2030. Also included in the
U.S. net operating losses is approximately
$4.4 million and $3.7 million of acquired losses from
Superconductivity, Inc. and Power Quality Systems, Inc.,
respectively. Of this amount, $42.4 million results from
excess tax deductions from stock option exercised in 2006
through 2010. Pursuant to the guidance on accounting for
stock-based compensation, the deferred tax asset relating to
excess tax benefits from these exercises was not recognized for
financial statement purposes. The future benefit from these
deductions will be recorded as a credit to additional paid-in
capital when realized. Research and development and other tax
credit carryforwards amounting to approximately
$5.8 million and $1.6 million are available to offset
federal and state income taxes, respectively, and will expire in
the fiscal years ending March 31, 2011 through 2030.
At March 31, 2010, the Company had an immaterial amount of
net operating losses carryforwards for its foreign operations,
which can be carried forward indefinitely.
Section 382 of the Internal Revenue Code of 1986, as
amended (the IRC), provides limits on the extent to
which a corporation that has undergone an ownership change (as
defined) can utilize any net operating loss (NOL)
and general business tax credit carryforwards it may have. The
Company commissioned a study to determine whether
Section 382 could limit the use of its carryforwards in
this manner. After completing this study, the Company has
concluded that the limitation will not have a material impact on
its ability to utilize its net operating loss carryforwards.
A portion of the deferred tax liabilities were created by
goodwill as a result of a U.S. acquisition. These deferred
tax liabilities are not allowed as an offset to deferred tax
assets for purposes of determining the amount of valuation
allowance required. As a result, a deferred tax provision is
required to increase the Companys valuation allowance. The
deferred tax liability associated with goodwill as of
March 31, 2010 was approximately $0.3 million.
The estimated amount of undistributed earnings of our foreign
subsidiaries is approximately $88.3 million at
March 31, 2010. No amount for U.S. income tax has been
provided on undistributed earnings of its foreign subsidiaries
because the Company considers such earnings to be indefinitely
reinvested. In the event of distribution of those earnings in
the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes, subject to an adjustment, if
any, for foreign tax credits, and foreign withholding taxes
payable to certain foreign tax authorities. Determination of the
amount of U.S. income tax liability that would be incurred
is not practicable because of the complexities associated with
this hypothetical calculation.
The Company did not establish any additional reserves for
uncertain tax liabilities upon adoption of this standard. A
summary of the Companys adjustments to its uncertain tax
positions for the fiscal year ended March 31, 2010 is as
follows (in thousands):.
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
|
|
Increase for tax positions related to fiscal 2008
|
|
|
105
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
|
105
|
|
|
|
|
|
|
Increase for tax positions related to fiscal 2009
|
|
|
90
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
195
|
|
|
|
|
|
|
The Company has not recognized any interest and penalties in the
statement of operations because of the Companys net
operating losses and tax credits that are available to be
carried forward.
The Company accounts for interest and penalties related to
uncertain tax positions as part of its provision for federal and
state income taxes. At March 31, 2010, approximately
$0.2 million unrecognized tax benefits, if recognized,
would favorably affect its effective tax rate in any future
period.
69
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company does not expect that the amounts of unrecognized
benefits will change significantly within the next
12 months.
Major tax jurisdictions include the U.S., China and Austria. All
U.S. income tax filings for years ending March 31,
1995 through 2010 remain open and subject to examination and all
years from calendar year 2003 through fiscal 2009 remain open
and subject to examination in Austria. Tax filings in China for
calendar years 2008 and 2009 will remain open and subject to
examination.
Public
Offering
In July 2007 the Company completed a public offering of
4,700,000 shares of its common stock and received net
proceeds (after the underwriters discount and offering expenses)
of $93.6 million.
Stock-Based
Compensation
The components of stock-based compensation for the fiscal years
ended March 31, 2010, 2009 and 2008 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stock options
|
|
$
|
5,895
|
|
|
$
|
3,599
|
|
|
$
|
3,139
|
|
Restricted stock and stock awards
|
|
|
7,535
|
|
|
|
6,022
|
|
|
|
2,481
|
|
Employee stock purchase plan
|
|
|
64
|
|
|
|
51
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
13,494
|
|
|
$
|
9,672
|
|
|
$
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-based compensation awards
was $17.7 million for the fiscal year ended March 31,
2010. This expense will be recognized over a weighted average
expense period of approximately 2.0 years.
The Companys consolidated statement of operations for the
fiscal years ended March 31, 2010, 2009 and 2008 include
the following stock-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation in the
|
|
For the Fiscal Years Ended March 31,
|
|
Statement of Operations by Line Item
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of revenues
|
|
$
|
1,199
|
|
|
$
|
1,350
|
|
|
$
|
515
|
|
Research and development
|
|
|
2,023
|
|
|
|
1,934
|
|
|
|
1,046
|
|
Selling, general and administrative
|
|
|
10,272
|
|
|
|
6,388
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
13,494
|
|
|
$
|
9,672
|
|
|
$
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the information concerning
currently outstanding and exercisable employee and non-employee
options and warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options/
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
(Thousands)
|
|
|
Outstanding at March 31, 2009
|
|
|
2,705,546
|
|
|
$
|
19.97
|
|
|
|
|
|
|
|
|
|
Granted at fair value
|
|
|
868,765
|
|
|
|
28.29
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(810,196
|
)
|
|
|
23.01
|
|
|
|
|
|
|
|
|
|
Canceled/Forfeited
|
|
|
(48,199
|
)
|
|
|
52.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
2,715,916
|
|
|
$
|
21.15
|
|
|
|
6.4
|
|
|
$
|
24,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested at March 31, 2010
|
|
|
1,319,140
|
|
|
$
|
17.55
|
|
|
|
4.1
|
|
|
$
|
16,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of stock option
awards granted during the fiscal years ended March 31,
2010, 2009 and 2008 was $28.29 per share, $13.85 per share and
$9.10 per share, respectively. Intrinsic value represents the
amount by which the market price of the common stock exceeds the
exercise price of the options. The aggregate intrinsic value of
exercisable options at March 31, 2010, 2009 and 2008 was
$16.4 million, $6.4 million and $15.2 million,
respectively. The aggregate intrinsic value of options exercised
at March 31, 2010, 2009 and 2008 was $11.4 million,
$20.5 million and $15.8 million, respectively. The
total fair value of options vested during the fiscal years ended
March 31, 2010, 2009 and 2008 was $3.1 million,
$3.3 million and $1.9 million, respectively.
The restricted stock granted during the fiscal year ended
March 31, 2010 includes approximately 112,490 shares
of performance-based restricted stock, which will vest upon
achievement of certain financial performance measurements. At
March 31, 2010, the Company determined that achievement of
the performance measures is probable and as such, is recognizing
the fair value of the performance-based awards over the
estimated performance period. The remaining shares granted vest
upon the passage of time. For awards that vest upon the passage
of time, expense is being recorded over the vesting period.
The weighted average assumptions used in the Black-Scholes
valuation model for stock options granted during the fiscal
years ended March 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Expected volatility
|
|
|
68.9
|
%
|
|
|
61.5
|
%
|
|
|
58.9
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
3.0
|
%
|
|
|
4.7
|
%
|
Expected life (years)
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
5.3
|
|
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 five-year U.S. Treasury rates.
71
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the employee and non-employee
restricted stock activity for the fiscal year ended
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant Date
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Term
|
|
|
(Thousands)
|
|
|
Outstanding at March 31, 2009
|
|
|
611,083
|
|
|
$
|
23.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
248,585
|
|
|
|
27.47
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(345,969
|
)
|
|
|
20.16
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,325
|
)
|
|
|
24.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
508,374
|
|
|
$
|
27.31
|
|
|
|
8.56
|
|
|
$
|
14,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock that was granted during
the fiscal years ended March 31, 2010, 2009 and 2008 was
$6.8 million, $12.0 million and $8.1 million,
respectively. The total fair value of restricted stock that
vested during the fiscal years ended March 31, 2010, 2009
and 2008 was $8.4 million, $1.8 million and
$2.2 million, respectively.
Stock-Based
Compensation Plans
As of March 31, 2010, the Company had two active stock
plans: the 2007 Stock Incentive Plan (the 2007 Plan)
and the 2007 Director Stock Option Plan (the
2007 Director Plan). The 2007 Plan replaced the
Companys 2004 Stock Incentive Plan upon the approval by
the Companys stockholders on August 3, 2007. The
2007 Director Plan replaced the Second Amended and Restated
1997 Director Stock Option Plan, which expired pursuant to
its terms on May 2, 2007.
The Plans provide for the issuance of restricted stock,
incentive stock options and non-qualified stock options to
purchase the Companys common stock. In the case of
incentive stock options, the exercise price shall be equal to at
least the fair market value of the common stock, as determined
by the Board of Directors, on the date of grant. The contractual
life of options is generally 10 years. Options generally
vest over a 3-5 year period while restricted stock
generally vests over a 2-5 year period. The
2007 Director Plan is for members of the Board of Directors
who are not also employees of the Company (outside directors).
Effective August 8, 2007, under the 2007 Director
Plan, certain outside directors were entitled to receive an
annual award of 5,000 fully-vested shares of common stock. For
the year ended March 31, 2009, the outside directors
elected to voluntarily reduce their annual award to
3,000 shares. Under an amendment to the 2007 Director
Plan effective April, 2009, outside directors are entitled to
receive an annual award of 3,000 fully-vested shares of common
stock.
As of March 31, 2010, the 2007 Plan had
4,144,908 shares and the 2007 Director Plan had
244,000 shares available for future issuance.
Employee
Stock Purchase Plan
The Company has an employee stock purchase plan (ESPP) which
provides employees with the opportunity to purchase shares of
common stock at a price equal to the market value of the common
stock at the end of the offering period, less a 15% purchase
discount. The Company recognized compensation expense of
$0.1 million for the fiscal year ended March 31, 2010
related to the ESPP. The Company issued 13,862 shares of
common stock related to the ESPP during the year ended
March 31, 2010. As of March 31, 2010, the ESPP had
303,980 shares available for future issuance.
72
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Purchase Warrants
At March 31, 2010, there are outstanding warrants held by
UT-Battelle, LLC (UT-Battelle) for 5,000 shares of common
stock at an exercise price of $13.68 per share which became
exercisable over a five-year period following the date of grant.
These warrants were granted in exchange for a reduction in
annual minimum royalty payments to UT-Battelle, which manages
the Oak Ridge National Laboratory under a contract from the
U.S. Department of Energy, and vested over a five year
period and expire on June 23, 2014. Expense related to
these warrants was immaterial to the consolidated statement of
operations for the fiscal years ended March 31, 2010, 2009
and 2008. As of March 31, 2010, no warrants have been
exercised.
In addition, the Company also granted a warrant to TM Capital in
April 2005. See Note 12.
|
|
12.
|
Commitments
and Contingencies
|
In April 2005, the Company issued to TM Capital (which
subsequently assigned it to Provident Premier Master Fund, Ltd.
(Provident)) a common stock purchase warrant for
200,000 shares of the Companys common stock,
exercisable for a five-year term, with an exercise price of
$9.50 per share (the Warrant). In August 2008,
Provident utilized the cashless exercise provision and exercised
the entire Warrant in exchange for 148,387 shares of the
Companys common stock. The Warrant was re-valued at
$4.3 million at the time of exercise, resulting in a charge
of $1.3 million for the fiscal year ended March 31,
2009, (reported in Other income (expense) in the Consolidated
Statements of Operations). The Warrant was valued at
$3.0 million as of March 31, 2008, and a loss of
$1.7 million was recorded reflecting the change in value
for the fiscal year ended March 31, 2008.
The Company leases facilities located in Middleton and New
Berlin, Wisconsin, West Mifflin, Pennsylvania, Suzhou, China and
Klagenfurt, Austria. The Company leases two operating facilities
in Middleton, Wisconsin, under leases which expire on
December 31, 2010, one facility in New Berlin, Wisconsin
under a lease which expires on September 30, 2011 and two
West Mifflin, Pennsylvania facilities with one lease that
expires on December 31, 2010 and a second lease that
expires on May 31, 2010. The Company also leases a Suzhou,
China facility which comprises approximately 60,000 square
feet of space that expires on July 31, 2010 and an
additional 56,000 square feet of space that expires on
October 19, 2012. The Company also leases space for its
Windtec subsidiary of approximately 72,000 square feet in
four facilities in Klagenfurt, Austria. These leases can be
terminated at the Companys request after a six month
advance notice.
The Company also had an operating lease for a facility in
Westborough, Massachusetts, its former corporate headquarters,
which expired on August 31, 2009. In October 2007, the
Company entered into a restructuring plan to consolidate its
headquarters into its Devens, Massachusetts facility (see
Note 16). In December 2007, the Company vacated this
facility and recorded a lease restructuring charge of
$3.8 million and facility closing costs of
$2.6 million in the fiscal year ended March 31, 2008
in connection with the restructuring. During the year ended
March 31, 2010 and 2009, the Company recorded
$0.5 million and $1.0 million of additional facility
closing costs, respectively.
Rent expense under the operating leases mentioned above was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Rent expense
|
|
$
|
2,153
|
|
|
$
|
1,777
|
|
|
$
|
2,819
|
|
73
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Minimum future lease commitments at March 31, 2010 were as
follows (in thousands):
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
Total
|
|
|
2011
|
|
|
2,009
|
|
2012
|
|
|
643
|
|
2013
|
|
|
308
|
|
2014 and beyond
|
|
|
79
|
|
|
|
|
|
|
Total
|
|
$
|
3,039
|
|
|
|
|
|
|
From time to time, 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.
On June 26, 2008, the Company entered into a performance
bond for CNY 1.1 million (approximately $0.2 million)
which expires June 30, 2012. On October 28, 2009, the
Company entered into a performance bond for CNY 0.3 million
(approximately $0.1 million), which expires June 30,
2012. Both performance bonds are with a Chinese customer to
guarantee supply of core components and software. The
performance bonds were issued utilizing a Bank of China CNY
20.0 million (approximately $2.9 million) unsecured
line of credit, which is available until June 25, 2010.
As of March 31, 2010, the Company had outstanding
performance bonds issued on behalf of AMSC Windtec, for
0.9 million (approximately $1.2 million) in
connection with two contracts to provide power electronics for
two customers. The first performance bond for
0.3 million (approximately $0.4 million) will
expire on September 30, 2010 and the second performance
bond for 0.6 million (approximately
$0.7 million) will expire on December 31, 2010. 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. The
performance bonds are secured with restricted cash, included in
current assets.
At March 31, 2010 and 2009, the Company had
$5.7 million and $5.9 million, respectively, of
restricted cash included in current assets, which includes the
restricted cash securing the Windtec performance bonds noted
above, and $1.4 million of long-term restricted cash at
March 31, 2009. Total restricted cash as of March 31,
2010 and 2009 was $5.7 million and $7.3 million,
respectively. The Company also has an additional
$1.8 million in bank guarantees and letters of credit
supported by unsecured lines of credit.
The Company also has unused, unsecured lines of credit
consisting of 0.5 million (approximately
$0.7 million) which is available until June 30, 2010,
and CNY 12.9 million (approximately $1.9 million)
which is available until June 30, 2012. During the year
ended March 31, 2010, the Company was able to reduce its
long term restricted cash in the U.S. through the
establishment of credit relationships with a number of
U.S. banks.
|
|
13.
|
Cost-Sharing
Arrangements
|
The Company has entered into several cost-sharing arrangements
with various agencies of the United States government. Funds
paid to the Company under these agreements are not reported as
revenues but are used to directly offset the Companys
research and development (R&D) and selling, general and
administrative (SG&A) expenses, and to purchase capital
equipment.
74
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Costs incurred and R&D and SG&A expenditures offset by
cost sharing funding received under these contracts is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Costs incurred
|
|
$
|
3,861
|
|
|
$
|
4,478
|
|
|
$
|
6,066
|
|
R&D expenditures offset by cost sharing funding received
|
|
|
971
|
|
|
|
1,129
|
|
|
|
1,323
|
|
SG&A expenditures offset by cost sharing funding received
|
|
|
846
|
|
|
|
983
|
|
|
|
1,216
|
|
At March 31, 2010, total funding received to date under
these agreements was $29.6 million.
|
|
14.
|
Employee
Benefit Plans
|
The Company has implemented a deferred compensation plan (the
Plan) under Section 401(k) of the Internal Revenue Code.
Any contributions made by the Company to the Plan are
discretionary. The Company has a stock match program under which
the Company matched, in the form of Company common stock, 35% of
the first 6% of eligible contributions. Effective
October 1, 2007 this contribution increased to 50% of the
first 6% of eligible contributions. The Company recorded expense
of $0.7 million, $0.6 million and $0.4 million
for the fiscal years ended March 31, 2010, 2009 and 2008,
respectively, and corresponding charges to additional paid-in
capital related to this program.
Acquisition
of Power Quality Systems, Inc.
On April 27, 2007, the Company acquired Power Quality
Systems, Inc. (PQS), a Pennsylvania corporation, for
$4.5 million in common stock. PQS offers reactive
compensation products known as Static VAR Compensators, or SVCs,
based on its proprietary thyristor switch technology. These
products enhance the reliability of power transmission and
distribution grids and improve the quality of power for
manufacturing operations.
The acquisition agreement included an earn-out provision for the
issuance of up to an additional 0.5 million shares of
common stock based on the achievement of certain order growth
targets for existing PQS products for the fiscal years ended
March 31, 2008 and 2009. During the fiscal year ended
March 31, 2008, the Company recorded contingent
consideration related to the acquisition of PQS of
$1.7 million to Goodwill and Additional paid-in capital,
representing 75,000 shares earned. These shares were issued
during the first quarter of the fiscal year ended March 31,
2009. In addition, the Company recorded contingent consideration
of $1.2 million to Goodwill and Additional paid-in capital,
representing 75,000 shares earned for the fiscal year ended
March 31, 2009. These shares were issued in the first
quarter of the fiscal year ended March 31, 2010.
The results of PQSoperations are included in the
Companys consolidated results from the date of acquisition
of April 27, 2007. Assuming the acquisition of PQS had
occurred on April 1, 2007, the impact on the consolidated
results of the Company would not have been significant.
Acquisition
of Windtec Consulting GmbH
On January 5, 2007, the Company acquired Windtec Consulting
GmbH (Windtec), a corporation incorporated according
to the laws of Austria. Windtec develops and sells electrical
systems for wind turbines. Windtec also provides technology
transfer for the manufacturing of wind turbines; documentation
services; and training and support regarding the assembly,
installation, commissioning, and service of wind turbines.
The acquisition agreement included an earn-out provision for the
issuance of up to an additional 1,400,000 shares of common
stock upon Windtecs achievement of specified revenue
objectives during the first four fiscal years following closing
of the acquisition. During the fiscal year ended March 31,
2008, the Company
75
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded contingent consideration of $8.1 million to
Goodwill and Additional paid-in capital, representing
350,000 shares earned. These shares were issued during the
first quarter of the fiscal year ended March 31, 2009. In
addition, the Company recorded contingent consideration of
$9.8 million to Goodwill and Additional paid-in capital
during the fiscal year ended March 31, 2009, representing
350,000 shares earned. The 350,000 shares earned are
the maximum amount of contingent consideration that can be
earned in a fiscal year. These shares were issued in the first
quarter of the fiscal year ending March 31, 2010. During
the fiscal year ended March 31, 2010, the Company recorded
contingent consideration of $10.8 million to Goodwill and
Additional paid-in capital representing 350,000 shares
earned. These shares will be issued in the first quarter of the
fiscal year ended March 31, 2011.
Investment
in Tres Amigas
On October 13, 2009, the Company made a minority investment
in Tres Amigas LLC (Tres Amigas), a merchant
transmission company, for $1.8 million. Consideration for
the investment was $0.8 million in cash and
$1.0 million in common stock. The investment was recorded
under the equity method of accounting and is included in Other
assets on the consolidated balance sheet. The Companys
minority interest in the losses of Tres Amigas are included in
Other income (expense) on the consolidated statements of
operations and were immaterial for the fiscal year ended
March 31, 2010.
The Companys restructuring charges for the fiscal years
ended March 31, 2010, 2009 and 2008 were $0.5 million,
$1.0 million and $6.7 million, respectively.
On March 26, 2007, the Companys Board of Directors
approved a restructuring plan (the Fiscal 2006 Plan)
to reduce future operating costs and to transition its high
temperature superconductor products to the manufacturing stage
by consolidating the Companys AMSC Wires, SuperMachines
and Power Electronic Systems business segments into two
operating segments: AMSC Superconductors and AMSC Power Systems.
The Companys aggregate restructuring charges associated
with the Fiscal 2006 Plan were $0.8 million, of which
$0.3 million was expensed in the fiscal year ended
March 31, 2008. These charges consisted of severance,
relocation and lease termination costs. The restructuring charge
was allocated to the AMSC Superconductors operating segment. As
of March 31, 2008, the plan was substantially completed.
On October 25, 2007, the Companys Board of Directors
approved a restructuring plan (the Fiscal 2007 Plan)
to reduce operating costs through the closure its last remaining
facility in Westborough, Massachusetts, and the consolidation of
operations there, including its corporate headquarters, into its
Devens, Massachusetts, facility. No headcount reductions were
associated with this plan.
Aggregate restructuring charges associated with the Fiscal 2007
Plan were $7.9 million, of which $0.5 million,
$1.0 million and $6.4 million were recorded in the
fiscal years ended March 31, 2010, 2009 and 2008,
respectively. The charge primarily represents $4.4 million
in costs associated with the write-off of the present value of
the remaining lease payments, $3.1 million in unforeseen
costs determined necessary to return the building back to its
original state to the landlord, and $0.4 million in costs
associated with the relocation of people and equipment to its
Devens facility. The aggregate expected charge above assumed the
facility was not subleased. All restructuring charges associated
with the Fiscal 2007 Plan resulted in cash disbursements and
were included in unallocated corporate expenses.
76
AMERICAN
SUPERCONDUCTOR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the restructuring expense and cash
disbursements for the fiscal years ended March 31, 2010,
2009 and 2008 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
Lease
|
|
|
Decontamination
|
|
|
Severance &
|
|
|
|
|
|
|
Termination
|
|
|
and Other Facility
|
|
|
Related
|
|
|
|
|
|
|
Costs
|
|
|
Closing Costs
|
|
|
Benefits
|
|
|
Total
|
|
|
Balance March 31, 2007
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
370
|
|
|
$
|
464
|
|
Charges to operations
|
|
|
3,765
|
|
|
|
2,723
|
|
|
|
217
|
|
|
|
6,705
|
|
Cash disbursements
|
|
|
(759
|
)
|
|
|
(814
|
)
|
|
|
(587
|
)
|
|
|
(2,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008
|
|
|
3,100
|
|
|
|
1,909
|
|
|
|
|
|
|
|
5,009
|
|
Charges to operations
|
|
|
222
|
|
|
|
808
|
|
|
|
|
|
|
|
1,030
|
|
Cash disbursements
|
|
|
(2,860
|
)
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
(3,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<