e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended: December 31, 2010 |
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from to . |
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 x 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer x
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Shares outstanding of the Registrants common stock:
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Common Stock, par value $0.01 per share
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50,701,749 |
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Class
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Outstanding as of
January 31, 2011 |
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
2
AMERICAN SUPERCONDUCTOR CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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December 31, |
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March 31, |
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2010 |
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2010 |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
169,021 |
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$ |
87,594 |
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Marketable securities |
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73,910 |
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54,469 |
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Accounts receivable, net |
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121,376 |
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57,290 |
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Inventory |
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40,841 |
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35,858 |
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Prepaid expenses and other current assets |
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36,230 |
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20,294 |
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Restricted cash |
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5,433 |
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5,713 |
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Deferred tax assets |
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3,640 |
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1,776 |
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Total current assets |
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450,451 |
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262,994 |
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Property, plant and equipment, net |
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89,131 |
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64,315 |
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Goodwill |
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46,436 |
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36,696 |
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Intangibles, net |
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7,546 |
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7,770 |
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Marketable securities |
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12,161 |
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7,342 |
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Deferred tax assets |
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4,471 |
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3,043 |
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Other assets |
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30,245 |
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18,024 |
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Total assets |
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$ |
640,441 |
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$ |
400,184 |
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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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$ |
95,806 |
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$ |
84,319 |
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Deferred revenue |
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21,837 |
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19,970 |
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Deferred tax liabilities |
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2,653 |
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471 |
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Total current liabilities |
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120,296 |
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104,760 |
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Deferred revenue |
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18,299 |
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13,302 |
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Deferred tax liabilities |
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1,446 |
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777 |
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Other |
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429 |
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380 |
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Total liabilities |
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140,470 |
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119,219 |
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Commitments and contingencies (Note 10) |
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Stockholders equity: |
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Common stock |
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507 |
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448 |
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Additional paid-in capital |
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883,097 |
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698,417 |
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Accumulated other comprehensive loss |
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(7,905 |
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(7,011 |
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Accumulated deficit |
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(375,728 |
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(410,889 |
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Total stockholders equity |
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499,971 |
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280,965 |
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Total liabilities and stockholders equity |
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$ |
640,441 |
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$ |
400,184 |
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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 INCOME
(In thousands, except per share data)
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Three months ended |
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Nine months ended |
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December 31, |
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December 31, |
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2010 |
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2009 |
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2010 |
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2009 |
Revenues |
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$ |
114,193 |
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$ |
80,659 |
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$ |
312,932 |
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$ |
228,331 |
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Cost and operating expenses: |
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Cost of revenues |
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67,709 |
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50,444 |
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186,160 |
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146,498 |
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Research and development |
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9,057 |
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6,421 |
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24,249 |
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16,365 |
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Selling, general and administrative |
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15,564 |
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12,881 |
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47,874 |
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36,478 |
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Amortization of acquisition related intangibles |
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393 |
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473 |
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1,154 |
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1,378 |
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Restructuring and impairments |
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451 |
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Total cost and operating expenses |
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92,723 |
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70,219 |
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259,437 |
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201,170 |
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Operating income |
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21,470 |
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10,440 |
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53,495 |
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27,161 |
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Interest income (expense), net |
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172 |
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193 |
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549 |
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625 |
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Other income (expense), net |
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2,137 |
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195 |
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4,745 |
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(2,651 |
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Income before income tax expense |
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23,779 |
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10,828 |
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58,789 |
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25,135 |
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Income tax expense |
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7,775 |
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5,649 |
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23,628 |
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13,824 |
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Net income |
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$ |
16,004 |
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$ |
5,179 |
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$ |
35,161 |
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$ |
11,311 |
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Net income per common share |
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Basic |
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$ |
0.33 |
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$ |
0.12 |
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$ |
0.76 |
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$ |
0.26 |
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Diluted |
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$ |
0.33 |
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$ |
0.11 |
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$ |
0.75 |
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$ |
0.25 |
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Weighted average number of common shares outstanding |
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Basic |
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48,418 |
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44,623 |
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46,385 |
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44,222 |
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Diluted |
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49,017 |
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45,566 |
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47,076 |
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45,072 |
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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
(In thousands)
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Three months ended |
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Nine months ended |
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December 31, |
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December 31, |
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2010 |
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2009 |
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2010 |
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2009 |
Net income |
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$ |
16,004 |
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$ |
5,179 |
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$ |
35,161 |
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$ |
11,311 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation |
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(5,063 |
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(2,275 |
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(873 |
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5,030 |
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Unrealized (losses) gains on cash flow hedges |
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(1,243 |
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75 |
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Unrealized losses on investments |
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(42 |
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(9 |
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(96 |
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(118 |
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Total other comprehensive loss, net of tax |
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(6,348 |
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(2,284 |
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(894 |
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4,912 |
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Comprehensive income |
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$ |
9,656 |
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$ |
2,895 |
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$ |
34,267 |
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$ |
16,223 |
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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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Nine months ended |
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December 31, |
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2010 |
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2009 |
Cash flows from operating activities: |
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Net income |
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$ |
35,161 |
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$ |
11,311 |
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Adjustments to reconcile net income to net cash (used in) provided by operations: |
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Depreciation and amortization |
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7,972 |
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7,158 |
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Stock-based compensation expense |
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11,269 |
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10,440 |
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Stock-based compensation expensenon-employee |
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238 |
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91 |
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Allowance for doubtful accounts |
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1,262 |
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260 |
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Deferred income taxes |
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(262 |
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(1,608 |
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Other non-cash items |
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2,002 |
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|
745 |
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Changes in operating asset and liability accounts: |
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Accounts receivable |
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(69,709 |
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(27,495 |
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Inventory |
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(4,446 |
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(728 |
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Prepaid expenses and other current assets |
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(15,881 |
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(8,518 |
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Accounts payable and accrued expenses |
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9,616 |
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3,325 |
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Deferred revenue |
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6,442 |
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3,882 |
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Net cash used in operating activities |
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(16,336 |
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(1,137 |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
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(30,624 |
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(8,232 |
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Purchase of marketable securities |
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(71,744 |
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(68,096 |
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Proceeds from the maturity of marketable securities |
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47,151 |
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40,638 |
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Change in restricted cash |
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250 |
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1,645 |
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Purchase of intangible assets |
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(2,003 |
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(1,360 |
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Purchase of minority investment |
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(8,000 |
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(848 |
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Change in other assets |
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(89 |
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(31 |
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Net cash used in investing activities |
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(65,059 |
) |
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(36,284 |
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Cash flows from financing activities: |
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Proceeds from follow-on public offering, net of costs |
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155,240 |
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Proceeds from exercise of employee stock options and ESPP |
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7,350 |
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6,048 |
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Net cash provided by financing activities |
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162,590 |
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|
6,048 |
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Effect of exchange rate changes on cash and cash equivalents |
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232 |
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1,082 |
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Net increase (decrease) in cash and cash equivalents |
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81,427 |
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(30,291 |
) |
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Cash and cash equivalents at beginning of period |
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|
87,594 |
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|
70,674 |
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Cash and cash equivalents at end of period |
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$ |
169,021 |
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$ |
40,383 |
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Supplemental schedule of cash flow information: |
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Non-cash contingent consideration in connection with acquisitions |
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$ |
10,003 |
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$ |
10,828 |
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Cash paid for income taxes |
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13,660 |
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|
5,870 |
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Non-cash issuance of common stock |
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|
637 |
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|
1,610 |
|
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 renewable
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 (GAAP) have been
condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was
derived from audited financial statements but does not include all disclosures required by GAAP.
The unaudited condensed consolidated financial statements, in the opinion of management, reflect
all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the
results for the interim periods ended December 31, 2010 and 2009 and the financial position at
December 31, 2010. The unaudited condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation. Certain reclassifications of prior year amounts have
been made to conform to current year presentation. These reclassifications had no effect on net
income, cash flows or stockholders equity.
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, 2010 (fiscal 2009) which are contained in the Companys Annual Report
on Form 10-K, filed with the SEC on May 27, 2010.
The Company has performed an evaluation of subsequent events through the time of filing this
Quarterly Report on Form 10-Q with the SEC.
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements, pertaining to the accounting
for revenue arrangements with multiple deliverables. Specifically, the new standard requires an
entity to allocate consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices. In the absence of the vendor-specific objective evidence or
third-party evidence of the selling prices, consideration must be allocated to the deliverables
based on managements best estimate of the selling prices. In addition, the new standard eliminates
the use of the residual method of allocation. This new accounting standard supersedes the prior
multiple element revenue arrangement accounting rules that were previously used by the Company.
The Company adopted this new accounting standard on April 1, 2010 using the prospective method and
the adoption did not have a material impact on its condensed consolidated financial statements.
For sales that involve the delivery of multiple elements, the Company allocates revenue to
each undelivered element based on the elements fair value as determined by VSOE, which is the
price charged when that element is sold separately, or TPE. When VSOE and TPE are unavailable,
fair value is based on the Companys best estimate of selling price. When these estimates are used
to determine fair value, management makes its estimates using reasonable and objective evidence to
determine the price. The Company reviews VSOE and TPE at least annually. If the Company concludes
that they are unable to establish fair values for one or more undelivered elements within a
multiple-element arrangement using VSOE then it uses TPE or its best estimate of the selling price
for that unit of accounting, being the price at which the vendor would transact if the unit of
accounting were sold by the vendor regularly on a standalone basis.
7
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 nine months ended December 31, 2010 and 2009 (in thousands):
| | | | | | | | | | | | | | | | |
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Cost of revenues |
|
$ |
442 |
|
|
$ |
307 |
|
|
$ |
1,277 |
|
|
$ |
886 |
|
Research and development |
|
|
708 |
|
|
|
509 |
|
|
|
1,867 |
|
|
|
1,499 |
|
Selling, general and administrative |
|
|
2,295 |
|
|
|
2,706 |
|
|
|
8,125 |
|
|
|
8,055 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,445 |
|
|
$ |
3,522 |
|
|
$ |
11,269 |
|
|
$ |
10,440 |
|
|
|
|
|
|
|
|
|
|
During the nine months ended December 31, 2010, the Company granted approximately 229,000
shares and 347,000 shares of stock options and restricted stock, respectively, to employees under
the 2007 Stock Incentive Plan. The restricted stock awards include approximately 86,500 shares of
performance-based restricted stock, which will vest upon achievement of certain annual financial
and operational performance measurements. The remaining shares granted vest upon the passage of
time, generally pro rata over 3 years. For awards that vest upon the passage of time, expense is
being recorded on a straight-line basis over the vesting period. At December 31, 2010, the Company
determined that achievement of the performance measures is probable and as such, is recognizing the
fair value of the performance-based awards over the estimated performance period of each award.
The total unrecognized compensation cost for unvested employee stock-based compensation awards
outstanding, net of estimated forfeitures, was $20.0 million at December 31, 2010. This expense
will be recognized over a weighted-average expense period of 2.0 years.
The weighted-average assumptions used in the Black-Scholes valuation model for stock
options granted during the three and nine months ended December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | |
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Expected volatility |
|
|
61.4 |
% |
|
|
65.6 |
% |
|
|
65.5 |
% |
| |
68.9 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
|
|
2.6 |
% |
|
|
2.1 |
% |
|
|
2.6 |
% |
Expected life (years) |
|
|
6.1 |
|
|
|
4.8 |
|
|
|
6.1 |
|
|
|
4.8 |
|
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 the average of the five and seven year U.S. Treasury rates for the three and nine months ended
December 31, 2010 and the five year U.S. Treasury rates for the three and nine months ended
December 31, 2009. The stock-based compensation expense recognized in the unaudited condensed
consolidated statements of income 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 per Common Share
Basic earnings per share (EPS) is computed by dividing net earnings by the
weighted-average number of common shares outstanding for the period. Diluted EPS is computed by
dividing the net earnings 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 nine months ended December 31, 2010 and 2009,
common equivalent shares of 0.6 million shares and 1.3 million shares, respectively, and 0.1
million shares and 0.9 million shares, respectively, were not included in the calculation of
diluted EPS as they were considered anti-dilutive.
8
The following table reconciles the numerators and denominators of the earnings per share
calculation for the three and nine months ended December 31, 2010 and 2009 (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
16,004 |
|
|
$ |
5,179 |
|
|
$ |
35,161 |
|
|
$ |
11,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding |
|
|
48,666 |
|
|
|
44,665 |
|
|
|
46,624 |
|
|
|
44,276 |
|
Weighted-average shares subject to repurchase |
|
|
(248 |
) |
|
|
(42 |
) |
|
|
(239 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation basic |
|
|
48,418 |
|
|
|
44,623 |
|
|
|
46,385 |
|
|
|
44,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee equity incentive plans |
|
|
599 |
|
|
|
943 |
|
|
|
691 |
|
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation diluted |
|
|
49,017 |
|
|
|
45,566 |
|
|
|
47,076 |
|
|
|
45,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.33 |
|
|
$ |
0.12 |
|
|
$ |
0.76 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.33 |
|
|
$ |
0.11 |
|
|
$ |
0.75 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
4. Fair Value Measurements
The accounting standard for fair value measurements provides a framework for measuring
fair value and requires expanded disclosure 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.
9
The following table provides the assets carried at fair value, measured as of December 31,
2010 and March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Quoted Prices in |
|
|
Using Significant Other |
|
|
Using Significant |
|
|
|
Carrying |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
137,445 |
|
|
$ |
137,445 |
|
|
$ |
|
|
|
$ |
|
|
Short-term marketable securities |
|
|
73,910 |
|
|
|
|
|
|
|
73,910 |
|
|
|
|
|
Long-term marketable securities |
|
|
12,161 |
|
|
|
|
|
|
|
12,161 |
|
|
|
|
|
Derivatives |
|
|
2,335 |
|
|
|
|
|
|
|
2,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
534 |
|
|
$ |
|
|
|
$ |
534 |
|
|
$ |
|
|
|
|
|
Total |
|
|
Quoted Prices in |
|
|
Using Significant Other |
|
|
Using Significant |
|
|
|
Carrying |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
29,054 |
|
|
$ |
29,054 |
|
|
$ |
|
|
|
$ |
|
|
Short-term marketable securities |
|
|
54,469 |
|
|
|
|
|
|
|
54,469 |
|
|
|
|
|
Long-term marketable securities |
|
|
7,342 |
|
|
|
|
|
|
|
7,342 |
|
|
|
|
|
Derivatives |
|
|
168 |
|
|
|
|
|
|
|
168 |
|
|
|
|
|
Valuation Techniques
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities of three months or less
that are regarded as high quality, low risk investments and are measured using such inputs as
quoted prices, and are classified within Level 1 of the valuation hierarchy. Cash equivalents
consist principally of money market accounts and corporate debt instruments.
Marketable Securities
Long-term and short-term marketable securities consist primarily of government-backed
securities and sovereign debt 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.
Short-term marketable securities have maturities of greater than three months from original
purchase date but less than twelve months from the date of the balance sheet. All marketable
securities are considered available-for-sale and are carried at fair value. The Company
periodically reviews the realizability of each short-term and long-term marketable security when
impairment indicators exist with respect to the security. If an other-than-temporary impairment of
value of the security exists, the carrying value of the security is written down to its estimated
fair value.
Derivatives
The derivatives entered into by the Company are valued using over-the-counter quoted market
prices for similar instruments, and are classified within Level 2 of the valuation hierarchy.
5. Derivative Financial Instruments
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.
10
Cash Flow Hedges
The Company hedges a portion of its intercompany sales of inventory over a maximum period of
15 months using forward foreign exchange contracts accounted for as cash flow hedges to mitigate
the impact of volatility associated with foreign currency transactions.
For forward foreign exchange contracts that are designated as cash flow hedges, if they are
effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge
accounting criteria, changes in the derivatives value are not included in current earnings but are
included in other comprehensive income in stockholders equity. The changes in fair value will
subsequently be reclassified into earnings as a component of cost of revenues, as applicable, when
the forecasted transaction occurs. To the extent that a previously forecasted transaction is no
longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in
earnings in the period it occurs. The Company does not enter into derivative instruments for
trading or speculative purposes. Realized gains and losses resulting from these cash flow hedges
offset the foreign exchange gains and losses on the underlying transactions being hedged. Gains and
losses on derivatives not designated for hedge accounting or representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in
other income (expense), net.
At December 31, 2010, the Company had forward contracts outstanding to hedge cash flow
exposure at the Companys wholly-owned Austrian subsidiary, AMSC Windtec GmbH (AMSC Windtec),
with aggregate USD equivalent notional amounts of $28.9 million. These contracts will expire at
various dates through December 2011. The net gain or loss from these cash flow hedges reported in
accumulated other comprehensive income will be reclassified to earnings and recorded in cost of
revenues in our condensed consolidated statement of income when the related inventory is sold to
third-party customers.
Balance Sheet Hedges
In addition to cash flow hedges, the Company also enters into foreign currency forward
exchange contracts to mitigate the impact of foreign exchange risk related to certain
non-functional currency receivable balances in its foreign entities. The Company does not elect
hedge accounting treatment for these hedges, consequently, changes in the fair value of these
contracts are recorded within other income (expense), net, in the period which they occur. At
December 31, 2010, the Company had forward contracts outstanding with aggregate USD equivalent
notional amounts of $87.5 million. These contracts will expire at various dates through February
2011.
The fair value amounts of asset derivatives included in prepaid expenses and other current
assets and liability derivatives included in accounts payable and accrued expenses in the condensed
consolidated balance sheets related to forward foreign exchange contracts as of December 31, 2010
and March 31, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives |
|
|
Liability derivatives |
|
|
|
December 31, |
|
|
March |
|
|
December 31, |
|
|
|
|
|
|
2010 |
|
|
31, 2010 |
|
|
2010 |
|
|
March 31, 2010 |
|
Derivatives designated as cash flow hedges |
|
$ |
475 |
|
|
$ |
|
|
|
$ |
470 |
|
|
$ |
|
|
Derivatives not designated as cash flow hedges |
|
|
1,860 |
|
|
|
168 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,335 |
|
|
$ |
168 |
|
|
$ |
534 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized the following pre-tax gains (losses) in other comprehensive income
related to forward foreign exchange contracts designated as cash flow hedges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December |
|
|
December 31, |
|
|
December |
|
|
December |
|
|
|
31, 2010 |
|
|
2009 |
|
|
31, 2010 |
|
|
31, 2009 |
|
Gains (losses)
recognized in other
comprehensive
income |
|
$ |
(1,658 |
) |
|
$ |
|
|
|
$ |
101 |
|
|
$ |
|
|
|
The Company recognized the following pre-tax gains (losses) related to forward foreign
exchange contracts in the condensed consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December |
|
|
December 31, |
|
|
December |
|
|
December |
|
|
|
31, 2010 |
|
|
2009 |
|
|
31, 2010 |
|
|
31, 2009 |
|
Gains (losses) recognized in other
income (expense), net |
|
$ |
(1,423 |
) |
|
$ |
585 |
|
|
$ |
2,552 |
|
|
$ |
448 |
|
Gains (losses) recognized in cost of revenues |
|
|
978 |
|
|
$ |
|
|
|
|
1,418 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(445 |
) |
|
$ |
585 |
|
|
$ |
3,970 |
|
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
6. Accounts Receivable
Accounts receivable consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
March 31, |
|
|
2010 |
|
2010 |
Accounts receivable (billed) |
|
$ |
114,482 |
|
|
$ |
48,517 |
|
Accounts receivable (unbilled) |
|
|
9,422 |
|
|
|
10,305 |
|
Less: Allowance for doubtful accounts |
|
|
(2,528 |
) |
|
|
(1,532 |
) |
|
|
|
|
|
Accounts receivable, net |
|
$ |
121,376 |
|
|
$ |
57,290 |
|
|
|
|
|
|
The Company also recorded net long-term accounts receivable of $19.2 million and $14.1
million as of December 31, 2010 and March 31, 2010, respectively, which are also classified within
other assets and as long-term deferred revenue on the condensed consolidated balance sheet.
7. Inventory
The components of inventory are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
March 31, |
|
|
2010 |
|
2010 |
Raw materials |
|
$ |
21,778 |
|
|
$ |
18,065 |
|
Work-in-process |
|
|
4,846 |
|
|
|
7,318 |
|
Finished goods |
|
|
10,077 |
|
|
|
7,879 |
|
Deferred program costs |
|
|
4,140 |
|
|
|
2,596 |
|
|
|
|
|
|
Net inventory |
|
$ |
40,841 |
|
|
$ |
35,858 |
|
|
|
|
|
|
Finished goods inventory as of December 31, 2010 includes $1.0 million of costs of
product shipped to customers on contracts for which revenue was deferred until final customer
acceptance.
Deferred program costs as of December 31, 2010 and March 31, 2010 primarily represent costs
incurred on wind turbine development programs accounted for under contract accounting where the
Company needs to achieve certain milestones or complete development programs before revenue and
costs will be recognized.
8. 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 |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
$7,374 |
|
|
|
$5,497 |
|
|
|
$6,431 |
|
|
|
$4,749 |
|
Accruals for warranties during the period |
|
|
2,193 |
|
|
|
2,238 |
|
|
|
6,533 |
|
|
|
4,955 |
|
Settlements and adjustments during the period |
|
|
(1,119 |
) |
|
|
(1,703 |
) |
|
|
(4,516 |
) |
|
|
(3,672 |
) |
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
$8,448 |
|
|
|
$6,032 |
|
|
|
$8,448 |
|
|
|
$6,032 |
|
|
|
|
|
|
|
|
|
|
9. Income Taxes
The Company recorded income tax expense of $7.8 million and $23.6 million for the three and
nine months ended December 31, 2010, respectively, and $5.6 million and $13.8 million for the three
and nine months ended December 31, 2009, 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 U.S. deferred tax assets are not
currently realizable due to the net operating losses incurred by the Company in the U.S. since its
inception.
12
10. Commitments and Contingencies
The Company enters into long-term construction contracts with customers that require the
Company to obtain performance bonds. The Company is required to deposit an amount equivalent to
some or all the face amount of the performance bonds into an escrow account until the termination
of the bond. When the performance conditions are met, amounts deposited as collateral for the
performance bonds are returned to the Company. In addition, the Company has various contractual
arrangements in which minimum quantities of goods or services have been committed to be purchased
on an annual basis.
As of December 31, 2010, the Company had five performance bonds on behalf of AMSC Windtec
and its wholly-owned Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd (AMSC China), in
support of customer contracts to guarantee supply of core components and software. The total value
of the outstanding performance bonds is $1.2 million and they expire between November 30, 2011 and
March 31, 2014. In the event that the payment is made in accordance with the requirements of any
of these performance bonds, the Company would record the payment as an offset to revenue.
At December 31, 2010 and March 31, 2010, the Company had $5.4 million and $5.7 million,
respectively, of restricted cash included in current assets, which includes the restricted cash
securing the AMSC Windtec and AMSC China performance bonds noted above. The Company also has an
additional $3.8 million in bank guarantees and letters of credit supported by unsecured lines of
credit.
The Company also has unused, unsecured lines of credit consisting of $18.2 million
(approximately CNY 120.4 million) and $2.7 million (approximately 2.0 million) as of December 31,
2010. Recently, the Chinese government adopted various economic measures designed to restrict the
availability of credit and contain inflation which may impact the Companys ability to access
unused lines of credit in China.
From time to time, the Company may be involved in legal and administrative proceedings and
claims of various types. The Company records a liability in its consolidated financial statements
for these matters when a loss is known or considered probable and the amount can be reasonably
estimated. Management reviews these estimates in each accounting period as additional information
is known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be
reasonably estimated, a liability is not recorded in the consolidated financial statements. At
December 31, 2010, the Company did not have any material pending litigation.
11. 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 |
|
|
Nine months ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs incurred |
|
$ |
523 |
|
|
$ |
943 |
|
|
$ |
1,547 |
|
|
$ |
3,418 |
|
R&D expenditures offset by cost sharing funding received |
|
|
128 |
|
|
|
250 |
|
|
|
402 |
|
|
|
867 |
|
SG&A expenditures offset by cost sharing funding received |
|
|
111 |
|
|
|
217 |
|
|
|
349 |
|
|
|
755 |
|
At December 31, 2010, total funding received under these agreements was $30.4 million.
12. Acquisitions
Acquisition of Windtec Consulting GmbH
On January 5, 2007, the Company acquired AMSC Windtec. AMSC Windtec develops and sells
electrical systems for wind turbines. AMSC 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 AMSC Windtecs achievement of specified revenue
objectives during the first four fiscal years
13
following closing of the acquisition. During the nine
months ended December 31, 2010, the Company recorded contingent consideration of $10.0 million to
goodwill and additional paid-in capital representing 350,000 shares earned. These 350,000 shares
are expected to be issued in the first quarter of the fiscal year ending March 31, 2012. As of
December 31, 2010, the Company has recorded contingent consideration up to the maximum amount of
shares that could be earned under the agreement. The carrying amount of goodwill at December 31,
2010 and March 31, 2010 was $46.4 million and $36.7 million, respectively. The goodwill activity
for the nine months ended December 31, 2010 is as follows (in thousands):
|
|
|
|
|
Balance at April 1, 2010 |
|
$ |
36,696 |
|
Contingent consideration |
|
|
10,003 |
|
Net foreign exchange rate impact |
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
46,436 |
|
|
|
|
|
Investment in Tres Amigas
On October 9, 2009, the Company made an investment in Tres Amigas LLC, (Tres Amigas), a
merchant transmission company, for $1.8 million, consisting of $0.8 million in cash and $1.0
million in AMSC common stock. The investment was recorded under the equity method of accounting and
is included in other assets on the condensed consolidated balance sheet. The Companys minority
interest in the losses of Tres Amigas are included in other income (expense), net, on the condensed
consolidated statements of income and were immaterial for the three and nine months ended December
31, 2010. The net investment activity for the nine months ended December 31, 2010 is as follows (in
thousands):
|
|
|
|
|
Balance at April 1, 2010 |
|
$ |
1,750 |
|
Minority interest in net losses |
|
|
(685 |
) |
|
|
|
|
Balance at December 31, 2010 |
|
$ |
1,065 |
|
|
|
|
|
On January 6, 2011, the Company increased its minority position in Tres Amigas for $1.8
million in cash consideration.
Investment in Blade Dynamics Ltd.
On August 12, 2010, the Company acquired (through AMSC Windtec), a 25 percent equity ownership
position in Blade Dynamics Ltd. (Blade Dynamics), a designer and manufacturer of advanced wind
turbine blades based on proprietary materials and structural technologies, for $8.0 million in
cash. The investment was recorded under the equity method of accounting and is included in other
assets on the condensed consolidated balance sheet. The Companys minority interest in net losses
of Blade Dynamics are included in other income (expense), net, on the condensed consolidated
statements of income. The net investment activity for the nine months ended December 31, 2010 is
as follows (in thousands):
|
|
|
|
|
Balance at April 1, 2010 |
|
$ |
|
|
Purchase of minority investment |
|
|
8,000 |
|
Minority interest in net losses |
|
|
(578 |
) |
Net foreign exchange rate impact |
|
|
320 |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
7,742 |
|
|
|
|
|
13. Business Segment Information
The Company reports its financial results in two reportable business segments: AMSC Power
Systems and AMSC Superconductors.
The AMSC Power Systems business segment produces a broad range of products to increase
electrical grid capacity and reliability, supplies electrical systems used in wind turbines,
provides power electronic products that interconnect wind farms and solar power plants 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.
The AMSC Superconductors business segment manufactures Amperium high temperature
superconductor (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 |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
|
$112,114 |
|
|
|
$77,026 |
|
|
|
$305,582 |
|
|
|
$219,513 |
|
AMSC Superconductors |
|
|
2,079 |
|
|
|
3,633 |
|
|
|
7,350 |
|
|
|
8,818 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$114,193 |
|
|
|
$80,659 |
|
|
|
$312,932 |
|
|
|
$228,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
|
$31,833 |
|
|
|
$19,941 |
|
|
|
$84,159 |
|
|
|
$55,202 |
|
AMSC Superconductors |
|
|
(6,878 |
) |
|
|
(5,941 |
) |
|
|
(19,322 |
) |
|
|
(17,085 |
) |
Unallocated corporate expenses |
|
|
(3,485 |
) |
|
|
(3,560 |
) |
|
|
(11,342 |
) |
|
|
(10,956 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
$21,470 |
|
|
|
$10,440 |
|
|
|
$53,495 |
|
|
|
$27,161 |
|
|
|
|
|
|
|
|
|
|
The accounting policies of the business segments are the same as those for the
consolidated Company. Certain corporate expenses which the Company does not believe are
specifically attributable or allocable to either of the two business segments have been excluded
from the segment operating income. Unallocated corporate expenses include stock-based compensation
expense of $3.4 million and $3.5 million for the three months ended December 31, 2010 and 2009,
respectively, and $11.3 million and $10.4 million for the nine months ended December 31, 2010 and
2009, respectively. Unallocated corporate expenses for the nine months ended December 31, 2009
included $0.5 million of restructuring charges related primarily to the closure of the Companys
facility in Westborough, Massachusetts.
For the three and nine months ended December 31, 2010, 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 73% and 75% of total revenues for the three and nine
months ended December 31, 2010, respectively, compared to 76% and 69% for the three and nine months
ended December 31, 2009, respectively.
Total assets for the two business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
March 31, |
|
|
2010 |
|
2010 |
AMSC Power Systems |
|
$ |
293,127 |
|
|
$ |
179,873 |
|
AMSC Superconductors |
|
|
55,375 |
|
|
|
32,978 |
|
Corporate assets |
|
|
291,939 |
|
|
|
187,333 |
|
|
|
|
|
|
Total |
|
$ |
640,441 |
|
|
$ |
400,184 |
|
|
|
|
|
|
14. Stockholders Equity
Public Offering
In November 2010, the Company issued 4,600,000 shares of common stock at a price of $35.50 per
share in a follow-on public offering, which resulted in net proceeds to the Company of
approximately $155.2 million, after deducting the underwriting costs and offering expenses of $8.1
million. The Company intends to use the net proceeds of the offering to expand its superconductor
wire manufacturing capacity, to pursue strategic business relationships for the purpose of
executing its growth and diversification strategies, including minority investments and
acquisitions, and for other general corporate purposes.
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 under the caption Risk Factors in Part II. Item 1A and
Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2010, 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,
Amperium, AMSC, Powered by AMSC, D-VAR, dSVC, FaultBlocker, PowerModule, PQ-IVR, SolarTie, 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 renewable energy, providing proven, megawatt-scale
wind turbine designs and electrical control systems. We also offer a host of Smart Grid
technologies for power grid operators that enhance the reliability, efficiency and capacity of the
grid, and seamlessly integrate renewable energy sources into the power infrastructure. These
technologies include superconductor power cable systems, grid-level surge protectors and power
electronics-based voltage stabilization systems. Our technologies are protected by a broad and deep
intellectual property portfolio consisting of hundreds of patents and licenses worldwide.
Our fiscal year begins on April 1 and ends on March 31. This document refers to fiscal 2010,
which is defined as the period beginning on April 1, 2010 and concluding on March 31, 2011. The
third quarter of fiscal 2010 began on October 1, 2010 and concluded on December 31, 2010.
Our revenues are primarily derived from our AMSC Power Systems business unit, which designs
and licenses wind turbines and provides electrical systems and controls for those wind turbines;
provides a range of products to increase electrical grid capacity and reliability; provides power
electronic products that interconnect wind farms and solar power plants to the power grid; and
provides products that enhance power quality for industrial operations. Most of the products
offered by AMSC Power Systems utilize our proprietary power electronic converters and enabling
software. These solutions increase the quantity, quality and reliability of electric power that is
produced by renewable energy sources, transmitted by electric utilities or consumed by large
industrial entities. The market for these solutions continues to be strong, particularly in Asia,
where the production of wind turbines and demand for wind turbine electrical systems and controls
continues to increase rapidly.
Our AMSC Superconductors business unit designs and develops superconductor products, such as
power cables, fault current limiters, generators, motors and degaussing systems; and it manages
large-scale superconductor projects. AMSC Superconductors also manufactures the Amperium high
temperature superconductor (HTS) wire that goes into superconductor products, providing these
systems with compelling performance, efficiency, size and weight advantages compared with
conventional electrical equipment. Many superconductor product demonstrations have been
successfully completed to date and customer interest is increasing, particularly for superconductor
power cables and superconductor wind turbine generators. While these systems have not yet been
broadly commercialized, we received our first large-scale
commercial wire contract in fiscal 2010.
16
Our strategy for both AMSC Power Systems and AMSC Superconductors is to drive revenue growth
and enhance operating results by increasing adoption of our products. We are targeting high-growth
segments of the renewable energy and power grid markets with our advanced engineering capabilities,
support services and power electronics and superconductor product offerings.
Our wind power products and services are marketed globally, with a particular focus on the
Asia Pacific region and emerging economies where demand for local wind turbine manufacturing has
been increasing significantly. Our power grid products and services have historically been
marketed primarily in the United States. However, due to increasing grid interconnection
requirements for renewable energy sites and rising demands for Smart Grid solutions overseas, our
power grid activities and sales have increasingly become global in nature. Although we leverage
strategic partnerships and reseller relationships to increase our revenue streams, we address
market needs primarily with our direct sales force.
We currently have offices and operations in 11 countries around the world. Our Devens,
Massachusetts facility serves as our corporate headquarters and our center of excellence for
superconductor research, development and manufacturing. Our facilities in Wisconsin serve as our
center of excellence for power electronics and controls research and development and power grid
product manufacturing. Our facility in Suzhou, China serves as our center of excellence for wind
turbine power electronics manufacturing. Our facility in Klagenfurt, Austria serves as our center
of excellence for wind turbine design and engineering. Our other locations focus primarily on
applications engineering, sales and/or field service.
As of December 31, 2010 and March 31, 2010, we had backlog of approximately $883 million and
$588 million, respectively. The increase in backlog was primarily the result of a substantial new
order received from our largest customer, Sinovel Wind Co., Ltd. (Sinovel), a manufacturer of
wind turbines based in China. Based on this level of backlog and our pipeline of business, we
believe we are well positioned to continue our growth.
Our cash requirements depend on numerous factors, including successful completion of our
product development activities, ability to commercialize our product prototypes, and the rate of
customer and market adoption of our products. 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 condensed consolidated financial statements requires that we make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We base our estimates on historical
experience and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ under different assumptions or conditions. There were no significant changes in the third
quarter of fiscal 2010 in our critical accounting policies as disclosed in our Form 10-K for fiscal
2009, which ended on March 31, 2010.
Derivative Contracts
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 both forward contracts and currency options to manage the foreign currency
exposures that exist as part of its ongoing business operations. We recognize all derivatives,
including forward currency-exchange contracts, in the balance sheet at fair value.
Cash Flow Hedges
We hedge a portion of our intercompany sales of inventory over a maximum period of 15 months
using forward foreign exchange contracts accounted for as cash flow hedges to mitigate the impact
of volatility associated with foreign currency transactions.
For forward foreign exchange contracts that are designated as cash flow hedges, if they are
effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge
accounting criteria, changes in the derivatives value are not included in current earnings but are
included in other comprehensive income in stockholders equity. The changes in fair value will
subsequently be reclassified into earnings as a component of cost of revenues, as applicable, when
the forecasted transaction occurs. To the extent that a previously forecasted transaction is no
longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in
earnings in the period it occurs. We do not enter into derivative instruments for trading or
speculative purposes. Realized gains and losses resulting from these cash flow hedges offset the
foreign exchange gains and losses on the underlying transactions being hedged. Gains and losses on
derivatives not
17
designated for hedge accounting or representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in other income (expense),
net.
Balance Sheet Hedges
In addition to cash flow hedges, we also enter into foreign currency forward exchange
contracts to mitigate the impact of foreign exchange risk related to certain non-functional
currency receivable balances in our foreign entities. We do not elect hedge accounting treatment
for these hedges, consequently, changes in the fair value of these contracts are recorded within
other income (expense), net, in the period which they occur.
Revenue Recognition
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13,
Multiple-Deliverable Revenue Arrangements pertaining to the accounting for revenue arrangements
with multiple deliverables. Specifically, the new standard requires an entity to allocate
consideration at the inception of an arrangement to all of its deliverables based on their relative
selling prices. In the absence of the vendor-specific objective evidence (VSOE) or third-party
evidence (TPE) of the selling prices, consideration must be allocated to the deliverables based
on managements best estimate of the selling prices. In addition, the new standard eliminates the
use of the residual method of allocation.
For sales that involve the delivery of multiple elements, we allocate revenue to each
undelivered element based on the elements fair value as determined by VSOE, which is the price
charged when that element is sold separately, or TPE. When VSOE and TPE are unavailable, fair
value is based on our best estimate of selling price. When our estimates are used to determine
fair value, management makes its estimates using reasonable and objective evidence to determine the
price. We review VSOE and TPE at least annually. If we conclude we are unable to establish fair
values for one or more undelivered elements within a multiple-element arrangement using VSOE then
we use TPE or our best estimate of the selling price for that unit of accounting, being the price
at which the vendor would transact if the unit of accounting were sold by the vendor regularly on a
standalone basis.
The new accounting standard supersedes the prior multiple element revenue arrangement
accounting rules that were previously used by us. We adopted this new accounting standard on April
1, 2010 using the prospective method and the adoption did not have a material impact on our
condensed consolidated financial statements.
Results of Operations
Three and nine months ended December 31, 2010 compared to the three and nine months ended December
31, 2009
Revenues
Total revenues increased by 42% and 37% to $114.2 million and $312.9 million for the three and
nine months ended December 31, 2010, respectively, from $80.7 million and $228.3 million for the
three and nine months ended December 31, 2009, respectively. Our revenues are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems |
|
$ |
112,114 |
|
|
$ |
77,026 |
|
|
$ |
305,582 |
|
|
$ |
219,513 |
|
AMSC Superconductors |
|
|
2,079 |
|
|
|
3,633 |
|
|
|
7,350 |
|
|
|
8,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
114,193 |
|
|
$ |
80,659 |
|
|
$ |
312,932 |
|
|
$ |
228,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in our AMSC Power Systems business unit consist of revenues from wind turbine
electrical systems and core components, wind turbine license and development contracts as well as
D-VAR®, D-VAR RT, SVC, and PowerModule product sales, service contracts, and consulting
arrangements. We also engineer, install and commission our products on a turnkey basis for some
customers. Our AMSC Power Systems business unit accounted for 98% of total revenues for both of the
three and nine months ended December 31, 2010, compared to 95% and 96% for the three and nine
months ended December 31, 2009, respectively. Revenues in the AMSC Power Systems business unit
increased 46% and 39% to $112.1 million and $305.6 million in the three and nine months ended
December 31, 2010, respectively, from $77.0 million and $219.5 million in the three and nine months
ended December 31, 2009, respectively. The increases in AMSC Power Systems business unit revenues
were primarily due to greater sales of wind turbine electrical control systems and core components,
18
primarily to customers in China. Based on the average Euro and renminbi exchange rates for
the third quarter of fiscal 2010, revenues denominated in these foreign currencies translated into
U.S. dollars were $1.8 million higher compared to the translation of these revenues using the
average exchange rates of these currencies for the third quarter of fiscal 2009.
For the three and nine months ended December 31, 2010, a substantial portion of our revenues
was derived from one customer, Sinovel. Sales to Sinovel represented 73% and 75% of total revenues
for the three and nine months ended December 31, 2010, respectively, compared to 76% and 69% for
the three and nine months ended December 31, 2009, respectively.
On May 17, 2010, we announced an extension of our supply of core electrical components for 1.5
megawatt (MW) wind turbines to Sinovel through late 2013 under a new contract valued at
approximately $445 million.
Revenues in our AMSC Superconductors business unit consist of contract revenues, sales of our
Amperium HTS wire, revenues under government-sponsored electric utility projects and other
prototype development contracts. Our AMSC Superconductors business unit revenues are primarily
recorded using the percentage-of-completion method. Our AMSC Superconductors business unit
accounted for 2% of total revenues for both the three and nine months ended December 31, 2010,
respectively, compared to 5% and 4% for the three and nine months ended December 31, 2009,
respectively. Our AMSC Superconductors business unit revenues decreased 43% and 17% to $2.1
million and $7.4 million in the three and nine months ended December 31, 2010, respectively, from
$3.6 million and $8.8 million for the three and nine months ended December 31, 2009, respectively.
Revenues from significant AMSC Superconductors government-funded contracts are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue earned for the |
|
Revenue earned for the |
|
|
|
|
|
|
|
|
|
|
three months ended |
|
nine months ended |
|
|
|
|
|
|
Revenue earned |
|
|
December 31, |
|
December 31, |
|
|
Expected total |
|
through |
|
|
|
|
|
|
|
|
Project name |
|
contract value |
|
December 31, 2010 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
HYDRA |
|
$ |
24,908 |
|
|
$ |
10,194 |
|
|
$ |
112 |
|
|
$ |
196 |
|
|
$ |
621 |
|
|
$ |
1,025 |
|
LIPA I and II |
|
|
40,141 |
|
|
|
37,360 |
|
|
|
861 |
|
|
|
1,115 |
|
|
|
3,009 |
|
|
|
2,754 |
|
DOE-FCL |
|
|
7,898 |
|
|
|
5,964 |
|
|
|
571 |
|
|
|
403 |
|
|
|
1,558 |
|
|
|
980 |
|
NAVSEA Motor Study |
|
|
6,511 |
|
|
|
6,464 |
|
|
|
103 |
|
|
|
133 |
|
|
|
252 |
|
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
79,458 |
|
|
$ |
59,982 |
|
|
$ |
1,647 |
|
|
$ |
1,847 |
|
|
$ |
5,440 |
|
|
$ |
4,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These significant projects represented 79% and 74% of AMSC Superconductors business
unit revenues for the three and nine months ended December 31, 2010, respectively, compared to 51%
and 56% for the three and nine months ended December 31, 2009, respectively.
Project HYDRA is a contract with Consolidated Edison, Inc. which is being partially funded by
the U.S. Department of Homeland Security (DHS). DHS is expected to invest up to a total of $24.9
million in the development of a new high temperature superconductor power grid technology called
FaultBlocker cable systems. FaultBlocker cable systems are designed to utilize customized
Amperium HTS wires, and ancillary controls to deliver more power through the grid while also being
able to suppress power surges that can disrupt service. Of the total $24.9 million in funding
expected from DHS, it has committed funding of $12.6 million to us as of December 31, 2010.
Consolidated Edison and Southwire Company are subcontractors to us on this project.
LIPA I, completed in the first quarter of fiscal 2009, was a project to install an HTS power
cable system at transmission voltage using our first generation HTS wire for the Long Island Power
Authority. LIPA II is a project to install an HTS power cable utilizing our Amperium wire for the
Long Island Power Authority. DOE-FCL is a project to develop and demonstrate a transmission
voltage SuperLimiter fault current limiter (FCL). The NAVSEA Motor Study is a project designed to
test the 36.5 MW superconductor motor developed for the U.S. Navy.
Cost-sharing funding
In addition to reported revenues, we also received funding of $0.2 million and $0.7 million
for the three and nine months ended December 31, 2010, respectively, under U.S. government
cost-sharing agreements with the U.S. Air Force and the Department of Energy, compared to $0.4
million and $1.6 million for the three and nine months ended December 31, 2009, respectively. The
decrease in cost-sharing funding is primarily due to the completion of the NIST Advanced Technology
Program. All of our cost-sharing agreements provide funding in support of development work on our
Amperium HTS wires 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.
19
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
revenues.
Cost of Revenues and Gross Margin
Cost of revenues increased by 34% and 27% to $67.7 million and $186.2 million for the three
and nine months ended December 31, 2010, respectively, compared to $50.4 million and $146.5 million
for the three and nine months ended December 31, 2009, respectively. Gross margin was 40.7% and
40.5% for the three and nine months ended December 31, 2010, respectively, compared to 37.5% and
35.8%, respectively, for the same periods of fiscal 2009. The increases in gross margin in the
three and nine months ended December 31, 2010 as compared to the same periods in fiscal 2009 were
due primarily to a shift in the mix of products sold towards higher margin wind turbine core
electrical component shipments; material cost reductions primarily resulting from the localization
of component supply in China for our power electronic converters, which are now manufactured in
China; as well as favorable foreign exchange effects. Based on the average Euro and renminbi
exchange rates for the third quarter of fiscal 2010, cost of revenues denominated in these foreign
currencies translated into U.S. dollars was $0.6 million higher compared to the translation of cost
of revenues using the average exchange rates of these currencies for the third quarter of fiscal
2009.
Operating Expenses
Research and development
A portion of our R&D expenditures related to externally funded development contracts has been
classified as cost of revenues (rather than as R&D expenses). Additionally, a portion of R&D
expenses was offset by cost-sharing funding. Our R&D expenditures are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
R&D expenses per condensed consolidated
statements of income |
|
$ |
9,057 |
|
|
$ |
6,421 |
|
|
$ |
24,249 |
|
|
$ |
16,365 |
|
R&D expenditures reclassified as cost of revenues |
|
|
3,862 |
|
|
|
1,832 |
|
|
|
11,582 |
|
|
|
4,679 |
|
R&D expenditures offset by cost-sharing funding |
|
|
128 |
|
|
|
250 |
|
|
|
402 |
|
|
|
867 |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregated R&D expenses |
|
$ |
13,047 |
|
|
$ |
8,503 |
|
|
$ |
36,233 |
|
|
$ |
21,911 |
|
|
|
|
|
|
|
|
|
|
R&D expenses (exclusive of amounts classified as cost of revenues and amounts offset by
cost-sharing funding) increased by 41% and 48% to $9.1 million and $24.3 million, or 8% of
revenues, for each of the three and nine months ended December 31, 2010, respectively, from $6.4
million and $16.4 million, or 8% and 7% of revenues, for the three and nine months ended December
31, 2009, 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 AMSC Power Systems business unit. The increases in R&D expenditures reclassified
to costs of revenue was a result of increased efforts under license and development contracts for
wind turbine designs at AMSC Windtec compared to the prior year. Aggregated R&D expenses, which
include amounts classified as cost of revenues and amounts offset by cost-sharing funding,
increased 53% and 65% to $13.0 million and $36.2 million, or 11% and 12% of revenues for the three
and nine months ended December 31, 2010, respectively, compared to $8.5 million and $21.9 million,
or 11% and 10% of revenues, for the three and nine months ended December 31, 2009, respectively.
The increases in fiscal 2010 were driven primarily by the net impact of the factors described
above.
We present aggregated R&D, which is a non-GAAP measure, because we believe this presentation
provides useful information on our aggregate R&D spending and because R&D expenses as reported on
the condensed consolidated statements of income have been, and may in the future, be subject to
significant fluctuations solely as a result of changes in the level of externally funded contract
development work, resulting in significant changes in the amount of the costs recorded as costs of
revenues rather than as R&D expenses, as discussed above.
Selling, general, and administrative
SG&A expenses increased by 21% and 31% to $15.6 million and $47.9 million, or 14% and 15% of
revenues, in the three and nine months ended December 31, 2010, respectively, from $12.9 million
and $36.5 million, or 16% of revenues, for both the three and nine months ended December 31, 2009,
respectively. The increases in SG&A expenses were due primarily to higher labor and related costs
driven by headcount growth and costs incurred related to the implementation of our new ERP system.
20
Amortization of acquisition related intangibles
We recorded $0.4 million and $1.2 million in the three and nine months ended December 31,
2010, respectively, compared to $0.5 million and $1.4 million in the three and nine months ended
December 31, 2009, respectively, in amortization expense related to our contractual
relationships/backlog, customer relationships, core technology and know-how, trade names and
trademark intangible assets.
We plan to continue to increase our operating expenses on a dollar basis for the rest of this
fiscal year to provide a platform for growth in subsequent years, but expect them to decline as a
percent of revenues compared to the year ended March 31, 2010.
Operating income
Our operating income is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
AMSC Power Systems |
|
$ |
31,833 |
|
|
$ |
19,941 |
|
|
$ |
84,159 |
|
|
$ |
55,202 |
|
AMSC Superconductors |
|
|
(6,878 |
) |
|
|
(5,941 |
) |
|
|
(19,322 |
) |
|
|
(17,085 |
) |
Unallocated corporate
expenses |
|
|
(3,485 |
) |
|
|
(3,560 |
) |
|
|
(11,342 |
) |
|
|
(10,956 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,470 |
|
|
$ |
10,440 |
|
|
$ |
53,495 |
|
|
$ |
27,161 |
|
|
|
|
|
|
|
|
|
|
AMSC Power Systems operating income increased to $31.8 million and $84.2 million in the
three and nine months ended December 31, 2010, respectively, from $19.9 million and $55.2 million
in the three and nine months ended December 31, 2009, respectively. The increase in the three and
nine months ended December 31, 2010 were primarily the result of greater sales, as described above.
AMSC Superconductors operating loss increased to $6.9 million and $19.3 million in the three
and nine months ended December 31, 2010, respectively, from $5.9 million and $17.1 million in the
three and nine months ended December 31, 2009, respectively. The increase in operating loss for
the three and nine months ended December 31, 2010 is primarily due to lower sales, as described
above.
Unallocated corporate expenses include stock-based compensation expense of $3.4 million and
$11.3 million in the three and nine months ended December 31, 2010, respectively, compared to $3.5
million and $10.4 million in the three and nine months ended December 31, 2009, respectively.
Unallocated corporate expenses for the nine months ended December 31, 2009 included $0.5 million of
restructuring charges related to the closure of the Companys facility in Westborough,
Massachusetts.
Interest income (expense), net
Interest income (expense), net, was $0.2 million and $0.5 million in the three and nine months
ended December 31, 2010, respectively, compared to $0.2 million and $0.6 million in the three and
nine months ended December 31, 2009, respectively. Due to current economic conditions, yields are
low for interest bearing assets.
Other income (expense), net
Other income (expense), net, was income of $2.1 million and $4.7 million in the three and nine
months ended December 31, 2010, respectively, compared to income of $0.2 million and expense of
$2.7 million for the three and nine months ended December 31, 2009, respectively. Other income
(expense), net primarily relates to foreign currency translation gains, net of hedging activities,
of $2.6 million and $5.7 million and losses on investments in Blade Dynamics and Tres Amigas of
$0.7 million and $1.3 million for the three and nine months ended December 31, 2010, respectively.
21
Income Taxes
In the three and nine months ended December 31, 2010, we recorded income tax expense of $7.8
million and $23.6 million, respectively, compared to $5.6 million and $13.8 million in the three
and nine months ended December 31, 2009, 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 nine months of fiscal 2010 and fiscal 2009.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance,
financial position or cash flow that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure calculated and presented in accordance
with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in
addition to, and not as a substitute for or superior to, the comparable measure prepared in
accordance with GAAP.
We define non-GAAP net income as net income before amortization of acquisition-related
intangibles, restructuring and impairments, stock-based compensation, other unusual charges and any
tax effects related to these items. We believe non-GAAP net income is an important measurement for
management and investors given the effect that these non-cash or non-recurring charges have on our
net income. We regard non-GAAP net income as a useful measure of operating performance which more
closely aligns net income with cash earnings generated by continuing operations. A reconciliation
of non-GAAP to GAAP net income is set forth in the table below (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Net income |
|
$ |
16,004 |
|
|
$ |
5,179 |
|
|
$ |
35,161 |
|
|
$ |
11,311 |
|
Amortization of acquisition-related intangibles |
|
|
393 |
|
|
|
473 |
|
|
|
1,154 |
|
|
|
1,378 |
|
Restructuring and impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451 |
|
Stock-based compensation |
|
|
3,445 |
|
|
|
3,522 |
|
|
|
11,269 |
|
|
|
10,440 |
|
Tax effects |
|
|
(88 |
) |
|
|
(96 |
) |
|
|
(255 |
) |
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
19,754 |
|
|
$ |
9,078 |
|
|
$ |
47,329 |
|
|
$ |
23,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP earnings per share |
|
$ |
0.40 |
|
|
$ |
0.20 |
|
|
$ |
1.01 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares out standing |
|
|
49,017 |
|
|
|
45,566 |
|
|
|
47,076 |
|
|
|
45,072 |
|
|
|
|
|
|
|
|
|
|
We generated non-GAAP net income of $19.8 million and $47.3, million or $0.40 and $1.01
per diluted share, for the three and nine months ended December 31, 2010, compared to a non-GAAP
net income of $9.1 million and $23.3 million, or $0.20 and $0.52 per diluted share, for the three
and nine months ended December 31, 2009. The increase in non-GAAP net income was driven primarily
by higher net income.
Liquidity and Capital Resources
At December 31, 2010, we had cash, cash equivalents, marketable securities and restricted cash
of $260.5 million, compared to $155.1 million at March 31, 2010, an increase of $105.4 million. In
the quarter ended December 31, 2010, we completed a public offering of common stock in which we
received net proceeds of $155.2 million. Our cash and cash equivalents, marketable securities and
restricted cash are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
Cash and cash equivalents |
|
$ |
169,021 |
|
|
$ |
87,594 |
|
Marketable securities (short and long-term) |
|
|
86,071 |
|
|
|
61,811 |
|
Restricted cash |
|
|
5,433 |
|
|
|
5,713 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents, marketable securities and restricted cash |
|
$ |
260,525 |
|
|
$ |
155,118 |
|
|
|
|
|
|
|
|
The increase in cash and cash equivalents, marketable securities and restricted cash at
December 31, 2010 from March 31, 2010 was due primarily to the net proceeds from our public
offering of common stock, offset by cash used for working capital, primarily an increase in
accounts receivable, and capital expenditures made in support of our effort to scale up our
Amperium wire capacity.
22
For the nine months ended December 31, 2010, net cash used in operating activities was $16.3
million compared to $1.1 million in the nine months ended December 31, 2009. The increase in cash
used in operations is due primarily to an increase in cash used for working capital of $44.4
million, partially offset by our increase of net income of $23.9 million and stock-based
compensation of $1.0 million.
For
the nine months ended December 31, 2010, net cash used in investing activities was $65.1
million compared to $36.3 million in the nine months ended December 31, 2009. The increase in cash
used in investing activities was driven primarily by an increase in capital expenditures and the
purchased minority investment in Blade Dynamics during the nine months ended December 31, 2010.
For the nine months ended December 31, 2010, cash provided by financing activities was $162.6
million compared to $6.0 million in the same period of fiscal 2009. The increase in cash provided
by financing activities is primarily due to the net proceeds from our public offering of $155.2
million.
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 revenue from product sales together with existing resources, including the cash
from our public offering, will be sufficient to fund our working capital, capital expenditures, and
other cash requirements for at least the next twelve months.
We had unused, unsecured lines of credit consisting of $18.2 million (approximately CNY
120.4 million) and $2.7 million (approximately 2.0 million) as of December 31, 2010. We also had
an additional $3.8 million in bank guarantees and letters of credit supported by unsecured lines of
credit. Recently, the Chinese government adopted various economic measures designed to restrict
the availability of credit and contain inflation which may impact our ability to access unused
lines of credit in China.
The possibility exists that we may pursue additional acquisition and joint venture
opportunities in the future that may affect liquidity and capital resource requirements.
From time to time, we are involved in legal and administrative proceedings and claims of
various types. We record a liability in our consolidated financial statements for these matters
when a loss is known or considered probable and the amount can be reasonably estimated. We review
these estimates each accounting period as additional information is known and adjust the loss
provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a
liability is not recorded in our consolidated financial statements. At December 31, 2010, we did
not have any material pending litigation.
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 December 31,
2010, there were no recorded performance-based liabilities.
In addition, the Company has various contractual arrangements in which minimum quantities of
goods or services have been committed to be purchased on an annual basis.
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 government-backed securities and sovereign debt and are designed,
in order of priority, to preserve principal, provide liquidity, and maximize income. Investments
are monitored to limit exposure to mortgage-backed securities and similar instruments responsible
for the recent turmoil in the credit markets. Interest rates are variable and fluctuate with
current market conditions. We do not believe that a 10% change in interest rates would have a
material impact on our financial position or results of operation.
Foreign currency exchange risk
Our 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 both forward contracts and currency options to manage the foreign currency
exposures that exist as part of its ongoing business operations. We recognize all derivatives,
including forward currency-exchange contracts, in the balance sheet at fair value.
Cash Flow Hedges
We hedge a portion of our intercompany sales of inventory over a maximum period of 15 months
using forward foreign exchange contracts accounted for as cash flow hedges to mitigate the impact
of volatility associated with foreign currency transactions.
For forward foreign exchange contracts that are designated as cash flow hedges, if they are
effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge
accounting criteria, changes in the derivatives value are not included in current earnings but are
included in other comprehensive income in stockholders equity. The changes in fair value will
subsequently be reclassified into earnings as a component of cost of revenues, as applicable, when
the forecasted transaction occurs. To the extent that a previously forecasted transaction is no
longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in
earnings in the period it occurs. We do not enter into derivative instruments for trading or
speculative purposes. Realized gains and losses resulting from these cash flow hedges offset the
foreign exchange gains and losses on the underlying transactions being hedged. Gains and losses on
derivatives not designated for hedge accounting or representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in other income
(expense), net.
At December 31, 2010, we had forward contracts outstanding to hedge cash flow exposure at AMSC
Windtec, with aggregate USD equivalent notional amounts of $28.9 million. These contracts will
expire at various dates through December 2011. The net gain or loss from these cash flow hedges
reported in accumulated other comprehensive income will be reclassified to earnings and recorded in
cost of revenues in our condensed consolidated statement of income when the related inventory is
sold to third-party customers.
Balance Sheet Hedges
In addition to cash flow hedges, we also enter into foreign currency forward exchange
contracts to mitigate the impact of foreign exchange risk related to certain non-functional
currency receivable balances in its foreign entities. We do not elect hedge accounting treatment
for these hedges, consequently, changes in the fair value of these contracts are recorded within
other income (expense), net, in the period which they occur. At December 31, 2010, we had forward
contracts outstanding with aggregate USD equivalent notional amounts of $87.5 million. These
contracts will expire at various dates through February 2011.
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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 December 31,
2010. 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 of December
31, 2010, 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 December 31, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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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, 2010 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 December 31, 2010, 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, 2010, 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.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AMERICAN SUPERCONDUCTOR CORPORATION
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Date: February 3, 2011
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By:
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/s/ David A. Henry
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David A. Henry Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
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Exhibit No. |
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Description |
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31.1
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Chief Executive OfficerCertification pursuant
to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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31.2
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Chief Financial OfficerCertification pursuant
to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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32.1
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Chief Executive OfficerCertification pursuant
to Rule13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
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32.2
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Chief Financial OfficerCertification pursuant
to Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
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101.INS
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XBRL Instance Document.** |
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101.SCH
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XBRL Taxonomy Extension Schema Document.** |
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101.CAL
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XBRL Taxonomy Calculation Linkbase Document.** |
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101.LAB
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XBRL Taxonomy Label Linkbase Document.** |
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101.PRE
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XBRL Taxonomy Presentation Linkbase Document.** |
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** |
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submitted electronically herewith |
Attached as Exhibits 101 to this report are the following formatted in XBRL (Extensible Business
Reporting Language): (i) Condensed Consolidated Statements of Income for the three and nine months
ended December 31, 2010 and 2009, (ii) Condensed Consolidated Balance Sheets as of December 31,
2010 and March 31, 2010, (iii) Condensed Consolidated Statements of Comprehensive Income for the
three and nine months ended December 31, 2010 and 2009, (iv) Condensed Consolidated Statements of
Cash Flows for the nine months ended December 31, 2010 and 2009, and (v) Notes to Condensed
Consolidated Financial Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this
Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus
for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed
for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not
subject to liability under these sections.
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