ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
March 31,
2016
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
25,262
|
|
|
$
|
39,330
|
|
Accounts receivable, net
|
12,130
|
|
|
19,264
|
|
Inventory
|
26,448
|
|
|
18,512
|
|
Prepaid expenses and other current assets
|
2,847
|
|
|
5,778
|
|
Restricted cash
|
452
|
|
|
457
|
|
Total current assets
|
67,139
|
|
|
83,341
|
|
|
|
|
|
Property, plant and equipment, net
|
46,677
|
|
|
49,778
|
|
Intangibles, net
|
571
|
|
|
854
|
|
Restricted cash
|
934
|
|
|
934
|
|
Deferred tax assets
|
96
|
|
|
96
|
|
Other assets
|
336
|
|
|
315
|
|
Total assets
|
$
|
115,753
|
|
|
$
|
135,318
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
$
|
18,581
|
|
|
$
|
23,156
|
|
Note payable, current portion, net of discount of $77 as of September 30, 2016 and $42 as of March 31, 2016
|
2,089
|
|
|
2,624
|
|
Derivative liabilities
|
2,660
|
|
|
3,227
|
|
Deferred revenue
|
17,341
|
|
|
12,000
|
|
Total current liabilities
|
40,671
|
|
|
41,007
|
|
|
|
|
|
Note payable, net of discount of $133 as of March 31, 2016
|
—
|
|
|
1,367
|
|
Deferred revenue
|
8,262
|
|
|
9,269
|
|
Deferred tax liabilities
|
63
|
|
|
63
|
|
Other liabilities
|
54
|
|
|
63
|
|
Total liabilities
|
49,050
|
|
|
51,769
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
Common stock
|
143
|
|
|
141
|
|
Additional paid-in capital
|
1,013,676
|
|
|
1,011,813
|
|
Treasury stock
|
(1,371
|
)
|
|
(881
|
)
|
Accumulated other comprehensive income
|
119
|
|
|
660
|
|
Accumulated deficit
|
(945,864
|
)
|
|
(928,184
|
)
|
Total stockholders' equity
|
66,703
|
|
|
83,549
|
|
Total liabilities and stockholders' equity
|
$
|
115,753
|
|
|
$
|
135,318
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
Six months ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
|
$
|
18,507
|
|
|
$
|
19,004
|
|
|
$
|
31,852
|
|
|
$
|
42,727
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
16,404
|
|
|
15,992
|
|
|
28,886
|
|
|
36,495
|
|
|
|
|
|
|
|
|
|
Gross profit
|
2,103
|
|
|
3,012
|
|
|
2,966
|
|
|
6,232
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
2,867
|
|
|
3,003
|
|
|
5,819
|
|
|
6,165
|
|
Selling, general and administrative
|
6,347
|
|
|
6,773
|
|
|
13,563
|
|
|
14,308
|
|
Impairment of minority interest investment
|
—
|
|
|
38
|
|
|
—
|
|
|
779
|
|
Amortization of acquisition related intangibles
|
39
|
|
|
39
|
|
|
78
|
|
|
78
|
|
Total operating expenses
|
9,253
|
|
|
9,853
|
|
|
19,460
|
|
|
21,330
|
|
|
|
|
|
|
|
|
|
Operating loss
|
(7,150
|
)
|
|
(6,841
|
)
|
|
(16,494
|
)
|
|
(15,098
|
)
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives and warrants
|
1,244
|
|
|
701
|
|
|
567
|
|
|
1,501
|
|
Interest expense, net
|
(107
|
)
|
|
(286
|
)
|
|
(243
|
)
|
|
(603
|
)
|
Other expense, net
|
(518
|
)
|
|
(397
|
)
|
|
(393
|
)
|
|
(1,169
|
)
|
Loss before income tax expense
|
(6,531
|
)
|
|
(6,823
|
)
|
|
(16,563
|
)
|
|
(15,369
|
)
|
|
|
|
|
|
|
|
|
Income tax expense
|
794
|
|
|
875
|
|
|
1,117
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(7,325
|
)
|
|
$
|
(7,698
|
)
|
|
$
|
(17,680
|
)
|
|
$
|
(16,819
|
)
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.53
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.31
|
)
|
Diluted
|
$
|
(0.53
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.31
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
13,769
|
|
|
13,595
|
|
|
13,723
|
|
|
12,808
|
|
Diluted
|
13,769
|
|
|
13,595
|
|
|
13,723
|
|
|
12,808
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
Six months ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net loss
|
$
|
(7,325
|
)
|
|
$
|
(7,698
|
)
|
|
$
|
(17,680
|
)
|
|
$
|
(16,819
|
)
|
Other comprehensive gain (loss), net of tax:
|
|
|
|
|
|
|
|
Foreign currency translation gains (losses)
|
111
|
|
|
(111
|
)
|
|
(541
|
)
|
|
319
|
|
Total other comprehensive gain (loss), net of tax
|
111
|
|
|
(111
|
)
|
|
(541
|
)
|
|
319
|
|
Comprehensive loss
|
$
|
(7,214
|
)
|
|
$
|
(7,809
|
)
|
|
$
|
(18,221
|
)
|
|
$
|
(16,500
|
)
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
Six months ended
September 30,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(17,680
|
)
|
|
$
|
(16,819
|
)
|
Adjustments to reconcile net loss to net cash used in operations:
|
|
|
|
Depreciation and amortization
|
3,735
|
|
|
4,009
|
|
Stock-based compensation expense
|
1,653
|
|
|
1,834
|
|
Impairment of minority interest investments
|
—
|
|
|
746
|
|
Provision for excess and obsolete inventory
|
671
|
|
|
829
|
|
Write-off prepaid taxes
|
—
|
|
|
511
|
|
Loss from minority interest investments
|
—
|
|
|
356
|
|
Change in fair value of derivatives and warrants
|
(567
|
)
|
|
(1,501
|
)
|
Non-cash interest expense
|
98
|
|
|
207
|
|
Other non-cash items
|
(103
|
)
|
|
921
|
|
Changes in operating asset and liability accounts:
|
|
|
|
Accounts receivable
|
7,118
|
|
|
(1,196
|
)
|
Inventory
|
(8,696
|
)
|
|
3,478
|
|
Prepaid expenses and other current assets
|
2,843
|
|
|
2,957
|
|
Accounts payable and accrued expenses
|
(4,481
|
)
|
|
(3,337
|
)
|
Deferred revenue
|
4,497
|
|
|
(762
|
)
|
Net cash used in operating activities
|
(10,912
|
)
|
|
(7,767
|
)
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of property, plant and equipment
|
(359
|
)
|
|
(310
|
)
|
Proceeds from the sale of property, plant and equipment
|
15
|
|
|
7
|
|
Change in restricted cash
|
4
|
|
|
(16
|
)
|
Change in other assets
|
(28
|
)
|
|
91
|
|
Net cash used in investing activities
|
(368
|
)
|
|
(228
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Employee taxes paid related to net settlement of equity awards
|
(490
|
)
|
|
(109
|
)
|
Repayment of debt
|
(2,000
|
)
|
|
(2,000
|
)
|
Proceeds from public equity offering, net
|
—
|
|
|
22,281
|
|
Proceeds from exercise of employee stock options and ESPP
|
—
|
|
|
30
|
|
Net cash (used in)/provided by financing activities
|
(2,490
|
)
|
|
20,202
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(298
|
)
|
|
(125
|
)
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
(14,068
|
)
|
|
12,082
|
|
Cash and cash equivalents at beginning of year
|
39,330
|
|
|
20,490
|
|
Cash and cash equivalents at end of year
|
$
|
25,262
|
|
|
$
|
32,572
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
Cash paid for income taxes, net of refunds
|
$
|
894
|
|
|
$
|
758
|
|
Issuance of common stock to settle liabilities
|
212
|
|
|
197
|
|
Cash paid for interest
|
187
|
|
|
391
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business and Operations and Liquidity
Nature of the Business and Operations
American Superconductor Corporation (“AMSC” or the “Company”) was founded on April 9, 1987. The Company is a leading provider of megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power grid. In the wind power market, the Company enables manufacturers to field wind turbines through its advanced engineering, support services and power electronics products. In the power grid market, the Company enables electric utilities and renewable energy project developers to connect, transmit and distribute power through its transmission planning services and power electronics and superconductor-based products. The Company’s wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to its customers.
These unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with United States generally accepted accounting principles (“GAAP”) and the Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q. The going concern basis of presentation assumes that the Company will continue operations and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended
September 30, 2016
and
2015
and the financial position at
September 30, 2016
.
Liquidity
The Company has experienced recurring operating losses and as of
September 30, 2016
, the Company had an accumulated deficit of
$945.9 million
. In addition, the Company has experienced recurring negative operating cash flows. At
September 30, 2016
, the Company had cash and cash equivalents of
$25.3 million
. Cash used in operations for the
six
months ended
September 30, 2016
was
$10.9 million
.
From April 1, 2011 through the date of this filing, the Company has reduced its global workforce substantially. The Company has taken actions to consolidate certain business operations to reduce facility costs. As of
September 30, 2016
, the Company had a global workforce of
366
persons. The Company plans to closely monitor its expenses and, if required, expects to further reduce operating costs and capital spending to enhance liquidity.
Over the last several years, the Company has entered into several debt and equity financing arrangements in order to enhance liquidity. Since April 1, 2012, the Company has generated aggregate cash flows from financing activities of
$68.5 million
. This amount includes proceeds from an April 2015 equity offering, which generated net proceeds of approximately
$22.3 million
, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. See Note 9, “Debt”, and Note 11 “Stockholders Equity” for further discussion of these financing arrangements. The Company believes that it is in compliance with the covenants and restrictions included in the agreements governing its debt arrangements as of
September 30, 2016
.
In December 2015, the Company entered into a set of strategic agreements valued at approximately
$210.0 million
with Inox Wind Ltd. (“Inox”), which includes a multi-year supply contract pursuant to which the Company will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. After this initial
three
to
four
year period, Inox agreed that the Company will continue as Inox’s preferred supplier and Inox will be required to purchase from the Company a majority of its electric control systems requirements for an additional
three
-year period. These agreements are expected to provide a foundation for the business as the Company pursues its longer-term objectives.
On March 11, 2016, the Company sold
100%
of its minority share investment in Tres Amigas LLC ("Tres Amigas") to an investor for
$0.6 million
. The Company received
$0.3 million
according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final
$0.3 million
is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions, which is expected to occur during the third quarter of fiscal 2016. See Note 13, “Minority Investments”, for further information about such investment.
The Company believes it has sufficient liquidity to fund its operations, capital expenditures and scheduled cash payments under its debt obligations for the next twelve months. The Company’s liquidity is highly dependent on its ability to increase revenues, its ability to control its operating costs, its ability to maintain compliance with the covenants and restrictions on its debt obligations (or obtain waivers from its lender in the event of non-compliance), and its ability to raise additional capital, if necessary. There can be no assurance that the Company will be able to continue to raise additional capital from other sources or execute on any other means of improving liquidity described above.
2. Stock-Based Compensation
The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the
three and six
months ended
September 30, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of revenues
|
$
|
49
|
|
|
$
|
61
|
|
|
$
|
99
|
|
|
$
|
158
|
|
Research and development
|
62
|
|
|
87
|
|
|
92
|
|
|
283
|
|
Selling, general and administrative
|
542
|
|
|
558
|
|
|
1,462
|
|
|
1,393
|
|
Total
|
$
|
653
|
|
|
$
|
706
|
|
|
$
|
1,653
|
|
|
$
|
1,834
|
|
The Company granted
9,703
stock options and
161,000
restricted stock awards during the six months ended
September 30, 2016
, and
392,689
restricted stock awards during the six months ended
September 30, 2015
. These awards generally vest over 2-
3 years
. Awards for restricted stock include both time-based and performance-based awards. For options and awards that vest upon the passage of time, expense is being recorded over the vesting period. Performance-based awards are expensed over the requisite service period based on probability of achievement.
The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested outstanding stock options was
$0.5 million
at
September 30, 2016
. This expense will be recognized over a weighted average expense period of approximately
2.4 years
. The total unrecognized compensation cost for unvested outstanding restricted stock was
$2.8 million
at
September 30, 2016
. This expense will be recognized over a weighted-average expense period of approximately
1.8 years
.
The Company granted
9,703
stock options during the
three and six
months ended
September 30, 2016
and did not grant any stock options in the three or six months ended
September 30, 2015
. These options will vest over 2 years. The weighted average assumptions used in the Black Scholes valuation model for stock options granted during the six months ended
September 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Expected volatility
|
67.6
|
%
|
|
N/A
|
|
67.6
|
%
|
|
N/A
|
Risk-free interest rate
|
1.3
|
%
|
|
N/A
|
|
1.3
|
%
|
|
N/A
|
Expected life (years)
|
5.7
|
|
|
N/A
|
|
5.7
|
|
|
N/A
|
Dividend yield
|
None
|
|
|
N/A
|
|
None
|
|
|
N/A
|
The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company's common stock and the implied volatility of the Company's traded options. The expected term was estimated based on an analysis of the Company's historical experience of exercise, cancellation and expiration patterns. The risk-free interest rate is based on the average of the five- and seven-year U.S. Treasury rates.
3. Computation of Net Loss per Common Share
Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net loss by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock
method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. For each of the
three and six
months ended
September 30, 2016
and
2015
,
1.6 million
shares were not included in the calculation of diluted EPS as they were considered anti-dilutive, of which
0.4 million
relate to outstanding stock options, and
1.2 million
relate to outstanding warrants, respectively.
The following table reconciles the numerators and denominators of the earnings per share calculation for the
three and six
months ended
September 30, 2016
and
2015
(in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
(7,325
|
)
|
|
(7,698
|
)
|
|
$
|
(17,680
|
)
|
|
$
|
(16,819
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
14,190
|
|
|
14,054
|
|
|
14,161
|
|
|
12,958
|
|
Weighted-average shares subject to repurchase
|
(421
|
)
|
|
(459
|
)
|
|
(438
|
)
|
|
(150
|
)
|
Shares used in per-share calculation ― basic
|
13,769
|
|
|
13,595
|
|
|
13,723
|
|
|
12,808
|
|
Shares used in per-share calculation ― diluted
|
13,769
|
|
|
13,595
|
|
|
13,723
|
|
|
12,808
|
|
Net loss per share ― basic
|
(0.53
|
)
|
|
(0.57
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.31
|
)
|
Net loss per share ― diluted
|
(0.53
|
)
|
|
(0.57
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.31
|
)
|
4. Fair Value Measurements
A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has been established. This hierarchy prioritizes the inputs into three broad levels as follows:
|
|
|
|
|
|
Level 1
|
-
|
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
|
|
|
Level 2
|
-
|
Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
|
|
|
|
|
|
Level 3
|
-
|
Unobservable inputs that reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
|
The Company provides a gross presentation of activity within Level 3 measurement roll-forward and details of transfers in and out of Level 1 and 2 measurements. A change in the hierarchy of an investment from its current level is reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 is made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities from Level 1 and Level 2 to Level 3 of the fair value measurement hierarchy during the
three and six
months ended
September 30, 2016
.
A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of
September 30, 2016
and
March 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carrying
Value
|
|
Quoted Prices in
Active Markets
(
Level 1)
|
|
Significant Other
Observable Inputs
(
Level 2)
|
|
Significant
Unobservable Inputs
(
Level 3)
|
September 30, 2016:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
14,077
|
|
|
$
|
14,077
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
Warrants
|
$
|
2,660
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carrying
Value
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
March 31, 2016:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
16,040
|
|
|
$
|
16,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
Warrants
|
$
|
3,227
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,227
|
|
The table below reflects the activity for the Company’s major classes of liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
Warrants
|
April 1, 2016
|
$
|
3,227
|
|
Mark to market adjustment
|
(567
|
)
|
Balance at September 30, 2016
|
$
|
2,660
|
|
|
|
|
|
|
|
Warrants
|
April 1, 2015
|
$
|
2,999
|
|
Mark to market adjustment
|
228
|
|
Balance at March 31, 2016
|
$
|
3,227
|
|
Valuation Techniques
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments and are measured using such inputs as quoted prices, and are classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of deposits and money market accounts.
Warrants
Warrants were issued in conjunction with a Securities Purchase Agreement (the “Purchase Agreement”) with Capital Ventures International (“CVI”) in April 2012, an equity offering to Hudson Bay Capital in November 2014, and a Loan and Security Agreement with Hercules Technology Growth Capital, Inc. (“Hercules”) in June 2012 and through subsequent amendments. See Note 9, “Debt,” and Note 10 “Warrants and Derivative Liabilities,” for additional information. These warrants are subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in fair value in derivatives and warrants until the earlier of their exercise or expiration.
The Company relies on various assumptions in a lattice model to determine the fair value of warrants. The Company has valued the warrants within Level 3 of the valuation hierarchy. See Note 10, “Warrants and Derivative Liabilities,” for a discussion of the warrants and the valuation assumptions used.
5. Accounts Receivable
Accounts receivable at
September 30, 2016
and
March 31, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
March 31,
2016
|
Accounts receivable (billed)
|
$
|
11,417
|
|
|
$
|
18,089
|
|
Accounts receivable (unbilled)
|
767
|
|
|
1,229
|
|
Less: Allowance for doubtful accounts
|
(54
|
)
|
|
(54
|
)
|
Accounts receivable, net
|
$
|
12,130
|
|
|
$
|
19,264
|
|
6. Inventory
Inventory at
September 30, 2016
and
March 31, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
March 31,
2016
|
Raw materials
|
$
|
11,233
|
|
|
$
|
9,665
|
|
Work-in-process
|
2,349
|
|
|
3,411
|
|
Finished goods
|
6,429
|
|
|
3,215
|
|
Deferred program costs
|
6,437
|
|
|
2,221
|
|
Net inventory
|
$
|
26,448
|
|
|
$
|
18,512
|
|
The Company recorded inventory write-downs of
$0.4 million
and
$0.2 million
for each of the three months ended
September 30, 2016
and
2015
, respectively. The Company recorded inventory write-downs of
$0.7 million
and
$0.8 million
for each of the
six
months ended
September 30, 2016
, and
2015
, respectively. These write downs were based on evaluating its inventory on hand for excess quantities and obsolescence.
Deferred program costs as of
September 30, 2016
and
March 31, 2016
primarily represent costs incurred on programs accounted for under contract accounting where the Company needs to complete development milestones before revenue and costs will be recognized.
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
September 30, 2016
and
March 31, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
March 31,
2016
|
Accounts payable
|
$
|
6,262
|
|
|
$
|
5,837
|
|
Accrued inventories in-transit
|
1,804
|
|
|
1,908
|
|
Accrued other miscellaneous expenses
|
2,431
|
|
|
3,003
|
|
Accrued compensation
|
4,093
|
|
|
7,526
|
|
Income taxes payable
|
1,297
|
|
|
1,281
|
|
Accrued warranty
|
2,694
|
|
|
3,601
|
|
Total
|
$
|
18,581
|
|
|
$
|
23,156
|
|
The Company generally provides a
one
to
three
year warranty on its products, commencing upon installation. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience.
Product warranty activity was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
2,774
|
|
|
$
|
3,344
|
|
|
$
|
3,601
|
|
|
$
|
3,934
|
|
Change in accruals for warranties during the period
|
316
|
|
|
429
|
|
|
417
|
|
|
423
|
|
Settlements during the period
|
(396
|
)
|
|
(500
|
)
|
|
(1,324
|
)
|
|
(1,084
|
)
|
Balance at end of period
|
$
|
2,694
|
|
|
$
|
3,273
|
|
|
$
|
2,694
|
|
|
$
|
3,273
|
|
8. Income Taxes
T
he Company recorded income tax expense of
$0.8 million
and
$1.1 million
in the
three and six
months ended
September 30, 2016
, respectively, and
$0.9 million
and
$1.5 million
in the
three and six
months ended
September 30, 2015
, respectively. Income tax expense was primarily due to dividend withholding taxes and income taxes in the Company’s foreign jurisdictions.
Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than
50%
likely to be realized upon ultimate settlement. The Company re-evaluates these uncertain tax positions on a quarterly basis. The evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The Company did not identify any uncertain tax positions in the
six
months ended
September 30, 2016
and did not have any gross unrecognized tax benefits as of March 31, 2016.
9. Debt
Senior Secured Term Loans
On November 15, 2013, the Company amended its existing Loan and Security Agreement with Hercules and entered into a new term loan (the “Term Loan B”), borrowing
$10.0 million
. After closing fees and expenses, the net proceeds to the Company for the Term Loan B were
$9.8 million
. The Term Loan B bears an interest rate of
11%
plus the percentage, if any, by which the prime rate as reported by the Wall Street Journal exceeds
3.75%
. The Company is repaying the Term Loan B in equal monthly installments ending on November 1, 2016. The principal balance of the Term Loan B is approximately
$0.7 million
as of
September 30, 2016
. The Company will pay an end of term fee of
$0.5 million
upon the earlier of maturity or prepayment of the Term Loan B. The Company has accrued the end of term fee and recorded a corresponding amount into the debt discount. The Term Loan B includes a mandatory prepayment feature which allows Hercules the right to use any of the Company’s net proceeds from specified asset dispositions greater than
$1.0 million
in a calendar year to pay off any outstanding accrued interest and principal balance on the Term Loan B. The Company determined the fair value to be de-minimis for this feature. In addition, the Company incurred
$0.2 million
of legal and origination costs at inception of the loan, which have been recorded as a debt discount.
On December 19, 2014, the Company entered into a second amendment with Hercules (the “Hercules Second Amendment”) and entered into a new term loan, borrowing an additional
$1.5 million
(the “Term Loan C”). After closing fees and expenses, the net proceeds to the Company for the Term Loan C were
$1.4 million
. The Term Loan B and Term Loan C are collectively referred to as the “Term Loans”. The Term Loan C also bears the same interest rate as the Term Loan B. The Company will make interest only payments until maturity on
June 1, 2017
, when the loan is scheduled to be repaid in its entirety. The maturity date of the Term Loan C was extended from March 1, 2017 to June 1, 2017 due to the Company’s April 2015 equity offering which raised more than
$10 million
in new capital before December 31, 2015. The Company will pay an end of term fee of approximately
$0.1 million
upon earlier of maturity or prepayment of the Term Loan C. The Company has accrued the end of term fee and recorded a corresponding amount in the debt discount. The Term Loan C includes the same mandatory prepayment feature as the Term Loan B. The Company determined the fair value to be de-minimus for this feature. In addition, the Company incurred approximately
$0.1 million
of legal and origination costs at inception of the loan, which have been recorded as a debt discount.
Hercules received warrants to purchase
13,927
shares of common stock (the “First Warrant”) and
25,641
shares of common stock (the “Second Warrant”) in conjunction with a prior term loan which has been repaid in full and the Term Loan B. Due to certain adjustment provisions within the warrants, they qualified for liability accounting. The fair value of the warrants,
$0.4 million
and
$0.2 million
, respectively, was recorded upon issuance to debt discount and a warrant liability. In conjunction with the Hercules Second Amendment, the First Warrant and Second Warrant were cancelled and replaced with the issuance of a new warrant (the “Hercules Warrant”) to purchase
58,823
shares of common stock at an exercise price of
$11.00
per share, subject to adjustment. The Hercules Warrant expires on June 30, 2020. See Note 10, “Warrants and Derivative Liabilities”, for a discussion on the Hercules Warrant and the valuation assumptions used.
Under Term Loan B, the total debt discount including the Hercules Warrant, end of term fee and legal and origination costs of
$1.0 million
is being amortized into interest expense over the term of the Term Loan B using the effective interest method. During both the three and
six
months ended
September 30, 2016
the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan B of less than
$0.1 million
. During both the three and
six
months ended
September 30, 2015
the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan B of
$0.1 million
Under Term Loan C, the total debt discount, including the Hercules Warrant, end of term fee and legal and origination costs of
$0.3 million
is being amortized into interest expense over the term of the Term Loan C using the effective interest method. During both the three and
six
months ended
September 30, 2016
the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan C of less than
$0.1 million
. During both the three and
six
months ended
September 30, 2015
the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan C of less than
$0.1 million
.
The Term Loans are secured by substantially all of the Company’s existing and future assets, including a mortgage on real property owned by the Company’s wholly-owned subsidiary, ASC Devens LLC, and located at 64 Jackson Road, Devens, Massachusetts. The Term Loans contain certain covenants that restrict the Company’s ability to, among other things, incur or assume certain debt, merge or consolidate, materially change the nature of the Company’s business, make certain investments, acquire or dispose of certain assets, make guarantees or grant liens on its assets, make certain loans, advances or investments, declare dividends or make distributions or enter into transactions with affiliates. In addition, there is a covenant that requires the Company to maintain a minimum unrestricted cash balance (the “Minimum Threshold”) in the United States. As a result of the Company’s April 2015 equity offering, the Minimum Threshold was reduced to the lesser of
$2.0 million
or the aggregate outstanding principal balance of the Term Loans. As of
September 30, 2016
, the Minimum Threshold was
$2.0 million
. The events of default under the Term Loans include, but are not limited to, failure to pay amounts due, breaches of covenants, bankruptcy events, cross defaults under other material indebtedness and the occurrence of a material adverse effect and/or change in control. In the case of a continuing event of default, Hercules may, among other remedies, declare due all unpaid principal amounts outstanding and any accrued but unpaid interest and foreclose on all collateral granted to Hercules as security under the Term Loans.
Interest expense on the Term Loans for the three months ended
September 30, 2016
and
2015
, was
$0.1 million
and
$0.3 million
, respectively, each of which included less than
$0.1 million
of non-cash interest expense related to the amortization of the debt discount on the respective Term Loans. Interest expense on the Term Loans for the
six
months ended
September 30, 2016
and
2015
, was
$0.3 million
and
$0.6 million
, respectively, each of which included
$0.1 million
and
$0.2 million
, respectively, of non-cash interest expense related to the amortization of the debt discount on the respective Term Loans
Although the Company believes that it is in compliance with the covenants and restrictions under the Term Loans as of
September 30, 2016
, there can be no assurance that the Company will continue to be in compliance.
10. Warrants and Derivative Liabilities
Senior Convertible Note Warrant
On April 4, 2012, the Company entered into the Purchase Agreement with CVI. The Purchase Agreement included a warrant to purchase
309,406
shares of the Company’s common stock (the “Original Warrant”). Pursuant to an exchange in October 2013, the Original Warrant was exchanged for a new warrant (the “Exchanged Warrant”). The Exchanged Warrant is exercisable at any time on or after the date that is
six months
after the issuance of the Original Warrant and entitles CVI to purchase shares of the Company’s common stock for a period of
five years
from the date the Original Warrant becomes exercisable at an exercise price equal to
$15.94
per share, subject to certain price-based and other anti-dilution adjustments. The Exchanged Warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates, would beneficially own in excess of
4.99%
of the Company’s common stock. This percentage may be raised to any other percentage not in excess of
9.99%
at the option of CVI, upon at least
61
-days prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.
The Company calculated the fair value of the Exchanged Warrant, utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. See Note 4, "Fair Value Measurements", for further discussion.
The Company accounts for the Exchanged Warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The Exchanged Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to equity.
Following is a summary of the key assumptions used to calculate the fair value of the Exchanged Warrant:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 16
|
September 30,
2016
|
|
June 30,
2016
|
|
|
|
|
|
|
Risk-free interest rate
|
0.59%
|
|
0.48%
|
|
|
|
|
|
|
Expected annual dividend yield
|
—
|
|
—
|
|
|
|
|
|
|
Expected volatility
|
70.50%
|
|
76.30%
|
|
|
|
|
|
|
Term (years)
|
1.01
|
|
1.26
|
|
|
|
|
|
|
Fair value
|
$0.2 million
|
|
$0.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 15
|
March 31,
2016
|
|
December 31,
2015
|
|
September 30,
2015
|
|
June 30,
2015
|
|
March 31,
2015
|
Risk-free interest rate
|
0.66%
|
|
0.96%
|
|
0.64%
|
|
0.74%
|
|
0.73%
|
Expected annual dividend yield
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Expected volatility
|
76.76%
|
|
76.68%
|
|
73.39%
|
|
71.61%
|
|
70.42%
|
Term (years)
|
1.51
|
|
1.76
|
|
2.01
|
|
2.26
|
|
2.51
|
Fair value
|
$0.4 million
|
|
$0.3 million
|
|
$0.1 million
|
|
$0.2 million
|
|
$0.3 million
|
The Company recorded net gains of
$0.2 million
and
$0.1 million
, respectively, resulting from the decrease in the fair value of the Exchanged Warrant during the three months ended
September 30, 2016
and
2015
, respectively. The Company recorded net gains of
$0.2 million
resulting from the decrease in the fair value of the Exchanged Warrant during each of the
six
months ended
September 30, 2016
and
2015
, respectively.
Hercules Warrant
On December 19, 2014, the Company entered into the Hercules Second Amendment. See Note 9, “Debt” for additional information. In conjunction with the agreement, the Company issued the Hercules Warrant to purchase
58,823
shares of the Company’s common stock. The Hercules Warrant is exercisable at any time after its issuance at an initial exercise price of
$11.00
per share, subject to certain price-based and other anti-dilution adjustments, and expires on
June 30, 2020
. As a result of the equity offering in April 2015, the exercise price of the Hercules Warrant was reduced to
$9.41
per share.
The Company accounts for the Hercules Warrant as a liability due to certain provisions within the warrant. The Hercules Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.
Following is a summary of the key assumptions used to calculate the fair value of the Hercules Warrant:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 16
|
September 30,
2016
|
|
June 30,
2016
|
|
|
|
|
|
|
Risk-free interest rate
|
0.97%
|
|
0.86%
|
|
|
|
|
|
|
Expected annual dividend yield
|
—
|
|
—
|
|
|
|
|
|
|
Expected volatility
|
67.98%
|
|
68.34%
|
|
|
|
|
|
|
Term (years)
|
3.75
|
|
4.00
|
|
|
|
|
|
|
Fair value
|
$0.2 million
|
|
$0.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 15
|
March 31,
2016
|
|
December 31,
2015
|
|
September 30,
2015
|
|
June 30,
2015
|
|
March 31,
2015
|
Risk-free interest rate
|
1.08%
|
|
1.65%
|
|
1.31%
|
|
1.63%
|
|
1.41%
|
Expected annual dividend yield
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Expected volatility
|
70.25%
|
|
73.57%
|
|
75.32%
|
|
72.57%
|
|
74.60%
|
Term (years)
|
4.25
|
|
4.50
|
|
4.75
|
|
5.00
|
|
5.25
|
Fair value
|
$0.2 million
|
|
$0.2 million
|
|
$0.1 million
|
|
$0.2 million
|
|
$0.2 million
|
The Company recorded net gains, resulting from a decrease in the fair value of the Hercules Warrant, of
$0.1 million
during the three months ended
September 30, 2016
and less than
$0.1 million
during the three months ended
September 30, 2015
, to change in fair value of derivatives and warrants. The Company recorded a net gain of less than
$0.1 million
in the fair value of the Hercules Warrant during the
six
months ended
September 30, 2016
and a net gain of
$0.1 million
during the
six
months ended
September 30, 2015
.
November 2014 Warrant
On November 13, 2014, the Company completed an offering of approximately
909,090
units of the Company’s common stock with Hudson Bay Capital. Each unit consisted of one share of the Company’s common stock and
0.9
of a warrant to purchase one share of common stock, or a warrant to purchase in the aggregate
818,181
shares (the “November 2014 Warrant”). The November 2014 Warrant is exercisable at any time, at an initial exercise price equal to
$11.00
per share, subject to certain price-based and other anti-dilution adjustments, and expires on
November 13, 2019
. As a result of the April 2015 equity offering, the exercise price of the November 2014 Warrant was reduced to
$9.41
per share.
The Company accounts for the November 2014 Warrant as a liability due to certain provisions within the warrant. The November 2014 Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.
Following is a summary of the key assumptions used to calculate the fair value of the November 2014 Warrant:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 16
|
September 30,
2016
|
|
June 30,
2016
|
|
|
|
|
|
|
Risk-free interest rate
|
0.93%
|
|
0.77%
|
|
|
|
|
|
|
Expected annual dividend yield
|
—
|
|
—
|
|
|
|
|
|
|
Expected volatility
|
68.96%
|
|
70.01%
|
|
|
|
|
|
|
Term (years)
|
3.12
|
|
3.37
|
|
|
|
|
|
|
Fair value
|
$2.3 million
|
|
$3.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 15
|
March 31,
2016
|
|
December 31,
2015
|
|
September 30,
2015
|
|
June 30,
2015
|
|
March 31,
2015
|
Risk-free interest rate
|
0.98%
|
|
1.51%
|
|
1.17%
|
|
1.44%
|
|
1.28%
|
Expected annual dividend yield
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Expected volatility
|
69.88%
|
|
70.02%
|
|
73.02%
|
|
74.18%
|
|
75.96%
|
Term (years)
|
3.62
|
|
3.87
|
|
4.12
|
|
4.37
|
|
4.62
|
Fair value
|
$2.6 million
|
|
$2.1 million
|
|
$1.3 million
|
|
$1.8 million
|
|
$2.5 million
|
The Company recorded net gains, resulting from a decrease in the fair value of the November 2014 Warrant, of
$0.9 million
and
$0.5 million
in the three months ended
September 30, 2016
and
2015
, respectively. The Company recorded net gains of
$0.3 million
and
$1.2 million
during the
six
months ended
September 30, 2016
and
2015
, respectively.
The Company prepared its estimates for the assumptions used to determine the fair value of the warrants issued in conjunction with both the Term Loans and our unsecured, senior convertible note with CVI, as well as the November 2014 Warrant utilizing the respective terms of the warrants with similar inputs, as described above.
11. Stockholders’ Equity
On April 29, 2015, the Company completed an equity offering with Cowen and Company, LLC, under which the Company sold
4.0 million
shares of its common stock at an offering price of
$6.00
per share. After underwriting discounts, commissions and offering expenses, the Company received net proceeds from the offering of approximately
$22.3 million
.
12. Commitments and Contingencies
Legal Contingencies
From time to time, the Company is involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.
On September 13, 2011, the Company commenced a series of legal actions in China against Sinovel Wind Group Co. Ltd. (“Sinovel”). The Company’s Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd., filed a claim for arbitration with the Beijing Arbitration Commission in accordance with the terms of the Company’s supply contracts with Sinovel. The case is captioned
(2011) Jing Zhong An Zi No. 963
. The Company alleges that Sinovel committed various material breaches of its contracts with the Company and Sinovel has refused to pay past due amounts for prior shipments of core electrical components and spare parts. The Company is seeking compensation for past product shipments and retention (including interest) in the amount of approximately RMB
485 million
(approximately
$73 million
) due to Sinovel’s breaches of its contracts. The Company is also seeking specific performance of its existing contracts as well as reimbursement of all costs and reasonable expenses with respect to the arbitration. The value of the undelivered components under the existing contracts, including the deliveries refused by Sinovel in March 2011, amounts to approximately RMB
4.6 billion
(approximately
$690 million
).
On October 8, 2011, Sinovel filed with the Beijing Arbitration Commission an application under the caption
(2011) Jing Zhong An Zi No. 963,
for a counterclaim against the Company for breach of the same contracts under which the Company filed its original arbitration claim. Sinovel claims, among other things, that the goods supplied by the Company do not conform to the standards specified in the contracts and claims damages in the amount of approximately RMB
1.2 billion
(approximately
$180 million
) upon Sinovel’s requests for change of counterclaim. On February 27, 2012, Sinovel filed with the Beijing Arbitration Commission an application under the caption
(2012) Jing Zhong An Zi No. 157,
against the Company for breach of the same contracts under which the Company filed its original arbitration claim. Sinovel claims, among other things, that the goods supplied by the Company do not conform to the standards specified in the contracts and claims damages in the amount of approximately RMB
105 million
(approximately
$16 million
). The Company believes that Sinovel’s claims are without merit and it intends to defend these actions vigorously. Since the proceedings in this matter are still in the early technical review phase, the Company cannot reasonably estimate possible losses or range of losses at this time.
Other
The Company enters into long-term construction contracts with customers that require the Company to obtain performance bonds. The Company is required to deposit an amount equivalent to some or all the face amount of the performance bonds into an escrow account until the termination of the bond. When the performance conditions are met, amounts deposited as collateral for the performance bonds are returned to the Company. In addition, the Company has various contractual arrangements in which minimum quantities of goods or services have been committed to be purchased on an annual basis.
As of
September 30, 2016
, the Company had
$0.5 million
of restricted cash included in current assets and
$0.9 million
of restricted cash included in long-term assets. These amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply contracts. These deposits are held in interest bearing accounts.
13. Minority Investments
Investment in Tres Amigas LLC
The Company made an investment in Tres Amigas, focused on providing the first common interconnection of America’s
three
power grids to help the country achieve its renewable energy goals and facilitate the smooth, reliable and efficient transfer of green power from region to region. The Company’s original investment in Tres Amigas was
$5.4 million
.
During the three months ended June 30, 2015, the Company determined that as a result of delays in Tres Amigas securing financing for the project, as well as the Company’s expectation that its investment would not be recoverable based on recent adverse market indicators for potential sales of the Company’s share of the investment, that its investment in Tres Amigas required further analysis for other-than-temporary impairment. The Company recorded an impairment charge of
$0.7 million
to fully impair this investment in the three months ended June 30, 2015.
On March 11, 2016, the Company sold
100%
of its minority share investment in Tres Amigas to an investor for
$0.6 million
. The Company received
$0.3 million
according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final
$0.3 million
is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions which is expected to occur during the third quarter of fiscal 2016.
14. Business Segments
The Company reports its financial results in
two
reportable business segments: Wind and Grid.
Through the Company’s Windtec Solutions, the Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. The Company supplies advanced power electronics and control systems, licenses its highly engineered wind turbine designs, and provides extensive customer support services to wind turbine manufacturers. The Company’s design portfolio includes a broad range of drive trains and power ratings of
2
MWs and higher. The Company provides a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.
Through the Company’s Gridtec Solutions, the Grid business segment enables electric utilities and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability and affordability. The sales process is enabled by transmission planning services that allow it to identify power grid congestion, poor power quality and other risks, which helps the Company determine how its solutions can improve network performance. These services often lead to sales of grid interconnection solutions for wind farms and solar power plants, power quality systems, and transmission and distribution cable systems. The Company also sells ship protection products to the U.S. Navy through its Grid business segment.
The operating results for the
two
business segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
:
|
|
|
|
|
|
|
|
Wind
|
$
|
12,898
|
|
|
$
|
13,583
|
|
|
$
|
18,573
|
|
|
$
|
31,747
|
|
Grid
|
5,609
|
|
|
5,421
|
|
|
13,279
|
|
|
10,980
|
|
Total
|
$
|
18,507
|
|
|
$
|
19,004
|
|
|
$
|
31,852
|
|
|
$
|
42,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating (loss) profit:
|
|
|
|
|
|
|
|
Wind
|
$
|
(1,235
|
)
|
|
$
|
(1,991
|
)
|
|
$
|
(4,264
|
)
|
|
$
|
(1,864
|
)
|
Grid
|
(5,262
|
)
|
|
(4,113
|
)
|
|
(10,577
|
)
|
|
(10,621
|
)
|
Unallocated corporate expenses
|
(653
|
)
|
|
(737
|
)
|
|
(1,653
|
)
|
|
(2,613
|
)
|
Total
|
$
|
(7,150
|
)
|
|
$
|
(6,841
|
)
|
|
$
|
(16,494
|
)
|
|
$
|
(15,098
|
)
|
The accounting policies of the business segments are the same as those for the consolidated Company. The Company’s business segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment revenues and segment operating loss. The disaggregated financial results of the segments reflect allocation of certain functional expense categories consistent with the basis and manner in which Company management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain corporate expenses which the Company does not believe are specifically attributable or allocable to either of the
two
business segments have been excluded from the segment operating loss.
Unallocated corporate expenses primarily consist of stock-based compensation expense of
$0.7 million
in each of the three months ended
September 30, 2016
and
2015
, respectively, and stock-based compensation expense of
$1.7 million
and
$1.8 million
in the
six
months ended
September 30, 2016
and
2015
, respectively. Additionally, unallocated corporate expenses include an impairment charge of
$0.7 million
for the
six
months ended
September 30, 2015
.
Total assets for the
two
business segments as of
September 30, 2016
and
March 31, 2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
March 31,
2016
|
Wind
|
$
|
26,390
|
|
|
$
|
34,389
|
|
Grid
|
39,200
|
|
|
36,255
|
|
Corporate assets
|
50,163
|
|
|
64,674
|
|
Total
|
$
|
115,753
|
|
|
$
|
135,318
|
|
The following table sets forth customers who represented 10% or more of the Company’s total revenues for the
three and six
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
INOX Wind Limited
|
68
|
%
|
|
66
|
%
|
|
51
|
%
|
|
55
|
%
|
Beijing JINGCHENG New Energy Co., Ltd
|
—
|
%
|
|
<10%
|
|
|
<10%
|
|
|
15
|
%
|
15. Recent Accounting Pronouncements
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued ASU 2014-09,
ASU Revenue from Contracts with Customers (Topic 606),
The guidance substantially converges final standards on revenue recognition between the FASB and IASB providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. The ASU is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 may have on its current practices.
In July 2014, the FASB issued ASU 2014-12,
Compensation - Stock Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide that a Performance Target could be Achieved after the Requisite Service Period.
To account for such awards, a reporting entity should apply existing guidance in FASB Accounting Standards Codification
Topic 718, Compensation - Stock Compensation
, as it relates to awards with performance conditions that affect vesting. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The Company adopted ASU 2014-12 effective April 1, 2016 and concludes that there is no material impact on its current practices.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.
The new standard explicitly requires the assessment at interim and annual periods, and provides management with its own disclosure guidance. This ASU is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company is currently evaluating the impact, if any, the adoption of ASU 2014-15 may have on its current practices.
In April 2015, the FASB issued ASU 2015-03
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03
require an entity to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability as opposed to an asset. Amortization of the costs will continue to be reported as interest expense. The Company adopted ASU 2015-03 effective April 1, 2016 and concludes that there is no material impact on its consolidated results of operations, financial condition, or cash flow.
In June 2015, the FASB issued ASU 2015-10
Technical Corrections and Improvements. The amendments in ASU 2015-10
clarify and correct some of the differences that arose between original guidance from FASB, EITF and other sources, and the translation into the new Codification. The Company adopted ASU 2015-10 effective April 1, 2016 and concludes that there is no material impact on its consolidated results of operations, financial condition, or cash flow.
In July 2015, the FASB issued ASU 2015-11
Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in ASU 2015-11
clarify the proper way to identify market value in the use of lower of cost or market value valuation method. As market value could be determined multiple ways under prior standards, it will now be considered as net realizable value. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, the adoption of ASU 2015-11 may have on its current practices.
In September 2015, the FASB issued ASU 2015-16
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
The amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The Company adopted ASU 2015-16 effective April 1, 2016 and concludes that there is no material impact on its consolidated results of operations, financial condition, or cash flow.
In January 2016, the FASB issued ASU 2016-01
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The amendments in ASU 2016-01 will enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-01 may have on its current practices.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent consideration. The ASU is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-08 may have on its current practices.
In March 2016, the FASB issued ASU 2016-09
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The amendments in ASU 2016-09 will simplify several aspects of the accounting for share-based payment transactions, including tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-09 may have on its current practices.
In April 2016, the FASB issued ASU 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. The amendments in ASU 2016-10 will clarify the identification of performance obligations and the licensing implementation guidance. The ASU is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-10 may have on its current practices.
In April 2016, the FASB issued ASU 2016-12
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. The amendments in ASU 2016-12 will clarify the prior guidance surrounding collectability criteria, presentation of taxes collected, non-cash consideration, contract modifications, completed contracts at completion and retrospective application guidance. The ASU is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of ASU 2016-12 may have on its current practices.
In June 2016, the FASB issued ASU 2016-13
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The amendments in ASU 2016-13 will provide more decision useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that year. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-13 may have on its current practices.
In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments
. The amendments in ASU 2016-15 will provide more guidance towards the classification of multiple different types of cash flows in order to reduce the diversity in reporting across entities. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that year. The Company is currently evaluating the impact, if any, the adoption of ASU 2016-15 may have on its current practices.
16. Subsequent Events
The Company has performed an evaluation of subsequent events through the time of filing this Quarterly Report on Form 10-Q with the SEC, and has determined that there are no such events to report.
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements in Part II, “Item 1A. Risk Factors” and in Part I under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects or our prospective results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management’s current expectations and are inherently uncertain. There are a number of important factors that could materially impact the value of our common stock or cause actual results to differ materially from those indicated by such forward-looking statements. Such factors include: We have a history of operating losses, which may continue in the future. Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular fiscal quarter; We have a history of negative operating cash flows, and we may require additional financing in the future, which may not be available to us; We may be required to issue performance bonds or provide letters of credit, which restricts our ability to access any cash used as collateral for the bonds or letters of credit; Changes in exchange rates could adversely affect our results from operations; If we fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired and may lead investors and other users to lose confidence in our financial data; Our Term Loans include certain covenants and other events of default. Should we not comply with these covenants or incur an event of default, we may be required to repay our obligation in cash, which could have an adverse effect on our liquidity; A significant portion of our revenues are derived from a single customer; Our financial condition may have an adverse effect on our customer and supplier relationships; Our success in addressing the wind energy market is dependent on the manufacturers that license our designs; Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects; We may not realize all of the sales expected from our backlog of orders and contracts; Our business and operations would be adversely impacted in the event of a failure or security breach of our information technology infrastructure; We may have manufacturing quality issues at our manufacturing facility in Romania, which would negatively affect our revenues and financial position; We rely upon third-party suppliers for the components and subassemblies of many of our Wind and Grid products, making us vulnerable to supply shortages and price fluctuations, which could harm our business; Many of our revenue opportunities are dependent upon subcontractors and other business collaborators; If we fail to implement our business strategy successfully, our financial performance could be harmed; Problems with product quality or product performance may cause us to incur warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share; Our contracts with the U.S. government are subject to audit, modification or termination by the U.S. government and include certain other provisions in favor of the government. The continued funding of such contracts remains subject to annual congressional appropriation which, if not approved, could reduce our revenue and lower or eliminate our profit; Many of our customers outside of the United States, particularly in China, are either directly or indirectly, related to governmental entities, and we could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws outside the United States; We have had limited success in marketing and selling our superconductor products and system-level solutions, and our failure to more broadly market and sell our products and solutions could lower our revenue and cash flow; We may acquire additional complementary businesses or technologies, which may require us to incur substantial costs for which we may never realize the anticipated benefits; Our success depends upon the commercial use of high temperature superconductor (“HTS”) products, which is currently limited, and a widespread commercial market for our products may not develop; Growth of the wind energy market depends largely on the availability and size of government subsidies and economic incentives; We have operations in and depend on sales in emerging markets, including India and China, and global conditions could negatively affect our operating results or limit our ability to expand our operations outside of these countries. Changes in India’s or China’s political, social, regulatory and economic environment may affect our financial performance; Our products face intense competition, which could limit our ability to acquire or retain customers; Our international operations are subject to risks that we do not face in the United States, which could have an adverse effect on our operating results; Adverse changes in domestic and global economic conditions could adversely affect our operating results; We may be unable to adequately prevent disclosure of trade secrets and other proprietary information; Our patents may not provide meaningful protection for our technology, which could result in us losing some or all of our market position; There are a number of technological challenges that must be successfully addressed before our superconductor products can gain widespread commercial acceptance, and our inability to address such technological challenges could adversely affect our ability to acquire customers for our products; Third parties have or may acquire patents that cover the materials, processes and technologies we use or may use in the future to manufacture our Amperium products, and our success
depends on our ability to license such patents or other proprietary rights; Our technology and products could infringe intellectual property rights of others, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages and disrupt our business; We have filed a demand for arbitration and other lawsuits against our former largest customer, Sinovel, regarding amounts we contend are overdue. We cannot be certain as to the outcome of these proceedings; We have been named as a party in various legal proceedings, and we may be named in additional litigation, all of which will require significant management time and attention, result in significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business, operating results and financial condition; and our common stock has experienced, and may continue to experience, significant market price and volume fluctuations, which may prevent our stockholders from selling our common stock at a profit and could lead to costly litigation against us that could divert our management’s attention. These and the important factors discussed under the caption “Risk Factors” in Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2016, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Any such forward-looking statements represent management’s estimates as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
American Superconductor
®
, Amperium
®
, AMSC
®
, D-VAR
®
, PowerModule
™
, PQ-IVR
®
, SeaTitan
™
, Gridtec Solutions
™
, Windtec Solutions
™
and Smarter, Cleaner... Better Energy
™
are trademarks or registered trademarks of American Superconductor Corporation or our subsidiaries. We reserve all of our rights with respect to our trademarks or registered trademarks regardless of whether they are so designated in this Quarterly Report on Form 10-Q by an
®
or
™
symbol. All other brand names, product names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.
Executive Overview
We are a leading provider of megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power grid. In the wind power market, we enable manufacturers to field highly competitive wind turbines through our advanced power electronics products, engineering, and support services. In the power grid market, we enable electric utilities and renewable energy project developers to connect, transmit and distribute power through our transmission planning services and power electronics and superconductor-based products. Our wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to our customers.
Our wind and power grid solutions help to improve energy efficiency, alleviate power grid capacity constraints and increase the adoption of renewable energy generation. Demand for our solutions is driven by the growing needs for renewable sources of electricity, such as wind and solar energy, and for modernized smart grids that improve power reliability, security and quality. Concerns about these factors have led to increased spending by corporations as well as supportive government regulations and initiatives on local, state, national and global levels, including renewable portfolio standards, tax incentives and international treaties.
We manufacture products using two proprietary core technologies: PowerModule programmable power electronic converters and our Amperium high temperature superconductor (“HTS”) wires. These technologies and our system-level solutions are protected by a broad and deep intellectual property portfolio consisting of hundreds of patents and licenses worldwide.
We operate our business under two market-facing business units: Wind and Grid. We believe this market-centric structure enables us to more effectively anticipate and meet the needs of wind turbine manufacturers, power generation project developers and electric utilities.
|
|
•
|
Wind.
Through our Windtec Solutions
™
, our Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. We supply advanced power electronics and control systems, license our highly engineered wind turbine designs, and provide extensive customer support services to wind turbine manufacturers. Our design portfolio includes a broad range of drive trains and power ratings of 2 megawatts (“MW”) and higher. We provide a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.
|
|
|
•
|
Grid.
Through our Gridtec Solutions
™
, our Grid business segment enables electric utilities and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability, security and affordability. We provide transmission planning services that allow us to identify power grid congestion, poor power quality, and other risks, which help us determine how our solutions can improve network performance.
|
These services often lead to sales of our grid interconnection solutions for wind farms and solar power plants, power quality systems and transmission and distribution cable systems. We also sell ship protection products to the U.S. Navy through our Grid business segment.
Our fiscal year begins on April 1 and ends on March 31. When we refer to a particular fiscal year, we are referring to the fiscal year beginning on April 1 of that same year. For example, fiscal 2016 refers to the fiscal year beginning on April 1, 2016. Other fiscal years follow similarly.
We have experienced recurring operating losses and as of
September 30, 2016
, had an accumulated deficit of
$945.9 million
. In addition, we have experienced recurring negative operating cash flows. At
September 30, 2016
, we had cash and cash equivalents of
$25.3 million
. Cash used in operations for the
six
months ended
September 30, 2016
was
$10.9 million
. We expect to use less cash for operations in the second half of the fiscal year ending March 31, 2017 compared to the first half. See "Liquidity and Capital Resources" below for additional discussion.
Over the last several years, we have entered into several debt and equity financing arrangements in order to enhance liquidity. Since April 1, 2012, we generated aggregate cash flows from financing activities of
$68.5 million
. This amount includes proceeds from our April 2015 equity offering, which generated net proceeds of approximately $22.3 million, after deducting underwriting discounts, commissions and offering expenses. See Note 9, “Debt”, and Note 11 “Stockholders Equity” for further discussion of these financing arrangements. We believe that we are in compliance with the covenants and restrictions included in the agreements governing our debt arrangements as of
September 30, 2016
.
In March 2016, we entered into a set of agreements (collectively, the "Joint Development Agreement") to jointly develop an advanced low cost manufacturing process for second generation high temperature superconductor wire with BASF Corporation ("BASF"). Under the Joint Development Agreement, our manufacturing know-how for our Amperium® superconductor wire and BASF's chemical solution deposition production technology will be combined. As part of the Joint Development Agreement, we also entered into a royalty-bearing, non-exclusive license under which we agreed to provide BASF a specified portion of our second generation (2G) HTS wire manufacturing technology
.
Our cash requirements depend on numerous factors, including the successful completion of our product development activities, our ability to commercialize our Resilient Electric Grid (“REG“) and ship protection system solutions, rate of customer and market adoption of our products, collecting receivables according to established terms, and the continued availability of U.S. government funding during the product development phase of our Superconductors based products. In December 2015, we entered into a set of strategic agreements valued at approximately $210.0 million with Inox Wind Limited ("Inox"), which includes a multi-year supply contract pursuant to which we will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. After this initial three to four year period, Inox agreed that we will continue as Inox’s preferred supplier and Inox will be required to purchase from us a majority of its electric control systems requirements for an additional three-year period. These agreements are expected to provide a foundation for the business as we pursue our longer-term objectives. Significant deviations to our business plan with regard to these factors and events, including any prolonged disruption in our revenues with our largest customers, which are important drivers to our business, could have a material adverse effect on our operating performance, financial condition, and future business prospects. We expect to pursue the expansion of our operations through internal growth, diversification of our customer base, and potential strategic alliances. See “Liquidity and Capital Resources” below for additional discussion.
On March 11, 2016, we sold 100% of our minority investment in Tres Amigas to an investor for $0.6 million. We received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final $0.3 million is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions which is expected to occur during the third quarter of fiscal 2016. See Note 13, “Minority Investments”, for further information about such investment.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ under different assumptions or conditions. During the
six
months ended
September 30, 2016
there were no significant changes in the critical accounting policies that were disclosed in our Form 10-K for fiscal
2015
, which ended on
March 31, 2016
.
Results of Operations
Three and six
months ended
September 30, 2016
compared to the
three and six
months ended
September 30, 2015
Revenues
Total revenues decreased
3%
and
25%
to
$18.5 million
and
$31.9 million
for the
three and six
months ended
September 30, 2016
, respectively, compared to
$19.0 million
and
$42.7 million
for the
three and six
months ended
September 30, 2015
, respectively. Our revenues are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
:
|
|
|
|
|
|
|
|
|
|
Wind
|
$
|
12,898
|
|
|
$
|
13,583
|
|
|
$
|
18,573
|
|
|
$
|
31,747
|
|
Grid
|
5,609
|
|
|
5,421
|
|
|
13,279
|
|
|
10,980
|
|
Total
|
$
|
18,507
|
|
|
$
|
19,004
|
|
|
$
|
31,852
|
|
|
$
|
42,727
|
|
Our Wind business unit accounted for
70%
and
58%
of total revenues for the
three and six
months ended
September 30, 2016
, respectively, compared to
71%
and
74%
for the
three and six
months ended
September 30, 2015
, respectively. Revenues in the Wind business unit decreased
5%
and
41%
to
$12.9 million
and
$18.6 million
in the
three and six
months ended
September 30, 2016
, respectively, from
$13.6 million
and
$31.7 million
in the
three and six
months ended
September 30, 2015
, respectively. Wind business unit revenues in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 decreased primarily due to lower license development and royalty revenue from Inox in India and lower spare part sales in China. Wind business unit revenues in the six months ended September 30, 2016 as compared to the six months ended September 30, 2015 decreased primarily due to a lower volume of sales to Inox in India in the first quarter of fiscal 2016, lower royalty revenues, and lower sales of spare parts.
Our Grid business unit accounted for
30%
and
42%
of total revenues for the
three and six
months ended
September 30, 2016
, respectively, compared to
29%
and
26%
for the
three and six
months ended
September 30, 2015
, respectively. Our Grid business unit revenues increased
3%
and
21%
to
$5.6 million
and
$13.3 million
in the
three and six
months ended
September 30, 2016
, respectively, from
$5.4 million
and
$11.0 million
in the
three and six
months ended
September 30, 2015
, respectively. Grid business unit revenues in the three months ended September 30, 2016 increased primarily due to revenue from the Joint Development Agreement with BASF. Grid business unit revenues in the six months ended September 30, 2016 increased primarily due to higher revenues from the Joint Development Agreement and higher revenues from a project with the U.S. Navy.
Revenues from Project HYDRA and Project REG represented
13%
of our Grid business unit’s revenue for each of the
three and six
months ended
September 30, 2016
and 6% and 9% for the
three and six
months ended
September 30, 2015
, respectively. Our revenues for these projects are derived by funding from the Department of Homeland Security (“DHS”). Project HYDRA is a project with Consolidated Edison, Inc. (“ConEd”) to demonstrate our REG product in ConEd’s electric grid. Project REG is a project with Commonwealth Edison, Inc. (“ComEd”) to permanently install our REG product in ComEd’s electric grid. This fault current limiting cable system is designed to utilize customized Amperium
®
HTS wire, and ancillary controls to deliver more power through the grid while also being able to suppress power surges that can disrupt service. DHS has committed 100% of the total expected funding of $29.0 million for Project HYDRA. Under Project REG, DHS is expected to invest up to $60.0 million to enable the deployment of the REG system in Chicago’s electric grid. We have substantially completed the first phase of the project which among other things, has resulted in the creation of a detailed deployment plan. In the fiscal year ended March 31, 2015, DHS committed funding of $1.5 million for this phase of the project. During the fiscal year ended March 31, 2016, DHS committed funding of an additional $3.7 million, for a total of $5.2 million. This additional funding serves as a bridge between the detailed deployment plan and construction phases of the project. The period of performance to complete the engineering work extends through May 31, 2017. The final phase of the project involves the delivery of the REG system and the associated construction and deployment of the system in ComEd’s grid. We will not begin this phase of the project until all parties agree to proceed. There can be no assurance that all parties will agree to proceed with the project.
The following table sets forth customers who represented 10% or more of our total revenues for the
three and six
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
INOX Wind Limited
|
68
|
%
|
|
66
|
%
|
|
51
|
%
|
|
55
|
%
|
Beijing JINGCHENG New Energy Co., Ltd
|
—
|
%
|
|
<10%
|
|
|
<10%
|
|
|
15
|
%
|
Cost of Revenues and Gross Margin
Cost of revenues increased by
3%
and decreased by
21%
to
$16.4 million
and
$28.9 million
for the
three and six
months ended
September 30, 2016
, respectively, compared to
$16.0 million
and
$36.5 million
for the
three and six
months ended
September 30, 2015
, respectively. Gross margin was
11.4%
and
9.3%
for the
three and six
months ended
September 30, 2016
, respectively, compared to
15.8%
and
14.6%
for the
three and six
months ended
September 30, 2015
, respectively. The decreases in gross margin were primarily due to lower Wind revenues, particularly in the three months ended June 30, 2016, as well as lower royalty revenue in the three and six months ended September 30, 2016, which is reflected as 100% gross margin.
Operating Expenses
Research and development
R&D expenses decreased by
5%
and
6%
to
$2.9 million
and
$5.8 million
for the
three and six
months ended
September 30, 2016
, respectively, from
$3.0 million
and
$6.2 million
for the
three and six
months ended
September 30, 2015
, respectively. The decrease in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 is primarily due to lower supplies and materials consumed in the current-year period on internal development projects. The decrease in the six months ended September 30, 2016 compared to the six months ended September 30, 2015 is primarily the result of lower stock compensation expense, partially offset by new product development expenses in our Grid segment in the first quarter of fiscal 2016.
Selling, general, and administrative
SG&A expenses decreased by
6%
and
5%
to
$6.3 million
and
$13.6 million
in the
three and six
months ended
September 30, 2016
, respectively, from
$6.8 million
and
$14.3 million
in the
three and six
months ended
September 30, 2015
, respectively. The decrease in SG&A expenses in the three months ended September 30, 2016 was due primarily to cost reductions in China and lower software license fees. The decreased SG&A expense in the six months ended September 30, 2016 compared to the six months ended September 30, 2015 was due to lower compensation expense and legal costs.
Impairment of minority interest investment
We recorded an impairment charge of $0.7 million in the
six
months ended
September 30, 2015
, to fully impair our investment in Tres Amigas as our investment was no longer deemed recoverable.
Amortization of acquisition related intangibles
We recorded amortization expense related to our core technology and know-how, trade names and trademark intangible assets of less than $0.1 million in each of the
three and six
months ended
September 30, 2016
and
2015
.
Operating loss
Our operating loss is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating (loss) profit:
|
|
|
|
|
|
|
|
Wind
|
$
|
(1,235
|
)
|
|
$
|
(1,991
|
)
|
|
$
|
(4,264
|
)
|
|
$
|
(1,864
|
)
|
Grid
|
(5,262
|
)
|
|
(4,113
|
)
|
|
(10,577
|
)
|
|
(10,621
|
)
|
Unallocated corporate expenses
|
(653
|
)
|
|
(737
|
)
|
|
(1,653
|
)
|
|
(2,613
|
)
|
Total
|
$
|
(7,150
|
)
|
|
$
|
(6,841
|
)
|
|
$
|
(16,494
|
)
|
|
$
|
(15,098
|
)
|
Our Wind segment generated operating losses of
$1.2 million
and
$4.3 million
in the
three and six
months ended
September 30, 2016
, respectively, compared to
$2.0 million
and
$1.9 million
in the
three and six
months ended
September 30, 2015
, respectively. The decrease in the Wind business unit operating loss in the three months ended September 30, 2016 as compared to the three months ended September 30, 2015 was due primarily to costs arising from the transitioning of manufacturing from China to Romania in the prior fiscal year. The increase in Wind business unit operating loss in the six months ended September 30, 2016 as compared to the six months ended September 30, 2015 was due primarily to lower revenues as previously discussed.
The operating loss in our Grid segment increased to
$5.3 million
in the three months ended September 30, 2016 from
$4.1 million
in the three months ended September 30, 2015, due primarily to lower gross margin. Operating loss was
$10.6 million
in each of the six months ended September 30, 2016 and 2015, respectively, as higher revenue and gross margin, was offset by higher engineering and sales and marketing expenses.
Unallocated corporate expenses primarily include stock-based compensation expense of
$0.7 million
and
$1.7 million
for the
three and six
months ended
September 30, 2016
, respectively, and
$0.7 million
and
$1.8 million
for the
three and six
months ended
September 30, 2015
, respectively, and an impairment charge of $0.7 million, for the
six
months ended
September 30, 2015
.
Change in fair value of derivatives and warrants
The change in fair value of derivatives and warrants resulted in gains of
$1.2 million
and
$0.6 million
in the
three and six
months ended
September 30, 2016
, respectively, compared to gains of
$0.7 million
and
$1.5 million
in the
three and six
months ended
September 30, 2015
, respectively. The changes in the fair value were primarily driven by changes in stock price, which is a key valuation metric.
Interest expense, net
Interest expense, net, was
$0.1 million
and
$0.2 million
in the
three and six
months ended
September 30, 2016
, respectively, compared to
$0.3 million
and
$0.6 million
in the
three and six
months ended
September 30, 2015
, respectively. The interest expense is related to the remaining balances on our Term Loan B and Term Loan C with Hercules Technology Growth Capital, Inc. ("Hercules") which will mature in November 2016 and June 2017, respectively.
Other expense, net
Other expense, net, was
$0.5 million
and
$0.4 million
in the
three and six
months ended
September 30, 2016
, respectively, compared to
$0.4 million
and
$1.2 million
in the
three and six
months ended
September 30, 2015
, respectively. The increase in other expense, net during the three months ended September 30, 2016, was primarily driven by higher foreign currency losses. The decrease in other expense, net during the six months ended September 30, 2016 was primarily the result of lower charges for minority interest in the current year period following the impairment of our minority interest in Tres Amigas in the prior year period.
Income Taxes
Income tax expense was
$0.8 million
and
$1.1 million
in the
three and six
months ended
September 30, 2016
, respectively, compared to
$0.9 million
and
$1.5 million
in the
three and six
months ended
September 30, 2015
, respectively. The decreases in income tax expense during the three and six months ended September 30, 2016 were primarily due to lower taxes in our foreign jurisdictions.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in accordance with GAAP.
We define non-GAAP net loss as net loss before stock-based compensation, amortization of acquisition-related intangibles, restructuring and impairment charges, consumption of zero cost-basis inventory, changes in fair value of derivatives and warrants, non-cash interest expense, and the other non-cash or unusual charges, net of any tax effects related to these items, indicated in the table below. We believe non-GAAP net loss assists management and investors in comparing our performance across reporting periods on a consistent basis by excluding these non-cash or non-recurring charges that we do not believe are indicative of our core operating performance. In addition, we use non-GAAP net loss as a factor in evaluating management’s performance when determining incentive compensation and to evaluate the effectiveness of our business strategies. A reconciliation of GAAP net loss to non-GAAP net loss is set forth in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Six months ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net loss
|
$
|
(7,325
|
)
|
|
$
|
(7,698
|
)
|
|
$
|
(17,680
|
)
|
|
$
|
(16,819
|
)
|
Stock-based compensation
|
653
|
|
|
706
|
|
|
1,653
|
|
|
1,834
|
|
Amortization of acquisition-related intangibles
|
39
|
|
|
39
|
|
|
78
|
|
|
78
|
|
Restructuring and impairment charges
|
—
|
|
|
38
|
|
|
—
|
|
|
779
|
|
Consumption of zero cost-basis inventory
|
(482
|
)
|
|
(1,223
|
)
|
|
(640
|
)
|
|
(2,069
|
)
|
Change in fair value of derivatives and warrants
|
(1,244
|
)
|
|
(701
|
)
|
|
(567
|
)
|
|
(1,501
|
)
|
Non-cash interest expense
|
42
|
|
|
96
|
|
|
98
|
|
|
207
|
|
Tax effect of adjustments
|
77
|
|
|
—
|
|
|
102
|
|
|
—
|
|
Non-GAAP net loss
|
$
|
(8,240
|
)
|
|
$
|
(8,743
|
)
|
|
$
|
(16,956
|
)
|
|
$
|
(17,491
|
)
|
|
|
|
|
|
|
|
|
Non-GAAP net loss per share
|
$
|
(0.60
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.37
|
)
|
Weighted average shares outstanding - basic and diluted
|
13,769
|
|
|
13,595
|
|
|
13,723
|
|
|
12,808
|
|
We incurred non-GAAP net losses of
$8.2 million
or
$0.60
per share, and
$17.0 million
or
$1.24
per share, for the
three and six
months ended
September 30, 2016
, respectively, compared to non-GAAP net losses of
$8.7 million
or
$0.64
per share, and
$17.5 million
or
$1.37
per share, for the
three and six
months ended
September 30, 2015
, respectively. The decrease in non-GAAP net loss in the three month period ended September 30, 2016 compared to the three month period ended September 30, 2015 was driven primarily by a decrease in net loss and by lower consumption of zero-cost basis inventory. The decrease in non-GAAP net loss in the six months ended September 30, 2016 compared to the six month period ended September 30, 2015 was driven primarily by lower addbacks to net loss from the change in the fair value of derivatives and by lower consumption of zero cost-basis inventory.
Liquidity and Capital Resources
At
September 30, 2016
, we had cash, cash equivalents, and restricted cash of
$26.6 million
, compared to
$40.7 million
at March 31, 2016, a decrease of $14.1 million. Our cash and cash equivalents, and restricted cash are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
March 31,
2016
|
Cash and cash equivalents
|
$
|
25,262
|
|
|
$
|
39,330
|
|
Restricted cash
|
1,386
|
|
|
1,391
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
26,648
|
|
|
$
|
40,721
|
|
As of
September 30, 2016
, we had approximately $4.4 million of cash, cash equivalents, and restricted cash in foreign bank accounts, with a majority of this cash located in Europe. The decrease in total cash and cash equivalents, and restricted cash was due primarily to cash used by operating and by financing activities. See further discussion below.
For the
six
months ended
September 30, 2016
, net cash used in operating activities was
$10.9 million
compared to
$7.8 million
for the
six
months ended
September 30, 2015
. The increase in net cash used in operations was due primarily to an increased net loss as well as a use of cash for changes in operating asset and liability accounts, particularly in the three months ended September 30, 2016, due to a gap in revenues and collections from Inox due to their stated working capital constraints, as well as payments for inventory purchased prior to curtailing our supply chain for electrical control systems, which has negatively impacted
revenues and cash flows during the first half of fiscal 2016. During the second quarter of fiscal 2016, shipments to Inox began to return to a more normal level.
For the
six
months ended
September 30, 2016
, net cash used in investing activities was
$0.4 million
, compared to
$0.2 million
for the
six
months ended
September 30, 2015
. The increase in net cash used in investing activities was due primarily to a use of cash for a change in other assets, compared to a source of cash in the six months ended September 30, 2015.
For the
six
months ended
September 30, 2016
, net cash used in financing activities was
$2.5 million
compared to net cash provided by financing activities of
$20.2 million
in the
six
months ended
September 30, 2015
. The increase in net cash used in financing activities was primarily due to net proceeds of $22.3 million from the issuance of 4.0 million shares of common stock on April 29, 2015, with no such capital raise in the current year period.
At
September 30, 2016
, we had
$0.5 million
of restricted cash included in current assets and
$0.9 million
of restricted cash included in long-term assets. These amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply contracts and customs authorities. These deposits are held in interest bearing accounts.
On November 15, 2013, we amended our Loan and Security Agreement with Hercules and entered into a new term loan (the “Term Loan B”), borrowing $10.0 million. After closing fees and expenses, we received net proceeds of $9.8 million. The Term Loan B bears an interest rate equal to 11% plus the percentage, if any, in which the prime rate as reported by The Wall Street Journal exceeds 3.75%. We made interest-only payments from December 1, 2013 to May 31, 2014. If we achieved certain revenue targets for the six-month period ending March 31, 2014, interest only payments would continue through August 31, 2014. We did not achieve the revenue required to extend this interest only period. Beginning June 1, 2014, we began making payments on the Term Loan B in equal monthly installments which ended on November 1, 2016.
On December 19, 2014, we entered into a second amendment with Hercules (the “Hercules Second Amendment”) and entered into a new term loan (the “Term Loan C”), borrowing an additional $1.5 million (we collectively refer to the Term Loan B and Term Loan C as the “Term Loans”). After closing fees and expenses, the net proceeds from the Term Loan C were $1.4 million. The Term Loan C bears the same interest rate as the Term Loan B. We are making interest only payments until maturity on June 1, 2017, when the loan is scheduled to be repaid in its entirety.
The Term Loans are secured by substantially all of our existing and future assets, including a mortgage on real property owned by our wholly-owned subsidiary, ASC Devens LLC, and located at 64 Jackson Road, Devens, Massachusetts. The Term Loans contain certain covenants that restrict our ability to, among other things, incur or assume certain debt, merge or consolidate, materially change the nature of our business, acquire or dispose of certain assets, make guarantees or grant liens on our assets, make certain loans, advances or investments, declare dividends or make distributions or enter into transactions with affiliates. In addition, there is a covenant that requires us to maintain a minimum unrestricted cash balance (the “Minimum Threshold”) in the United States. As a result of the April 2015 offering (see discussion below), the Minimum Threshold was reduced to the lesser of $2.0 million or the aggregate outstanding principal balance of the Term Loans. As of
September 30, 2016
, the Minimum Threshold was
$2.0 million
. The events of default under the Term Loans include, but are not limited to, failure to pay amounts due, breaches of covenants, bankruptcy events, cross defaults under other material indebtedness and the occurrence of a material adverse effect and/or change in control. In the case of a continuing event of default, Hercules may, among other remedies, declare due all unpaid principal amounts outstanding and any accrued but unpaid interest and foreclose on all collateral granted to Hercules as security under the Term Loans.
We believe we are in and expect to remain in compliance with the covenants and restrictions under the Term Loans as of the date of this Quarterly Report on Form 10-Q. If we fail to stay in compliance with our covenants or experience some other event of default, we may be forced to repay the outstanding principal on the Term Loans.
We have experienced recurring operating losses and as of
September 30, 2016
, had an accumulated deficit of
$945.9 million
. In addition, we have experienced recurring negative operating cash flows. At
September 30, 2016
, we had cash and cash equivalents of
$25.3 million
, as compared to cash used in operations of
$10.9 million
for the
six
months ended
September 30, 2016
. We expect to use less cash for operations in the second half of fiscal 2016 compared to the first half. In April 2015, we completed an equity offering which raised net proceeds of $22.3 million after deducting underwriting discounts, commissions and offering expenses payable by us from the sale of 4.0 million shares of our common stock at a public offering price of $6.00 per share. On March 11, 2016, we sold 100% of our minority investment in Tres Amigas to an investor for $0.6 million. We received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final $0.3 million is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions which is expected to occur during the third quarter of fiscal 2016. In addition, in December 2015, we entered into a set of strategic agreements
valued at approximately $210.0 million with Inox, as discussed above. These agreements are expected to provide a foundation for the business as we pursue our longer-term objectives.
We believe we have sufficient available liquidity to fund our operations, capital expenditures and scheduled cash payments under our debt obligations for the next twelve months. Our liquidity is highly dependent on our ability to increase revenues, control our operating costs, and our ability to maintain compliance with the covenants and restrictions on our debt obligations (or obtain waivers from our lender in the event of non-compliance), and our ability to raise additional capital, if necessary. There can be no assurance that we will be able to continue to raise additional capital from other sources or execute on any other means of improving our liquidity as described above.
Legal Proceedings
We are involved in legal and administrative proceedings and claims of various types. See Part II, Item 1, “Legal Proceedings,” for additional information. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating transactions that are not required to be reflected on our balance sheet except as discussed below.
We occasionally enter into construction contracts that include a performance bond. As these contracts progress, we continually assess the probability of a payout from the performance bond. Should we determine that such a payout is probable, we would record a liability.
In addition, we have various contractual arrangements in which minimum quantities of goods or services have been committed to be purchased on an annual basis.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (IASB) issued,
ASU Revenue from Contracts with Customers 2014-09 (Topic 606).
The guidance substantially converges final standards on revenue recognition between the FASB and IASB providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. The ASU is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of ASU 2014-09 may have on our current practices.
In July 2014, the FASB issued ASU 2014-12,
Compensation - Stock Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period.
To account for such awards, a reporting entity should apply existing guidance in FASB Accounting Standards Codification
Topic 718, Compensation - Stock Compensation
, as it relates to awards with performance conditions that affect vesting. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. We adopted ASU 2014-12 effective April 1, 2016 and conclude that there is no material impact on our current practices.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.
The new standard explicitly requires the assessment at interim and annual periods, and provides management with its own disclosure guidance. This ASU is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are currently evaluating the impact, if any, the adoption of ASU 2014-15 may have on our current practices.
In April 2015, the FASB issued ASU 2015-03
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The amendments in ASU 2015-03 require an entity to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability as opposed to an asset. Amortization of the costs will continue to be reported as interest expense. We adopted ASU 2015-03 effective April 1, 2016 and conclude that there is no material impact on our consolidated results of operations, financial condition, or cash flow.
In June 2015, the FASB issued ASU 2015-10
Technical Corrections and Improvements.
The amendments in ASU 2015-10 clarify and correct some of the difference that arose between original guidance from FASB, EITF and other sources, and the translation into the new Codification. We adopted ASU 2015-10 effective April 1, 2016 and conclude that there is no material impact on our consolidated results of operations, financial condition, or cash flow.
In July 2015, the FASB issued ASU 2015-11
Inventory (Topic 330): Simplifying the Measurement of Inventory.
The amendments in ASU 2015-11 clarify the proper way to identify market value in the use of lower of cost or market value valuation method. As market value could be determined multiple ways under prior standards, it will now be considered as net realizable value. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption of ASU 2015-11 may have on our current practices.
In September 2015, the FASB issued ASU 2015-16
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
The amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. We adopted ASU 2015-16 effective April 1, 2016 and conclude that there is no material impact on our consolidated results of operations, financial condition, or cash flow.
In January 2016, the FASB issued ASU 2016-01
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The amendments in ASU 2016-01 will enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption of ASU 2016-01 may have on our current practices.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the effects adoption of this guidance will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent consideration. The ASU is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact, if any, the adoption of ASU 2016-08 may have on our current practices.
In March 2016, the FASB issued ASU 2016-09
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The amendments in ASU 2016-09 will simplify several aspects of the accounting for share-based payment transactions, including tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the impact, if any, the adoption of ASU 2016-09 may have on our current practices.
In April 2016, the FASB issued ASU 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. The amendments in ASU 2016-10 will clarify the identification of performance obligations and the licensing implementation guidance. The ASU is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact, if any, the adoption of ASU 2016-10 may have on our current practices.
In April 2016, the FASB issued ASU 2016-12
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. The amendments in ASU 2016-12 will clarify the prior guidance surrounding collectability criteria, presentation of taxes collected, non-cash consideration, contract modifications, completed contracts at completion and retrospective application guidance. The ASU is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of ASU 2016-12 may have on our current practices.
In June 2016, the FASB issued ASU 2016-13
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The amendments in ASU 2016-13 will provide more decision useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that year. We are currently evaluating the impact, if any, the adoption of ASU 2016-13 may have on our current practices.
In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments
. The amendments in ASU 2016-15 will provide more guidance towards the classification of multiple different types of cash flows in order to reduce the diversity in reporting across entities. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that year. We are currently evaluating the impact, if any, the adoption of ASU 2016-15 may have on our current practices.
We do not believe that other recently issued accounting pronouncements will have a material impact on our financial statements.