American Superconductor Corporation — FY2012 Form 10-K
Reporting period: Fiscal year ended March 31, 2012 (the filing also reports fourth-quarter results). Unless noted otherwise, figures are in U.S. dollars. AMSC supplies wind turbine engineering, controls and power electronics, and grid solutions including D-VAR systems and high-temperature superconductor products.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $76.5 million | $286.6 million |
| Gross margin | (8.3)% | (7.5)% |
| Operating loss | $136.4 million | $178.0 million |
| Net loss | $136.8 million | $186.3 million |
| Net loss per diluted share | $2.69 | $3.95 |
| Cash used in operating activities | $141.0 million | $22.8 million |
- FY2012 revenue comprised $44.6 million from Wind and $31.9 million from Grid. Fourth-quarter revenue was $28.6 million and net loss was $21.2 million.
- At March 31, 2012, cash, cash equivalents, marketable securities and restricted cash totaled $66.2 million, including $14.6 million restricted; cash and marketable securities excluding restricted cash were $51.6 million. Working capital was $57.2 million, versus $174.6 million a year earlier.
- Total assets were $255.1 million and total liabilities were $90.2 million at year-end. The balance sheet included a $25.9 million liability for adverse purchase commitments. Backlog was $291.5 million, with approximately 34% scheduled for shipment during fiscal 2012.
- After year-end, AMSC issued $25 million of 7% senior convertible notes and borrowed $10 million under an 11%-plus-floating-rate senior secured term loan. The notes include warrants and potential repayment in shares or cash, subject to conditions; the loan is secured by substantially all company assets.
Material changes and unusual items
- Revenue fell 73%, principally after former major customer Sinovel stopped accepting shipments and ceased making payments. Sinovel had represented 68% of revenue in FY2010; AMSC recognized no Sinovel revenue in FY2012.
- Wind revenue declined 81% to $44.6 million; Grid revenue declined 42% to $31.9 million, partly reflecting completion of a major Australian project. Inox Wind and Doosan Heavy Industries accounted for approximately 18% and 11% of FY2012 revenue, respectively.
- The net loss included a $20.6 million write-off of an advance payment after AMSC terminated its planned acquisition of The Switch, $9.2 million in restructuring and impairment charges, $5.8 million in Sinovel legal expenses and $4.9 million of patent costs. The filing reports $9.9 million of stock-based compensation.
- AMSC reduced its workforce by approximately 50%; management estimated annual savings of about $50 million. FY2012 included a $4.4 million inventory write-down; the adverse purchase commitment liability fell from $38.8 million to $25.9 million.
Outlook, risks and contingencies
- Management expected global wind installations in 2012 to be roughly equivalent to 2011. It anticipated substantially lower operating cash use in fiscal 2013 from cost reductions and revenue growth, while reserving the option to cut costs and capital spending further. Management believed available cash and potential additional reductions would fund operations and scheduled debt payments for 12 months from the balance-sheet date, but said liquidity depended on revenue growth, managing purchase commitments, debt covenant compliance and access to financing.
- In June 2012, AMSC agreed to secure vendor arrangements with approximately $9.0 million in letters of credit and guarantees, backed by $8.5 million of cash collateral; the settlements were expected to reduce adverse purchase commitments by $7.4 million. Potential unaccrued vendor safety-stock claims were estimated at $0–$4 million and considered reasonably possible, not probable.
- Sinovel disputes remain significant. AMSC sought approximately $76 million for past shipments and retention and specific performance on contracts with about $720 million of undelivered components. Sinovel asserted counterclaims, including a claim for approximately $190 million. AMSC also pursued intellectual-property claims, including a trade-secret damages claim of approximately $453 million. Outcomes and collectability are uncertain; amounts sought are not equivalent to recognized assets or revenue.
- Other exposures include securities class actions and shareholder derivative suits, for which the company said it could not estimate possible losses, and an ongoing arbitration in India involving a customer claim of approximately $24 million; AMSC recorded an immaterial loss contingency for that matter.
- Key business risks include customer concentration, order cancellations or delays, dependence on government incentives and appropriations, international and China-related risks, competition, supplier dependence, product performance, and the challenge of commercializing and producing superconductor wire at scale. The company reported that previously identified material weaknesses in revenue controls were remediated in FY2012; management and the auditor concluded internal control over financial reporting was effective as of March 31, 2012.
Investor verification priorities
- Track quarterly revenue, margins, cash burn and whether workforce reductions produce the expected savings.
- Reconcile available unrestricted liquidity with restricted cash, vendor settlements, debt service and the covenants and default provisions of the notes and secured loan.
- Monitor Sinovel arbitration and intellectual-property litigation, including any ruling, settlement, accounting change or actual cash recovery.
- Test backlog conversion, cancellation or deferral risk, and customer concentration—especially the execution and payment performance of major customers.
- Assess whether superconductor products can be commercialized at acceptable cost, quality and volume, and whether government-funded projects continue to receive appropriations.