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American Superconductor Corporation (AMSC)

September 15, 2011 9:00 am ET

Executives

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

Analysts

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

Operator

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 amsc.com. 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.

We believe we have compelling evidence that Sinovel has already utilized

[Audio Gap]

to meet new grid standards that have been proposed in China. We believe we have compelling evidence that Sinovel has already utilized this stolen intellectual property to upgrade hundreds of its 1.5-megawatt wind turbines to meet these proposed grid codes. And we believe Sinovel may also be looking to alter our source code to open the platform and allow the use of power electronics from other manufacturers such as Goutong, a company founded by Sinovel.

We believe it is important for all wind developers to know that the wind turbine Sinovel is producing and upgrading today may contain stolen intellectual property from AMSC.

Look, I want to be clear. We believe our encryption worked. However, from a personnel standpoint, we have taken additional actions to prevent a similar event in the future. As part of this, we have further limited the number of employees who have access to our software codes. We also have added several new layers of authentication and monitoring production within our IT system. We believe we have taken all of the appropriate steps, but we remain vigilant. We will make every effort to protect AMSC's intellectual property.

The accused former AMSC employee is currently in jail, awaiting trial on criminal charges that include economic espionage. We are bringing civil, intellectual property suits against Sinovel. We are also bringing them to commercial arbitration based on our existing contracts. We have provided evidence of what we believe to be Sinovel's criminal activity to authorities in Beijing. The message is clear, AMSC will not allow criminal acts to go unchallenged. We will protect ourselves and our investors.

I'd like to make one other key point clear. As of today, Sinovel is not a customer. Customers pay their bills and customers respect intellectual property. The actions of Sinovel are not a referendum on China wind or China in general. We have, and will continue to have, many valued relationships in China. We remain strongly committed to Chinese wind customers like Dongfang, XJ Group, Shenyang Blower Works and JCNE. It is an economic reality that we must do business in China and I believe we can do it

[Audio Gap]

Sinovel. Since I took over as CEO in June, we have made important changes that we believe will return AMSC to long-term growth and sustainable profits. I intend to provide much greater detail on the specifics in our next call, but let me touch on just a few highlights.

We have lowered our headcount by 30%, streamlined our management team, and reduced our cost structure by $30 million annually since the start of the fiscal year. We have instituted new conservative financial controls, which include the requirement for letters of credit or bank guarantees before shipments to China. We have realigned the business from technologies, Power Systems and superconductors to markets, wind and grid. This is an important change that we believe will enable us to better serve our customers and anticipate their evolving needs.

Our business segments and our Chinese operation now report directly in to me. We have a flatter organization. This will enable us to provide better and faster service to our customers. We are making good progress on completing our financial statements and are in the final stages of review with our auditors. We will do everything in our power to get current with our SEC filings and to regain compliance with NASDAQ listing standards by September 30. We recognize the challenges that lie ahead and look forward to continuing the progress we have made over the past few months.

Now I would like to personalize matters just a bit. When I joined AMSC in 2006, the company's revenues have flatlined at about $50 million annually for the previous 3 years. Virtually, all of this revenue was generated in the U.S. and almost half of that revenue came from unprofitable government funded development projects. Our net losses were significant.

I was brought on board to help build AMSC's presence overseas and to get us to profitability. We did it once, we will do it again. But this time, we will do it in a sustainable way.

Why am I so confident about our ability to do this? Well, part of the reason is that I spent my first 2 years at AMSC in China building our new organization into a rapidly growing manufacturing, sales and field service operation. My experience in China gave me real insights into how the Chinese conduct business. It is fundamentally different. After establishing AMSC China, we began putting down new roots in Korea, India and Australia. Platforms that are serving us well today, and will continue to serve us well in the future.

In 2008, direct oversight of AMSC China was transitioned to our Power Systems business unit while I became General Manager of our Superconductor business. During my time in this role, we refocused our business development efforts, refined and expanded our wire manufacturing, and soon after, brought in our first large commercial superconductor wire order. We also achieved profitability for the first time in company history.

I have experienced firsthand the strength of AMSC's offerings and the commitment of our employees worldwide. This knowledge provides me with great confidence in our ability to recover. I know that we have the partners, the products and most importantly the people that we need to accomplish our goals.

So you can see, we have been very busy. Personally, it has been frustrating to not be in a position to communicate with you about all that we've been doing. We are aggressively pursuing all legal remedies against Sinovel. We are making progress with our financials and expect to regain our compliance with NASDAQ. We continue to win business across both our wind and grid segments and in diverse geographies. We have lowered our cost structure and have strengthened our organization in terms of security, controls and management.

I am proud to lead this organization and I look forward to reporting back to you on our financial results and business successes in the near future.

With that, let's open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions]

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Ricchiuti with Needham and company.

James Ricchiuti - Needham & Company, LLC, Research Division

Dan, I understand you can't comment specifically on the outlook for the business and anything in real detail as to what's going on within China. But maybe you could just give us a sense, as you look at the wind and grid business, it's been months really since we have had any kind of characterization, if you will, of what the business outlook is like. Can you talk about what you're seeing in Korea, in India, in Australia, in the U.S. and Europe. Just in general, what are you seeing in the market to give us some sense as to the overall demand picture, excluding China wind?

Daniel Patrick McGahn

Sure, Jim, when we look at the wind market globally, it appears it's going to be flat here in the near term. I believe that in the China market, they're going to get back to the growth once they get through some the challenges that exist in the market there. Today, I believe that there's a battle ongoing between the power companies, the transmission system and the wind turbine equipment manufacturers. But turning outside China, there are opportunities for the company in the wind segment, but especially in the grid segment. We've been quiet over the past few months, I know, I recognize it, and I want to express my frustration with that, because we've been doing a lot of good work. We've been able to deliver orders in winds and in grids. We've been able to deliver orders in America, in Europe and throughout Asia. The business this year is developing quite well. Now granted, given the situation with Sinovel, it's a different business. But the business that we're focused on today is thriving, and we're going to get back to growth very quickly.

James Ricchiuti - Needham & Company, LLC, Research Division

So is your business up excluding Sinovel?

Daniel Patrick McGahn

I'd rather defer a real in-depth discussion, Jim, on our business, on our financials and our strategy for the next call. I wish we could do it all together as one today, because I know it will be great appetite for that. But I want to get us current with our financials so you can see many of the things that we see and then we can have a more in-depth discussion on all of those topics.

Operator

Our next question comes from Jesse Peschel with Jefferies.

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

I'd like some clarification first on the Sinovel issue. Did you offer an upgrade software package for the LVPT and other -- to basically make the legacy product grid compliant with the new regulations, did you offer an upgrade package?

Daniel Patrick McGahn

So, Jesse, when we look at out-of-the-box, the system is able to comply with LVRT. The challenge has been in China and working with Sinovel to develop what we believe is a solution for the eventual grid code. We have tested the solution in the 1.5-megawatt turbine and the 3-megawatt turbine, and have passed both witness test, as they call them in China. So we've developed the technology, we have a solution, we have offered to be able to deploy that in the field, but at this point, we haven't been able to reconcile the situation with Sinovel and this has now been compounded by the intellectual property theft.

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

Are you alleging that they altered the software on the machines that they had already purchased and licensed from you? Or are you alleging that they're selling new turbines to customers that circumvent your contributions?

Daniel Patrick McGahn

What our understanding is, is that they have worked with a former employee of ours to gain access to a compiled version of the PowerModule software, and he has helped to open up the wind turbine software so that they are now able to use LVRT functionality that we developed and they're doing that illegally because we have not transferred that code to them. Secondly, they've -- through this relationship with our former employee, they've opened up the system to allow for other power converters. Today, we understand that they've deployed a number of turbines using the Goutong converter package.

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

I understand now. Is it your understanding though that -- are they selling other designs for 1.5 or 3-megawatt turbines, or is it still all AMSC/Windtec design?

Daniel Patrick McGahn

My understanding is that the 1.5 doubly-fed machine that they promote is the Fuhrländer design. My understanding is that 3-megawatt designs that they fielded to date have been with the AMSC/Windtec design. My understanding is they still offer and market our control systems as an important part of their offering, and they've stand very firmly behind the performance and the quality of the products.

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

That's extremely helpful. And if I could follow up on Jim's question of kind of what you're seeing there and in market demand, you mentioned kind of flat. And I just want to challenge that a little bit. I mean, why isn't it down significantly, given the tough financial environment that we're seeing in Europe?

[Audio Gap]

trickle down into the wind industry?

Daniel Patrick McGahn

I think, to date so far, Jesse, from what we've seen is it's been flat in Europe so far. It's been down year-to-date in China. The second half in China has traditionally been very strong. And it's always an exciting time in the fourth quarter calendar to see what the Chinese do. I think it's an open issue if it will be flat or if it could be slightly down this year. I think we're in a position for this year and maybe the next, but we're not going to see growth in the wind industry globally.

Operator

Our next question comes from Tim Arcuri with Citi.

Timothy M. Arcuri - Citigroup Inc, Research Division

You said in the release that the lawsuit was within China, but I thought that on the call, you just said that it was in both the U.S. and China. So I'm looking for some clarification there, and then I have a couple of other questions.

Daniel Patrick McGahn

Sure. I'll clarify first. What I said in the remarks about the U.S. and China is that we have been working with both the U.S. government and the Chinese government and Chinese authorities. The suits that we're filing are in China. It's logical that they're in China. Sinovel is a Chinese company. The wind turbines that are operating are almost 100% in China, the contract that we have between the companies is a Chinese contract. So it makes sense that the first step that we would go forward with here would be in China.

Timothy M. Arcuri - Citigroup Inc, Research Division

Okay. As you sort of -- with your lawyers, as you went back through the history of suing a Chinese company in China and how potentially successful that could be, do you have like a history of any successful lawsuit of the other U.S. companies suing a Chinese company in China? My experience is that that's not often successful, so I'm wondering whether there's a track record there that makes you believe that you can win this.

Daniel Patrick McGahn

Tim, you sound a lot like me a few months ago. We spent a lot of work on collecting the evidence, being cognizant of what we're going to have to do in China. Our lawyers feel very confident that we have an extremely strong case. I asked the same question you asked, is there precedent -- has a western company ever won in China? There's been a number of cases and some big cases. The one that I remember clearly is Cisco. Cisco had a complaint about IP theft with a major Chinese telecommunications provider. There was

[Audio Gap]

But Cisco was able to prevail, and they were able to win a settlement with the company that had stolen the intellectual property. So I believe there's precedence. I believe that we have a strong case. Our lawyers believe, even probably more strongly than me, that we have an extremely strong case. So I think now is the right time to go forward with this, and let's move on with building the business.

Timothy M. Arcuri - Citigroup Inc, Research Division

Okay. Yes, I'm aware of that probably -- situation. The last question for me is, does this impact -- well, I assume that it does impact the SeaTitan development that you have with Sinovel. So I'm just trying to assess, that was supposed to contribute to revenue in the not-too-distant future, so I'm trying to assess how to think of the SeaTitan.

Daniel Patrick McGahn

Sure. We never announced a partner for SeaTitan, just to make that clear. We have been in discussions, we have developed a design, we have developed the technology for the turbine. Those discussions have only gotten stronger. I don't want to put timing on it. I'm not the type of person that I want to promise you that we get a deal done until a deal gets done, but we're actively pursuing technology partners for SeaTitan. We still believe that we have a very differentiated product there. And we believe that the company overall is very well-positioned for the offshore wind market as that market starts to develop and grow quite rapidly here in the near term.

Operator

Our next question comes from Paul Clegg with Mizuho.

Paul Clegg - Mizuho Securities USA Inc., Research Division

What are the next steps for the person arrested in Austria, and then the next steps in China in terms -- have you already filed the complaints? And what kind of timeline would you expect at this point?

Daniel Patrick McGahn

Yes. It's hard to really bring you a lot of clarity on the timetable in China. There's a process. We're going through that process. We've kicked off that process this week with filing the commercial arbitration and a series of legal complaints. I can't really give you as a stage gauge or a definitive timetable. It will take some time. This, we don't anticipate. It's not going to resolve quickly in a manner of weeks or something like that.

For the individual in Austria, he has been detained, he has been jailed. He has been interrogated and I believe that he will go to trial sometime this calendar year. But again, it's a legal process at this point. We have some visibility on things, but we want to make sure that the authorities are able to do their job, and that the evidence will

[Audio Gap]

Paul Clegg - Mizuho Securities USA Inc., Research Division

Enforcement, was it Austrian law enforcement, U.S., or was there Chinese involved as well?

Daniel Patrick McGahn

I don't really want to comment on the intricacies of the criminal parts again because it is an ongoing investigation. We highlighted in the opening comments that the employee is based in Austria, and that's where everything starts from.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Can you talk about what amounts you're seeking?

Daniel Patrick McGahn

Sorry, can you repeat that?

Paul Clegg - Mizuho Securities USA Inc., Research Division

What amounts are you seeking in these complaints?

Daniel Patrick McGahn

Again, I don't want to set a bar for people to set an expectation. What we want to do is we want to make sure that we protect our intellectual property and we're appropriately compensated.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Okay. And I guess is there any possibility that you could just do a licensing agreement on the PM1000s and 3000s? Is that a goal of this process?

Daniel Patrick McGahn

I don't really want to comment on that on this time.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Let's see here. I guess the one thing that strikes me, you guys seem to know about Guotong making replacement parts prior to Sinovel rejecting the shipment. You seemed okay with it then for the PM1000s, anyway. And I'm just trying to understand the nuance there, how did they get the code for the PM1000s that you seem to be okay with?

Daniel Patrick McGahn

Well, we were okay with it because our understanding is they were making the hardware and they somehow were able to use our software, at least we thought at the time. And at that point, we felt that if the software was intact, it keeps us whole. The thing that's changed now is we have compelling evidence that shows that IP theft has occurred, the software has been changed, changes have been implemented, that we've done that we haven't released yet to Sinovel. So it becomes much bigger than Goutong.

If we're going to compete in the market, we're going to be fine with that. But we believe that our control systems are very strong, very protected. And I believe, in some ways, we're a bit exonerated here with our protection because at the end of the day, they had to steal to be able to open it up.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Right, okay. And just maybe one final one. Can you talk about how customers, other customers of course, have reacted to this situation with Sinovel? Are they concerned that it is distracting the company or concerned about the future of the company, has it at all changed your relationship with any of your existing customers?

Daniel Patrick McGahn

Well, I'll have to comment on what I know from customers as of yesterday, because this is all news we're just putting out now. But I've gone around, I've met with all of our employees, I've met with most of our major customers. In China, I think many of our partners see this as an opportunity to gain market share. Sinovel is in a difficult situation from a business standpoint. Our customers believe, and we want to support them, to be able to gain market share.

Operator

[Operator Instructions] We'll go next to JinMing Liu with Ardour Capital.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

My question is related to software itself. Is it possible for Sinovel to use the software for 1.5-megawatt turbine for their other designs, like that 3-megawatts, 5-megawatts?

Daniel Patrick McGahn

To directly answer the question, no. It's not an easy move from the 1.5 to the bigger turbines. The software for the larger turbines was developed when we had become one company with Windtec. So we were designing the turbines and the controls together. One of the points I tried to emphasize is that the 1.5 design is with Fuhrländer. So the move from 1.5 to larger turbines would be difficult. It's taken us significant investment to develop a software for the larger turbines. It took us a lot of time and we know what we're doing, we know what the design is and we have kind of full design control of everything at the turbine level. So I think it will be quite challenging for Sinovel to take what we believe that they have and bring that to larger turbines.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. I notice that Sinovel has a very large backlog of 3-megawatt turbines and you guys have a [indiscernible] contract with Sinovel. At this junction, I don't know whether you guys have discount that or simply, you will not supply Sinovel anything at this moment.

Daniel Patrick McGahn

We've discussed everything with Sinovel. We've been very patient with them over the past months, but I think one of the key announcements we made today is that we don't see Sinovel as a customer. Customers pay and customers respect intellectual property.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. Back to the 1.5-megawatt turbine design. I know that Fuhrländer has mainly Chinese, and they also, I noticed, there are at least 3 or 4 Chinese companies now offering power converters with claims that those converters

[Audio Gap]

Daniel Patrick McGahn

To Sinovel for that. We don't see if there are other alternatives out in the market for Fuhrländer at that power rating, at the 1.5. It doesn't negatively impact on our business, because we believe that going to larger turbines, 2, 3, 5 and so forth are where the market's headed. It's where we can differentiate our technology and that we can focus on profitability for this company.

Operator

And our next question comes from Craig Irwin with Wedbush Securities.

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

I'm not sure if you can answer this first question or not. But your change in revenue recognition to cash-based, I think, shouldn't materially change the balance sheet cash at the end of the quarter, shouldn't actually change it at all. Can you possibly share with us what your balance sheet cash was at the end of the June 30th quarter?

David A. Henry

Yes. I just want to -- unfortunately, given the fact that we haven't filed our financials yet, I'm really not in a position -- I would love to be in a position, but I'm really not in the position to talk about any financial numbers at this time. As Dan mentioned in his remarks, that we are working as hard as we can to meet the deadline that NASDAQ granted to us in September 30 and we'll be -- and we're working very hard to get there. And we'll answer those types of questions at that time, so I just appreciate your patience on that.

Daniel Patrick McGahn

We understand it's a question everybody's going to have in their mind and we're going to hit it head-on and go through it, make sure in the next call, everybody understands where are we, where are we headed, and how excited we are about getting there.

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

I completely understand that. So my next question is, there's been a rumor circulating for several weeks now that you might be in the process of selling your Superconductors business, it's actually something that's even been written out in one of the daily investment banking industry publications. Can you comment for investors whether or not this is something you would consider or whether you consider a superconductor technology core to American

superconductors given your initiatives in the SeaTitan turbine, et cetera?

Daniel Patrick McGahn

So I'll try to answer the question a couple of different ways. One, we don't -- the company does not comment on rumors, we tend to not discuss M&A activities as a matter of course. I think that what you see is in the realignment of our business today to be customer facing for wind and grid markets. This is going to enable us to serve the customers better and diversify our revenues. We see superconductors as a differentiated technology that we have a very unique position in that can provide extraordinary value to our customers. We're focused on cables, we are focused on SeaTitan and generators, and we have some interest from the U.S. Navy. These are all areas that we spent time in, but I don't want to comment directly on any rumors.

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

Okay, great. I can appreciate that. The last question I have is really a housekeeping question. Because the employee from Windtec that -- well, because he's in jail, right, so economic espionage, it will be in the public record what his identity is. Could you share that with us, because I think both your investors and investors in Sinovel will have a very strong interest in following the process, the legal process in Austria as his case is litigated.

Daniel Patrick McGahn

I understand the question and the concern and the desire. Given it's an ongoing criminal proceeding, we are unable to comment on any specifics about the preceding, including the name of the employee.

Operator

We'll go next to Theodore O'Neil with Wunderlich Securities.

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

A couple of questions here. Dan, in a normal course of a 3- or 4-month period, there could a fair number of press release coming out for all of America about new orders that have been replaced for power electronics from your wind turbine customers and we haven't seen anything for a while. Has there been orders -- additional orders received from your other customers?

Daniel Patrick McGahn

To answer the question simply, I'll say, yes. I'm pained that we haven't been able to come out and be as transparent or as open as we have been in the past. I think you all today, really understand

[Audio Gap]

where it gets back to growth and gets back to profitability.

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

Dan, how certain are you that there weren't other employees involved with this?

Daniel Patrick McGahn

We looked in great detail into that, our investigation as well as the legal authorities, and we have not come across anything that leads us to believe that this is broader than one employee, and I'll just leave it at that.

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

And finally, is there any estimate about the magnitude of the legal costs per quarter going forward?

Daniel Patrick McGahn

I think at this point, it's early in this. Obviously, if we're going to do this, we want to have a rough idea on what it's going to cost. At this time, I'm not prepared to give you remarks on that. That's something that we'll track and that we certainly will consider to be part of how we give updates in the future.

Operator

And from Capstone Investments, our next question comes from Carter Driscoll.

Carter W. Driscoll - Capstone Investments, Research Division

First question, I'm not sure if you can comment. Could you remind us of the initial restatement for past unpaid shipments? Much of that might be Sinovel and is it overwhelming majority as we all assume or could you bracket that at all? I know you won't comment about the amount you're seeking in damages, but could you just remind us of the past 3 quarters, from September through March, what kind of the amount might be?

Daniel Patrick McGahn

Carter, I can't really talk to you about the amounts, but I can tell you that the overwhelming majority of what we're going to end up restating in terms of our revenue will be because of Sinovel and their payment patterns.

Carter W. Driscoll - Capstone Investments, Research Division

Okay. And then just can you talk at all about how this does or does not impact your continued pursuit of the switch in terms of -- I know you had mentioned wanting to have somewhere around $100 million cash left over after the transaction. Just the timing of this, any potential impact, obviously, maintain superconductor business is important if you acquire the generator technology. Can you just maybe give us some color on that process and how it does or does not get impacted by this?

David A. Henry

Sure. I think the 2 main points there, I mean, we still see the switch strategically as an excellent fit for our business, both from a product technology and from a people standpoint. We are out exploring options to be able to finance the deal and look forward to being able to come back to you and tell you more as there's more progress.

Carter W. Driscoll - Capstone Investments, Research Division

And just my last question. If you are able to get your filings under the September 30 deadline, do you imagine that you might be able to give us a business outlook update at the same time that we see those filings or you think there might be separate disclosures?

Daniel Patrick McGahn

No. I think what we'll do is -- I mean, what I want to do is get everybody kind of up to date on what we've been doing, where the successes have come, the strategy for the business, what the financial health and position of the business is going to be. And I'm really very much looking forward to that conversation, because I know that you all have an appetite for that information. We certainly have an appetite to get that information out to you, so that you understand the excitement that we have for our business.

Operator

And we'll now take a follow-up question from Tim Arcuri.

Timothy M. Arcuri - Citigroup Inc, Research Division

My question's been answered.

Operator

[Operator Instructions] We'll go next to Paul Clegg with Mizuho.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Just a clarification. Do you have a patent that was violated or was this software copyright? And have you filed a copyright in China on that software? And then does Sinovel claim to have a copyright on software in China that does the same thing?

Daniel Patrick McGahn

You're asking all very good questions. What we'll do is I'll take that as we come back out and talk again and kind of go through in a little more detail on the next call. To answer specifically, the claims that we're putting forth are around trademark, copyright type infringement. These are not the types of things and software that you tend to patent. And we believe we have strong claims in China for copyright and trademark.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Okay. And then when was your last communication with Sinovel?

Daniel Patrick McGahn

We've had an ongoing series over the past months. We continue to hear things from them, we continue to talk to them. Given the fact that we now have clear evidence of the theft, we thought that this is the right time now to move forward, to take decisive action and position the company for future growth.

Paul Clegg - Mizuho Securities USA Inc., Research Division

Right. And so obviously nothing in the last 12, 13 hours then?

Daniel Patrick McGahn

Yes, I'm not going to comment on that.

Operator

And we have time for one final question. And we'll take a follow-up from JinMing Liu.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Just one quick follow-up. Dan, you mentioned something about improve your internal control, especially for the accounts receivables. Can you give us more color on that, and also can you share with us what are the common credit terms you have with your other customers?

David A. Henry

Again, on the next call, I think we'll spend a bit of more time on that. What I said today, I'll repeat. The controls that we put in place is that shipments to customers in China will require some form of guaranteed payment, either a letter of credit or a bank guarantee. Our contracts in general require those provisions as part of the payment terms.

Operator

And that does conclude the question-and-answer session. I'll turn the call back to Mr. McGahn.

Daniel Patrick McGahn

Thank you once again for joining us, everyone. We are making good progress here at AMSC. We're aggressively pursuing all legal remedies to address our situation with Sinovel, and we've taken decisive actions to position the company for future growth.

We look forward to reporting back to you on our continued progress in the very near future. Thank you.

Operator

And, ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.

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Source: American Superconductor Corporation - Special Call
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