e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: September 30, 2009
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o |
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 0-19672
American Superconductor Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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04-2959321 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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64 Jackson Road, Devens, Massachusetts
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01434 |
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(Address of principal executive offices)
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(Zip Code) |
(978) 842-3000
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Shares outstanding of the Registrants common stock:
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Common Stock, par value $0.01 per share |
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44,245,764 |
Class
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Outstanding as of November 2, 2009 |
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
2
AMERICAN SUPERCONDUCTOR CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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September 30, |
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March 31, |
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2009 |
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2009 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
86,752 |
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$ |
70,674 |
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Marketable securities |
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36,177 |
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39,255 |
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Accounts receivable, net |
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47,004 |
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50,103 |
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Inventory |
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29,187 |
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35,129 |
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Restricted cash |
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6,398 |
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5,872 |
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Prepaid expenses and other current assets |
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10,143 |
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10,313 |
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Deferred tax assets, net |
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1,102 |
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1,160 |
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Total current assets |
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216,763 |
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212,506 |
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Property, plant and equipment, net |
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54,435 |
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54,838 |
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Goodwill |
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39,217 |
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26,233 |
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Intangibles, net |
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8,763 |
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8,859 |
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Restricted cash |
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1,634 |
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1,406 |
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Marketable securities |
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10,127 |
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Other assets |
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12,765 |
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5,264 |
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Total assets |
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$ |
343,704 |
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$ |
309,106 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
57,832 |
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$ |
60,253 |
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Deferred revenue |
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18,244 |
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21,066 |
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Total current liabilities |
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76,076 |
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81,319 |
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Deferred revenue |
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9,156 |
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4,902 |
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Deferred tax liabilities, net |
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877 |
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|
840 |
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Other |
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241 |
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184 |
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Total liabilities |
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86,350 |
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87,245 |
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Commitments and contingencies (Note 9) |
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Stockholders equity: |
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Common stock |
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441 |
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433 |
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Additional paid-in capital |
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675,209 |
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653,054 |
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Deferred contract costs warrant |
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(2 |
) |
Accumulated
other comprehensive income/(loss) |
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2,709 |
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(4,487 |
) |
Accumulated deficit |
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(421,005 |
) |
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(427,137 |
) |
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Total stockholders equity |
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257,354 |
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221,861 |
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Total liabilities and stockholders equity |
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$ |
343,704 |
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$ |
309,106 |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three months ended |
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Six months ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues |
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$ |
74,672 |
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$ |
40,375 |
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$ |
147,672 |
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$ |
80,192 |
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Cost and operating expenses: |
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Cost of revenues |
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45,637 |
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29,670 |
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96,054 |
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57,866 |
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Research and development |
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5,416 |
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4,688 |
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9,944 |
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9,601 |
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Selling, general and administrative |
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12,712 |
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8,849 |
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23,597 |
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17,742 |
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Amortization of acquisition related intangibles |
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460 |
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|
481 |
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905 |
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984 |
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Restructuring and impairments |
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117 |
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500 |
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451 |
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500 |
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Total cost and operating expenses |
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64,342 |
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44,188 |
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130,951 |
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86,693 |
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Operating income (loss) |
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10,330 |
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(3,813 |
) |
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16,721 |
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(6,501 |
) |
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Interest income |
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190 |
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|
801 |
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|
433 |
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1,576 |
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Other income (expense), net |
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(871 |
) |
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|
481 |
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(2,847 |
) |
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(1,990 |
) |
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Income (loss) before income tax expense |
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9,649 |
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(2,531 |
) |
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|
14,307 |
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(6,915 |
) |
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Income tax expense |
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5,309 |
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|
1,537 |
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8,175 |
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|
3,256 |
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Net income (loss) |
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$ |
4,340 |
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|
$ |
(4,068 |
) |
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$ |
6,132 |
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$ |
(10,171 |
) |
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Net income (loss) per common share |
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Basic |
|
$ |
0.10 |
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$ |
(0.10 |
) |
|
$ |
0.14 |
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$ |
(0.24 |
) |
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Diluted |
|
$ |
0.10 |
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|
$ |
(0.10 |
) |
|
$ |
0.14 |
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$ |
(0.24 |
) |
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Weighted average number of common shares outstanding |
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Basic |
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|
44,247 |
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|
42,745 |
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|
44,020 |
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|
|
42,380 |
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Diluted |
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|
45,233 |
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|
|
42,745 |
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|
|
44,922 |
|
|
|
42,380 |
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|
|
|
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
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Three months ended |
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Six months ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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|
2009 |
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2008 |
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|
|
|
|
|
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Net income (loss) |
|
$ |
4,340 |
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|
$ |
(4,068 |
) |
|
$ |
6,132 |
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|
$ |
(10,171 |
) |
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Other comprehensive income (loss) |
|
|
|
|
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|
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Foreign currency translation |
|
|
3,248 |
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|
(3,820 |
) |
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|
7,305 |
|
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|
(3,755 |
) |
Unrealized gain/(loss) on investments |
|
|
(19 |
) |
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|
18 |
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(109 |
) |
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|
(125 |
) |
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|
|
|
|
|
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Other comprehensive income (loss) |
|
|
3,229 |
|
|
|
(3,802 |
) |
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|
7,196 |
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|
(3,880 |
) |
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Comprehensive income (loss) |
|
$ |
7,569 |
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|
$ |
(7,870 |
) |
|
$ |
13,328 |
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|
$ |
(14,051 |
) |
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|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial
statements.
5
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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For the six months ended |
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September 30, |
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2009 |
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|
2008 |
|
Cash flows from operating activities: |
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|
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Net income (loss) |
|
$ |
6,132 |
|
|
$ |
(10,171 |
) |
Adjustments to reconcile net income/(loss) to net cash used in operations: |
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Depreciation and amortization |
|
|
4,704 |
|
|
|
4,134 |
|
Stock-based compensation expense |
|
|
6,918 |
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|
5,194 |
|
Stock-based compensation expensenon-employee |
|
|
30 |
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|
|
42 |
|
Allowance for doubtful accounts |
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|
52 |
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|
778 |
|
Re-valuation of warrant |
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|
1,334 |
|
Deferred income taxes |
|
|
(1,111 |
) |
|
|
616 |
|
Other non-cash items |
|
|
382 |
|
|
|
489 |
|
Changes in operating asset and liability accounts: |
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|
|
|
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Accounts receivable |
|
|
3,010 |
|
|
|
4,837 |
|
Inventory |
|
|
6,235 |
|
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|
(4,762 |
) |
Prepaid expenses and other current assets |
|
|
712 |
|
|
|
(1,780 |
) |
Accounts payable and accrued expenses |
|
|
(4,810 |
) |
|
|
(1,044 |
) |
Deferred revenue |
|
|
(567 |
) |
|
|
3,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net cash provided by operating activities |
|
|
21,687 |
|
|
|
3,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash flows from investing activities: |
|
|
|
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|
|
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|
Purchase of property, plant and equipment, net |
|
|
(2,741 |
) |
|
|
(3,303 |
) |
Purchase of marketable securities |
|
|
(40,533 |
) |
|
|
(62,217 |
) |
Proceeds from the maturity of marketable securities |
|
|
33,374 |
|
|
|
34,679 |
|
Change in restricted cash |
|
|
(546 |
) |
|
|
5,785 |
|
Purchase of intangible assets |
|
|
(843 |
) |
|
|
(612 |
) |
Change in other assets |
|
|
(617 |
) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,906 |
) |
|
|
(25,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of employee stock options |
|
|
4,068 |
|
|
|
11,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,068 |
|
|
|
11,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
2,229 |
|
|
|
(1,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
16,078 |
|
|
|
(12,040 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
70,674 |
|
|
|
67,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
86,752 |
|
|
$ |
55,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information: |
|
|
|
|
|
|
|
|
Non-cash issuance of common stock |
|
$ |
320 |
|
|
$ |
301 |
|
Non-cash contingent consideration in connection with acquisitions |
|
|
10,828 |
|
|
|
9,784 |
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial
statements.
6
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Basis of Presentation
American Superconductor Corporation (the Company or AMSC) was founded on April 9, 1987.
The Company 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. 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.
These unaudited condensed consolidated financial statements of the Company have been prepared
in accordance with the Securities and Exchange Commissions (SEC) instructions to Form 10-Q.
Certain information and footnote disclosures normally included in the financial statements prepared
in accordance with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was
derived from audited financial statements but does not include all disclosures required by
generally accepted accounting principles in the United States of America. The unaudited condensed
consolidated financial statements, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair statement of the results for the
interim periods ended September 30, 2009 and 2008 and the financial position at September 30, 2009.
The unaudited condensed consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation.
The results of operations for an interim period are not necessarily indicative of the results
of operations to be expected for the fiscal year. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements for the
fiscal year ended March 31, 2009 (fiscal 2008) which are contained in the Companys Annual Report
on Form 10-K, filed with the SEC on May 28, 2009.
During the six months ended September 30, 2009, the Company corrected an
error for bonus expense in the year ending March 31, 2008 that effectively increased net income in the current fiscal year by $0.3 million. The $0.3 million error consisted of a $0.4 million
overstatement of bonus expense and a related $0.1 million understatement of income tax expense in
the fourth quarter of the fiscal year ended March 31, 2009. The adjustment of $0.4 million had a de
minimis impact on certain balance sheet amounts at March 31, 2009. The impact of correcting this
error in the fiscal year ended March 31, 2009 would have increased net income by $0.3 million.
Also, the Company overstated revenue and net income by $0.2 million in the three months ended June
30, 2009. This error was corrected in the three months ended September 30, 2009, The Company
evaluated these errors taking into account both qualitative and quantitative factors and considered
the impact of these errors in relation to the first and second quarters of the fiscal year ending
March 31, 2010, which is when they were corrected, as well as the periods in which they originated.
Management believes these errors are immaterial to both the consolidated quarterly and annual
financial statements for all periods affected.
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. The Company has adopted
this standard on April 1, 2009. The adoption required the Company to modify its prior year weighted
average number of shares outstanding but did not have a material effect on its 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, the acquirer applies the recognition criteria
in accounting for contingencies, and a reasonable estimation of the
7
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, the Company adopted the provisions of this standard and the adoption did not have a
material effect on its financial condition or results of operations.
In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification). The
Codification will become the single source for all authoritative GAAP recognized by the FASB to be
applied for financial statements issued for periods ending after September 15, 2009. The
Codification does not change GAAP and did not have an effect on the Companys 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. The Company does not currently have a variable interest entity and does not
expect this standard to have a material impact on its 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 cannot be determined. The guidance provides for the determination of the best estimate of
selling price for separate deliverables and allows the allocation of arrangement consideration
using this relative selling price model. The guidance supersedes the prior multiple element revenue
arrangement accounting rules that are currently used by the Company. The new guidance can be
prospectively applied in fiscal years beginning on or after June 15, 2010 or can be early or
retrospectively adopted. The Company is currently evaluating the impact of adopting the guidance.
In September 2009, the FASB amended its rules pertaining to certain revenue arrangements that
include software elements, to remove its scope tangible products containing software components
and non-software components that function together to deliver the products essential
functionality. The accounting change is effective for fiscal years beginning on or after June 15,
2010, with early adoption permitted. Adoption may either be on a prospective basis or by
retrospective application. The Company is currently evaluating the impact of adopting the guidance.
2. Stock-Based Compensation
The Company accounts for its stock-based compensation at fair value. The following table
summarizes employee stock-based compensation expense by financial statement line item for the three
and six months ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Costs of revenue |
|
$ |
354 |
|
|
$ |
354 |
|
|
$ |
579 |
|
|
$ |
682 |
|
Research and development |
|
|
523 |
|
|
|
482 |
|
|
|
990 |
|
|
|
1,036 |
|
Selling, general and administrative |
|
|
2,975 |
|
|
|
2,059 |
|
|
|
5,349 |
|
|
|
3,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,852 |
|
|
$ |
2,895 |
|
|
$ |
6,918 |
|
|
$ |
5,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended September 30, 2009, the Company granted approximately 600,000
shares and 130,000 shares of stock options and restricted stock, respectively, to employees under
the 2007 Stock Incentive Plan. The Company also granted 18,000 shares of restricted stock to
directors under the 2007 Director Stock Option Plan. The fair value of the grants made during the
six months ended September 30, 2009 was $12.3 million. The restricted stock awards include
approximately 58,000 shares of performance-based restricted stock, which will vest upon achievement
of certain annual financial performance measurements. The remaining shares granted vest upon the
passage of time, generally in equal annual installments over three years. For awards that vest upon
the passage of time, expense is being recorded on a straight-line basis over the vesting period. At
September 30, 2009, 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 of eleven months.
8
The total unrecognized compensation cost for unvested employee stock-based compensation awards
outstanding, net of estimated forfeitures, was $17.9 million at September 30, 2009. This expense
will be recognized over a weighted-average expense period of 1.6 years.
The assumptions used in the Black-Scholes valuation model for stock options granted
during the three and six months ended September 30, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Expected volatility |
|
|
66.5 |
% |
|
|
62.4 |
% |
|
|
70.2 |
% |
|
|
58.8 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
|
|
3.1 |
% |
|
|
2.6 |
% |
|
|
3.3 |
% |
Expected life (years) |
|
|
4.8 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.9 |
|
Dividend yield |
|
None |
|
None |
|
None |
|
None |
The expected volatility 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 life 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. The stock-based compensation expense recognized in the unaudited
condensed consolidated statements of operations is based on awards that ultimately are expected to
vest; therefore, the amount of expense has been reduced for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
This analysis is re-evaluated periodically and the forfeiture rate is adjusted as necessary.
3. Computation of Net Income (Loss) per Common Share
Basic earnings per share (EPS) is computed by dividing net income/(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 three and six months ended September 30, 2009
and 2008, common equivalent shares of 0.9 million shares and 0.8 million shares, respectively, and
3.4 million shares and 3.4 million shares, respectively, were not included in the calculation of
diluted EPS as they were considered anti-dilutive.
The following table reconciles the numerators and denominators of the earnings per share
calculation for the three and six months ended September 30, 2009 and 2008 (in thousands, except
per share data):
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,340 |
|
|
$ |
(4,068 |
) |
|
$ |
6,132 |
|
|
$ |
(10,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock
outstanding |
|
|
44,299 |
|
|
|
43,387 |
|
|
|
44,080 |
|
|
|
42,965 |
|
Weighted-average shares subject to repurchase |
|
|
(52 |
) |
|
|
(642 |
) |
|
|
(60 |
) |
|
|
(585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation basic |
|
|
44,247 |
|
|
|
42,745 |
|
|
|
44,020 |
|
|
|
42,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee equity incentive plans |
|
|
986 |
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation diluted |
|
|
45,233 |
|
|
|
42,745 |
|
|
|
44,922 |
|
|
|
42,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
0.10 |
|
|
$ |
(0.10 |
) |
|
$ |
0.14 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted |
|
$ |
0.10 |
|
|
$ |
(0.10 |
) |
|
$ |
0.14 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
4. Marketable Securities
The accounting standard for fair value measurements provides a framework for measuring
fair value and requires expanded disclosures regarding fair value measurements. Fair value is
defined as the price that would be received for an asset or the exit price that would be paid to
transfer a liability in the principal or most advantageous market in an orderly transaction between
market participants on the measurement date. The accounting standard established a fair value
hierarchy which requires an entity to maximize the use of observable inputs, where available. This
hierarchy prioritizes the inputs into three broad levels as follows:
Valuation Hierarchy
|
|
|
|
|
Level 1
|
|
|
|
Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the
ability to access at the measurement date. |
Level 2
|
|
|
|
Inputs include quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable for the asset or
liability, and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means (market corroborated inputs). |
Level 3
|
|
|
|
Unobservable inputs that reflect the Companys assumptions that
market participants would use in pricing the asset or
liability. The Company develops these inputs based on the best
information available, including its own data. |
A financial assets or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
10
The following table provides the assets carried at fair value, measured as of September
30, 2009 and March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Using Significant |
|
Using Significant |
|
|
|
|
Quoted Prices in |
|
Other |
|
Unobservable |
|
|
Total Carrying |
|
Active Markets |
|
Observable Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
42,132 |
|
|
$ |
42,132 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
46,304 |
|
|
|
|
|
|
|
46,304 |
|
|
|
|
|
March 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
30,483 |
|
|
$ |
30,483 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
39,255 |
|
|
|
|
|
|
|
39,255 |
|
|
|
|
|
Valuation Techniques
Cash equivalents consist of highly liquid money market 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 inputs that are derived principally from or corroborated by observable
market data by correlation or other means, and are classified within Level 1 of the valuation
hierarchy.
The Companys marketable securities are classified as available-for-sale securities and,
accordingly, are recorded at fair value. At September 30, 2009, the Company primarily held U.S.
government backed commercial paper and European sovereign bonds and at March 31, 2009, the Company
primarily held U.S. government backed commercial paper. All commercial paper is rated A-1 or
higher. The difference between amortized cost and fair value is included in stockholders equity.
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.
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.
5. 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
foreign currency, 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 the Euro and have maturities of less than three months. On September 30, 2009,
the Company had a forward contract outstanding to hedge the Companys wholly-owned Austrian
subsidiary, AMSC Windtec GmbH (Windtec) USD exposure, with a nominal and fair value of $15.6
million, which expired on October 30, 2009. The forward contract sold US dollars and bought Euros
at $1.4663.
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.
Net realized and unrealized gains on forward contracts and option contracts included in other
expense, net, excluding the underlying foreign currency exposure being hedged, were $0.4 million
and $0.1 million for the three and six months ended September 30, 2009 respectively.
11
6. Inventory
The components of inventory are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
Raw materials |
|
$ |
13,206 |
|
|
$ |
16,098 |
|
Work-in-progress |
|
|
5,708 |
|
|
|
6,522 |
|
Finished goods |
|
|
7,548 |
|
|
|
8,150 |
|
Deferred program costs |
|
|
2,725 |
|
|
|
4,359 |
|
|
|
|
|
|
|
|
Net inventory |
|
$ |
29,187 |
|
|
$ |
35,129 |
|
|
|
|
|
|
|
|
A portion of Finished goods inventory of $7.5 million as of September 30, 2009 represents
costs of product shipped to customers on contracts for which revenue was deferred until final
customer acceptance.
Deferred program costs of $2.7 million as of September 30, 2009 and $4.4 million as of March
31, 2009 primarily represent costs incurred on wind turbine development programs where the Company
needs to achieve certain milestones or complete development programs before revenue and costs will
be recognized. Deferred program costs of $2.6 million as of March 31, 2009 were incurred on a
long-term turnkey D-VAR® system project that were subsequently recorded in cost of revenue in the
three months ended June 30, 2009 when the related revenue was recognized.
7. 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.
Product warranty activity was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of period |
|
$ |
5,325 |
|
|
$ |
1,985 |
|
|
$ |
4,749 |
|
|
$ |
1,775 |
|
Accruals for warranties during the period |
|
|
1,602 |
|
|
|
1,310 |
|
|
|
2,717 |
|
|
|
2,436 |
|
Settlements and adjustments during the period |
|
|
(1,430 |
) |
|
|
(852 |
) |
|
|
(1,969 |
) |
|
|
(1,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,497 |
|
|
$ |
2,443 |
|
|
$ |
5,497 |
|
|
$ |
2,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
The Company recorded income tax expense of $5.3 and $8.2 million for the three and six months
ended September 30, 2009, respectively, and $1.5 and $3.3 million for the three and six months
ended September 30, 2008, respectively, related primarily to income generated in foreign
jurisdictions. The Company has provided a valuation allowance against all deferred tax assets in
the U.S. as it is more likely than not that its deferred tax assets are not currently realizable
due to the net operating losses incurred by the Company in the U.S. since its inception.
9. 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 gain of $1.1 million and a charge
of $1.3 million for the three and six months ended September 30, 2008, respectively (reported in
Other income (expense) in the Unaudited Condensed Consolidated Statements of Operations).
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.
12
On June 26, 2008, the Company entered into a performance bond for CNY 1.1 million
(approximately $0.2 million) with a Chinese customer to guarantee supply of core components and
software, which expires June 30, 2012. The performance bond was issued utilizing a Bank of China
CNY 18.9 million (approximately $2.8 million) unsecured line of credit, which is available until
June 30, 2012.
As of September 30, 2009, the Company had outstanding performance bonds issued on behalf of
Windtec, for 2.6 million (approximately $3.9 million) in connection with four contracts to provide
power electronics for four customers. The first two performance bonds for 2.2 million
(approximately $3.3 million) expired on October 31, 2009, the third performance bond for 0.1
million (approximately $0.1 million) will expire on February 6, 2010 and the fourth performance
bond for 0.3 million (approximately $0.4 million) will expire on September 30, 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 September 30, 2009 and March 31, 2009, the Company had $6.4 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 $1.6 million and $1.4 million of long-term
restricted cash, respectively. Total restricted cash as of September 30, 2009 and March 31, 2009
was $8.0 million and $7.3 million, respectively.
The Company also has unused, unsecured lines of credit of 0.5 million (approximately $0.7
million) which is available until September 30, 2010, and CNY 17.8 million (approximately $2.6
million) which is available until June 30, 2012.
10. 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.
Costs incurred and funding received under these agreements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Costs incurred |
|
$ |
1,004 |
|
|
$ |
895 |
|
|
$ |
2,475 |
|
|
$ |
2,777 |
|
R&D expenditures offset by cost sharing funding received |
|
|
227 |
|
|
|
236 |
|
|
|
617 |
|
|
|
677 |
|
G&A expenditures offset by cost sharing funding received |
|
|
198 |
|
|
|
206 |
|
|
|
538 |
|
|
|
590 |
|
At September 30, 2009, total funding received to date under these agreements was $29.0
million.
11. Acquisitions
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 ending March 31, 2010.
13
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. The Company
recorded contingent consideration of $9.8 million to Goodwill and Additional paid-in capital based
on 350,000 shares earned in the six months ended September 30, 2008. These shares were issued in
the first quarter of the fiscal year ending March 31, 2010. During the six months ended September
30, 2009, the Company recorded contingent consideration of $10.8 million to Goodwill and Additional
paid-in capital representing 350,000 shares earned. These shares are expected to be issued in the
first quarter of the fiscal year ending March 31, 2011. No further contingent consideration will
be recorded for the fiscal year ending March 31, 2010 as this was the maximum amount of contingent
consideration that can be earned.
12. Restructuring and Impairments
On October 25, 2007, the Companys Board of Directors approved a restructuring plan (the
Fiscal 2007 Plan) to reduce operating costs by closing its last remaining facility in
Westborough, Massachusetts and consolidating those operations into its Devens, Massachusetts
facility. No headcount reductions were associated with the Fiscal 2007 Plan.
Aggregate restructuring charges associated with the Fiscal 2007 Plan were $7.8 million, of
which $0.1 million and $0.5 million was recorded during the three and six months ended September
30, 2009, respectively, for additional costs related to the consolidation of the Companys
Massachusetts operations and the closure of its former headquarters facility in Westborough. These
additional costs were driven by delays in returning the building to the landlord in its
mutually-agreed upon condition. The lease termination date was August 31, 2009. All restructuring
charges associated with the Fiscal 2007 Plan have resulted in cash disbursements and have been
completed at the end of the second quarter of the fiscal year ending March 31, 2010.
The following table presents the restructuring expense and cash disbursements for the Fiscal
2007 Plan for the three and six months ended September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
Decontamination and |
|
|
|
|
|
|
Termination |
|
|
Other Facility |
|
|
|
|
|
|
Costs |
|
|
Closing Costs |
|
|
Total |
|
Balance March 31, 2009 |
|
$ |
462 |
|
|
$ |
1,648 |
|
|
$ |
2,110 |
|
Charges to operations |
|
|
334 |
|
|
|
|
|
|
|
334 |
|
Cash disbursements |
|
|
(685 |
) |
|
|
(795 |
) |
|
|
(1,480 |
) |
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009 |
|
$ |
111 |
|
|
$ |
853 |
|
|
$ |
964 |
|
Charges to operations |
|
|
111 |
|
|
|
6 |
|
|
|
117 |
|
Cash disbursements |
|
|
(222 |
) |
|
|
(859 |
) |
|
|
(1,081 |
) |
|
|
|
|
|
|
|
|
|
|
Balance September 30,
2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
13. Business Segment Information
The Company reports its financial results 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.
14
The operating results for the two business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
$ |
71,791 |
|
|
$ |
35,576 |
|
|
$ |
142,487 |
|
|
$ |
71,506 |
|
AMSC Superconductors |
|
|
2,881 |
|
|
|
4,799 |
|
|
|
5,185 |
|
|
|
8,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,672 |
|
|
$ |
40,375 |
|
|
$ |
147,672 |
|
|
$ |
80,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
$ |
19,866 |
|
|
$ |
5,501 |
|
|
$ |
35,261 |
|
|
$ |
10,379 |
|
AMSC Superconductors |
|
|
(5,647 |
) |
|
|
(5,892 |
) |
|
|
(11,144 |
) |
|
|
(11,001 |
) |
Unallocated corporate expenses |
|
|
(3,889 |
) |
|
|
(3,422 |
) |
|
|
(7,396 |
) |
|
|
(5,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,330 |
|
|
$ |
(3,813 |
) |
|
$ |
16,721 |
|
|
$ |
(6,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accounting policies of the business segments are the same as those for the
consolidated Company, except that certain corporate expenses which the Company does not believe are
specifically attributable or allocable to either of the two business segments have been excluded
from the segment operating income (loss). Unallocated corporate expenses include stock-based
compensation expense of $3.9 million and $2.9 million for the three months ended September 30, 2009
and 2008, respectively, and $6.9 million and $5.2 million for the six months ended September 30,
2009 and 2008, respectively. Unallocated corporate expenses for the three and six months ended
September 30, 2009 included $0.1 million and $0.5 million, respectively, of restructuring charges
related primarily to the closure of the Companys facility in Westborough, Massachusetts.
For the three and six months ended September 30, 2009, a substantial portion of the Companys
revenues was derived from one customer: Sinovel Wind Co., Ltd., a manufacturer of wind turbines
based in China. Sales to Sinovel represented 76% and 65% of total revenues for the three and six
months ended September 30, 2009, respectively, compared to 63% and 65% for the three and six months
ended September 30, 2008, respectively.
Total assets for the two business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
AMSC Power Systems |
|
$ |
145,839 |
|
|
$ |
136,777 |
|
AMSC Superconductors |
|
|
56,777 |
|
|
|
55,122 |
|
Cash and cash equivalents, marketable securities and restricted cash |
|
|
141,088 |
|
|
|
117,207 |
|
|
|
|
|
|
|
|
Total |
|
$ |
343,704 |
|
|
$ |
309,106 |
|
|
|
|
|
|
|
|
14. Subsequent Events
The
Company has performed an evaluation of subsequent events through November 5, 2009,
which is the date the financial statements were issued.
15
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements
contained herein that relate to future events or conditions, including without limitation, the
statements under Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations and in Part II, Item 1A. Risk Factors and located elsewhere herein regarding
industry prospects or our prospective results of operations or financial position, may be deemed to
be forward-looking statements. Without limiting the foregoing, the words believes, anticipates,
plans, expects, and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements represent managements current expectations and are inherently
uncertain. 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 Quarterly Report
on Form 10-Q. While we may elect to update such forward-looking statements at some point in the
future, we disclaim any obligation to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as representing our views as of any date
subsequent to the date of this Quarterly Report on Form 10-Q.
American Superconductor and design, Revolutionizing the Way the World Uses Electricity, 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 Quarterly Report on Form 10-Q are the
property of their respective holders.
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. 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 markets 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, to electric utilities, wind
turbines and other manufacturers and wind farm developers, owners and operators since 1999. We
began production of our first generation, or 1G, HTS wire in 2003, and ceased 1G production in
2006 in favor of second generation or 2G HTS wire, as discussed below. We started initial
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).
16
Our fiscal year begins on April 1 and ends on March 31. This document refers to fiscal 2009,
which is defined as the period beginning on April 1, 2009 and concluding on March 31, 2010. The
second quarter of fiscal 2009 began on July 1, 2009 and concluded on September 30, 2009.
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. There were no significant changes in the second
quarter of fiscal 2009 in our critical accounting policies as disclosed in our Form 10-K for fiscal
2008, which ended on March 31, 2009.
Results of Operations
Three and six months ended September 30, 2009 compared to the three and six months ended September
30, 2008
We operate our business 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.
During the six months ended September 30, 2009, we corrected an error in fiscal 2008 bonus expense that
effectively increased net income in the current fiscal year by $0.3 million. The $0.3 million error consisted of a $0.4 million
overstatement of bonus expense and a related $0.1 million understatement of income tax expense in
the fourth quarter of the fiscal year ended March 31, 2009. The adjustment of $0.4 million had a de
minimis impact on certain balance sheet amounts at March 31, 2009. The impact of correcting this
error in the fiscal year ended March 31, 2009 would have increased net income by $0.3 million.
Also, we overstated revenue and net income by $0.2 million in the three months ended June 30, 2009.
This error was corrected in the three months ended September 30, 2009, We evaluated these errors
taking into account both qualitative and quantitative factors and considered the impact of these
errors in relation to the first and second quarters of the fiscal year ending March 31, 2010, which
is when they were corrected, as well as the periods in which they originated. We believe these
errors are immaterial to both the consolidated quarterly and annual financial statements for all
periods affected
Revenues
Total revenues increased by 85% and 84% to $74.7 million and $147.7 million for the three and
six months ended September 30, 2009 from $40.4 million and $80.2 million for the three and six
months ended September 30, 2008. Our revenues are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
$ |
71,791 |
|
|
$ |
35,576 |
|
|
$ |
142,487 |
|
|
$ |
71,506 |
|
AMSC Superconductors |
|
|
2,881 |
|
|
|
4,799 |
|
|
|
5,185 |
|
|
|
8,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,672 |
|
|
$ |
40,375 |
|
|
$ |
147,672 |
|
|
$ |
80,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Revenues in our AMSC Power Systems business unit consist of revenues from wind turbine
electrical systems, 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 AMSC
Power Systems business unit accounted for 96% of total revenues for both of the three and six month
periods ended September 30, 2009, compared to 88% and 89% for the three and six months ended
September 30, 2008, respectively. Revenues in the AMSC Power Systems business unit increased 102%
and 99% to $71.8 million and $142.5 million in the three and six months ended September 30, 2009,
respectively, from $35.6 million and $71.5 million in the three and six months ended September 30,
2008, respectively. The increases in AMSC Power Systems business unit revenues were primarily due
to higher sales of wind electrical systems and core components, primarily to customers in China and
additionally, for the six months ended September 30, 2009, higher D-VAR® system shipments, as well
as shipments of our D-VAR RT products to ACCIONA Energy in Spain. Based on the average Euro and
renminbi exchange rates for the second quarter of fiscal 2009, revenue denominated in these foreign
currencies translated into U.S. dollars was $0.1 million lower compared to the translation of these
revenues using the average exchange rates of these currencies for the second quarter of fiscal
2008.
For the three and six months ended September 30, 2009, a substantial portion of our revenues
was derived from one customer: Sinovel Wind Co., Ltd., a manufacturer of wind turbines based in
China. Sales to Sinovel represented 76% and 65% of total revenues for the three and six months
ended September 30, 2009, respectively, compared to 63% and 65% for the three and six months ended
September 30, 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 business unit accounted for 4% of total
revenues for both the three and six month periods ended September 30, 2009, compared to 12% and 11%
for the three and six months ended September 30, 2008, respectively. AMSC Superconductors business
unit revenue decreased 40% to $2.9 million and $5.2 million in the three and six months ended
September 30, 2009, respectively, from $4.8 million and $8.7 million for the three and six months
ended September 30, 2008, respectively. Revenues from significant AMSC Superconductors government
funded contracts are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Earned for the |
|
Revenue Earned for the |
|
|
|
|
|
|
Revenue Earned |
|
three months |
|
six months |
|
|
Expected Total |
|
through |
|
ended September 30, |
|
ended September 30, |
|
|
Contract Value |
|
September 30, 2009 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Project Name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HYDRA |
|
$ |
24,908 |
|
|
$ |
8,681 |
|
|
$ |
565 |
|
|
$ |
1,398 |
|
|
$ |
829 |
|
|
$ |
2,420 |
|
LIPA I and II |
|
|
39,958 |
|
|
|
32,374 |
|
|
|
932 |
|
|
|
457 |
|
|
|
1,639 |
|
|
|
1,296 |
|
DOE-FCL |
|
|
7,898 |
|
|
|
3,580 |
|
|
|
515 |
|
|
|
688 |
|
|
|
577 |
|
|
|
1,252 |
|
NAVSEA Motor Study |
|
|
6,410 |
|
|
|
5,954 |
|
|
|
59 |
|
|
|
1,792 |
|
|
|
74 |
|
|
|
2,412 |
|
These significant projects represented 72% and 60% of AMSC Superconductors business unit
revenue for the three and six months ended September 30, 2009, respectively, compared to 90% and
85% for the three and six months ended September 30, 2008, respectively.
The decrease in AMSC Superconductors business unit revenue for the three and six months ended September 30, 2009
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., which is being funded by
the U.S. Department of Homeland Security (DHS). DHS is expected to invest up to a total of $24.9
million in the development of a new high temperature superconductor power grid technology 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 $16.3
million to us as of September 30, 2009. We recognized $0.6 million in revenue related to the
Project HYDRA during the second quarter of fiscal 2009, compared to $1.4 million in the same period
of fiscal 2008. Consolidated Edison and Southwire Company are subcontractors to us on this project.
18
LIPA I is 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.
Revenues from our DOE-FCL project in the second quarter were partially the result of
additional funding received in July 2009 resulting in revenue of $0.2 million for costs incurred in
the quarter ended June 30, 2009. The decrease in LIPA project revenue is related to the completion
of LIPA I and the 1st phase of LIPA II coming to a conclusion.
Cost-sharing funding
In addition to reported revenues, we also received funding of $0.4 million and $1.2 million
for the three and six months ended September 30, 2009, respectively, under U.S. government
cost-sharing agreements with the U.S. Air Force and DOE, compared to $0.4 million and $1.3 million
for the three and six months ended September 30, 2008, respectively. The slight decrease in
cost-sharing funding is primarily due to the DOE Wire Initiative program 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 September 30, 2009, we anticipate recognizing an additional $0.7 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% and 66% to $45.6 million and $96.1 million for the three and
six months ended September 30, 2009, respectively, compared to $29.7 million and $57.9 million for
the three and six months ended September 30, 2008, respectively. Gross margin was 38.9% and 35.0%
for the three and six months ended September 30, 2009, respectively, compared to 26.5% and 27.8%,
respectively, for the same periods of fiscal 2008. The increases in gross margin in the three and
six months ended September 30, 2009 as compared to the same periods in fiscal 2008 were due
primarily to a higher volume of wind turbine core electrical component shipments and a higher
percentage of higher-margin AMSC Power Systems business unit sales as compared to AMSC
Superconductor business unit sales.
Operating Expenses
Research and development
A portion of our R&D expenditures related to externally funded development contracts has been
classified as costs of revenue (rather than as R&D expenses). Additionally, a portion of R&D
expenses was offset by cost-sharing funding. Our R&D expenditures are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
R&D expenses per Consolidated Statements of Operations |
|
$ |
5,416 |
|
|
$ |
4,688 |
|
|
$ |
9,944 |
|
|
$ |
9,601 |
|
R&D expenditures reclassified as costs of revenue |
|
|
1,360 |
|
|
|
5,562 |
|
|
|
2,847 |
|
|
|
10,055 |
|
R&D expenditures offset by cost-sharing funding |
|
|
227 |
|
|
|
236 |
|
|
|
617 |
|
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregated R&D expenses |
|
$ |
7,003 |
|
|
$ |
10,486 |
|
|
$ |
13,408 |
|
|
$ |
20,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses (exclusive of amounts classified as costs of revenue and amounts offset by
cost-sharing funding) increased by 16% and 4% to $5.4 million and $9.9 million, or 7% of revenue,
for each of the three and six months ended September 30, 2009, respectively, from $4.7 million and
$9.6 million, or 12% of revenue for each of the three and six months ended September 30, 2008,
respectively. The increases in R&D expenses were 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 decreases in R&D expenditures reclassified to
costs of revenue were 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 costs of revenue and amounts offset by cost-sharing funding,
decreased 33% and 34% to $7.0 million and $13.4 million, or 9% of revenue, for each of the three
and six months ended September 30, 2009, respectively, compared to $10.5 million and $20.3 million,
or 26% and 25% of revenue, for the
19
three and six months ended September 30, 2008, respectively. The
decreases in fiscal 2009 were driven primarily by the net impact of 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 costs of revenue (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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
SG&A expenses per Consolidated Statements of Operations |
|
$ |
12,712 |
|
|
$ |
8,849 |
|
|
$ |
23,597 |
|
|
$ |
17,742 |
|
SG&A expenditures reclassified as costs of revenue |
|
|
73 |
|
|
|
335 |
|
|
|
127 |
|
|
|
460 |
|
SG&A expenditures offset by cost sharing funding |
|
|
198 |
|
|
|
206 |
|
|
|
538 |
|
|
|
590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregated SG&A expenses |
|
$ |
12,983 |
|
|
$ |
9,390 |
|
|
$ |
24,262 |
|
|
$ |
18,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses (exclusive of amounts classified as costs of revenue and amounts offset by
cost-sharing funding) increased by 44% and 33% to $12.7 million and $23.6 million, or 17% and 16%
of revenue, in the three and six months ended September 30, 2009, respectively, from $8.8 million
and $17.7 million, or 22% of revenue, for each of the three and six months ended September 30,
2008, respectively. For the three and six months ended September 30, 2009, the increases in SG&A
expenses were due primarily to higher stock-based compensation expense and higher labor and related
costs driven by headcount growth, partially offset by a reduction of $0.4 million and $1.1 million,
respectively, in bad debt expense as a result of payments received and improved expectations for
realizing a recovery on certain past due accounts. For these same reasons, Aggregated SG&A
expenses, which include amounts classified as costs of revenue and amounts offset by cost sharing
funding, increased 38% and 29% to $13.0 million and $24.3 million, or 17% and 16% of revenue, for
the three and six months ended September 30, 2009, respectively, from $9.4 million and $18.8
million, or 23% of revenue, for each of the three and six months ended September 30, 2008,
respectively.
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 costs of revenue rather than as R&D and SG&A expenses, as discussed
above.
Amortization of acquisition related intangibles
We recorded $0.5 million and $0.9 million in the three and six months ended September 30,
2009, respectively, compared to $0.5 million and $1.0 million in the three and six months ended
September 30, 2008, respectively, in amortization expense 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 AMSC Windtec GmbH and
Power Quality Systems, Inc. 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 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 $7.8 million, of
which $0.1 million and $0.5 million was recorded during the three and six months ended September
30, 2009, respectively. In the three and six months ended September 30, 2008, $0.5 million was
recorded related to the closure of our Westborough, Massachusetts facility. All
restructuring charges associated with the Fiscal 2007 Plan have resulted in cash disbursements
and have been completed at the end of the second quarter of the fiscal year ending March 31, 2010.
20
Operating income (loss)
Our operating income (loss) is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
AMSC Power Systems |
|
$ |
19,866 |
|
|
$ |
5,501 |
|
|
$ |
35,261 |
|
|
$ |
10,379 |
|
AMSC Superconductors |
|
|
(5,647 |
) |
|
|
(5,892 |
) |
|
|
(11,144 |
) |
|
|
(11,001 |
) |
Unallocated corporate expenses |
|
|
(3,889 |
) |
|
|
(3,422 |
) |
|
|
(7,396 |
) |
|
|
(5,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,330 |
|
|
$ |
(3,813 |
) |
|
$ |
16,721 |
|
|
$ |
(6,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems operating income increased to $19.9 million and $35.3 million in the
three and six months ended September 30, 2009, respectively, from $5.5 million and $10.4 million in
the three and six months ended September 30, 2008, respectively. The increase in the three and six
months ended September 30, 2009 was primarily the result of higher sales and margins, as described
above.
AMSC Superconductors operating loss decreased to $5.6 million from $5.9 million for the three
months ended September 30, 2009 and 2008, respectively, and increased to $11.1 million from $11.0
million in the six months ended September 30, 2009 and 2008, respectively. The decrease in
operating loss for the three months ended September 30, 2009 is primarily due to lower
subcontractor costs compared to the same quarter in the previous fiscal year. The slight increase
in operating loss for the six months ended September 30, 2009 is primarily a result of lower
revenue offset by reduced subcontractor costs compared to the six months ended September 30, 2008.
Unallocated corporate expenses include stock-based compensation expense of $3.9 million and
$6.9 million in the three and six months ended September 30, 2009, respectively, compared to $2.9
million and $5.2 million in the three and six months ended September 30, 2008, respectively.
Non-operating expenses/Interest income
Interest income decreased to $0.2 million and $0.4 million in the three and six months ended
September 30, 2009, respectively, from $0.8 million and $1.6 million in the same periods of fiscal
2008, primarily due to lower interest rates, as we are investing in more conservative assets due to
the current economic environment.
Other income/(expense), net, was expense of $0.9 million and $2.8 million in the three and six
months ended September 30, 2009, respectively, compared to income of $0.5 million and expense of
$2.0 million for the three and six months ended September 30, 2008, respectively. Other expense,
net, for the three and six months ended September 30, 2009 primarily relates to net foreign
currency translation losses and net realized and unrealized gains and losses on hedging contracts.
Other expense, net, for the second quarter of fiscal 2008 included a $1.1 million gain for the
mark-to-market adjustments on the exercise of an outstanding warrant. Amounts charged to expense
from mark-to-market adjustments on the warrant were $1.3 million in the six months ended September
30, 2008.
Income Taxes
In the three and six months ended September 30, 2009, we recorded income tax expense of $5.3
million and $8.2 million, respectively, compared to $1.5 million and $3.3 million in the three and
six months ended September 30, 2008, respectively. Income tax expense in all periods was driven
primarily by income generated in foreign jurisdictions. We incurred losses in the U.S. during the
three and six months of fiscal 2009 and 2008, and in China during the first quarter of fiscal 2008.
21
Liquidity and Capital Resources
At September 30, 2009, we had cash, cash equivalents, marketable securities and restricted
cash of $141.1 million compared to $117.2 million at March 31, 2009, an increase of $23.9 million.
Our cash and cash equivalents, marketable securities and restricted cash are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
Cash and cash equivalents |
|
$ |
86,752 |
|
|
$ |
70,674 |
|
Marketable securities |
|
|
46,304 |
|
|
|
39,255 |
|
Restricted cash |
|
|
8,032 |
|
|
|
7,278 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents, marketable securities and restricted cash |
|
$ |
141,088 |
|
|
$ |
117,207 |
|
|
|
|
|
|
|
|
The increase in cash and cash equivalents, marketable securities and restricted cash at
September 30, 2009 from March 31, 2009 was primarily due to a greater collection of receivables,
primarily for collections from large shipments close to the end of the first quarter.
For the six months ended September 30, 2009, net cash provided by operating activities was
$21.7 million compared to net cash provided by operating activities of $3.5 million in the six
months ended September 30, 2008. The increase in cash provided by operations is due primarily to
increases in net income of $16.3 million and cash generated from working capital of $3.5 million,
due primarily to reduced inventories.
For the six months ended September 30, 2009, net cash used in investing activities was $11.9
million compared to $25.8 million in the six months ended September 30, 2008. The decrease in cash
used in investing activities was driven primarily by a net reduction in marketable securities
during the first six months of fiscal 2009.
For the six months ended September 30, 2009, cash provided by financing activities was $4.1
million compared to $12.0 million in the same period of fiscal 2008. The decrease was due to a
reduction in 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 September 30, 2010, and CNY 17.8 million (approximately $2.6 million)
which is available until June 30, 2012.
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 September 30,
2009, there were no recorded performance-based liabilities.
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 shares outstanding but did not have a material effect on our
financial condition or results of operations.
22
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, the acquirer applies the recognition criteria
in accounting for contingencies, and 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 will become the single source for all authoritative GAAP recognized by the FASB to be
applied for financial statements issued for periods ending after September 15, 2009. The
Codification does not change 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 cannot be determined. The guidance provides for the determination of the best estimate of
selling price of separate deliverables and allows the allocation of arrangement consideration using
this relative selling price model. The guidance supersedes the prior multiple element revenue
arrangement accounting rules that are currently used by us. The new guidance can be prospectively
applied beginning January 1, 2011 or can be early or retrospectively adopted. We are currently
evaluating the impact of adopting the guidance.
In September 2009, the FASB amended its rules pertaining to certain revenue arrangements
that include software elements, to remove from its scope tangible products containing software
components and non-software components that function together to deliver the products essential
functionality. The accounting change is effective for fiscal years beginning on or after June 15,
2010, with early adoption permitted. Adoption may either be on a prospective basis or by
retrospective application. We are currently evaluating the impact of adopting the guidance.
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face exposure to financial market risks, including adverse movements in foreign currency
exchange rates and changes in interest rates. These exposures may change over time as our business
practices evolve and could have a material adverse impact on our financial results.
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 corporate debt instruments 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 various hedging transactions 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, 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 Super Conductor 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 losses were $3.0 million for the six months
ended September 30, 2009. 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 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 have
maturities of less than three months. On September 30, 2009, we had a contract outstanding to hedge
the Companys wholly-owned Austrian subsidiary, AMSC Windtec GmbH (Windtec) USD exposure, with a
nominal value of $15.6 million which expired on October 30, 2009. The forward contract sold US
dollars and bought Euros at $1.4663.
Generally, we do not designate 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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30,
2009. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act), means controls and other procedures
of a company that are designed to ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the companys management, including its principal executive
and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure controls and procedures as
24
of September 30, 2009, our chief executive officer and chief financial officer concluded that,
as of such date, our disclosure controls and procedures were effective at the reasonable assurance
level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
25
PART IIOTHER INFORMATION
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider
the risks and uncertainties described in our annual report on Form 10-K for the year ended March
31, 2009 in addition to the other information included in this quarterly report. If any of the
risks actually occurs, our business, financial condition or results of operations would likely
suffer. In that case, the trading price of our common stock could fall.
As of September 30, 2009, there have not been any material changes to the risk factors
disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, although we
may disclose changes to such risk factors or disclose additional risk factors from time to time in
our future filings with the SEC.
ITEM 6. EXHIBITS
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits
filed as part of this quarterly report, which Exhibit Index is incorporated herein by this
reference.
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
AMERICAN SUPERCONDUCTOR CORPORATION
|
|
Date: November 5, 2009 |
/s/ DAVID A. HENRY
|
|
|
David A. Henry |
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
27
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
10.1
|
|
Executive Severance Agreement dated as of September 8, 2009 between the Registrant and Susan J. DiCecco. |
|
|
|
10.2
|
|
2007 Stock Incentive Plan, as amended (1). |
|
|
|
31.1
|
|
Chief Executive OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Chief Financial OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Chief Executive
OfficerCertification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Chief Financial OfficerCertification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
(1) |
|
Incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on form 8-K filed with the Securities and Exchange Commission
(the Commission) on August 12, 2009 (Commission File No. 000-19672) |
28