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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-19672
American Superconductor Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-2959321
(IRS Employer
(State or other jurisdiction Identification Number)
of incorporation or organization)
01581
Two Technology Drive (Zip Code)
Westborough, Massachusetts
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (508) 836-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
On April 30, 2000, the aggregate market value of voting Common Stock held by
nonaffiliates of the Registrant was $740,541,887 based on the closing price of
the Common Stock on the Nasdaq National Market on April 28, 2000.
The number of shares of Common Stock outstanding as of April 30, 2000 was
19,821,482.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
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Definitive Proxy Statement with respect to the Annual Part III
Meeting of Stockholders for the fiscal year ended
March 31, 2000, to be filed with the Securities and
Exchange Commission by June 28, 2000.
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TABLE OF CONTENTS
Item Page
---- ----
Part I
1. Business.......................................................... 1
2. Properties........................................................ 15
3. Legal Proceedings................................................. 15
4. Submission of Matters to a Vote of Security Holders............... 15
Part II
5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 17
6. Selected Financial Data........................................... 17
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 18
7A. Quantitative and Qualitative Disclosure About Market Risk......... 18
8. Financial Statements and Supplementary Data....................... 18
9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 18
Part III
10. Directors and Executive Officers of the Registrant................ 18
11. Executive Compensation............................................ 18
12. Security Ownership of Certain Beneficial Owners and Management.... 18
13. Certain Relationships and Related Transactions.................... 18
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 19
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein that relate to future events
or conditions, including without limitation, the statements under "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and located elsewhere herein regarding
industry prospects and the Company's 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 management's current
expectations and are inherently uncertain. The important factors discussed
below under the caption "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Future Operating Results," 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.
Item 1. Business
Overview
We are a world leader in developing and manufacturing products using
superconducting materials and power electronic devices for electric power
applications. Superconducting materials are perfect conductors of electricity
when they are cooled below a critical temperature. We sell our products to
electrical equipment manufacturers, industrial power users and businesses that
produce and deliver power. Our products, and products sold by electrical
equipment manufacturers that incorporate our products, can:
. dramatically increase the capacity and reliability of power delivery
networks;
. significantly reduce the manufacturing costs of electrical equipment such
as motors and generators;
. improve the quality of electric power delivered to industrial sites;
. lower electrical operating costs and increase productivity for industrial
power users; and
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. conserve resources such as oil, gas and coal, which are used to produce
electricity, by conducting electricity more efficiently.
We believe there will be significant market demand for our products because
of the following factors:
. there is an increasing demand for power by businesses and consumers;
. the current power delivery infrastructure is constrained; and
. the reliability and quality of the power being delivered is becoming
increasingly important.
Our core product is high temperature superconducting wire, or HTS wire,
which, when cooled to very low temperatures, carries more than 100 times the
electrical current carried by copper wire of the same dimensions. We believe
that an important application for our HTS wire will be high-capacity power
cables, which are the backbone of the power delivery infrastructure. We also
develop and manufacture products that incorporate HTS wire, such as HTS coils
for use in motors and generators. The performance levels and mechanical
properties of our HTS wire are sufficient today to meet the technical needs
for applications such as cables for urban power delivery systems and very high
horsepower motors (over 5,000 horsepower). We expect the first use of our HTS
wire in power cables for a utility network will occur in early calendar year
2001, when Pirelli plans to install three 400-foot HTS power cables in a
Detroit substation in replacement of nine copper-wire cables. We believe this
project will be an important demonstration of the commercial viability of HTS
power cables. Rockwell Automation Power Systems is testing a prototype 1,000
horsepower HTS motor using our wire in their facility. We expect this motor
will be used later in an industrial site, and we believe this will provide a
significant demonstration of the commercial viability of HTS motors.
We also manufacture and sell commercial superconducting magnetic energy
storage, or SMES, systems for the power quality and reliability markets. Our
power quality SMES, or PQ-SMES, products, which incorporate low temperature
superconductor (LTS) electromagnets and HTS wire, protect industrial power
users from the adverse effects of momentary drops in voltage in power networks
by quickly releasing large quantities of power from a storage coil to restore
the voltage to its normal level. We sold our first commercial PQ-SMES unit in
June 1997, and as of March 31, 2000 we had 10 PQ-SMES units in use by
customers requiring high-quality power to maintain sensitive industrial
processes in industries including paper, plastics and automotive parts
manufacturing, and to maintain critical information processing, military and
research applications. We also have received orders for four additional PQ-
SMES units, three of these from two semiconductor customers seeking to protect
their facilities from being shut down due to momentary sags in voltage, and
one from a utility that will use the unit initially in a demonstration site.
In February 1999, we launched a new product that we call distributed SMES, or
D-SMES, which uses the same basic components as PQ-SMES but which is used at
substations within large-scale transmission networks to protect them against
power reliability problems such as voltage instability and low voltage
problems. As of March 31, 2000, we had received orders for eight D-SMES units.
In June 2000, we acquired the assets of Integrated Electronics, LLC ("IE")
of Milwaukee, Wisconsin, a manufacturer of power electronic converters that
utilize state-of-the-art power semiconductors. IE has been one of our co-
developers and suppliers of advanced power electronic converter modules for
use in our SMES product line, which is manufactured in Madison, Wisconsin.
Power electronic converters are key components in SMES systems. We believe
that this acquisition strengthens our internal power electronics technology
base. We plan to expand our power electronics technology base and develop new
products for other market segments where power technologies are important. The
focus will remain on high-end applications, primarily at power levels greater
than 100 kilowatts. Future applications of our power electronic products may
include electric motor drives; transportation systems such as locomotives,
ships, electric or hybrid electric vehicles; distributed generating equipment,
including fuel cells and micro-turbines; and energy storage applications such
as flywheels and batteries.
We plan to use a portion of the $205.6 million in net proceeds from our
March 2000 stock offering to increase our manufacturing capacity for HTS wire,
to provide wire for demonstrations of applications such as cables and motors
in the near term, to achieve reduced manufacturing costs associated with
higher volume production, and to have the wire production capacity in place as
the commercial viability of various applications
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is demonstrated. We also plan to use a portion of the net proceeds to increase
our manufacturing capacity for our SMES products.
Market Overview
Power Demand
Since we were founded in 1987, the total demand for electricity in the
United States has increased by 35%. This growth continues a long-term trend
toward electrification of energy use throughout the developed world. While
total per capita energy consumption in the United States has remained
essentially flat since the early 1970s, the portion of energy consumed in the
form of electricity has grown from 25% in 1970 to 40% in 1998. The rapid
growth in the use of computers, the Internet and telecommunications products
has created a significant increase in demand for power to run computer
equipment, cellular base stations and the many other components and devices
that depend on electricity.
Projected growth rates for power consumption by these new technologies are
far higher than for traditional uses of power, which have historically grown
roughly in proportion to GNP growth. These new uses of electricity were
minimal or non-existent 10 years ago. Industry sources have estimated that the
share of all U.S. electricity consumed by computer-based microprocessors is
10% and that within two decades, given the rapid growth of the Internet, 30%
to 50% of the nation's electricity supply may be required to meet the direct
and indirect needs of the Internet. Industry sources also project that as many
as one billion computers will be connected to the Internet worldwide by 2005,
requiring an amount of power equal to the entire electric output in the U.S.
today. Thus, the growth of the digital and Internet economies will drive
demand for significantly increased amounts of electric power in the future.
While the demand for electricity is increasing, the ability of electric
utilities to deliver power to users by way of power transmission and
distribution cables is being taxed severely. Although electricity use has
increased 35% over the last 12 years, investments in the transmission and
distribution systems that deliver power to users have increased by only 18%
during that period. Power failures in a number of major cities in the United
States during the summer of 1999, caused in several cases by failures of
overloaded power cables, indicate that the power delivery infrastructure must
be upgraded to keep pace with the increased demand for power. Several years
ago, the Electric Power Research Institute, known as EPRI, estimated that
there were 2,200 miles of power cables in the United States alone that were
candidates for replacement, and we believe that this figure has increased in
recent years. We estimate that the worldwide market for cables for both power
transmission and distribution applications that could be addressed by HTS
power cables is $4.8 billion per year.
Power Quality and Reliability
The reliability of the power supply network and the quality of the power
delivered are becoming increasingly important in today's economy. Many of the
new computer and telecommunications applications that are driving the
increased demand for power incorporate silicon chips that require a higher
level of power reliability and quality. Voltage instability and low voltage in
the power delivery network are significant problems for modern computers and
telecommunications equipment. As the Internet economy grows, avoiding downtime
due to power-related problems will become increasingly important. In addition,
the increased use of sensitive electronics in manufacturing has led to more
frequent and abrupt shutdowns of industrial operations because of voltage
drops. Protection against power quality problems such as momentary--typically
less than two-second--voltage sags can provide significant economic value to
large industrial users of power. According to EPRI, the cost of power
disruptions in the United States exceeds $30 billion per year. Industry
sources have estimated that the North American market for power quality
solutions for large and facility-scale equipment was approximately $485
million in 1998 and will grow to approximately $865 million by 2003. We
estimate that the market for power reliability solutions addressing voltage
stability and low voltage in transmission networks is currently $500 million
per year in the United States.
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In the past, electric utilities have attempted to enhance the reliability of
their networks primarily by installing more power lines. Power suppliers are
finding it increasingly difficult to get permits for new lines due to
environmental, health, safety, property value and aesthetic concerns. As a
result, both power users and electric utilities are seeking new solutions for
their power quality and reliability problems.
Power Converters
We estimate that the market for power electronic converters today exceeds $1
billion per year. Power electronic converters are widely used in the electric
power, transportation, industrial, and defense sectors to condition and
control power. Industry experts estimate that more than 20% of all power
generated in the United States goes through power electronic converters and
that this amount will increase with the increased demand for more reliable
power.
Motors and Generators
The market for large electric motors and generators is well-developed and is
characterized by many competitors and intense price competition. We estimate
that the worldwide market for commercial motors (machines with a rating of at
least 1,000 horsepower) is approximately $1 billion per year, and that the
worldwide market for electrical generators (with power ratings over 30
megawatts) is approximately $2 billion per year. Large electric machine
production today is labor intensive, requires a large fixed asset investment
and does not lend itself well to mass production techniques. As a result, many
large motor and generator manufacturers are seeking opportunities to reduce
their manufacturing and/or investment costs to improve profitability.
Our Solutions
Our products, and products sold by electrical equipment manufacturers that
incorporate our products, can address the growing demand for increased power
capacity and reliability. Our products are also intended to enhance the
profitability of businesses that manufacture and sell electrical equipment
such as motors and generators.
HTS Wire for Power Transmission Cables
We believe our core product, HTS wire, which can be used in high-capacity
power cables that are the backbone of the power delivery infrastructure, can
help meet the increasing demand for more electric power. Our currently
available HTS wire has at least 100 times the power capacity of copper wire of
the same dimensions. Because of the high power capacity of our HTS wire,
underground power cables using our HTS wire will contain much less wire, yet
will have the potential to carry two to five times more power than copper-wire
cables of the same dimensions.
HTS cables can provide a variety of advantages over conventional copper
cables. Using HTS cables that are installed in existing conduits, rather than
building additional conduits for more traditional cables, can eliminate
excavation costs and significantly reduce construction and engineering costs,
which typically account for up to 70% of the total system costs for
underground transmission projects in urban systems involving conventional
cables. In addition, using HTS power cables to replace copper cables in
existing power systems would free up underground cable conduits for other
uses, such as telecommunications, high-speed Internet and cable television. We
also believe that the installation of HTS cables in existing urban conduits
will allow the elimination of some substations within cities, potentially
freeing up real estate for other uses. We believe that the advantages of HTS
cables will also be very attractive to businesses that distribute power in
suburban settings, many of which find it increasingly difficult to secure
clearance for overhead power lines.
During the second calendar quarter of 2000, we expect to complete the
manufacture of approximately 18 miles of HTS wire for our strategic alliance
partner, Pirelli, the largest power cable manufacturer in the world. Pirelli
will use this HTS wire to manufacture three 400-foot HTS power cables, which
are targeted to be installed
4
in a Detroit substation in early calendar year 2001 in replacement of nine
copper-wire cables. We believe this will represent the world's first use of
HTS power cables in a power transmission network. These three HTS cables will
carry 100 megawatts of power, the same amount carried by the existing nine
copper-wire cables. The HTS wire in these new cables will weigh approximately
900 pounds, as compared to the approximately 18,000 pounds of copper wire in
the cables they will replace. We also expect to deliver by August 2000 an
additional 10 miles of HTS wire to Pirelli for cable demonstration projects in
Italy and France. Pirelli and American Superconductor are targeting additional
HTS cable demonstrations over the next several years.
Superconducting Magnetic Energy Storage (SMES) Systems
We offer a line of superconducting magnetic energy storage (SMES) products
that can provide solutions for industrial power quality problems faced by
industrial users of power and transmission network power reliability problems
faced by electric utilities. Because the wire in a coil of superconducting
material has no resistance to the passage of electrical current, large amounts
of electricity can be stored in those coils and the stored electricity can be
removed from the coil very rapidly. These features provide the basis for our
line of SMES products, which protect industrial power users from the adverse
effects of momentary drops in voltage in power networks and provide electric
utilities with a means of stabilizing voltage in their power networks by
quickly releasing large quantities of power from a storage coil to restore the
voltage to its normal level. Our SMES products use LTS electromagnets combined
with power semiconductor devices. We have also incorporated HTS wire--rather
than copper wire--into our SMES products to carry power in and out of the LTS
storage coils, which has significantly reduced the cost of manufacture and the
electrical operating costs of our SMES products.
Our SMES power quality products are currently employed by industrial users
of power to prevent motors and sensitive electronic devices from being
disrupted by momentary dips in voltage that occur in power distribution
networks, thereby saving companies the associated cost of factory downtime,
damaged equipment and lost productivity. Industry sources estimate that more
than 80% of these disruptions to industrial operations are caused by voltage
sags that last less than two seconds. Our SMES products, with their large
energy storage capacities and fast recharging capabilities, can provide a
solution to momentary aberrations in power quality. We are also selling our
SMES systems to electric utilities. We believe our SMES products can provide
utilities with more effective, lower cost and quicker solutions for problems
of voltage instability and low voltage in large-scale transmission networks.
We offer two SMES product lines:
. Power Quality SMES, known as PQ-SMES, addresses power quality problems
faced by industrial users of electricity.
. Distributed-SMES, known as D-SMES, addresses power reliability problems
in power delivery networks.
Our PQ-SMES systems are typically installed at industrial and manufacturing
sites with electrical loads greater than three megawatts. As of March 31,
2000, we had 10 SMES units in use by customers requiring high-quality power to
maintain sensitive industrial processes in industries including paper,
plastics and automotive parts manufacturing, and to maintain critical
information processing, military and research applications. These 10 units
have in excess of 37 years of cumulative field operation. We have also
received orders for installation of four additional PQ-SMES units at two
semiconductor production sites and a utility.
In February 1999, we introduced our D-SMES product, which solves voltage
stability and low voltage problems in large-scale transmission networks. D-
SMES systems are based on the same building blocks used to manufacture PQ-SMES
products and, like PQ-SMES products, are housed in easy-to-install 48-foot
trailer units. D-SMES systems consist of one or more SMES units installed at
substations throughout a power transmission network, and these units may be
easily moved to different locations within the network as needs change. We
believe that the application of SMES technology to the problem of power
network reliability represents a significant growth opportunity for our
superconductor technology. Through March 31, 2000, we have received
5
orders for eight D-SMES units. We expect that the first installation of our D-
SMES product will be comprised of six units in a utility transmission network
and will be completed by July 2000, consistent with the customer's schedule.
These units are subject to a buy-back provision and therefore revenue will
only be recognized as this buy-back provision expires. We do not anticipate
including buy-back provisions in future D-SMES sales transactions.
Power Converters
Utilities have historically relied on slow electromechanical switches and
passive devices, such as capacitors and tap changing transformers, to manage
the power grid. However, digital age demand for higher reliability and quality
of power calls for greater levels of performance through faster switching
devices and active grid management. Power electronic devices--power
semiconductor devices that switch, control and move large amounts of power
faster and with far less disruption than electromechanical switches--are
essential to active grid management. We have leading-edge expertise in this
area based on our years of experience with power electronics applications for
our SMES product line, which incorporates both superconductor and power
semiconductor technologies. The power electronic converters utilized in our
SMES product line convert the electrical energy stored in the superconducting
electromagnets in the form of direct current into controlled alternating
current power. This type of converter is called an inverter.
HTS Wire and Coils for Motors and Generators
Superconducting motors and generators are new types of rotating machines
that employ HTS windings in place of conventional copper coils. Because HTS
wire can carry significantly larger currents than copper wire, these windings
are capable of generating significantly more powerful magnetic fields in a
given volume. Advances in coil design make it possible for superconducting
motors and generators to match the power output of equally rated conventional
machines with as little as one-fifth the size and weight. The smaller size and
compact nature of superconducting machines allows them to be manufactured at
lower cost than equivalent conventional motors and generators.
HTS motors are potentially useful in applications such as pumps, fans,
compressors, blowers, and belt drives deployed by utility and industrial
customers, particularly those requiring continuous operation. They will be
also be potentially suitable for large process industries such as steel mills,
pulp and paper processing, chemical, oil and gas refining, mining and other
heavy-duty applications. Additional potential uses for HTS motors are
transportation applications, particularly naval and commercial ship
propulsion, where size and weight savings could provide a key benefit by
increasing design flexibility and opening up limited space for other uses.
HTS motors and generators will potentially offer an attractive economic
alternative to conventional motors by virtue of their lower first
(acquisition) cost and their reduced ongoing (operating) cost.
We are developing and manufacturing HTS wire and coils for large industrial
motors with a power rating of over 1,000 horsepower. These motors currently
use approximately 25% of all electricity generated in the United States. We
are also developing HTS coils for use in electric generators. We believe HTS-
based motors and generators will be significantly smaller, lighter, more
efficient, and less expensive to manufacture and operate than conventional
motors and generators. We formed our Electric Motors and Generators Business
Unit in November 1999 to focus on commercializing HTS motor and generator
technology.
HTS technology will initially be applied to industrial motors that have
power ratings of 1,000 horsepower or greater. We are working with Rockwell
Automation Power Systems, an operating unit of Rockwell International
Corporation, to jointly develop a 1,000 horsepower demonstration motor as part
of a government-sponsored program. Our role is primarily to supply HTS coils
and refrigeration systems for use in the demonstration motor. In 1999 we
manufactured and delivered to Rockwell rotor coils for use in the first 1,000
6
horsepower HTS demonstration motor. This motor is currently undergoing
testing, and we expect that this motor will be operational in the third
calendar quarter of 2000. Rockwell Automation Power Systems sells large
industrial electric motors under the Reliance Electric brand name.
Utilizing our 10 years of design and development experience in the area of
HTS industrial machines, we have created proprietary designs for HTS motors
and generators that we expect will significantly reduce the cost of
manufacturing this equipment. Our large HTS motors and generators currently
under design are as small as one-fifth the size of a conventional machine of
the same power rating, and should operate at higher efficiency. We currently
intend to team with one or more motor and generator manufacturers to form a
joint venture for manufacturing and marketing HTS motors and generators. If we
are successful in establishing such a joint venture, we intend to sell HTS
components and systems to the joint venture.
In June 1999, we were awarded a contract by the U.S. Office of Naval
Research to design a 25 megawatt (33,500 horsepower) HTS motor for ship
propulsion. We believe that ship propulsion, both for Navy and commercial
maritime applications, represents an attractive market for HTS motors and
generators.
HTS Wire and Cables for Transformers and Other HTS Products
Utilities and industrial power customers use transformers to increase and
decrease voltage levels. We intend to make HTS wire and cables specifically
for use in transformers. We believe that HTS transformers will offer a number
of improved features compared to conventional transformers, as well as
entirely new functionality with important utility systems benefits such as
improved voltage regulation. HTS wire for transformers would be designed to
provide fault current limiting functionality, which instantaneously protects a
power network from electrical surges caused by events such as lightning. We
expect that HTS transformers will be approximately half the size and weight of
conventional transformers, which would increase existing substation capacity,
reduce land area needed for new substations, and greatly relieve
transportation challenges currently faced by electric utilities. HTS
transformers would use liquid nitrogen, which is less expensive than oil, is
non-flammable, and poses fewer environmental risks than the oil surrounding
copper coils in conventional transformers.
A funded research and development program between us, ABB Power Transmission
and Distribution Company ("ABB"), the world's leading manufacturer of
transformers, and Electricite de France ("EDF"), one of the world's largest
electric utilities, to develop first-generation wire for transformer
applications was terminated in April 2000. The parties intend to continue
joint evaluation of our HTS technologies for use in transformers on a non-
funded basis.
We also sell HTS current leads--which are conductors that carry electric
current but minimal heat into ultra-low temperature environments--to a variety
of customers including MRI manufacturers and particle accelerator
laboratories.
Cooling Systems
We are designing and fabricating cooling systems to support our
superconducting products, which will operate only if the wire or coils are
cooled below their critical temperature. Our HTS materials, which maintain
their superconductivity at higher temperatures than LTS materials, are cooled
with liquid nitrogen or with special refrigerators known as cryocoolers. In
particular, the HTS wire used to manufacture HTS power cables is typically
cooled by flowing liquid nitrogen, a non-toxic liquid, through the hollow core
of the cables. In contrast to oil, which is typically used to dissipate the
heat generated by running an electrical current through copper wires or is
used as an electrical insulating medium in some cables and most large
transformers, the liquid nitrogen used to cool our HTS wire is non-flammable
and presents fewer environmental hazards than those associated with the use of
oil. Liquid nitrogen is also significantly less expensive than oil.
Our LTS materials require cooling to lower temperatures than HTS materials.
Liquid helium combined with cryogenic, or very low temperature, refrigerators
is used to cool the magnetic coils in our SMES products.
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Strategic Relationships, Research Arrangements and Government Contracts
We have a number of strategic relationships, research arrangements and
government contracts. Our most significant strategic corporate agreements are
with Pirelli, GE Industrial Systems ("GE"), and EDF. We believe strategic
relationships, research arrangements and government contracts provide us with
the following important benefits:
. Several of our strategic partners will be critical in developing and
demonstrating commercial applications for our HTS and SMES products.
. Several of these relationships, particularly those with Pirelli and GE,
provide a potentially large channel to market.
. Various parties to these arrangements provide us with critical funding.
From inception through March 31, 2000, we received approximately $61
million of funding under research and development contracts.
Approximately 67% of this funding came from the private sector, with the
balance from government agencies.
. They provide us with development and marketing rights to important
technologies.
. They assist us in meeting benchmarks.
The Pirelli alliance was originally established in February 1990 and has
encompassed a series of different agreements intended to combine Pirelli's
cable technology, manufacturing and marketing expertise with our proprietary
wire-manufacturing technologies for the purpose of developing and producing
HTS wire for cables. The Pirelli agreements contain provisions governing the
manufacture, sale and use of our HTS cable wire in cables used to transmit
both electric power and control signals. In general, Pirelli is obligated to
buy this HTS wire exclusively from us or to pay us royalties for any of the
wire it manufactures, and we are obligated to sell this cable wire exclusively
to Pirelli, for use in these applications anywhere in the world other than
Japan. We have exclusive manufacturing rights for this wire in North America
for these applications, and Pirelli may obtain manufacturing rights in Europe
and other parts of the world, subject to the payment of royalties to us. The
terms of the current agreement relating to joint development activities for
this HTS wire expired on September 30, 1999. Pirelli provided us with a total
of $16.1 million in development funding through September 30, 1999. We signed
a new development agreement with Pirelli on December 15, 1999, under which
Pirelli has agreed to provide us with up to $13.8 million in additional
funding over the five-year period from October 1, 1999 through September 30,
2004. Portions of this contract are subject to cancellation provisions. This
new agreement focuses on the development of the second-generation HTS wire as
well as further improvements to our currently available HTS wire.
In April 2000, we entered into a marketing and sales alliance with GE
Industrial Systems giving GE the exclusive right to offer our D-SMES product
line in the United States to utilities and the right to sell PQ-SMES systems
to certain of GE's global industrial accounts. We and GE recently began
marketing a co-branded SMES product offering.
The EDF relationship was established in April 1997. It involves:
. the exchange of information relating to developments in HTS technology
and related fields and trends in the electricity industry;
. the review of technical, industrial and commercial topics through an
advisory board comprising representatives from both parties.
As part of the EDF alliance, in 1997 a subsidiary of EDF purchased 1.0
million shares of our common stock for $10.0 million. EDF's subsidiary
currently owns 1.15 million shares of common stock, representing approximately
5.8% of our outstanding common stock. In 1998, EDF agreed to pay us an
aggregate of $5.0 million between 1997 and 2001 as development fees for the
HTS transformer wire program; $4.5 million had been recorded as revenue as of
March 31, 2000. The remaining funding commitment was terminated in April 2000.
The parties intend to continue joint evaluation of our HTS technologies for
use in transformers on a non-funded basis.
8
We had a relationship with ABB that was designed to combine ABB's
transformer technology, manufacturing and marketing expertise with our
proprietary HTS wire technologies for the purpose of developing and producing
special HTS wire and cables for transformers. In 1998, ABB agreed to pay us an
aggregate of $5.0 million between 1997 and 2001 as development fees for the
HTS transformer wire program; $4.4 million had been recorded as revenue as of
March 31, 2000. The remaining funding commitment was terminated in April 2000.
The parties intend to continue joint evaluation of our HTS technologies for
use in transformers on a non-funded basis.
We have also established a number of collaborative research relationships
with organizations such as Industrial Research, Ltd. in New Zealand, several
U.S. Department of Energy laboratories, the University of Wisconsin Applied
Superconductivity Center, MIT and EPRI. We are also party to a number of
government contracts, with entities such as Wright-Patterson Air Force Base
and the U.S. Department of Energy through its Superconductivity Partnership
Initiative, relating to the development and supply of prototype products.
Superconductivity
A superconductor is a perfect conductor of electricity. It carries direct
current with 100% efficiency because no energy is dissipated by resistive
heating. Direct current in a superconducting loop can flow undiminished
forever. Superconductors can also conduct alternating current but with some
slight loss of energy.
Superconducting materials lose all resistance to the flow of direct
electrical current and nearly all resistance to the flow of alternating
electrical current when they are cooled below a critical temperature. The
critical temperature is different for each superconducting material.
Superconducting materials known today, including both HTS materials and LTS
materials, need to be cooled to very low temperatures to act as
superconductors.
The graph below illustrates the complete loss of resistance to the flow of
electricity through wire of an LTS material (niobium-titanium alloy) and an
HTS material (bismuth-based, copper oxide ceramic) at their critical
temperature. The HTS material in this chart has no electrical resistance below
108 Kelvin (-265 degrees Fahrenheit). The LTS material in this chart has no
electrical resistance below 10 Kelvin (-441 degrees Fahrenheit).
[Logo Here]
A combination of three conditions must be met for a material to exhibit
superconducting behavior:
. The material must be cooled below its critical temperature (Tc).
. The current passing through a cross-section of the material must be below
a level known as the critical current density (Jc).
9
. The magnetic field to which the material is exposed must be below a value
known as the critical magnetic field (Hc).
The initial discovery of superconducting materials was made in 1911. Before
1986, no known superconductor had a critical temperature above 23 Kelvin. Zero
Kelvin is the absolute zero of temperature, and is the equivalent of -459
degrees Fahrenheit; 23 Kelvin is the equivalent of -418 degrees Fahrenheit.
Although it is possible to cool LTS materials to their critical temperature,
that cooling process is expensive and often difficult, which limits the
commercial applications of LTS technology.
In 1986, a breakthrough in superconductivity occurred when two scientists,
Dr. K. Alex Muller and Dr. J. Georg Bednorz, at an IBM laboratory in Zurich,
Switzerland, identified a ceramic oxide compound, an HTS material, which was
shown to be superconductive at 36 Kelvin (-395 degrees Fahrenheit). This
discovery earned them the Nobel Prize for Physics in 1987, which is one of the
four Nobel Prizes that have been awarded for work on superconductivity. A
series of related ceramic oxide compounds that have higher critical
temperatures have been subsequently discovered.
Status of Our HTS Wire Development
We have been successful in developing and producing HTS wire with
performance levels sufficient to meet the technical needs for applications
such as cables for urban power transmission systems and very high horsepower
motors such as motors with power ratings over 5,000 horsepower. We believe
that the electrical and mechanical properties of this wire, including its
ability to withstand forces of tension, compression and bending during device
manufacturing and operation, are also adequate for present applications.
Although we have made rapid progress recently in improving the performance
levels of our HTS wire, the commercial viability of applications for this wire
still needs to be established through demonstrations. We will also need to:
. successfully address the manufacturing engineering challenges necessary
to apply our manufacturing techniques to the production of HTS wires in
longer lengths and in greater quantities;
. increase our manufacturing capacity for HTS wire; and
. reduce the manufacturing costs for our HTS wire.
We believe that several years of further development and demonstration of
HTS applications will be necessary before HTS products are widely accepted on
a commercial basis. We also believe that several years of further operation in
a scaled-up manufacturing environment will be necessary before HTS wire costs
decrease to the levels required for our wire to achieve broader market
penetration.
HTS Wire Production Techniques
We produce HTS wire by a variety of techniques. Our principal technique
involves deformation processing, which is in some respects closely analogous
to the technique used in the existing metal wire industry. In this approach, a
metal tube, typically silver, is packed with an oxide precursor powder and
sealed. The tube is then deformed into a wire shape by a variety of
deformation processing techniques such as extrusion, wire-drawing,
multifilamentary bundling, and rolling. Finally, the wire is heat-treated to
transform the precursor powder inside the wire into a high-temperature
superconductor. We consider the resulting composite structure, in this case
consisting of many fine superconducting filaments imbedded in a metal matrix,
to be one preferred method of achieving flexibility and durability in our wire
and wire products. The multifilamentary composite structure is the subject of
a patent owned by MIT, based on an invention by Dr. Gregory Yurek, our
Chairman of the Board, President and Chief Executive Officer and founder, and
a former professor at MIT, and Dr. John Vander Sande, a professor at MIT and a
member of our Board of Directors. This patent is licensed to us on an
exclusive basis until 2010.
10
We also recently introduced new features to enhance the performance of our
multifilamentary composite wire. For example, we have added oxide particles to
the silver metal to enhance its strength. We also laminate thin layers of
stainless steel or other metal on the faces of the HTS tape-shaped wire, which
further strengthens and protects the wire.
Within the past few years, very high levels of current carrying performance
have been reported in small laboratory samples of HTS coated conductor wire.
Coated conductor wire is made of a thick film of HTS material deposited on a
flexible base, typically with a buffer layer in between. We have studied
several HTS coated conductor processes and believe that these processes have
the potential for use in manufacturing the next generation of HTS wire with
high current-carrying capacity and lower cost than multifilamentary composite
wire. We are pursuing the development of these processes with a significant
internal program. We are also collaborating with EPRI, Los Alamos National
Laboratory, Oak Ridge National Laboratory, MIT and other organizations in the
research and development of this technology. We have fabricated coated
conductor wire samples at high-performance levels. However, to date, these
have been short lengths of wire and there can be no assurance that we will
succeed in developing this technology for commercial use.
Manufacturing
We produce our HTS wire at our 102,000 square-foot Westborough,
Massachusetts, headquarters facility, where we currently manufacture HTS wire
at the rate of 300 miles per year. In Westborough, we have implemented
statistical process control techniques and have defined manufacturing
procedures for low-cost, reliable manufacturing operations. Based on our
business development plan, we expect that the existing facility will provide
sufficient wire manufacturing capacity to support our needs through December
2001.
We announced plans in May 2000 to build a 355,000 square foot facility
exclusively dedicated to HTS wire manufacturing at the Devens Commerce Center
in Devens, Massachusetts. We expect to occupy the building and begin training
new employees in the summer of 2001. Full production is expected to begin in
early 2002. We plan to use a portion of the net proceeds from our March 2000
stock offering to buy land, construct a building, and purchase equipment for
the new facility. We plan to use this new facility to expand our HTS wire
production to meet our goal of producing thousands of miles of HTS wire per
year to meet expected demand for applications such as power transmission
cables, motors and generators.
We manufacture our commercial SMES systems at our 60,000 square-foot
manufacturing facility in Middleton, Wisconsin. We assemble our SMES systems
by combining components purchased from other parties with our proprietary LTS
and HTS components, which we manufacture ourselves. We have developed
manufacturing infrastructure including discrete work centers to support our
current production, assembly and testing capacity of 48 SMES systems per year.
We expect to lease additional manufacturing space for our SMES operations
within the next year, and we plan to use a portion of the net proceeds of this
offering to purchase leasehold improvements and equipment for that new
facility.
Sales and Marketing
We plan to sell our HTS wire and wire products through both a direct sales
force and through marketing and distribution alliances with third parties. We
are building a direct sales organization that can effectively demonstrate the
advantages of our products over both more traditional products and competitive
superconducting products.
We expect to leverage the technical knowledge of our sales force with the
strengths of our strategic alliance partners in understanding customer needs
and creating market demand for new electrical products based on our HTS and
SMES products. These partners include:
11
. Pirelli, the world's largest producer of power cables;
. GE Industrial Systems, a global leader in manufacturing products used to
distribute, protect and control electrical power and equipment;
. Rockwell, a leading manufacturer of large industrial motors; and
. EDF, one of the world's largest electric utilities.
We also expect to enter into arrangements with other third parties for the
marketing and distribution of our HTS products, including arrangements with
original equipment manufacturers, commonly known as OEMs, in which our
products--particularly coils of HTS wire--are included as a component of a
larger product--such as a motor or generator.
We are developing several sales and distribution channels for our SMES
products, including a direct sales organization, distributors and OEMs. We
have distribution agreements with utility companies in North America, Europe
and South Africa. We and GE recently began marketing a co-branded SMES product
offering. We are also developing several sales and distribution channels for
our power converter products, including a direct sales organization,
distributors and OEMs.
We have recently added experienced transmission network planners to provide
marketing and sales support for our D-SMES product, which was introduced in
February 1999. These individuals, who are experienced in the analysis and
design of transmission and distribution networks, will help prospective
customers to develop familiarity with our new technology and to assess the
beneficial impact D-SMES can provide in the operation of their network
systems. We plan to continue to build system planning expertise to accelerate
sales growth and add a portfolio of value-added services for our utility
customers.
Competition
As we begin to market and sell our superconducting products, we will face
intense competition both from vendors of traditional products and from
competitors in the superconducting field. There are a number of companies in
the United States, Europe, Japan and Australia engaged in the development of
HTS products. For HTS wire and applications, our principal competitors
presently include:
. several Japanese companies, such as Sumitomo Electric Industries,
Hitachi, Furukawa Electric Co. and Fujikura;
. several European companies, such as Siemens AG and Vacuumschmelze GmbH in
Germany, Nordic Superconductor Technologies in Denmark, Alcatel in
France, and B.I.C.C. and Oxford Instruments in England; and
. several companies in the U.S., such as 3M, Intermagnetics General and
EURUS Technologies.
Each of these companies is devoting significant efforts to the development
of flexible, long-length HTS wire. Most of these companies, as well as others
such as Toshiba, are also developing HTS magnets and/or systems.
We do not know of any companies currently selling low-temperature SMES
products that compete with our SMES products. However, there is a government-
sponsored program in Japan to develop SMES systems for power quality
applications. ACCEL Instruments GmbH in Germany is also exploring this
technology. Our SMES products also compete against:
. dynamic voltage restorers produced by companies such as Siemens;
. flywheels under development by various companies around the world;
. static VAR compensators; and
. battery-based, uninterruptible power supply systems, which are widely
manufactured and used around the world.
12
Many of our competitors have substantially greater financial resources,
research and development, manufacturing and marketing capabilities than we do.
In addition, as the HTS market and the power quality and reliability market
develop, other large industrial companies may enter these fields and compete
with us.
Patents, Licenses and Trade Secrets
HTS Patent Background
Since the discovery of high temperature superconductors in 1986, the HTS
industry has been characterized by rapid technical advances, which in turn
have resulted in a large number of patents--including overlapping patents--
relating to superconductivity being applied for and granted worldwide. As a
result, the patent situation in the field of HTS technology and products is
unusually complex.
An important part of our business strategy is to develop a strong patent
position in both the HTS area and the SMES area. Our patent portfolio
comprises both patents we own and patents we license from others. We devote
substantial resources to building a strong patent position and we believe that
we have significantly strengthened our position in the past several years. As
of March 31, 2000, we owned (either alone or jointly) over 55 U.S. patents--as
compared to 29 as of March 31, 1998--and had over 85 U.S. patent applications
(jointly or solely owned) on file. We also held licenses from third parties
covering over 50 issued U.S. patents and over 20 U.S. patent applications. We
believe that our current patent position, together with our expected ability
to obtain licenses from other parties to the extent necessary, provide us with
sufficient proprietary rights to enable us to develop and sell HTS and SMES
products in the manner contemplated by this prospectus. However, for the
reasons described below, there can be no assurance that this will be the case.
Despite the strength of our patent position, a number of U.S. and foreign
patents and patent applications of third parties relate to our current
products, to products we are currently developing, or to technology we are now
using in the development or production of our products. We may need to acquire
licenses to those patents, or to successfully contest the scope or validity of
those patents, or to design around patented processes or applications.
If companies holding patents or patent applications that we need to license
are competitors of ours, we believe the strength of our patent portfolio will
significantly improve our ability to enter into license or cross-license
arrangements with these companies. However, there can be no assurance that we
will be able to obtain all necessary licenses from competitors on commercially
reasonable terms, or at all.
We may be required to obtain licenses to some patents and patent
applications held by companies or other institutions, such as national
laboratories or universities, which are not directly competing with us. Those
organizations may not be interested in cross-licensing or, if willing to grant
licenses, may charge higher royalties. We have successfully obtained licenses
from a number of such organizations, including Lucent Technologies, Superlink
of New Zealand, Oak Ridge National Laboratories, and MIT, with royalties we
consider reasonable. Based on our past experience, we are optimistic that we
will be able to obtain any other necessary licenses on commercially reasonable
terms. However, there can be no assurance that we will be able to do so.
If we are unable to obtain all necessary licenses upon reasonable terms,
that could significantly reduce the scope of our business and have a material
adverse effect on our results of operations. We do not now know the likelihood
of successfully contesting the scope or validity of patents held by others. In
any event, we could incur substantial costs in challenging the patents of
other companies. Moreover, the nature of HTS patents is such that third
parties are likely to challenge some of our patents or patent applications,
and we could incur substantial costs in defending the scope and validity of
our own patents or patent applications whether or not a challenge is
ultimately successful.
The sections which follow give more detailed information on the different
areas related to designing and manufacturing superconducting products:
13
. the choice of materials used to make HTS products;
. the wire processing methods to be applied to those materials and the wire
architecture;
. the components or subsystems to be fabricated and the fabrication methods
to be used; and
. SMES systems.
Choice of HTS Materials
At any given time, we will have a preference for using one or a few specific
HTS materials in the production of our products. Any HTS material we use is
likely to be covered by one or more patents or patent applications held by
other parties.
We have obtained licenses to patents and patent applications covering some
HTS materials, including an exclusive license from Superlink and a non-
exclusive license from Lucent Technologies. However, we may have to obtain
additional licenses to HTS materials.
HTS Wire Processing and Wire Architecture
We are concentrating on two main methods for processing HTS materials into
wire. One produces multifilamentary composite wire, and the other produces
coated conductor wire architecture. Our strategy is to obtain a proprietary
position in each of these methodologies through a combination of patents,
licensing and proprietary know-how. If alternative processes become more
promising in the future, we will also seek to develop a proprietary position
in these alternative processes.
We have filed a number of patent applications that are applicable to
multifilamentary and coated conductor wire architecture. Some of these
applications have been issued as patents in the United States and abroad,
while others are pending. We have acquired an exclusive license from MIT and a
nonexclusive license from Oak Ridge National Laboratories to intellectual
property relating to coated conductors, and a non-exclusive license from
Lucent Technologies relating to the production of multifilamentary composite
wire. We also have acquired certain intellectual property rights in the coated
conductor area through our collaboration with EPRI.
We have an exclusive license from MIT under an issued U.S. patent that
covers the architecture of multifilamentary composite wire, specifically the
composite of HTS ceramics and noble metals such as silver. We have also filed
for patents on laminate structures for this wire and on new architectures for
coated conductor wire.
A number of other companies have also filed patent applications, and in some
instances have been issued patents, on various aspects of wire processing and
wire architecture. To the extent that any of these issued or pending patents
might cover the wire processing methodologies or wire architectures we use, we
may be required to obtain licenses under those patents.
HTS Component and Subsystem Fabrication Patents; HTS Application Patents
We have received several patents and filed a significant number of
additional patent applications regarding:
. the design and fabrication of electromagnetic coils and electromagnets;
. the integration of these products with an appropriate coolant or
cryocooler;
. the application of these products to specific end uses; and
. HTS motor and generator designs.
Since the HTS motor and generator field is relatively new, we believe we are
building a particularly strong patent position in this area. A number of other
companies have also filed, and in some instances have received, patents on
various applications of HTS wire and component and subsystem fabrication
methods. If any existing or future patents cover any of these aspects of our
operations, we may be required to obtain licenses under those patents.
14
SMES Systems
We have received several patents and filed a significant number of
additional patent applications on power quality and reliability systems,
including the distributed SMES concept. We have acquired a nonexclusive
license from Argonne National Laboratory on a cryogenic connector for SMES
applications. We believe we have a strong patent position in the SMES area.
Trade Secrets
Some of the important technology used in our operations and products is not
covered by any patent or patent application owned by or licensed to us.
However, we take steps to maintain the confidentiality of this technology by
requiring all employees and all consultants to sign confidentiality agreements
and limiting access to confidential information. However, no assurance can be
given that these measures will prevent the unauthorized disclosure or use of
that information. In addition, there is no assurance that others, including
our competitors, will not independently develop the same or comparable
technology.
Employees
As of March 31, 2000, we employed a total of 284 persons, 26 of whom have
Ph.D's in material science, physics or related fields. None of our employees
are represented by a labor union. We believe that our employee relations are
good.
Research and Development
The Company's research and development expenses in fiscal 2000 were
approximately $13,206,000. Adjusted research and development expenses, which
consist of company-funded research and development expenses plus research and
development expenses related to externally-funded development contracts
included in costs of revenue and research and development expenses offset by
cost-sharing funding under government contracts, were $22,632,000 in fiscal
2000.
Item 2. Properties
Our operations are located in approximately 102,000 square feet of space in
Westborough, Massachusetts, and approximately 60,000 square feet of space in
Middleton, Wisconsin. We occupy our Westborough facility under a lease which
expires on May 31, 2003, and we have an option to extend the lease for an
additional five-year term. We occupy the Middleton facilities under two leases
which expire on December 31, 2003. We also lease an 8,100 square foot facility
in Milwaukee, Wisconsin through our acquisition of IE. We announced plans in
May 2000 to build a 355,000 square foot facility exclusively dedicated to HTS
wire manufacturing at the Devens Commerce Center in Devens, Massachusetts. We
expect to occupy the building and begin training new employees in the summer
of 2001. Full production is expected to begin in early 2002.
Item 3. Legal Proceedings
We are not involved in any legal proceedings other than routine litigation
incidental to our business which we do not consider material.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matters were submitted to a vote of the Company's security-holders during
the fourth quarter of the fiscal year ended March 31, 2000.
15
MANAGEMENT
The tables and biographical summaries set forth below contain certain
information with respect to our executive officers:
Name Age Position
---- --- --------
Gregory J. Yurek...... 53 President, Chief Executive Officer and Chairman of
the Board of Directors
Roland E. Lefebvre.... 50 Executive Vice President and Chief Operating
Officer
Alexis P. Malozemoff.. 56 Senior Vice President and Chief Technical Officer
Stanley D. Piekos..... 52 Vice President, Corporate Development, Chief
Financial Officer, Treasurer and Secretary
Ross S. Gibson........ 41 Vice President, Chief Resources Officer
John B. Howe.......... 43 Vice President, Electric Industry Affairs
Thomas M. Rosa........ 47 Chief Accounting Officer, Corporate Controller and
Assistant Secretary
Gregory J. Yurek co-founded American Superconductor in 1987 and has been
President since March 1989, Chief Executive Officer since December 1989 and
Chairman of the Board of Directors since October 1991. Dr. Yurek also served
as Vice President and Chief Technical Officer from August 1988 until March
1989 and as Chief Operating Officer from March 1989 until December 1989. Prior
to joining American Superconductor, Dr. Yurek was a Professor of Materials
Science and Engineering at MIT for 13 years. Dr. Yurek has been a director of
American Superconductor since 1987.
Roland E. Lefebvre joined American Superconductor in May 1996 as our Vice
President, Sales and Marketing and was elected our Executive Vice President
and Chief Operating Officer in May 1998. Prior to joining American
Superconductor, Mr. Lefebvre spent 23 years at General Electric Company in a
variety of positions, most recently as General Manager, National Account
Sales.
Alexis P. Malozemoff joined American Superconductor as our Vice President,
Research and Development in January 1991 and was elected our Chief Technical
Officer in January 1993 and Senior Vice President in May 1998. Prior to
joining American Superconductor, Dr. Malozemoff spent 19 years at IBM in a
variety of research and management positions, most recently as IBM Research
Coordinator for High Temperature Superconductivity.
Stanley D. Piekos joined American Superconductor in February 1998 as our
Chief Financial Officer, Vice President, Corporate Development, Treasurer and
Secretary. From June 1994 until February 1998, Mr. Piekos served as Vice
President and Chief Financial Officer of Brooks Automation, Inc., a supplier
of robotics and controls to the semiconductor production equipment industry.
For the nine years prior to June 1994, Mr. Piekos was employed by Helix
Technology Corporation, a manufacturer of cryogenic equipment, most recently
as Vice President and Chief Financial Officer. During his first fifteen years
in business, Mr. Piekos held a variety of positions in financial management
and marketing with W.R. Grace & Co., a global manufacturer of specialty
chemicals and industrial equipment.
Ross S. Gibson joined American Superconductor as our Vice President, Human
Resources in July 1997 and was elected our Chief Resources Officer in April
2000. From April 1992 until June 1997, Mr. Gibson served in a variety of
positions at Cambridge Neuroscience, Inc., most recently as Vice President,
Human Resources and Administration and Chief Administrative Officer.
Mr. Gibson has also held positions at Lifeline Systems, Lotus Development and
General Motors.
John B. Howe joined American Superconductor in November 1997 as our
Director, Electric Industry Affairs and was elected our Vice President,
Electric Industry Affairs in May 1998. From November 1995 until September
1997, Mr. Howe was Chairman of the Massachusetts Department of Public
Utilities. For the five and one-half years prior to November 1995, Mr. Howe
served in various positions, most recently as Vice President, Regulatory and
Government Affairs, for U.S. Generating Company.
16
Thomas M. Rosa joined American Superconductor in October 1992 as our
Corporate Controller and was elected our Chief Accounting Officer and
Assistant Secretary in July 1998. Prior to joining American Superconductor,
Mr. Rosa spent 10 years in a variety of financial management positions at
Prime Computer, Wang Laboratories and Lockheed Sanders, most recently as
Division Controller at Prime Computer.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "AMSC" since 1991. The following table sets forth the high
and low price per share of the Company's Common Stock as reported on the
Nasdaq National Market for the two most recent fiscal years:
Common
Stock
Price
-------------
High Low
---- ---
Fiscal year ended March 31, 1999:
First quarter....................................... 18 1/4 11 1/2
Second quarter...................................... 13 5/8 6 3/8
Third quarter....................................... 12 1/8 6 1/8
Fourth quarter...................................... 14 5/8 8 3/8
Fiscal year ended March 31, 2000:
First quarter....................................... 15 11/16 8 1/2
Second quarter...................................... 16 3/4 11 13/16
Third quarter....................................... 28 7/8 15 1/2
Fourth quarter...................................... 75 1/8 25/3///16/
The number of shareholders of record on June 2, 2000 was 403.
Item 6. Selected Financial Data.
The selected consolidated financial data presented below for the fiscal
years ended March 31, 2000, 1999 and 1998 have been derived from the Company's
consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial data for
each of the two fiscal years in the period ended March 31, 1997 have been
derived from the combination of the Company's consolidated financial
statements that have been audited by PricewaterhouseCoopers LLP, independent
accountants, and the SI financial statements that have been audited by other
independent accountants. In addition, the combination of the separate audited
financial statements of the Company and SI for the two fiscal years in the
period ended March 31, 1997 has been audited by PricewaterhouseCoopers LLP.
This financial data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and the other financial information
appearing elsewhere in this Annual Report on Form 10-K.
Year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- ------
(In thousands, except per share data)
Revenues.......................... 15,113 11,257 15,129 10,551 10,764
Net loss.......................... (17,598) (15,326) (12,378) (13,337) (9,698)
Net loss per share................ (1.11) (1.01) (1.06) (1.27) (0.94)
Total assets...................... 248,914 48,130 19,551 26,581 35,856
Working capital................... 137,581 30,459 5,059 318 5,101
Cash, cash equivalents and long-
term marketable securities....... 218,655 31,572 8,009 16,031 26,519
Stockholders' equity.............. 240,944 43,958 12,859 16,501 29,780
17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item is attached as Appendix A hereto and
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk through derivative financial
instruments and other financial instruments, such as investments in short-term
marketable securities and long-term debt, is not material.
Item 8. Financial Statements and Supplementary Data.
All financial statements required to be filed hereunder are filed as
Appendix B hereto, are listed under Item 14(a), and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I of this Annual Report on Form 10-K, and in
part in the Company's Proxy Statement for the Annual Meeting of Stockholders
for the fiscal year ended March 31, 2000 (the "2000 Proxy Statement") in the
sections "Election of Directors--Nominees," and "Other Matters--Section 16
Beneficial Ownership Reporting Compliance," which sections are incorporated
herein by reference.
Item 11. Executive Compensation.
The response to this item is contained in the 2000 Proxy Statement in the
sections "Election of Directors--Directors' Compensation," "--Executive
Compensation," "--Employment Agreements with Senior Executives," and "--
Compensation Committee Interlocks and Insider Participation," which sections
are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this item is contained in the 2000 Proxy Statement in the
section "Beneficial Ownership of Common Stock," which section is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
The response to this item is contained in the 2000 Proxy Statement in the
section "Election of Directors--Certain Business Relationships," which section
is incorporated herein by reference.
18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as Appendix B hereto and are included as
part of this Annual Report on Form 10-K:
Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
The Company is not filing any financial statement schedules as part of this
Annual Report on Form 10-K because they are not applicable or the required
information is included in the financial statements or notes thereto.
(b)Reports on Form 8-K.
The Company filed a report on Form 8-K on January 24, 2000 to request
confidential treatment with respect to certain portions related to the 1999
Program Addendum between Pirelli Cavi e Sistemi S.p.A and American
Superconductor Corporation dated as of October 1, 1999. No other reports on
Form 8-K were filed during the last quarter of the Company's fiscal year ended
March 31, 2000.
(c) The list of Exhibits filed as a part of this Annual Report on Form 10-K is
set forth on the Exhibit Index immediately preceding such Exhibits, and is
incorporated herein by reference.
19
Appendix A
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
American Superconductor Corporation was founded in 1987. We are focused on
developing and commercializing high temperature superconducting ("HTS") wires
and wire products. In the area of power quality and reliability, we are
focused on marketing and selling commercial low temperature superconducting
("LTS") magnetic energy storage ("SMES") devices incorporating low cost, high
performance power electronics.
On April 8, 1997, we acquired Superconductivity, Inc. ("SI"), which is now
being operated as our SMES business unit, in a transaction accounted for under
the pooling of interests method of accounting. Accordingly, our consolidated
financial statements reflect the combined financial operating results and cash
flows of both companies as if they had been combined for all periods
presented.
We derive our revenues from contracts to perform research and development,
product sales, prototype development contracts, and the monthly fees that we
charge customers to rent equipment. We recognize revenues from our research
and development and prototype development contracts based on the percentage of
completion method measured by the relationship of costs incurred to total
contract costs. We recognize revenues from product sales upon shipment, or for
some programs, on the percentage of completion method of accounting. We
recognize rental revenues as earned.
Revenues do not include funding from government cost-sharing agreements
related to our joint development programs with government agencies. This
funding is recorded as an offset to research and development and selling,
general, and administrative expenses, as required by government contract
accounting guidelines.
RESULTS OF OPERATIONS
Fiscal Years Ended March 31, 2000 and March 31, 1999
Revenues
Total revenues increased to $15,113,000 in fiscal 2000 from $11,257,000 in
fiscal 1999. Revenues from our SMES business unit increased $1,992,000 to
$3,502,000 in fiscal 2000 from $1,510,000 in fiscal 1999 as a result of
increased SMES product sales. Revenues in our HTS business unit were
$11,611,000, or $1,863,000 more than the $9,748,000 recorded in fiscal 1999.
Higher HTS revenues were primarily associated with increased funding from a
new Pirelli development program, and higher prototype development revenues
from a U.S. Navy contract for the conceptual design of an HTS ship propulsion
motor.
In addition to reported revenues, we also received funding of $1,967,000 in
fiscal 2000 under government cost-sharing agreements, compared to $1,953,000
in fiscal 1999. We anticipate that a portion of our funding in the future will
continue to come from cost-sharing agreements as we continue to develop joint
programs with government agencies. Funding from government cost-sharing
agreements is recorded as an offset to research and development and selling,
general and administrative expenses, as required by government contract
accounting guidelines, rather than as revenue.
Costs and expenses
Total costs and operating expenses in fiscal 2000 were $34,586,000 compared
to $28,508,000 in fiscal 1999. Costs of revenue, which include costs of
research and development contracts and costs of product sales and prototype
development contracts, increased to $14,694,000 in fiscal 2000 compared to
$12,021,000 in fiscal 1999. This increase reflects the higher SMES product
sales and the increase in prototype development revenues.
A-1
Adjusted research and development ("R&D") expenses, which include amounts
classified as costs of revenue and amounts offset by cost sharing funding,
increased to $22,632,000 in fiscal 2000 from $18,751,000 in fiscal 1999. This
increase was due to the continued scale-up of our internal research and
development activities in both the HTS and SMES business units, including the
hiring of additional personnel, the purchases of materials and equipment and
the payment of patent licensing fees. A portion of the R&D expenditures
related to externally funded development contracts has been classified as
costs of revenue (rather than as R&D expenses). These R&D expenditures that
were included as costs of revenue during fiscal 2000 and fiscal 1999 were
$8,412,000 and $7,335,000, respectively. This increase was due to the higher
level of contract and prototype development revenue in fiscal 2000, compared
to fiscal 1999. Additionally, R&D expenses that were offset by cost-sharing
funding were $1,014,000 and $1,007,000 in fiscal 2000 and 1999, respectively.
Net R&D expenses (exclusive of amounts classified as costs of revenue and
amounts offset by cost-sharing funding) increased to $13,206,000 in fiscal
2000 from $10,409,000 in fiscal 1999.
Adjusted selling, general and administrative ("SG&A") expenses, which
include amounts classified as costs of revenue and amounts offset by cost
sharing funding, were $11,684,000 in fiscal 2000, compared to $9,765,000 in
fiscal 1999. These increases were primarily due to the hiring of additional
personnel and related expenses incurred to support corporate development and
marketing activities and future planned growth. A portion of the SG&A
expenditures related to externally funded development contracts has been
classified as costs of revenue (rather than as SG&A expenses). SG&A
expenditures included as costs of revenue during fiscal 2000 and fiscal 1999
were $4,045,000 and $2,741,000, respectively. This increase was due to the
higher level of contract and prototype development revenue in fiscal 2000,
compared to fiscal 1999. The SG&A amounts offset by cost-sharing funding were
$953,000 and $946,000 in fiscal years 2000 and 1999, respectively. Net SG&A
expenditures (exclusive of amounts classified as costs of revenue and amounts
offset by cost sharing funding) increased to $6,686,000 in fiscal 2000 from
$6,078,000 in fiscal 1999.
Non-operating expenses
Interest income decreased to $1,871,000 in fiscal 2000, from $1,921,000 in
fiscal 1999. This decrease primarily reflects lower cash, cash equivalents and
long-term marketable securities balances available for investment as a result
of cash being used to fund our operations and to purchase capital equipment.
This was partially offset by increased interest income in March 2000 as a
result of our public offering of 3,500,000 shares of common stock on March 6,
2000. We received net proceeds (after the underwriters discount but before
deducting offering expenses) of $205,625,000 from this offering.
Interest expense was $0 in fiscal 2000 compared to $9,800 in fiscal 1999.
This decrease reflects the retirement of all long-term debt in fiscal 1999. We
expect to continue to incur operating losses in the next year, as we continue
to devote significant financial resources to our research and development
activities and commercialization efforts.
We expect to be a party to agreements which, from time to time, may result
in costs incurred exceeding expected revenues under such contracts. We may
enter into such agreements for a variety of reasons including, but not limited
to, entering new product application areas, furthering the development of key
technologies, and advancing the demonstration of commercial prototypes in
critical market applications.
Fiscal Years Ended March 31, 1999 and March 31, 1998
Revenues
Total revenues decreased to $11,257,000 in fiscal 1999 from $15,129,000 in
fiscal 1998. Revenues from our SMES business unit declined $2,053,000 to
$1,510,000 in fiscal 1999 from $3,563,000 in fiscal 1998. This was due to a
decrease in SMES shipments in fiscal 1999 which we believe is attributable to
the longer than expected sales cycle associated with industrial power quality
SMES sales, and lower rental/other revenues. HTS business unit revenues
decreased to $9,748,000 in fiscal 1999 from $11,566,000 in fiscal 1998. This
decrease was primarily due to lower prototype development contract revenues.
A-2
In addition to reported revenues, we also received funding of $1,953,000 in
fiscal 1999 under government cost-sharing agreements, compared to $1,771,000
in fiscal 1998. Funding from government cost-sharing agreements is recorded as
an offset to R&D and SG&A expenses, as required by government contract
accounting guidelines, rather than as revenue.
Costs and expenses
Total costs and operating expenses in fiscal 1999 were $28,508,000 compared
to $27,884,000 in fiscal 1998. Costs of revenue, which include costs of
research and development contracts and costs of product sales and prototype
development contracts, decreased to $12,021,000 in fiscal 1999, from
$14,333,000 in fiscal 1998. This decrease reflects a reduction in SMES
shipments and the decrease in prototype development revenues. Cost of revenue
in fiscal 1999 was also affected by unfavorable manufacturing variances
related to the lower SMES production.
Adjusted R&D expenses, which include amounts classified as costs of revenue
and amounts offset by cost sharing funding, increased to $18,751,000 in fiscal
1999 from $17,048,000 in fiscal 1998. This increase was due to the continued
scale-up of our internal research and development activities including the
hiring of additional personnel, the purchases of materials and equipment and
the payment of patent licensing fees. A portion of the R&D expenditures
related to externally funded development contracts has been classified as
costs of revenue (rather than as R&D expenses). These R&D expenditures that
were included as costs of revenue during fiscal 1999 and fiscal 1998 were
$7,335,000 and $7,494,000, respectively. Additionally, R&D expenses that were
offset by cost sharing funding were $1,007,000 and $913,000 in fiscal 1999 and
1998, respectively. Net R&D expenses (exclusive of amounts classified as costs
of revenue and amounts offset by cost sharing funding) increased to
$10,409,000 in fiscal 1999 from $8,641,000 the prior year.
Adjusted SG&A expenses, which include amounts classified as costs of revenue
and amounts offset by cost sharing funding, were $9,765,000 in fiscal 1999 as
compared to $9,162,000 in fiscal 1998. These increases were primarily due to
the hiring of additional personnel and related expenses incurred to support
corporate development and marketing activities and future planned growth. A
portion of the SG&A expenditures related to externally funded development
contracts has been classified as costs of revenue (rather than as SG&A
expenses). SG&A expenditures included as costs of revenue during fiscal 1999
and fiscal 1998 were $2,741,000 and $3,394,000, respectively. The SG&A amounts
offset by cost-sharing funding were $946,000 and $858,000 in fiscal years 1999
and 1998, respectively. Net SG&A expenditures (exclusive of amounts classified
as costs of revenue and amounts offset by cost sharing funding) increased to
$6,078,000 in fiscal 1999 from $4,910,000 the prior year.
Non-operating expenses
Interest income increased to $1,921,000 in fiscal 1999, as compared to
$782,000 in fiscal 1998. This increase primarily reflects the higher cash
balances available for investment as a result of our public offering of
3,504,121 shares of common stock on April 22, 1998. We received net proceeds
(after the underwriters discount but before deducting offering expenses) of
$46,114,000 from this offering.
Interest expense decreased to $9,800 in fiscal 1999 compared to $239,000 in
fiscal 1998. This decrease reflects the retirement of long-term debt following
the offering.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had cash, cash equivalents and long-term marketable
securities totaling $218,655,000 compared to cash, cash equivalents and long-
term marketable securities totaling $31,572,000 at March 31, 1999. This
increase was primarily due to the public offering of 3,500,000 shares of
common stock on March 6, 2000. We received net proceeds (after the
underwriters discount but before deducting offering expenses) of $205,625,000
from this offering.
A-3
In fiscal 2000, $20,359,000 was used to fund our operations. Additionally,
$5,932,000 of cash was used for the purchase of capital equipment, primarily
for research and development and manufacturing.
Long-term accounts receivable of $1,750,000 represents the amount due after
March 31, 2001 on the $2,500,000 recognized as revenue in the year ended March
31, 2000 for R&D work performed by us prior to the effective date (October 1,
1999) of the new Pirelli agreement. The $2,500,000 payment by Pirelli for R&D
performed before October 1, 1999 is guaranteed by the agreement and is payable
in quarterly installments over the five-year period between October 1, 1999
and September 30, 2004.
We have potential funding commitments of approximately $21,324,000 to be
received after March 31, 2000 from strategic partners and government and
commercial customers, compared to $10,326,000 at March 31, 1999. However,
these commitments, including $2,333,000 on U. S. government contracts and
subcontracts as of March 31, 2000, are subject to certain cancellation or
buyback provisions.
Our policy is to invest available funds in short-term, intermediate-term,
and long-term investment grade marketable securities, including but not
limited to government obligations, repurchase agreements, certificates of
deposit and money market funds.
We believe that our existing capital resources, including the proceeds of
our March offering, will be sufficient to fund our operations until we reach
profitability and have positive cash flow. However, we may need additional
funds sooner than anticipated if our performance deviates significantly from
our current business plan, if there are significant changes in competitive or
other market factors, or if unforeseen circumstances arise. There can be no
assurance that such funds, whether from equity or debt financing, development
contracts or other sources, will be available, or available under terms
acceptable to us, if at all.
To date, inflation has not had a material impact on our financial results.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative instrument's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
In June 1999, FASB issued Statement 137 which defers the effective date to
fiscal years beginning after June 15, 2000. A company may also implement the
Statement as of the beginning of any fiscal quarter after issuance. Statement
133 cannot be applied retroactively. Statement 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998). We
believe the impact on our financial statements of adopting Statement 133 will
be immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. We have not yet determined the impact, if any, of adopting
this interpretation.
A-4
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25." This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. To the extent
that this Interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of July
1, 2000, the effects of applying this Interpretation are recognized on a
prospective basis from July 1, 2000. We have not yet determined the impact, if
any, of adopting this interpretation.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk through derivative financial instruments and
other financial instruments, such as investments in short-term marketable
securities and long-term debt, is not material.
FUTURE OPERATING RESULTS
We do not provide forecasts of our future financial performance. However,
various statements included herein, as well as other statements made from time
to time by our representatives, which relate to future matters (including but
not limited to statements concerning our future commercial success) constitute
forward looking statements and are made under the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. There are a number of
important factors which could cause our actual results of operations and
financial condition in the future to vary from that indicated in such forward
looking statements. Factors that may cause such differences include, without
limitation, the risks, uncertainties and other information set forth below.
We have a history of operating losses and we expect to continue to incur
losses in the future.
We have been principally engaged in research and development activities. We
have incurred net losses in each year since our inception. Our net loss for
fiscal 1998, fiscal 1999 and fiscal 2000 was $12,378,000, $15,326,000 and
$17,598,000, respectively. Our accumulated deficit as of March 31, 2000 was
$106,816,000. We expect to continue to incur operating losses in the next year
and there can be no assurance that we will ever achieve profitability.
There are a number of technological challenges that must be successfully
addressed before our superconducting products can gain widespread commercial
acceptance.
Many of our products are in the early stages of commercialization and
testing, while others are still under development. We do not believe any
company has yet successfully developed and commercialized significant
quantities of HTS wire or wire products. There are a number of technological
challenges that we must successfully address to complete our development and
commercialization efforts. For example, we face engineering challenges in
producing HTS wire in longer lengths and commercial quantities. We also
believe that several years of further development in the cable and motor
industries will be necessary before a substantial number of additional
commercial applications for our HTS wire in these industries can be developed
and proven. We may also need to improve the quality of our HTS wire to expand
the number of commercial applications for it. We may be unable to meet such
technological challenges. Delays in development, as a result of technological
challenges or other factors, may result in the introduction of our products
later than anticipated.
The commercial uses of superconducting products are very limited today, and a
widespread commercial market for our products may not develop.
To date, there has been no widespread commercial use of HTS products.
Although LTS products are currently used in several commercial applications,
commercial acceptance of LTS products, other than for
A-5
medical magnetic resonance imaging and superconducting magnetic energy storage
products, has been significantly limited by the cooling requirements of LTS
materials. Even if the technological hurdles currently limiting commercial
uses of HTS and LTS products are overcome, it is uncertain whether a robust
commercial market for those new and unproven products will ever develop. It is
possible that the market demands we currently anticipate for our HTS and LTS
products will not develop and that superconducting products will never achieve
widespread commercial acceptance.
We expect to spend significant amounts on the expansion of our manufacturing
capacity, and our expansion projects may not be successful.
In anticipation of significantly increased demand for our products, we have
announced plans to build a facility exclusively dedicated to HTS wire
manufacturing at the Devens Commerce Center in Devens, Massachusetts. Over the
next two years, we plan to use a portion of the net proceeds from our March
2000 stock offering to buy land, construct a building and purchase equipment
for the new HTS wire manufacturing facility in Devens, and for a new SMES
manufacturing facility. We can only estimate the costs of these projects, and
the actual costs may be significantly in excess of our estimates. In addition,
we may be unable to lease suitable space for our new facilities on
commercially acceptable terms, the completion of those new facilities may be
delayed, or we may experience start-up difficulties or other problems once
those facilities become operational. Finally, if increased demand for our
products does not materialize, we will not generate sufficient revenue to
offset the cost of establishing and operating these facilities.
We have no experience manufacturing our products in commercial quantities.
To be financially successful, we will have to manufacture our products in
commercial quantities at acceptable costs while also preserving the quality
levels achieved in manufacturing these products in limited quantities. This
presents a number of technological and engineering challenges for us. We
cannot assure you that we will be successful in developing product designs and
manufacturing processes that permit us to manufacture our HTS and SMES
products in commercial quantities at commercially acceptable costs while
preserving quality. In addition, we may incur significant start-up costs and
unforeseen expenses in our product design and manufacturing efforts.
We have historically focused on research and development activities and have
limited experience in marketing and selling our products.
We have been primarily focused on research and development of our
superconducting products. Consequently, our management team has limited
experience directing our commercialization efforts which are essential to our
future success. To date, we only have limited experience marketing and selling
our products, and there are very few people anywhere who have significant
experience marketing or selling superconducting products. Once our products
are ready for commercial use, we will have to develop a marketing and sales
organization that will effectively demonstrate the advantages of our products
over both more traditional products and competing superconducting products or
other technologies. We may not be successful in our efforts to market this new
and unfamiliar technology, and we may not be able to establish an effective
sales and distribution organization.
We may decide to enter into arrangements with third parties for the
marketing or distribution of our products, including arrangements in which our
products, such as HTS wire, are included as a component of a larger product,
such as a motor. We have entered into a marketing and sales alliance with GE
Industrial Systems giving GE the exclusive right to offer our Distributed-SMES
(D-SMES) product line in the United States to utilities and the right to sell
industrial Power Quality-SMES (PQ-SMES) systems to certain of GE's global
industrial accounts. By entering into marketing and sales alliances, the
financial benefits to us of commercializing our products are dependent on the
efforts of others. We may not be able to enter into marketing or distribution
arrangements with third parties on financially acceptable terms, and third
parties may not be successful in selling our products or applications
incorporating our products.
A-6
We depend on our strategic relationships with our corporate partners for the
successful development and marketing of applications for our superconducting
products.
Our business strategy depends upon strategic relationships with corporate
partners, which are intended to provide funding and technologies for our
development efforts and assist us in marketing and distributing our products.
Although we currently are party to a number of strategic relationships, we may
not be able to maintain these relationships, and these relationships may not
be technologically or commercially successful.
We have an agreement with Pirelli relating to HTS wire for cables used to
transmit both electric power and control signals. In general, we are obligated
to sell our HTS cable wire exclusively to Pirelli, and Pirelli is obligated to
buy this HTS wire exclusively from us or to pay us royalties for any of this
wire that it manufactures for use in these applications anywhere in the world
other than Japan. Pirelli continues to provide us with substantial funding and
has been critical in assisting us in the development and commercialization of
HTS cable wire. Consequently, we are significantly dependent on Pirelli for
the commercial success of this cable wire in these applications.
As we move toward commercialization of several of our products, we plan to
use strategic alliances as an important means of marketing and selling our
products. We have entered into a marketing and sales alliance with GE giving
GE the exclusive right to offer our D-SMES product line in the United States
to utilities and the right to sell industrial PQ-SMES systems to certain of
GE's global industrial accounts. Any strategic relationships established may
not provide us with the commercial benefits we anticipate. See "Business--
Strategic Relationships, Research Arrangements and Government Contracts" for a
description of our significant strategic relationships.
Our products face intense competition both from superconducting products
developed by others and from traditional, non-superconducting products and
alternative technologies.
As we begin to market and sell our superconducting products, we will face
intense competition both from competitors in the superconducting field and
from vendors of traditional products and new technologies. There are many
companies in the United States, Europe, Japan and Australia engaged in the
development of HTS products, including 3M, Siemens, Alcatel and Sumitomo
Electric Industries. The superconducting industry is characterized by rapidly
changing and advancing technology. Our future success will depend in large
part upon our ability to keep pace with advancing HTS and LTS technology and
developing industry standards. In addition, our SMES products compete with a
variety of non-superconducting products such as dynamic voltage restorers and
battery-based power supply systems. Research efforts and technological
advances made by others in the superconducting field or in other areas with
applications to the power quality and reliability markets may render our
development efforts obsolete. Many of our competitors have substantially
greater financial resources, research and development, manufacturing and
marketing capabilities than we have. In addition, as the HTS, power quality
and power reliability markets develop, other large industrial companies may
enter those fields and compete with us. See "Business--Competition" for more
information on the competition we face.
Third parties have or may acquire patents that cover the high temperature
superconducting materials we use or may use in the future to manufacture our
products.
We expect that some or all of the HTS materials and technologies we use in
designing and manufacturing our products are or will become covered by patents
issued to other parties, including our competitors. If that is the case, we
will need either to acquire licenses to these patents or to successfully
contest the validity of these patents. The owners of these patents may refuse
to grant licenses to us, or may be willing to do so only on terms that we find
commercially unreasonable. If we are unable to obtain these licenses, we may
have to contest the validity or scope of those patents to avoid infringement
claims by the owners of these patents. It is possible that we will not be
successful in contesting the validity or scope of a patent, or that we will
not prevail in a patent infringement claim brought against us. Even if we are
successful in such a proceeding, we could incur substantial costs and
diversion of management resources in prosecuting or defending such a
proceeding. See "Business--Patents, Licenses and Trade Secrets" for more
information on this subject.
A-7
There are numerous patents issued in the field of superconducting materials
and our patents may not provide meaningful protection for our technology.
We own or have licensing rights under many patents and pending patent
applications. However, the patents that we own or license may not provide us
with meaningful protection of our technologies, and may not prevent our
competitors from using similar technologies, for a variety of reasons, such
as:
. the patent applications that we or our licensors file may not result in
patents being issued;
. any patents issued may be challenged by third parties; and
. others may independently develop similar technologies not protected by
our patents or design around the patented aspects of any technologies we
develop.
Moreover, we could incur substantial litigation costs in defending the
validity of our own patents. We also rely on trade secrets and proprietary
know-how to protect our intellectual property. However, our non-disclosure
agreements and other safeguards may not provide meaningful protection for our
trade secrets and other proprietary information. See "Business--Patents,
Licenses and Trade Secrets" for more information on this subject.
Our success is dependent upon attracting and retaining qualified personnel.
Our success will depend in large part upon our ability to attract and retain
highly qualified research and development, management, manufacturing,
marketing and sales personnel. Hiring those persons may be especially
difficult due to the specialized nature of our business. In addition, the
demand for qualified personnel is particularly acute in the New England and
Wisconsin areas, where most of our operations are located, due to the
currently low unemployment rate in these regions.
We are particularly dependent upon the services of Dr. Gregory J. Yurek, our
co-founder and our Chairman of the Board, President and Chief Executive
Officer, and Dr. Alexis P. Malozemoff, our Chief Technical Officer. The loss
of the services of either of those individuals could significantly damage our
business and prospects.
A-8
Appendix B
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of American Superconductor
Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 2000 present fairly, in
all material respects, the financial position of American Superconductor
Corporation (the "Company") at March 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
May 15, 2000
B-1
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
---------------------------
2000 1999
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 126,917,768 $ 24,969,142
Accounts receivable............................. 7,317,009 4,099,211
Inventory....................................... 9,246,950 5,024,552
Prepaid expenses and other current assets....... 809,129 538,485
------------- ------------
Total current assets.......................... 144,290,856 34,631,390
Property and equipment:
Equipment....................................... 20,300,734 15,159,313
Furniture and fixtures.......................... 1,670,029 1,243,894
Leasehold improvements.......................... 3,006,814 2,657,188
------------- ------------
24,977,577 19,060,395
Less: accumulated depreciation.................... (15,199,346) (12,945,765)
------------- ------------
Property and equipment, net....................... 9,778,231 6,114,630
Long-term marketable securities................... 91,737,449 6,602,829
Long-term accounts receivable..................... 1,750,000 --
Net investment in sales-type lease................ 279,110 287,110
Other assets...................................... 1,078,610 494,344
------------- ------------
Total assets.................................. $ 248,914,256 $ 48,130,303
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 6,339,023 $ 4,171,948
Deferred revenue................................ 371,250 --
------------- ------------
Total current liabilities..................... 6,710,273 4,171,948
Long-term deferred revenue........................ 1,259,883 --
Commitments (Note 9)
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-50,000,000; issued and
outstanding shares-19,734,714 in 2000 and
15,378,656 in 1999............................ 197,347 153,787
Additional paid-in capital..................... 348,903,034 134,030,618
Deferred compensation........................... (530,333) --
Deferred contract costs......................... (637,552) (1,018,391)
Accumulated other comprehensive income (loss)... (172,515) 10,392
Accumulated deficit............................. (106,815,881) (89,218,051)
------------- ------------
Total stockholders' equity........................ 240,944,100 43,958,355
------------- ------------
Total liabilities and stockholders' equity........ $ 248,914,256 $ 48,130,303
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
B-2
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Contract revenue................... $ 10,438,700 $ 9,238,013 $ 9,273,901
Product sales and prototype
development contracts............. 4,620,825 1,888,426 5,013,008
Rental/other revenue .............. 53,610 130,863 841,903
------------ ------------ ------------
Total revenues................... 15,113,135 11,257,302 15,128,812
Costs and expenses:
Costs of revenue .................. 14,694,183 12,020,623 14,332,712
Research and development........... 13,206,073 10,409,414 8,641,102
Selling, general and
administrative.................... 6,685,593 6,078,243 4,910,102
------------ ------------ ------------
Total costs and expenses......... 34,585,849 28,508,280 27,883,916
Merger related fees.................. -- -- (154,744)
Interest income...................... 1,870,541 1,921,373 781,599
Interest expense..................... -- (9,827) (238,625)
Other income (expense), net.......... 4,343 13,256 (11,314)
------------ ------------ ------------
Net loss............................. $(17,597,830) $(15,326,176) $(12,378,188)
============ ============ ============
Net loss per common share
Basic.............................. $ (1.11) $ (1.01) $ (1.06)
============ ============ ============
Diluted............................ $ (1.11) $ (1.01) $ (1.06)
============ ============ ============
Weighted average number of common
shares outstanding
Basic.............................. 15,820,074 15,131,679 11,658,034
============ ============ ============
Diluted............................ 15,820,074 15,131,679 11,658,034
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
B-3
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net loss............................ $(17,597,830) $(15,326,176) $(12,378,188)
Adjustments to reconcile net loss to
net cash used by operations:
Merger with AET.................... -- -- (90,569)
Forgiveness of notes receivable.... -- -- 349,368
Depreciation and amortization...... 2,253,581 1,939,189 2,113,617
Loss (gain) on disposals of
property and equipment............ -- -- 24,569
Deferred compensation expense...... 106,067 -- 25,480
Deferred warrant costs............. 444,862 328,263 260,679
Stock compensation expense......... 96,962 204,511 90,842
Changes in operating asset and
liability accounts:
Accounts receivable............... (4,967,798) (1,107,576) (462,031)
Inventory......................... (4,222,398) (1,794,579) 159,289
Prepaid expenses and other current
assets........................... (270,644) 6,943 (205,631)
Accounts payable and accrued
expenses......................... 2,167,075 838,486 (1,877,010)
Note payable-line of credit....... -- -- (875,000)
Deferred revenue--current and
long-term........................ 1,631,133 (187,285) (1,974,510)
------------ ------------ ------------
Net cash used by operating
activities...................... (20,358,990) (15,098,224) (14,839,095)
Cash flows from investing activities:
Notes receivable................... -- -- (18,951)
Repayment of notes receivable...... -- -- 53,190
Purchase of property and
equipment......................... (5,932,079) (3,613,900) (2,889,245)
Purchase of long-term marketable
securities........................ (85,302,630) (442,334) (3,000,000)
Sale of long-term marketable
securities........................ -- 12,455,443
Net investment in sales-type
lease............................. 8,000 58,830 (345,940)
Decrease (increase) in other
assets............................ (584,266) (488,177) 35,861
------------ ------------ ------------
Net cash (used in) provided by
investing activities............ (91,810,975) (4,485,581) 6,290,358
Cash flows from financing activities:
Payments on notes payable.......... -- (29,609) (643,819)
Payments on long-term debt......... -- (3,141,793) 4,693
Net proceeds from issuance of
common stock...................... 214,118,591 45,882,207 10,453,045
------------ ------------ ------------
Net cash provided by financing
activities...................... 214,118,591 42,710,805 9,813,919
Net increase (decrease) in cash and
cash equivalents.................... 101,948,626 23,127,000 1,265,182
Cash and cash equivalents at
beginning of year................... 24,969,142 1,842,142 584,804
Effect of SI's excluded results...... -- -- (7,844)
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $126,917,768 $ 24,969,142 $ 1,842,142
============ ============ ============
Supplemental schedule of cash flow
information:
Cash paid for interest............. $ 0 $ 119,789 $ 135,906
Noncash issuance of common stock... $ 203,029 $ 204,511 $ 165,954
The accompanying notes are an integral part of the consolidated financial
statements.
B-4
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
-------------------
Additional Deferred Other Total
Number Par Paid-in Deferred Contract Comprehensive Accumulated Stockholders'
of Shares Value Capital Compensation Costs Income (Loss) Deficit Equity
---------- -------- ------------ ------------ ----------- ------------- ------------- -------------
Balance at March
31, 1997.......... 10,505,118 105,051 76,388,679 (25,480) (557,265) (153,553) (59,256,719) $ 16,500,713
Exercise of stock
options.......... 166,794 1,668 511,385 513,053
Investment by
EDF.............. 1,000,000 10,000 9,929,994 9,939,994
Merger with AET... 68,306 683 9,317 (100,569) (90,569)
Stock compensation
expense.......... 9,075 91 90,751 90,842
Amortization of
deferred
compensation..... 25,480 25,480
Deferred warrant
costs............ 953,638 (953,638) 0
Amortization of
deferred
warrant costs.... 3,035 182,457 185,492
Exercise of
warrants......... 7,500 75 75,112 75,187
Unrealized gain on
investments...... 176,367 176,367
Cumulative
translation
adjustment....... (22,906) (22,906)
Effect of SI's
excluded
results.......... (2,156,399) (2,156,399)
Net loss.......... (12,378,188) (12,378,188)
---------- -------- ------------ --------- ----------- --------- ------------- ------------
Balance at March
31, 1998.......... 11,756,793 $117,568 $ 87,961,911 $ -- $(1,328,446) $ (92) $ (73,891,875) $ 12,859,066
Exercise of stock
options.......... 99,976 1,000 266,250 267,250
Secondary public
offering of
common stock..... 3,504,121 35,041 45,579,916 45,614,957
Stock compensation
expense.......... 17,766 178 204,333 204,511
Amortization of
deferred warrant
costs............ 18,208 310,055 328,263
Unrealized loss on
investments...... (6,535) (6,535)
Cumulative
translation
adjustment....... 17,019 17,019
Net loss.......... (15,326,176) (15,326,176)
---------- -------- ------------ --------- ----------- --------- ------------- ------------
Balance at March
31, 1999.......... 15,378,656 $153,787 $134,030,618 $ -- $(1,018,391) $ 10,392 $ (89,218,051) $ 43,958,355
Exercise of stock
options.......... 692,737 6,927 9,051,762 9,058,689
Secondary public
offering of
common stock..... 3,500,000 35,000 205,024,902 205,059,902
Exercise of stock
warrants......... 82,264 823 (823) 0
Deferred
compensation..... 74,000 740 635,660 (636,400) 0
Amortization of
deferred
compensation..... 106,067 106,067
Stock compensation
expense.......... 7,057 70 96,892 96,962
Amortization of
deferred
warrant costs.... 64,023 380,839 444,862
Unrealized loss on
investments...... (168,010) (168,010)
Cumulative
translation
adjustment....... (14,897) (14,897)
Net loss.......... (17,597,830) (17,597,830)
---------- -------- ------------ --------- ----------- --------- ------------- ------------
Balance at March
31, 2000.......... 19,734,714 $197,347 $348,903,034 $(530,333) $ (637,552) $(172,515) $(106,815,881) $240,944,100
========== ======== ============ ========= =========== ========= ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
B-5
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
1. Nature of the Business
American Superconductor Corporation (the "Company"), which was formed on
April 9, 1987, is a world leader in developing and manufacturing products
using superconducting materials for electric power applications. The focus of
the Company's development and commercialization efforts is on electrical
equipment for use by electric utilities and industrial users of electrical
power. For large-scale applications, the Company's development efforts are
focused on high temperature superconducting ("HTS") power transmission cables,
motors, transformers, generators and fault current limiters. In the area of
industrial power quality and transmission network power reliability, the
Company is focused on marketing and selling low temperature superconducting
magnetic energy storage ("SMES") devices and on development and
commercialization of new SMES products. The Company operates in two business
segments.
The Company has devoted a significant part of its efforts to research and
development. The Company has recorded contract revenue related to research and
development contracts of $10,438,700, $9,238,013 and $9,273,901 for the fiscal
years ended March 31, 2000, 1999 and 1998, respectively. As discussed in Note
10, a significant portion of this contract revenue relates to development
contracts with two companies, Pirelli Cavi E Sistemi S.p.A. ("Pirelli") and
Electricite de France ("EDF"), which (through affiliated companies) are
stockholders of the Company. Included in costs of revenue are research and
development expenses of approximately $8,412,000, $7,335,000 and $7,494,000
for the fiscal years ended March 31, 2000, 1999 and 1998, respectively.
Selling, general and administrative expenses included as costs of revenue for
the fiscal years ended March 31, 2000, 1999 and 1998, were approximately
$4,045,000, $2,741,000 and $3,394,000, respectively.
2. Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances are
eliminated. As described more fully in Note 3, on April 8, 1997, the Company
acquired Superconductivity, Inc. ("SI") through the merger of a wholly owned
subsidiary of the Company into SI. Effective with the merger, SI's fiscal year
end was changed to March 31 to conform with ASC's fiscal year end. The audited
results of SI's operations for the twelve month period ended December 31, 1996
were included in the Company's results of operations for the fiscal year ended
March 31, 1997. As a result, SI's cash flow activity for the three months
ended March 31, 1997 is listed as "Effect of SI's excluded results" on the
Consolidated Statement of Cash Flows for the period ended March 31, 1998 to
account for the difference in the beginning cash and cash equivalents between
December 31, 1996 and March 31, 1997.
On July 31, 1997 the Company completed a transaction in which the Company
acquired all the outstanding stock of Applied Engineering Technologies, Ltd.
("AET"). The transaction has been accounted for under the pooling of interests
method of accounting. Due to the immaterial effect on the accompanying
consolidated financial statements, the prior periods have not been adjusted to
reflect the effect on the combined financial position, operating results and
cash flows of the Company.
Certain prior year amounts have been reclassified to be consistent with
current year presentation.
Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist of government obligations, short-term certificates of deposit,
repurchase agreements, and other debt instruments.
B-6
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Accounts Receivable
Due to scheduled billing requirements specified under certain contracts, a
portion of the Company's accounts receivable balance at March 31, 2000 and
1999 was unbilled. The unbilled portion included in the accounts receivable
balance was approximately $4,419,000 or 60% of total accounts receivable and
$1,695,000 or 41% of total accounts receivable at March 31, 2000 and 1999,
respectively. The Company expects most of the unbilled balance at March 31,
2000 to be billed in the first quarter of the fiscal year ending March 31,
2001, excluding the unbilled receivable associated with the Pirelli
development contract that is billable and collectable over the next 12 months.
Long-term Accounts Receivable
Long-term accounts receivable consist of amounts due more than 12 months
from the balance sheet date. The $1,750,000 account balance represents the
amount due after March 31, 2001 on the $2,500,000 recognized as revenue in the
year ended March 31, 2000 for R&D work performed by the Company prior to the
effective date (October 1, 1999) of the new Pirelli agreement. The $2,500,000
of revenue recognized from Pirelli for R&D performed before October 1, 1999 is
guaranteed by the agreement and is payable in quarterly installments over the
five-year period between October 1, 1999 and September 30, 2004.
Long-term Marketable Securities
Long-term marketable securities, with original maturities of more than 12
months when purchased, consist primarily of U.S. Treasury Notes, U.S.
government agency securities, corporate bonds and other debt securities, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company determines the appropriate classification of its marketable securities
at the time of purchase and re-evaluates such classification as of each
balance sheet date.
Inventories
Inventories are stated at the lower of cost (determined on a first-in first-
out basis) or market.
Property and Equipment
Equipment and Furniture and fixtures are recorded at cost and depreciated
using the straight-line method over their estimated useful lives, which range
from 3 to 7 years. Leasehold improvements are recorded at cost and amortized
over the shorter of the useful life of the improvement or the remaining term
of the lease. Expenditures for maintenance and repairs are expensed as
incurred. Upon retirement or other disposition of assets, the costs and
related accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is reflected in income.
B-7
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Other Assets
Other assets at March 31, 2000 and 1999 consisted of the following:
2000 1999
---------- --------
Licenses.............................................. $ 940,747 $590,747
Patents............................................... 570,950 274,485
Deposits.............................................. 60,649 15,734
---------- --------
1,572,346 880,966
Less: accumulated amortization........................ 493,736 386,622
---------- --------
$1,078,610 $494,344
========== ========
Licenses and patents are amortized to expense on a straight-line basis over
periods not exceeding 7 years. The carrying value of intangible assets is
periodically reviewed by the Company and impairments are recognized when the
expected future operating cash flows derived from such intangible assets is
less than their carrying value.
Effective March 31, 1998, the Company signed an agreement with Lucent
Technologies, Inc. ("Lucent") granting the Company a royalty-bearing, non-
exclusive, worldwide license for superconductor wire under Lucent's portfolio
of high temperature superconductor patents and patent applications. The
license runs from March 31, 1998 until the expiration of the last-to-expire
patent in the portfolio.
Effective November 17, 1999, the Company signed an agreement with
Massachusetts Institute of Technology ("MIT") granting the Company an
exclusive, royalty-bearing, worldwide license for second-generation wire,
tape, and conductors made under an MIT patent and patent application. The
license is exclusive until the first to occur of eight years after the first
commercial sale of a licensed product or eight years after the first
commercial use of a licensed process, or November 17, 2010. Thereafter the
license remains exclusive as long as running royalties paid to MIT remain
above a certain amount per year, or becomes non-exclusive until the end of the
term of the patent rights.
Effective March 1, 2000, the Company signed an agreement with Oak Ridge
National Laboratory ("ORNL") granting the Company a royalty-bearing, non-
exclusive, worldwide license for second-generation superconductor wire or tape
made under ORNL patents and patent applications. The license runs from March
1, 2000 until the expiration of the last-to-expire licensed patent.
Revenue Recognition
The Company has entered into contracts to perform research and development
(see Note 10). Revenues from these contracts and prototype development
contracts are recognized utilizing the percentage of completion method,
measured by the relationship of costs incurred to total contract costs. Costs
include direct engineering and development costs and applicable overhead. The
Company recognizes its revenue on product sales upon shipment, or, for certain
contracts, on the percentage of completion method of accounting measured by
the relationship of total costs to total contract costs. Customer deposits are
recorded as deferred revenue until the related sales are recognized. The
Company rents equipment to customers on a monthly basis and recognizes rental
income as it is earned.
Research and Development Costs
Research and development costs are expensed as incurred.
B-8
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each fiscal year end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce net deferred tax assets to the amount expected to be
realized. No current or deferred income taxes have been provided because of
the net operating losses incurred by the Company since its inception.
Computation of Net Loss per Common Share
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" effective for the quarter ended December 31, 1997.
SFAS No. 128 requires presentation of basic earnings per share ("EPS") and,
for companies with complex capital structures, diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS includes dilution and is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares include the effect of the exercise
of stock options and warrants. For the years ended March 31, 2000, 1999 and
1998, common equivalent shares of 1,788,401, 655,843 and 736,249, respectively
were not included in the calculation of diluted EPS as they were considered
antidilutive.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency. The assets and liabilities of this operation are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date and
income and expense items are translated at average rates for the period.
Cumulative translation adjustments are excluded from net loss and shown as a
separate component of stockholders' equity. Foreign currency transaction gains
and losses are included in the net loss and have not been material to date.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The Company invests its cash and cash equivalents with high-credit, quality
financial institutions and invests primarily in investment grade-marketable
securities, including, but not limited to, government obligations, repurchase
agreements, and money market funds.
The Company's accounts receivable are comprised mostly of amounts owed by
government agencies and some commercial companies. The Company does not
require collateral or other security to support customer receivables. The
Company believes any credit losses will not be material.
3. The Merger
In April 1997, the Company completed a transaction (the "Merger") with SI.
This transaction, in which the Company acquired all of the outstanding stock
of SI by means of a merger of a subsidiary of the Company into SI, was
accounted for as a pooling of interests. The merger was effected through the
exchange of 942,961 shares of the Company's common stock for all of the issued
and outstanding shares of SI, based on a merger exchange ratio of 0.3292
shares of the Company's common stock for each share of SI common stock.
B-9
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
All fees and expenses related to the merger were expensed as required under
the pooling of interests accounting method. Charges of $75,767 in fiscal 1998
have been recorded in the consolidated statement of operations reflecting
merger expenses incurred in that period. Merger expenses consist principally
of financial advisory, legal and accounting fees.
4. Long-term Marketable Securities
Long-term marketable securities at March 31, 2000 and 1999 consisted of the
following:
U.S. government and government agency securities and corporate bonds
2000 1999
----------- ----------
Aggregate Cost.................................... $91,879,288 $6,576,658
Fair Value........................................ 91,737,449 6,602,829
Gross Unrealized Gain (Loss)...................... $ (141,839) $ 26,171
The Company's long-term marketable securities are classified as available-
for-sale securities and, accordingly, are recorded at amortized cost plus
accrued interest which approximates fair value. The difference between cost
and fair value is included in stockholders' equity. All of these securities
mature in one to three years.
5. Inventories
Inventories at March 31, 2000 and 1999 consisted of the following:
2000 1999
---------- ----------
Raw materials........................................ $3,819,059 $1,754,654
Work-in-progress..................................... 4,826,081 1,843,323
Finished goods....................................... 601,810 1,426,575
---------- ----------
$9,246,950 $5,024,552
========== ==========
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses at March 31, 2000 and 1999 consisted
of the following:
2000 1999
---------- ----------
Accounts payable.................................... $3,230,176 $2,921,028
Accrued employee expenses........................... 645,384 --
Accrued executive bonus............................. 694,363 274,009
Accrued expenses.................................... 1,221,680 562,020
Accrued vacation.................................... 547,420 414,891
---------- ----------
$6,339,023 $4,171,948
========== ==========
B-10
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
7. Income Taxes
The reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is shown below.
March 31
------------------
2000 1999 1998
---- ---- ----
Statutory federal income tax rate..................... (34)% (34)% (34)%
State income taxes, net federal benefit............... (6)% (6)% (6)%
Nondeductible expenses................................ 1 % 1 % 1 %
Research & development credit......................... (2)% (4)% (1)%
Valuation allowance................................... 41 % 43% 41 %
--- --- ---
Effective income tax rate............................. 0 % 0 % 0 %
=== === ===
The principal components of the Company's deferred tax liabilities and
assets were the following:
March 31
--------------------------
2000 1999
------------ ------------
Deferred tax assets:
Net operating loss carryforward................... $ 42,776,000 $ 32,815,000
Research and development and other credits........ 1,845,000 2,597,000
Depreciation and other............................ 1,071, 000 995, 000
Valuation allowance............................... (45,692,000) (36,407,000)
------------ ------------
Net............................................. -- --
============ ============
At March 31, 2000 the Company had available for federal income tax purposes
net operating loss carryforwards of approximately $109,336,000, which expire
in years 2005 through 2019. This includes approximately $15,086,000 of SI
acquired net operating losses which begin to expire in 2003 and their
utilization by the Company will be subject to annual limitations. The Company
has recorded a deferred tax asset of approximately $3,456,000 reflecting the
benefit of deductions from the exercise of stock options. This deferred tax
asset has been fully reserved until it is more likely than not that the tax
benefit from the exercise of stock options will be realized. The benefit from
this $3,456,000 will be recorded as a credit to additional paid-in capital
when realized. Research and development and other credit carryforwards
amounting to approximately $1,845,000 are available to offset federal and
state income taxes and expire in years 2005 through 2019. Under current tax
law, the utilization of net operating loss carryforwards may be subject to
annual limitations in the event of certain changes in ownership.
8. Stockholders' Equity
In April 1997, the Company entered into a strategic alliance agreement with
an affiliate of EDF under which that affiliate purchased one million shares of
the Company's common stock at $10 per share.
The Offerings
On March 6, 2000 the Company completed a public offering of 3,500,000 shares
of its common stock and received net proceeds (after the underwriters discount
but before deducting offering expenses) of $205,625,000. On April 22, 1998 the
Company completed a public offering of 3,504,121 shares of its common stock
and received net proceeds (after the underwriters discount but before
deducting offering expenses) of $46,114,000, of which approximately $3,142,000
was used to retire the Company's subordinated notes.
B-11
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Stock-Based Compensation Plans
The Company has adopted the disclosure only option under Statement of
Financial Accounting Standards (SFAS) 123 "Accounting for Stock-Based
Compensation" as of March 31, 1997. Pro forma information regarding net income
and earnings per share is required by SFAS 123, and has been determined as if
the Company had accounted for its stock options under the fair value method of
that Statement. Consistent with the method of SFAS 123, the Company's net loss
and net loss per share would have increased to the pro forma amounts indicated
below:
For the fiscal years ended
March 31,
----------------------------
2000 1999 1998
-------- -------- --------
Net loss (in thousands)......... As reported $(17,598) $(15,326) $(12,378)
Pro forma $(21,368) $(17,960) $(13,725)
Loss per share.................. As reported $ (1.11) $ (1.01) $ (1.06)
Pro forma $ (1.35) $ (1.19) $ (1.18)
The pro forma amounts include the effects of all activity under the
Company's stock-based compensation plans since April 1, 1997. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants; a
weighted average risk free interest rate of 6.0%, 5.3% and 5.6% in fiscal
2000, fiscal 1999 and fiscal 1998, respectively; expected stock price
volatility of 65% for fiscal 2000, 60% for fiscal 1999 and 50% for fiscal
1998; no dividends; and a weighted average life of the options of 5 years. The
weighted average fair value of options granted during fiscal 2000, fiscal 1999
and fiscal 1998 was $7.45 per share, $7.36 per share and $5.74 per share,
respectively. The above amounts may not be indicative of future expense
because amounts are recognized over the vesting period and the Company expects
it will have additional grants and related activity under these plans in the
future.
The Company has six stock option plans including three Directors' Plans. The
stock option plans (the "Plans") include the 1987 Stock Plan (the "1987
Plan"), the 1993 Stock Option Plan (the "1993 Plan"), the 1996 Stock Incentive
Plan (the "1996 Plan"), the 1991 Director Stock Option Plan (the "1991
Director Plan"), the 1994 Director Stock Option Plan (the "1994 Director
Plan"), and the 1997 Director Stock Option Plan (the "1997 Director Plan").
The Plans are administered by the Compensation Committee of the Board of
Directors and permit the Company to sell or award common stock or to grant
stock options for the purchase of common stock.
The Plans provide for the issuance of incentive stock options and non-
qualified stock options to purchase the Company's common stock. In the case of
incentive stock options, the exercise price shall be equal to at least the
fair market value of the common stock, as determined by the Board of
Directors, on the date of grant. The 1991, 1994 and 1997 Director Plans are
stock option plans for members of the Board of Directors who are not also
employees of the Company ("outside directors"). The 1997 Director Plan
provides for the automatic grant of stock options for the purchase of common
stock by outside directors at an exercise price equal to fair market value at
the grant date. No further grants may be made under the 1987 Plan, the 1991
Director Plan or the 1994 Director Plan.
Options granted under the Plans generally become exercisable in equal annual
increments over a four or five year period and expire 10 years from the date
of grant or from two to three months after termination of employment.
B-12
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at March 31, 2000.
Outstanding Exercisable
-------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 3/31/00 Life Price at 3/31/00 Price
-------- ----------- ----------- -------- ----------- --------
$ 0.00- 5.89 329 0.1 $ 0.76 329 $ 0.76
5.89-11.78 1,835,732 7.3 10.03 519,534 8.96
11.78-17.66 1,133,530 7.4 12.91 430,188 13.25
17.66-23.55 455,130 4.1 20.35 448,130 20.38
23.55-52.99 0 0.0 0.00 0 0.00
52.99-58.88 40,000 9.9 58. 88 0 0.00
--------- ------- ---------- ------
$ 0.00-58.88 3,464,721 $ 12.62 1,398,181 $13.96
========= ==========
The following table summarizes the information concerning currently
outstanding and exercisable options:
Weighted
average
Exercise Number
Shares Price Exercisable
--------- -------- -----------
Outstanding at March 31, 1997.............. 2,545,665 $13.28 896,895
--------- ------ ---------
Granted.................................. 576,450 10.56
Exercised................................ (166,794) 1.81
Canceled................................. (330,831) 17.93
--------- ------ ---------
Outstanding at March 31, 1998.............. 2,624,490 $12.63 1,215,883
Granted.................................. 765,550 12.08
Exercised................................ (99,976) 2.67
Canceled................................. (54,538) 11.51
--------- ------ ---------
Outstanding at March 31, 1999.............. 3,235,526 $12.82 1,563,057
Granted.................................. 946,750 13.11
Exercised................................ (692,737) 13.10
Canceled................................. (24,818) 10.42
--------- ------ ---------
Outstanding at March 31, 2000.............. 3,464,721 $12.86 1,398,191
========= ====== =========
Available for grant at March 31, 2000 663,857
=========
Stock Purchase Warrants
The Company recorded an increase to additional paid-in capital and a
corresponding charge to deferred warrant costs of approximately $336,000 in
January 1998 related to the issuance of stock purchase warrants for 250,500
shares of common stock at an exercise price of $10.20 per share which become
exercisable over a five-year period following the date of grant. These
warrants were granted in consideration of ongoing financial services being
provided to the Company. Expense related to these warrants was approximately
$67,000, $67,000 and $17,000 for the fiscal years ended March 31, 2000, 1999
and 1998, respectively.
The Company also granted warrants in 1996 and 1998 to the Electric Power
Research Institute (EPRI). See note 10.
B-13
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
9. Commitments
The Company rents its headquarters in Westborough, Massachusetts under an
operating lease, which expires in May 2003. The Company also rents operating
facilities near Madison, Wisconsin under two leases which expire on December
31, 2003. The Company has an option to extend these leases for additional
five-year periods. Under all leases the Company pays for real estate taxes,
certain insurance coverage and operating expenses.
In October 1992, the Company entered into a five-year collaborative
technology development agreement with Superlink Joint Venture ("Superlink").
In October 1997, the Company extended the technology development agreement
with Superlink for an additional six-year period through September 2003, with
payments by the Company totaling $220,000 due the first year and payments of
$300,000 due each year for the next five years. The Company has the right to
terminate this agreement under certain conditions.
The Company signed an agreement with Massachusetts Institute of Technology
("MIT") effective November 17, 1999 that granted the Company an exclusive,
royalty-bearing, worldwide license for second-generation HTS wire, tape, and
conductors. Minimum payments under the license agreement are $25,000 per year
for a four-year period.
Rent expense under the leases mentioned above and research and development
expenses related to the technology agreement with Superlink Joint Venture were
as follows:
2000 1999 1998
---------- ---------- --------
Rent expense............................... $1,228,000 $1,154,000 $531,546
---------- ---------- --------
Research and development expenses.......... $ 300,000 $ 220,000 $260,593
---------- ---------- --------
Minimum future lease and license fee commitments at March 31, 2000 were as
follows:
For the years ended March 31 Total
---------------------------- ---------
2001............................................................. 1,310,874
2002............................................................. 1,310,874
2003............................................................. 1,310,874
2004............................................................. 445,436
10. Research and Development Agreements
In December 1999, the Company extended its development contract with Pirelli
Cables and Systems, a stockholder of the Company, to jointly develop high
temperature superconducting cable wires. Pirelli agreed to provide the Company
with up to $13,800,000 in additional funding over the five-year period between
October 1, 1999 and September 30, 2004. $3,500,000 of that funding was
recognized as revenue in fiscal 2000, of which $2,500,000 was for R&D work
performed by the Company prior to the effective date (October 1, 1999) of the
new Pirelli agreement. The Pirelli alliance was originally established in
February 1990; in the nine-year period between 1990 and September 30, 1999,
the Company received development funding of approximately $16,100,000 from
Pirelli.
In fiscal 1998, the Company entered into research and development contracts
with Asea Brown Boveri (ABB) and EDF, an affiliate of which is a stockholder
of the Company, to develop HTS wire for power transformers. The ABB and EDF
agreements, each of which called for the payment of $5,000,000 in development
fees to the Company over four years, were terminated in April 2000. Through
March 31, 2000, ABB had paid the Company $4,350,000 and EDF had paid the
Company $4,450,000. The Company recorded revenues under these contracts as
follows:
B-14
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
2000 1999 1998
---------- ---------- ----------
Pirelli................................... $4,250,000 $2,000,000 $2,500,000
ABB....................................... 1,050,000 1,025,000 1,275,000
EDF....................................... 1,050,000 1,600,000 1,800,000
---------- ---------- ----------
$6,350,000 $4,625,000 $5,575,000
========== ========== ==========
Future funding commitments under the Pirelli contract are $10,300,000
through September 2004. At March 31, 2000, $2,875,000 due under the
development contract with Pirelli was included in Accounts receivable, of
which $1,750,000 was classified as long-term.
In March 1996, the Company entered into a strategic alliance with the
Electric Power Research Institute (EPRI) to develop and commercialize a
possible next-generation HTS wire. This agreement ended on March 31, 2000. In
March 1996, under the first phase of the agreement, the Company granted a
warrant for 100,000 shares of common stock to EPRI, which becomes exercisable
over a five-year period following the date of grant. In March 1998, under the
second phase of the agreement, the Company granted to EPRI another warrant to
purchase 110,000 shares of common stock of the Company, which become
exercisable over the next five years. The Company will receive exclusive
license rights to intellectual property from EPRI. The Company recorded an
increase to additional paid-in capital and a corresponding charge to deferred
contract costs of $618,000 and $637,000 in fiscal 1998 and 1997, respectively,
relating to these warrants. Warrant expense related to these agreements was
approximately $314,000, $243,000 and $166,000 for the fiscal years ended March
31, 2000, 1999 and 1998, respectively.
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 used to directly offset the Company's research and
development and selling, general and administrative expenses and to purchase
capital equipment. The Company recorded costs and funding under these
agreements of $3,971,000 and $1,967,000, respectively, for fiscal 2000, of
$4,325,000 and $1,953,000, respectively, for fiscal 1999, and $3,139,000 and
$1,771,000, respectively, for fiscal 1998. At March 31, 2000, total funding
received to date under these agreements was $12,550,000. Future funding
expected to be received under existing agreements is approximately $194,000
subject to continued future funding allocations.
12. Related Party Transactions
In fiscal 1995 the Company made a series of loans to an officer of the
Company in the aggregate amount of $671,000 including accrued interest. The
Compensation Committee of the Board of Directors forgave $206,700 and $104,800
in fiscal years 1997 and 1996, respectively. In addition, the officer repaid
$100,000 of principal in November 1996. The Company has recorded compensation
expense of $349,400 in fiscal 1998 as a result of the forgiveness of the
remaining principal and interest on the loan by the Compensation Committee on
May 14, 1998.
13. Employee Benefit Plans
The Company has implemented two deferred compensation plans under Section
401(k) of the Internal Revenue Code. Any contributions by the Company are
discretionary. The company instituted a stock match program in July 1998 under
which the Company matched 25% of the first 4% of eligible contributions to the
plan. The Company recorded expense of $128,687 and $80,575 in fiscal years
2000 and 1999, respectively, and a corresponding charges to additional paid-in
capital related to this program. No contributions were made in fiscal 1998.
The Company does not have post-retirement or post-employment benefit plans.
B-15
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
14. Comprehensive Loss
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income", which requires that an entity include in
total comprehensive income certain amounts which were previously recorded
directly to stockholders' equity.
The Company's comprehensive loss was as follows:
2000 1999 1998
------------ ------------ ------------
Net Loss....................... $(17,597,830) $(15,326,176) $(12,378,188)
Other comprehensive income
(loss)........................ (182,907) 10,484 153,461
------------ ------------ ------------
Total comprehensive loss..... $(17,780,737) $(15,315,692) $(12,224,727)
============ ============ ============
Other comprehensive income (loss) represents changes in foreign currency
translation and unrealized gains and losses on investments.
15. Business Segment Information
The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), as of March 31, 1999. Prior year information was restated in conformity
with this accounting standard. The Company has two reportable business
segments as defined by FAS 131--High Temperature Superconducting ("HTS")
business segment, and the Superconducting Magnetic Energy Storage ("SMES")
business segment.
The HTS business segment develops and commercializes HTS wire, wire products
and systems. The focus of this segment's development effort is on power
transmission cables, motors, transformers, generators and fault current
limiters for large-scale applications. Included in the HTS business segment
assets are corporate assets including cash, cash equivalents and marketable
securities.
The SMES business segment is focused on marketing and selling commercial low
temperature SMES devices, on development and commercialization of new SMES
products, and on development of power electronic subsystems and engineering
services for the power quality and reliability marketplace.
The operating segment results for the HTS and SMES business segments are as
follows:
Fiscal Year Ended March 31
----------------------------------------
Net Sales 2000 1999 1998
--------- ------------ ------------ ------------
HTS.............................. $ 11,610,772 $ 9,747,580 $ 11,566,207
SMES............................. 3,502,363 1,509,722 3,562,605
------------ ------------ ------------
Total.......................... $ 15,113,135 $ 11,257,302 $ 15,128,812
============ ============ ============
Operating Income (loss) 2000 1999 1998
----------------------- ------------ ------------ ------------
HTS.............................. $(13,683,960) $(12,004,738) $(10,085,217)
SMES............................. (5,788,754) ( 5,246,240) ( 2,669,887)
------------ ------------ ------------
Total.......................... $(19,472,714) $(17,250,978) $(12,755,104)
============ ============ ============
B-16
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
The segment assets for the HTS and SMES business segments are as follows:
March 31,
------------------------
2000 1999
------------ -----------
HTS............................................... $235,028,266 $42,288,549
SMES.............................................. 13,885,990 5,841,754
------------ -----------
Total........................................... $248,914,256 $48,130,303
============ ===========
The accounting policies of the business segments are the same as those
described in Note 2.
16. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative instrument's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
In June 1999, FASB issued Statement 137 which defers the effective date to
fiscal years beginning after June 15, 2000. A company may also implement the
Statement as of the beginning of any fiscal quarter after issuance. Statement
133 cannot be applied retroactively. Statement 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
The Company's management believes the impact on its financial statements of
adopting Statement 133 will be immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The Company has not yet determined the impact, if any, of
adopting this interpretation.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25." This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. To the extent
that this Interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of July
1, 2000, the effects of applying this Interpretation are recognized on a
prospective basis from July 1, 2000. The Company has not yet determined the
impact, if any, of adopting this interpretation.
17. Subsequent Events (Unaudited)
On June 1, 2000 the Company completed the acquisition of Milwaukee,
Wisconsin-based Integrated Electronics, LLC, a co-developer and supplier of
advanced power electronic inverters for the Company's SMES systems. The
acquisition was accomplished as an asset purchase in exchange for cash and
common stock valued at approximately $2,000,000.
B-17
OFFICERS AND VICE PRESIDENTS, DIRECTORS AND FOUNDERS
Board of Directors
Gregory J. Yurek, Ph.D.
President, Chief Executive Officer and
Chairman of the Board
Albert J. Baciocco, Jr.
Vice Admiral, U.S. Navy (Retired)
President, The Baciocco Group, Inc.
Colonel Frank Borman
Chairman of the Board, DBT Online, Inc.
President, Patlex Corporation
Peter O. Crisp
Vice Chairman
Rockefeller Financial Services, Inc.
Richard Drouin, O.C., Q.C.
Partner, McCarthy Tetrault
Vice Chairman, Morgan Stanley Canada Limited
Former Chairman and Chief Executive Officer,
Hydro-Quebec
Gerard J. Menjon
Executive Vice President
Head of Research & Development Division
Electricite de France
Andrew G.C. Sage II
President, Sage Capital Corporation
John B. Vander Sande, Ph.D.
Cecil and Ida Green Distinguished Professor
Department of Material Science and Engineering
Massachusetts Institution of Technology
Corporate Officers and Vice Presidents
Gregory J. Yurek, Ph.D.
President, Chief Executive Officer and
Chairman of the Board
Roland E. Lefebvre
Executive Vice President, Chief Operating Officer
Alexis P. Malozemoff, Ph.D.
Senior Vice President
Chief Technical Officer
Stanley D. Piekos
Vice President, Corporate Development,
Chief Financial Officer, Treasurer and Secretary
Ross S. Gibson
Vice President, Chief Resources Officer
John B. Howe
Vice President, Electric Industry Affairs
Thomas M. Rosa
Chief Accounting Officer, Corporate Controller,
and Assistant Secretary
Robert E. Schwall, Ph.D.
Vice President, Product Engineering
Founders
Dr. Yet-Ming Chiang
Kyocera, Professor of Ceramics
Department of Materials Science and Engineering
Massachusetts Institute of Technology
David A. Rudman
Project Leader
Electro Magnetic Technology Division
National Institute of Technologies and Standards
John B. Vander Sande, Ph.D.
(see above)
Gregory J. Yurek, Ph.D.
(see above)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
American Superconductor Corporation
By: /s/ Gregory J. Yurek
----------------------------------
Gregory J. Yurek
Chairman of the Board, President
and
Chief Executive Officer
Date: June 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Gregory J. Yurek Director, Chairman of the June 27, 2000
______________________________________ Board, President and
Gregory J. Yurek Chief Executive Officer
(Principal Executive
Officer)
/s/ Stanley Piekos Chief Financial Officer June 27, 2000
______________________________________ and Treasurer (Principal
Stanley Piekos Financial Officer)
/s/ Thomas Rosa Chief Accounting Officer June 27, 2000
______________________________________ and Corporate Controller
Thomas Rosa (Principal Accounting
Officer)
/s/ Albert J. Baciocco, Jr. Director June 27, 2000
______________________________________
Albert J. Baciocco, Jr.
/s/ Frank Borman Director June 27, 2000
______________________________________
Frank Borman
/s/ Peter O. Crisp Director June 27, 2000
______________________________________
Peter O. Crisp
/s/ Richard Drouin Director June 27, 2000
______________________________________
Richard Drouin
/s/ Gerard J. Menjon Director June 27, 2000
______________________________________
Gerard J. Menjon
/s/ Andrew G.C. Sage, II Director June 27, 2000
______________________________________
Andrew G.C. Sage, II
/s/ John B. Vander Sande Director June 27, 2000
______________________________________
John B. Vander Sande
1
EXHIBIT INDEX
Exhibit No. Description
- ------------ -----------
3.1* Restated Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant, as amended to date
4.1** Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant
4.2*** Rights Agreement dated as of October 30, 1998 between the
Registrant and American Stock Transfer & Trust Company, as
Rights Agent
4.3**** Amendment No. 1 to Rights Agreement, dated as of January 29,
1999 between the Registrant and American Stock Transfer &
Trust Company, as Rights Agent
$$10.1** Employment Agreement dated as of December 4, 1991 between the
Registrant and Gregory J. Yurek
$$10.2** Employment Agreement dated as of December 4, 1991 between the
Registrant and Alexis P. Malozemoff
10.3** Form of Employee Nondisclosure and Developments Agreement
$$10.4** Employee Nondisclosure and Developments Agreement dated as of
December 26, 1990 between the Registrant and Alexis P.
Malozemoff
$$10.5** Noncompetition Agreement dated as of July 10, 1987 between the
Registrant and John Vander Sande
$10.6** License Agreement between the Registrant and MIT dated as of
July 6, 1987
$10.7** License Agreement between the Registrant and MIT dated as of
January 31, 1989
$10.8** License Agreement dated as of August 1, 1991
$10.9** License Agreement dated as of September 1, 1991
$10.10***** Second Amendment dated as of January 27, 1992 between the
Registrant and MIT amending the License Agreement dated as of
July 6, 1987 between the Registrant and MIT
$10.11+ Technology Development and Patent Licensing Agreement dated
October 7, 1992 among the Registrant and Electricity
Corporation of New Zealand Limited and Industrial Research
Limited
$$10.12+ Employment Agreement dated as of December 31, 1992 between
American Superconductor Europe GmbH and Dr. Gero Papst
10.13+ Lease dated March 9, 1993 between CGLIC on Behalf of its
Separate Account R, as Landlord, and the Registrant
10.14++ First Amendment to Lease between CGLIC, on Behalf of its
Separate Account R, as Landlord, and the Registrant, as
Tenant dated October 27, 1993
$$10.15+ 1993 Stock Option Plan
10.16+++ Agreement dated January 1, 1994 between Pirelli Cavi S.p.A.
and the Registrant
$10.17### Agreement between Pirelli Cavi S.p.A. and American
Superconductor Corporation, dated October 1, 1995
10.18++ Technology Development and Patent Licensing Agreement, First
Amendment dated August 7, 1993 among the Registrant and
Electricity Corporation of New Zealand and Industrial Research
Limited
10.19++++ Subcontract Agreement effective as of September 30, 1993 by
and between the Registrant and Reliance Electric Company
$10.20# Fourth Amendment, dated May 15, 1995, to the Exclusive License
Agreement between the Registrant and MIT dated July 6, 1987
$$10.21## 1996 Stock Incentive Plan
$10.22### Management Agreement between Electric Power Research
Institute, Inc. and American Superconductor Corporation,
effective January 1, 1996
$10.23### Technology License Agreement between Electric Power Research
Institute, Inc. and American Superconductor Corporation,
effective January 1, 1996
$10.24### Warrant granted to Electric Power Research Institute, Inc. by
American Superconductor Corporation, dated March 26, 1996.
10.25@ Strategic Alliance Agreement by and among the Registrant and
CHARTH (Compagnie Holding D'Applications Et De Realisations
Thermiques Et Hydrauliques), dated as of April 1, 1997
$$10.26@@ 1997 Director Stock Option Plan
$10.27@@ Patent License Agreement between Lucent Technologies Inc. and
the Registrant, dated as of March 31, 1998.
$10.28@@ Agreement dated April 1, 1997 by and among Electricite de
France and the Registrant
$10.29@@ Agreement effective April 1, 1997 by and between ABB
Transmission & Distribution Technology Ltd. and the Registrant
$10.30@@@ 1999 Program Addendum between Pirelli Cavi e Sistemi S.p.A and
the Registrant dated as of October 1, 1999.
21.1 Subsidiaries
27.1 Financial Data Schedule
- ---------
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-3, as amended (File No. 333-95261).
** Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33-43647).
*** Incorporated by reference to Exhibit to the Registrant's Registration
Statement on Form 8-A filed with the Commission on November 2, 1998.
**** Incorporated by reference to Exhibit to the Registration Registration
Statement on Form 8-A/A filed with the Commission on March 12, 1999.
***** Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 29, 1992.
+ Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 29, 1993.
++ Incorporated by reference to Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1993 filed with
the Commission on January 26, 1994.
+++ Incorporated by reference to Exhibits to Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-Q/A for the quarter ended
December 31, 1993 filed with the Commission on March 28, 1994.
++++ Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 29, 1994.
# Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 29, 1995.
## Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 28, 1996.
### Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K/A filed with the Commission on March 10, 1997.
@ Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 30, 1997.
@@ Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K filed with the Commission on June 26, 1998.
@@@ Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K filed with the Commission on January 24, 2000.
$ Confidential treatment previously requested and granted with respect to
certain portions, which portions were omitted and filed separately with
the Commission.
$$ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K.