American Superconductor Corporation (AMSC)

September 15, 2011 9:00 am ET


David A. Henry - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Secretary and Treasurer

Daniel Patrick McGahn - Chief Executive Officer, President and Director

Jason Fredette - Managing Director of Corporate Communications


Theodore R. O'Neil - Wunderlich Securities Inc., Research Division

Timothy M. Arcuri - Citigroup Inc, Research Division

Craig E. Irwin - Wedbush Securities Inc., Research Division

Paul Clegg - Mizuho Securities USA Inc., Research Division

Jesse Pichel - Jefferies & Company, Inc., Research Division

Carter W. Driscoll - Capstone Investments, Research Division

JinMing Liu - Ardour Capital Investments, LLC, Research Division

James Ricchiuti - Needham & Company, LLC, Research Division



Good day, everyone, and welcome to today's American Superconductor Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

[Audio Gap]

Senior Vice President and CFO David Henry; and Vice President of Communications and Marketing, Jason Fredette. For opening remarks, I would like to turn the call over to Mr. Jason Fredette. Please go ahead, sir.

Jason Fredette

Thank you, Doris, and welcome to the call, everyone. Before we begin, I'd like to note that various remarks management may make on this conference call about American Superconductor's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those described in our current report on Form 8-K, which we filed with the SEC this morning and in the risk factor section of other reports that we have filed with the SEC. These forward-looking statements represent the company's expectations only as of today, and should not be relied upon as representing the company's views as of any subsequent date.

While American Superconductor anticipates that subsequent events and developments may cause the company's views to change, the Company specifically disclaims any obligation to update these forward-looking statements. All of our SEC filings can be accessed from the Investors section of our website at And finally, I'd like to point out that we'll be limiting our remarks this morning to the [indiscernible] announcement and will not be answering questions related to our financials, which have not been filed yet. We are in the process of completing our financial closing process and plan to host another conference call to provide this and other business updates in the not too distant future. We thank you in advance for your patience.

And now I'll turn the call over to CEO, Dan MacGahn. Dan?

Daniel Patrick McGahn

Thank you, Jason, and good morning, everyone. By now you all have probably read the press release we issued last night and the 8-K that we filed this morning. I am very pleased to finally be able to begin providing you with information about the actions that we're taken to strengthen the company.

During the spring, we repeatedly attempted to reach a resolution with Sinovel on its contractual breaches. Over the summer, these breaches were eclipsed by our discovery of evidence that Sinovel had gained access to stolen intellectual property. That changed everything.

Look, the China win market has slowed and it's clear that Sinovel's business is off. Their financial performance has weakened and their balance sheet shows significant inventory levels and accounts payable. Clear signs of strain. Their CFO recently departed and they had to restate their financials. Now we believe Sinovel has compounded its troubles by stealing some of our intellectual property.

Based on...

[Audio Gap]

We brought our issues to the attention of both U.S. and Chinese government officials, and we have now taken further action on a number of fronts: Commercial, civil and criminal. Have no doubt, we are determined to protect our intellectual property and the interest of our shareholders and we will pursue all the appropriate steps to do so.

So what exactly are we seeking? We are asking for an order requiring Sinovel to meet its contractual obligations. We are seeking full restitution, namely we are demanding that Sinovel either stops using our stolen intellectual property or pays for it in full.

Since the investigation and our law suits are ongoing, we cannot provide all of the details about Sinovel's alleged criminal misconduct. But what does this all mean for AMSC? Let me step back for a moment to provide some additional background.

As some of you may recall, Sinovel licensed its 1.5-megawatt wind turbine platform not from AMSC but from Fuhrländer over 5 years ago. Since that time, Sinovel has produced thousands of these machines, and we have been the supplier of the core electrical components for these wind turbines. These core electrical components contain our proprietary power converter and control systems, which are heavily encrypted. Based on our investigations with authorities, it is clear to us that our encryption and protection mechanisms were successful, outright theft was necessary.

We have evidence that senior-level Sinovel employees engaged and paid an AMSC employee to illegally transfer some of our intellectual property. He was one of our system integrators in Austria, and one of the very few employees with access to this kind of information. This individual appears to have turned over a portion of the upper layer or binary code of our PowerModule software and the source code we developed specifically for Sinovel's 1.5-megawatt wind turbines. This theft enabled Sinovel to upgrade the control system of its wind turbines with a new program that we developed to meet new grid standards that have been proposed in China.

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