our ability to expand our customer base and maintain relationships with our largest customers.customers and strategic business allies.
We cannot assure you that:
we will be able to meet any of our development or commercialization schedules,
any of our new products or technology, once developed, will be commercially successful,
our existing SureSource power plants will remain commercially successful,
the government will appropriate the funds anticipated by us under our government contracts,
the government will not exercise its right to terminate any or all of our government contracts, or
we will be able to achieve any other result anticipated in any other forward-looking statement contained herein.
The forward-looking statements contained herein speak only as of the date of this report. Except for ongoing obligations to disclose material information under the federal securities laws, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.
Information contained in this report concerning the utilityelectric power supply industry and the distributed generation market, our general expectations concerning this industry and this market, and our position within this industry are based on market research, industry publications, other publicly available information and on assumptions made by us based on this information and our knowledge of this industry and this market, which we believe to be reasonable. Although we believe that the market research, industry publications and other publicly available information, are reliable, including the sources that we cite in this report, are reliable, they have not been independently verified by us and, accordingly, we cannot assure you that such information is accurate in all material respects. Our estimates, particularly as they relate to our general expectations concerning the electric power supply industry and the distributed generation market, involve risks and uncertainties and are subject to change based on various factors, including those discussed under Item 1A - Risk Factors of this report.
As used in this report, all degrees refer to Fahrenheit (“F”); kilowatt (“kW”) and megawatt (“MW”) numbers designate nominal or rated capacity of the referenced power plant; “efficiency” or “electrical efficiency” means the ratio of the electrical energy generated in the conversion of a fuel to the total energy contained in the fuel (lower heating value, the standard for power plant generation, assumes the water in the product is in vapor form; as opposed to higher heating value, which assumes the water in the product is in liquid form, net of parasitic load); “overall energy efficiency” refers to efficiency based on the electrical output plus useful heat output of the power plant; kW means 1,000 watts; MW means 1,000,000 watts; “kilowatt hour” (“kWh”) is equal to 1kW of power supplied to or taken from an electric circuit steadily for one hour; and one British Thermal Unit (“Btu”) is equal to the amount of heat necessary to raise one pound of pure water from 59
All dollar amounts are in U.S. dollars unless otherwise noted.
Advanced Technologies - Advanced Technologies projects involve the development of new products or applications based on existing carbonate technology or new electrochemical technologies. Examples are carbon capture, distributed hydrogen, solid oxide fuel cells and solid oxide electrolysis cell technologies. Advanced Technologies projects are typically externally funded by government or private sources and executed by our Advanced Technologies Group.
Availability - A measure of the amount of time a system is available to operate, as a fraction of total calendar time. For power generation equipment, an industry standard (IEEE (The Institute of Electrical and Electronics Engineers) 762, “Definitions for Use in Reporting Electric Generating Unit Reliability, Availability and Productivity”) is used to compute availability. “Availability percentage” is calculated as total period hours since commercial acceptance date (mutually agreed upon time period when our Direct FuelCell power plants have operated at a specific output level for a specified period of time)Commercial Operations Date less hours not producing electricity due to planned and unplanned maintenance divided by total period hours. Grid disturbances, force majeure events and site specific issues such as a lack of available fuel supply or customer infrastructure repair do not penalize the calculation of availability according to this standard.
Carbonate Fuel Cell (CFC)
Combined Heat & Power (CHP)
Commercial Operations Date (“COD”)
-Distributed Generation (DG)
Micro-grids - Micro-grids are localized electric grids that can disconnect from the traditional electric grid to operate autonomously and strengthen grid resiliency. Micro gridsMicro-grids can be composed only of DFCSureSource power plants due to their continual power output or combine a variety of different types of power generation types such as fuel cells and solar arrays.
Nitrogen Oxides (NOx)
Particulate Matter
(“PM”) - Solid or liquid particles emitted into the air thatPower Purchase Agreement (PPA)(“PPA”) -
Renewable Biogas - Renewable biogas is fuel produced by biological breakdown of organic material. Biogas is commonly produced in biomass digesters employing bacteria in a heated and controlled oxygen environment. These digesters are typically used at wastewater treatment facilities or food processors to breakdownbreak down solid waste and the biogas is produced asis a byproduct of the waste digestion. Biomass may be generated in digesters from agricultural waste, or it can be produced in less controlled fashion by breakdown of waste in landfills. These biogas fuelsBiogas can be used as a renewable fuel source for Direct FuelCellsSureSource fuel cell plants located on site where the biogas is produced with minimal gas cleanup, or theyit can be processed further to meet pipeline fuel standards and injected into a gas pipeline network, which is termed Directed Biogas.
Solid Oxide Electrolysis Cell (“SOEC”) - Solid Oxide Electrolysis Cells are electrochemical cells with the same cell and stack structure as Solid Oxide Fuel Cells, but are operated in reverse – instead of producing power from fuel and oxygen, SOEC cells produce hydrogen and oxygen from steam when supplied with power. The Solid Oxide Fuel Cell (SOFC)platform can be operated in fuel cell mode (producing power from fuel) or electrolysis mode (producing hydrogen from power) and can alternate between the two.
Solid Oxide Fuel Cell (“SOFC”) - Solid oxide fuelOxide Fuel Cells are electrochemical cells usewith a hard, non-porous ceramic compoundmaterial as the electrolyte. Solid oxide fuel cellsSOFCs operate at very high temperatures (slightly higher than carbonate) eliminating the need for costly precious-metal catalysts, thereby reducing cost. TheLike carbonate, the high operating temperature enables internal reforming of the hydrogen rich fuel source.
Sulfur Oxide (SOx)
We are an integrated fuel cell company with an expanding global presence on three continents. We design, manufacture, sell, install, operate and service ultra-clean, highly efficient stationarydeliver proprietary fuel cell power plantssolutions for distributedthe clean and affordable supply, recovery and storage of energy. We serve utilities and industry and municipal power generation. Our power plants provide megawatt-class scalable on-site power and utility grid support, helping customers solve their energy, environmental and business challenges. Our plants are operating in more than 50 locationsusers on three continents with megawatt-class scalable solutions that include utility-scale and have generatedon-site power generation, carbon capture, local hydrogen production for transportation and industry, and energy storage. With more than four billion kilowatt7.0 million megawatt hours (kWh) of electricity, whichultra-clean power produced, FuelCell Energy is equivalent to powering more than 391,000 average size U.S. homes for one year. Our growing installed basea global leader in designing, manufacturing, installing, operating and backlog exceeds 300 megawatts (MW).
We provide comprehensive turn-key power generation solutions to our customers, including power plant installations as well as power plant operationinstallation, operations and maintenance under multi-year service agreements. We both develop projects and also sell direct to customers, providing either a complete solution of developing, installing and servicing the end-user offuel cell power plant, or selling the power and utilities, either the full turn-key solution or the fuel cellplant equipment only. For projects that we develop, the end-userend user of the power typically enters into a PPA and based on the project and credit profile, we either identify a project investor to purchase the power plant sellingand assume the powerPPA, or we retain the project and heat underrecognize electricity revenue ratably over the term of the PPA. We target large-scale power users with our megawatt-class installations. To provide a frame-of-reference,frame of reference, one megawatt is adequate to continually power approximately 1,000 average sized U.S. homes. Our customer base includes utility companies, municipalities, universities, government entities and a variety of industrial and commercial
Our value proposition provides highly efficientis to enable economic value with clean and environmentally friendly power generation with easy-to-site stationaryaffordable fuel cell power plants. Theplants that supply power plantswhere consumed. Our products can also be configured for recovery and storage applications. Our solutions are locatedeasy-to-site in populated areas as they are virtually pollutant free,clean, operate quietly and without vibrations, and have only modest space requirements. Fuel cells use an electrochemical process to convert a fuel source into electricity and heat in a highly efficient process that emits virtually no pollutants as the fuel is not burned, generating power that is almost wholly absent of criteria pollutants such as NOx that causes smog, SOx that contributes to acid rain, and particulate matter that can aggravate asthma. Locating power generation near the point of use reduces reliance on the transmission grid, leading to enhanced energy security and power reliability. Utilities can minimize or even avoid the cost and permitting of transmission or other infrastructure by adopting distributed generation.generation, which saves their customers the cost of installing and maintaining transmission and also avoids the losses associated with transmitting electricity over great distances. Our power plants provide electricity priced competitively to grid-delivered electricity in certain high cost regions and our strategy is to continue to reduce costs, which is expected towe believe will lead to wider adoption.
FuelCell Energy was founded inas a Connecticut corporation in 1969 as an applied research organization, providing contract research and development. The Company went public in 1992 raising capital to develop and commercialize fuel cells, and reincorporated in Delaware in 1999. We began selling stationary fuel cell power plants commercially in 2003. Today, we develop turn-key distributed power generation solutions, operating and provideproviding comprehensive service for the life of the asset.
Our business model is to clean, affordable, continuous and reliable power defines modern lifestyles. The ability to provide power cleanly and efficiently is taking on greater importance and urgency in many regions of the world. Central generation and its associated transmission and distribution grid is difficult to site, costly, and generally takes many years to permit and build. Some types ofaddress power generation that were widely adopted in the past, such as nuclear power or coal-fired power plants, are no longer welcome in certain regions. The costchallenges with versatile, efficient and impact to public health and the environment of pollutants and greenhouse gas emissions impacts the siting of new power generation. The attributes of DFC power plants address these challenges by providing virtually emission-free power and heat at the point of use in a highly efficient process that is affordable to rate-payers.
Market adoption
We target vertical markets and geographic regions that value clean distributed generation, are located where there is a premium to the cost of grid-delivered electricity,are high energy costs, and are aligned with regulatory frameworks that harmonize energy, economic and environmental policies. Our business model addresses all three of these policy areas with highly efficient and affordable distributed generation that offers local job creation potential and delivers de-centralized power in a low-carbon, virtually pollutant-free manner. Geographic markets that meet these criteria and where we are already well established include South Korea, the Northeast USAU.S. and California. We have also installed and are operating plants in the United Kingdom, Germany, and Switzerland, have contracts and awards to install and operate plants in New York, and are pursuing further opportunities in Western Europe and certain other states in the USA.United States as well as certain countries in Asia. We selectively partnerdevelop strategic business relationships with some of the leading energy and power generation companies in our target markets to facilitate demand and deploy our projects.
While the Company has made significant progress with reducing costs and creating markets since the commercialization of our products in 2003, we face two primary challenges in growing the adoption of our distributed power generation solutions, which are (1) the need to further reduce the total cost of ownership, and (2) the continued education and acknowledgment of the value that our solutions can provide. The business model for the generation and delivery of electricity for over a century has been central generation, which is large scale power generation in distant locations away from urban areas with transmission and distribution to the end users. While distributedDistributed generation has the potential to disruptenhances existing utility models and it is being embraced in an increasing number of markets to improve grid operations.
We work with utilities and IPPspower generators to demonstrate how our solutions complement central generation by incrementally adding clean power generation when and where needed. It takesOne example of this is a 40 megawatt fuel-cell only program by Long Island Power Authority (“LIPA”) to address load pockets or power needs in specific areas of its service territory. LIPA operates in an area with high population density, scarce and expensive land, the need for resiliency to ensure power during storms, and vocal citizens that may not welcome new transmission lines in their neighborhoods. The structure of the program reflected the unique value drivers of fuel cells to cleanly, efficiently and economically supply power where it is needed, which for LIPA is near existing electrical substations. LIPA awarded the entire 40 MW program to FuelCell Energy through a competitive bidding process after a review of more than 375 MW of proposals from multiple developers.
Fuel cell power plant ownership structures
In the United States, historically, customers generally purchased our fuel cell power plants outright. As the size of our fuel cell projects has grown and availability of project capital improved, project structures have transitioned to predominantly PPAs. Under a PPA, the end-user of the power commits to purchase power as it is produced for an
extended period of time, typically 10 to build awareness with prospective customers and develop an operating history. We believe20 years. End-users may be a university, pharmaceutical company, hospital or utility. A primary advantage for the end-user is that we haveit does not need to commit its own capital to own a strongpower generating asset, yet it enjoys the multiple benefits of fuel cell power generation.
Once the PPA is executed, construction of the fuel cell project can begin. At or around the COD, the project may be sold to a project investor or retained by the Company. If the project is sold, revenue from the product sale is recognized. If the project is retained, electricity sales are recognized monthly over the term of the PPA.
Our business model is continuing to evolve to meet the needs and strategy, demonstrated project development executionopportunities of the market and plant operating performanceto best situate ourselves for success. In 2016, we began to retain ownership of certain projects through sale-leasebacks and committed partners which will enableretaining the related PPAs, thus keeping them on our balance sheet instead of selling them to an end-user customer, investor, or utility. Our decision to retain certain projects is based in part on the strong cash flows these projects can offer to us, the proliferation of power purchase agreements in the industry and the potential access to capital. Retaining PPAs affords the Company with the full benefit of future cash flows under the PPAs, which is higher than if we sell the projects. As of October 31, 2017, our operating portfolio of retained projects totaled 11.2 MW with an additional 19.5 MW under construction. The Company plans to overcome these challenges andcontinue to grow intothis portfolio in a sustainable business.
Levelized Cost of Energy
Our fuel cell projects are deliveringdeliver power at a rate comparable to pricing from the grid in our targeted markets. Federal and state levelPolicy programs that help to support adoption of clean distributed power generation lead to below-grid pricing. We measure power costs by calculating the Levelized Cost of Energy (LCOE)(“LCOE”) over the life of the project. In order to broaden the appeal of our products, we need to further reduce our LCOE to be below the grid without incentives.
We innovate, design and own our proprietary fuel cell technology, we sell direct and through partners, wetechnology. We develop and execute comprehensive fuel cell turn-key projects or sell direct. We manufacture and manufacture, install the fuel cell power plants and we then operate and maintain the plants for our customers under long term service agreements, or selectively retain projects in our plants.generation portfolio. Given this level of integration, there are multiple areas and opportunities for cost reductions. There are fourseveral primary elements to LCOE for our fuel cell projects, including 1)(1) Capital Cost, 2)(2) Operations and Maintenance, 3)(3) Fuel, and 4)(4) Cost of Capital. We are actively managing and reducing costs in all four areas as follows:
Capital Cost - Capital costs of our projects include cost to manufacture, install, interconnect, and to provide any on-site application requirements such as configuring for a micro-grid and/or heating and cooling applications. We have reduced the product cost of our megawatt-class power plants by more than 60% from the first commercial installation in 2003 through our ongoing product cost reduction program, which involves every aspect of our business including engineering, procurement and manufacturing. Further cost reductions will be primarily obtained from reducinghigher production volumes which will lead to reductions in the per-unit cost of materials purchasing from higher volumes,purchased, supported by continued actions with engineering and manufacturing cost reductions. We recently
Operations and Maintenance - We provide services to remotely monitor, operate, and maintain customerthe fuel cell power plants to optimize performance and meet specified performance levels.or exceed expected operating parameters throughout the plant’s operational life. Operations and maintenance (O&M)(“O&M”) is a key driver for power plants to deliver on projected electrical output and revenues for our customers.revenue. Many of our service agreements include guarantees for system performance levels, including electrical output. Customers benefit from predictable savings and financial returns over the life of the contract, while minimizing risk. While the electrical and mechanical balance of plant (BOP)(“BOP”) in our DFC power plants is designed to last over 25 years, the fuel cell modules are currently scheduled for replacement every five years, the price of which is included in our service agreements. Customers benefit from predictable savings and financial returns over the life of the contract and minimal risk. Our goal is to optimize our customers’ power plants to meet expected operating parameters throughout the plant’s operational life. We expect to continually drive down the cost of O&M with an expanding fleet which will leverage our investments in this area. Additionally, we are actively developinghave completed the development of fuel cells that have a longer life, which will reduce O&M costs by increasing our scheduled module replacement period to seven years.
Cost of Capital - Most of our MW scaleMW-scale projects are financed either by the energy user/off-taker that owns the asset or a project investor that owns the asset and sells energy to the off-taker. Other ownership models include utility ownership where the fuel cell project is addedWe have responded to the utility rate-base, direct ownership by the end-user of the power, or we hold a project that we developed, retaining the revenue and associated margins from the sale of power and heat. We are witnessingan evolving market with greater interest in the pay-as-you-go PPA approach by end users of the power that prefer to avoid the up-front investment in power generation assets. Our ability to provide the end-user with financing options or to retain projects that we develop helps to accelerate order flow. Our projects create predictable recurring revenue that is not dependent on weather or time of the day, investment tax credits, accelerated tax depreciation or other incentives. Credit risk is mitigated by contracting with customers with strong credit. In addition, we offer meaningful system-level output performance guarantees over the life of our projects. As a result, cost of capital for our projects has declined over time, givenpartially due to our operating experience. With continued execution, we expect our abilityto continue to attract bank credit,project finance capital, and with financial and project performance credibility to continuecontinuing to improve, which we expect will leadcontinued reductions in risk premiums leading to further decreases inlower financing costs.
An additional factor that benefits fuel cells when comparing LCOE to other forms of power generation is that our solutions provide delivered electricity that minimizes or even avoids the costs of transmission.
Our distributed generation solutions minimize or entirely avoid the need for transmission. When comparing LCOE across different forms of power generation, transmission needs to be considered in the evaluation. Power generation far from where the power is used requires transmission, which is a cost to ratepayers and is inefficient due to line losses of power in the transmission process.
We believe that our strong business model and strategy, demonstrated project development execution, plant operating performance, and strategic relationships will support accelerated adoption of our fuel cell solutions.
Vertical Markets
Access to clean, affordable and reliable power defines modern lifestyles. The ability to provide power cleanly and efficiently is taking on greater importance and urgency in many regions of the world. Central generation and its associated transmission and distribution grid are difficult to site, costly, and generally take many years to permit and build. Some types of power generation that were widely adopted in the past, such as nuclear power, are no longer welcome in certain regions. The cost and impact to public health and the environment of pollutants and greenhouse gas emissions impact the siting of new power generation. The attributes of SureSource power plants address these challenges by providing virtually particulate emission-free power and heat at the point of use in a highly efficient process that is affordable to consumers.
Our solutions are installed on both sides of the electric meter, meaning that we serve on-site markets supplying power directly to the end user, as well as utility-scale projects that supply the power to the electric grid. We target seven distinct markets including:
(1) | Utilities and Independent Power Producers, |
(2) | Industrial and Process applications, |
(3) | Education and Health care, |
(4) | Data Centers and Communication, |
(5) | Wastewater treatment, |
(7) | Commercial and Hospitality. |
The Utilities and Independent Power Producers segment is our largest vertical market with customers that include utilities on the East and West coast of the United States such as Dominion (NYSE: D), one of the largest utilities in the United States: Avangrid Holdings (NYSE: AGR), Long Island Power & Light and NRG Energy (NYSE: NRG), one of the largest Independent Power Producers (“IPP”) in the United States. Our carbon capture demonstration installation will be located at a power plant owned by a subsidiary of Southern Company (NYSE: SO). In Europe, utility customers include E.ON Connecting Energies (DAX: EOAN), one of the largest utilities in the world, and Switzerland-based ewz. The greatest number of installed fuel cell plants is in South Korea, primarily supplying that nation's electric grid, with the fuel cells' heat typically used in district heating systems to heat and cool nearby facilities. Our technology licensee in South Korea is POSCO Energy Co., Ltd. (“POSCO Energy”), a subsidiary of South Korean-based POSCO (NYSE: PKX), one of the world's largest steel manufacturers.
Our SureSource power plants are producing power for a variety of industrial, commercial, municipal and government customers, including manufacturing facilities, pharmaceutical processing facilities, universities, healthcare facilities and wastewater treatment facilities. These institutions desire efficient, ultra-clean continuous power to reduce operating expenses, reduce greenhouse gas emissions and avoid pollutant emissions to meet their sustainability goals, while achieving secure and reliable on-site power. Combined heat and power fuel cell applications further support economic and sustainability initiatives by minimizing or avoiding use of combustion based boilers for heat.
Our products are fuel flexible, utilizing clean natural gas and renewable biogas generated by the customer on-site or directed biogas generated at a distant location and transported via the existing gas network. In addition, we have demonstrated other fuel sources including coal syngas and propane.
As renewable technologies such as wind and solar power are deployed more widely, the need for a clean, continuous power generation that complements and balances these intermittent sources becomes greater to maintain grid stability and consistent power supply for on-site applications. Our installed base includes a number of locations where our customers use SureSource plants for meeting power needs that complements intermittent wind and/or solar power generation.
Our fuel cell solutions are well suited for micro-grid applications, either as the sole source of power, or integrated with other forms of power generation. We can model, install and operate the micro-grid, which is a differentiator in the power industry. We have fuel cells operating as micro-grids at universities and municipalities, including one university micro-grid owned by a wholly owned subsidiary of NRG Yield (NYSE: NYLD) and a town-based micro-grid owned by Avangrid. Under normal operation, the fuel cells supply power to the grid. If the grid is disrupted, the fuel cell plant will automatically disconnect from the grid and power a number of critical buildings.
Wastewater treatment facilities, food and beverage processors, and agricultural operations produce biogas as a byproduct of their operations. Disposing of this greenhouse gas can be harmful to the environment if released into the atmosphere or flared. Our SureSource power plants convert this biogas into electricity and heat efficiently and economically. Wastewater facilities with anaerobic digesters are an unsubsidized basis,attractive market for our LCOESureSource solution including the power plant as well as treatment of the biogas. Since our fuel cells operate on the renewable biogas produced by the wastewater treatment process and the heat is used to support daily operations at the wastewater treatment facility, the overall thermal efficiency of these installations is high, supporting economics and sustainability.
We estimate that the addressable distributed generation market and geographies in which we compete for the supply of energy, including distributed hydrogen production, is approximately $0.12/kWha $22 billion opportunity, with naturalapproximately 40-45% consisting of power plant sales and the remainder representing associated service agreements. We estimate that the addressable market for the recovery of energy, including our fuel cell carbon capture solution and our gas at $4.50MMBtu or $0.11/kWh at $2.50/MMBtu; each $2/MMBtu change equates to about $0.01/kWh. When combined with incentives, this price is competitive in our target markets and creates an attractive value proposition for our customers. The LCOEpipeline application, is approximately 1/3 fuel costs, 1/3$28 billion, assuming only a 1% penetration rate of addressable coal and gas-fired central generation power plant facilities within the geographies where we do business, and only 25% carbon capture at these coal or gas-fired plants. We believe there are additional market opportunities for both cost of capitalcapture from
industrial thermal sources, such as boilers, in industries like steel and capital costs,cement production. The addressable energy storage market is still developing as different technologies are beginning to come to market with different approaches to storage and 1/3different storage durations. We estimate that the addressable market for operations and maintenance. As a result of our cost reduction and growth strategies, we are working to reduce our LCOE without incentives to $0.09-$0.11/kWh when the combined global production volume reaches 210 MW annually, assuming natural gas prices of $4.00 to $6.00 per million Btu. We expect LCOE reductions tolong duration storage may be similar on a percentage basis in Europe and Asia. A LCOE in the range of $0.09-$0.11/kWhtens of billions of dollars.
We leverage our core capabilities by forging strategic alliances with carefully selected third parties that bring power generation experience, financial resources, and market access. Our strategic allies typically have extensive experience in developing and selling power generation products. We believe our strength in the development of fuel cell products, coupled with our strategic allies’ understanding of a broad range of markets and customers, products and services, enhances the sales and development of our products, as well as provides endorsement of our power generation solutions. Our global business alliances include:
NRG Energy: NRG Energy (“NRG”) owns approximately 1.4 million shares of our common stock (or approximately 2% of our outstanding common stock), extends a $40.0 million revolving construction and term financing facility to FuelCell Energy Finance, LLC ("FuelCell Finance"), our wholly-owned subsidiary, and is represented on the FuelCell Energy Board of Directors by the CEO of NRG Yield (NYSE: NYLD). NRG is one of the largest IPPs in the U.S. with approximately 50,000 MW of generation capacity and almost three million retail and commercial customers.
POSCO Energy: We entered into manufacturing and technology transfer agreements in 2007, 2009 and 2012 with POSCO Energy, which provide POSCO Energy with the technology rights to manufacture SureSource power plants in South Korea and the right to sell power plants throughout Asia. POSCO Energy owns 2.6 million shares of our common stock (or approximately 4% of our outstanding shares of common stock). POSCO Energy is one of the largest IPPs in South Korea.
In March 2017, we entered into a memorandum of understanding (“2017 MOU”) with POSCO Energy to permit us to directly develop the Asian fuel cell business, including the right for us to sell SureSource solutions in South Korea and the broader Asian market. We and POSCO Energy also agreed to undertake to amend certain technology transfer and other agreements by a target date of September 30, 2017 to reflect our new relationship. Although these agreements have not yet been amended, we continue to engage in discussions with POSCO Energy regarding our relationship and the direction of the fuel cell business in the South Korean and Asian markets.
Pursuant to the 2017 MOU, we have commenced marketing the entire suite of SureSource solutions in South Korea. In June 2017, an EPC contractor was awarded a 20 megawatt project utilizing our SureSource technology by a Korean utility after a competitive bidding process. On August 29, 2017, we entered into a definitive agreement for this 20 MW project with the EPC contractor, Hanyang Industrial Development Co., Ltd (“HYD”), pursuant to which we provided equipment to HYD for the fuel cell project with Korea Southern Power Co., Ltd. (“KOSPO”). The SureSource 3000TM power plants will enable pricing belowcleanly produce electricity and thermal energy to supply the electric grid without incentives, whichand support a district heating system. Construction began in 2017 and the installation is expected to be operational in 2018. The value of the equipment sale contract to the Company is in excess of $60 million.
In accordance with the 2017 MOU, we expect will accelerate adoption and broaden potential target markets.
E.ON Connecting Energies GmbH: E.ON Connecting Energies (“E.ON”) specializes in integrated energy solutions for industrial, commercial and public sector customers. E.ON has purchased two SureSource fuel cell power plants to serve E.ON end user customers. The first sale announced was a CHP-configured megawatt-class fuel cell plant installation at a German manufacturing company and the second sale was a CHP-configured fuel cell power plant for a German hotel owned by an international hotel chain.
ExxonMobil: We entered into a joint development agreement in 2016 with ExxonMobil for advancing fuel cell carbon capture with applications for ourgas-fired power generation solution. Advanced Technology Programs, discussed instations. ExxonMobil is supporting a following section, identifies and obtains private and government funding sources to commercialize new applications of the power plants, such as distributed hydrogen and carbon capture. Energy storage applications are also being pursued utilizing both carbonate and solid oxidedemonstration fuel cell technology.
Our core fuel cell products (Direct FuelCell® or DFC® power plants) offer ultra-clean, highly efficient power generation for customers, including the 1.4 MW SureSource 1500TM, the 2.8 MW DFC3000SureSource 3000®TM, the 1.4 MW DFC1500® and the 300 kW DFC300recently introduced 3.7 MW SureSource 4000®TM plus derivations of this core DFC product for specific applications.. The plants are scalable for multi-megawatt utility scale applications or on-site CHP generation for a broad range of applications. We can provide a comprehensive and complete turn-key fuel cell project that includes project development, engineering procurement and construction (EPC)EPC services, O&M, and project finance.
Our proprietary DFCcarbonate fuel cell technology generates electricity directly from a fuel, such as natural gas or renewable biogas, by reforming the fuel inside the fuel cell to produce hydrogen, which is why it is called a Direct FuelCell.hydrogen. This internal “one-step” reforming process results in a simpler, more efficient, and cost-effective energy conversion system compared with external reforming fuel cells. Additionally, natural gas has an established infrastructure and is readily available in our existing and target markets.markets compared to some types of fuel cells that require high purity hydrogen. The Direct FuelCell operatesfuel cells operate at approximately 1,200° Fahrenheit.1,100° F. An advantage of high temperature fuel cells is that they do not require the use of precious metal electrodes required by lower temperature fuel cells, such as proton exchangeproton-exchange membrane (PEM) and phosphoric acid.(“PEM”) fuel cells. As a result, we are able to use less expensive and readily available industrial metals as catalysts for our fuel cell components. In addition, our DFC fuel cell produces high quality byproduct heat (700°F) that can be utilized for CHP applications using hot water, steam or chiller water for facility heating and cooling.
The DFCSureSource product line is a global platform based on carbonate fuel cell technology. UtilizingUsing a standard design globally enables volume-based cost reduction and optimal resource utilization. Our power plants utilize a variety of available fuels to produce electricity electrochemically, in a process that is highly efficient, quiet, and due to the avoidance of combustion, produces virtually no particulate pollutants. Thus, our plants generate more power and fewer emissions for a given unit of fuel than combustion-based power generation of a similar size, making them economical and environmentally responsible power generation solutions. In addition to electricity, our standard configuration produces high quality heat (approximately 700° F), suitable for makingheating facilities or water, or steam or hot water for facility use as well asindustrial processes or absorption cooling. SystemOur system’s efficiencies can reach up to 90%, depending on the application, when configured for CHP.
We market different configurations of the DFCSureSource plants to meet specific market needs for the supply, recovery and storage of energy, including:
Energy Supply
On-Site Power (Behind the Meter): Customers benefit from improved power reliability and energy security from on-site power that reduces reliance on the electric grid. Utilization of the high quality heat produced by the fuel cell in a CHP configuration supports economics and sustainability goals by lessening or even avoiding the need for combustion-based boilers for heat and theirits associated cost, pollutants and carbon emissions. On-site CHP power projects generally range in size from a single 1.4 MW DFC1500an individual SureSource 1500 to combining multiple 2.8 MW DRC3000SureSource 3000 or SureSource 4000 power plants for projects up to about 14 MW in size.
costly, difficult to site and expensive to maintain. Deploying our SureSource power plants throughout a utility service territory can also help utilities comply with government-mandated clean energy regulations and meet air quality standards. Our products can be part of a total on-site power generation solution with our high efficiency products providing continuous power, and can be combined with intermittent power generation, such as solar or wind, or less efficient combustion-based equipment that provides peaking or load following power. |
Higher Electrical Efficiency - Multi-megawatt applications: The SureSource 4000 is designed to extract more electrical power from each unit of fuel with electrical efficiency of approximately 60% and targets applications with large load requirements and limited waste heat utilization such as utility/grid support or data centers. This 3.7 megawatt plant is configured with a series of three fuel cell modules that operate in sequence, yielding a higher electrical efficiency than the standard SureSource 3000 configuration of two fuel cell modules operating in parallel. The heat energy and unused hydrogen from two fuel cell modules is supplied to the third module, enhancing overall electrical efficiency.
Distributed Hydrogen: The SureSource fuel cells internally reform the fuel source (i.e. natural gas or biogas) to obtain hydrogen. The SureSource plants can be configured for tri-generation, supplying power, heat and high purity hydrogen. Power output is modestly reduced to support hydrogen generation, which can then be used for industrial applications such as metal or glass processing, or petrochemical, or transportation applications. Siting the tri-generation fuel cell plant at a source of biogas, such as a 59 MW installationwastewater treatment facility, enables the generation of renewable hydrogen for transportation, an attractive proposition to regulatory and legislative officials and auto companies. We have announced the first commercial MW-scale application of this product configuration at the Port of Long Beach, California which is consisting of 21 power plants, the world’s largest. By producing power near the point of use, our fuel cells help to ease congestion of the electric grid and can also enable the smart grid via distributed generation combined with the continuous monitoring and operation by our service organization. Thus, our solutions can avoid or reduce investment in new central generation and transmission infrastructure which is costly, difficult to site and expensive to maintain. Deploying our DFC power plants throughout a utility service territory can also help utilities comply with government-mandated clean energy regulations and meet air quality standards. A 10 MW fuel cell park only requires about one acre of land whereas an equivalent size solar array requires up to ten times as much land, illustrating how fuel cell parks are easy to site in high density areas with constrained land resources, and adjacent to the demand source thereby avoiding costly transmission construction. Our products can be part of a total on-site power generation solution with our high efficiency products providing continuous power, and can be combined with intermittent power generation, such as solar or wind, or less efficient combustion-based equipment that provides peaking or load following power. will support Toyota’s logistical support facility.
Micro-grid: The DFCSureSource plants can also be configured as a micro-grid, either independently or with other forms of power generation. We possess the capabilities to model, design and operate the micro grid and have multiple examples of our DFC plantssolutions operating within micro-grids, some individually and some with other forms of power generation.
Energy Recovery
• | Gas Pipeline Applications: |
• | Carbon Capture: The |
Distributed Hydrogen:Energy Storage The DFC
We are developing our long-duration SureSource StorageTM solution, creating a system that utilizes both SOFC and SOEC technology and using hydrogen as the energy storage medium. Our solid oxide stacks are capable of alternating between electrolysis and power generation mode. Instead of producing power from fuel cells internally reform theand air, a solid oxide fuel source (i.e. natural gas or biogas) to obtain hydrogen. DFC plantscell stack in electrolysis mode splits water into hydrogen and oxygen using supplied electricity. Hydrogen is an energy carrier that can be configuredcompressed and stored for tri-generation, supplyinglong durations in storage tubes or underground.
This allows us to configure efficient and cost effective energy storage solutions where hydrogen is produced from electricity in electrolysis mode and stored until power heatis needed, at which point the stored hydrogen is used in the same stacks to produce electricity. Storage capacity is easily expanded by adding additional storage tanks, a low cost approach for storage applications requiring many hours or days of storage capacity. The need for long duration energy storage behind the meter and high purity hydrogen. Power output is modestly reducedon the utility grid will increase as the penetration of intermittent renewable sources on the grid expands. This solution can be sited adjacent to support hydrogen generation that can then be used for industrial applications such as metal or glass processing, material handling applications or petrochemicals, or transportation applications. Siting the tri-generation fuel cell plant at a source of biogas such as wastewater treatment facilities, results in renewable hydrogen for transportation, an attractive proposition to regulatory and legislative officials and car companies. After operating two sub-megawatt systems - one for renewable vehicle fueling and one producing industrial hydrogen for our Torrington facility - we are now evaluating a variety of possible sites for the first commercial MW-scale application of the technology.
In summary, our solutions offer many advantages:
Distributed generation: Generating power near the point of use improves power reliability and energy security and lessens the need for costly and difficult-to-site generation and transmission infrastructure, enhancing the resiliency of the grid.
Ultra-clean: Our DFC power plantsSureSource solutions produce electricity electrochemically − without combustion − directly from readily available fuels such as natural gas and renewable biogas in a highly efficient process. The virtual absence of pollutants facilitates siting the power plants in regions with clean air permitting regulations and is an important public health benefit.
High efficiency: Fuel cells are the most efficient power generation option in their size class, providing the most power from a given unit of fuel, reducing fuel costs. This high electrical efficiency also reduces carbon emissions compared to less efficient combustion-based power generation.
Combined heat and power: Our power plants provide both electricity and usable high quality heat/steam from the same unit of fuel. The heat can be used for facility heating and cooling or further enhancing the electrical efficiency of the power plant in a combined cycle configuration. When used in CHP configurations, system efficiencies can potentially reach up to 90%, depending on the application.
Reliability / continuous operation: Our DFCSureSource power plants improve power reliability and energy security by lessening reliance on transmission and distribution infrastructure of the electric grid. Unlike solar and wind power, fuel cells are able to operate continuously regardless of weather or time of day.
Fuel flexibility: Our DFCSureSource power plants can operate on a variety of existing and readily available fuels, including natural gas, renewable biogas, directed biogas and propane.
Scalability: Our DFC power plantssolutions are scalable, providing a cost-effective solution to adding power incrementally as demand grows, such as multi-megawatt fuel cell parks supporting the electric grid.
Quiet operation: Because they produce power without combustion and contain very few moving parts, our DFC power plantsSureSource solutions operate quietly and without vibrations.
Easy to site: Our DFCSureSource power plants are relatively easy to site by virtue of their ultra-clean emissions profile, modest space requirements and quiet operation. Space requirements are about one tenth of the land required for a solar array offering a
Fuel cells are devices that directly convert chemical energy (fuel) into electricity, heat and water. Because fuel cells generate power electrochemically rather than by combusting (burning) fuels, they are more efficient in extracting energy from fuels, and produce less carbon dioxide (COCO2) and only trace levels of pollutants compared to combustion-type power generation. The following table illustrates the favorable emission profile of our DFC and high efficiencySureSource power plants:
|
| Emissions (Lbs. Per MWh) | ||||||||||||||||
|
| NOX |
|
| SO2 |
|
| PM |
|
| CO2 |
|
| CO2 with CHP | ||||
Average U.S. Fossil Fuel Plant |
|
| 5.06 |
|
|
| 11.6 |
|
|
| 0.27 |
|
|
| 2,031 |
|
| NA |
Microturbine (60 kW) |
|
| 0.44 |
|
|
| 0.008 |
|
|
| 0.09 |
|
|
| 1,596 |
|
| 520 - 680 |
Small Natural Gas Turbine |
|
| 1.15 |
|
|
| 0.008 |
|
|
| 0.08 |
|
|
| 1,494 |
|
| 520 - 680 |
SureSource - natural gas |
|
| 0.01 |
|
|
| 0.0001 |
|
|
| 0.00002 |
|
|
| 940 |
|
| 520 - 680 |
SureSource 4000 High Efficiency Plant |
|
| 0.01 |
|
|
| 0.0001 |
|
|
| 0.00002 |
|
|
| 740 |
|
| 520 - 680 |
SureSource - utility scale carbon capture |
|
| 0.01 |
|
|
| 0.0001 |
|
|
| 0.00002 |
|
|
| 80 |
|
| n/a |
SureSource - renewable biogas |
|
| 0.01 |
|
|
| 0.0001 |
|
|
| 0.00002 |
|
| < 0 |
|
| < 0 | |
| Emissions (Lbs. Per MWh) | |||||
NOX | SO2 | PM10 | CO2 | CO2 with CHP | |
| Average U.S. Fossil Fuel Plant | 5.06 | 11.6 | 0.27 | 2,031 | NA |
| Microturbine (60 kW) | 0.44 | 0.008 | 0.09 | 1,596 | 520 - 680 |
| Small Gas Turbine | 1.15 | 0.008 | 0.08 | 1,494 | 520 - 680 |
DFC® Power Plant | 0.01 | 0.0001 | 0.00002 | 940 | 520 - 680 |
HEFCTM High Efficiency Fuel Cell Plant | 0.01 | 0.0001 | 0.00002 | 740 | 520 - 680 |
For power plants operating on natural gas, higher fuelelectrical efficiency results in lower CO
High electrical efficiency reduces customers' exposure to volatile fuel costs, minimizes operating costs, and provides maximum electrical output from a finite fuel source. Our power plants achieve electrical efficiencies of 47% to 60% or higher depending on configuration, location, and application, and up to 90%even higher total efficiency in a CHP configuration, depending on the application. This represents delivered efficiency as our distributed solutions generate power near the point of use, avoiding the line losses inherent in transmission. The electric grid in the United States is only approximately 36%35% electrically efficient and typically does not support CHP configurations.
We design and manufacture the core DFCSureSource fuel cell components that are stacked on top of each other to build a fuel cell stack. For MW sizeMW-size power plants, four fuel cell stacks are combined to build a fuel cell module. To complete the power plant, the fuel cell module or modules are combined with the BOP. The mechanical BOP processes the incoming fuel such as natural gas or renewable biogas and includes various fuel handling and processing equipment such as pipes and blowers. The electrical BOP processes the power generated for use by the customer and includes electrical interface equipment such as an inverter. The BOP components are either purchased directly from suppliers or the manufacturing is outsourced based on our designs and specifications. This strategy allows us to leverage our manufacturing capacity, focusing on the critical aspects of the power plant where we have specialized knowledge, expertise and expertise.possess extensive intellectual property. BOP components are shipped directly to a customer's site and are then assembled with the fuel cell module into a complete power plant.
North America:
We operate aThe expansion of the facility was recently completed, representing the first phase is underway to addof a 102,000 square foot addition of our North American manufacturing facility. The buildingtwo phase capacity expansion. This expansion will
supports, the second phase will involve the addition ofbe undertaken to add manufacturing equipment to increase annual capacity to at least 200 megawatts.MW. The State of Connecticut is extending two low interest long term loans to us (one for each of the two phasesphases) and up to $10$10.0 million of tax credits. Each loan is $10$10.0 million, with an interest rate of 2.0% and a term of 15 years. Up to 50% of the principal is forgivable if certain job creation and retention targets are met.
The Torrington production facility, the Danbury corporate headquarters and research and development facility, and our Field Service Operations (which maintains the installed fleet for our plants) are ISO 9001:20082015 certified, reinforcing the tenets of the FuelCell Energy Quality Management System and our core values of continual improvement and commitment to quality.
South Korea:
Europe: We have a 20,000 square-foot manufacturing facility in Taufkirchen, Germany that has the capability to perform final module assembly for up to 20 MW per year of sub-megawatt fuel cell power plants for the European market. Our operations in Europe are certified under both ISO 9001:2015 and ISO 14001:2015.
Raw Materials and Supplier Relationships
We use various commercially available raw materials and components to construct a fuel cell module, including nickel and stainless steel, which are key inputs to our manufacturing process. Our fuel cell stack raw materials are sourced from multiple vendors and are not considered precious metals. We have a global integrated supply chain that serves North American, European, and the POSCO Energy-owned Asian production facilities. In addition to manufacturing the fuel cell module in our Torrington facility, the electrical and mechanical BOPBOPs are assembled by and procured from several suppliers. All of our suppliers must undergo a qualification process. We continually evaluate and qualify new suppliers as we diversify our supplier base in our pursuit of lower costs and are currently qualifying several new suppliers.consistent quality. We purchase mechanical and electrical balance of plantBOP componentry from third party vendors, based on our own proprietary designs.
Engineering, Procurement and Construction
We provide customers with complete turn-key solutions, including the development, engineering, procurement, construction, operationsinterconnection and interconnectionoperations for our fuel cell projects. From an Engineering, Procurement and Construction (EPC)EPC standpoint, FCE haswe have an extensive history of safe and timely delivery of turnkeyturn-key projects. We have developed relationships with many design firms and licensed general contractors and have a repeatable, safe, and efficient execution philosophy that has been successfully demonstrated multiple times in many different U.S. statesnumerous jurisdictions, both domestically and some European countriesabroad, all with an exemplary safety record. The ability to rapidly and safely execute installations minimizes high cost construction period financing and can assist customers in certain situations when the commercial operating date is time sensitive.
We offer a comprehensive portfolio of services, including:including engineering, project management and installation, and long-term operating and maintenance programs, including trained technicians that remotely monitor and operate the plants around the world, 24 hours a day and 365 days a year. We employ field technicians to service the power plants and maintain service centers near our customers to ensure high availability of our plants. Virtually allAll of our customers purchase service agreements, rangingsome of which have terms of up to 20 years. Pricing for service contracts is based upon the markets in which we compete and includes all future maintenance and fuel cell module exchanges. While the electrical and mechanical BOP in our DFC power plants is designed to last about 25 years, the current fuel cell modules must be replaced approximately every five years.
Under the typical provisions of theour service agreements, we provide services to monitor, operate and maintain customer power plants to meet specified performance levels. Operations and maintenance is a key driver for power plants to deliver their projected revenue and cash flows. Many of our service agreements include guarantees for system performance, including electrical output and heat rate. Should the power plant not meet the minimum performance levels, we may be required to replace the fuel cell module with a new or used replacement and/or pay performance penalties. The service aspects of our business model provide a recurring and predictable revenue stream for the Company. We have committed future production for scheduled fuel cell module exchanges under service agreements through the year 2036.2038. The pricing structure of the service agreements incorporates these scheduled fuel cell module exchanges and the committed nature of this production facilitates our production planning. Our goal is to optimize our customers’ power plants to meet expected operating parameters throughout their contracted project term.
In addition to our service agreements, we provide for a warranty for our products for a specific period of time against manufacturing or performance defects. OurThe warranty term in the U.S. is limited to a term generallytypically 15 months after shipment or 12 months after acceptance of our products, except for fuel cell kits. We warranty fuel cell kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required.products. We accrue for estimated future warranty costs based on historical experience.
Retained projects in the generation portfolio do not have service agreements with the off-takers but we maintain the power plants through long-term service agreements with our project level subsidiaries. Under the PPAs for these retained projects, we are obligated to deliver a certain contractual level of power. We operate and maintain the plants in our generation portfolio in a manner intended to maximize power output, just as we do for our customers who own their plants.
We are entitled to receive license fees and royalty income from POSCO Energy related to manufacturing and technology transfer agreements entered into in 2007, 2009 and 2012. The Cell Technology Transfer Agreement ("CTTA"), executed in October 2012, provides POSCO Energy with the technology rights to manufacture Direct FuelCellSureSource power plants in South Korea and the market accessright to sell power plants throughout Asia for an initialAsia. In October 2016, the Company and POSCO Energy extended the terms of the 2007 and 2009 license agreements to be consistent with the term of 15 years with two renewal optionsthe CTTA, which expires on October 31, 2027. The term of five years each.these agreements may be extended beyond 2027 through future extensions by mutual agreement of the Company and POSCO Energy. In conjunction with the CTTA, the Company receivesis entitled to receive a 3.0% royalty on POSCO Energy net product sales as well as a royalty on each scheduled fuel cell module replacement under service agreements for modules that were built by POSCO Energy and installed at any plant in Asia under the terms of the Master Service Agreement between the Company and POSCO Energy.
Advanced TechnologyTechnologies Programs (Third Party Funded Research and Development)
We undertake both publicprivately-funded and privately-fundedpublic research and development to expand the markets for our DFC power plants, reduce costs, and expand our technology portfolio in complementary high-temperature fuel cell systems. This research builds on our expertise and the versatility of our fuel cell power plants and contributes to the development of potentially new end markets.markets for our commercial product solution portfolio. Our power plants can be configured to provide variousa number of value streams including clean electricity, high quality usable heat, hydrogen suitable for vehicle fueling or industrial purposes as well as use of DFC power plantsconfiguration to concentrate carbon dioxideCO2 from coal and natural gas fired power plants. Our Advanced TechnologyTechnologies Programs are focused on commercializing solutions within three strategic areas for commercialization within a reasonable timeframe:areas: (1) Distributed hydrogen production, compression, and recovery, (2) Carboncarbon capture for emissions reduction and power generationgeneration; (2) distributed hydrogen production, compression, and recovery; and (3) Solid oxide fuel cells (SOFC)SOFC/SOEC for stationary power generation and energy storage. The revenue and associated costs from government and third party sponsored research and development is classified as “Advanced technologiesTechnologies contract revenues” and “Cost of advanced technologiesAdvanced Technologies contract revenues”, respectively, in our consolidated financial statements.
We have historically worked on technology development with various U.S. government departments and agencies, including the Department of Energy (DOE), the Department of Defense (DOD), the Environmental Protection Agency (EPA), the Defense Advanced Research Projects Agency (DARPA), the Office of Naval Research (ONR),
and the National Aeronautics and Space Administration (NASA). Government funding, principally from the DOE, provided 6%9%, 6%,8% and 5%6% of our revenue for the fiscal years ended 2017, 2016, and 2015, 2014, and 2013, respectively.
Significant commercialization programs on which we are currently working include:
Carbon Capture - Coal and natural gas are abundant, low cost resources that are widely used to generate electricity in developed and developing countries, but burning these fuels results in the emission of criteria pollutants and CO2. Cost effective and efficient carbon capture from coal-fired and gas-fired power plants potentially represents a large global market because it could enable clean use of these fuels. Our carbonate fuel cell technology separates and concentrates CO2 as a side reaction during the power generation process. Capturing CO2 as a side reaction while generating additional valuable power is an approach that could be more cost effective than other systems which are being considered for carbon capture.
We announced an agreement with ExxonMobil (NYSE: XOM) in 2016 to pursue fuel cell carbon capture for central generation gas-fired power plants. We are working on the installation of a megawatt-class fuel cell power plant at a mixed coal/gas-fired power station owned by Alabama Power, a subsidiary of Southern Company. This project is being supported by an award from the U.S. Department of Energy to design and build the first MW-scale carbon capture system for coal fired power, and by ExxonMobil through a joint development agreement for evaluating carbon capture from gas-fired power generation. Successful demonstration may then lead to additional fuel cell power plant installations at this site and/or other central generation coal or gas-fired sites globally. In addition, in 2017, we conducted two engineering studies: one with Alberta Innovates, a consortium of Canadian oil sands producers, and one with Cenovus Energy, as lead partner of a joint industry project, to evaluate the feasibility of fuel cell carbon capture for gas-fired boilers used in oil sands processing. These oil and gas and power producers are interested in the fuel cell carbon capture value proposition, and these studies are evaluating the application of our carbon capture system at specific sites, which could be future MW-scale carbon capture project opportunities.
Distributed Hydrogen production, compression, and recovery - On-site or distributed hydrogen generation, produced cleanly, represents an attractive market for the DFC technology.market. Our high temperature DFC power plant generatesfuel cells generate electricity directly from a fuel by reforming the fuel inside the fuel cell to supply hydrogen for the electrical generation process. Gas separation technology can be added to capture hydrogen that is not used by the electrical generation process, and we term this configuration DFC-H2.SureSource Hydrogen. This value-added proposition may be compelling for industrial users of hydrogen and transportation applications, further summarized as follows:
Fueling Applications
: WeWe previously demonstrated renewable hydrogen for the manufacturing process, replacing hydrogen that was delivered by diesel truck. The installation is a showcase for industrial users of hydrogen to visit. The project is supported by the DOE and the State of Connecticut.
SOFC/SOEC development and commercialization
: We are working towards commercialization of solid oxide fuel cell technology to targetWe have beenperform SOFC/SOEC research and development at our Danbury facility as well as at our dedicated SOFC/SOEC facility in Calgary, Canada. We are working under a prime contractor invariety of awards from the DOE's Solid State Energy Conversion Alliance (SECA) since 2003DOE for development and commercialization of both SOFC and SOEC. We are currently finishing an award that commencedinstalling a demonstration SOFC power plant at the NRG Energy Center in September 2014 to demonstrate a sub-megawattPittsburgh, Pennsylvania.
We believe there are significant market opportunities for distributed hydrogen production, carbon capture, solid oxide fuel cell power plant connected to the electric grid at our Danbury, Connecticut facility. We have also recently received additional awards from DOE to design a 200 kilowatt system and to build three power plants, two of which will go to a customer site. SOFC research is also undertaken at our facility in Calgary, Canada.
In addition to research and development performed under research contracts, we also fund our own research and development projects including extending module life, increasing the power output of our modules and reducing the cost of our products. InitiativesCurrent initiatives include increasing the net power output of the fuel cell stacks to 375 kW from 350 kW, currently, and extending the stack life to seven years from five years currently.five-year life modules produced in fiscal 2017. The Company’s seven-year module design will enter production in fiscal 2018. Greater power output and improved longevity willare expected to lead to improved gross margin profitability on a per unitper-unit basis for each power plant sold and improved profitability of service contracts, which will support expanding gross margins for the Company.
In addition to output and life enhancements, we alsodesigned and are now introducing the 3.7 megawatt SureSource 4000 configuration with increased electrical efficiency, and we invest in cost reduction and improving the performance, quality and serviceability of our plants. We are also developing designs for lower cost multi-megawatt fuel cell parks. These efforts continually improve our value proposition and affordability.
Company-funded research and development is included in Research and development expenses (operating expenses) in our consolidated financial statements. The total research and development expenditures in the consolidated statement of operations, including third party and Company-funded expenditures, are as follows:
|
| Years Ended October 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cost of Advanced Technologies contract revenues |
| $ | 12,728 |
|
| $ | 11,879 |
|
| $ | 13,470 |
|
Research and development expenses |
|
| 20,398 |
|
|
| 20,846 |
|
|
| 17,442 |
|
Total research and development |
| $ | 33,126 |
|
| $ | 32,725 |
|
| $ | 30,912 |
|
| Years Ended October 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Cost of advanced technologies contract revenues | $ | 13,470 | $ | 16,664 | $ | 13,864 | ||||||
| Research and development expenses | 17,442 | 18,240 | 15,717 | |||||||||
| Total research and development | $ | 30,912 | $ | 34,904 | $ | 29,581 | ||||||
The electric generation marketCompany had a contract backlog totaling approximately $554.2 million as of October 31, 2017 compared to $432.3 million as of October 31, 2016. At October 31, 2017 and 2016, backlog included approximately $182.3 million and $204.8 million, respectively, of service agreements. Service backlog as of October 31, 2017 had an average term of approximately 17 years weighted based on dollar backlog and utility service contracts up to twenty years in duration. Generation backlog as of October 31, 2017 and 2016 was $296.3 million and $142.5 million, respectively. As of October 31, 2017, product sales backlog totaled approximately $31.3 million compared to $24.9 million as of October 31, 2016. As of October 31, 2017, Advanced Technologies contracts backlog totaled $44.3 million, of which $24.5 million was funded compared to $60.1 million as of October 31, 2016, of which $39.6 million was funded.
Our backlog amount outstanding is competitive with continually evolving participants. Our DFCnot indicative of amounts to be earned in the upcoming fiscal year. The specific elements of backlog may vary in terms of timing and revenue recognition from less than one year to up to twenty years. In addition, the Company may retain operating power plants competeon the balance sheet rather than selling them, thus creating variability in timing of revenue recognition. Accordingly, the timing and the nature of our business makes it difficult to predict what portion of our backlog will be filled in the marketplace for stationary distributed generation. In additionnext fiscal year.
Backlog represents firm definitive agreements executed by the Company and our customers. As of October 31, 2017, we also had project awards totaling between $600.0 million and $1.0 billion, with the range based on whether the projects are sold or retained as part of our Generation portfolio. Project awards referenced by the Company are
notifications that the Company has been selected, typically through a competitive bidding process, to different types of stationary fuel cells, some other technologies that competeenter into definitive agreements. These awards have been publicly disclosed. Negotiations are in this marketplace include micro-turbinesprocess and reciprocating gas engines.
Fuel cell technologies are classified according to the electrolyte used by each fuel cell type. Our DFCSureSource technology utilizes a carbonate electrolyte. Carbonate-based fuel cells offerare well-suited for megawatt-class applications, offering a number of advantages over other types of fuel cells designed for megawatt-class commercial applications.in the markets we are pursuing. These advantages include carbonate fuel cells' ability to generate electricity directly from readily available fuels such as natural gas or renewable biogas, lower raw material costs as the high temperature of the fuel cell enables the use of commodity metals rather than precious metals, and high-quality heat suitable for CHP applications. We are also actively developing SOFC technology, as discussed in the prior Advanced Technology“Advanced Technologies Programs” section. Other fuel cell types that may be used for commercial applications include phosphoric acid (PAFC) and proton exchange membrane (PEM).
The following table illustrates the four principal types of fuel cells, highlighting typical market applications, industry estimates of the electrical efficiency, expected capacity range, and byproduct heat use of the four principal types of fuel cells as well as highlights of typical market applications:
MW- Class | Sub-MW- Class | Micro CHP | Mobile | |||||||
System Size Range | Carbonate (CFC) | Solid Oxide (SOFC) | Phosphoric Acid (PAFC) | PEM / SOFC | Polymer Electrolyte Membrane (PEM) | |||||
Plant size | 1.4 MW - | up to | up to 440 kW | < 10 kW | 5 - 100 kW | |||||
Typical Application | Utilities, | Commercial | Commercial | Residential and | Transportation | |||||
Fuel | Natural gas, On-site or Directed Biogas, | Natural | Natural | Natural | Hydrogen | |||||
Advantages | High Efficiency, | High Efficiency | CHP | Load | Load Following & Low Temperature | |||||
Electrical efficiency | 43%-47 to 60% | 50% - | 40% - 42% | 25% - 35% | 25% - 35% | |||||
Combined Heat & Power (CHP) | Yes, Steam | Depends on | Limited: Hot Water, Chilling | Suitable for | no | |||||
Carbon Capture | Yes | no | no | no | no | |||||
Distributed Hydrogen | Yes | Yes | no | no | no | |||||
Reversible for Storage | no | Yes | no | no | no | |||||
Our SureSource power plants compete in the marketplace for stationary distributed generation. In addition to different types of stationary fuel cells, some other technologies that compete in this marketplace include micro-turbines and reciprocating gas engines.
Several companies in the U.S. are engaged in fuel cell development, although we believe we are the only domestic company engaged in significant manufacturing and commercializationdeployment of stationary carbonate fuel cells. EmergingOther emerging fuel cell technologies (and the companies developing them) include stationary PEM fuel cells (Ballard Power Systems),small or portable PEM fuel cells (Ballard Power Systems, Plug Power, and increasing activity by numerous automotive companies including Toyota, Hyundai, Honda and GM), stationary phosphoric acid fuel cells (Doosan), stationary solid oxide fuel cells (LG/Rolls Royce partnership General Electric,
Other than fuel cell developers, we alsomay compete with companies such as Caterpillar, Cummins, Wartsilla, MTU Friedrichshafen GmbH (MTU), Mitsubishi Heavy Industries and Detroit Diesel, which manufacture more mature combustion-based distributed power generation equipment, including various engines and turbines, and have well-established manufacturing and distribution operations along with product operating and cost features. Competition on larger MW projects may also come from gas turbine companies like General Electric, Caterpillar Solar Turbines and Kawasaki.
We also compete against the electric grid, which is readily available to prospective customers. The electric grid is supplied by traditional centralized power plants, including coal, gas and nuclear, with transmission lines used to transport the electricity to the point of use.
Our stationary fuel cell power plants generally do not directly compete against large scale solar and wind buttechnologies, although we can complement theirsolar and wind intermittency with the continuous power output of the fuel cells. Solar and wind require specific geographies and weather profiles and require transmission for utility-scale applications as well as upa significant amount of land compared to ten times the land requirements of our DFCfuel cell power plants, making themit difficult to site MW-class projects in urban areas, unlike fuel cell power plants.
We believe that only carbonate fuel cells are suitable for fuel cell carbon capture applications, so our fuel cell carbon capture solution does not compete against fuel cells from manufacturers utilizing other fuel cell technologies.
Our distributed hydrogen solution competes against traditional centralized hydrogen generation as well as electrolyzers used for distributed applications. Hydrogen is typically generated at a central location in large quantities by combustion-based steam reforming and then distributed to end users by diesel truck. Besides utilizing tri-generation DFCSureSource plants for distributed hydrogen, electrolyzers can be used that are in essence, reverse fuel cells. Electrolyzers take electricity and convert it to hydrogen. The hydrogen can be used as it is generated, compressed and stored, or injected into the natural gas pipeline. Companies using fuel cell-based electrolyzer technology for transportation applications include Proton OnsiteNEL and H2 Logic. Hydrogenics Corporation.
Hydrogen is an energy carrier and energy storage utilizing hydrogen is a growing market opportunity that we are pursuing both transportationwith our SOFC/SOEC technology. Companies using PEM-based fuel cell electrolyzer technology for storage include Hydrogenics Corporation and utility-scale electrolyzer applications.
Regulatory and Legislative Support
Distributed generation addresses certain power generation issues that central generation does not and regulatory policy can impact deployment of distributed generation. Regulatory and legislative support encompasses policy, incentive programs, and defined sustainability initiatives such as Renewable Portfolio Standards (“RPS”).
Various states and municipalities in the business towards operating in sustainable markets that do not require specific government subsidies or support programs to compete against more traditional forms of power generation. SupportU.S. have adopted programs for fuel cells, depending on the jurisdiction, include renewable portfolio standards, feed in tariffs andwhich our products qualify, including programs supporting self-generation, incentive programs, net energy metering programs and tax incentives. These incentives help to accelerate the adoption of clean efficient and renewable power generation.
renewable energy resources, and the extent to which renewable energy credits (certificates representing the generation of renewable energy) qualify for CES or RPS compliance. Fuel cells using biogas qualify as renewable power generation technology in all of the CES and RPS states in the U.S., and eight states (Connecticut, Delaware, Indiana, New York, Ohio, Oklahoma, Pennsylvania and Maine) specify that fuel cells operating on natural gas are also eligible for these initiatives in recognition of the high efficiency and low pollutants of fuel cells. Massachusetts has recently promulgated regulations that will qualify certain fuel cells and near-zero pollutants.
Internationally, South Korea has adopted an RPS to promote clean energy, reduce carbon emissions, and develop a local green-industrymanufacturing of clean energy generation products to accelerate economic growth. The RPS is designed to increase new and renewable power generation to ten percent10% of total power generation by 20222023 from two percent2% when the RPS began in 2012 by requiring an additional one half2012. Eighteen of one percent of new & renewablethe largest power added annually from 2012generators are obligated to 2016, increasing to one percent per annum through 2022. This equates to an estimated 350 MW annually through 2016, increasing to about 700 MW annually thereafter. Electric utilities and independent power producers that haveachieve the RPS requirements in excess of 500 MW of powertheir generation capacity are required to comply with the RPS. In addition, a Renewable Heat Obligation program creation is in process to accelerate the adoption of CHP installations with targeted implementation in 2016. The South Korean government initiated a cap-and-trade system in 2015, targeting about 60 percent of greenhouse gas emissions from industrial operations that produce more than 25,000 tons of CO2 per year. The South Korean government has pledged to reduce greenhouse gas emissions 30 percent by 2020 from projected levels. The cap-and-trade legislation is designed to link internationally with emissions trading systems in other countries.
Our Company and its products are subject to various federal, provincial, state and local laws and regulations relating to, among other things, land use, safe working conditions, handling and disposal of hazardous and potentially hazardous substances and emissions of pollutants into the atmosphere. Negligible emissions of SOx and NOx from our power plants are substantially lower than conventional combustion-based generating stations, and are far below existing and proposed regulatory limits. The primary emissions from our power plants, assuming no cogeneration application, are humid flue gas that is discharged at temperatures of 700-800°F, water that is discharged at temperatures of 10-20°F above ambient air temperatures, and CO
2 in per kW hour amounts that are much less than conventional fossil fuel central generation power plants due to the high efficiency of fuel cells.We are also subject to federal, state, provincial and/or local regulation with respect to, among other things, emissions and siting. In addition, utility companies and several states in the USAU.S. have created and adopted, or are in the process of creating, interconnection regulations covering both technical and financial requirements for interconnection of fuel cell power plants to utility grids. Our power plants are designed to meet all applicable laws, regulations and industry standards for use in their international markets.
We are committed to providing a safe and healthy environment for our employees. All of our employees, are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. Wewe are dedicated to seeing that safety and health hazards are adequately addressed through appropriate work practices, training and procedures.
All of our employees must observe the proper safety rules and environmental practices in work situations, consistent with these work practices, training and procedures, and consistent with all applicable health, safety and environmental laws and regulations.
Our intellectual property consists of patents, trade secrets and institutional knowledge that we feelbelieve is a competitive advantage and represents a significant barrier to entry for potential competitors. Our Company was founded in 1969 as an applied research company and began focusing on carbonate fuel cells in the 1980s, with our first fully commercialized Direct FuelCell (DFC)SureSource power plant sold in 2003. Over this period of time, we have gained extensive experience in designing, manufacturing, operating and maintaining fuel cell power plants. This experience can’tcannot be easily or quickly replicated and, combined with our trade secrets, proprietary processes and patents, safeguardsafeguards our intellectual property rights.
As of October 31, 2015, the2017, our Company, excluding its subsidiaries, has 93had 92 patents in the U.S. and 94 patent106 patents in other jurisdictions covering our fuel cell technology (in certain cases covering the same technology in multiple jurisdictions), with patents directed to various aspects of our Direct FuelCellSureSource technology, SOFC technology, PEM fuel cell technology, and applications thereof. WeAs of October 31, 2017, we also have 10had 30 patent applications pending in the U.S. and 5693 pending in other jurisdictions. Our U.S. patents will expire between 20162018 and 2033,2035, and the current average remaining life of our U.S. patents is approximately 10.29.2 years.
Our subsidiary, Versa Power Systems, Inc.Ltd., has 30 currentas of October 31, 2017, had 35 U.S. patents and 7375 international patents covering theirthe SOFC technology (in certain cases covering the same technology in multiple jurisdictions), with an average remaining U.S. patent life of approximately 8.76.8 years. As of October 31, 2017, Versa Power Systems, Inc.Ltd. also has 3had four pending U.S. patent applications and 914 patent applications pending in other jurisdictions. In addition, our subsidiary, FuelCell Energy Solutions, GmbH, has license rights to use FuelCell Energy's carbonate fuel cell technology, and, as well as 9of October 31, 2017, had two U.S. patents and 49 ninepatents outside the U.S. for carbonate fuel cell technology licensed from its co-owner, Fraunhofer IKTS.
No patents have expired or will expire in 2018 that would have any material impact on our current or anticipated operations. As has historically been the case, we are continually innovating and have a significant number of invention disclosures that we are reviewing that may result in additional patent applications.
Many of our U.S. patents are the result of government-funded research and development programs, including our Department of Energy (DOE) programs. U.S. patents we own that resulted from government-funded research are subject to the government exercising “march-in” rights. We believe that the likelihood of the U.S. government exercising these rights is remote and would only occur if we ceased our commercialization efforts and there was a compelling national need to use the patents.
We contract with a concentrated number of customers for the sale of our products and for research and development contracts. For the fiscal years ended October 31, 2015, 20142017, 2016 and 2013,2015, our top customers, POSCO Energy (which is a related party and owns approximately 10% of the outstanding common shares of the Company)Hanyang Industrial Development Co., The United Illuminating Company,Ltd, Dominion Bridgeport Fuel Cell, LLC, the Department of Energy, Pepperidge Farms and NRGExxonMobil, POSCO Energy (which is a related party and owns approximately 5%4% of the outstanding shares of common sharesstock of the Company), and Avangrid Holdings (through its various subsidiaries), accounted for an aggregate of 94%78%, 88%75% and 88%90%, respectively, of our total annual consolidated revenue. Revenue percentage by major customer for the last three fiscal years is as follows:
|
| Years Ended October 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Hanyang Industrial Development Co. Ltd |
|
| 40 | % |
|
| — | % |
|
| — | % |
Dominion Bridgeport Fuel Cell, LLC |
|
| 11 | % |
|
| 6 | % |
|
| 3 | % |
Department of Energy |
|
| 9 | % |
|
| 8 | % |
|
| 5 | % |
ExxonMobil |
|
| 9 | % |
|
| 3 | % |
|
| 1 | % |
POSCO Energy |
|
| 6 | % |
|
| 48 | % |
|
| 67 | % |
Avangrid Holdings (through its various subsidiaries) |
|
| 3 | % |
|
| 10 | % |
|
| 14 | % |
Total |
|
| 78 | % |
|
| 75 | % |
|
| 90 | % |
| Years Ended October 31, | |||||||||
| 2015 | 2014 | 2013 | |||||||
| POSCO Energy | 67 | % | 69 | % | 54 | % | |||
| The United Illuminating Company | 14 | % | 9 | % | — | % | |||
| Dominion Bridgeport Fuel Cell, LLC | 3 | % | 3 | % | 29 | % | |||
| Department of Energy | 5 | % | 4 | % | 5 | % | |||
| Pepperidge Farms | 3 | % | — | % | — | % | |||
| NRG Energy | 2 | % | 3 | % | — | % | |||
| Total | 94 | % | 88 | % | 88 | % | |||
See Item 7 - Management's– “Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations” and Item 8 - Consolidated– “Consolidated Financial Statements and Supplementary DataData” for further information regarding our revenue and revenue recognition policies.
We have marketing and manufacturing operations both within and outside the United States. We source raw materials and balance of plantBOP components from a diverse global supply chain. In 2015,2017, the foreign country with the greatest concentration risk was South Korea, accounting for 67%46% of our consolidated net sales. The Company is entitled to receive royalties from POSCO Energy on the sale of power plants and module replacements related to service of fuel cell power plants in Asia. As part of our Strategic Plan,strategic plan, we are in the process of diversifying our sales mix from both a customer specific and geographic perspective. See Item 1A: “RiskRisk Factors -
The international nature of our operations subjects us to a number of risks, including fluctuations in exchange rates, adverse changes in foreign laws or regulatory requirements and tariffs, taxes, and other trade restrictions. See Item
1A: “RiskRisk Factors - – “We are subject to risks inherent in international operations”.” See also Note 1314 “Segment and Geographical Information,” to the consolidated financial statements in Part II, Item 8, “Consolidated Financial Statements And Supplementary Data” of thethis Annual Report on Form 10-K Report for information about our net sales by geographic region for the years ended October 31, 2015 , 2014,2017, 2016, and 2013.2015. See also Item 7:7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for other information about our operations and activities in various geographic regions.
FuelCell Energy’s ultra-clean, efficient and reliable fuel cell power plants help our customers achieve their sustainability goals. These highly efficient and environmentally friendly products support the “Triple Bottom Line” concept of sustainability, consisting of Environmental, Socialenvironmental, social and Economiceconomic considerations.
Product efficiency
The electrical efficiency of our fuel cell solutions ranges from approximately 47% to 60% depending on the configuration. This compares favorably to the average efficiency of the U.S. electrical grid of about 35%. Our solutions deliver this high electrical efficiency where the power is used, avoiding transmission. Transmission line losses average about 6% to 9% for the U.S. grid, which represents inefficiency and is a hidden cost to ratepayers. In a combined heat and power configuration, total thermal efficiency of our fuel cell solutions can potentially be up to 90% depending on the application.
Energy management
We value sustainability justutilize our fuel cells to provide a portion of the electricity used at our corporate office and at our North American manufacturing facility.
Other examples of energy management include routing excess heat from production processes throughout the manufacturing facility to reduce both heating costs and associated emissions, utilizing the power produced by fuel cells undergoing R&D at our corporate office for a portion of the power needs of the facility, and installation of high efficiency lighting at our North American manufacturing facility and corporate office.
We have expanded our manufacturing facility in Torrington and consolidated other locations, reducing transportation emissions and transportation costs, incorporating energy efficient building standards and reducing leasing costs. We are pursuing additional consolidation initiatives in 2018 as seriously aswe plan to relocate fuel cell module conditioning to Torrington from our customers. Danbury facility, which will further reduce transportation emissions and costs. We recognize that there is more to be done and we are utilizing cross-functional teams to identify and evaluate additional areas for improvement.
Product end-of-life management
We continue to incorporate sustainability best practices into our corporate culture and into the design, manufacture, installation and servicing of our stationary fuel cell power plants. For example, at the end-of-life forof our power plants, we refurbish and re-use certain parts of the power plant and we are able to recycle most of what we cannot re-use, supporting the sustainability concept of ‘cradle-to-cradle’.re-use. Some of the parts in the fuel cell module can be re-furbished, such as end plates, while the individual fuel cell components are sent to a smelter for recycling. The balance of plantBOP has an operating life of twenty to twenty-five years, at which time metals such as steel and copper are reclaimed for scrap value. By weight, approximately 93% of the entire power plant is either re-used or recycled.
Our manufacturing process minimizing production waste. We havehas a tri-generation fuel cell power plant at our North American manufacturing plant, efficiently and cleanly generating power and heat for the facility and hydrogen for the manufacturing process. From a sustainability standpoint, on-site tri-generation avoids the use of a combustion-based boiler for heat and its associated emissions and reduces pollutants from the diesel truck needed for hydrogen delivery, reducing ourvery low carbon footprint, and benefiting the surrounding community. Other examples include routing excess heat fromutilizing an assembly oriented production processes throughout the facility to reduce both heating costs and associated emissions, installation of high efficiency lighting, partially powering the corporate offices with power generated by the various fuel cell configurations undergoing development in the research area, and utilizing cross-functional teams to evaluate additional areas for improvement.
We work to continually improve what we feel is a very low carbon footprint, utilizingrobust safety program. This is demonstrated by an assembly oriented production strategy and obtaining low carbonimproving safety trend over each of the past 4 years. We have never had a workplace fatality at any of our facilities or power and heat from DFC power plants located at both the North American manufacturing plant operated by the Company and the Asian manufacturing plant operated by POSCO Energy.
Sustainability also incorporates social risks and human rights and we will not knowingly support or do business with suppliers that treat workers improperly or unlawfully, including, without limitation, those that engage in child labor, human trafficking, child labor, slavery or other unlawful or morally reprehensible employment practices. We have begun and are continuing to implement comprehensive monitoring of our global supply chain to eliminate social risks and ensure respect for human rights. We contractually ensure that all qualified domestic suppliers in our supply chain comply with the Fair Labor Standards Act (FLSA) of 1938, as amended.
Materials sourcing
Assuring the absence of conflict minerals in our power plants is a continuing initiative. Our employeesfuel cells, including the fuel cell components and completed fuel cell module, do not utilize any 3TG minerals (i.e. tin, tungsten, tantalum and gold) that are classified as conflict minerals. We do utilize componentry in the BOP such as computer circuit boards that utilize trace amounts of 3TG minerals. For perspective, total shipments in fiscal year 2016 weighed approximately 5.8 million pounds, of which 3 pounds, or 0.000052%, represented 3TG minerals, so the presence of these minerals is minimal. Our conflict mineral disclosure filed with supply chain responsibilitiesthe Securities and Exchange Commission (“SEC”) on Form SD contains specific information on the actions we are trained on sustainability, social risks and human rights and utilize this knowledgetaking to evaluate existing suppliers and new potential suppliers on social and sustainable metrics to ensure compliance with our requirements and congruence with our company values.
As of October 31, 2015,2017, we had 596458 full-time associates, of whom 279173 were located at the Torrington Connecticut manufacturing plant, 273246 were located at the Danbury, Connecticut facility or variousother field offices within the U.S., and 4439 were located at our foreign locations. In addition, at October 31, 2015, the Company had 23 temporary workers.abroad. None of our associates isare represented by a labor union or covered by a collective bargaining agreement. We believe our relations with our associates are good.
Our annual reportreports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports will beare made available free of charge through the Investor Relations section of the Company’s Internet website (http://www.fuelcellenergy.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).SEC. Material contained on our website is not incorporated by reference in this report. Our executive offices are located at 3 Great Pasture Road, Danbury, CT 06810. The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC located at http://www.sec.gov.
NAME | AGE | PRINCIPAL OCCUPATION | |||
Arthur A. Bottone President and Chief Executive Officer | 57 | Mr. Bottone joined FuelCell Energy in February 2010 as Senior Vice President and Chief Commercial Officer and was promoted to President and Chief Executive Officer in February 2011. Mr. Bottone's focus is to accelerate and diversify global revenue growth to achieve profitability by capitalizing on heightened global demand for clean and renewable energy. Mr. Bottone has broad experience in the power generation field, including traditional central generation and alternative energy. Prior to joining FuelCell Energy, Mr. Bottone spent 25 years at Ingersoll Rand, a diversified global industrial company, including as President of the Energy Systems business. Mr. Bottone's qualifications include extensive global business development, technology commercialization, power generation project development as well as acquisition and integration experience. Mr. Bottone received an undergraduate degree in Mechanical Engineering from Georgia Institute of Technology in 1983, and received a Certificate of Professional Development from The Wharton School, University of Pennsylvania in 2004. | |||
Michael S. Bishop Senior Vice President, Chief Financial Officer | 49 | Mr. Bishop was appointed Senior Vice President, Chief Financial Officer Mr. Bishop received a Bachelor of Science in Accounting from Boston University in 1993 and a MBA from the University of Connecticut in 1999. | |||
NAME | AGE | PRINCIPAL OCCUPATION | |||
58 | Mr. Rauseo was appointed Chief Operating Officer in July 2010. In this position, Mr. Rauseo has responsibility for closely integrating the manufacturing operations with the supply chain, product development and quality initiatives. Mr. Rauseo is an organizational leader with a strong record of achievement in product development, business development, manufacturing, operations, and customer support. Mr. Rauseo joined the Company in 2005 as Vice President of Engineering and Chief Engineer. Prior to joining Fuel Cell Energy, Mr. Rauseo held a variety of key management positions in manufacturing, quality and engineering, including five years with CiDRA Corporation. Prior to joining CiDRA, Mr. Rauseo was with Pratt and Whitney for 17 years where he held various leadership positions in product development, production and customer support of aircraft turbines. Mr. Rauseo received a Bachelor of Science in Mechanical Engineering from Rutgers University in 1983 and received a Masters of Science in Mechanical Engineering from Rensselaer Polytechnic Institute in 1987. | ||||
Jennifer D. Arasimowicz, Esq. Senior Vice President, General Counsel and Corporate Secretary | 45 | Ms. Arasimowicz was appointed Senior Vice President, General Counsel and Corporate Secretary in April 2017. In this position, Ms. Arasimowicz, a licensed attorney in Connecticut, New York and Massachusetts, is the chief legal officer and chief compliance officer of the Company, having responsibility for oversight of all of the Company’s legal and government affairs, and providing leadership in all aspects of the Company’s business, including compliance, corporate governance and board activities. Ms. Arasimowicz joined the Company in 2012 as Associate Counsel and was promoted to Vice President in 2014. Prior to joining the Company, Ms. Arasimowicz served as General Counsel of Total Energy Corporation, a New York based diversified energy products and service company providing a broad range of specialized services to utilities and industrial companies. Previously, Ms. Arasimowicz was a partner at Shipman & Goodwin in Hartford, Connecticut, chairing the Utility Law Practice Group and began her legal career as an associate at Murtha Cullina. Ms. Arasimowicz earned her Juris Doctor at Boston University School of Law and holds a bachelor’s degree in English from Boston University. | |||
You should carefully consider the following risk factors before making an investment decision. If any of the following risks actually occur, our business, financial condition, or results of operations could be materially and adversely affected. In such cases, the trading price of our common stock could decline, and you may lose all or part of your investment.
We have incurred losses and anticipate continued losses and negative cash flow.
We have transitioned from a research and development company to a commercial products manufacturer, and services provider and developer. We have not been profitable since our fiscal year ended October 31, 1997. We expect to continue to incur net losses and generate negative cash flows until we can produce sufficient revenues and margins to cover our costs. We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. For the reasons discussed in more detail below, there are substantial uncertainties associated with our achieving and sustaining profitability. We have, from time to time, sought financing in the public markets in order to fund operations.operations and will continue to do so. Our future ability to obtain such financing if required, could be impaired by a variety of factors, including, but not limited to, the price of our common stock and general market conditions.
Our cost reduction strategy may not succeed or may be significantly delayed, which may result in our inability to deliver improved margins.
Our cost reduction strategy is based on the assumption that continued increases in production will result in economies of scale. In addition, our cost reduction strategy relies on advancements in our manufacturing process, global competitive sourcing, engineering design, reducing the cost of capital and technology improvements (including stack life and projected power output). Failure to achieve our cost reduction targets could have a material adverse effect on our results of operations and financial condition.
We have debt outstanding and may incur additional debt in the future, which may adversely affect our financial condition and future financial results.
Our total consolidated indebtedness was $87.8 million as of October 31, 2017. This includes approximately $46.9 million of debt at our project finance subsidiaries and $40.9 million at the corporate level. The majority of our debt is long-term with $28.3 million due within twelve months as of October 31, 2017. We also have approximately $40.0 million of borrowing capacity under a revolving construction and term project financing facility. Our ability to make scheduled payments of the principal and interest or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or dilutive.
It is also possible that we may incur additional indebtedness in the future in the ordinary course of business. If new debt is added to current debt levels, the risks described above could intensify.
Our debt agreements contain customary representations and warranties, affirmative and negative covenants, and events of default that entitle the lenders to cause our indebtedness under such debt agreements to become immediately due and payable. In addition, our Loan and Security Agreement with Hercules Capital, Inc. (“Hercules”), as amended, contains a financial covenant whereby we are required to maintain an unrestricted cash balance in accounts subject to an account control agreement in favor of Hercules of at least the greater of (x) (a) 75% of the outstanding loan balance plus (b) the amount of accounts payable not paid within 90 days of the invoice date, and (y) (a) at all times prior to the Stockholder Approval Date, $20.0 million and (b) at all times on and after the Stockholder Approval Date, $10.0 million (the Stockholder Approval Date was December 14, 2017, which was the date on which stockholder approval of the issuance of certain shares upon the conversion and/or redemption of our Series C Convertible Preferred Stock was obtained). The Loan and Security Agreement, as amended, also contains an event of default in the event of the delivery of a notice by the holders to redeem the Series C Preferred
Shares following a triggering event pursuant to the certificate of designations governing the Series C Preferred Shares. As of October 31, 2017, the outstanding loan balance under the Loan and Security Agreement, as amended, was $21.5 million, including accretion of an end-of-term payment.
Our products compete with products using other energy sources, and if the prices of the alternative sources are lower than energy sources used by our products, sales of our products will be adversely affected. Volatility of electricity and fuel prices may impact sales of our products and services in the markets in which we compete.
Our productspower plants can operate usingon a variety of fuels including primarily natural gas, andrenewable biogas, and also methanol, diesel, coal gas, coal mine methane,directed biogas and propane. If these fuels are not readily available or if their prices increase such that electricity produced by our products costs more than electricity provided by other generation sources, our products would be less economically attractive to potential customers. In addition, we have no control over the prices of several types of competitive energy sources such as oil, gas or coal as well asor local utility electricity costs. Significant decreases (or short term increases) in the price of these fuels or grid delivered prices for electricity could also have a material adverse effect on our business because other generation sources could be more economically attractive to consumers than our products.
Financial markets worldwide have experienced heightened volatility and instability which may have a material adverse impact on our Company, our customers and our suppliers.
Financial market volatility can affect both the debt, equity and project finance markets. This may impact the amount of financing available to all companies, including companies with substantially greater resources, better credit ratings and more successful operating histories than ours. It is impossible to predict future financial market volatility and instability and the impact on our Company, and it may have a materially adverse effect on us for a number of reasons, such as:
The long term nature of our sales cycle can require long lead times between application design, order booking and product fulfillment. For this, we often require substantial cash down payments in advance of delivery. Our growth strategy assumes that financing will be available for the Company to finance working capital or for our customers to provide down payments and to pay for our products. Financial market issues may delay, cancel or restrict the construction budgets and funds available to the Company or our customers for the deployment of our products and services.
Projects using our products are, in part, financed by equity investors interested in tax benefits as well as by the commercial and governmental debt markets. The significant volatility in the U.S. and international stock markets cause significant uncertainty and may result in an increase in the return required by investors in relation to the risk of such projects.
If we, our customers and suppliers cannot obtain financing under favorable terms, our business may be negatively impacted.
Our contracted productsprojects may not convert to revenue, and our project pipeline may not convert to contracts, which may have a material adverse effect on our revenue and cash flow.
Some of the orders we accept from customers require certain conditions or contingencies (such as permitting, interconnection or financing) to be satisfied, some of which are outside of our control. The time periods from receipt of a contract to installation may vary widely and are determined by a number of factors, including the terms of the customer contract and the customer’s site requirements. This could have an adverse impact on our revenue and cash flow.
We have signed product sales contracts, engineering, procurement and construction contracts (EPC)(“EPC”), power purchase agreements and long-term service agreements with customers subject to contractual, technology and operating risks as well as market conditions that may affect our operating results.
The Company applies the percentage of completion revenue recognition method to certain product sales contracts which are subject to estimates. On a quarterly basis, the Company performs a review process to help ensure that total estimated contract costs include estimates of costs to complete that are based on the most recent available
information. The percentage of completion for the customer contracts based on this cost analysis is then applied to the total customer contract values to determine the total revenue to be recognized to date.
In certain instances, we have executed power purchase agreements (PPA)(“PPA”) with the end-user of the power and site host of the fuel cell power plant. We may then sell the PPA to a project investor or retain the project and collect revenue from the sale of power over the term of the PPA, recognizing electricity revenue as power is generated and sold.
We have contracted under long-term service agreements with certain customers to provide service on our products over terms up to 20 years. Under the provisions of these contracts, we provide services to maintain, monitor, and repair customer power plants to meet minimum operating levels. Pricing for service contracts is based upon estimates of future costs including future stack replacements. While we have conducted tests to determine the overall life of our products, we have not run our products over their projected useful life prior to large-scale commercialization. As a result, we cannot be sure that our products will last to their expected useful life, which could result in warranty claims, performance penalties, maintenance and stack replacement costs in excess of our estimates and losses on service contracts.
Our ability to proceed with projects under development and complete construction of projects on schedule and within budget may be adversely affected by escalating costs for materials, labor and regulatory compliance, inability to obtain necessary permits, interconnections or other approvals on acceptable terms or on schedule and other factors. If any development project or construction is not completed, is delayed or is subject to cost overruns, we could become obligated to make delay or termination payments or become obligated for other damages under contracts, experience diminished returns or write off all or a portion of our investment in the project. Each of these events could have an adverse effect on our business, financial condition, results of operations and prospects.
Our growing generation portfolio of operating assets exposes us to operational risks and commodity market volatility.
We have a growing portfolio of generation assets selling power under PPAs and utility tariff programs that exposes us to operational risks and uncertainties, including, among other things, lost revenues due to prolonged outages, replacement equipment costs, risks associated with facility start-up operations, failures in the availability or acquisition of fuel, the impact of severe adverse weather conditions and natural disasters, risks of property damage or injury from energized equipment, availability of adequate water resources and ability to intake and discharge water, use of new or unproven technology, fuel commodity price risk and fluctuating market prices, and lack of alternative available fuel sources,
We extend product warranties, which could affect our operating results.
We provide for a warranty of our products for a specific period of time against manufacturing or performance defects. We accrue for warranty costs based on historical warranty claim experience, however, actual future warranty expenses may be greater than we’vewe have assumed in our estimates. As a result, operating results could be negatively impacted should there be product manufacturing or performance defects in excess of our estimates.
Our products are complex and could contain defects and may not operate at expected performance levels which could impact sales and market adoption of our products or result in claims against us.
We develop complex and evolving products. Our initial installations were demonstration power plants intended to test the technology in real-world applications. We learned extensively from these demonstration installations, enhancing the technology
We are still gaining field operating experience onwith respect to our products, and despite experience gained from our growing installed base and testing performed by us, our customers and our suppliers, issues may be found in existing or new products. This could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve broad market acceptance. The occurrence of defects could also cause us to incur significant warranty, support and repair costs, could divert the attention of our engineering personnel from our product development efforts, and could harm our relationships with our customers. The occurrence of these problems could result in the
delay or loss of market acceptance of our products and would likely harm our business. Defects or performance problems with our products could result in financial or other damages to our customers. From time to time, we have been involved in disputes regarding product warranty issues. Although we seek to limit our liability, a product liability claim brought against us, even if unsuccessful, would likely be time consuming and could be costly to defend. Our customers could also seek and obtain damages from us for their losses. We have accrued liabilities for potential damages related to performance problems, however, actual results may be different than the assumptions used in our accrual calculations.
We currently face and will continue to face significant competition.
We compete on the basis of our products’ reliability, efficiency, environmental considerations and cost. Technological advances in alternative energy products or improvements in the electric grid or other sources of power generation, or other fuel cell technologies may negatively affect the development or sale of some or all of our products or make our products non-competitive or obsolete prior to commercialization or afterwards.after commercialization. Other companies, some of which have substantially greater resources than ours, are currently engaged in the development of products and technologies that are similar to, or may be competitive with, our products and technologies.
Several companies in the U.S. are involvedengaged in fuel cell development, although we believe we are the only domestic company engaged in significant manufacturing and commercializationdeployment of stationary carbonate fuel cells. EmergingOther emerging fuel cell technologies (and the companies developing them) include small or portable PEM stationary fuel cells (Ballard Power Systems, Inc.Plug Power, and Plug Power)increasing activity by numerous automotive companies including Toyota, Hyundai, Honda and GM), stationary phosphoric acid fuel cells (Doosan Fuel Cells America, formerly ClearEdge Power) and(Doosan), stationary solid oxide fuel cells (LG/Rolls Royce partnership GE and Bloom Energy), and small residential solid oxide fuel cells (Ceres Power Holdings and Ceramic Fuel Cells Ltd.). Each of these competitors has the potential to capture market share in our target markets. There are also other potential fuel cell competitors internationally that could capture market share.
Other than fuel cell developers, we must also compete with companies that manufacture more mature combustion-based equipment, including various engines and turbines, and have well-established manufacturing, distribution, and operating and cost features. Electrical efficiency of these products can be competitive with our DFC Power PlantsSureSource power plants in certain applications. Significant competition may also come from gas turbine companies.
We have two largederive significant revenue from contracts awarded through a competitive bidding process involving substantial costs and influential stockholders, whichrisks. Due to this competitive pressure, we may make it difficultbe unable to grow revenue and achieve profitability.
We expect a significant portion of the business that we will seek in the foreseeable future will be awarded through competitive bidding versus other fuel cell technologies and other forms of power generation. The competitive bidding process involves substantial costs and a number of risks, including the significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us and our failure to accurately estimate the resources and costs that will be required to fulfill any contract we win. In addition, following a third party to acquire our common stock.
Unanticipated increases or decreases in business growth may result in adverse financial consequences for us.
If our business grows more quickly than we anticipate, our existing and planned manufacturing facilities may become inadequate and we may need to seek out new or additional space, at considerable cost to us. If our business does not grow as quickly as we expect, our existing and planned manufacturing facilities would, in part, represent excess capacity for which we may not recover the cost; incost In that circumstance, our revenues may be inadequate to support our committed costs and our planned growth, and our gross margins, and business strategy would be adversely affected.
Our plans are dependent upon market acceptance of, as well as enhancements to, our products. Fuel cell systems represent an emerging market, and we cannot be sure that potential customers will accept fuel cells as a replacement for traditional power
the cost competitiveness of our fuel cell products, including availability and output expectations and total cost of ownership;
the future costs of natural gas and other fuels used by our fuel cell products;
customer reluctance to try a new product;
the market for distributed generation;
local permitting and environmental requirements; and
the emergence of newer, more competitive technologies and products.
If a sufficient market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we will have incurred in the development of our products and may never achieve profitability.
As we continue to expand markets for our products, we intend to continue offering power production guarantees and other terms and conditions relating to our products that will be acceptable to the marketplace, and continue to develop a service organization that will aid in servicing our products and obtain self-regulatory certifications, if available, with respect to our products. Failure to achieve any of these objectives may also slow the development of a sufficient market for our products and, therefore, have a material adverse effect on our results of operations and financial condition.
We are substantially dependent on a concentrated number of customers and the loss of any one of these customers could adversely affect our business, financial condition and results of operations.
We contract with a concentrated number of customers for the sale of products and for research and development contracts. This includes POSCO Energy, which is a related party and owns approximately 10% of the outstanding common shares of the Company. POSCO Energy accounted for 67% of the Company's total revenues in fiscal year 2015.
As our relationship with POSCO Energy changes, we may not be able to succeed in our efforts to access the South Korean and Asian markets.
We have historically relied on POSCO Energy to develop and grow the South Korean and Asian markets for our products and services. We entered into manufacturing and technology transfer agreements with POSCO Energy in 2007, 2009 and 2012, each of which expires on October 31, 2027. The Cell Technology Transfer Agreement (“CTTA”) provides POSCO Energy with the technology rights to manufacture SureSource power plants in South Korea and the right to sell power plants throughout Asia. The CTTA requires POSCO Energy to pay to the Company a 3.0% royalty on POSCO Energy net product sales, as well as a royalty on scheduled fuel cell module replacements under service agreements for modules that were built by POSCO Energy and installed at plants in Asia under the terms of our Master Service Agreement with POSCO Energy. In March 2017, we entered into a memorandum of understanding with POSCO Energy to permit us to directly develop the Asian fuel cell business, including the right for us to sell SureSource solutions in South Korea and the broader Asian market. We and POSCO Energy also agreed to undertake to amend the CTTA and other agreements by a target date of September 30, 2017, to reflect our
new relationship. Although the CTTA and other agreements have not yet been amended, we continue to engage in discussions with POSCO Energy regarding our relationship and the direction of the fuel cell business in the South Korean and Asian markets. We cannot predict the outcome of such discussions, the future status or scope of our relationship with POSCO Energy, or whether our relationship with POSCO Energy will continue in the future. If we enter into new or amended agreements with POSCO Energy, those agreements may be on terms that are less favorable to us than our existing agreements. If our relationship with POSCO Energy ends, or continues on terms that are less favorable to us, our efforts to access the South Korean and Asian markets, which are complex markets, may not be successful or may be hindered or delayed.
If our goodwill and other intangible assets, long-lived assets, inventory or project assets become impaired, we may be required to record a significant charge to earnings.
We may be required to record a significant charge to earnings in our financial statements should we determine that our goodwill, other intangible assets (i.e., in process research and development (“IPR&D”)), long-lived assets (i.e., property, plant and equipment), inventory, or project assets are impaired. Such a charge might have a significant impact on our reported financial position and results of operations.
As required by accounting rules, we review our goodwill for impairment at least annually as of July 31 or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill might not be recoverable include a significant decline in projections of future cash flows and lower future growth rates in our industry. We review IPR&D for impairment on an annual basis.basis as of July 31 or more frequently if facts and circumstances indicate the fair value is less than the carrying value. If the technology has been determined to be abandoned or not recoverable, we would be required to impair the asset. We review inventory and project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable and recoverable
We have risks associated with high levels of inventory.
The amount of total inventory as of October 31, 2017 and October 31, 2016 was $74.5 million and $73.8 million, respectively, which includes work in process inventory totaling $54.4 million and $48.5 million, respectively. We have recently reduced our production rate and expect to operate at a lower level for a period of time in order to deploy inventory to new projects and mitigate future increases in inventory. There is no guarantee, however, that we will be successful in deploying our existing inventory. In addition, there are risks that our inventory could lose some or all of its value due to technological obsolescence, shifts in market demand or other unexpected changes in industry conditions and circumstances. If we are unable to deploy our current inventory consistent with our business plan, we may be required to sell it at a loss, abandon it or recycle it onto different products. These actions would result in a significant charge to earnings. Such a charge might have a significant impact on our financial position and results of operations.
Our Advanced Technologies contracts are subject to the risk of termination by the contracting party and we may not realize the full amounts allocated under the contracts due to the lack of Congressional appropriations.
A portion of our fuel cell revenues have been derived from long-term cooperative agreements and other contracts with the U.S. Department of Energy the U.S. Department of Defense, the U.S. Navy, and other U.S. Governmentgovernment agencies. These agreements are important to the continued development of our technology and our products. We also contract and partner with private sector companies under certain Advanced TechnologyTechnologies contracts to develop strategically important and complementary offerings.
Generally, our government research and development contracts are subject to the risk of termination at the convenience of the contracting agency. Furthermore, these contracts, irrespective of the amounts allocated by the contracting agency, are subject to annual Congressional appropriations and the results of government or agency sponsored reviews and audits of our cost reduction projections and efforts. We can only receive funds under these contracts ultimately made available to us annually by Congress as a result of the appropriations process.
Accordingly, we cannot be sure whether we will receive the full amounts awarded under our government research and development or other contracts. Failure to receive the full amounts under any of our government research and development contracts could materially and adversely affect our business prospects, results of operations and financial condition.
A negative government audit could result in an adverse adjustment of our revenue and costs and could result in civil and criminal penalties.
Government agencies, such as the Defense Contract Audit Agency, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure, and compliance with applicable laws, regulations, and standards. If the agencies determine through these audits or reviews that we improperly allocated costs to specific contracts, they will not reimburse us for these costs. Therefore, an audit could result in adjustments to our revenue and costs.
Further, although we have internal controls in place to oversee our government contracts, no assurance can be given that these controls are sufficient to prevent isolated violations of applicable laws, regulations and standards. If the agencies determine that we or one of our subcontractors engaged in improper conduct, we may be subject to civil or criminal penalties and administrative sanctions, payments, fines, and suspension or prohibition from doing business with the government, any of which could materially affect our results of operations and financial condition.
The U.S. government has certain rights relating to our intellectual property, including restrictingthe right to restrict or takingtake title to certain patents.
Multiple U.S. patents that we own have resulted from government-funded research and are subject to the risk of exercise of “march-in” rights by the government. March-in rights refer to the right of the U.S. government or a government agency to exercise its non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government if the contractor fails to continue to develop the technology. These “march-in” rights permit the U.S. government to take title to these patents and license the patented technology to third parties if the contractor fails to utilize the patents. In addition, one of our DOE-funded research and development agreements also required us to agree that we will not provide to a foreign entity any fuel cell technology subject to that agreement unless the fuel cell technology will be substantially manufactured in the U.S.
We are, from time to time depending on our overall employee count, classified for Governmentgovernment contracting as a “Large Business”, which could adversely affect our rights to own future patents under DOE-fundedDepartment of Energy (“DOE”)-funded contracts.
We are, from time to time depending on our overall employee count, classified as a “large business” under DOE contracts. This allows us to own the patents that we develop under new DOE contracts if we obtain a waiver from the DOE. A “large business” under applicable government regulations generally consists of more than 500 employees averaged over a one year period. We will not own future patents we develop under new contracts, grants or cooperative agreements funded by the DOE, unless we obtain a patent waiver from the DOE. Should we not obtain a patent waiver and outright ownership, we would nevertheless retain exclusive rights to any such patents, so long as we continue to commercialize the technology covered by the patents.
Our future success and growth is dependent on our market strategy.
We cannot assure you that we will enter into partnershipsbusiness relationships that are consistent with, or sufficient to support, our commercialization plans and our growth strategy or that these relationships will be on terms favorable to us. Even if we enter into these types of relationships, we cannot assure you that the partnersbusiness associates with which we form relationships will focus adequate resources on selling our products or will be successful in selling them. Some of these arrangements have required or will require that we grant exclusive rights to certain companies in defined territories. These exclusive arrangements could result in our being unable to enter into other arrangements at a time when the partnerbusiness associate with which we form a relationship is not successful in selling our products or has reduced its commitment to marketing our products. In addition, future arrangements may also include the issuance of equity and warrants to purchase our equity, which may have an adverse effect on our stock price. To the extent we enter into partnerships or other business relationships, the failure of these partners or other business associates to assist us with the deployment of our products may adversely affect our results of operations and financial condition.
We depend on third party suppliers for the development and supply of key raw materials and components for our products.
We use various raw materials and components to construct a fuel cell module, including nickel and stainless steel which are critical to our manufacturing process. We also rely on third-party suppliers for the balance-of-plant components in our products. Suppliers must undergo a qualification process, which takes four to twelve months. We continually evaluate new suppliers, and we are currently qualifying several new suppliers. There are a limited number of suppliers for some of the key components of our products. A supplier’s failure to develop and supply components in a timely manner or to supply components that meet our quality, quantity or cost requirements or our technical specifications, or our inability to obtain alternative sources of these components on a timely basis or on terms acceptable to us could harm our ability to manufacture our Direct FuelCellSureSource products. In addition, to the extent the processes that our suppliers use to manufacture components are proprietary;proprietary, we may be unable to obtain comparable components from alternative suppliers.
We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers or secure new long-term supply relationships, or whether such relationships will be on terms that will allow us to achieve our objectives. Our business prospects, results of operations and financial condition could be harmed if we fail to secure long-term relationships with entities that will supply the required components for our Direct FuelCellSureSource products.
We depend on our intellectual property, and our failure to protect that intellectual property could adversely affect our future growth and success.
Failure to protect our existing intellectual property rights may result in the loss of our exclusivity or the right to use our technologies. If we do not adequately ensure our freedom to use certain technology, we may have to pay others for rights to use their intellectual property, pay damages for infringement or misappropriation, or be enjoined from using such intellectual property. We rely on patent, trade secret, trademark and copyright law to protect our intellectual property. In addition, we have licensed our carbonate fuel cell manufacturing intellectual property to POSCO Energy, and we depend on POSCO Energy to also protect our intellectual property rights as licensed. AtAs of October 31, 2015, the Company,2017, we, excluding itsour subsidiaries, had 93 current92 U.S. patents and 94 international106 patents in other jurisdictions covering our fuel cell technology. Thetechnology (in certain cases covering the same technology in multiple jurisdictions), with patents directed to various aspects of our SureSource technology, SOFC technology, PEM fuel cell technology and applications thereof. As of October 31, 2017, we also had 30 patent applications pending in the U.S. and 93 patent applications pending in other jurisdictions. Our U.S. patents have anwill expire between 2018 and 2035, and the current average remaining life of our U.S. patents is approximately 10.29.2 years. Our subsidiary, Versa has 30 currentPower Systems, Ltd., as of October 31, 2017, had 35 U.S. patents and 7375 international patents covering theirthe SOFC technology (in certain cases covering the same technology in multiple jurisdictions), with an average remaining U.S. patent life of approximately 8.76.8 years. As of October 31, 2017, Versa Power Systems, Ltd. also had 4 pending U.S. patent applications and 14 patent applications pending in other jurisdictions. In addition, our subsidiary, FuelCell Energy Solutions, GmbH, has 9 currentlicense rights to use FuelCell Energy’s carbonate fuel cell technology, and, as of October 31, 2017, had 2 U.S. patents and 49 international9 patents outside the U.S. for carbonate fuel cell technology licensed from its co-owner, Fraunhofer IKTS.
Some of our intellectual property is not covered by any patent or patent application and includes trade secrets and other know-how that is not able to be patented, particularly as it relates to our manufacturing processes and engineering design. In addition, some of our intellectual property includes technologies and processes that may be similar to the patented technologies and processes of third parties. If we are found to be infringing third-party patents, we do not know whether we will be able to obtain licenses to use such patents on acceptable terms, if at all. Our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope, and enforceability of a particular patent.
We cannot assure you that any of the U.S. or international patents owned by us or other patents that third parties license to us will not be invalidated, circumvented, challenged, rendered unenforceable or licensed to others, or that any of our pending or future patent applications will be issued with the breadth of claim coverage sought by us, if issued at all. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or able to be patented, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our subcontractors, vendors, suppliers, consultants, strategic partners and employees. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships. Certain of our intellectual property havehas been licensed to us on a non-exclusive basis from third
If necessary or desirable, we may seek extensions of existing licenses or further licenses under the patents or other intellectual property rights of others. However, we can give no assurances that we will obtain such extensions or further licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for intellectual property that we use at present could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the use of that intellectual property.
While we are not currently engaged in any intellectual property litigation, we could become subject to lawsuits in which it is alleged that we have infringed the intellectual property rights of others or commence lawsuits against others who we believe are infringing upon our rights.rights or violating their agreements to protect our intellectual property. Our involvement in intellectual property litigation could result in significant expense to us, adversely affecting the development of sales of the challenged product or intellectual property and diverting the efforts of our technical and management personnel, whether or not that litigation is resolved in our favor.
Our future success will depend on our ability to attract and retain qualified management, technical, and technicalother personnel.
Our future success is substantially dependent on the continued services and on the performance of our executive officers and other key management, engineering, scientific, manufacturing and operating personnel, particularly Arthur Bottone, our Chief Executive Officer. The loss of the services of any executive officer, including Mr. Bottone, or other key management, engineering, scientific, manufacturing and operating personnel, could materially adversely affect our business. Our ability to achieve our commercialization plans and to increase production at our manufacturing facility in the future will also depend on our ability to attract and retain additional qualified management, technical, manufacturing and technicaloperating personnel. Recruiting personnel for the fuel cell industry is competitive. We do not know whether we will be able to attract or retain additional qualified management, technical, manufacturing and technicaloperating personnel. Our inability to attract and retain additional qualified management, technical, manufacturing and technicaloperating personnel, or the departure of key employees, could materially and adversely affect our development, commercialization and commercializationmanufacturing plans and, therefore, our business prospects, results of operations and financial condition.
Our management may be unable to manage rapid growth effectively.
We may rapidly expand our facilities and manufacturing capabilities, accelerate the commercialization of our products and enter a period of rapid growth, which will place a significant strain on our senior management team and our financial and other resources. Any expansion may expose us to increased competition, greater overhead, marketing and support costs and other risks associated with the commercialization of a new product. We would need to obtain sufficient backlog in order to maintain the use of the expanded capacity. Our ability to manage rapid growth effectively will require us to continue to secure adequate sources of capital and financing, improve our operations, to improve our financial and management information systems and to train, motivate and manage our employees. Difficulties in effectively managing issues presented by such a rapid expansion could harm our business prospects, results of operations and financial condition.
We are subject to various federal, state and local laws and regulations relating to, among other things, land use, safe working conditions, handling and disposal of hazardous and potentially hazardous substances and emissions of pollutants into the atmosphere. In addition, it is possible that industry-specific laws and regulations will be adopted covering matters such as transmission scheduling, distribution, and the characteristics and quality of our products, including installation and servicing. These regulations could limit the growth in the use of carbonate fuel cell products, decrease the acceptance of fuel cells as a commercial product and increase our costs and, therefore, the price of our products. Accordingly, compliance with existing or future laws and regulations could have a material adverse effect on our business prospects, results of operations and financial condition.
Utility companies may resist the adoption of distributed generation and could impose customer fees or interconnection requirements on our customers that could make our products less desirable.
Investor-owned utilities may resist adoption of distributed generation fuel cell plants as the powersuch plants are disruptive to the utility business model that primarily utilizes large central generation power plants and associated transmission and distribution. On-site distributed generation that is on the customer-side of the electric meter competes with the utility. Distributed generation on the utility-side of the meter generally has power output that is significantly less than central generation power plants and may be perceived by the utility as too small to materially impact theirits business, limiting theirits interest. Additionally, perceived technology risk may limit utility interest in stationary fuel cell power plants.
Utility companies commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back up purposes. These fees could increase the cost to our customers of using our Direct FuelCellSureSource products and could make our products less desirable, thereby harming our business prospects, results of operations and financial condition.
Several U.S. states have created and adopted, or are in the process of creating, their own interconnection regulations covering both technical and financial requirements for interconnection to utility grids. Depending on the complexities of the requirements, installation of our systems may become burdened with additional costs that might have a negative impact on our ability to sell systems. The Institute of Electrical and Electronics Engineers has been working to create an interconnection standard addressing the technical requirements for distributed generation to interconnect to utility grids. Many parties are hopeful that this standard will be adopted nationally to help reduce the barriers to deployment of distributed generation such as fuel cells; however, this standard may not be adopted nationally thereby limiting the commercial prospects and profitability of our fuel cell systems.
We could be liable for environmental damages resulting from our research, development or manufacturing operations.
Our business exposes us to the risk of harmful substances escaping into the environment, resulting in personal injury or loss of life, damage to or destruction of property, and natural resource damage. Depending on the nature of the claim, our current insurance policies may not adequately reimburse us for costs incurred in settling environmental damage claims, and in some instances, we may not be reimbursed at all. Our business is subject to numerous federal, state, and local laws and regulations that govern environmental protection and human health and safety. We believe that our businesses are operating in compliance in all material respects with applicable environmental laws, however, these laws and regulations have changed frequently in the past and it is reasonable to expect additional and more stringent changes in the future.
Our operations may not comply with future laws and regulations and we may be required to make significant unanticipated capital and operating expenditures. If we fail to comply with applicable environmental laws and regulations, governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits and private parties may seek damages from us. Under those circumstances, we might be required to curtail or cease operations, conduct site remediation or other corrective action, or pay substantial damage claims.
Our products use inherently dangerous, flammable fuels, operate at high temperatures and use corrosive carbonate material, each of which could subject our business to product liability claims.
Our business exposes us to potential product liability claims that are inherent in products that use hydrogen. Our products utilize fuels such as natural gas and convert these fuels internally to hydrogen that is used by our products to generate electricity. The fuels we use are combustible and may be toxic. In addition, our Direct FuelCellSureSource products operate at high temperatures and use corrosive carbonate material, which could expose us to potential liability claims. Although we have incorporated a robust design and redundant safety features in our power plants, and have established comprehensive safety, maintenance, and training programs, in place, follow third-party certification protocols, codes and standards, and do not store natural gas or hydrogen at our power plants, we cannot guarantee that there will not be accidents. Any accidents involving our products or other hydrogen-using products could materially impede widespread market acceptance and demand for our products. In addition, we might be held responsible for damages beyond the scope of our insurance coverage. We also cannot predict whether we will be able to maintain adequate insurance coverage on acceptable terms.
We are subject to risks inherent in international operations.
Since we market our products both inside and outside the U.S., our success depends in part on our ability to secure international customers and our ability to manufacture products that meet foreign regulatory and commercial requirements in target markets. Sales to customers located outside the U.S. accounts for a significant portion of our consolidated revenue. Sales to customers in South Korea represent the majority of our international sales. We have limited experience developing and manufacturing our products to comply with the commercial and legal requirements of international markets. In addition, we are subject to tariff regulations and requirements for export licenses, particularly with respect to the export of some of our technologies. We face numerous challenges in our international expansion, including unexpected changes in regulatory requirements potential conflicts or disputes that countries may have to deal with,and other geopolitical risks, fluctuations in currency exchange rates, longer accounts receivable requirements and collections, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of international laws. Any of these factors could adversely affect our results of operations and financial condition.
Although our reporting currency is the U.S. dollar, we conduct our business and incur costs in the local currency of most countries in which we operate. As a result, we are subject to currency translation and transaction risk. Joint ventures or other business arrangements with strategic partners outside of the United States have involved and are expected in the future to involve investments denominated in the local currency. Changes in exchange rates between foreign currencies and the U.S. dollar could affect our net
We could also expand our business into new and emerging markets, many of which have an uncertain regulatory environment relating to currency policy. Conducting business in such markets could cause our exposure to changes in exchange rates to increase, due to the relatively high volatility associated with emerging market currencies and potentially longer payment terms for our proceeds. Our ability to hedge foreign currency exposure is dependent on our credit profile with financial institutions that are willing and able to do business with us. Deterioration in our credit position or a significant tightening of the credit market conditions could limit our ability to hedge our foreign currency exposure;exposure, and therefore, result in exchange gains or losses.
Exports of certain of our products are subject to various export control regulations and may require a license or permission from the U.S. Department of State, the U.S. Department of Energy or other agencies.
As an exporter, we must comply with various laws and regulations relating to the export of products, services and technology from the U.S. and other countries having jurisdiction over our operations. We are subject to export control laws and regulations, including the International Traffic in Arms Regulation (“ITAR”), the Export Administration Regulation (“EAR”), and the Specially Designated Nationals and Blocked Persons List, which generally prohibit U.S. companies and their intermediaries from exporting certain products, importing materials or supplies, or otherwise doing business with restricted countries, businesses or individuals, and require companies to maintain certain policies and procedures to ensure compliance. We are also subject to the Foreign Corrupt Practices Act which prohibits improper payments to foreign governments and their officials by U.S. and other business
entities. Under these laws and regulations, U.S. companies may be held liable for their actions and actions taken by their strategic or local partners or representatives. If we, or our intermediaries, fail to comply with the requirements of these laws and regulations, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.
We are also subject to registration under the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). Due to the nature of certain of our products and technology, we must obtain licenses or authorizations from various U.S. government agencies such as DDTC or DOE, before we are permitted to sell such products or license such technology outside of the U.S. We can give no assurance that we will continue to be successful in obtaining the necessary licenses or authorizations or that certain sales will not be prevented or delayed. Any significant impairment of our ability to sell products or license technology outside of the U.S. could negatively impact our results of operations, financial condition or liquidity.
We depend on strategic relationships with strategic partners,third parties, and the terms and enforceability of many of these relationships are not certain.
We have entered into strategic relationships with strategic partnersthird parties for the design, product development, sale and service of our existing products and products under development, some of which may not have been documented by a definitive agreement. The terms and conditions of many of these agreementsrelationships allow for termination by the partners.third parties. Termination of any of these agreementsrelationships could adversely affect our ability to design, develop and distribute these products to the marketplace. We cannot assure you that we will be able to successfully negotiate and execute definitive agreements with any of these partners,third parties, and failure to do so may effectively terminate the relevant relationship.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which could harm our brand and operating results.
Effective internal controls are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. We have devoted significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. In addition, Section 404 under the Sarbanes-Oxley Act of 2002 requires that we assess, and that our auditors attest to, the design and operating effectiveness of our controls over financial reporting. Our compliance with the annual internal control report requirement for each fiscal year will depend on the effectiveness of our financial reporting and data systems and controls. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.
We are increasingly dependent on information technology and disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations.
Information technology is critically important to our business operations. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, including production, manufacturing, financial, logistics, sales, marketing and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements and to operate our fuel cell power plants. These information technology systems, many of which are managed by third parties or used in connection with shared service centers, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial
results, or our fuel cell power plant operations may be disrupted, exposing us to performance penalties under our contracts with customers.
Our results of operations could vary as a result of methods, estimates and judgments we use in applying our accounting policies.
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Estimates” in Item 7).operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that could lead us to reevaluate our methods, estimates and judgments.
In future periods, management will continue to reevaluate its estimates for contract margins, service agreements, loss accruals, warranty, performance guarantees, liquidated damages and inventory valuation allowances. Changes in those estimates and judgments could significantly affect our results of operations and financial condition. We may also adopt changes required by the Financial Accounting Standards Board and the Securities and Exchange Commission.
Our stock price has been and could remain volatile.
The market price for our common stock has been and may continue to be volatile and subject to extreme price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:
failure to meet commercialization milestones;
failure to win contracts through competitive bidding processes;
the loss of a major customer;
variations in our quarterly operating results from the expectations of securities analysts or investors;
downward revisions in securities analysts’ estimates or changes in general market conditions;
changes in the securities analysts that cover us or failure to regularly publish reports;
announcements of technological innovations or new products or services by us or our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel;
investor perception of our industry or our prospects;
insider selling or buying;
demand for our common stock;
general technological or economic trends; and,
changes in United States or foreign political environment and the passage of laws, including, tax, environmental or other laws, affecting the product development business.
In the past, following periods of volatility in the market price of their stock, many companies have been the subject of securities class action litigation. If we became involved in securities class action litigation in the future, it could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business prospects, results of operations and financial condition.
Provisions of Delaware and Connecticut law and of our charter and by-laws and our outstanding securities may make a takeover more difficult.
Provisions in our certificate of incorporation and by-laws and in Delaware and Connecticut corporate law may make it difficult and expensive for a third-party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. In addition, certain provisions of ourthe FCE FuelCell Energy, Ltd. Series 1 Preferred Shares, and our Series B preferred stock and our Series C Preferred Shares could make it more difficult or more expensive for a third party to acquire us. Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change in our management and board of directors.
Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a judicial forum deemed favorable by the stockholder for disputes with us or our directors, officers or employees.
Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our amended and restated by-laws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or amended and restated by-laws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes against us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated by-laws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
The implementation of our business plan and strategy will require additional capital.
The implementation of our business plan and strategy requires additional capital. If we are unable to raise additional capital in the amounts required, or at all, we will not be able to successfully implement our business plan and strategy. There can be no guarantee that we will be able to raise such additional capital at the times required or in the amounts required for the implementation of our business plan and strategy. In addition, the recent change to a more capital-intensive business model increases the risks of our being able to successfully implement our plans, if we do not raise additional capital in the amounts required. If we are unable to raise additional capital, our business, operations and prospects could be materially and adversely affected.
We will need to raise additional capital, and such capital may not be available on acceptable terms, if at all. If we do raise additional capital utilizing equity, existing stockholders will suffer dilution. If we do not raise additional capital, our business could fail or be materially and adversely affected.
We will need to raise additional funds in debt and equity financings, and these funds may not be available to us when we need them or on acceptable terms, if at all. Such additional financings could be significant. If we raise additional funds through further issuances of our common stock, or securities convertible or exchangeable into shares of our common stock, into the public market, including shares of our common stock issued upon exercise of options or warrants, you could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our then-existing capital stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we cannot raise additional funds when we need them, our business and prospects could fail or be materially and adversely affected. In addition, if additional funds are not secured in the future, we will have to modify, reduce, defer or eliminate parts of our present and anticipated future projects.
Future sales of substantial amounts of our common stock could affect the market price of our common stock.
Future sales of substantial amounts of our common stock, or securities convertible or exchangeable into shares of our common stock, into the public market, including shares of our common stock issued upon exercise of options or warrants, or perceptions that those sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital in the future.
We may be subject to actions for rescission or damages or other penalties in connection with certain sales of shares of our common stock in the open market.
Between August 2005 and April 2017, we sold shares of our common stock pursuant to a series of “at-the-market” sales plans. The shares sold pursuant to these sales plans represented a portion of the shares registered by us pursuant to shelf registration statements we filed with the SEC during this time period. While we reported the actual shares sold and proceeds, net of fees, of sales made during each fiscal quarter pursuant to the sales plans in our annual and quarterly reports on Forms 10-K and 10-Q, we did not file or deliver prospectus supplements at the time of or prior to making these sales. Accordingly, these sales may not have been in compliance with applicable federal and/or state securities laws, and the purchasers of such shares may have rescission rights or claims for damages. In addition, to the extent that these sales were not in compliance with applicable federal and/or state securities laws, we may be subject to penalties imposed by the SEC and/or state securities agencies. If purchasers successfully seek rescission and/or damages, and/or the SEC and/or state securities agencies impose financial penalties on us which are not covered by insurance, we may not have sufficient resources to make the necessary payments, and any such claims, damages or penalties could have a material adverse effect on our stock price, business prospects, results of operations, and financial condition. Although we believe we would have defenses to such claims or actions if brought, we are unable to predict the likelihood of any claims or actions being brought against us, or the amount of any damages or financial penalties which could be sought against us, or the extent to which any such financial exposure would be covered by insurance.
The rights of the Series 1 preferred sharesPreferred Shares and Series B preferred stock could negatively impact our cash flows and could dilute the ownership interest of our stockholders.
The terms of the Series 1 preferred sharesPreferred Shares issued by FCE FuelCell Energy, Ltd. (“FCE Ltd.”), our wholly-owned, indirect subsidiary, provide rights to the holder, Enbridge Inc. (“Enbridge”), which could negatively impact us.
The provisions of the Series 1 Preferred Shares require that FCE Ltd. make annual payments totaling Cdn. $1,250,000, including (i) annual dividend payments of Cdn. $500,000 and (ii) annual return of capital payments of Cdn. $750,000. These payments will end on December 31, 2020. Additional dividends accrue on cumulative unpaid dividends at a 1.25% quarterly rate, compounded quarterly, until payment thereof. On December 31, 2020, the amount of all accrued and unpaid dividends on the Series 1 Preferred Shares of Cdn. $21.1 million and the balance of the principal redemption price of Cdn. $4.4 million shall be paid to the holders of the Series 1 Preferred Shares. FCE Ltd. has the option of making dividend payments in the form of common stock or cash under the terms of the Series 1 Preferred Shares provisions.
We are also required to issue common stock to the holder of the Series 1 preferred sharesPreferred Shares if and when the holder exercises its conversion rights. The number of shares of common stock that we may issue upon conversion could be significant and dilutive to our existing stockholders. For example, giving effect to the December 3, 2015 reverse stock split, assuming the holder of the Series 1 preferred sharesPreferred Shares exercises its conversion rights after July 31, 2020 and assuming our common stock price is $10.614$2.19 (our common stock closing price on October 31, 2015),2017) and an exchange rate of U.S. $1.00 to Cdn. $1.31$1.29 at the time of conversion, we would be required to issue approximately 337,2001,657,928 shares of our common stock.
The terms of the Series B preferred stock also provide rights to their holders that could negatively impact us. Holders of the Series B preferred stock are entitled to receive cumulative dividends at the rate of $50 per share per year, payable either in cash or in shares of our common stock. To the extent the dividend is paid in shares, additional issuances could be dilutive to our existing stockholders and the sale of those shares could have a negative impact on the price of our common stock. A share of our Series B preferred stock, after giving effect to the December 3, 2015 reverse stock split, may be converted at any time, at the option of the holder, into 7.0922 shares of our common stock (which is equivalent to an initial conversion price of $141 per share), plus cash in lieu of fractional shares.
Furthermore, the conversion rate applicable to the Series B preferred stock is subject to additional adjustment upon the occurrence of certain events.
We may not be able to make cash payments to redeem the Series C Preferred Shares.
We have the obligation to make bimonthly redemption payments on the Series C Preferred Shares commencing on November 1, 2017. These mandatory redemption payments may be made, at our option, in cash or in shares of our common stock or in a combination of cash and shares of our common stock, except that our right to make payment in shares of common stock is dependent upon our satisfying certain equity conditions. Among other things, these equity conditions include our continued listing on the NASDAQ Global Market or another permitted exchange and our stock maintaining certain minimum average prices and trading volumes during the applicable measurement period. If we cannot satisfy the equity conditions, we will not be able to make our bimonthly mandatory redemption payments in stock, and we would be forced to make such bimonthly payments in cash. We may not have sufficient cash resources at the applicable time to make those cash payments, or to make such cash payments in full. In addition, certain such cash payments may not permitted under the terms of our existing or future indebtedness or may cause us to fail to satisfy financial maintenance covenants.
Further, any failure to pay any amounts due to the holders of the Series C Preferred Shares, as well as certain other “triggering events,” including, without limitation, our failure to timely deliver shares, our suspension of trading, our failure to keep reserved for issuance an adequate number of shares of common stock to cover conversion of the Series C Preferred Shares, and breaches of certain covenants that are not timely cured, where a cure period is permitted, would permit the holders of our products are subjectthe Series C Preferred Shares to various export control regulationsrequire us to redeem such Series C Preferred Shares in cash at a price equal to the greater of (i) 125% of the stated value of the Series C Preferred Shares being redeemed plus accrued dividends, if any, and may require a license or permission(ii) the market value of the number of shares issuable on conversion of the Series C Preferred Shares, valued at the greatest closing sales price during the period from the U.S. Departmentdate immediately before the triggering event through the date we make the redemption payment. However, if we are actually delisted from The NASDAQ Global Market, without obtaining a listing on another national securities exchange, it would constitute a “triggering event” under the Certificate of State,Designations for the U.S. DepartmentSeries C Preferred Shares and would also cause a failure of Energy or other agencies.
The Series C Preferred Shares rank senior to registration underour common stock with respect to dividends, distributions and payments upon liquidation.
The rights of the U.S. State Department’s Directorateholders of Defense Trade Controls (“DDTC”). Duethe Series C Preferred Shares rank senior to the natureobligations to our common stockholders and our other preferred stockholders. Upon our liquidation, the holders of certainSeries C Preferred Shares are entitled to receive an amount per Series C Preferred Share equal to the greater of (A) the stated value thereof on the date of such payment, plus accrued dividends, if any and (B) the amount per share such holder would receive if such holder converted such Series C Preferred Shares into common stock immediately prior to the date of such payment. Further, the holders of Series C Preferred Shares have the right to participate in any payment of dividends or other distributions made to the holders of common stock to the same extent as if they had converted such Series C Preferred Shares. The existence of such a senior security could have an adverse effect on the value of our products and technology, we must obtain licenses or authorizations from various U.S. Government agencies such as DDTC or DOE, before we are permitted to sell such products or license such technology outsidecommon stock.
Holders of the U.S. We can give no assuranceSeries C Preferred Shares have rights that we will continue to be successful in obtaining the necessary licenses or authorizations or that certain sales will not be prevented or delayed. Any significant impairment ofmay restrict our ability to sell products or license technology outsideoperate our business.
Under the Certificate of Designations establishing the terms of the U.S. could negatively impactSeries C Preferred Shares, we are subject to certain covenants that limit our resultsability to create new series of operations, financial conditionpreferred stock, other than series junior to the Series C Preferred Shares with redemption occurring after the maturity date of the Series C Preferred Shares, and our ability to incur certain indebtedness. Such restrictions may have an adverse effect on our ability to operate our business while the Series C Preferred Shares are outstanding.
Our common stockholders may experience significant dilution upon the issuance of common stock upon conversion of or liquidity.redemption payments under the Series C Preferred Shares.
The issuance of common stock as mandatory redemption payments or upon conversion of some or all of the Series C Preferred Shares will dilute the ownership interests of existing holders of shares of our common stock. If the initial aggregate stated value of the Series C Preferred Shares is converted into our common stock at its initial conversion price, we would issue 18,206,522 shares of common stock upon their conversion (without giving effect to any limitation on conversions). This excludes the effect of any common stock we may issue in lieu of paying bimonthly redemption amounts in cash, which may be made at a price lower than the initial conversion price. The initial conversion price of the Series C Preferred Shares is adjustable based on certain events, including in the event of a triggering event and in the event we effect a stock split, combination or similar transaction, to reflect the proportionate (adjusted) trading prices of our common stock before and after the effective date.
None.
The following is a summary of our offices and locations:
Square | Lease Expiration | |||||||
Location | Business Use | Footage | Dates | |||||
Danbury, Connecticut | Corporate Headquarters, Research and Development, Sales, Marketing, Service, Purchasing and Administration | 72,000 | Company owned | |||||
Torrington, Connecticut | Manufacturing and Administrative | 167,000(1) | December 2030(2) | |||||
Taufkirchen, Germany | Manufacturing and Administrative | 20,000 | June 2018 | |||||
Calgary, Canada | Research and Development | 32,220 | January 2020 | |||||
(1) | The Company substantially completed its expansion of the Torrington facility during fiscal year 2017 which added an additional 102,000 square feet for a total of 167,000 square feet. See Note 10 of the Notes to Consolidated Financial Statements for additional information. |
(2) | In November 2015, this lease was extended until December of 2030, with the option to extend for three additional five-year periods thereafter. |
Item 3. |
We are involved in legal proceedings, claims and litigation arising out of the Notesordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually, or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to Consolidated Financial Statements for additional information.
Not applicable.
Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
FuelCell Common Stock
Our common stock has been publicly traded since June 25, 1992. Our common stock trades under the symbol “FCEL” on the Nasdaq Global Market. The following table sets forth the high and low sale prices for our common stock for the fiscal periods indicated as reported by the Nasdaq Global Market during the indicated quarters.
|
| Common Stock Price |
| |||||
|
| High |
|
| Low |
| ||
First quarter 2018 (through January 2, 2018) |
| $ | 2.31 |
|
| $ | 1.50 |
|
Year Ended October 31, 2017 |
|
|
|
|
|
|
|
|
First Quarter |
| $ | 3.40 |
|
| $ | 1.40 |
|
Second Quarter |
| $ | 1.98 |
|
| $ | 1.00 |
|
Third Quarter |
| $ | 1.79 |
|
| $ | 0.80 |
|
Fourth Quarter |
| $ | 2.49 |
|
| $ | 1.33 |
|
Year Ended October 31, 2016 |
|
|
|
|
|
|
|
|
First Quarter |
| $ | 12.24 |
|
| $ | 4.51 |
|
Second Quarter |
| $ | 8.08 |
|
| $ | 4.56 |
|
Third Quarter |
| $ | 8.88 |
|
| $ | 5.02 |
|
Fourth Quarter |
| $ | 5.67 |
|
| $ | 3.35 |
|
In December 3, 2015, we effected a 1-for-12 reverse stock split, reducing the number of our common shares outstanding from 314.5 million shares to approximately 26.2 million shares. Concurrently with the reverse stock split,2017, the number of authorized shares of ourthe Company’s common stock was reduced proportionately,increased from 475approximately 125 million shares to 39.6225 million shares. Additionally,shares by a vote of the conversion priceholders of our Series B Preferred Stock, anda majority of the exchange priceoutstanding shares of our Series 1 Preferred Shares, the exercise price of all outstanding options and warrants, andCompany’s common stock. In April 2017, the number of authorized shares reserved for future issuance pursuantof the Company’s common stock was increased from approximately 75 million to our equity compensation plans were all adjusted proportionately125 million by vote of the holders of a majority of the outstanding shares of the Company’s common stock. In April 2016, the number of authorized shares of the Company's common stock was increased from approximately 39.6 million to 75 million by vote of the reverse stock split.
Common Stock Price | ||||||||
| High | Low | |||||||
| First quarter 2016 (through December 31, 2015) | $ | 12.24 | $ | 4.90 | ||||
| Year Ended October 31, 2015 | ||||||||
| First Quarter | $ | 27.60 | $ | 12.60 | ||||
| Second Quarter | $ | 17.40 | $ | 13.68 | ||||
| Third Quarter | $ | 15.36 | $ | 9.72 | ||||
| Fourth Quarter | $ | 12.00 | $ | 7.68 | ||||
| Year Ended October 31, 2014 | ||||||||
| First Quarter | $ | 23.40 | $ | 15.36 | ||||
| Second Quarter | $ | 56.88 | $ | 16.44 | ||||
| Third Quarter | $ | 31.80 | $ | 22.32 | ||||
| Fourth Quarter | $ | 34.08 | $ | 18.60 | ||||
On December 31, 2015,January 2, 2018, the closing price of our common stock on the Nasdaq Global Market was $4.96$1.74 per share. At December 31, 2015,As of January 2, 2018, there were 489185 holders of record of our common stock. This does not include the number of persons whose stock is in nominee or “street” name accounts through brokers.
We have never paid a cash dividend on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the terms of our Series B preferred shares prohibit the payment of dividends on our common stock unless all dividends on the Series B preferred stock have been paid in full.
The following graph compares the annual change in the Company’sCompany's cumulative total stockholder return on its Common Stockcommon stock for the five fiscal years ended October 31, 20152017 with the cumulative stockholder total return on the Russell 2000 Index, and a peer group consisting of Standard Industry Classification (“SIC”)("SIC) Group Code 3693690 companies listed on The American Stock Exchange,the Nasdaq Global Market and New York Stock Exchange for that period (“Peer Index”) and a customized 1712 company peer group. It assumes $100$100.00 invested on November 1, 2010October 31, 2012 with dividends reinvested. Fiscal
Certain Prior Sales of Common Stock
Between August 2005 and April 2017, we sold shares of our common stock pursuant to a series of “at-the-market” sales plans approved by our Audit and Finance Committee and/or our Board of Directors. The intended use of proceeds from the sale of these shares was for general corporate purposes, to pay dividend and interest payments on shares of preferred stock of the Company and its subsidiaries, and to pay interest on our convertible notes outstanding at the time of the sales. The shares sold pursuant to the sales plans represented a portion of the shares registered by us pursuant to shelf registration statements we filed with the SEC during this time period. We previously reported the actual shares sold and proceeds, net of fees, of such sales during each fiscal quarter pursuant to the sales plans in our annual and quarterly reports on Forms 10-K and 10-Q filed with the SEC. Between August 2005 and April 2017, we issued and sold a total of 17.7 million shares of our common stock, for aggregate gross proceeds of $148.5 million and aggregate net proceeds (after aggregate selling commissions of $0.9 million) of $147.6 million pursuant to the “at-the-market” sales plans.
The following table shows the average sale price per share, the average commission per share, and the average per share proceeds to us (with such averages based on all sales made pursuant to the sales plans between August 2005 and April 2017):
|
| Per Share |
| |
Average sale price |
| $ | 8.38 |
|
Average commission |
| $ | 0.05 |
|
Average proceeds to us |
| $ | 8.33 |
|
The following table provides information regarding the date of, and the maximum number of shares authorized for sale under, each sales plan approved by our Board of Directors and/or our Audit and Finance Committee:
Date of Board/Audit and Finance Committee Approval of Sales Plan | Maximum Number of Shares Authorized for Sale Pursuant to Sales Plan | |||
6/17/2005 | 158,333 | |||
1/22/2007 | 500,000 | |||
1/11/2010 | 500,000 | |||
9/18/2013 | 583,333 | |||
3/26/2014 | 583,333 | |||
6/18/2014 | 833,333 | |||
9/23/2014 | 416,666 | |||
12/17/2014 | 416,666 | |||
4/1/2015 | 1,000,000 | |||
9/4/2015 | 1,000,000 | |||
12/16/2015 | 4,500,000 | |||
6/6/2016 | 8,700,000 | |||
Fidelity Capital Markets or one of its affiliated entities (“Fidelity”) served as our agent for these sales and was authorized, from time to time, to sell up to a specified number of shares of our common stock within certain parameters provided by us to Fidelity from time to time. These parameters included: (i) limitations on the aggregate number of shares to be sold during a particular period; (ii) a target number of shares to be sold on a daily basis, including, in some instances, target ranges of shares to be sold within specified price ranges; (iii) minimum per share prices below which sales could not be made; (iv) trading limits based on a specified percentage of the average daily trading volume or the average trading volume over the duration of the particular sales plan; (v) restrictions requiring Fidelity to cease sales on a day on which the stock price dropped by (or more than) a specified percentage; (vi) authority/discretion to exceed certain parameters upon the occurrence of specified events (e.g., authority to sell more than the target number of shares, up to a specified number of shares, on a day on which the stock price went up by (or more than) a specified percentage); (vii) authority/discretion to cease or otherwise adjust sales based on market conditions; and (viii) the dates or events upon which a particular plan would terminate. Sales under the sales plans could be terminated at any time by us or by Fidelity.
Fidelity was not required to sell any specific number of shares of our common stock during any particular period and was not required to purchase any shares of our common stock. Shares sold by Fidelity under the sales plans were sold on the open market (on or through The Nasdaq Stock Market) at the then-prevailing market prices for our common stock. In connection with these sales, we paid Fidelity commissions ranging from $0.01 per share to $0.36 per share, which were deducted from the proceeds we received from the sale of the shares. The number of shares sold and the commission per share we paid to Fidelity have been adjusted to reflect our 1 for 12 reverse stock split effective on December 3, 2015.
There was no arrangement for funds to be received in an escrow, trust or similar arrangement.
While we did not enter into a typical “at-the-market” sales agreement with Fidelity, we do have a custody agreement with Fidelity pursuant to which we have agreed, subject to certain limitations on liability, to provide indemnification to Fidelity, its affiliates, and their respective directors, officers, employees, members and agents, against losses and liabilities arising out of or attributable to, among other things, our breach or violation of applicable laws, rules or
regulations, any actions taken or omitted to be taken by Fidelity based on instructions received from us or our agents, or misstatements or omissions in documents filed by us with governmental authorities. We have also agreed to reimburse Fidelity for other out-of-pocket expenses incurred under the custody agreement. In connection with these sales of common stock on our behalf, Fidelity could nonetheless be deemed to have been an “underwriter” within the meaning of the Securities Act of 1933, as amended, and the compensation paid to Fidelity could be deemed to have been underwriting commissions or discounts.
Fidelity has provided, and may in the future provide, various other custody, recordkeeping, and financial services for us and our affiliates, for which services Fidelity has received, and may in the future receive, customary fees.
FuelCell Redeemable Preferred Stock
The Company is authorized to issue up to 250,000 shares of preferred stock, par value $0.01 per share, issuable in one or more series of which shares to date have been issued and designated as Series C Convertible Preferred Stock and 5% Series B Cumulative Convertible Perpetual Preferred Stock.
Series C Preferred Shares
We issued an aggregate of 33,500 shares of our Series C Convertible Preferred Stock ( “Series C Preferred Stock” and, such shares, the “Series C Preferred Shares”), $0.01 par value and $1,000 stated value per share for net proceeds of $27.9 million on September 5, 2017. Each share of Series C Preferred Stock was sold at a price of $895.52 for gross proceeds of approximately $30.0 million. As of October 31, 2017, there were 33,300 shares of Series C Preferred Stock issued and outstanding.
The Series C Preferred Shares are convertible into shares of common stock, subject to the beneficial ownership limitations provided in the Certificate of Designations for the Series C Preferred Stock (the “Certificate of Designations”), at a conversion price equal to $1.84 per share of common stock (“Conversion Price”), subject to adjustment as provided in the Certificate of Designations. In the event of a triggering event, as defined in the Certificate of Designations, the Series C Preferred Shares are convertible into shares of common stock at a conversion price the lower of $1.84 per share and 85% of the lowest volume weighted average price (“VWAP”) of the common stock of the five Trading Days (as such term is defined in the Certificate of Designations) immediately prior to delivery of the applicable conversion notice. The holders will be prohibited from converting Series C Preferred Shares into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would own more than 8.99% of the total number of shares of common stock then issued and outstanding. Each holder has the right to increase its maximum percentage up to 9.99% upon 60 days’ notice to the Company.
On November 1, 2017 and on the sixteenth day and first day of each calendar month thereafter until March 1, 2019, subject to extension in certain circumstances (the “Maturity Date”), inclusive, the Company will redeem the stated value of Series C Preferred Shares in thirty-three equal installments of $1.0 million (each bimonthly amount, an “Installment Amount” and the date of each such payment, an “Installment Date”). The holders will have the ability to defer Installment payments, but not beyond the Maturity Date. In addition, during each period commencing on the 11th trading day prior to an Installment Date and prior to the immediately subsequent Installment Date, the holders may elect to accelerate the conversion of Series C Preferred Shares at then applicable installment conversion price, provided that the holders may not elect to effect any such acceleration during such installment period if either (x) in the aggregate, all the accelerations in such installment period exceeds the sum of three other Installment Amounts, or (y) the number of Series C Preferred Shares subject to prior accelerations exceeds in the aggregate twelve Installment Amounts.
Subject to certain conditions as provided in the Certificate of Designations, the Company may elect to pay the Installment Amounts in cash or shares of common stock or in a combination of cash and shares of common stock.
Installment Amounts paid in shares will be that number of shares of common stock equal to (a) the applicable Installment Amount, to be paid in common stock divided by (b) the least of (i) the then existing conversion price, (ii) 87.5% of the VWAP of the common stock on the trading day immediately prior to the applicable Installment Date, and (iii) 87.5% of the arithmetic average of the two lowest VWAPs of the common stock during the ten consecutive
Trading Day period ending and including the Trading Day immediately prior to the applicable Installment Date as applicable, provided that the Company meets standard equity conditions. The Company shall make such election no later than the eleventh trading day immediately prior to the applicable Installment Date.
If the Company elects or is required to effect an Installment Amount in whole or in part in cash, the amount paid will be equal to 108%of the applicable Installment Amount.
Each holder of the Series C Preferred Shares shall be entitled to receive dividends (i) if no triggering event, as defined in the Certificate of Designations, has occurred and is continuing when and as declared by the Board of Directors, in its sole and absolute discretion or (ii) if a triggering event has occurred and until such triggering event has been cured, a dividend of 15% per annum based on the holder’s outstanding number of Series C Preferred Shares multiplied by the stated value. There were no triggering events or dividends declared in fiscal year 2017.
In the event of a triggering event, as defined in the Certificate of Designations, the holders of the Series C Preferred Shares can force redemption at a price equal to the greater of (i) the conversion amount to be redeemed multiplied by 125% and (ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as such Holder delivers a Triggering Event Redemption Notice multiplied by (Y) the greatest Closing Sale Price of the common stock on any Trading Day during the period commencing on the date immediately preceding such Triggering Event and ending October 31.on the date the Company makes the entire payment required.
In the event of the Company’s liquidation, dissolution, or winding up, prior to distribution to holders of securities ranking junior to the Series C Preferred Shares, holders of Series C Preferred Shares will be entitled to receive the amount of cash, securities or other property equal to the greater of (A) the stated value thereof on the date of such payment plus accrued dividends, if any and (B) the amount per share such holder would receive if such holder converted such Series C Preferred Shares into common stock immediately prior to the date of such payment.
Shares of Series C Preferred Stock rank with respect to dividend rights and rights upon our liquidation, winding up or dissolution:
senior to shares of our common stock;
junior to our debt obligations;
junior to our outstanding Series B Preferred Stock; and
effectively junior to our subsidiaries’ (i) existing and future liabilities and (ii) capital stock held by others.
The holders of the Series C Preferred Shares have no voting rights, except as required by law. Any amendment to the Company’s certificate of incorporation, bylaws or certificate of designation that adversely affects the powers, preferences and rights of the Series C Preferred Shares requires the approval of the holders of a majority of the Series C Preferred Shares then outstanding.
There is no established public trading market for the Series C Preferred Shares, and the Company does not expect a market to develop for the Series C Preferred Shares. The Series C Preferred Shares will not be listed on Nasdaq or any other exchange or trading market. The Company does not plan on making an application to list the Series C Preferred Shares on Nasdaq, any other national securities exchange or any other nationally recognized trading system.
Class A Cumulative Redeemable Exchangeable Preferred Shares (the “Series 1 Preferred Shares
We have 1,000,000 SeriesClass A Cumulative Redeemable Exchangeable Preferred Shares (the “Series 1 Preferred SharesShares”) issued and outstanding. The Series 1 Preferred Shares were issued by FCE Ltd., one of our wholly-owned subsidiaries. We have guaranteed the obligations of FCE Ltd. under the Series 1 Preferred Shares.
On March 31, 2011 and April 1, 2011, the Company entered into an agreementagreements with Enbridge to modify the provisions of the Series 1 Preferred Shares of FCE Ltd. Enbridge is the sole holder of the Series 1 Preferred Shares. Consistent
with the previous Series 1 preferred sharePreferred Share agreement, FuelCell Energy continues to guarantee the return of principal and dividend obligations of FCE Ltd. to the holders of Series 1 preferred shareholdersPreferred Shares under the modified agreement.
The terms of the Series 1 Preferred Shares require (i) annual dividend payments of Cdn. $500,000 and (ii) annual return of capital payments of Cdn. $750,000. These payments commenced on March 31, 2011 and will end on December 31, 2020. Dividends accrue at a 1.25% quarterly rate on the unpaid principal balance, and additional dividends will accrue on the cumulative unpaid dividends (inclusive of the Cdn. $12.5 million unpaid dividend balance as of the modification date) at a rate of 1.25% per quarter, compounded quarterly. On December 31, 2020, the amount of all accrued and unpaid dividends on the Series 1 Preferred Shares of Cdn. $21.1 million and the balance of the principal redemption price of Cdn. $4.4 million shall be paid to the holders of the Series 1 Preferred Shares. FCE Ltd. has the option of making dividend payments in the form of common stock or cash under the terms of the Series 1 Preferred Shares provisions.
In addition to the above, the significant terms of the Series 1 Preferred Shares include the following:
Voting Rights —The holders of the Series 1 Preferred Shares are not entitled to any voting rights.
Dividends — Dividend payments can be made in cash or common stock of the Company, at the option of FCE Ltd., and if common stock is issued it may be unregistered. If FCE Ltd. elects to make such payments by issuing common stock of the Company, the number of common shares is determined by dividing the cash dividend obligation by 95% of the volume average price in USU.S. dollars at which board lots of the common shares have been traded on NASDAQ during the 20 consecutive trading days preceding the end of the calendar quarter for which such dividend in common shares is to be paid converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on the day of determination.
Redemption — The Series 1 Preferred Shares are redeemable by FCE Ltd. for Cdn. $25$25.00 per share less any amounts paid as a return of capital in respect of such share plus all unpaid dividends and accrued interest. Holders of the Series 1 Preferred Shares do not have any mandatory or conditional redemption rights.
Liquidation or Dissolution — In the event of the liquidation or dissolution of FCE Ltd., the holders of Series 1 Preferred Shares will be entitled to receive Cdn. $25$25.00 per share less any amounts paid as a return of capital in respect of such share plus all unpaid dividends and accrued interest. The Company has guaranteed any liquidation obligations of FCE Ltd.
Exchange Rights — A holder of Series 1 Preferred Shares has the right to exchange such shares for fully paid and non-assessable common stock of the Company at the following exchange prices (after giving effect to the December 3, 2015 reverse stock split):
Cdn. $1,664.52 per share of our common stock after July 31, 2015 until July 31, 2020 (after giving effect to the December 3, 2014 reverse stock split);2020; and
at any time after July 31, 2020, at a price equal to 95% of the then current market price (in Cdn.$) of shares of our common stock at the time of conversion.
For example, assuming the holder of the Series 1 preferred sharesPreferred Shares exercises its conversion rights after July 31, 2020 and assuming our common stock price is $10.614$2.19 (our common stock closing price on October 31, 2015)2017) and an exchange rate of U.S. $1.00 to Cdn.$1.31 $1.29 (exchange rate on October 31, 2015)2017) at the time of conversion, we would be required to issue approximately 337,2001,657,928 shares of our common stock.
Series B Preferred Stock
We have 250,000105,875 shares of our 5% Series B Cumulative Convertible Perpetual Preferred Stock (Liquidation Preference $1,000)$1,000.00 per share) (“Series B Preferred Stock”) authorized for issuance. AtAs of October 31, 20152017 and 2014,2016, there were 64,020 shares of Series B Preferred Stock issued and outstanding. The shares of our Series B Preferred Stock and the shares of our common stock issuable upon conversion of the shares of our Series B Preferred Stock are covered by a registration rights agreement. The following is a summary of certain provisions of our Series B Preferred Stock.
Shares of Series B Preferred Stock rank with respect to dividend rights and rights upon our liquidation, winding up or dissolution:
senior to shares of our common stock;
junior to our debt obligations; and
effectively junior to our subsidiaries’ (i) existing and future liabilities and (ii) capital stock held by others.
Dividends
The Series B Preferred Stock pays cumulative annual dividends of $50$50.00 per share which are payable quarterly in arrears on February 15, May 15, August 15 and November 15. Unpaid accumulated dividends do not bear interest.
The dividend rate is subject to upward adjustment as set forth in the Certificate of Designation if we fail to pay, or to set apart funds to pay, any quarterly dividend. The dividend rate is also subject to upward adjustment as set forth in the Registration Rights Agreement entered into with the Initial Purchasers if we fail to satisfy our registration obligations with respect to the Series B Preferred Stock (or the underlying common shares) under the Registration Rights Agreement.
No dividends or other distributions may be paid or set apart for payment on our common shares (other than a dividend payable solely in shares of a like or junior ranking) unless all accumulated and unpaid Series B Preferred Stock dividends have been paid or funds or shares of common stock have been set aside for payment of accumulated and unpaid Series B Preferred Stock dividends.
The dividend on the Series B Preferred Stock may be paid in cash; or at the option of the Company, in shares of our common stock, which will be registered pursuant to a registration statement to allow for the immediate sale of these common shares in the public market. Dividends of $3.2 million were paid in each of the years ended October 31, 2015, 20142017, 2016 and 2013.2015. There were no cumulative unpaid dividends atas of October 31, 20152017 and 2014.
Liquidation
The Series B Preferred Stock stockholders are entitled to receive, in the event that we are liquidated, dissolved or wound up, whether voluntaryvoluntarily or involuntary, $1,000involuntarily, $1,000.00 per share plus all accumulated and unpaid dividends to the date of that liquidation, dissolution, or winding up (“Liquidation Preference”). Until the holders of Series B Preferred Stock receive their Liquidation Preference in full, no payment will be made on any junior shares, including shares of our common stock. After the Liquidation
Conversion Rights
Each Series B Preferred Stock share may be converted at any time, at the option of the holder, into 7.0922 shares of our common stock, which is equivalent to an initial conversion price of $141.00 per share plus cash in lieu of fractional shares (after giving effect to the December 3, 2015 reverse stock split).shares. The conversion rate is subject to adjustment upon the occurrence of certain events as described in the Certificate of Designation. The conversion rate is not adjusted for accumulated and unpaid dividends. If converted, holders of Series B Preferred Stock do not receive a cash payment for all accumulated and unpaid dividends; rather, all accumulated and unpaid dividends are canceled.
We may, at our option, cause shares of Series B Preferred Stock to be automatically converted into that number of shares of our common stock that are issuable at the then prevailing conversion rate. We may exercise our conversion right only if the closing price of our common stock exceeds 150% of the then prevailing conversion price ($141 at141.00 per share as of October 31, 2015)2017) for 20 trading days during any consecutive 30 trading day period, as described in the Certificate of Designation.
We do not have the option to redeem the shares of Series B Preferred Stock. However, holders of the Series B Preferred Stock can require us to redeem all or part of their shares at a redemption price equal to the Liquidation Preference of the shares to be redeemed in the case of a “fundamental change” (as described in the Certificate of Designation).
We may, at our option, elect to pay the redemption price in cash or, in shares of our common stock valued at a discount of 5% from the market price of shares of our common stock, or any combination thereof. Notwithstanding the foregoing, we may only pay such redemption price in shares of our common stock that are registered under the Securities Act of 1933 and eligible for immediate sale in the public market by non-affiliates of the Company.
Voting Rights
Holders of Series B Preferred Stock currently have no voting rights; however, holders may receive certain voting rights, as described in the Certificate of Designation, if (1) dividends on any shares of Series B Preferred Stock, or any other class or series of stock ranking on a parity with the Series B Preferred Stock with respect to the payment of dividends, shall be in arrears for dividend periods, whether or not consecutive, for six calendar quarters or (2) we fail to pay the redemption price, plus accrued and unpaid dividends, if any, on the redemption date for shares of Series B Preferred Stock following a fundamental change.
So long as any shares of Series B Preferred Stock remain outstanding, we will not, without the consent of the holders of at least two-thirds of the shares of Series B Preferred Stock outstanding at the time (voting separately as a class with all other series of preferred stock, if any, on parity with our Series B Preferred Stock upon which like voting rights have been conferred and are exercisable) issue or increase the authorized amount of any class or series of shares ranking senior to the outstanding shares of the Series B Preferred Stock as to dividends or upon liquidation. In addition, we will not, subject to certain conditions, amend, alter or repeal provisions of our certificate of incorporation, including the Certificate of Designation relating to the Series B Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely amend, alter or affect any power, preference or special right of the outstanding shares of Series B Preferred Stock or the holders thereof without the affirmative vote of not less than two-thirds of the issued and outstanding Series B Preferred Stock shares.
Equity Compensation Plan Information
See Part III, Item 12 for information regarding securities authorized for issuance under our equity compensation plans.
Stock Repurchases
The following table sets forth information with respect to purchases made by us or on our behalf of our common stock during the periods indicated:
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Programs |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||
August 1 – August 31 |
|
| 1,296 |
|
| $ | 1.53 |
|
|
| — |
|
|
| — |
|
September 1 – September 30 |
| 370 |
|
| $ | 1.60 |
|
|
| — |
|
|
| — |
| |
October 1 – October 31 |
|
| 29,392 |
|
| $ | 2.19 |
|
|
| — |
|
|
| — |
|
Total |
|
| 31,058 |
|
| $ | 1.77 |
|
|
| — |
|
|
| — |
|
(1) | Includes only shares that were surrendered by employees to satisfy statutory tax withholding obligations in connection with the vesting of stock-based compensation awards. |
The selected consolidated financial data presented below as of the end of each of the years in the five-year period ended October 31, 20152017 have been derived from our audited consolidated financial statements together with the notes thereto included elsewhere in this annual report on Form 10-K.thereto. We have no discontinued operations. The data set forth below is qualified by reference to, and should be read in conjunction with our consolidated financial statements and their notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual reportAnnual Report on Form 10-K.
Consolidated Statement of Operations Data:
(Amounts presented in thousands, except for per share amounts)
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
| $ | 43,047 |
|
| $ | 62,563 |
|
| $ | 128,595 |
|
| $ | 136,842 |
|
| $ | 145,071 |
|
Service and license |
|
| 27,050 |
|
|
| 31,491 |
|
|
| 21,012 |
|
|
| 25,956 |
|
|
| 28,141 |
|
Generation |
|
| 7,233 |
|
|
| 1,267 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Advanced Technologies |
|
| 18,336 |
|
|
| 12,931 |
|
|
| 13,470 |
|
|
| 17,495 |
|
|
| 14,446 |
|
Total revenues |
|
| 95,666 |
|
|
| 108,252 |
|
|
| 163,077 |
|
|
| 180,293 |
|
|
| 187,658 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
| 49,843 |
|
|
| 63,474 |
|
|
| 118,530 |
|
|
| 126,866 |
|
|
| 136,989 |
|
Service and license |
|
| 25,285 |
|
|
| 32,592 |
|
|
| 18,301 |
|
|
| 23,037 |
|
|
| 29,683 |
|
Generation |
|
| 5,076 |
|
|
| 664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Advanced Technologies |
|
| 12,728 |
|
|
| 11,879 |
|
|
| 13,470 |
|
|
| 16,664 |
|
|
| 13,864 |
|
Total cost of revenues |
|
| 92,932 |
|
|
| 108,609 |
|
|
| 150,301 |
|
|
| 166,567 |
|
|
| 180,536 |
|
Gross profit (loss) |
|
| 2,734 |
|
|
| (357 | ) |
|
| 12,776 |
|
|
| 13,726 |
|
|
| 7,122 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses |
|
| 25,916 |
|
|
| 25,150 |
|
|
| 24,226 |
|
|
| 22,797 |
|
|
| 21,218 |
|
Research and development costs |
|
| 20,398 |
|
|
| 20,846 |
|
|
| 17,442 |
|
|
| 18,240 |
|
|
| 15,717 |
|
Restructuring expense |
|
| 1,355 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total costs and expenses |
|
| 47,669 |
|
|
| 45,996 |
|
|
| 41,668 |
|
|
| 41,037 |
|
|
| 36,935 |
|
Loss from operations |
|
| (44,935 | ) |
|
| (46,353 | ) |
|
| (28,892 | ) |
|
| (27,311 | ) |
|
| (29,813 | ) |
Interest expense |
|
| (9,171 | ) |
|
| (4,958 | ) |
|
| (2,960 | ) |
|
| (3,561 | ) |
|
| (3,973 | ) |
Income from equity investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
Other income (expense), net |
|
| 247 |
|
|
| 622 |
|
|
| 2,442 |
|
|
| (7,523 | ) |
|
| (1,208 | ) |
Provision for income tax |
|
| (44 | ) |
|
| (519 | ) |
|
| (274 | ) |
|
| (488 | ) |
|
| (371 | ) |
Net loss |
|
| (53,903 | ) |
|
| (51,208 | ) |
|
| (29,684 | ) |
|
| (38,883 | ) |
|
| (35,319 | ) |
Net loss attributable to noncontrolling interest |
|
| - |
|
|
| 251 |
|
|
| 325 |
|
|
| 758 |
|
|
| 961 |
|
Net loss attributable to FuelCell Energy, Inc. |
|
| (53,903 | ) |
|
| (50,957 | ) |
|
| (29,359 | ) |
|
| (38,125 | ) |
|
| (34,358 | ) |
Preferred stock dividends |
|
| (3,200 | ) |
|
| (3,200 | ) |
|
| (3,200 | ) |
|
| (3,200 | ) |
|
| (3,200 | ) |
Net loss to common stockholders |
| $ | (57,103 | ) |
| $ | (54,157 | ) |
| $ | (32,559 | ) |
| $ | (41,325 | ) |
| $ | (37,558 | ) |
Net loss to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
| $ | (2.02 | ) |
| $ | (2.42 | ) |
Diluted |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
| $ | (2.02 | ) |
| $ | (2.42 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 49,915 |
|
|
| 29,774 |
|
|
| 24,514 |
|
|
| 20,474 |
|
|
| 15,544 |
|
Diluted |
|
| 49,915 |
|
|
| 29,774 |
|
|
| 24,514 |
|
|
| 20,474 |
|
|
| 15,544 |
|
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Product sales | $ | 128,595 | $ | 136,842 | $ | 145,071 | $ | 94,950 | $ | 103,007 | ||||||||||
| Service agreements and license revenues | 21,012 | 25,956 | 28,141 | 18,183 | 12,097 | |||||||||||||||
| Advanced technology contracts | 13,470 | 17,495 | 14,446 | 7,470 | 7,466 | |||||||||||||||
| Total revenues | 163,077 | 180,293 | 187,658 | 120,603 | 122,570 | |||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of product sales | 118,530 | 126,866 | 136,989 | 93,876 | 96,525 | |||||||||||||||
| Cost of service agreement and license revenues | 18,301 | 23,037 | 29,683 | 19,045 | 30,825 | |||||||||||||||
| Cost of advanced technology contracts | 13,470 | 16,664 | 13,864 | 7,237 | 7,830 | |||||||||||||||
| Total cost of revenues | 150,301 | 166,567 | 180,536 | 120,158 | 135,180 | |||||||||||||||
| Gross profit (loss) | 12,776 | 13,726 | 7,122 | 445 | (12,610 | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Administrative and selling expenses | 24,226 | 22,797 | 21,218 | 18,220 | 16,299 | |||||||||||||||
| Research and development costs | 17,442 | 18,240 | 15,717 | 14,354 | 16,768 | |||||||||||||||
| Total costs and expenses | 41,668 | 41,037 | 36,935 | 32,574 | 33,067 | |||||||||||||||
| Loss from operations | (28,892 | ) | (27,311 | ) | (29,813 | ) | (32,129 | ) | (45,677 | ) | ||||||||||
| Interest expense | (2,960 | ) | (3,561 | ) | (3,973 | ) | (2,304 | ) | (2,578 | ) | ||||||||||
| Income (loss) from equity investments | — | — | 46 | (645 | ) | 58 | ||||||||||||||
| Impairment of equity investment | — | — | — | (3,602 | ) | — | ||||||||||||||
| License fee and royalty income | — | — | — | 1,599 | 1,718 | |||||||||||||||
| Other income (expense), net | 2,442 | (7,523 | ) | (1,208 | ) | 1,244 | 1,047 | |||||||||||||
| Redeemable minority interest | — | — | — | — | (525 | ) | ||||||||||||||
| Provision for income tax | (274 | ) | (488 | ) | (371 | ) | (69 | ) | (17 | ) | ||||||||||
| Net loss | (29,684 | ) | (38,883 | ) | (35,319 | ) | (35,906 | ) | (45,974 | ) | ||||||||||
| Net loss attributable to noncontrolling interest | 325 | 758 | 961 | 411 | 261 | |||||||||||||||
| Net loss attributable to FuelCell Energy, Inc. | (29,359 | ) | (38,125 | ) | (34,358 | ) | (35,495 | ) | (45,713 | ) | ||||||||||
| Adjustment for modification of redeemable preferred stock of subsidiary | — | — | — | — | (8,987 | ) | ||||||||||||||
| Preferred stock dividends | (3,200 | ) | (3,200 | ) | (3,200 | ) | (3,201 | ) | (3,200 | ) | ||||||||||
| Net loss to common shareholders | $ | (32,559 | ) | $ | (41,325 | ) | $ | (37,558 | ) | $ | (38,696 | ) | $ | (57,900 | ) | |||||
| Net loss to common shareholders | ||||||||||||||||||||
| Basic | $ | (1.33 | ) | $ | (2.02 | ) | $ | (2.42 | ) | $ | (2.81 | ) | $ | (5.58 | ) | |||||
| Diluted | $ | (1.33 | ) | $ | (2.02 | ) | $ | (2.42 | ) | $ | (2.81 | ) | $ | (5.58 | ) | |||||
| Weighted average shares outstanding | ||||||||||||||||||||
| Basic | 24,514 | 20,474 | 15,544 | 13,789 | 10,375 | |||||||||||||||
| Diluted | 24,514 | 20,474 | 15,544 | 13,789 | 10,375 | |||||||||||||||
(Amounts presented in thousands, except for per share amounts)
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Cash and cash equivalents (1) |
| $ | 87,448 |
|
| $ | 118,316 |
|
| $ | 85,740 |
|
| $ | 108,833 |
|
| $ | 77,699 |
|
Working capital |
|
| 105,432 |
|
|
| 150,206 |
|
|
| 129,010 |
|
|
| 141,970 |
|
|
| 83,066 |
|
Total current assets |
|
| 203,510 |
|
|
| 202,204 |
|
|
| 203,898 |
|
|
| 217,031 |
|
|
| 189,329 |
|
Total assets |
|
| 383,786 |
|
|
| 340,729 |
|
|
| 277,231 |
|
|
| 280,636 |
|
|
| 237,636 |
|
Total current liabilities |
|
| 98,078 |
|
|
| 51,998 |
|
|
| 74,888 |
|
|
| 75,061 |
|
|
| 106,263 |
|
Total non-current liabilities |
|
| 96,895 |
|
|
| 114,478 |
|
|
| 47,732 |
|
|
| 47,269 |
|
|
| 84,708 |
|
Redeemable preferred stock |
|
| 87,557 |
|
|
| 59,857 |
|
|
| 59,857 |
|
|
| 59,857 |
|
|
| 59,857 |
|
Total equity (deficit) |
|
| 101,256 |
|
|
| 114,396 |
|
|
| 94,754 |
|
|
| 98,449 |
|
|
| (13,192 | ) |
Book value per share (2) |
| $ | 1.46 |
|
| $ | 3.25 |
|
| $ | 3.65 |
|
| $ | 4.11 |
|
| $ | (0.81 | ) |
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
| Cash and cash equivalents (1) | $ | 85,740 | $ | 108,833 | $ | 77,699 | $ | 57,514 | $ | 51,415 | ||||||||||
| Short-term investments (U.S. treasury securities) | — | — | — | — | 12,016 | |||||||||||||||
| Working capital | 129,010 | 141,970 | 83,066 | 55,729 | 18,783 | |||||||||||||||
| Total current assets | 203,898 | 217,031 | 189,329 | 140,626 | 132,948 | |||||||||||||||
| Total assets | 277,231 | 280,636 | 237,636 | 191,485 | 183,630 | |||||||||||||||
| Total current liabilities | 74,888 | 75,061 | 106,263 | 84,897 | 114,165 | |||||||||||||||
| Total non-current liabilities | 47,732 | 47,269 | 84,708 | 32,603 | 23,983 | |||||||||||||||
| Redeemable preferred stock | 59,857 | 59,857 | 59,857 | 59,857 | 59,857 | |||||||||||||||
| Total equity (deficit) | 94,754 | 98,449 | (13,192 | ) | 14,128 | (14,375 | ) | |||||||||||||
| Book value per share (2) | $ | 3.65 | $ | 4.11 | $ | (0.81 | ) | $ | 0.91 | $ | (1.25 | ) | ||||||||
(1) | |
Includes short-term and long-term restricted cash and cash equivalents. |
(2) | |
Calculated as total equity (deficit) divided by common shares issued and outstanding as of the balance sheet |
The following discussion should be read in conjunction with information included in Item 8 of this report. Unless otherwise indicated, the terms “Company”, “FuelCell Energy”, “we”, “us”, and “our” refer to FuelCell Energy, Inc. and its subsidiaries. All tabular dollar amounts are in thousands.
In addition to historical information, this discussion and analysis contains forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that could cause suchPlease see “Forward-Looking Statement Disclaimer” for a difference include, without limitation,discussion of the risk that commercial field trials of our products will not occur when anticipated, generaluncertainties, risks and assumptions associated with product development and manufacturing, changes in the utility regulatory environment, potential volatility of energy prices, rapid technological change, competition, market acceptance of our products and our ability to achieve our sales plans and cost reduction targets,these statements, as well as other risks set forth in our filings with the Securities and Exchange CommissionSEC including those set forth under Item 1A — Risk Factors in this report.
Overview
FuelCell Energy delivers efficient, affordable and clean solutions for the numbersupply, recovery and storage of our common shares outstanding on that date from 314.5 million shares to approximately 26.2 million shares. Concurrently with the reverse stock split, the number of authorized shares of our common stock was reduced proportionately, from 475 million shares to 39.6 million shares. Additionally, the conversion price of our Series B Preferred Stock, and the exchange price of our Series 1 Preferred Shares, the exercise price of all outstanding options and warrants, and the number of shares reserved for future issuance pursuant to our equity compensation plans were all adjusted proportionately to the reverse stock split. All such amounts presented herein have been adjusted retroactively to reflect these changes.
We provide comprehensive turn-key power generation solutions to our customers, including installation of the power plants as well as operating and maintaining the plants under multi-year service agreements. We target large-scale power users with our megawatt-class installations. As a reference, one megawatt is adequate to continually power approximately 1,000 average sized USU.S. homes. Our customer base includes utility companies, municipalities, universities, government entities and businesses in a variety of Industrialindustrial and commercial enterprises. Our leading geographic markets are South Korea and the United States, and we are pursuing expanding opportunities in Asia and Europe.
Our value proposition provides highly efficient and environmentally friendly power generation with easy-to-site stationary fuel cell power plants. The power plants are located in populated areas as they are virtually particulate pollutant free, operate quietly and without vibrations, and have only modest space requirements. Locating the power generation near the point of use provides many advantages, including less reliance on or even avoidance of the transmission grid, leading to enhanced energy security and power reliability. Our power plants provide electricity priced competitively to grid-delivered electricity in certain high cost regions, and our strategy is to continue to reduce costs, which is expected to lead to wider adoption.
We are developing Advanced Technologies which leverage our commercial platform and expertise. Our Direct FuelCell
Recent Developments
Korea Market Developments. In June 2017, an EPC contractor, Hanyang Industrial Development Co., Ltd (“HYD”), was awarded a 20MW project by a utility in South Korea utilizing the Company’s SureSource technology. On August 29, 2017, we entered into a contract with HYD pursuant to which we will provide equipment to HYD for this 20MW fuel cell project
U.S. Market Developments. During 2017, the Company received notices of award on multiple projects in Connecticut in 1969the U.S. and there have been favorable policy developments summarized as an applied research organization, providing contract researchfollows:
In November 2017, the Company announced a renewable hydrogen generation project under a hydrogen power purchase agreement with Toyota. The multi-megawatt SureSource Hydrogen plant will be located at the Port of Long Beach, California and development.will use renewable directed biogas for fuel. Toyota will purchase the hydrogen output of approximately 1,200 tons per day to fuel its fuel cell cars that arrive at the Port from overseas as well as fuel a Class 8 fuel cell truck located at the Port. Toyota will also purchase a portion of the renewable power generated, with the remainder of the power to be sold to the local utility under the California BioMAT program. The Company went publichas executed a definitive agreement with Toyota and the project will be recorded as backlog in 1992, raising capitalthe first quarter of 2018. The Company is actively marketing its distributed hydrogen technology, which can provide a hydrogen fueling solution for fuel cell vehicles, and expects further market developments for this product offering.
In October 2017, we executed a PPA with the Connecticut Municipal Electric Energy Cooperative (“CMEEC”) for the long-term supply of power to developthe U.S. Navy Submarine Base in Groton, Connecticut. CMEEC is owned by six municipal utilities: Groton Utilities, Norwich Public Utilities, Jewett City Department of Public Utilities, Bozrah Light and commercializePower, South Norwalk Electric and Water and Norwalk Third Taxing District. CMEEC will be acting through and working with Groton Utilities to implement the new power supply. Two SureSource 4000 power plants with total output of 7.4 MW will be located on the U.S. Submarine Base in Groton, Connecticut, to supply an existing electrical substation. The fuel cellscell plant is part of a multifaceted plan by CMEEC to provide new power resources and reincorporatedsupport the desire of the Department of Defense to add resiliency and grid independence to key military installations. We will begin construction of the plants in 2018 and full commercial operations are expected in 2019.
In July2017the Company was awarded three fuel cell projects totaling 39.8 MW by LIPA under the Fuel Cell Resources Feed-in Tariff. This 40 MW FIT IVprogram is structured to enhance energy resiliency with clean local power generation for western Long Island, New York. LIPA will purchase the power from the fuel cell projects under 20 year power purchase agreements. The Company will install, operate and maintain the fuel cell power plants commerciallyplants. The next steps in 2003. Today we develop turn-key distributedproject development include working with the utility on the interconnection agreements, executing power purchase agreements, and finalizing site engineering. Upon execution of power purchase agreements (expected in 2018), the projects will become contracted backlog. Contracted revenues over the twenty year operating period are expected to be up to approximately $800.0 million based on committed pricing and expected power generation combined heat andover the term. This total may vary depending on actual power solutions for our customers and provide comprehensive service for the life of the project.
In June 2017, the State of Connecticut passed Public Act 17-144 - An Act Promoting the use of Fuel Cells for Electric Distribution System Benefits and receivedReliability. The Act values cost of power, reliability and resiliency, along with the multiple economic development benefits that are unique to fuel cell projects. The Act has two parts, including enabling Connecticut electric utilities to purchase up to 30 MW of fuel cells. Separately, the Act includes a disbursement of $10 million to be usedprovision for the first phaseConnecticut Department of Energy and Environmental Protection (the “CT DEEP”) to issue an RFP for the procurement of clean energy with a focus on enhancing the reliability and resiliency of energy supply and in a manner that promotes in-state economic development. A draft RFP was issued by the CT DEEP on December 15, 2017 with a schedule anticipating contract awards in late 2018.
Production Rate Adjustment. In June 2017, the Company reduced its production to approximately fifteen MW on an annualized basis. This adjustment was made to manage inventory levels, prepare to transition to new product introductions and complete certain building expansion activities. From June through September 2017, approximately 110 manufacturing employees worked shortened work weeks. The Company participated in the State of Connecticut’s “Shared Work Program” allowing affected employees to collect unemployment benefits for days they did not work. Employees returned to work full time in October 2017 and the production rate is currently 25 MW on an annualized basis. The Company is evaluating an increase in the production rate during 2018 due to increased backlog and project awards.
Convertible Preferred Offering. On September 5, 2017, the Company priced an underwritten offering of 33,500 shares Series C Preferred Stock. The Series C Preferred Stock carries a 0.0% dividend and a $1.84 conversion price. Each share of Series C Preferred Stock was sold at a price of $895.52 for gross proceeds of approximately $30.0 million. FuelCell Energy intends to use the net proceeds from this offering for working capital, project financing, and general corporate purposes. The offering closed on September 8, 2017.
The Certificate of Designations with respect to the Series C Preferred Stock describes certain triggering events the occurrence of which would give the holders of the expansion project. In conjunction with this financing,Series C Preferred Stock (i) the right to convert all or a portion of their shares of Series C Preferred Stock into shares of our common stock, and/or (ii) the right to require the Company entered intoto redeem all or a $10 million Promissory Noteportion of their shares of Series C Preferred Stock. One of the specified triggering events is the Company’s failure to receive certain payments under a sales contract on or prior to the earlier of (a) the Company’s public announcement of its fiscal 2017 fourth quarter earnings and related(b) January 15, 2018. As of January 11, 2018 (the date of filing of this report and public announcement of fiscal 2017 fourth quarter earnings), the Company has received such payments and none of the triggering events described in the Certificate of Designations have occurred.
In connection with the offering of the Series C Preferred Stock, we amended our loan and security agreements securing the loanagreement with equipment liens and a mortgage on its Danbury, Connecticut location. PursuantHercules Capital, Inc. (“Hercules”) to permit us to make certain cash payments that may be required pursuant to the terms of the loan, payment of principal is deferred forSeries C Preferred Stock and to adjust the first four years. Interest at a fixed rate of 2.0% is payable beginningcash covenant. Effective December 2015. The financing is payable over 15 years, and is predicated on certain terms and conditions, including14, 2017, the forgiveness of up to half of the loan principal if certain job retention and job creation targets are reached. In addition,minimum cash covenant requires the Company will receive up to $10 millionmaintain an unrestricted cash balance in accounts subject to an account control agreement in favor of tax credits earned during the first phaseHercules of the expansion.
Results of Operations
Management evaluates the results of operations and cash flows using a variety of key performance indicators, including revenues compared to prior periods and internal forecasts, costs of our products and results of our cost reduction initiatives, and operating cash use. These are discussed throughout the ‘Results“Results of Operations’Operations” and ‘Liquidity“Liquidity and Capital Resources’Resources” sections. Results of Operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”).
Comparison of the Years Ended October 31, 20152017 and 2014
Revenues and Costs of revenues
Our revenues and cost of revenues for the years ended October 31, 20152017 and 20142016 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Total revenues |
| $ | 95,666 |
|
| $ | 108,252 |
|
| $ | (12,586 | ) |
|
| (12 | )% |
Total costs of revenues |
|
| 92,932 |
|
|
| 108,609 |
|
|
| (15,677 | ) |
|
| (14 | )% |
Gross profit (loss) |
| $ | 2,734 |
|
| $ | (357 | ) |
| $ | 3,091 |
|
|
| 866 | % |
Gross margin |
|
| 2.9 | % |
|
| (0.3 | )% |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2015 | 2014 | $ | % | |||||||||||||||
| Total revenues | $ | 163,077 | $ | 180,293 | $ | (17,216 | ) | (10 | ) | ||||||||||
| Total costs of revenues | $ | 150,301 | $ | 166,567 | $ | (16,266 | ) | (10 | ) | ||||||||||
| Gross profit | $ | 12,776 | $ | 13,726 | $ | (950 | ) | (7 | ) | ||||||||||
| Gross margin | 7.8 | % | 7.6 | % | |||||||||||||||
Total revenues for the year ended October 31, 20152017 decreased $17.2$12.6 million, or 10%12%, to $163.1$95.7 million from $180.3$108.3 million during the same period last year.year ended October 31, 2016, due primarily to decreased product sales as discussed below. Total cost of revenues for the year ended October 31, 20152017 decreased by $16.3$15.7 million, or 10%14%, to $150.3$92.9 million from $166.6$108.6 million during the same period last year.year ended October 31, 2016. The Company generated a 7.8%Company's gross margin percentagewas 2.9% in fiscal year 2015, which is improved from2017, as compared to the prior year gross margin loss of 7.6% despite lower revenue.0.3%. A discussion of the changes in product sales, service agreement and license revenues, Advanced Technologies contract revenues, and advanced technologies contractgeneration revenues follows. Refer to Critical“Critical Accounting Policies and EstimatesEstimates” for more information on revenue and cost of revenue classifications.
Our product sales, cost of product sales and gross profit for the years ended October 31, 20152017 and 20142016 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Product sales |
| $ | 43,047 |
|
| $ | 62,563 |
|
| $ | (19,516 | ) |
|
| (31 | )% |
Cost of product sales |
|
| 49,843 |
|
|
| 63,474 |
|
|
| (13,631 | ) |
|
| (21 | )% |
Gross loss from product sales |
| $ | (6,796 | ) |
| $ | (911 | ) |
| $ | (5,885 | ) |
|
| (646 | )% |
Product sales gross margin |
|
| (15.8 | )% |
|
| (1.5 | )% |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2015 | 2014 | $ | % | |||||||||||||||
| Product sales | $ | 128,595 | $ | 136,842 | $ | (8,247 | ) | (6 | ) | ||||||||||
| Cost of product sales | 118,530 | 126,866 | (8,336 | ) | (7 | ) | |||||||||||||
| Gross profit from product sales | $ | 10,065 | $ | 9,976 | $ | 89 | 1 | ||||||||||||
| Product sales gross margin | 7.8 | % | 7.3 | % | |||||||||||||||
Product sales for the year ended October 31, 20152017 included $19.6$41.0 million of power plant revenue $84.5 million from sales of fuel cell kits and modules and $24.5$2.0 million of revenue primarily related to power plant component sales and engineering, procurement and construction services (EPC services)(“EPC services”). This is compared to product sales for the year ended October 31, 20142016 which included $22.2$11.7 million of power plant revenue, $95.7$41.8 million of fuel cell kits and module revenue and $18.9$9.1 million of revenue primarily from power plant component sales and EPC services. Product sales decreased $8.2$19.5 million, or 6%31%, for the year ended October 31, 20152017 to $128.6$43.0 million from $136.8$62.5 million for the prior year period.
The decline in revenue during the period is due primarily to decreasedlower revenue from POSCO Energy due to (i) the lack of kit sales for the year ended October 31, 2017 as the Company’s multi-year kit order with POSCO Energy concluded at the end of fiscal year 2016 and (ii) the transition to a royalty-only based model. The Company is entitled to receive a 3.0% royalty on POSCO Energy net product sales manufactured in South Korea as well as a royalty on each scheduled fuel cell kitsmodule replacement under service agreements for modules that were built by POSCO Energy. Also contributing to POSCOthe decline in revenue over the comparable period is the increase in instances in which the Company installs power plants for customers that have executed PPAs. The power plants are recognized as “Project assets” on the Consolidated Balance Sheets and power plantgeneration revenue partlyis recognized as earned over the life of the PPA or as a product sale in the event the Company sells the entire project (service agreement revenues would accompany a product sale). The decrease in kit revenue is partially offset by an increase engineering and construction services.
Cost of product sales decreased $8.3$13.7 million for the year ended October 31, 2015,2017, to $118.5$49.8 million compared to $126.9$63.5 million in the same prior year period. Gross profit increased slightly despiteThe decrease in cost of sales in fiscal year 2017 was driven by lower overall product volume which included no kit sales during the lowerfiscal year and retention of project assets on balance sheet rather than sales volume primarily due to lower warranty and quality expenses.end customer or investors. Cost of product sales includes costs to design, engineer, manufacture and ship our power plants and power plant components to customers, site engineering and construction costs where we are responsible for power plant system installation, costs for assembly and conditioning equipment sold to POSCO Energy, warranty expense and inventory excess and obsolescence charges.
As of October 31, 2017, product sales backlog totaled approximately $90.7$31.3 million compared to $113.1$24.9 million atas of October 31, 2014.2016.
Our service agreements and license revenues and associated cost of revenues for the years ended October 31, 20152017 and 20142016 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Service and license revenues |
| $ | 27,050 |
|
| $ | 31,491 |
|
| $ | (4,441 | ) |
|
| (14 | )% |
Cost of service and license revenues |
|
| 25,285 |
|
|
| 32,592 |
|
|
| (7,307 | ) |
|
| (22 | )% |
Gross profit (loss) from service and license revenues |
| $ | 1,765 |
|
| $ | (1,101 | ) |
| $ | 2,866 |
|
|
| 260 | % |
Service and license revenues gross margin |
|
| 6.5 | % |
|
| (3.5 | )% |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2015 | 2014 | $ | % | |||||||||||||||
| Service agreements and license revenues | $ | 21,012 | $ | 25,956 | $ | (4,944 | ) | (19 | ) | ||||||||||
| Cost of service agreements and license revenues | 18,301 | 23,037 | (4,736 | ) | (21 | ) | |||||||||||||
| Gross profit from service agreements and license revenues | $ | 2,711 | $ | 2,919 | $ | (208 | ) | 7 | |||||||||||
| Service agreement and license revenues gross margin | 12.9 | % | 11.2 | % | |||||||||||||||
Revenues for the year ended October 31, 20152017 from service agreements and license fee and royalty agreements totaled $21.0$27.1 million, compared to $26.0$31.5 million for the prior year. The decrease was duerelates primarily to the timing offewer module exchanges during the year ended October 31, 2015 compared to the prior year period.under service agreements performed in 2017. Revenue for license fee and royalty agreements totaled $4.7$2.7 million and $4.3$6.2 million for the years ended October 31, 20152017 and 2014, respectively.
Service agreements and license cost of revenues decreased to $18.3$25.3 million for fiscal year 20152017 from $23.0$32.6 million for the prior year. Gross margin for the year resulting in an increaseended October 31, 2017 was 6.5% which improved from a gross margin loss of 3.5%. The improvement in gross margin over the prior year was a result of the fact that the prior year included contract loss accruals recorded in connection with the extension of certain legacy contracts as well as due to 12.9% from 11.2% duringchanges in estimated costs for certain legacy contracts and charges which were incurred in connection with the year-ago period.termination of service agreements at certain sites. The increase infiscal year 2017 gross margin reflects higher margins recognized on new service agreements related to the growing fleet. also included MW module replacements with favorable margins.
As profitable megawatt-class service agreements are executed and as early generation sub-megawatt products are retired or become a smaller overall percentage of the installed fleet, we expect the margins on service agreements to continue to increase.
Generation revenues
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Generation revenues |
| $ | 7,233 |
|
| $ | 1,267 |
|
| $ | 5,966 |
|
|
| 471 | % |
Cost of generation revenues |
|
| 5,076 |
|
|
| 664 |
|
|
| 4,412 |
|
|
| 664 | % |
Gross profit from generation revenues |
| $ | 2,157 |
|
| $ | 603 |
|
| $ | 1,554 |
|
|
| 258 | % |
Generation revenues gross margin |
|
| 29.8 | % |
|
| 47.6 | % |
|
|
|
|
|
|
|
|
Revenues for the year ended October 31, 2017 from generation totaled $7.2 million, compared to $1.3 million for the prior year period. Revenues for the year ended October 31, 2017 reflects revenue from electricity revenues.generated pursuant to the Company’s PPAs. Cost of generation totaled $5.1 million for the year ended October 31, 2017, compared to $0.7 million for the prior year period. Gross profit from generation revenues increased to $2.2 million for the year ended October 31, 2017, compared to $0.6 million for the prior year period. The increases represent the growth in the Company’s operating portfolio. The reduction in generation revenues gross margin percentage is the result of higher costs and lower revenues from electricity generation on certain plants during the initial startup operation period. As of October 31, 2017, the Company had 11.2 MW of operating power plants in its portfolio.
As of October 31, 2017, generation backlog totaled approximately $296.3 million compared to $142.5 million as of October 31, 2016.
Advanced technologiesTechnologies contracts revenue and related costs for the years ended October 31, 20152017 and 20142016 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Advanced Technologies contracts |
| $ | 18,336 |
|
| $ | 12,931 |
|
| $ | 5,405 |
|
|
| 42 | % |
Cost of Advanced Technologies contracts |
|
| 12,728 |
|
|
| 11,879 |
|
|
| 849 |
|
|
| 7 | % |
Gross profit |
| $ | 5,608 |
|
| $ | 1,052 |
|
| $ | 4,556 |
|
|
| 433 | % |
Advanced Technologies contracts gross margin |
|
| 30.6 | % |
|
| 8.1 | % |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2015 | 2014 | $ | % | |||||||||||||||
| Advanced technologies contracts | $ | 13,470 | $ | 17,495 | $ | (4,025 | ) | (23 | ) | ||||||||||
| Cost of advanced technologies contracts | 13,470 | 16,664 | (3,194 | ) | (19 | ) | |||||||||||||
| Gross profit | $ | — | $ | 831 | $ | (831 | ) | (100 | ) | ||||||||||
| Advanced technologies contracts gross margin | — | % | 4.7 | % | |||||||||||||||
Advanced technologiesTechnologies contracts revenue for the year ended October 31, 20152017 was $13.5$18.3 million, representing a decreasean increase of $4.0$5.4 million when compared to $17.5$12.9 million of revenue for the year ended October 31, 2014. The decrease is primarily attributable to the completion of a data center fuel cell power plant research project.2016. Cost of advanced technologiesAdvanced Technologies contracts decreased $3.2
At October 31, 2015, advanced technology2017, Advanced Technologies contract backlog totaled approximately $36.5$44.3 million compared to $24.0$60.1 million at October 31, 2014.
Administrative and selling expenses
Administrative and selling expenses were $24.2$25.9 million for the year ended October 31, 20152017 compared to $22.8$25.2 million for the year ended October 31, 2014.2016. The increase results primarily from increased marketing activityhigher business development costs incurred. Business development costs may vary from period to period depending on the nature and project proposal expensesfrequency of customer and state-level requests for multiple power plant installations and advanced technology contracts.
Research and development expenses
Research and development expenses decreased $0.8$0.4 million to $17.4$20.4 million for the year ended October 31, 2015,2017, compared to $18.2$20.8 million during the year ended October 31, 2014. The decrease in research2016.
Restructuring expense
Restructuring expense of $1.4 million was recorded for the year ended October 31, 2017, relating to personnel separation costs from the business restructuring that was undertaken to reduce costs and development expenses resulted from completionalign production levels with the level of prior year initiatives in enhancingproduction needs at the cost profile of multi-megawatt installations. Decreases were partially offset by increased investment in product development of the high efficiency fuel cell. The Company's internal research and development is focused on initiatives that have near term product introduction potential and product cost reduction opportunities, all of which are expected to expand market opportunities.
Loss from operations
Loss from operations for the year ended October 31, 20152017 was $28.9$44.9 million compared to a loss of $27.3$46.4 million in for the year ended October 31, 2014.
Interest expense
Interest expense for the years ended October 31, 20152017 and 20142016 was $3.0$9.2 million and $3.6$5.0 million, respectively. InterestThe increase results from borrowings under the Company's Loan and Security Agreement with Hercules and interest expense related to sale-leaseback transactions recorded under the finance method. The interest expense for fiscal 2014 includes interest of $0.4 million associated with 8.0% Unsecured Convertible Notes (see Note 9 of the Notes to Consolidated Financial Statements) which were converted to common stock during fiscal year 2014. Interest expense for both periodsyears ended October 31, 2017 and 2016 includes interest for the amortization of the redeemable preferred stock of a subsidiary fair value discount of $2.0 million and $1.8 million, and $2.0 million, respectively.
Other income, (expense), net, was net income of $2.4$0.2 million for the year ended October 31, 20152017 compared to other income, net expense of $7.5$0.6 million for the year ended October 31, 2014. The 2015 income includes unrealized2016. Unrealized foreign exchange (losses) gains of $1.7aggregated to ($0.7) million and $0.1 million in fiscal year 2017 and 2016, respectively, which primarily related to the preferred stock obligation of our Canadian subsidiary, FCE Ltd for which theLtd. FCE Ltd.'s functional currency is U.S. dollars, whichwhile the preferred stock obligation is payable in Canadian dollars and refundabledollars. Refundable research and development tax credits of $0.6 million. The 2014 expense includes a charge of $8.4for the years ended October 31, 2017 and 2016 were $0.9 million related to the make-whole payment upon conversion of the $38.0and $0.4 million, of principal of the 8.0% Convertible Notes. The Company primarily used common stock to settle this make-whole obligation.
Provision for income taxes
We have not paid federal or state income taxes in several years due to our history of net operating losses (NOLs)(“NOLs”), although we have paid income taxes in South Korea. For the year ended October 31, 2015,2017, our provision for income taxes was $0.3 million.$0.04 million, compared to $0.5 million in the prior year. We are manufacturing products that are gross margin profitable on a per unit basis; however, we cannot estimate when production volumes will be sufficient to generate taxable domestic income. Accordingly, no tax benefit has been recognized for these net operating lossesNOLs or other deferred tax assets as significant uncertainty exists surrounding the recoverability of these deferred tax assets.
As of October 31, 2015,2017, we had $721$752.7 million of federal NOL carryforwards that expire in the years 20202019 through 20352037 and $406$414.7 million in state NOL carryforwards that expire in the years 20152018 through 2035.2037. Additionally, we had $11$11.6 million of state tax credits available, of which $1.0$0.6 million expires in 2018. The remaining credits do not expire.
Net loss attributable to noncontrolling interest
The net loss attributed to the noncontrolling interest for the yearsyear ended October 31, 2015 and 20142016 was $0.3 millionmillion. During October 2016, the Company purchased the noncontrolling interest in FuelCell Energy Services, GmbH, from Fraunhofer IKTS, giving the Company sole ownership and $0.8 million, respectively.
Preferred Stock dividends
Dividends recorded and paid on the Series B Preferred Stock were $3.2 million in each of the years ended October 31, 20152017 and 2014.
Net loss attributable to common shareholdersstockholders and loss per common share
Net loss attributable to common shareholdersstockholders represents the net loss for the period, less the net loss attributable to noncontrolling interest and less the preferred stock dividends on the Series B Preferred Stock. For the years ended October 31, 20152017 and 2014,2016, net loss attributable to common shareholdersstockholders was $32.6$57.1 million and $41.3$54.2 million, respectively, and basic and diluted loss per common share was $1.33$1.14 and $2.02,$1.82, respectively.
Comparison of the Years Ended October 31, 20142016 and 2013
Revenues and Costs of Revenues
Our revenues and cost of revenues for the years ended October 31, 20142016 and 20132015 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Total revenues |
| $ | 108,252 |
|
| $ | 163,077 |
|
| $ | (54,825 | ) |
|
| (34 | )% |
Total costs of revenues |
| $ | 108,609 |
|
| $ | 150,301 |
|
|
| (41,692 | ) |
|
| (28 | )% |
Gross (loss) profit |
| $ | (357 | ) |
| $ | 12,776 |
|
| $ | (13,133 | ) |
|
| (103 | )% |
Gross margin |
|
| (0.3 | )% |
|
| 7.8 | % |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2014 | 2013 | $ | % | |||||||||||||||
| Total revenues | $ | 180,293 | $ | 187,658 | $ | (7,365 | ) | (4 | ) | ||||||||||
| Total costs of revenues | $ | 166,567 | $ | 180,536 | $ | (13,969 | ) | (8 | ) | ||||||||||
| Gross profit | $ | 13,726 | $ | 7,122 | $ | 6,604 | 93 | ||||||||||||
| Gross margin | 7.6 | % | 3.8 | % | |||||||||||||||
Total revenues for the year ended October 31, 20142016 decreased $7.4$54.8 million, or 4%34%, to $180.3$108.3 million from $187.7$163.1 million during the same period last year ended October 31, 2015, due primarily to decreased product sales as a result of a change in product mix with less revenue from multi-megawatt installations and associated EPC services. discussed below.
Total cost of revenues for the year ended October 31, 20142016 decreased by $14.0$41.7 million, or 8%28%, to $166.6$108.6 million from $180.5$150.3 million duringfor the same period last year.year ended October 31, 2015. The Company generated a 7.6 %Company's gross margin percentagewas a loss of 0.3% in fiscal year 2014 which is approximately double2016, as compared to the prior year.
Product sales
Our product sales, cost of product sales and gross profit for the years ended October 31, 20142016 and 20132015 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Product sales |
| $ | 62,563 |
|
| $ | 128,595 |
|
| $ | (66,032 | ) |
|
| (51 | )% |
Cost of product sales |
|
| 63,474 |
|
|
| 118,530 |
|
|
| (55,056 | ) |
|
| (46 | )% |
Gross (loss) profit from product sales |
| $ | (911 | ) |
| $ | 10,065 |
|
| $ | (10,976 | ) |
|
| (109 | )% |
Product sales gross margin |
|
| (1.5 | )% |
|
| 7.8 | % |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2014 | 2013 | $ | % | |||||||||||||||
| Product sales | $ | 136,842 | $ | 145,071 | $ | (8,229 | ) | (6 | ) | ||||||||||
| Cost of product sales | 126,866 | 136,989 | (10,123 | ) | (7 | ) | |||||||||||||
| Gross profit from product sales | $ | 9,976 | $ | 8,082 | $ | 1,894 | 23 | ||||||||||||
| Product sales gross margin | 7.3 | % | 5.6 | % | |||||||||||||||
Product sales for the year ended October 31, 20142016 included $118.0$11.7 million of power plant revenue, and$41.8 million from sales of fuel cell kits and modules and $18.9$9.1 million of revenue primarily related to power plant component sales and EPC services. This is compared to product sales for the year ended October 31, 20132015 which included $117.1$19.6 million of power plant revenue, and$84.5 million of fuel cell kits and module revenue and $28.0$24.5 million of revenue primarily from power plant component sales and EPC services.
The decline in revenue during the period as compared to the prior year period is due primarily to lower revenue from POSCO Energy due to the transition of the kit and module sales to POSCO Energy to a royalty based model.
Also contributing to the decline in revenue over the comparable prior year period is certain power plants that are being recognized as Project assets on the balance sheet, as product and EPC revenue is not recognized with respect to these Project assets when sales are made. As the Company's development business expands, it is installing power plants for customers that have executed PPAs. These assets generally are the subject of sale-leaseback transactions with PNC Energy Capital, LLC (“PNC”), which are recorded under the financing method of accounting for a sale-leaseback. Under the finance method, the Company does not recognize the proceeds received from the lessor as a sale of such assets. The power plants are recognized as Project assets on the balance sheet and revenue will be recognized as electricity revenue is earned over the life of the PPA or when a definitive sales agreement is executed.
Cost of product sales decreased $10.1$55.1 million for the year ended October 31, 20142016, to $126.9$63.5 million compared to $137.0$118.5 million in the same prior year period on less EPC activity. Gross profit increased $1.9 million to a gross profitperiod. The decrease in cost of $10.0 million for thesales in fiscal year ended October 31, 2014 compared to a gross profit of $8.1 million for the year ended October 31, 2013. The increase2016 was due to improved overhead absorption from higher production levels anddriven by lower overall product costsvolume during the fiscal year and aretention of project assets on the balance sheet rather than sales mix that included module sales partially offset by lower margins as a resultto end customers or investors.
As of less EPC activity. Cost ofOctober 31, 2016, product sales includes costsbacklog totaled approximately $24.9 million compared to design, engineer, manufacture and ship our power plants and power plant components to customers, site engineering and construction costs where we are responsible for power plant system installation, costs for assembly and conditioning equipment sold to POSCO Energy, warranty expense, liquidated damages and inventory excess and obsolescence charges.
Our service agreements and license revenues and associated cost of revenues for the years ended October 31, 20142016 and 20132015 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Service and license revenues |
| $ | 31,491 |
|
| $ | 21,012 |
|
| $ | 10,479 |
|
|
| 50 | % |
Cost of service and license revenues |
|
| 32,592 |
|
|
| 18,301 |
|
|
| 14,291 |
|
|
| 78 | % |
Gross (loss) profit from service and license revenues |
| $ | (1,101 | ) |
| $ | 2,711 |
|
| $ | (3,812 | ) |
|
| (141 | )% |
Service and license revenues gross margin |
|
| (3.5 | )% |
|
| 12.9 | % |
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2014 | 2013 | $ | % | |||||||||||||||
| Service agreements and license revenues | $ | 25,956 | $ | 28,141 | $ | (2,185 | ) | (8 | ) | ||||||||||
| Cost of service agreements and license revenues | 23,037 | 29,683 | (6,646 | ) | (22 | ) | |||||||||||||
| Gross profit (loss) from service agreements and license revenues | $ | 2,919 | $ | (1,542 | ) | $ | 4,461 | 289 | |||||||||||
| Service agreement and license revenues gross margin | 11.2 | % | (5.5 | )% | |||||||||||||||
Revenues for the year ended October 31, 20142016 from service agreements and license fee and royalty agreements totaled $26.0$31.5 million, compared to $28.1$21.0 million for the prior year. Service agreement revenue decreased year over year dueThe increase relates primarily to the prior year recognitionmore module exchanges performed in 2016, some of service revenue related to the Master Service Agreement with POSCO Energy entered into during the fourth quarter of 2013 which resulted in approximately $10.1 million of revenue associated with costs primarily related to the provision of fuel cell stacks to POSCO Energy upon execution of the agreement. This decrease was partially off-set by new plants entering the
Service agreements and license cost of revenues decreasedincreased to $23.0 million from $29.7 million for the prior year primarily as a result of costs recorded relating to the Master Service Agreement with POSCO Energy not having occurred in the current year. The gross profit on service agreements and license agreements was $2.9$32.6 million for the year ended October 31, 2014,2016 from $18.3 million for the prior year, resulting in a decrease in gross margin to a loss of 3.5% from a profit of 12.9% during the prior year period. The decrease in gross margin over the prior year relates to an increase in performance guarantee accruals due to plant performance at certain sites, contract loss accruals recorded in connection with the extension of certain legacy contracts as well as due to changes in estimated costs for certain legacy contracts, and charges incurred in connection with termination of service agreements at certain sites.
As of October 31, 2016, service backlog totaled approximately $204.8 million compared to a gross loss$254.1 million as of $1.5October 31, 2015. Service backlog does not include future royalties or license revenues. This backlog is for service agreements of up to twenty years.
Generation revenues
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Generation revenues |
| $ | 1,267 |
|
| $ | — |
|
| $ | 1,267 |
|
|
| 100 | % |
Cost of generation revenues |
|
| 664 |
|
|
| — |
|
|
| 664 |
|
|
| 100 | % |
Generation revenues gross profit |
| $ | 603 |
|
| $ | — |
|
| $ | 603 |
|
|
| 100 | % |
Generation revenues gross margin |
|
| 47.6 | % |
|
| — |
|
|
|
|
|
|
|
|
|
Revenues for the year ended October 31, 2016 from generation totaled $1.3 million. Revenues are from electricity generated pursuant to the Company’s PPAs. Cost of generation totaled $0.7 million for the year ended October 31, 2013.2016. The historical loss on service agreements has been due to high maintenance, module exchange and other costs on older and sub-MW product designs andincreases represent the investment the Company has made in service infrastructure to support a growing installed fleet. As profitable megawatt-class service agreements are executed and as early generation sub-megawatt products are retired or become a smaller overall percentage of the installed fleet, we expect the margins on service agreements to continue to increase.
Advanced technologiesTechnologies contracts revenue and related costs for the years ended October 31, 20142016 and 20132015 were as follows:
|
| Years Ended October 31, |
|
| Change |
| ||||||||||
(dollars in thousands) |
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Advanced Technologies contracts |
| $ | 12,931 |
|
| $ | 13,470 |
|
| $ | (539 | ) |
|
| (4 | )% |
Cost of Advanced Technologies contracts |
|
| 11,879 |
|
|
| 13,470 |
|
|
| (1,591 | ) |
|
| (12 | )% |
Advanced Technologies contracts gross profit |
| $ | 1,052 |
|
| $ | — |
|
| $ | 1,052 |
|
|
| 100 | % |
Advanced Technologies contracts gross margin |
|
| 8.1 | % |
|
| — |
|
|
|
|
|
|
|
|
|
| Years Ended October 31, | Change | ||||||||||||||||||
| (dollars in thousands) | 2014 | 2013 | $ | % | |||||||||||||||
| Advanced technologies contracts | $ | 17,495 | $ | 14,446 | $ | 3,049 | 21 | ||||||||||||
| Cost of advanced technologies contracts | 16,664 | 13,864 | 2,800 | 20 | |||||||||||||||
| Gross profit | $ | 831 | $ | 582 | $ | 249 | 43 | ||||||||||||
| Advanced technologies contracts gross margin | 4.7 | % | 4.0 | % | |||||||||||||||
Advanced technologiesTechnologies contracts revenue for the year ended October 31, 20142016 was $17.5$12.9 million, which increased $3.0representing a decrease of $0.5 million when compared to $14.4$13.5 million of revenue for the year ended October 31, 2013. The increase is primarily attributable to revenue recognized on a data center fuel cell power plant research project and increased activity on solid oxide fuel cell development under the U.S. Department of Energy Solid State Energy Conversion Alliance (SECA) program, and accelerating commercialization of carbon capture solutions with activity under both a DOE contract and a contract from private industry.2015. Cost of advanced technologiesAdvanced Technologies contracts increased $2.8decreased $1.6 million to $16.7$11.9 million for the year ended October 31, 2014,2016, compared to $13.9$13.5 million for the prior year. Gross profit from advanced technologiesAdvanced Technologies contracts for the year ended October 31, 20142016 was $0.8$1.1 million compared to $0.6breakeven for the year ended October 31, 2015, and gross margin was 8.1% compared to breakeven during the prior year period. The increase in gross margin is related to the timing and mix of contracts currently being performed, particularly the transition to a larger mix of private industry contracts.
As of October 31, 2016, Advanced Technologies contract backlog totaled approximately $60.1 million compared to $36.5 million as of October 31, 2015.
Administrative and selling expenses
Administrative and selling expenses were $25.2 million for the year ended October 31, 2013.
Research and development expenses
Research and development expenses increased $3.4 million to $20.8 million for the year ended October 31, 2016, compared to $21.2$17.4 million during the year ended October 31, 2013. Administrative and selling expenses increased primarily due to increased business development activity and project proposal expenses for multi-megawatt fuel cell park projects.
Loss from operations
Loss from operations for the year ended October 31, 20142016 was $27.3$46.4 million compared to a loss of $29.8$28.9 million for the year ended October 31, 2015, primarily as a result of lower gross margins in fiscal year 2013. The decrease was a result of favorable gross profit from product sales and service agreements and license revenue, partially offset by higher operating expenses.
Interest expense
Interest expense for the years ended October 31, 20142016 and 20132015 was $3.6$5.0 million and $4.0$3.0 million, respectively. InterestThe increase results from borrowings under the Company's Loan and Security Agreement with Hercules, the $10.0 million low-cost loan granted by the State of Connecticut in early 2016, and interest expense includesrelated to sales-leaseback transactions recorded under the finance method. The interest associated with the 8.0% Unsecured Convertible Debt issued in June 2013. Interest expense for both periods also includes interest for the amortization of the redeemable preferred stock of a subsidiary fair value discount of $2.0$1.8 million.
Other income, (expense), net, was expense of $7.5$0.6 million for the year ended October 31, 20142016 compared to other income, net expense of $1.2$2.4 million for the same periodyear ended October 31, 2015. Unrealized foreign exchange gains aggregated to $0.1 million and $1.7 million in fiscal year 2013. The current period expense includes a charge of $8.4 million2016 and 2015, respectively, which primarily related to the make-whole payment upon conversionpreferred stock obligation of our Canadian subsidiary, FCE Ltd. FCE Ltd.'s functional currency is U.S. dollars, while the $38.0preferred stock obligation is payable in Canadian dollars. Refundable research and development tax credits for the years ended October 31, 2016 and 2015 were $0.4 million of principal of the 8.0% Convertible Notes. The Company primarily used common stock to settle this make-whole obligation. The prior year period expense was primarily associated with the non-cash fair value adjustment of certain embedded derivatives.
Provision for income taxes
We have not paid federal or state income taxes in several years due to our history of net operating losses (NOL),NOLs, although we have paid income taxes in South Korea. For the year ended October 31, 2014,2016, our provision for income taxes was $0.5 million.million, compared to $0.3 million in the prior year. We are manufacturing products that are gross margin profitable on a per unit basis; however, we cannot estimate when production volumes will be sufficient to generate taxable domestic income. Accordingly, no tax benefit has been recognized for these net operating lossesNOLs or other deferred tax assets as significant uncertainty exists surrounding the recoverability of these deferred tax assets.
Net loss attributable to noncontrolling interest
The net loss attributed to the noncontrolling interest for each of the years ended October 31, 20142016 and 20132015 was $0.8 million$0.3 million. During October 2016, the Company purchased the noncontrolling interest in FuelCell Energy Services, GmbH, from Fraunhofer IKTS, giving the Company sole ownership and $1.0 million, respectively.
Preferred Stock dividends
Dividends recorded and paid on the Series B Preferred Stock were $3.2 million in each of the years ended October 31, 20142016 and 2013.
Net loss attributable to common shareholdersstockholders and loss per common share
Net loss attributable to common shareholdersstockholders represents the net loss for the period, less the net loss attributable to noncontrolling interest and less the preferred stock dividends on the Series B Preferred Stock. For the years ended October 31, 20142016 and 2013,2015, net loss attributable to common shareholdersstockholders was $41.3$54.2 million and $37.6$32.6 million, respectively, and basic and diluted loss per common share was $2.02$1.82 and $2.42,$1.33, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 2015,2017, we believe that our cash and cash equivalents on hand, cash flows from operating activities, availability under our loan and revolving credit facilities and access to the capital markets will be sufficient to meet our working capital and capital expenditure needs for at least the next 12twelve months.
We intend to maintain appropriate cash and debt levels based upon our expected cash requirements for operations, capital expenditures, construction of project assets as well as principal, interest and dividend payments. In the future, we may also engage in additional debt or equity financings, including project specific debt financings. We believe that when necessary, we will have adequate access to the capital markets, although the timing and size of any financing will depend on multiple factors including market conditions, future order flow and the need to adjust production capacity. If we are unable to raise additional capital, our growth potential may be adversely affected and we may have to modify our plans.
Cash and cash equivalents including restricted cash, totaled $85.7$87.5 million atas of October 31, 20152017 compared to $108.8$118.3 million atas of October 31, 2014. 2016. As of October 31, 2017:
Unrestricted cash and cash equivalents was $49.3 million compared to $84.2 million as of October 31, 2016, and
equivalents as of October 31, 2016, of which $9.4 million was classified as current and $24.7 million was classified as non-current. |
During the third quarter of fiscal year 2017, the Company completed an equity capital raise netting $13.9 million of proceeds which included common stock and two tranches of warrants. Warrants to purchase 9.8 million shares of common stock were exercised in the third and fourth quarters of fiscal year 2017, yielding proceeds of $12.7 million. If all remaining warrants related to this equity offering are exercised in periods subsequent to October 31, 2017, the Company could receive additional cash proceeds of up to $19.6 million.
In addition to the cash and cash equivalents described above, the Company has $36.2$40.0 million of availability under its project finance loan agreement with NRG Energy through its subsidiary, FuelCell Energy Finance, LLC, which can be used for project asset development. Subsequentconstruction. Draws under the facility are subject to October 31, 2015,traditional project finance conditions precedent, including the Company closed onexistence of a definitive Assistance AgreementPPA with the State of Connecticut and received a disbursement of $10 million to be used for the first phase of its planned expansionend-user of the Torrington manufacturing facility. Additionally, wepower and customary project documentation, economic performance and compliance with applicable laws and regulations. Projects must be located in the United States.
We also have an effective shelf registration statement on file with the SEC for issuance of debt orand equity securities.
The Company'sCompany’s future liquidity will be dependent on obtaining thea combination of increased order and contract volumes, increased cash flows from our generation and service portfolios and cost reductions necessary to achieve profitable operations. Increasing annual order volume and reduced product costs are expected to further increase revenues and margins and improve operating cash flows.
Our operating portfolio (11.2 MW as of October 31, 2015,2017) contributes higher long-term cash flows to the Company than if these projects had been sold. The Company plans to continue to grow this portfolio while also selling projects to investors. As of October 31, 2017, the Company had an additional 19.5 MW under construction some of which would be expected to generate operating cash flows in fiscal 2018. Retaining long-term cash flow positive projects combined with our service fleet reduces reliance on new project sales to achieve cash flow positive operations. We have partnered with financial institutions to secure long-term debt and sale-leasebacks for our project asset portfolio as well as NRG for construction period financing. Through October 31, 2017, we have financed four projects through sale-leaseback transactions. As of October 31, 2017, total finance obligations and debt outstanding related to project assets was $48.3 million. Our generation portfolio provides the Company with the full benefit of future cash flows.
by over $1.0 billion once these project awards are converted to definitive agreements. Project awards referenced by the Company are notifications that the Company has been selected, typically through a competitive bidding process, to enter into definitive agreements. These awards have been publicly disclosed. Negotiations are in process and if successfully completed, project awards will become backlog.
The Company also has a strong sales and service pipeline of which $36.2 million was available,potential projects in various stages of development in North America, Asia and Europe. This pipeline includes projects for on-site ‘behind-the-meter’ applications and for grid support multi-megawatt fuel cell parks. Behind-the-meter applications provide end users with predictable long-term economics, on-site power including micro-grid capabilities and reduced carbon emissions. In addition, a number of multi-megawatt utility grid support projects are being developed for utilities and independent power producers to enable this strategy though wesupport the grid where power is needed. These projects help both utilities and governments meet their renewable portfolio standards.
Factors that may seek to useimpact our cash balances or other forms of financing as necessary. Subsequent toliquidity in fiscal year end 2015, we executed2018 and beyond include:
Timing of project awards and factory production rate. The Company bids on large projects into diverse markets which can have long decision cycles and uncertain outcomes. In fiscal year 2017, given the timing of market development activities, the Company took certain actions to reduce costs and manage inventory levels as follows:
On November 30, 2016, the Company announced a $30 million project financebusiness restructuring to reduce costs and align production levels with then-current levels of demand. The Company reduced its materials spend and implemented various cost control initiatives. The workforce was reduced at both the North American production facility with PNC New Energy Capital that is structuredin Torrington, Connecticut, as a sale/leaseback facilitywell as at corporate offices in Danbury, Connecticut and remote locations. A total of ninety-six positions, or approximately 17% of the global workforce, was eliminated. The production rate was reduced to twenty-five MW annually, from the prior rate of fifty MW annually, in order to position for projects where we entered into a PPA with end-user of powerdelays in anticipated order flow.
In June 2017, the Company further reduced its production to approximately fifteen MW on an annualized basis. This adjustment was made to manage inventory levels, prepare to transition to new product introductions and site host. This financing facility enables us to generate cash from operating power plants that we choose to retain, effectively monetizing our investmentcomplete certain building expansion activities. From June through September 2017, approximately 110 manufacturing employees worked shortened work weeks. The Company participated in the power plant.State of Connecticut’s “Shared Work Program” allowing affected employees to collect unemployment benefits for days they do not work. Employees returned to work in October 2017 and the Company is now operating at a 25 MW annualized run-rate.
As project sizes evolve, project cycle times may increase. We may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of our projects. These amounts include development costs, interconnection costs, posting of letters of credit, bonding or other forms of security, and incurring engineering, permitting, legal, and other expenses.
The amount of accounts receivable atas of October 31, 20152017 and 20142016 was $60.8$81.3 million ($12.8 million of which is classified as “Other assets, net”) and $64.4$38.7 million ($14.1 million of which is classified as “Other assets, net”), respectively. The increase in 2017 relates to increasing utility scale activity in the South Korean market. Included in accounts receivable atas of October 31, 20152017 and 2014October 31, 2016 was $41.0$38.3 million and $53.0$29.7 million, respectively, of unbilled accounts receivable. Unbilled accounts receivable represents revenue that has been recognized in advance of billing the customer under the terms of the underlying contracts. Such costs have been funded with working capital and the unbilled amounts are expected to be billed and collected from customers once we meet the billing criteria under the contracts. At this time, we bill our customers according to the contract terms. Our accounts receivable balances may fluctuate as of any balance sheet date depending on the timing of individual contract milestones and progress on completion of our projects.
potential customer contractual requirements. As a result, we may manufacture modules or acquire BOP in advance of receiving payment for such activities. This may result in fluctuations of inventory and use of cash as of any balance sheet date. The Company reduced its production rate during fiscal year 2017 and expects to operate at lower levels for a period of time in order to deploy inventory to new projects and mitigate future increases in inventory. A total of approximately $25.0 million of inventory is expected to be deployed during the first quarter of 2018 for the HYD contract. |
Cash and cash equivalents atas of October 31, 20152017 included $9.6$3.0 million of cash advanced by POSCO Energy for raw material purchases made on its behalf by FuelCell Energy. Under an inventory procurement agreement that ensures coordinated purchasing from the global supply chain, FuelCell Energy provides procurement services for POSCO Energy and receives compensation for services rendered. While POSCO Energy makes payments to us in advance of supplier requirements, quarterly receipts may not match disbursements.
The amount of total project assets including current and long-term atas of October 31, 20152017 and October 31, 20142016 was $12.2$73.0 million and $0.8$47.1 million, respectively. Project assets consist primarily of capitalized costs for fuel cell projects in various stagesthat are either operating and producing revenue or under construction. Project assets as of development, whereby we have entered into power purchase agreements prior to entering into a definitive sales or long-term financing agreement for the project. The current portionOctober 31, 2017 consist of $32.1 million, representing completed installations currently operating and $40.9 million of project assets representing projects in development. As of $5.3 million is actively being marketed and intended to be sold althoughOctober 31, 2017, we may choose to retain such projects during initial stageshad 11.2 MW of operations. This balance will fluctuate based on timing of construction and sale of the projects to third parties. The long-term portion ofour operating project assets that generated $7.2 million of $6.9 million represents a fuel cell project which will be sold under a sales leaseback transaction duringrevenue for the first quarter ofCompany in fiscal year 2016.2017. Also, as of October 31, 2017 the Company had an additional 19.5 MW under construction which would be expected to generate operating cash flows in fiscal year 2018. We expect this portfolio to continue to grow.
Under the terms of certain contracts, the Company will provide performance security for future contractual obligations. AtAs of October 31, 20152017, we havehad pledged approximately $26.9$38.2 million of our cash and cash equivalents as collateral asfor performance security and for letters of credit for certain banking requirements and contracts. This balance may increase with a growing backlog and installed fleet.
For fiscal year 2016,2018, we forecast capital expenditures in the range of $16$11.0 to $18$13.0 million compared to $6.9$12.4 million in fiscal year 2015.2017. We have commencedsubstantially completed the first phase of our project to expand the existingour 65,000 square foot manufacturing facility in Torrington, Connecticut by approximately 102,000 square feet for a total size of 167,000 square feet. Initially, this additional space will be used to enhance and streamline logistics functions through consolidation of satellite warehouse locations and will provide the space needed to reconfigure the existing production process to improve manufacturing efficiencies and realize cost savings. On November 9, 2015, the Company closed on a definitive Assistance Agreement with the State of Connecticut and received a disbursement of $10$10.0 million to bethat was used for thethis first phase.phase of our expansion project. Pursuant to the terms of the loan, payment of principal is deferred for the first four years of this 15 year loan. Interest at a fixed rate of 2% is payable beginning in December 2015. Up to 50 percent50% of the principal balance is forgivable if certain job creation and retention targets are met.
Cash Flows
Cash and cash equivalents and restricted cash and cash equivalents totaled $85.7$87.4 million atas of October 31, 20152017 compared to $108.8$118.3 million atas of October 31, 2014. At2016. As of October 31, 2015,2017, restricted cash and cash equivalents was $26.9$38.2 million, of which $6.3$4.6 million was classified as current and $20.6$33.5 million was classified as non-current, compared to $25.1$34.1 million total restricted cash and cash equivalents atas of October 31, 2014,2016, of which $5.5$9.4 million was classified as current and $19.6$24.7 million was classified as non-current.
The following table summarizes our consolidated cash flows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Consolidated Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
| $ | (71,845 | ) |
| $ | (46,595 | ) |
| $ | (44,274 | ) |
Net cash used in investing activities |
|
| (31,444 | ) |
|
| (41,452 | ) |
|
| (6,930 | ) |
Net cash provided by financing activities |
|
| 72,292 |
|
|
| 120,658 |
|
|
| 28,219 |
|
Effects on cash from changes in foreign currency rates |
|
| 129 |
|
|
| (35 | ) |
|
| (108 | ) |
Net (decrease) increase in cash and cash equivalents |
| $ | (30,868 | ) |
| $ | 32,576 |
|
| $ | (23,093 | ) |
| 2015 | 2014 | 2013 | ||||||||||
| Consolidated Cash Flow Data: | ||||||||||||
| Net cash used in operating activities | $ | (44,274 | ) | $ | (57,468 | ) | $ | (16,658 | ) | |||
| Net cash used in by investing activities | (6,930 | ) | (7,079 | ) | (6,194 | ) | ||||||
| Net cash provided by financing activities | 26,454 | 80,821 | 43,634 | |||||||||
| Effects on cash from changes in foreign currency rates | (108 | ) | (260 | ) | 35 | |||||||
| Net increase in cash and cash equivalents | $ | (24,858 | ) | $ | 16,014 | $ | 20,817 | |||||
The key components of our cash inflows and outflows were as follows:
Operating Activities
Net cash used in operating activities during fiscal year 20152017 is primarily a result of the net loss of $53.9 million, increases in current project assetsaccounts receivable of $51.3 million and inventory of $11.4$8.0 million, and $10.1decreases in accrued liabilities of $2.3 million respectively, due to an increase in power purchase agreements in backlog and projects under development versus direct sales in the comparable prior year period. As we continue to execute on our business plan we must produce fuel cell modules and procure balance of plant components in required volumes to support our planned construction schedules and potential customer contractual requirements. Decreases in accounts payable and deferred revenue of $7.2 million and $3.9 million, respectively, also contributed to cash used in operating activities. These changes$0.9 million. The decreases were partially offset by a decrease in accounts receivablenon-cash adjustments of $3.2$20.2 million and an increase in accrued liabilitiesaccounts payable of $6.4$25.0 million.
Net cash used in operating activities during fiscal year 20142016 is aprimarily the result of a an increase in accounts receivablenet loss of $15.4$51.2 million due to revenue recognized on multiple projects,and a $26.6 million decrease in deferred revenue, of $12.3 million due to the timing of revenue recognition, a decrease in accrued liabilities of $11.1 million which is partially comprised of three replacement modules that were provided to POSCO Energy to satisfy the previously accrued obligation to provide such modules, a decrease in accounts payable of $1.6 million resulting from the timing of installation activities in the prior year and vendor payments and an increase in project assets for projects under development. These were partially offset by a $30.2 million decrease in other assets of $3.4accounts receivable. Cash used in operating activities also included a $3.0 million due to the reduction in debt issuance costs relating to the 8% convertible Note conversions during fiscal year 2014.
Investing Activities
Net cash used in investing activities during fiscal year 2015 pertains2017 included a $19.7 million investment in project assets to expand our operating portfolio and $12.4 million for capital expenditures including expenditureswhich was primarily for upgrades to existing machinery, equipment and investments in automation equipment that we believe will improve the efficiency and cost profilesubstantial completion of our operations and facilitate ourthe Torrington facility expansion. Net cash used for the year was offset by cash received in connection with an asset acquisition of $0.6 million.
Net cash used in investing activities during fiscal year 20142016 consists of a $33.7 million investment in project assets as a result of expanding our portfolio to retain long-term positive cash flow projects (many under PPAs with contract durations of up to twenty years). Capital expenditures totaled $7.7 million and primarily related to capital expendituresthe expansion of $6.3 million and $0.8 million which was invested in long-term project assets. Project assets consist primarily of costs relating to our fuel cell projects in various stages of development, generally under power purchase agreements that we capitalize prior to entering into a definitive sales or long-term financing agreement for the project.
Financing Activities
- Net cash provided by financing activities wasNet cash provided by financing activities during fiscal year 2017 includes net proceeds received from the prior year period. issuance of preferred shares of $27.9 million, cash received from a common stock offering of $14.2 million, cash received from warrant exercises of $12.7 million, and net proceeds from open market sales of common stock of $12.6 million. Net cash provided by financing activities also included $17.9 million of net proceeds from debt primarily relating to a sale-leaseback transaction with PNC. Cash received was offset by the repayment of debt of $8.6 million, the payment of preferred dividends and the return of capital of $4.2 million.
Net cash provided by financing activities during the year ended October 31, 20152016 includes net proceeds from open market sales of common stock of $27.1$36.2 million and proceeds from a registered direct offering of common stock and warrants to a single institutional investor totaling $34.7 million. The Company also had net debt proceeds of $5.2$55.5 million consisting of long-term debt issued to (i) the State of Connecticut for our facility expansion, (ii) Hercules pursuant to the loan and security agreement to support working capital and (iii) NRG Energy and PNC to support
long-term project financing. Proceeds of financing activities were partially offset primarily by the payment of preferred dividends and return of capital payments of $4.2 million. Net cash provided by financing activities during fiscal year 2014 related to the Securities Purchase Agreement entered into with NRG wherein 14.6 million shares were issued for net proceeds of $35.0 million, a public offering of 25.3 million shares of common stock for net proceeds of $29.5 million and proceeds from open market sales of common stock of $41.3 million partially offset by an increase in restricted cash of $15.1 million for the placement of funds in a Grantor's Trust account to secure the Company's obligations under a 15-year service
Commitments and Significant Contractual Obligations
A summary of our significant future commitments and contractual obligations atas of October 31, 20152017 and the related payments by fiscal year is summarized as follows:
(dollars in thousands) |
| Payments Due by Period |
| |||||||||||||||||
|
|
|
|
|
| Less than |
|
| 1 - 3 |
|
| 3 - 5 |
|
| More Than |
| ||||
Contractual Obligations |
| Total |
|
| 1 year |
|
| years |
|
| years |
|
| 5 years |
| |||||
Purchase commitments (1) |
| $ | 29,107 |
|
| $ | 25,909 |
|
| $ | 3,043 |
|
| $ | 155 |
|
| $ | — |
|
Series 1 Preferred obligation (2) |
|
| 6,369 |
|
|
| 972 |
|
|
| 1,943 |
|
|
| 3,454 |
|
|
| — |
|
Term loans (principal and interest) |
|
| 46,115 |
|
|
| 26,391 |
|
|
| 2,621 |
|
|
| 3,506 |
|
|
| 13,597 |
|
Capital and operating lease commitments (3) |
|
| 7,261 |
|
|
| 1,534 |
|
|
| 1,577 |
|
|
| 773 |
|
|
| 3,377 |
|
Sale-leaseback financing obligation (4) |
|
| 25,032 |
|
|
| 3,802 |
|
|
| 7,277 |
|
|
| 5,564 |
|
|
| 8,389 |
|
Option fee (5) |
|
| 950 |
|
|
| 400 |
|
|
| 400 |
|
|
| 150 |
|
|
| — |
|
Series B Preferred dividends payable (6) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 114,834 |
|
| $ | 59,008 |
|
| $ | 16,861 |
|
| $ | 13,602 |
|
| $ | 25,363 |
|
| (dollars in thousands) | Payments Due by Period | |||||||||||||||||||||
| Less than | 1 - 3 | 3 - 5 | More Than | |||||||||||||||||||
| Contractual Obligations | Total | 1 year | years | years | 5 years | |||||||||||||||||
Purchase commitments (1) | $ | 57,108 | $ | 56,460 | $ | 613 | $ | 35 | $ | — | ||||||||||||
Series 1 Preferred obligation (2) | 8,176 | 956 | 1,911 | 1,911 | 3,398 | |||||||||||||||||
| Term loans (principal and interest) | 15,619 | 4,435 | 3,414 | 612 | 7,158 | |||||||||||||||||
Capital and operating lease commitments (3) | 5,939 | 2,193 | 2,555 | 1,129 | 62 | |||||||||||||||||
Revolving credit facility (4) | 2,945 | 2,945 | — | — | — | |||||||||||||||||
Series B Preferred dividends payable (5) | — | — | — | — | — | |||||||||||||||||
| Total | $ | 89,787 | $ | 66,989 | $ | 8,493 | $ | 3,687 | $ | 10,618 | ||||||||||||
(1) | |
Purchase commitments with suppliers for materials, supplies and services incurred in the normal course of business. |
(2) | |
The terms of the Class A Cumulative Redeemable Exchangeable Preferred Share Agreement (the “Series 1 Preferred Share Agreement”) require payments of (i) an annual amount of Cdn. $500,000 for dividends and (ii) an amount of Cdn. $750,000 as return of capital payments payable in cash. These payments will end on December 31, 2020. Dividends accrue at a 1.25% quarterly rate on the unpaid principal balance, and additional dividends will accrue on the cumulative unpaid dividends at a rate of 1.25% per quarter, compounded quarterly. On December 31, 2020 the amount of all accrued and unpaid dividends on the |
(3) | |
Future minimum lease payments on capital and operating leases. |
(4) | |
The amount represents payments due on sale-leaseback transactions of our wholly-owned subsidiary, under its financing agreement with PNC. Projects financed under this facility are generally payable in fixed quarterly installments over a ten-year period. |
(5) | The Company entered into an agreement with one of its customers on June 29, 2016 which includes a fee for the |
(6) | |
We pay $3.2 million in annual dividends on our Series B Preferred Stock. The $3.2 million annual dividend payment has not been included in this table as we cannot reasonably determine the period when or if we will be able to convert the Series B Preferred Stock into shares of our common stock. We may, at our option, convert these shares into the number of shares of our common stock that are issuable at the then prevailing conversion rate if the closing price of our common stock exceeds 150% of the then prevailing conversion price ($ |
In March 2017, the Connecticut Green Bank approved a $5.0 million credit facility for a 3.7 MW project under construction in Danbury, Connecticut. The credit facility will be funded after the power plant achieves commercial operations and is secured by the power plant and the underlying revenues from the sale of electricity, renewable energy credits (“RECs”), and capacity. The 20 year credit facility bears a fixed interest rate. Construction is currently in process and commercial operation is expected in early 2018. The credit facility is subject to execution of definitive documentation and customary closing conditions. This project will distribute power to the Connecticut
grid and is expected to demonstrate electrical efficiency and the ability of utilities to affordably and cleanly solve power generation challenges in land-constrained areas.
In November 9, 2015,2016, the Company closedCompany’s wholly-owned subsidiary, FuelCell Finance, entered into a membership interest purchase agreement with GW Power LLC (“Seller”) whereby FuelCell Finance purchased all of the outstanding membership interests in New Britain Renewable Energy, LLC (“NBRE”) from Seller. Seller assigned the NBRE interest to FuelCell Finance free and clear of all liens other than a pledge in favor of Webster Bank, National Association (“Webster Bank”). FuelCell Finance assumed the debt outstanding with Webster Bank in the amount of $2.3 million. The term loan interest is 5.0% and payment due on a definitive Assistance Agreement with the Statequarterly basis commenced in January 2017. The balance outstanding as of Connecticut and received a disbursement of $10 million to be used for the first phase of the expansion of our Torrington, Connecticut manufacturing facility. October 31, 2017 was $1.7 million.
In conjunction with this financing,April 2016, the Company entered into a $10loan and security agreement (the “Hercules Agreement”) with Hercules for an aggregate principal amount of up to $25.0 million, Promissory Notesubject to certain terms and related security agreements securingconditions. The Hercules Agreement was subsequently amended in the fourth fiscal quarter of 2017. The Company received an initial term loan with equipment liensadvance on the date of closing of $15.0 million and an additional $5.0 million in September 2016. As of October 31, 2017, drawdowns and accrued amortization of the end of term payment on the facility aggregated $21.5 million. The loan is a mortgage30 month secured facility and the term loan interest was previously 9.5% and increased to 9.75% resulting from the increase in the prime rate. Interest is paid on its Danbury, Connecticut location. Pursuanta monthly basis. Interest only payments were to be made for the first 18 months as a result of the Company achieving certain milestones. In addition to interest, principal payments commenced on November 1, 2017 in equal monthly installments. The loan balance and all accrued and unpaid interest is due and payable by October 1, 2018. Per the terms of the loan,Hercules Agreement, there is an end of term payment of principal$1.7 million which is deferredbeing accreted using the effective interest rate method.
As collateral for obligations under the Hercules Agreement, the Company granted Hercules a security interest in FuelCell Energy, Inc.’s existing and hereafter-acquired assets except for intellectual property and certain other excluded assets. Collateral does not include assets held by FuelCell Finance or any project subsidiary thereof. The Company may continue to collateralize and finance its project subsidiaries through other lenders and partners. Under the Hercules Agreement, as amended, there is a minimum cash covenant which requires the Company to maintain an unrestricted cash balance in accounts subject to an account control agreement in favor of Hercules of at least the greater of (x) (a) 75% of the outstanding loan balance plus (b) the amount of accounts payable (as defined under GAAP) not paid within 90 days of the invoice date and (y) (a) at all times prior to the Stockholder Approval Date (as defined in the Certificate of Designations for the first four years. InterestSeries C Preferred Stock), $20.0 million and (b) at a fixed rate of 2% is payable beginningall times on and after the Stockholder Approval Date, $10.0 million (the Stockholder Approval Date was December 2015. The financing is payable over 15 years, and is predicated14, 2017, which was the date on certain terms and conditions, including the forgiveness of up to 50%which stockholder approval of the loan principal ifissuance of certain job retention and job creation targets are reached. In addition,shares upon the Company will receive up to $10 million of tax credits earned during the first phaseconversion and/or redemption of the expansion.
The second phase of our manufacturing expansion, for which we will be eligible to receive an additional $10$10.0 million in low-cost financing from the State of Connecticut, will commence as demand supports. This includes adding manufacturing equipment to increase annual capacity from the current 100 megawattsMW to at least 200 megawatts.MW. Plans for this phase also include the installation
On July 30, 2014, the Company's subsidiary, FuelCell Energy Finance, LLC ("FuelCell Finance") entered into a Loan Agreement with NRG. Pursuant to the Loan Agreement, NRG has extended a $40.0 million revolving construction and term financing facility to FuelCell Finance for the purpose of accelerating project development by the Company and its subsidiaries. FuelCell Finance and its subsidiaries may draw on the facility to finance the construction of projects through the commercial operating date of the power plants. FuelCell Finance has the option to continue the financing term for each project after the commercial operating date for a maximum term of five years per project. The interest rate is 8.5% per annum for construction-period financing and 8.0 %8.0% thereafter. AtAs of October 31, 2015, drawdowns2017, there was no outstanding balance on the facility aggregated $3.8 million.
In March 5, 2013, the Companywe closed on a long-term loan agreement with the Connecticut Clean Energy and Finance Investment Authority (CEFIA, now known as the CT Green Bank)Bank totaling $5.9 million in support of the Bridgeport Fuel Cell Park Project. The loan agreement carries an interest rate of 5.0% and principal repayments will commence on the eighth anniversary of the project'sproject’s provisional acceptance date, which is in December 2021. Outstanding amounts are secured by future cash flows from the Bridgeport contracts. The outstanding balance on the CEFIAConnecticut Green Bank Note atas of October 31, 20152017 was $6.1 million.
In April 2008, we entered into a 10-year loan agreement with the Connecticut Development Authority allowing for a maximum amount borrowed of $4.0 million. AtAs of October 31, 2015,2017, we had an outstanding balance of $2.8$2.3 million on this loan. The interest rate is 5%. Interest only payments commenced in January 2014 and the loan is collateralized by the assets procured under this loan as well as $4.0 million of additional machinery and equipment. Repayment terms require interest and principal payments through May 2018.
We have pledged approximately $26.9$38.2 million of our cash and cash equivalents as performance security and for letters of credit for certain banking requirements and contracts. AtAs of October 31, 2015,2017, outstanding letters of credit totaled $8.7$2.9 million. These expire on various dates through April 2019. Under the terms of certain contracts, the Company will provide performance security for future contractual obligations. The restricted cash balance atas of October 31, 20152017 includes $15.0 million which has beenwas placed in a Grantor'sGrantor’s Trust account to secure certain FCECompany obligations under the 15-year service agreement for the Bridgeport Fuel Cell Park Project and has beenis reflected as long-term restricted cash. The restrictions on the $15.0 million will be removed upon completion of the final module exchange at the Bridgeport Fuel Cell Park Project under the terms of the services agreement.
As of October 31, 2017, we have uncertain tax positions aggregating $15.7 million and have reduced our net operating lossNOLs carryforwards by this amount. Because of the level of net operating lossesNOLs and valuation allowances, unrecognized tax benefits, even if not resolved in our favor, would not result in any cash payment or obligation and therefore have not been included in the contractual obligation table above.
In addition to the commitments listed in the table above, we have the following outstanding obligations:
Power purchase agreements
Under the terms of our PPAs, customers agree to purchase power from our fuel cell power plants at negotiated rates. Electricity rates are generally a function of the customers’ current and future electricity pricing available from the grid. We are responsible for all operating costs necessary to maintain, monitor and repair our fuel cell power plants. Under certain agreements, we are also responsible for procuring fuel, generally natural gas, to run our fuel cell power plants. We are typically not required to produce minimum amounts of power under our PPAs and we typically have the right to terminate PPAs by giving written notice to the customer, subject to certain exit costs. As of October 31, 2017, our operating portfolio is 11.2 MW.
Service and warranty agreements
We warranty our products for a specific period of time against manufacturing or performance defects. Our standard U.S. warranty period is generally 15fifteen months after shipment or 12twelve months after acceptance of the product. We have agreed to warranty kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required. In addition to the standard product warranty, we have contracted with certain customers to provide services to ensure the power plants meet minimum operating levels for terms ranging from up to 20twenty years. Pricing for service contracts is based upon estimates of future costs, which could be materially different from actual expenses. Also see Critical“Critical Accounting Policies and EstimatesEstimates” for additional details.
Advanced technologiesTechnologies contracts (Research and development contracts)
We have contracted with various government agencies and certain companies from private industry to conduct research and development as either a prime contractor or sub-contractor under multi-year, cost-reimbursement and/or cost-share type contracts or cooperative agreements. Cost-share terms require that participating contractors share the total cost of the project based on an agreed upon ratio. In many cases, we are reimbursed only a portion of
the costs incurred or to be incurred on the contract. While government research and development contracts may extend for many years, funding is often provided incrementally on a year-by-year basis if contract terms are met and Congress authorizes the funds. AtAs of October 31, 2015,2017, Advanced technologiesTechnologies contracts
Off-Balance Sheet Arrangements
We have no off-balance sheet debt or similar obligations, other than operating leases, which are not classified as debt. We do not guarantee any third-party debt. See Note 18 “Commitments and Estimates
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty costs,accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets income taxes(including project assets) and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Our critical accounting policies are those that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are set forth below.
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination and is reviewed for impairment at least annually.
Accounting Standards Codification Topic 350, "Intangibles - Goodwill and Other," (ASC 350) permits the assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the two-step goodwill impairment test required under ASC 350.
The Company completed its annual impairment analysis at July 31 of goodwill and intangiblein-process research and development assets with indefinite lives duringas of July 31, 2017. The Company had performed a quantitative assessment in the third quarterprior year and determined that the estimated fair value of fiscal year 2015. The analysis was performed at the reporting unit level.and in-process research and development intangible asset exceeded the respective carrying value and therefore no impairment was recognized as of July 31, 2016. The goodwillCompany performed a qualitative assessment for fiscal year 2017 and intangible assets all relate to the Company's Versa power Systems, Inc. (Versa) reporting unit, since Versa has a segment managerdetermined that regularly reviews the results of that operation. Goodwill and other indefinite lived intangible assets are also reviewed for possible impairment whenever changes in conditions indicate that the fair value of a reporting unit isit was more likely than not below its carrying value. Nothat there was no impairment charges were recorded during any of goodwill or the years presented.
Impairment of Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable, we compare the carrying amount of an asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their
ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No impairment charges were recorded during any of the years presented.
Revenue Recognition
We earn revenue from (i) the sale and installation of fuel cell power plants (ii) the sale of component part kits, modules and spare parts to customers, (iii)including site engineering and construction services, (iv) providing services(ii) equipment only sales (modules, BOPs, component part kits and spare parts to customers), (iii) performance under long-term service agreements, (v)(iv) the sale of electricity and other value streams under PPAs (vi)and utility tariffs from project assets retained by the Company, (v) license fees and royalty income from manufacturing and technology transfer agreements, and (vii)(vi) government and customer-sponsored advancedAdvanced Technologies projects.
Given the growing revenue related to PPAs and project assets retained by the Company, beginning in the first quarter of 2017, the Company began classifying such revenues in a separate line item called Generation, and prior period amounts have been reclassified. As further clarification, revenue elements are classified as follows:
Product. Includes the sale and installation of fuel cell power plants and site engineering and construction services, and the sale of component part kits, modules, BOPs and spare parts to customers.
Service and license. Includes performance under long-term service agreements for power plants owned by third parties and license fees and royalty income from manufacturing and technology projects.
Generation. Includes the sale of electricity under PPAs and utility tariffs from project assets retained by the above items. We assess such contracts to evaluate whether there are multiple deliverables,Company. This also includes revenue received from the sale of other value streams from these assets including the sale of heat, steam and whether the consideration under the arrangement is being appropriately allocated to each of the deliverables.
Advanced Technologies. Includes revenue from customer-sponsored and government-sponsored Advanced Technologies projects.
Our revenue is primarily generated from customers located throughout the U.S., Europe and Asia and from agencies of the U.S. Government. Revenue from the sale and installation of fuel cell power plants; the sale of component part kits, modules and spare parts; site engineering and construction services is recorded as product sales in the consolidated statements of operations. Revenue from service agreements, PPAs, license and royalty revenue and engineering services revenue is recorded as service and license revenues. Revenue from customer-sponsored advanced technology research and development projects is recorded as advanced technologies contract revenues in the consolidated statements of operations.
For customer contracts for complete DFC Power Plants, with whichwhere the Company is responsible for supply of equipment and site construction (full turn-key construction project) and has adequate cost history and estimating experience, and thatwith respect to which management believes it can reasonably estimate total contract costs, revenue is recognized under the percentage of completion method of accounting. The use of percentage of completion accounting requires significant judgment relative to
Revenue from equipment only sales where the Company does not have the obligations associated with overall construction of the project (modules, BOPs, fuel cell kits modules and spare parts sales issales) are recognized upon shipment or title transfer under the terms of the customer contract. Terms for certain contracts provide for a transfer of title and risk of loss to our customers at our factory locations and certain key suppliers upon completion of our contractual requirement to produce products and prepare the products for shipment. A shipment in place may occur in the event that the customer is not ready to take delivery of the products on the contractually specified delivery dates.
Revenue from service agreements is generally recorded ratably over the term of the service agreement, as our performance of routine monitoring and maintenance under these service agreements is generally expected to be incurred on a straight-line basis. For service agreements where we expect to have a module exchange at some point during the term (generally service agreements in excess of five years), the costs of performance are not expected to be incurred on a straight-line basis, and therefore, a portion of the initial contract value related to the module exchangeexchange(s) is deferred and is recognized upon such module replacement event.
The Company receives license fees and royalty income from POSCO Energy as a result of manufacturing and technology transfer agreements entered into in 2007, 2009 and 2012. The Cell Technology Transfer Agreement we entered into on October 31, 2012 provides POSCO Energy with thea technology license to manufacture Direct FuelCellSureSource power plants in South Korea andKorea. On March 17, 2017, the exclusive market access to sell power plants throughout Asia. In conjunction with this agreement we amended the 2010 manufacturing and distribution agreementCompany entered into a Memorandum of Understanding (“2017 MOU”) with POSCO Energy to engage in discussions to further amend the above referenced agreements and other agreements between the 2009 License Agreement. The 2012 agreement and the previously referenced amendments contain multiple elements, including the license of technology and market access rights, fuel cell module kit product deliverables,parties, as well as professional service deliverables. We identified these three items as deliverables underto engage in discussions relating to entering into new agreements to further the multiple-element arrangement guidance and evaluatedparties’ mutual interests.
Pursuant to the estimated selling prices to allocate the relative fair value to these deliverables, as vendor-specific objective evidence and third-party evidence was not available. The Company's determination of estimated selling prices involved the consideration of several factors based on the specific facts and circumstances of each arrangement. Specifically,2017 MOU, the Company consideredcommenced marketing the cost to produceentire suite of SureSource solutions in South Korea as well as the tangible productbroader Asian markets for the supply, recovery and coststorage of professional service deliverables,energy.
Under PPAs and project assets retained by the anticipated margin on those deliverables, prices charged when those deliverables are sold on a stand-alone basis in limited sales, and the Company's ongoing pricing strategy and practices used to negotiate and price overall bundled product, service and license arrangements. We are recognizing the consideration allocated to the license of technology and market access rights as revenue over the 15 year license term on a straight-line basis, and will recognize the amounts allocated to the module kit deliverables and professional service deliverables when such items are delivered to POSCO Energy. We also determined that based on the utility to the customer of the fully developed technology that was licensed in the Cell Technology Transfer Agreement, there is stand-alone value for this deliverable.
Advanced Technologies contracts include both private industry and license revenues.
Sale-Leaseback Accounting
From time to time, the Company, through a wholly-owned subsidiary, enters into sale-leaseback transactions for commissioned projects where we have entered into a PPA with a customer who is both the site host and end user of the power. The Company uses the financing method to account for these transactions.
Under the financing method of accounting for a sale-leaseback, the Company does not recognize as income any of the sale proceeds received from the lessor that contractually constitutes payment to acquire the assets subject to these arrangements. Instead, the sale proceeds received are accounted for as financing obligations and leaseback payments made by the Company are allocated between interest expense and a reduction to the financing obligation. Interest on the financing obligation is calculated using the Company’s incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. Judgment is required to determine the appropriate borrowing rate for the arrangement and in determining any gain or loss on the transaction that would be recorded at the end of the lease term. While advanced technology contracts may extendwe have received financing for many years, fundingthe full value of the related power plant assets, we have not recognized revenue on the sale leaseback transaction. Instead, revenue is often provided incrementally on a year-by-year basis if contract termsrecognized through the sale of electricity and energy credits which are met and funds are authorized.
Inventories and Advance Payments to Vendors
Inventories consist principally of raw materials and work-in-process. In certain circumstances, we will make advance payments to vendors for future inventory deliveries. These advance payments are recorded as other current assets on the consolidated balance sheets.
We warranty our products for a specific period of time against manufacturing or performance defects. Our U.S. warranty is limited to a term generally 15 months after shipment or 12 months after acceptance of our products, except for fuel cell kits. We have agreed to warranty fuel cell kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required.products. We accrue for estimated future warranty costs based on historical experience. We also provide for a specific accrual if there is a known issue requiring repair during the warranty period. Estimates used to record warranty accruals are updated as we gain further operating experience. AtAs of October 31, 20152017 and October 31, 2014,2016, the warranty accrual, which is classified in accrued liabilities on the consolidated balance sheet, totaled $1.0$0.3 million and $1.2$0.5 million, respectively.
In addition to the standard product warranty, we have entered into service agreements with certain customers to provide monitoring, maintenance and repair services for fuel cell power plants. Under the terms of these service agreements, the power plant must meet a minimum operating output during the term. If minimum output falls below the contract requirement, we may be subject to performance penalties or may be required to repair and/or replace the customer's fuel cell module. The Company has accrued for performance guarantees of $2.6$2.2 million and $0.8$3.3 million atas of October 31, 20152017 and October 31, 2014,2016, respectively. The increase relates to additional accruals recorded for lower than expected output at certain fuel cell power plants.
The Company provides for loss accruals on all service agreements when the estimated cost of future module exchanges and maintenance and monitoring activities exceed the remaining contract value. Estimates for future costs on service agreements are determined by a number of factors including the estimated remaining life of the module, used replacement modules available, our limit of liability on service agreements and future operating plans for the power plant. Our estimates are performed on a contract by contract basis and include cost assumptions based on what we anticipate the service requirements will be to fulfill obligations for each contract. AtAs of October 31, 20152017 and October 31, 2014,2016, our accruals on service agreement contracts totaled $0.8$1.1 million and $3.0$2.7 million, respectively.
At the end of our service agreements, customers are expected to either renew the service agreement or, based on the Company's rights to title for the module, the module will be returned to the Company as the plant is no longer being monitored or having routine service performed. At October 31, 2015, the asset related to the residual value of replacement modules in power plants under service agreements was $2.5 million compared to $2.7 million asAs of October 31, 2014.
ACCOUNTING GUIDANCE UPDATE
Recently Adopted Accounting Guidance Not Yet Effective
In April 2015,August 2014, the Financial Accounting Standards Board ("FASB"(the “FASB”) issued Accounting Standards Update ("ASU"(“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which requires an entity to evaluate at each reporting period whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures in certain circumstances. The Company adopted the provisions of this ASU for the annual reporting period ended October 31, 2017. The adoption of this update did not have a significant impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest“Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This ASU simplifies the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt instrument, consistent with debt discounts. The amendmentsCompany has adopted ASU 2015-03 effective January 31, 2017 and retrospective application is required which resulted in thisa reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $0.3 million of debt issuance costs from Current assets to be a direct deduction from “Current portion of long-term debt” and a reclassification of $1.1 million of debt issuance costs from “Other assets” to be a direct deduction from Long-term debt and other liabilities.
In January 2017, the FASB issued ASU are2017-01, “Business Combinations.” ASU 2017-01 was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company has elected to early
adopt ASU 2017-01 effective for fiscal years beginning after December 15, 2015 and for interim periods therein. Adoption of this ASU isNovember 1, 2016 which did not expected to have a materialsignificant impact on the Company'sCompany’s consolidated financial position.
Recent Accounting Guidance Not Yet Effective
In May 2014, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for fiscal years, and interim periods within those years beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. In March 2015, the FASB voted to defer the effective date by one year to fiscal years, and interim periods within those fiscal years beginning after December 15, 2017 (first quarter of fiscal year 2019 for the Company), but allow adoption as of the original adoption date. WeThe Company has numerous different revenue sources including the sale and installation of fuel cell power plants, site engineering and construction services, sale of modules and spare parts, extended warranty service agreements, sale of electricity under power purchase agreements, license fees and royalty income from manufacturing and technology transfer agreements and customer-sponsored Advanced Technologies projects. This requires application of various revenue recognition methods under current accounting guidance. Although we anticipate that, upon adoption of this new ASU the timing of revenue recognition for certain of our revenue sources might change, we are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize.
In February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (first quarter of fiscal year 2020 for the Company). Early adoption is permitted. The Company has both operating and capital leases (refer to Note 18. Commitments and contingences) as well as sale-leasebacks accounted for under the finance method and may have other arrangements that contain embedded leases as characterized in this ASU. We expect that adoption of this ASU will result in the recognition of right-of-use assets and lease liabilities not currently recorded in our consolidated financial statements under existing accounting guidance. However, we are still evaluating all of the Company’s contractual arrangements and the impact that adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.
Interest Rate Exposure
Cash is invested overnight with high credit quality financial institutions and therefore we are not exposed to market risk on our cash holdings from changing interest rates. Based on our overall interest rate exposure atas of October 31, 2015,2017, including all interest rate sensitive instruments, a change in interest rates of 1% would not have a material impact on our results of operations.
Foreign Currency Exchange Risk
As of October 31, 2015,2017, approximately 4% of our total cash, cash equivalents and investments were in currencies other than U.S. dollars (primarily the Euro, Canadian dollars and South Korean Won) and we have no plans of repatriation. We make purchases from certain vendors in currencies other than U.S. dollars. Although we have not experienced significant foreign exchange rate losses to date, we may in the future, especially to the extent that we do not engage in currency hedging activities. The economic impact of currency exchange rate movements on our operating results is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, may cause us to adjust our financing and operating strategies.
Derivative Fair Value Exposure
Series 1 Preferred Stock
The conversion feature and the variable dividend obligation of our Series 1 Preferred sharesShares are embedded derivatives that require bifurcation from the host contract. The aggregate fair value of these derivatives included within long-term debt and other liabilities atas of October 31, 20152017 and 20142016 was $0.8 million and $0.7 million.million, respectively. The fair value was based on valuation models using various assumptions, including historical stock price volatility, risk-free interest rate and a credit spread based on the yield indexes of technology high yield bonds, foreign exchange volatility as the Series 1 Preferred security isShares are denominated in Canadian dollars, and the closing price of our common stock. Changes in any of these assumptions would change the underlying fair value with a corresponding charge or credit to operations. However, any changes to these assumptions would not have a material impact on our results of operations.
Index to the Consolidated Financial Statements | Page | |
82 | ||
Consolidated Balance Sheets at October 31, | 83 | |
84 | ||
85 | ||
86 | ||
87 |
The Board of Directors and Stockholders
FuelCell Energy, Inc.:
We have audited the accompanying consolidated balance sheets of FuelCell Energy, Inc. and subsidiaries as of October 31, 20152017 and 2014,2016, and the related consolidated statements of operations and comprehensive income (loss),loss, changes in equity, (deficit), and cash flows for each of the years in the three‑year period ended October 31, 2015.2017. We also have audited FuelCell Energy, Inc.’s internal control over financial reporting as of October 31, 2015,2017, based on criteria established in
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FuelCell Energy, Inc. and subsidiaries as of October 31, 20152017 and 2014,2016, and the results of itstheir operations and itstheir cash flows for each of the years in the three‑year period ended October 31, 2015,2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, FuelCell Energy, Inc. maintained, in all material respects, effective internal control over financial reporting as of October 31, 2015,2017, based on criteria established in
/s/ KPMG LLP |
Hartford, Connecticut |
January 11, 2018 |
October 31, 20152017 and 2014
(Amounts in thousands, except share and per share amounts)
|
| 2017 |
|
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 49,294 |
|
| $ | 84,187 |
|
Restricted cash and cash equivalents - short-term |
|
| 4,628 |
|
|
| 9,437 |
|
Accounts receivable, net of allowance for doubtful accounts of $79 and $193 as of October 31, 2017 and 2016, respectively |
|
| 68,521 |
|
|
| 24,593 |
|
Inventories |
|
| 74,496 |
|
|
| 73,806 |
|
Other current assets |
|
| 6,571 |
|
|
| 10,181 |
|
Total current assets |
|
| 203,510 |
|
|
| 202,204 |
|
Restricted cash and cash equivalents - long-term |
|
| 33,526 |
|
|
| 24,692 |
|
Project assets noncurrent |
|
| 73,001 |
|
|
| 47,111 |
|
Property, plant and equipment, net |
|
| 43,565 |
|
|
| 36,640 |
|
Goodwill |
|
| 4,075 |
|
|
| 4,075 |
|
Intangible assets |
|
| 9,592 |
|
|
| 9,592 |
|
Other assets, net |
|
| 16,517 |
|
|
| 16,415 |
|
Total assets |
| $ | 383,786 |
|
| $ | 340,729 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 28,281 |
|
| $ | 5,010 |
|
Accounts payable |
|
| 42,616 |
|
|
| 18,475 |
|
Accrued liabilities |
|
| 18,381 |
|
|
| 20,900 |
|
Deferred revenue |
|
| 7,964 |
|
|
| 6,811 |
|
Preferred stock obligation of subsidiary |
|
| 836 |
|
|
| 802 |
|
Total current liabilities |
|
| 98,078 |
|
|
| 51,998 |
|
Long-term deferred revenue |
|
| 18,915 |
|
|
| 20,974 |
|
Long-term preferred stock obligation of subsidiary |
|
| 14,221 |
|
|
| 12,649 |
|
Long-term debt and other liabilities |
|
| 63,759 |
|
|
| 80,855 |
|
Total liabilities |
|
| 194,973 |
|
|
| 166,476 |
|
Redeemable preferred stock (liquidation preference of $64,020 as of October 31, 2017 and October 31, 2016) |
|
| 59,857 |
|
|
| 59,857 |
|
Redeemable Series C preferred stock (liquidation preference of $33,300 as of October 31, 2017) |
|
| 27,700 |
|
|
| — |
|
Total equity: |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock ($0.0001 par value; 125,000,000 and 75,000,000 shares authorized as of October 31, 2017 and 2016, respectively; 69,492,816 and 35,174,424 shares issued and outstanding as of October 31, 2017 and 2016, respectively) |
|
| 7 |
|
|
| 4 |
|
Additional paid-in capital |
|
| 1,045,197 |
|
|
| 1,004,566 |
|
Accumulated deficit |
|
| (943,533 | ) |
|
| (889,630 | ) |
Accumulated other comprehensive loss |
|
| (415 | ) |
|
| (544 | ) |
Treasury stock, Common, at cost (88,861 and 21,527 shares as of October 31, 2017 and 2016, respectively) |
|
| (280 | ) |
|
| (179 | ) |
Deferred compensation |
|
| 280 |
|
|
| 179 |
|
Total stockholders’ equity |
|
| 101,256 |
|
|
| 114,396 |
|
Total liabilities and stockholders’ equity |
| $ | 383,786 |
|
| $ | 340,729 |
|
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 58,852 | $ | 83,710 | ||||
| Restricted cash and cash equivalents - short-term | 6,288 | 5,523 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $544 and $132 at October 31, 2015 and 2014, respectively | 60,790 | 64,375 | ||||||
| Inventories | 65,754 | 55,895 | ||||||
| Project assets current | 5,260 | — | ||||||
| Other current assets | 6,954 | 7,528 | ||||||
| Total current assets | 203,898 | 217,031 | ||||||
| Restricted cash and cash equivalents - long-term | 20,600 | 19,600 | ||||||
| Project assets noncurrent | 6,922 | 784 | ||||||
| Property, plant and equipment, net | 29,002 | 25,825 | ||||||
| Goodwill | 4,075 | 4,075 | ||||||
| Intangible assets | 9,592 | 9,592 | ||||||
| Other assets, net | 3,142 | 3,729 | ||||||
| Total assets | $ | 277,231 | $ | 280,636 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 7,358 | $ | 1,439 | ||||
| Accounts payable | 15,745 | 22,969 | ||||||
| Accrued liabilities | 19,175 | 12,066 | ||||||
| Deferred revenue | 31,787 | 37,626 | ||||||
| Preferred stock obligation of subsidiary | 823 | 961 | ||||||
| Total current liabilities | 74,888 | 75,061 | ||||||
| Long-term deferred revenue | 22,646 | 20,705 | ||||||
| Long-term preferred stock obligation of subsidiary | 12,088 | 13,197 | ||||||
| Long-term debt and other liabilities | 12,998 | 13,367 | ||||||
| Total liabilities | 122,620 | 122,330 | ||||||
| Redeemable preferred stock (liquidation preference of $64,020 at October 31, 2015 and October 31, 2014) | 59,857 | 59,857 | ||||||
| Total equity: | ||||||||
| Shareholders’ equity | ||||||||
| Common stock ($.0001 par value; 39,583,333 and 33,333,333 shares authorized at October 31, 2015 and 2014, respectively; 25,964,710 and 23,930,000 shares issued and outstanding at October 31, 2015 and 2014, respectively) | 3 | 2 | ||||||
| Additional paid-in capital | 934,488 | 909,458 | ||||||
| Accumulated deficit | (838,673 | ) | (809,314 | ) | ||||
| Accumulated other comprehensive loss | (509 | ) | (159 | ) | ||||
| Treasury stock, Common, at cost (5,845 and 3,796 shares at October 31, 2015 and 2014, respectively) | (78 | ) | (95 | ) | ||||
| Deferred compensation | 78 | 95 | ||||||
| Total shareholders’ equity | 95,309 | 99,987 | ||||||
| Noncontrolling interest in subsidiaries | (555 | ) | (1,538 | ) | ||||
| Total equity | 94,754 | 98,449 | ||||||
| Total liabilities and equity | $ | 277,231 | $ | 280,636 | ||||
See accompanying notes to consolidated financial statements.
For the Years Ended October 31, 2015, 2014,2017, 2016, and 2013
(Amounts in thousands, except share and per share amounts)
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (including $0.4 million, $43.6 million and $100.5 million of related party revenue) |
| $ | 43,047 |
|
| $ | 62,563 |
|
| $ | 128,595 |
|
Service agreements and license revenues (including $5.4 million, $8.5 million and $11.4 million of related party revenue) |
|
| 27,050 |
|
|
| 31,491 |
|
|
| 21,012 |
|
Generation revenues |
|
| 7,233 |
|
|
| 1,267 |
|
|
| — |
|
Advanced Technologies contract revenue (including $0, $0 and $0.6 million of related party revenue) |
|
| 18,336 |
|
|
| 12,931 |
|
|
| 13,470 |
|
Total revenues |
|
| 95,666 |
|
|
| 108,252 |
|
|
| 163,077 |
|
Costs of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
| 49,843 |
|
|
| 63,474 |
|
|
| 118,530 |
|
Cost of service agreements and license revenues |
|
| 25,285 |
|
|
| 32,592 |
|
|
| 18,301 |
|
Cost of generation revenues |
|
| 5,076 |
|
|
| 664 |
|
|
| — |
|
Cost of Advanced Technologies contract revenues |
|
| 12,728 |
|
|
| 11,879 |
|
|
| 13,470 |
|
Total cost of revenues |
|
| 92,932 |
|
|
| 108,609 |
|
|
| 150,301 |
|
Gross profit (loss) |
|
| 2,734 |
|
|
| (357 | ) |
|
| 12,776 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses |
|
| 25,916 |
|
|
| 25,150 |
|
|
| 24,226 |
|
Research and development expenses |
|
| 20,398 |
|
|
| 20,846 |
|
|
| 17,442 |
|
Restructuring expense |
|
| 1,355 |
|
|
| — |
|
|
| — |
|
Total operating expenses |
|
| 47,669 |
|
|
| 45,996 |
|
|
| 41,668 |
|
Loss from operations |
|
| (44,935 | ) |
|
| (46,353 | ) |
|
| (28,892 | ) |
Interest expense |
|
| (9,171 | ) |
|
| (4,958 | ) |
|
| (2,960 | ) |
Other income, net |
|
| 247 |
|
|
| 622 |
|
|
| 2,442 |
|
Loss before provision for income taxes |
|
| (53,859 | ) |
|
| (50,689 | ) |
|
| (29,410 | ) |
Provision for income taxes |
|
| (44 | ) |
|
| (519 | ) |
|
| (274 | ) |
Net loss |
|
| (53,903 | ) |
|
| (51,208 | ) |
|
| (29,684 | ) |
Net loss attributable to noncontrolling interest |
|
| — |
|
|
| 251 |
|
|
| 325 |
|
Net loss attributable to FuelCell Energy, Inc. |
|
| (53,903 | ) |
|
| (50,957 | ) |
|
| (29,359 | ) |
Preferred stock dividends |
|
| (3,200 | ) |
|
| (3,200 | ) |
|
| (3,200 | ) |
Net loss to common stockholders |
| $ | (57,103 | ) |
| $ | (54,157 | ) |
| $ | (32,559 | ) |
Net loss to common stockholders per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
Diluted |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 49,914,904 |
|
|
| 29,773,700 |
|
|
| 24,513,731 |
|
Diluted |
|
| 49,914,904 |
|
|
| 29,773,700 |
|
|
| 24,513,731 |
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net loss |
|
| (53,903 | ) |
|
| (51,208 | ) |
| $ | (29,684 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 129 |
|
|
| (35 | ) |
|
| (350 | ) |
Comprehensive loss |
| $ | (53,774 | ) |
| $ | (51,243 | ) |
| $ | (30,034 | ) |
| 2015 | 2014 | 2013 | ||||||||||
| Revenues: | ||||||||||||
| Product sales (including $100.5 million, $115.0 million and $81.6 million of related party revenue) | $ | 128,595 | $ | 136,842 | $ | 145,071 | ||||||
Service agreements and license revenues (including $11.4 million, $14.9 million and $20.1 million of related party revenue) | 21,012 | 25,956 | 28,141 | |||||||||
| Advanced technologies contract revenues (including $0.6 million, $0.4 million and $0.3 million of related party revenue) | 13,470 | 17,495 | 14,446 | |||||||||
| Total revenues | 163,077 | 180,293 | 187,658 | |||||||||
| Costs of revenues: | ||||||||||||
| Cost of product sales | 118,530 | 126,866 | 136,989 | |||||||||
| Cost of service agreements and license revenues | 18,301 | 23,037 | 29,683 | |||||||||
| Cost of advanced technologies contract revenues | 13,470 | 16,664 | 13,864 | |||||||||
| Total cost of revenues | 150,301 | 166,567 | 180,536 | |||||||||
| Gross profit | 12,776 | 13,726 | 7,122 | |||||||||
| Operating expenses: | ||||||||||||
| Administrative and selling expenses | 24,226 | 22,797 | 21,218 | |||||||||
| Research and development expenses | 17,442 | 18,240 | 15,717 | |||||||||
| Total operating expenses | 41,668 | 41,037 | 36,935 | |||||||||
| Loss from operations | (28,892 | ) | (27,311 | ) | (29,813 | ) | ||||||
| Interest expense | (2,960 | ) | (3,561 | ) | (3,973 | ) | ||||||
| Income from equity investments | — | — | 46 | |||||||||
| Other income (expense), net | 2,442 | (7,523 | ) | (1,208 | ) | |||||||
| Loss before provision for income taxes | (29,410 | ) | (38,395 | ) | (34,948 | ) | ||||||
| Provision for income taxes | (274 | ) | (488 | ) | (371 | ) | ||||||
| Net loss | (29,684 | ) | (38,883 | ) | (35,319 | ) | ||||||
| Net loss attributable to noncontrolling interest | 325 | 758 | 961 | |||||||||
| Net loss attributable to FuelCell Energy, Inc. | (29,359 | ) | (38,125 | ) | (34,358 | ) | ||||||
| Preferred stock dividends | (3,200 | ) | (3,200 | ) | (3,200 | ) | ||||||
| Net loss to common shareholders | $ | (32,559 | ) | $ | (41,325 | ) | $ | (37,558 | ) | |||
| Net loss to common shareholders per share | ||||||||||||
| Basic | $ | (1.33 | ) | $ | (2.02 | ) | $ | (2.42 | ) | |||
| Diluted | $ | (1.33 | ) | $ | (2.02 | ) | $ | (2.42 | ) | |||
| Weighted average shares outstanding | ||||||||||||
| Basic | 24,513,731 | 20,473,915 | 15,543,750 | |||||||||
| Diluted | 24,513,731 | 20,473,915 | 15,543,750 | |||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Net loss | (29,684 | ) | (38,883 | ) | $ | (35,319 | ) | |||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation adjustments | (350 | ) | (260 | ) | 35 | |||||||
| Comprehensive loss | $ | (30,034 | ) | $ | (39,143 | ) | $ | (35,284 | ) | |||
See accompanying notes to consolidated financial statements.
For the Years Ended October 31, 2015, 2014,2017, 2016, and 2013
(Amounts in thousands, except share and per share amounts)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Deferred Compensation |
|
| Noncontrolling Interest in Subsidiaries |
|
| Total Equity |
| |||||||||
Balance, October 31, 2014 |
|
| 23,930,000 |
|
| $ | 2 |
|
| $ | 909,458 |
|
| $ | (809,314 | ) |
| $ | (159 | ) |
| $ | (95 | ) |
| $ | 95 |
|
| $ | (1,538 | ) |
| $ | 98,449 |
|
Sale of common stock |
|
| 1,845,166 |
|
|
| 1 |
|
|
| 26,920 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,921 |
|
Share based compensation |
|
| — |
|
|
| — |
|
|
| 3,157 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,157 |
|
Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans |
|
| 191,593 |
|
|
| — |
|
|
| (539 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (539 | ) |
Reclassification of noncontrolling interest due to liquidation of subsidiary |
|
| — |
|
|
| — |
|
|
| (1,308 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,308 |
|
|
| - |
|
Noncontrolling interest in subsidiaries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (325 | ) |
|
| (325 | ) |
Preferred dividends — Series B |
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
Adjustment for deferred compensation |
|
| (2,049 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| (17 | ) |
|
| — |
|
|
| - |
|
Effect of foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (350 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (350 | ) |
Net loss attributable to FuelCell Energy, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,359 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,359 | ) |
Balance, October 31, 2015 |
|
| 25,964,710 |
|
| $ | 3 |
|
| $ | 934,488 |
|
| $ | (838,673 | ) |
| $ | (509 | ) |
| $ | (78 | ) |
| $ | 78 |
|
| $ | (555 | ) |
| $ | 94,754 |
|
Sale of common stock, prepaid warrants and warrants, public offering |
|
| 1,474,000 |
|
|
| — |
|
|
| 34,736 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,736 |
|
Exercise of prepaid warrants |
|
| 1,100,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
Sale of common stock |
|
| 6,023,372 |
|
|
| 1 |
|
|
| 36,055 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,056 |
|
Common stock issued, non-employee compensation |
|
| 24,379 |
|
|
| — |
|
|
| 157 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 157 |
|
Share based compensation |
|
| — |
|
|
| — |
|
|
| 3,425 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,425 |
|
Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans |
|
| 587,963 |
|
|
| — |
|
|
| (286 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (286 | ) |
Noncontrolling interest in subsidiaries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (251 | ) |
|
| (251 | ) |
Purchase of noncontrolling shares of subsidiary |
|
| — |
|
|
| — |
|
|
| (809 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 806 |
|
|
| (3 | ) |
Preferred dividends - Series B |
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
Adjustment for deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (101 | ) |
|
| 101 |
|
|
| — |
|
|
| - |
|
Effect of foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35 | ) |
Net loss attributable to FuelCell Energy, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,957 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,957 | ) |
Balance, October 31, 2016 |
|
| 35,174,424 |
|
| $ | 4 |
|
| $ | 1,004,566 |
|
| $ | (889,630 | ) |
| $ | (544 | ) |
| $ | (179 | ) |
| $ | 179 |
|
| $ | — |
|
| $ | 114,396 |
|
Sale of common stock, warrants and public offering |
|
| 12,000,000 |
|
|
| 1 |
|
|
| 13,883 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,884 |
|
Exercise of prepaid warrants and warrants |
|
| 13,660,926 |
|
|
| 1 |
|
|
| 12,721 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,722 |
|
Sale of common stock |
|
| 7,245,430 |
|
|
| 1 |
|
|
| 12,430 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,431 |
|
Common stock issued, non-employee compensation |
|
| 86,001 |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Share based compensation |
|
| — |
|
|
| — |
|
|
| 4,585 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,585 |
|
Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans |
|
| 1,284,673 |
|
|
| — |
|
|
| (84 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (84 | ) |
Series C convertible preferred stock conversions |
|
| 108,696 |
|
|
|
|
|
|
| 167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 167 |
|
Preferred dividends — Series B |
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,200 | ) |
Effect of foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Adjustment for deferred compensation |
|
| (67,334 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (101 | ) |
|
| 101 |
|
|
| — |
|
|
| — |
|
Net loss attributable to FuelCell Energy, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,903 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,903 | ) |
Balance, October 31, 2017 |
|
| 69,492,816 |
|
| $ | 7 |
|
| $ | 1,045,197 |
|
| $ | (943,533 | ) |
| $ | (415 | ) |
| $ | (280 | ) |
| $ | 280 |
|
| $ | — |
|
| $ | 101,256 |
|
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Deferred Compensation | Noncontrolling Interest in Subsidiaries | Total Equity (Deficit) | |||||||||||||||||||||||||||
| Balance, October 31, 2012 | 15,488,010 | $ | 2 | $ | 751,272 | $ | (736,831 | ) | $ | 66 | $ | (53 | ) | $ | 53 | $ | (381 | ) | $ | 14,128 | |||||||||||||||
| Sale of common stock | 357,983 | — | 5,548 | — | — | — | — | — | 5,548 | ||||||||||||||||||||||||||
| Common stock issued for acquisition | 293,897 | — | 3,563 | — | — | — | — | — | 3,563 | ||||||||||||||||||||||||||
| Share based compensation | — | — | 2,226 | — | — | — | — | — | 2,226 | ||||||||||||||||||||||||||
| Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans | 219,310 | — | (173 | ) | — | — | — | — | — | (173 | ) | ||||||||||||||||||||||||
| Reclass of noncontrolling interest due to liquidation of subsidiaries | — | — | (562 | ) | — | — | — | — | 562 | — | |||||||||||||||||||||||||
| Preferred dividends — Series B | — | — | (3,200 | ) | — | — | — | — | — | (3,200 | ) | ||||||||||||||||||||||||
| Noncontrolling interest in subsidiaries | — | — | — | — | — | — | — | (961 | ) | (961 | ) | ||||||||||||||||||||||||
| Effect of foreign currency translation | — | — | — | — | 35 | — | — | — | 35 | ||||||||||||||||||||||||||
| Net loss attributable to FuelCell Energy, Inc. | — | — | — | (34,358 | ) | — | — | — | — | (34,358 | ) | ||||||||||||||||||||||||
| Balance, October 31, 2013 | 16,359,200 | $ | 2 | $ | 758,674 | $ | (771,189 | ) | $ | 101 | $ | (53 | ) | $ | 53 | $ | (780 | ) | $ | (13,192 | ) | ||||||||||||||
| Sale of common stock | 4,973,604 | — | 105,966 | — | — | — | — | — | 105,966 | ||||||||||||||||||||||||||
| Common stock issued for convertible note conversions including interest | 2,063,896 | — | 33,306 | — | — | — | — | — | 33,306 | ||||||||||||||||||||||||||
| Common stock issued to settle make-whole obligation | 459,523 | — | 12,883 | — | — | — | — | — | 12,883 | ||||||||||||||||||||||||||
| Share based compensation | — | — | 2,908 | — | — | — | — | — | 2,908 | ||||||||||||||||||||||||||
| Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans | 76,136 | (1,079 | ) | — | — | — | — | — | (1,079 | ) | |||||||||||||||||||||||||
| Noncontrolling interest in subsidiaries | — | — | — | — | — | — | — | (758 | ) | (758 | ) | ||||||||||||||||||||||||
| Preferred dividends — Series B | — | — | (3,200 | ) | — | — | — | — | — | (3,200 | ) | ||||||||||||||||||||||||
| Adjustment for deferred compensation | (2,359 | ) | — | — | — | — | (42 | ) | 42 | — | — | ||||||||||||||||||||||||
| Effect of foreign currency translation | — | — | — | — | (260 | ) | — | — | — | (260 | ) | ||||||||||||||||||||||||
| Net loss attributable to FuelCell Energy, Inc. | — | — | — | (38,125 | ) | — | — | — | — | (38,125 | ) | ||||||||||||||||||||||||
| Balance, October 31, 2014 | 23,930,000 | $ | 2 | $ | 909,458 | $ | (809,314 | ) | $ | (159 | ) | $ | (95 | ) | $ | 95 | $ | (1,538 | ) | $ | 98,449 | ||||||||||||||
| Sale of common stock | 1,845,166 | 1 | $ | 26,920 | — | — | — | — | — | 26,921 | |||||||||||||||||||||||||
| Share based compensation | — | — | 3,157 | — | — | — | — | — | 3,157 | ||||||||||||||||||||||||||
| Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans | 191,593 | — | (539 | ) | — | — | — | — | — | (539 | ) | ||||||||||||||||||||||||
| Reclassification of noncontrolling interest due to liquidation of subsidiary | — | — | (1,308 | ) | — | — | — | — | 1,308 | — | |||||||||||||||||||||||||
| Noncontrolling interest in subsidiaries | — | — | — | — | — | — | — | (325 | ) | (325 | ) | ||||||||||||||||||||||||
| Preferred dividends - Series B | — | — | (3,200 | ) | — | — | — | — | — | (3,200 | ) | ||||||||||||||||||||||||
| Adjustment for deferred compensation | (2,049 | ) | — | — | — | — | 17 | (17 | ) | — | — | ||||||||||||||||||||||||
| Effect of foreign currency translation | — | — | — | — | (350 | ) | — | — | — | (350 | ) | ||||||||||||||||||||||||
| Net loss attributable to FuelCell Energy, Inc. | — | — | — | (29,359 | ) | — | — | — | — | (29,359 | ) | ||||||||||||||||||||||||
| Balance, October 31, 2015 | 25,964,710 | $ | 3 | $ | 934,488 | $ | (838,673 | ) | $ | (509 | ) | $ | (78 | ) | $ | 78 | $ | (555 | ) | $ | 94,754 | ||||||||||||||
See accompanying notes to consolidated financial statements.
(Amounts in thousands, except share and per share amounts)
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (53,903 | ) |
| $ | (51,208 | ) |
| $ | (29,684 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
| 4,585 |
|
|
| 3,425 |
|
|
| 3,157 |
|
Loss (gain) from change in fair value of embedded derivatives |
|
| 91 |
|
|
| (14 | ) |
|
| (23 | ) |
Depreciation |
|
| 8,518 |
|
|
| 4,949 |
|
|
| 4,099 |
|
Amortization of non-cash interest expense |
|
| 6,256 |
|
|
| 3,207 |
|
|
| 1,830 |
|
Foreign currency transaction losses (gains) |
|
| 581 |
|
|
| (324 | ) |
|
| (2,075 | ) |
Other non-cash transactions |
|
| 165 |
|
|
| 451 |
|
|
| 412 |
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (51,276 | ) |
|
| 30,235 |
|
|
| 3,173 |
|
Inventories |
|
| (7,972 | ) |
|
| (8,052 | ) |
|
| (10,100 | ) |
Project assets |
|
| — |
|
|
| — |
|
|
| (11,398 | ) |
Other assets |
|
| (714 | ) |
|
| (837 | ) |
|
| 1,022 |
|
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 25,020 |
|
|
| (3,019 | ) |
|
| (7,224 | ) |
Accrued liabilities |
|
| (2,290 | ) |
|
| 1,240 |
|
|
| 6,435 |
|
Deferred revenue |
|
| (906 | ) |
|
| (26,648 | ) |
|
| (3,898 | ) |
Net cash used in operating activities |
|
| (71,845 | ) |
|
| (46,595 | ) |
|
| (44,274 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (12,351 | ) |
|
| (7,726 | ) |
|
| (6,930 | ) |
Expenditures for long-term project assets |
|
| (19,726 | ) |
|
| (33,726 | ) |
|
| — |
|
Cash acquired from acquisition |
|
| 633 |
|
|
| — |
|
|
| — |
|
Net cash used in investing activities |
|
| (31,444 | ) |
|
| (41,452 | ) |
|
| (6,930 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt |
|
| (8,571 | ) |
|
| (30,452 | ) |
|
| (1,535 | ) |
Proceeds from debt |
|
| 17,877 |
|
|
| 85,935 |
|
|
| 6,763 |
|
Payments of deferred finance costs |
|
| (206 | ) |
|
| (1,758 | ) |
|
| — |
|
Purchase of non-controlling shares of subsidiary |
|
| — |
|
|
| (3 | ) |
|
| — |
|
Net proceeds from issuance of Series C preferred shares |
|
| 27,866 |
|
|
| — |
|
|
| — |
|
Proceeds from common stock issuance and warrant exercises, net of registration fees |
|
| 39,396 |
|
|
| 70,929 |
|
|
| 27,060 |
|
Payment of preferred dividends and return of capital |
|
| (4,156 | ) |
|
| (4,170 | ) |
|
| (4,202 | ) |
Common stock issued for stock plans and related expenses |
|
| 86 |
|
|
| 177 |
|
|
| 133 |
|
Net cash provided by financing activities |
|
| 72,292 |
|
|
| 120,658 |
|
|
| 28,219 |
|
Effects on cash from changes in foreign currency rates |
|
| 129 |
|
|
| (35 | ) |
|
| (108 | ) |
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
| (30,868 | ) |
|
| 32,576 |
|
|
| (23,093 | ) |
Cash, cash equivalents, and restricted cash-beginning of year |
|
| 118,316 |
|
|
| 85,740 |
|
|
| 108,833 |
|
Cash, cash equivalents, and restricted cash-end of year |
| $ | 87,448 |
|
| $ | 118,316 |
|
| $ | 85,740 |
|
| 2015 | 2014 | 2013 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (29,684 | ) | $ | (38,883 | ) | $ | (35,319 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Share-based compensation | 3,157 | 2,908 | 2,226 | |||||||||
| Income in equity investments | — | — | (46 | ) | ||||||||
| (Gain) loss from change in fair value of embedded derivatives | (23 | ) | (126 | ) | 1,359 | |||||||
| Make whole derivative expense | — | 8,347 | — | |||||||||
| Depreciation | 4,099 | 4,384 | 4,097 | |||||||||
| Amortization of convertible note discount and non-cash interest expense | 1,830 | 2,140 | 2,480 | |||||||||
| Foreign currency transaction gains | (2,075 | ) | (571 | ) | (443 | ) | ||||||
| Other non-cash transactions | 412 | 146 | 61 | |||||||||
| Decrease (increase) in operating assets: | ||||||||||||
| Accounts receivable | 3,173 | (15,378 | ) | (12,000 | ) | |||||||
| Inventories | (10,100 | ) | 1,059 | (5,901 | ) | |||||||
| Project assets | (11,398 | ) | — | — | ||||||||
| Other assets | 1,022 | 3,417 | 6,076 | |||||||||
| (Decrease) increase in operating liabilities: | ||||||||||||
| Accounts payable | (7,224 | ) | (1,566 | ) | 11,776 | |||||||
| Accrued liabilities | 6,435 | (11,056 | ) | (172 | ) | |||||||
| Deferred revenue | (3,898 | ) | (12,289 | ) | 9,148 | |||||||
| Net cash used in operating activities | (44,274 | ) | (57,468 | ) | (16,658 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Capital expenditures | (6,930 | ) | (6,295 | ) | (6,551 | ) | ||||||
| Expenditures for long-term project assets | — | (784 | ) | — | ||||||||
| Cash acquired from acquisition | — | — | 357 | |||||||||
| Net cash used in investing activities | (6,930 | ) | (7,079 | ) | (6,194 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Repayment of debt | (1,535 | ) | (5,971 | ) | (374 | ) | ||||||
| Proceeds from debt | 6,763 | 250 | 45,250 | |||||||||
| Financing costs for convertible debt securities | — | — | (2,472 | ) | ||||||||
| (Increase) decrease in restricted cash and cash equivalents | (1,765 | ) | (15,120 | ) | 632 | |||||||
| Proceeds from sale of common stock, net of registration fees | 27,060 | 105,844 | 5,040 | |||||||||
| Payment of preferred dividends and return of capital | (4,202 | ) | (4,343 | ) | (4,442 | ) | ||||||
| Common stock issued for stock plans and related expenses | 133 | 161 | — | |||||||||
| Net cash provided by financing activities | 26,454 | 80,821 | 43,634 | |||||||||
| Effects on cash from changes in foreign currency rates | (108 | ) | (260 | ) | 35 | |||||||
| Net increase in cash and cash equivalents | (24,858 | ) | 16,014 | 20,817 | ||||||||
| Cash and cash equivalents-beginning of year | 83,710 | 67,696 | 46,879 | |||||||||
| Cash and cash equivalents-end of year | $ | 58,852 | $ | 83,710 | $ | 67,696 | ||||||
See accompanying notes to the consolidated financial statements.
Nature of Business and Basis of Presentation
FuelCell Energy, Inc. andtogether with its subsidiaries (the “Company”, “FuelCell Energy”, “we”, “us”, or “our”) is a leading integrated fuel cell company with a growing global presence. We design, manufacture, install, operate and service ultra-clean, efficient and reliable stationary fuel cell power plants. Our Direct FuelCellSureSource power plants continuously produce base loadgenerate electricity and usable high quality heat around the clock for commercial, industrial, government and utility customers. We have commercialized our stationary carbonate fuel cells and are also pursuing the complementary development of planar solid oxide fuel cells and other fuel cell technologies. Our operations are funded primarily through sales of equity instruments to strategic investors or in public markets, corporate and project level debt financing and local or state government loans or grants. In order to produce positive cash flow from operations, we need to be successful at increasing annual order volume and production and in our cost reduction efforts.
The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, including FCE FuelCell Energy Ltd. (“FCE Ltd.”), our Canadian subsidiary; Waterbury Renewable Energy, LLC (“WRE”); FuelCell Energy Finance, LLC, which was formed for the purpose of financing projects within the U.S.; Eastern Connecticut Fuel Cell Properties, LLC, Killingly Fuel Cell Park, LLC and DFC ERG CT, LLC, which were formed for the purpose of developing projects within Connecticut; UCI Fuel Cell, LLC, Riverside Fuel Cell, LLC and SRJFC, LLC, which were formed for the purpose of developing projects within California; Setauket Fuel Cell Park, LLC, Cedar Creek Fuel Cell, LLC, EPCAL Fuel Cell Park, LLC, Yaphank Fuel Cell Park, LLC and Farmingdale Fuel Cell, LLC which were formed for the purpose of developing projects within New York; FCE Korea Ltd., which was formed to facilitate our business operations in South Korea; and Versa Power Systems, Inc. ("Versa"), a domestic entity, which includes its Canadian subsidiary Versa Power Systems Ltd., a sub-contractor for the Department of Energy ("DOE") large-scale hybrid project to develop a coal-based, multi-megawatt solid oxide fuel cell ("SOFC") based hybrid system. FuelCell Energy Solutions GmbH (“FCES GmbH”), a joint venture with Fraunhofer IKTS (Fraunhofer), facilitates business development in Europe. We have an 89% interest in FCES GmbH and accordingly, the financial results are consolidated with our financial results.subsidiaries. All intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to conform to the fiscal year 2017 presentation. The Company has adopted Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest effective January 31, 2017, and retrospective application is required which resulted in a reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $0.3 million of debt issuance costs from Current assets to be a direct deduction from Current portion of long-term debt and a reclassification of $1.1 million of debt issuance costs from Other assets, net to be a direct deduction from Long-term debt and other liabilities. The Company has also included an additional line item, “Generation,” in the “Revenues” and “Cost of revenues” sections of the Statements of Operations to include revenues generated from the Company’s project assets (refer to the Revenue Recognition section below for more information). The prior year amounts to conformassociated with power purchase agreements have been reclassified to the current year presentation. Prior year project assets have been reclassed on the Consolidated Balance Sheets from Property, plant and equipment, net to Project assets noncurrent, Expenditures for long-term project assets for the year ended October 31, 2014 has been reclassed on the Consolidated Statement of Cash Flows from Capital expenditures and foreign currency transactions gains for the years ended October 31, 2014 and 2013 have been reclassed on the Consolidated Statement of Cash Flows from Other non-cash transactions to Foreign currency transaction gains.
Significant Accounting Policies
Cash and Cash Equivalents and Restricted Cash
All cash equivalents consist of investments in money market funds with original maturities of three months or less at date of acquisition. We place our temporary cash investments with high credit quality financial institutions. AtAs of October 31, 2015, $26.92017, $38.2 million of cash and cash equivalents was pledged as collateral for letters of credit and for certain banking requirements and contractual commitments, compared to $25.1$34.1 million pledged atas of October 31, 2014.2016. The restricted cash balance includes $15.0 million as of October 31, 2017 and 2016, which has been placed in a Grantor's Trust account to secure certain FCE obligations of the Company under a 15-year service agreement for the Bridgeport Fuel Cell Park project and has been classified as Restricted cash and cash equivalents - long-term. AtAs of October 31, 20152017 and 2014,2016, we had outstanding letters of credit of
Inventories and Advance Payments to Vendors
Inventories consist principally of raw materials and work-in-process. Cost is determined using the first-in, first-out cost method. In certain circumstances, we will make advance payments to vendors for future inventory deliveries. These advance payments are recorded as otherOther current assets on the consolidated balance sheets.
Inventories are reviewed to determine if valuation allowances are required for obsolescence (excess obsolete, and slow-moving inventory)obsolete). This review includes analyzing inventory levels of individual parts considering the current design of our products
and production requirements as well as the expected inventory requirements for maintenance on installed power plants.
Project Assets
Project assets consist primarily of capitalized costs for fuel cell projects in various stages of development, whereby the Company haswe have entered into power purchase agreements prior to entering into a definitive sales or long-term financing agreement for the project.project, or of capitalized costs for fuel cell projects which are the subject of a sale-leaseback transaction with PNC or projects in development for which we expect to secure long-term contracts. These projects are actively being marketed and intended to be sold, although we may choose to retain ownership of one or more of these projects after they become operational if we determine it would be of economic and strategic benefit. Additionally, Project assets include capitalized costs for fuel cell projects which are the subject of a sale-leaseback transaction (see "Sale-Leaseback Facility" below). Project asset costs include costs for developing and constructing a complete turn-key fuel cell project. Development costs can include legal, consulting, permitting, interconnect, and other similar costs. Once we enter into a definitive sales agreement we expense project assets to cost of sales after the respective project asset is sold to a customer and all revenue recognition criteria have been met. We classify project assets as current if the expected commercial operation date is less than twelve months and long-term if it is greater than twelve months from the balance sheet date. The current portion ofThere were no short-term project assets are currently held for sale, however, should the Company elect to retain a project asset, it will be classified as long-term upon such election.of October 31, 2017. We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. When property is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations for the period.
Intellectual Property
Intellectual property, including internally generated patents and know-how, is carried at no value.
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination and is reviewed for impairment at least annually.
Accounting Standards Codification Topic 350, "Intangibles - Goodwill and Other", (ASC 350)(“ASC 350”) permits the assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the two-step goodwill impairment test required under ASC 350.
The Company completed its annual impairment analysis of goodwill and intangiblethe in-process research & development assets with indefinite lives at(IPR&D) as of July 31, 2015.2017. The goodwill and intangible assets all relate toIPR&D asset are both held by the Company'sCompany’s Versa reporting unit. Goodwill and other indefinite lived intangible assetsthe IPR&D asset are also reviewed for possible impairment whenever changes in conditions indicate that the fair value of a reporting unit isor IPR&D asset are more likely than not below its carrying value. No impairment charges were recorded during any of the years presented.
Impairment of Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable, we compare the carrying amount of an asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No impairment charges were recorded during any of the years presented.
Revenue Recognition
We earn revenue from (i) the sale and installation of fuel cell power plants including site engineering and construction services, (ii) the saleequipment only sales (modules, balance of fuel cell modules,plants (“BOP”), component part kits and spare parts to customers,customers), (iii) site engineering and construction services, (iv) providing servicesperformance under long-term service agreements, (v)(iv) the sale of electricity and other value streams under a power purchase agreement ("PPA"agreements (“PPAs”), (vi) and utility tariffs from project assets retained by the Company, (v) license fees and royalty income from manufacturing and technology transfer agreements, and (vii)(vi) government and customer-sponsored advancedAdvanced Technologies projects.
Given the growing revenue related to PPAs and project assets retained by the Company, beginning in the first quarter of 2017, the Company began classifying such revenues in a separate line item called Generation, and prior period amounts have been reclassified. As further clarification, revenue elements are classified as follows:
Product. Includes the sale and installation of fuel cell power plants and site engineering and construction services, and, the sale of component part kits, modules, BOPs and spare parts to customers.
Service and license. Includes performance under long-term service agreements for power plants owned by third parties and license fees and royalty income from manufacturing and technology projects.
Generation. Includes the sale of electricity under PPAs and utility tariffs from project assets retained by the above items. We assess such contracts to evaluate whether there are multiple deliverables,Company. This also includes revenue received from the sale of other value streams from these assets including the sale of heat, steam and whether the consideration under the arrangement is being appropriately allocated to each of the deliverables.
Advanced Technologies. Includes revenue from customer-sponsored and government-sponsored Advanced Technologies projects.
Our revenue is primarily generated from customers located throughout the U.S., Europe and Asia and from agencies of the U.S. Government. Revenue from power plant construction, module and module kit sales, construction services and component part revenue is recorded as product sales in the consolidated statements of operations. Construction services includes engineering, procurement and construction (EPC) services of the overall fuel cell project. The installation of a power plant at a customer site includes significant site preparation which is included in the EPC component and is required to be completed before integration of the fuel cell power plant. Revenue from service agreements, PPAs and license and royalty revenue is recorded as service and license revenues. Revenue from customer-sponsored advanced technology research and development projects is recorded as advanced technologies contract revenues in the consolidated statements of operations.
For customer contracts for complete DFC Power Plants whichwhere the Company is responsible for supply of equipment and site construction (full turn-key construction project) and has adequate cost history and estimating experience, and thatwith respect to which management believes it can reasonably estimate total contract costs, revenue is recognized under the percentage of completion method of accounting. The use of percentage of completion accounting requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials.total project costs. Our estimates are based upon the professional knowledge and experience of our engineers, project managers and other personnel, who review each long-term contract on a quarterly basis to assess the contract'scontract’s schedule, performance, technical matters and estimated cost at completion. When changes in estimated contract costs are identified, such revisions may result in current period adjustments to revenue.operations applicable to performance in prior periods. Revenues are recognized based on the proportionpercentage of the contract value that incurred costs to date bear to estimated total contract costs, after giving effect to estimates of costs incurred to date relative to total estimated costs at completion as compared to the contract value.complete based on most recent information. For customer contracts for new or significantly customized products, where management does not believe it has the ability to reasonably estimate total contract costs, revenue is recognized using the completed contract method and therefore all revenue and costs for the contract are deferred and not recognized until installation and acceptance of the power plant is complete. For all types of contracts, weWe recognize anticipated contract losses as soon as they become known and estimable. We have recorded an estimated contract loss accrual of
Revenue from equipment only sales where the saleCompany does not have the obligations associated with overall construction of the project (modules, BOPs, fuel cell modules, component part kits and spare parts sales) is recognized upon shipment or title transfer under the terms of the customer contract. Terms for certain contracts provide for a transfer of title and risk of loss to our customers at our factory locations and certain key suppliers upon completion of our contractual requirement to produce products and prepare the products for shipment. A shipment in place may occur in the event that the customer is not ready to take delivery of the products on the contractually specified delivery dates.
In June 2017, an EPC contractor, Hanyang Industrial Development Co., Ltd (“HYD”), was awarded a 20 MW project by a utility in South Korea (Korea Southern Power Company) utilizing the Company’s SureSource technology. On August 29, 2017, the Company entered into a contract with HYD pursuant to which the Company will provide equipment to HYD for this 20 MW fuel cell project as well as ancillary services including plant commissioning. Construction began in fall 2017 and constructionthe installation is expected to be operational in the summer of 2018. The value of the contract to the Company is in excess of $60 million. The Company assessed the contract using the multi-element revenue recognition guidance and determined that each of the modules and BOPs as well as the ancillary services each represent separate deliverables with stand-alone value. The full contract value was allocated to each element based on estimated selling prices using cost plus expected margins and revenue recognition will occur upon completion of shipping and customer acceptance of each piece of equipment and the proportional performance method is being used for ancillary services as provided. Approximately $39 million of revenue was recognized on a percentagein the fourth quarter of completion basis as costsfiscal 2017 related to this contract. The contract includes performance penalties and partial termination rights if certain delivery dates are incurred.
Revenue from service agreements is generally recorded ratably over the term of the service agreement, as our performance of routine monitoring and maintenance under these service agreements areis generally expected to be incurred on a straight-line basis. For service agreements where we expect to have a module exchangeexchanges at some point during the term (generally service agreements in excess of five years), the costs of performance are not expected to be incurred on a straight-line basis, and therefore, a portion of the initial contract value related to the module exchangeexchange(s) is deferred and is recognized upon such module replacement event.
We generally recognize license fees and other revenue over the term of the associated agreement. License fees and royalty income have been included within revenues on the consolidated statement of operations. The Company receives license fees and royalty income from POSCO Energy as a result of manufacturing and technology transfer agreements entered into in 2007, 2009 and 2012. The Cell Technology Transfer Agreement we entered into on October 31, 2012 provides POSCO Energy with the technology rights to manufacture SureSource power plants in South Korea. On March 17, 2017, the Company entered into a Memorandum of Understanding (“2017 MOU”) with POSCO Energy to permit us to directly develop the Asian fuel cell business, including the right for us to sell SureSource solutions in South Korea and the broader Asian market. We and POSCO Energy also agreed to undertake to amend certain technology transfer and other agreements by a target date of September 30, 2017 to reflect our new relationship. Although these agreements have not yet been amended, we continue to engage in discussions with POSCO Energy regarding our relationship and the direction of the fuel cell business in the South Korean and Asian markets.
Pursuant to the 2017 MOU, the Company commenced marketing the entire suite of SureSource solutions in South Korea as well as the broader Asian markets for the supply, recovery and storage of energy.
Under PPAs and project assets retained by the Company, revenue from the sale of electricity and other value streams is recognized as electricity is provided to the customer. These revenues are classified as a component of generation revenues.
Advanced Technologies contracts include both private industry and government entities. Revenue from funded advanced technology contractsmost government sponsored Advanced Technologies projects is recognized as direct costs are incurred plus allowable overhead less cost share requirements, if any. Revenue from customer funded advanced technologyfixed price Advanced Technologies projects is recognized using percentage of completion accounting. Advanced Technologies programs are generallyoften multi-year projects or structured in phases with subsequent phases dependent on reaching certain milestones prior to additional funding being authorized. Government contracts are typically structured with cost-reimbursement and/or cost-shared type contracts or cooperative agreements. We are reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract or cooperative agreement, and on certain contracts we are reimbursed only a portion of the costs incurred.
Sale-Leaseback Accounting
From time to time, the Company, through a wholly-owned subsidiary, enters into sale-leaseback transactions for commissioned projects where we have entered into a PPA with a customer who is both the site host and end user of
the power (the "Customer"). Due to the Company's continuing involvement with the project and because the projects are considered integral equipment, sale accounting is precluded by ASC 840-40. Accordingly, the Company uses the financing method to account for these transactions.
Under the financing method of accounting for a sale-leaseback, the Company does not recognize as income any of the sale proceeds received from the lessor that contractually constitutes payment to acquire the assets subject to these arrangements. Instead, the sale proceeds received are accounted for as financing obligations and leaseback payments made by the Company are allocated between interest expense and a reduction to the financing obligation. Interest on the financing obligation is calculated using the Company’s incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. Judgment is required to determine the appropriate borrowing rate for the arrangement and in determining any gain or loss on the transaction that would be recorded at the end of the lease term. While advanced technology contracts may extendwe receive financing for many years, fundingthe full value of the related power plant asset, we have not recognized revenue on the sale leaseback transaction. Instead, revenue is often provided incrementally on a year-by-year basis if contract termsrecognized through the sale of electricity and energy credits which are met and funds are authorized.
Warranty and Service Expense Recognition
We warranty our products for a specific period of time against manufacturing or performance defects. Our U.S. warranty is limited to a term generally 15 months after shipment or 12 months after acceptance of our products, except for fuel cell kits. We have agreed to warranty fuel cell kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required.products. We accrue for estimated future warranty costs based on historical experience. We also provide for a specific accrual if there is a known issue requiring repair during the warranty period. Estimates used to record warranty accruals are updated as we gain further operating experience. AtAs of October 31, 20152017 and October 31, 2014,2016, the warranty accrual, which is classified in accrued liabilities on the consolidated balance sheet, totaled $1.0$0.3 million and
In addition to the standard product warranty, we have entered into service agreements with certain customers to provide monitoring, maintenance and repair services for fuel cell power plants. Under the terms of these service agreements, the power plant must meet a minimum operating output during the term. If minimum output falls below the contract requirement, we may be subject to performance penalties or may be required to repair and/or replace the customer's fuel cell module. The Company has accrued for performance guarantees of $2.6$2.2 million and $0.8$3.3 million atas of October 31, 20152017 and 2014,2016, respectively.
The Company provides for loss accruals for all service agreements when the estimated cost of future module exchanges and maintenance and monitoring activities exceeds the remaining contract value. Estimates for future costs on service agreements are determined by a number of factors including the estimated remaining life of the module, used replacement modules available, our limit of liability on service agreements and future operating plans for the power plant. Our estimates are performed on a contract by contract basis and include cost assumptions based on what we anticipate the service requirements will be to fulfill obligations for each contract. AtAs of October 31, 2015,2017, our loss accruals on service agreements totaled $0.8$1.1 million compared to
At the end of our service agreements, customers are expected to either renew the service agreement or based on the Company's rights to title of the module, the module will be returned to the Company as the plant is no longer being monitored or having routine service performed. AtAs of October 31, 2015,2016, the Company did not have an asset related to the residual value of replacement modules in power plants under service agreements was $2.5 million compared to
License Agreements and Royalty Income
The Cell Technology Transfer and License Agreement ("CTTA") we entered into ondated October 31, 2012 by and between the Company and POSCO Energy, Co., (the "CTTA") provides POSCO Energy with the technology to manufacture Direct FuelCellSureSource power plants in South Korea and the exclusive market access to sell power plants throughout Asia. In conjunction with this agreement we amended the 2010 manufacturing and distribution agreement with POSCO Energy and the 2009 License Agreement. The 2012 agreement and the previously referenced amendments contain multiple elements, including the license of technology and market access rights, fuel cell module kit product deliverables, as well as professional service deliverables. We identified these three items as deliverables under the multiple-element arrangement guidance and evaluated the estimated selling prices to allocate the relative fair value to these deliverables, as vendor-specific objective evidence and third-party evidence was not available. The Company's determination of estimated selling prices involves the consideration of several factors based on the specific facts and circumstances of each arrangement. Specifically, the Company considers the cost to produce the tangible product and cost of professional service deliverables, the anticipated margin on those deliverables, prices charged when those deliverables are sold on a stand-alone basis in limited sales, and the Company's ongoing pricing strategy and practices used to negotiate and price overall bundled product, service and license arrangements. We are recognizing the consideration allocated to the license of technology and market access rights as revenue over the 15 year license term on a straight-line basis, and will recognize the amounts allocated to the module kit deliverables and professional service deliverables when such items are delivered to POSCO Energy. We have also determined that based on the utility to the customer of the fully developed technology that was licensed in the Cell Technology Transfer Agreement, there is stand-alone value for this deliverable.
The Company also amended the royalty provisions inreceives royalties from POSCO Energy under the 2007 Technology Transfer, Distribution and Licensing Agreement ("TTA") and the 2009 Stack Technology Transfer and License Agreement ("STTA") revisingat the royalty from
of 3.0%
of POSCO Energy net sales.The STTA also provided for an upfront license fee of
In April 2014, the Company entered into an Integrated Global Supply Chain Plan Agreement ("IGSCP") with POSCO Energy. FuelCell Energy provides procurement services for POSCO Energy and receives fixed compensation as recognized revenue for services rendered.
The Company recorded license and royalty incomerevenue of $3.9$2.7 million, $4.3$6.2 million and $4.1$3.9 million for the years ended October 31, 2015, 20142017, 2016 and 2013,2015, respectively, relating to the above agreements. Future license and royalty income will consist of amortization of the license payments discussed above as well as a
Deferred Revenue and Customer Deposits
We receive payments from customers upon the acceptance of a purchase order and when contractual milestones are reached. These payments may be deferred based on the nature of the payment and status of the specific project. Deferred revenue is recognized as revenue in accordance with our revenue recognition policies summarized above.
Research and Development Costs
We perform both customer-sponsored research and development projects based on contractual agreement with customers and company-sponsored research and development projects. Costs incurred for customer-sponsored projects include manufacturing and engineering labor, applicable overhead expenses, materials to build and test prototype units and other costs associated with customer-sponsored research and development contracts. These costs are recorded as Advanced Technologies contract revenues in the consolidated statements of operations.
Costs incurred for company-sponsored research and development projects consist primarily of labor, overhead, materials to build and test prototype units and consulting fees. These costs are recorded as research and development expenses in the consolidated statements of operations.
Concentrations
We contract with a concentrated number of customers for the sale of our products, for service agreement contracts and for advanced technologiesAdvanced Technologies contracts. For the years ended October 31, 2015, 20142017, 2016 and 2013,2015, our top customers accounted for 94%78%, 88%75% and 88%90%, respectively, of our total annual consolidated revenue.
The percent of consolidated revenues from each customer for the years ended October 31, 2015, 20142017, 2016 and 2013,2015, respectively, are presented below.
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Hanyang Industrial Development Co., LTD |
|
| 40 | % |
|
| — | % |
|
| — | % |
Dominion Bridgeport Fuel Cell, LLC |
|
| 11 | % |
|
| 6 | % |
|
| 3 | % |
Department of Energy |
|
| 9 | % |
|
| 8 | % |
|
| 5 | % |
ExxonMobil |
|
| 9 | % |
|
| 3 | % |
|
| 1 | % |
POSCO Energy |
|
| 6 | % |
|
| 48 | % |
|
| 67 | % |
Avangrid Holdings (through its various subsidiaries) |
|
| 3 | % |
|
| 10 | % |
|
| 14 | % |
Total |
|
| 78 | % |
|
| 75 | % |
|
| 90 | % |
| 2015 | 2014 | 2013 | |||||||
| POSCO Energy | 67 | % | 69 | % | 54 | % | |||
| The United Illuminating Company | 14 | % | 9 | % | — | % | |||
| Bridgeport Dominion Fuel Cell, LLC | 3 | % | 3 | % | 29 | % | |||
| Department of Energy | 5 | % | 4 | % | 5 | % | |||
| Pepperidge Farms | 3 | % | — | % | — | % | |||
| NRG Energy | 2 | % | 3 | % | — | % | |||
| Total | 94 | % | 88 | % | 88 | % | |||
We do not use derivatives for speculative purposes and through fiscal year end 2015,2017, have not used derivatives for hedging or trading purposes. Our derivative instruments consist of embedded derivatives in our Series 1 Preferred Shares. We account for these derivatives using the fair-value method with changes in fair value recorded to operations. Refer to Note 1213 for additional information.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, excess slow-moving and obsolete inventories, product warranty costs, accruals for service agreement loss accruals,agreements, allowance for uncollectableuncollectible receivables, depreciation and amortization, impairment of goodwill, indefinite-lived intangible assets and long-lived assets, income taxes, and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Foreign Currency Translation
The translation of the financial statements of FuelCell Korea Ltd’s, and FCES GmbH's financial statementsand Versa Power Systems Ltd’s. results in translation gains or losses, which are recorded in accumulated other comprehensive income (loss)loss within stockholders’ equity (deficit).
Our Canadian subsidiary, FCE Ltd., is financially and operationally integrated and the functional currency is the U.S. dollars.dollar. We are subject to foreign currency transaction gains and losses as certain transactions are denominated in foreign currencies. We recognized (losses) gains of $(0.7) million, $0.3 million and $1.7 million
Recently Adopted Accounting Guidance Not Yet Effective
In April 2015,August 2014, the Financial Accounting Standards Board ("FASB"(the “FASB”) issued Accounting Standards Update ("ASU"(“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which requires an entity to evaluate at each reporting period whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures in certain circumstances. The Company adopted the provisions of this ASU for the annual reporting period ended October 31, 2017. The adoption of this update did not have a significant impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest“Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This ASU simplifies the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt instrument, consistent with debt discounts. The amendmentsCompany has adopted ASU 2015-03 effective January 31, 2017 and retrospective application is required which resulted in thisa reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $0.3 million of debt issuance costs from Current assets to be a direct deduction from “Current portion of long-term debt” and a reclassification of $1.1 million of debt issuance costs from “Other assets” to be a direct deduction from Long-term debt and other liabilities.
In January 2017, the FASB issued ASU are2017-01, “Business Combinations.” ASU 2017-01 was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company has elected to early adopt ASU 2017-01 effective for fiscal years beginning after December 15, 2015 and for interim periods therein. Adoption of this ASU isNovember 1, 2016 which did not expected to have a materialsignificant impact on the Company'sCompany’s consolidated financial position.statements.
Recent Accounting Guidance Not Yet Effective
In May 2014, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for fiscal years, and interim periods within those years beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. In March 2015, the FASB voted to defer the effective date by one year to fiscal years, and interim periods within those fiscal years beginning after December 15, 2017 (first quarter of fiscal year 2019 for the Company), but allow adoption as of the original adoption date. WeThe Company has numerous different revenue sources including the sale and installation of fuel cell power plants, site engineering and construction services, sale of modules, BOPs and spare parts, extended warranty service agreements, sale of electricity under power purchase agreements, license fees and royalty income from manufacturing and technology transfer agreements and customer-sponsored Advanced Technologies projects. This requires application of various revenue recognition methods under current accounting guidance. Although we anticipate that, upon adoption of this new ASU the timing of revenue recognition for certain of our revenue sources might change, we are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize.
In February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (first quarter of fiscal year 2020 for the Company). Early adoption is permitted. The Company has both operating and capital leases (refer to Note 18. Commitments and contingences) as well as sale-leasebacks accounted for under the finance method and may have other arrangements that contain embedded leases as characterized in this ASU. We expect that adoption of this ASU will result in the recognition of right-of-use assets and lease liabilities not currently recorded in our consolidated financial statements under existing accounting guidance. However we are still evaluating all of the Company’s contractual arrangements and the impact that adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.
Note 2. Restructuring
On November 30, 2016, a business restructuring was announced to reduce costs and align production levels with current levels of demand in a manner that is consistent with the Company’s long-term strategic plan.
The Company reduced materials spend as well as implemented various cost control initiatives. The workforce was reduced at both the North American production facility in Torrington, Connecticut, as well as at the corporate offices in Danbury, Connecticut and remote locations. A total of 96 positions, or approximately 17% of the Company’s global workforce, were eliminated. The production rate was reduced to twenty-five MW annually, from the prior rate of fifty MW annually, in order to position for delays in anticipated order flow. This production level is anticipated to be temporary and will be reevaluated as order flow dictates. Restructuring expense relating to eliminated positions of $1.4 million has been recorded and paid for the year ended October 31, 2017, which has been presented on a separate caption in the Consolidated Statement of Operations.
Accounts receivable atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Advanced Technologies (including U.S. Government (1)): |
|
|
|
|
|
|
|
|
Amount billed |
| $ | 1,934 |
|
| $ | 2,463 |
|
Unbilled recoverable costs |
|
| 7,352 |
|
|
| 3,068 |
|
|
|
| 9,286 |
|
|
| 5,531 |
|
Commercial customers: |
|
|
|
|
|
|
|
|
Amount billed |
|
| 41,073 |
|
|
| 5,411 |
|
Unbilled recoverable costs |
|
| 18,162 |
|
|
| 13,651 |
|
|
|
| 59,235 |
|
|
| 19,062 |
|
|
| $ | 68,521 |
|
| $ | 24,593 |
|
(1) | Total U.S. government accounts receivable outstanding as of October 31, 2017 and 2016 is $3.2 million and $2.2 million, respectively. |
| 2015 | 2014 | |||||||
Advanced Technology (including U.S. Government (1)): | ||||||||
| Amount billed | $ | 433 | $ | 2,517 | ||||
| Unbilled recoverable costs | 3,077 | 2,886 | ||||||
| 3,510 | 5,403 | |||||||
| Commercial customers: | ||||||||
| Amount billed | 19,331 | 8,871 | ||||||
| Unbilled recoverable costs | 37,949 | 50,101 | ||||||
| 57,280 | 58,972 | |||||||
| $ | 60,790 | $ | 64,375 | |||||
We bill customers for power plant and module kitpower plant component sales based on certain contractual milestones being reached. We bill service agreements based on the contract price and billing terms of the contracts. Generally, our advanced technologyAdvanced Technologies contracts are billed based on actual recoverable costs incurred, typically in the month subsequent to incurring costs. Some advanced technologyAdvanced Technologies contracts are billed based on contractual milestones or costs incurred. Unbilled recoverable costs relate to revenue recognized on customer contracts that havehas not been billed. Accounts receivable are presented net of an allowance for doubtful accounts of $0.5$0.1 million and $0.1$0.2 million atas of October 31, 20152017 and 2014,2016, respectively.
Accounts receivable from commercial customers (including unbilled recoverable costs) include amounts due from POSCO Energy of $34.4$6.2 million and
Note 3.4. Inventories
Inventories atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Raw materials |
| $ | 20,065 |
|
| $ | 25,286 |
|
Work-in-process (1) |
|
| 54,431 |
|
|
| 48,520 |
|
Inventories |
| $ | 74,496 |
|
| $ | 73,806 |
|
(1) | Work-in-process includes the standard components of inventory used to build the typical modules or module components that are intended to be used in future power plant orders or to service our service agreements. Included in Work-in-process as of October 31, 2017 and 2016 is $46.3 million and $40.6 million, respectively, of completed standard components. |
| 2015 | 2014 | |||||||
| Raw materials | $ | 29,103 | $ | 25,460 | ||||
Work-in-process (1) | 36,651 | 30,435 | ||||||
| Inventories | $ | 65,754 | $ | 55,895 | ||||
Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant. Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build fuel cell stacks and modules, which are subcomponents of a power plant.
Raw materials and work in process are net of reservesa valuation allowance of approximately $0.2 million and $0.8 million as of October 31, 2017 and 2016, respectively.
Project assets as of October 31, 2017 and 2016 were $73.0 million
Depreciation expense for project assets was $4.1 million and $0.7 million for the years ended October 31, 2017 and 2016, respectively. There was no depreciation expense recorded for the year ended October 31, 2015 since there were no project assets in service.
In November 2016, the Company’s wholly-owned subsidiary, FuelCell Energy Finance, LLC (“FuelCell Finance”) entered into a membership interest purchase agreement with GW Power LLC (“Seller”) whereby FuelCell Finance purchased all of the outstanding membership interests in New Britain Renewable Energy, LLC (“NBRE”) from Seller. Seller assigned the NBRE interest to FuelCell Finance free and 2014, respectively.
Project construction costs incurred for the long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows. The proceeds received from the sale and 2014subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the Consolidated Statements of Cash Flows and are classified as a financing obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the Consolidated Balance Sheets (refer to Note 11 for more information).
Note 6. Property, Plant and Equipment
Property, plant and equipment as of October 31, 2017 and 2016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
|
| Estimated Useful Life |
| |||
Land |
| $ | 524 |
|
| $ | 524 |
|
|
| — |
|
Building and improvements |
|
| 9,331 |
|
|
| 9,218 |
|
| 10-26 years |
| |
Machinery, equipment and software |
|
| 91,680 |
|
|
| 87,350 |
|
| 3-8 years |
| |
Furniture and fixtures |
|
| 3,576 |
|
|
| 3,509 |
|
| 10 years |
| |
Construction in progress |
|
| 23,163 |
|
|
| 16,388 |
|
|
| — |
|
|
|
| 128,274 |
|
|
| 116,989 |
|
|
|
|
|
Accumulated depreciation |
|
| (84,709 | ) |
|
| (80,349 | ) |
|
|
|
|
Property, plant and equipment, net |
| $ | 43,565 |
|
| $ | 36,640 |
|
|
|
|
|
| 2015 | 2014 | |||||
| Current project assets | 5,260 | — | ||||
| Long-term project assets | 6,922 | 784 | ||||
| Project assets | 12,182 | 784 | ||||
The Company substantially completed the first phase of its project assets include projects that are currently under constructionto expand the existing 65,000 square foot manufacturing facility in Torrington, Connecticut by the Company underapproximately 102,000 square feet for a PPA. The current portiontotal size of project assets of $5.3 million includes two projects that are under construction by the Company. This balance will fluctuate based on timing of construction and sale of the projects to third parties. The long-term portion of project assets of $6.9 million represents a fuel cell project which was sold under a sales leaseback transaction in December 2015 (see Note 20). The Consolidated Statement of Cash Flows for 2015 reflects all expenditures for project assets within operating activities consistent with the current Balance Sheet classification at the time such expenditures were incurred167,000 square feet during the year.
Depreciation expense for property, plant and equipment at October 31, 2015 and 2014 consisted of the following (in thousands):
| 2015 | 2014 | Estimated Useful Life | |||||||||
| Land | $ | 524 | $ | 524 | — | ||||||
| Building and improvements | 9,263 | 9,117 | 10-26 years | ||||||||
| Machinery, equipment and software | 83,578 | 75,084 | 3-8 years | ||||||||
| Furniture and fixtures | 3,137 | 2,955 | 10 years | ||||||||
| Power plants for use under PPAs | — | 996 | 3-10 years | ||||||||
| Construction in progress | 9,948 | 10,534 | — | ||||||||
| 106,450 | 99,210 | ||||||||||
| Accumulated depreciation | (77,448 | ) | (73,385 | ) | |||||||
| Property, plant and equipment, net | $ | 29,002 | $ | 25,825 | |||||||
As of October 31, 20152017 and 2014,2016, the Company had goodwill of $4.1 million and intangible assets of $9.6 million associated with the 2012 Versa acquisition. The intangible asset represents indefinite lived in-process research and development.
The Company has completed a qualitative assessment atits annual impairment analysis of goodwill and in-process research and development assets as of July 31, 20152017. The Company performed a quantitative assessment in the prior year and determined that the goodwillestimated fair value of the reporting unit and indefinite-livedin-process research and development intangible asset areexceeded the respective carrying value and therefore no impairment was recognized as of July 31, 2016. The Company performed a qualitative assessment for fiscal year 2017 and determined that it was more likely than not impaired.
Note 7.8. Other Current Assets
Other current assets atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Advance payments to vendors (1) |
| $ | 1,035 |
|
| $ | 1,247 |
|
Deferred finance costs (2) |
|
| 129 |
|
|
| 152 |
|
Notes receivable(3) |
|
| — |
|
|
| 1,007 |
|
Prepaid expenses and other (4) |
|
| 5,407 |
|
|
| 7,775 |
|
|
| $ | 6,571 |
|
| $ | 10,181 |
|
| 2015 | 2014 | |||||||
Advance payments to vendors (1) | $ | 2,281 | $ | 2,372 | ||||
Deferred finance costs (2) | 198 | 129 | ||||||
| Notes receivable | 585 | 529 | ||||||
Prepaid expenses and other (3) | 3,890 | 4,498 | ||||||
| $ | 6,954 | $ | 7,528 | |||||
(1) | |
Advance payments to vendors relate to payments for inventory |
(2) | |
Represents the current portion of direct deferred finance costs |
(3) | Represents a note receivable from NBRE prior to the acquisition in November 2016 discussed in Note 5. |
(4) | Primarily relates to other prepaid vendor expenses including insurance, rent and lease payments. |
Note 8.9. Other Assets, net
Other assets, net atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Long-term accounts receivable (1) |
| $ | — |
|
| $ | 8,353 |
|
Long-term unbilled recoverable costs (2) |
|
| 12,806 |
|
|
| 5,714 |
|
Deferred finance costs (3) |
|
| 97 |
|
|
| 225 |
|
Long-term stack residual value (4) |
|
| 987 |
|
|
| — |
|
Other (5) |
|
| 2,627 |
|
|
| 2,123 |
|
Other assets, net |
| $ | 16,517 |
|
| $ | 16,415 |
|
| 2015 | 2014 | |||||||
Long-term stack residual value (1) | $ | 2,509 | $ | 2,725 | ||||
Deferred finance costs(2) | $ | 354 | $ | 483 | ||||
| Other | 279 | 521 | ||||||
| Other assets, net | $ | 3,142 | $ | 3,729 | ||||
(1) | The balance as of October 31, 2016 represents receivables which were subsequently collected and relate to project and stack replacement reserve accounts for a sale-leaseback transaction. As of October 31, 2017, the funds were recorded as long-term restricted cash. |
(2) | Represents unbilled recoverable costs that relate to revenue recognized on customer contracts that will be billed in future periods in excess of twelve months from the balance sheet date. |
(3) | Represents the long-term portion of direct deferred finance costs relating to the Company’s loan facility with NRG which is being amortized over the five-year life of the facility. |
of the module exchange. The increase from October 31, 2016 represents residual value for two module replacements performed during the year ended October 31, 2017. |
(5) | |
The Company entered into an agreement with one of its customers on June 29, 2016 which includes a fee for the |
Accrued liabilities atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Accrued payroll and employee benefits |
| $ | 5,315 |
|
| $ | 4,183 |
|
Accrued contract loss |
|
| 37 |
|
|
| — |
|
Accrued product warranty costs (1) |
|
| 348 |
|
|
| 516 |
|
Accrued material purchases (2) |
|
| 2,396 |
|
|
| 6,908 |
|
Accrued service agreement costs (3) |
|
| 3,319 |
|
|
| 6,030 |
|
Accrued legal, taxes, professional and other (4) |
|
| 6,966 |
|
|
| 3,263 |
|
|
| $ | 18,381 |
|
| $ | 20,900 |
|
| 2015 | 2014 | |||||||
| Accrued payroll and employee benefits | $ | 3,914 | $ | 4,432 | ||||
| Accrued contract and operating costs | — | 34 | ||||||
Accrued product warranty costs (1) | 964 | 1,156 | ||||||
| Accrued service agreement costs | 3,437 | 3,882 | ||||||
| Accrued taxes, legal, professional and other | 3,292 | 2,562 | ||||||
Accrued material purchases (2) | 7,568 | — | ||||||
| $ | 19,175 | $ | 12,066 | |||||
(1) | |
Activity in the accrued product warranty costs |
(2) | |
The Company acts as a procurement agent for POSCO Energy under |
(3) | Activity in service agreement costs represents a decrease in loss accruals on service contracts of $1.6 million from $2.7 million as of October 31, 2016 to $1.1 million as of October 31, 2017. The decrease primarily relates to module exchanges performed during the year ended October 31, 2017. The accruals for performance guarantees also decreased from $3.3 million as of October 31, 2016 to $2.2 million as of October 31, 2017 resulting from guarantee payments to customers partially offset by additional accruals for the minimum output falling below the contract requirements for certain service agreements. |
(4) | Other includes $4.4 million which represents contractual milestone billings for inventory that will be provided to POSCO Energy within the next twelve months and will not result in revenue recognition. An additional $10.4 million will be billed and collected under this arrangement. |
Debt atas of October 31, 20152017 and 20142016 consisted of the following (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Hercules Loan and Security Agreement |
| $ | 21,468 |
|
| $ | 20,521 |
|
State of Connecticut Loan |
|
| 10,000 |
|
|
| 10,000 |
|
Finance obligation for sale-leaseback transactions |
|
| 46,937 |
|
|
| 41,603 |
|
NRG loan agreement |
|
| - |
|
|
| 1,755 |
|
Connecticut Green Bank Note |
|
| 6,052 |
|
|
| 6,050 |
|
Connecticut Development Authority Note |
|
| 2,349 |
|
|
| 2,589 |
|
New Britain Renewable Energy Term Loan |
|
| 1,697 |
|
|
| — |
|
Capitalized lease obligations |
|
| 632 |
|
|
| 660 |
|
Deferred finance costs |
|
| (1,344 | ) |
|
| (1,408 | ) |
Total debt |
| $ | 87,791 |
|
| $ | 81,770 |
|
Current portion of long-term debt |
|
| (28,281 | ) |
|
| (5,010 | ) |
Long-term debt |
| $ | 59,510 |
|
| $ | 76,760 |
|
| 2015 | 2014 | |||||||
| Revolving credit facility | $ | 2,945 | $ | 945 | ||||
| Connecticut Development Authority Note | 2,817 | 3,033 | ||||||
| Connecticut Clean Energy and Finance Investment Authority Note | 6,052 | 6,052 | ||||||
| NRG loan agreement | 3,763 | — | ||||||
| Capitalized lease obligations | 726 | 721 | ||||||
| Total debt | $ | 16,303 | $ | 10,751 | ||||
| Current portion of long-term debt | (7,358 | ) | (1,439 | ) | ||||
| Long-term debt | $ | 8,945 | $ | 9,312 | ||||
Aggregate annual principal payments under our loan agreements (excluding payments relating to the revolving credit facility) and capital lease obligations for the years subsequent to October 31, 20152017 are as follows (in thousands):
Year 1 |
| $ | 28,583 |
|
Year 2 |
|
| 4,518 |
|
Year 3 |
|
| 4,863 |
|
Year 4 |
|
| 4,057 |
|
Year 5 |
|
| 4,089 |
|
Thereafter |
|
| 43,025 |
|
|
| $ | 89,135 |
|
| Year 1 | $ | 4,412 | |
| Year 2 | 482 | ||
| Year 3 | 2,411 | ||
| Year 4 | — | ||
| Year 5 | — | ||
| Thereafter | 6,053 | ||
| $13,358 | |||
In April 2016, the Company entered into a revolving creditloan and security agreement with Hercules Capital, Inc. (“Hercules”) subject to certain terms and conditions of which the Company drew down $20.0 million during fiscal year 2016. The loan is a 30 month secured facility with JPMorgan Chase Bank, N.A.and the term loan interest was previously 9.5 percent and increased to 9.75 percent resulting from the increase in the prime rate. Interest is paid on a monthly basis. Interest only payments were to be made for the first 18 months as a result of the Company achieving certain milestones. In addition to interest, principal payments commenced on November 1, 2017 in equal monthly installments. The loan balance and all accrued and unpaid interest is due and payable by October 1, 2018. Per the terms of the loan and security agreement, there is an end of term payment of $1.7 million which is being accreted over the 30 month term using the effective interest rate method.
As collateral for obligations under Hercules Agreement, the Company granted Hercules a security interest in FuelCell Energy, Inc.’s existing and hereafter-acquired assets except for intellectual property and certain other excluded assets. Collateral does not include assets held by FuelCell Finance or any project subsidiary thereof. The Company may continue to collateralize and finance its project subsidiaries through other lenders and partners. Under the Hercules Agreement, as amended, there is a minimum cash covenant which requires the Company to maintain an unrestricted cash balance in accounts subject to an account control agreement in favor of Hercules of at least the greater of (x) (a) 75% of the outstanding loan balance plus (b) the amount of accounts payable (as defined under GAAP) not paid within 90 days of the invoice date and (y) (a) at all times prior to the Stockholder Approval Date (as defined in the Certificate of Designations for the Series C Preferred Stock), $20.0 million and (b) at all times on and after the Stockholder Approval Date, $10.0 million (the "Bank")Stockholder Approval Date was December 14, 2017, which has a total borrowing capacitywas the date on which stockholder approval of $4.0 million. This credit facility replaces the Company's previous credit facility withissuance of certain shares upon the Bank. The credit facility is used for working capital to finance the manufacture and production and subsequent export saleconversion and/or redemption of the Company’s products or services.Series C Preferred Stock was obtained).
In November 2015, the Company closed on a definitive Assistance Agreement with the State of Connecticut and received a disbursement of $10.0 million for the first phase of the expansion project to expand the existing 65,000
square foot manufacturing facility in Torrington, Connecticut by approximately 102,000 square feet for a total size of 167,000 square feet. In conjunction with this financing, the Company entered into a $10.0 million Promissory Note and related security agreement securing the loan with equipment liens and a mortgage on its Danbury, Connecticut location. Pursuant to the terms of the loan, payment of principal is deferred for the first four years. Interest at a fixed rate of 2.0 percent is payable beginning in December 2015. The financing is payable over 15 years, and is predicated on certain terms and conditions, including the forgiveness of up to half of the loan principal if certain job retention and job creation targets are reached. On April 17, 2017, the Company entered into an amendment to the Assistance Agreement extending certain of the job creation target dates by two years to October 28, 2019.
In 2015, the Company entered into an agreement with PNC, whereby the Company’s project finance subsidiaries may enter into sale-leaseback agreements for commissioned projects where we have entered into a PPA with the site host/end-user of produced power. Under the financing method of accounting for a sale-leaseback, the Company does not recognize as income any of the sale proceeds received from the lessor that contractually constitute payment to acquire the assets subject to these arrangements. Instead, the sale proceeds received are accounted for as financing obligations. The outstanding principalfinance obligation balance as of October 31, 2017 was $46.9 million and the increase from the October 31, 2016 balance of $41.6 million includes a sale-leaseback transaction of $5.4 million which was completed in December 2016 and the facility will bearrecognition of imputed interest expense offset by lease payments. New sale-leaseback transactions of $41.5 million were entered into during the year ended October 31, 2016. The sale-leaseback transactions include a fair value purchase option at the optionend of the Company, of either the one-month LIBOR plus 1.5% or the prime rate of JP Morgan Chase. The facility is secured by certain working capital assets and general intangibles, up to the amount of the outstanding facility balance. The credit facility expired on November 28, 2015 in conjunction with the Export-Import Bank charter expiration and the outstanding balance was paid back subsequent to year-end on November 24, 2015. The Export-Import Bank Charter was subsequently renewed andlease term.
In July 2014, the Company, is working with JPMorgan on reinstating the facility.
The Company has a long-term loan agreement with the Company sold $38.0Connecticut Green Bank totaling $5.9 million in aggregate principal amount of 8.0% Senior Unsecured Convertible Notes ("Notes"). During the year ended October 31, 2014, the total $38.0 million of outstanding principal was converted by Note holders and the Company issued 2.04 million shares of common stock. In connection with the conversionsupport of the Notes, the Company recordedBridgeport Fuel Cell Park project. The loan agreement carries an increaseinterest rate of 5.0 percent. Interest only payments commenced in common stockJanuary 2014 and additional paid in capital basedprincipal payments will commence on the carrying valueeighth anniversary of the converted Notesproject’s provisional acceptance date, which included the converted Notes principal, a proportional amount of unamortized debt discount, and a proportional amount of unamortized debt issuance costs. The change of control put redemption and interest make-whole payment upon conversion features embeddedis December 20, 2021, payable in the Notes required bifurcationforty-eight equal monthly installments. Outstanding amounts are secured by future cash flows from the host debt contract. AsBridgeport Fuel Cell Park service agreement.
The Company has a result of the conversion of all the outstanding Notes, there is no remaining derivative balance at October 31, 2014.
In November 2016, in connection with the Company closedacquisition of NBRE, debt with Webster Bank was assumed as a part of the transaction in the amount of $2.3 million. The term loan interest rate is 5.0 percent and payments are due on a long-term loan agreement with the Connecticut Clean Energy and Finance Investment Authority (CEFIA, now known as the CT Green Bank) totaling $5.9 million in support of the Bridgeport Fuel Cell Park project. The loan agreement carries an interest rate of 5.0%. Interest only payments commencedquarterly basis commencing in January 2014 and principal payments will commence on the eighth anniversary2017. The balance outstanding as of the project's provisional acceptance date, which is December 20, 2021, payable in forty eight equal monthly installments. Outstanding amounts are secured by future cash flows from the Bridgeport Fuel Cell Park service agreement.
The Company leases computer equipment under master lease agreements. Lease payment terms are generally
thirty-six months from the date of acceptance for leased equipment.Direct deferred finance costs relate primarily to October 31, 2015,sale-leaseback transactions entered into with PNC which are being amortized over the ten-year term and direct deferred finance costs relating to the Hercules loan and security agreement entered into in April 2016 is being amortized over the 30 month life of the loan.
Authorized Common Stock
In April 2017, the number of authorized shares of the Company's common stock was increased from 75,000,000 to 125,000,000, by vote of the holders of a majority of the outstanding shares of the Company's common stock.
Public Offerings and Outstanding Warrants
On May 3, 2017, the Company completed an underwritten public offering of (i) 12,000,000 shares of its common stock, (ii) Series C warrants to purchase 12,000,000 shares of its common stock and (iii) Series D warrants to purchase 12,000,000 shares of its common stock, for gross proceeds of approximately $15.4 million, at a public offering price of $1.28 per share and accompanying warrants. Total net proceeds to the Company were approximately $13.9 million. The Series C warrants have an exercise price of $1.60 per share and a term of five years. A total of 419,100 shares of common stock were issued during the fourth quarter of fiscal year 2017 upon the exercise of Series C warrants and the Company received total proceeds of $0.7 million. The Series D warrants have an exercise price of $1.28 per share and a term of one year. A total of 9,415,826 shares of common stock were issued during the third and fourth quarters of fiscal year 2017 upon the exercise of Series D warrants and the Company received total proceeds of $12.1 million.
On July 12, 2016, the Company closed on a definitive Assistance Agreementregistered public offering of securities to a single institutional investor pursuant to a placement agent agreement with J.P. Morgan Securities LLC. In conjunction with the Stateoffering the Company issued 7,680,000 Series A Warrants, all of Connecticutwhich remained outstanding as of October 31, 2017, at an exercise price of $5.83 per share. They are initially exercisable beginning on the date that is six months and received $10 million of low-cost financing, to be used forone day after the first phase of our expansionissue date and will expire on the fifth anniversary of the Torrington facility. See Note 20.
On July 30, 2014, the Company enteredissued a warrant to NRG in conjunction with the entry into a Securities Purchase Agreement with NRG and issued 1.2 million shares of common stock to NRG at a per share price of $28.68 for a total purchase price of $35.0 million. The per share price was equal to the per share closing NASDAQ market price on July 29, 2014. In conjunction with the sale of common stockstock. Pursuant to the warrant agreement, NRG had the Company also issued a warrant to NRGright to purchase up to 0.2 million shares of the Company'sCompany’s common stock at an exercise price of $40.2$40.20 per share, expiringshare. The warrants expired on July 30, 2017.
The warrants qualify for permanent equity accounting treatment.
|
| Series A Warrants |
|
| Series B Warrants |
|
| Series C Warrants |
|
| Series D Warrants |
|
| NRG Warrants |
| |||||
Balance as of October 31, 2016 |
|
| 7,680,000 |
|
|
| 3,826,000 |
|
|
| — |
|
|
| — |
|
|
| 166,000 |
|
Warrants issued on May 3, 2017 |
|
|
|
|
|
|
|
|
|
| 12,000,000 |
|
|
| 12,000,000 |
|
|
| — |
|
Warrants exercised |
|
| — |
|
|
| (3,826,000 | ) |
|
| (419,100 | ) |
|
| (9,415,826 | ) |
|
| — |
|
Warrants expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (166,000 | ) |
Balance as of October 31, 2017 |
|
| 7,680,000 |
|
|
| - |
|
|
| 11,580,900 |
|
|
| 2,584,174 |
|
|
| - |
|
Other Common Stock Sales
The Company may sell common stock on the open market from time to time. The proceeds of these sales may be used for general corporate purposes or to pay obligations related to the Company's outstanding Series I1 and Series B preferred shares. During fiscal year 2015the years ended October 31, 2017 and 2014,2016, respectively, the Company sold 1.97.2 million shares and
The Company is authorized to issue up to 250,000 shares of preferred stock, par value $0.01 per share, issuable in one or more series of which shares to date have been issued and designated as Series C Convertible Preferred Stock and 5% Series B Cumulative Convertible Perpetual Preferred Stock.
Series C Preferred Shares
The Company issued an aggregate of 33,500 shares of its Series C Convertible Preferred Stock (“Series C Preferred Stock” and such shares, the “Series C Preferred Shares”), $0.01 par value and $1,000 stated value per share, for net proceeds of $27.9 million on September 5, 2017. Each share of Series C Preferred Stock was sold at a price of $895.52 for gross proceeds of approximately $30.0 million. As of October 31, 2017, there were 33,300 shares of Series C Preferred Stock issued and outstanding with a carrying value of $27.7 million.
The Series C Preferred Shares are convertible into shares of common stock subject to the beneficial ownership limitations provided in the Certificate of Designations for Series C Preferred Stock (the “Certificate of Designations”), at a conversion price equal to $1.84 per share of common stock (“Conversion Price”), subject to adjustment as provided in the Certificate of Designations, at any time at the option of the holder. In the event of a triggering event, as defined in the Certificate of Designations, the Series C Preferred Shares are convertible into shares of common stock at a conversion price of the lower of $1.84 per share and 85% of the lowest volume weighted average price (“VWAP”) of the common stock of the five Trading Days (as such term is defined in the Certificate of Designations) immediately prior to delivery of the applicable conversion notice. The holders will be prohibited from converting Series C Preferred Shares into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would own more than 8.99% of the total number of shares of common stock then issued and outstanding. Each holder has the right to increase its maximum percentage up to 9.99% upon 60 days’ notice to the Company.
On November 1, 2017 and on the sixteenth day and first day of each calendar month thereafter until March 1, 2019, subject to extension in certain circumstances (the “Maturity Date”), inclusive, the Company will redeem the stated value of Series C Preferred Shares in thirty-three equal installments of $1.0 million (each bimonthly amount, an “Installment Amount” and the date of each such payment, an “Installment Date”). The holders will have the ability to defer Installment payments, but not beyond the Maturity Date. In addition, during each period commencing on the 11th trading day prior to an Installment Date and prior to the immediately subsequent Installment Date, the holders may elect to accelerate the conversion of Series C Preferred Shares at then applicable installment conversion price, provided that the holders may not elect to effect any such acceleration during such installment period if either (x) in the aggregate, all the accelerations in such installment period exceeds the sum of three other Installment Amounts, or (y) the number of Series C Preferred Shares subject to prior accelerations exceeds in the aggregate twelve Installment Amounts.
Subject to certain conditions as provided in the Certificate of Designations, the Company may elect to pay the Installment Amounts in cash or shares of common stock or in a combination of cash and shares of common stock.
Installment Amounts paid in shares will be that number of shares of common stock equal to (a) the applicable Installment Amount, to be paid in common stock divided by (b) the least of (i) the then existing conversion price, (ii) 87.5% of the VWAP of the common stock on the trading day immediately prior to the applicable Installment Date, and (iii) 87.5% of the arithmetic average of the two lowest VWAPs of the common stock during the ten consecutive Trading Day period ending and including the Trading Day immediately prior to the applicable Installment Date as applicable, provided that the Company meets standard equity conditions. The Company shall make such election no later than the eleventh trading day immediately prior to the applicable Installment Date.
If the Company elects or is required to effect an Installment Amount in whole or in part in cash, the amount paid will be equal to the 108% of the applicable Installment Amount.
Each holder of the Series C Preferred Shares shall be entitled to receive dividends (i) if no triggering event, as defined in the Certificate of Designations, has occurred and is continuing when and as declared by the Board of Directors, in its sole and absolute discretion or (ii) if a triggering event has occurred and until such triggering event
has been cured, a dividend of 15% per annum based on the holder’s outstanding number of Series C Preferred Shares multiplied by the stated value. There were no triggering events or dividends declared in fiscal year 2017.
In the event of a triggering event, as defined in the Certificate of Designations, the holders of the Series C Preferred Shares can force redemption at a price equal to the greater of (i) the conversion amount to be redeemed multiplied by 125% and (ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as such Holder delivers a Triggering Event Redemption Notice multiplied by (Y) the greatest Closing Sale Price of the common stock on any Trading Day during the period commencing on the date immediately preceding such Triggering Event and ending on the date the Company makes the entire payment required.
In the event of the Company’s liquidation, dissolution, or winding up, prior to distribution to holders of securities ranking junior to the Series C Preferred Shares, holders of Series C Preferred Shares will be entitled to receive the amount of cash, securities or other property equal to the greater of (A) the stated value thereof on the date of such payment plus accrued dividends, if any and (B) the amount per share such holder would receive if such holder converted such Series C Preferred Shares into common stock immediately prior to the date of such payment.
Shares of Series C Preferred Stock rank with respect to dividend rights and rights upon our liquidation, winding up or dissolution:
senior to shares of our common stock;
junior to our debt obligations;
junior to our outstanding Series B Preferred Stock; and
effectively junior to our subsidiaries’ (i) existing and future liabilities and (ii) capital stock held by others.
The holders of the Series C Preferred Shares have no voting rights, except as required by law. Any amendment to the Company’s certificate of incorporation, bylaws or certificate of designation that adversely affects the powers, preferences and rights of the Series C Preferred Shares requires the approval of the holders of a majority of the Series C Preferred Shares then outstanding.
Based on review of pertinent accounting literature including ASC 470 – Debt, ASC 480 - Distinguishing Liabilities from Equity and ASC 815 - Derivative and Hedging, the Series C Preferred Shares are classified as temporary equity on the consolidated balance sheets and recorded at fair value on the issuance date (proceeds from the issuance, net of direct issuance cost). An assessment of the probability of the potential redemption features in the Series C Preferred instrument is performed at each reporting date to determine whether any changes in classification are required. As of October 31, 2017, the Company determined that none of the contingent redemption features were probable. As Series C Preferred Shares are converted to common shares, a proportional reduction in the carrying value will be recorded to equity. For the year ended October 31, 2017, 200 shares of the Series C Preferred Shares were converted to common shares resulting in a reduction of $0.2 million to the carrying value recorded in temporary equity.
Redeemable Series B Preferred Stock
We have
Ranking — Shares of Series B Preferred Stock rank with respect to dividend rights and rights upon our liquidation, winding up or dissolution:
senior to shares of our common stock;
junior to our debt obligations; and
effectively junior to our subsidiaries’ (i) existing and future liabilities and (ii) capital stock held by others.
The dividend rate is subject to upward adjustment as set forth in the Certificate of Designation if we fail to pay, or to set apart funds to pay, any quarterly dividend. The dividend rate is also subject to upward adjustment as set forth in the Registration Rights Agreement entered into with the Initial Purchasers if we fail to satisfy our registration obligations with respect to the Series B Preferred Stock (or the underlying common shares) under the Registration Rights Agreement.
The dividend on the Series B Preferred Stock may be paid in cash; or at the option of the Company, in shares of our common stock, which will be registered pursuant to a registration statement to allow for the immediate sale of these common shares
Liquidation - The Series B Preferred Stock stockholders are entitled to receive, in the event that we are liquidated, dissolved or wound up, whether voluntary or involuntary, $1,000$1,000.00 per share plus all accumulated and unpaid dividends to the date of that liquidation, dissolution, or winding up (“Liquidation Preference”). Until the holders of Series B Preferred Stock receive their Liquidation Preference in full, no payment will be made on any junior shares, including shares of our common stock. After the Liquidation Preference is paid in full, holders of the Series B Preferred Stock will not be entitled to receive any further distribution of our assets. AtAs of October 31, 20152017 and 2014,2016, the Series B Preferred Stock had a Liquidation Preference of $64.0 million.
Conversion Rights - Each Series B Preferred Stock share may be converted at any time, at the option of the holder, into 7.0922 shares of our common stock (which is equivalent to an initial conversion price of $141$141.00 per share) plus cash in lieu of fractional shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as described below, but will not be adjusted for accumulated and unpaid dividends. If converted, holders of Series B Preferred Stock do not receive a cash payment for all accumulated and unpaid dividends; rather, all accumulated and unpaid dividends are canceled.
We may, at our option, cause shares of Series B Preferred Stock to be automatically converted into that number of shares of our common stock that are issuable at the then prevailing conversion rate. We may exercise our conversion right only if the closing price of our common stock exceeds
150% of the then prevailing conversion price ($If holders of Series B Preferred Stock elect to convert their shares in connection with certain fundamental changes, as defined, we will in certain circumstances increase the conversion rate by a number of additional shares of common stock upon conversion or, in lieu thereof, we may in certain circumstances elect to adjust the conversion rate and related conversion obligation so that shares of our Series B Preferred Stock are converted into shares of the acquiring or surviving company, in each case as described in the Certificate of Designation.
The adjustment of the conversion price is to prevent dilution of the interests of the holders of the Series B Preferred Stock from certain dilutive transactions with holders of common stock.
Redemption — We do not have the option to redeem the shares of Series B Preferred Stock. However, holders of the Series B Preferred Stock can require us to redeem all or part of their shares at a redemption price equal to the Liquidation Preference of the shares to be redeemed in the case of a fundamental change, as defined.
We may, at our option, elect to pay the redemption price in cash or in shares of our common stock, valued at a discount of
5% from the market price of shares of our common stock, or any combination thereof. Notwithstanding the foregoing, we may only pay such redemption price in shares of ourcommon stock that are registered under the Securities Act of 1933 and eligible for immediate sale in the public market by non-affiliates of the Company.
Voting Rights - Holders of Series B Preferred Stock currently have no voting rights.
Class A Cumulative Redeemable Exchangeable Preferred Shares agreement (the “Series 1 preferred share agreement”Preferred Shares”)
FuelCell Energy Ltd. (“FCE Ltd”), the Company's wholly owned subsidiary, has 1,000,000 Class A Cumulative Redeemable Exchangeable Preferred Shares (the “Series 1 Preferred Shares”) between FCE Ltd, a wholly-owned subsidiary ofoutstanding, which are held by Enbridge, Inc. ("Enbridge"). FuelCell and Enbridge, the sole holder of the Series 1 preferred shares. Consistent with the previous Series 1 preferred share agreement, FuelCell continues to guaranteeguarantees the return of principal and dividend obligations of FCE Ltd. to the holders of Series 1 preferred shareholders under the modified agreement.
The modified terms of the Series 1 Preferred Shares provides forincludes payments of (i) annual dividend payments of Cdn.
Because the Series 1 Preferred Shares provisions.
The Company made its scheduled payments of Cdn. $1.3 million during each of fiscal yearsyear 2017, 2016 and 2015, 2014 and 2013, under the terms of the modified agreement, including the recording ofagreement. The Company also recorded interest expense, which reflects the amortization of the fair value discount of approximately Cdn. $2.3$2.6 million, Cdn. $2.1$2.4 million and Cdn. $2.0$2.3 million, respectively. AtAs of October 31, 20152017 and 2014,2016, the carrying value of the Series 1 Preferred shares was Cdn. $16.9$19.4 million ($12.915.1 million) and Cdn. 15.8$18.0 million ($14.213.5 million), respectively and is classified as preferred stock obligation of subsidiary on the consolidated balance sheets.
In addition to the above, the significant terms of the Series 1 Preferred Shares include the following:
Voting Rights —The holders of the Series 1 Preferred Shares are not entitled to any voting rights.
Dividends — Dividend payments can be made in cash or common stock of the Company, at the option of FCE Ltd., and if common stock is issued it may be unregistered. If FCE Ltd. elects to make such payments by issuing common stock of the Company, the number of common shares is determined by dividing the cash dividend obligation by 95% of the volume weighted average price in USU.S. dollars at which board lots of the common shares have been traded on NASDAQ during the 20 consecutive trading days preceding the end of the calendar quarter for which such dividend in common shares is to be paid converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on the day of determination.
Redemption — The Series 1 Preferred Shares are redeemable by FCE Ltd. for Cdn. $25$25.00 per share less any amounts paid as a return of capital in respect of such share plus all unpaid dividends and accrued interest. Holders of the Series 1 Preferred Shares do not have any mandatory or conditional redemption rights.
Liquidation or Dissolution — In the event of the liquidation or dissolution of FCE Ltd., the holders of Series 1 Preferred Shares will be entitled to receive Cdn. $25$25.00 per share less any amounts paid as a return of capital in respect of such share plus all unpaid dividends and accrued interest. The Company has guaranteed any liquidation obligations of FCE Ltd.
Exchange Rights — A holder of Series 1 Preferred Shares has the right to exchange such shares for fully paid and non-assessable common stock of the Company at the following exchange prices:
Cdn.
at any time after July 31, 2020, at a price equal to
95% of the then current market price (in Cdn. $) of the Company’s common stock at the time of conversion.The exchange rates set forth above shall be adjusted if the Company: (i) subdivides or consolidates the common stock; (ii) pays a stock dividend; (iii) issues rights, options or other convertible securities to the Company's common stockholders enabling them to acquire common stock at a price less than 95% of the then-current price; or (iv) fixes a record date to distribute to the Company's common stockholders shares of any other class of securities, indebtedness or assets.
Derivative liability related to Series 1 Preferred Shares
The conversion feature and variable dividend contained in the terms of the Series 1 Preferred Shares are not clearly and closely related to the characteristics of the Series 1 Preferred Shares. Accordingly, these features qualify as embedded derivative instruments and are required to be bifurcated and recorded as derivative financial instruments at fair value.
The conversion feature is valued using a lattice model. Based on the pay-off profiles of the Series 1 Preferred Shares, it is assumed that we will exercise the call option to force conversion in 2020. Conversion after 2020 delivers a fixed pay-off to the investor, and is modeled as a fixed payment in 2020. The cumulative dividend is modeled as a quarterly cash dividend component (to satisfy minimum dividend payment requirement), and a one-time cumulative dividend payment in 2020.
The variable dividend is valued using a Monte Carlo simulation model.
The assumptions used in these valuation models include historical stock price volatility, risk-free interest rate and a credit spread based on the yield indexes of technology high yield bonds, foreign exchange volatility as the security is denominated in Canadian dollars, and the closing price of our common stock. The aggregate fair value of these derivatives included within long-term debt and other liabilities on the consolidated balance sheets atas of October 31, 20152017 and 20142016 was $0.8 million and $0.7 million.
Note 13.14. Segment Information
We are engaged in the development, design, production, construction and servicing of high temperature fuel cells for clean electric power generation. Critical to the success of our business is, among other things, our research and development efforts, both through customer-sponsored projects and Company-sponsored projects. The research and development activities are viewed as another product line that contributes to the development, design, production and sale of fuel cell products, however, it is not considered a separate operating segment. Due to the nature of the internal financial and operational reports reviewed by theThe chief operating decision maker who does not review and assess financial information at a discrete enough level to be able to assess performance of research and development activities as if it operated as a standalone business segment, we have identified one business segment: fuel cell power plant production and research.
Revenues, by geographic location (based on the customer’s ordering location) for the years ended October 31, 2015, 20142017, 2016 and 20132015 were as follows (in thousands):
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
United States |
| $ | 47,539 |
|
| $ | 48,697 |
|
| $ | 52,109 |
|
South Korea |
|
| 44,217 |
|
|
| 52,007 |
|
|
| 109,953 |
|
England |
|
| 368 |
|
|
| 277 |
|
|
| 142 |
|
Germany |
|
| 2,740 |
|
|
| 7,147 |
|
|
| 764 |
|
Canada |
|
| 729 |
|
|
| 124 |
|
|
| — |
|
Spain |
|
| 73 |
|
|
| — |
|
|
| 109 |
|
Total |
| $ | 95,666 |
|
| $ | 108,252 |
|
| $ | 163,077 |
|
| 2015 | 2014 | 2013 | ||||||||||
| United States | $ | 52,109 | $ | 52,765 | $ | 80,199 | ||||||
| South Korea | 109,953 | 124,669 | 101,928 | |||||||||
| England | 142 | 119 | 2,036 | |||||||||
| Germany | 764 | 869 | 1,503 | |||||||||
| Canada | — | 820 | 1,912 | |||||||||
| Spain | 109 | 1,051 | 80 | |||||||||
| Total | $ | 163,077 | $ | 180,293 | $ | 187,658 | ||||||
Service agreement revenue which is included within Service agreements and license revenues on the consolidated statement of operations was $16.3$24.4 million, $21.7$26.6 million and $24.0$16.3 million, for the years ended October 31, 2017, 2016 and 2015, 2014 and 2013, respectively.
Long-lived assets located outside of the United States atas of October 31, 20152017 and 20142016 are not significant individually or in the aggregate.
Note 14.15. Benefit Plans
We have shareholderstockholder approved equity incentive plans, a shareholderstockholder approved Section 423 Stock Purchase Plan (the “ESPP”) and an employee tax-deferred savings plan, which are described in more detail below.
Equity Incentive Plans
The Board adopted the 2006 andCompany has a 2010 Equity Incentive Plans (collectively,Plan. In April 2017, the “Equity Plans”). Pursuant to the Equity Plans,
The Company's 1998 and 2006 Equity Incentive Plan remainsPlans remain in effect only to the extent of awards outstanding under the plan atas of October 31, 2015.
Share-based compensation was reflected in the consolidated statements of operations as follows (in thousands):
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cost of revenues |
| $ | 1,050 |
|
| $ | 745 |
|
| $ | 769 |
|
General and administrative expense |
|
| 2,721 |
|
|
| 2,110 |
|
|
| 1,990 |
|
Research and development expense |
|
| 679 |
|
|
| 504 |
|
|
| 360 |
|
|
| $ | 4,450 |
|
| $ | 3,359 |
|
| $ | 3,119 |
|
| 2015 | 2014 | 2013 | ||||||||||
| Cost of revenues | $ | 769 | $ | 751 | $ | 584 | ||||||
| General and administrative expense | 1,990 | 1,718 | 1,325 | |||||||||
| Research and development expense | 360 | 436 | 308 | |||||||||
| $ | 3,119 | $ | 2,905 | $ | 2,217 | |||||||
Stock Options
We account for stock options awarded to employees and non-employee directors under the fair value method. The fair value of stock options is estimated on the grant date using the Black-Scholes option valuation model and the following weighted-average assumptions:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Expected life (in years) |
|
| 7.0 |
|
|
| 7.0 |
|
|
| 7.0 |
|
Risk free interest rate |
|
| 2.2 | % |
|
| 1.5 | % |
|
| 1.7 | % |
Volatility |
|
| 79.5 | % |
|
| 80.1 | % |
|
| 80.3 | % |
Dividend yield |
|
| — | % |
|
| — | % |
|
| — | % |
| 2015 | 2014 | 2013 | |||||||
| Expected life (in years) | 7.0 | 7.0 | 7.0 | ||||||
| Risk free interest rate | 1.7 | % | 2.3 | % | 1.2 | % | |||
| Volatility | 80.3 | % | 81.1 | % | 76.5 | % | |||
| Dividends yield | — | % | — | % | — | % | |||
The expected life is the period over which our employees are expected to hold the options and is based on historical data for similar grants. The risk free interest rate is based on the expected U.S. Treasury rate over the expected life. Expected volatility is based on the historical volatility of our stock. Dividend yield is based on our expected dividend payments over the expected life.
The following table summarizes our stock option activity for the year ended October 31, 2015:2017:
|
|
|
|
|
| Weighted- Average Option |
| |
Options |
| Shares |
|
| Price |
| ||
Outstanding as of October 31, 2016 |
|
| 246,923 |
|
| $ | 44.88 |
|
Granted |
|
| 103,819 |
|
| $ | 1.50 |
|
Canceled |
|
| (40,792 | ) |
| $ | 94.63 |
|
Outstanding as of October 31, 2017 |
|
| 309,950 |
|
| $ | 23.81 |
|
Weighted- Average Option | |||||||
| Options | Shares | Price | |||||
| Outstanding at October 31, 2014 | 252,340 | $ | 77.04 | ||||
| Granted | 31,106 | $ | 13.24 | ||||
| Canceled | (25,677 | ) | $ | 102.22 | |||
| Outstanding at October 31, 2015 | 257,769 | $ | 57.89 | ||||
The weighted average grant-date fair value per share for options granted during the years ended October 31, 2017, 2016 and 2015 2014was $1.50, $6.44 and 2013 was
The following table summarizes information about stock options outstanding and exercisable atas of October 31, 2015:2017:
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Average |
|
| Weighted |
|
|
|
|
|
| Weighted |
| |||
|
|
|
|
|
| Remaining |
|
| Average |
|
|
|
|
|
| Average |
| |||
Range of |
| Number |
|
| Contractual |
|
| Exercise |
|
| Number |
|
| Exercise |
| |||||
Exercise Prices |
| outstanding |
|
| Life |
|
| Price |
|
| exercisable |
|
| Price |
| |||||
$0.00 — $3.23 |
|
| 103,819 |
|
|
| 9.4 |
|
| $ | 1.50 |
|
|
| 77,865 |
|
| $ | 1.50 |
|
$3.24 — $61.20 |
|
| 165,164 |
|
|
| 5.2 |
|
| $ | 18.72 |
|
|
| 161,832 |
|
| $ | 18.86 |
|
$61.21 — $119.04 |
|
| 40,833 |
|
|
| 0.3 |
|
| $ | 100.78 |
|
|
| 40,833 |
|
| $ | 100.78 |
|
$119.05 — $176.88 |
|
| 134 |
|
|
| 0.6 |
|
| $ | 121.56 |
|
|
| 134 |
|
| $ | 121.56 |
|
|
|
| 309,950 |
|
|
| 6.0 |
|
| $ | 23.81 |
|
|
| 280,664 |
|
| $ | 26.00 |
|
| Options Outstanding | Options Exercisable | |||||||||||||||
Weighted Average | Weighted Average | Weighted Average | ||||||||||||||
| Range of | Number | Remaining | Exercise | Number | Exercise | |||||||||||
| Exercise Prices | outstanding | Contractual Life | Price | exercisable | Price | |||||||||||
| $3.24 — $61.20 | 144,495 | 6.7 | $ | 20.64 | 128,392 | $ | 21.72 | |||||||||
| $61.21 — $119.04 | 81,546 | 1.8 | $ | 96.85 | 81,546 | $ | 96.85 | |||||||||
| $119.05 — $176.88 | 31,728 | 0.6 | $ | 127.42 | 31,728 | $ | 127.42 | |||||||||
| 257,769 | 4.4 | $ | 57.89 | 241,666 | $ | 60.95 | ||||||||||
The intrinsic value for options outstanding and exercisable at October 31, 2015.
Restricted Stock Awards and Units
The following table summarizes our RSA and RSU activity for the year ended October 31, 2015:2017:
|
|
|
|
|
| Weighted- Average |
| |
Restricted Stock Awards and Units |
| Shares |
|
| Fair Value |
| ||
Outstanding as of October 31, 2016 |
|
| 990,035 |
|
|
| 9.52 |
|
Granted |
|
| 2,510,216 |
|
|
| 1.48 |
|
Vested |
|
| 392,458 |
|
|
| 12.39 |
|
Forfeited |
|
| 99,107 |
|
|
| 6.62 |
|
Outstanding as of October 31, 2017 |
|
| 3,008,686 |
|
|
| 2.52 |
|
Weighted- Average | ||||||
| Restricted Stock Awards and Units | Shares | Price | ||||
| Outstanding at October 31, 2014 | 393,673 | 17.88 | ||||
| Granted | 253,902 | 15.26 | ||||
| Vested | (148,920 | ) | 17.51 | |||
| Forfeited | (15,085 | ) | 17.31 | |||
| Outstanding at October 31, 2015 | 483,570 | 16.67 | ||||
RSA and RSU expense is based on the fair value of the award at the date of grant and is amortized over the vesting period, which is generally fourover 3 or 4 years. AtAs of October 31, 2015,2017, the
As of October 31, 2015,2017, total unrecognized compensation cost related to nonvested stock options and RSAs including RSUs was
During the years ended October 31, 2015, 20142017, 2016 and 2013,2015, we awarded 2,399, 97986,001, 24,379 and 2,4822,399 shares, respectively, of fully vested, unrestricted common stock to the independent members of our board of directors as a component of board of director compensation which resulted in recognizing $0.1 million, or less$0.2 million and $0.1 million of expense for each of the respective years.
Employee Stock Purchase Plan
Under the ESPP, eligible employees have the right to purchase shares of common stock at the lesser of (i)
85% of the last reported sale price of our common stock on the first business day of the offering period, or (ii) 85% of the last reported sale price of the common stock on the last business day of the offering period, in either case rounded up to avoid impermissible trading fractions. Shares issued pursuant to the ESPP contain a legend restricting the transfer or sale of such common stock for a period ofESPP activity for the year ended October 31, 20152017 was as follows:
Number of | ||||
ESPP | Shares | |||
Balance as of October 31, 2016 | 62,226 | |||
Issued at $2.85 per share | (25,988 | ) | ||
Issued at | (36,168 | ) | ||
Available for issuance | ||||
70 | ||||
The fair value of shares under the ESPP was determined at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Expected life (in years) |
|
| 0.5 |
|
|
| 0.5 |
|
|
| 0.5 |
|
Risk free interest rate |
|
| 0.46 | % |
|
| 0.30 | % |
|
| 0.07 | % |
Volatility |
|
| 75.0 | % |
|
| 37.0 | % |
|
| 72.0 | % |
Dividends yield |
| —% |
|
| —% |
|
| —% |
| |||
| 2015 | 2014 | 2013 | |||||||
| Expected life (in years) | 0.5 | 0.5 | 0.5 | ||||||
| Risk free interest rate | 0.07 | % | 0.08 | % | 0.15 | % | |||
| Volatility | 72.0 | % | 75.0 | % | 75.0 | % | |||
| Dividends yield | — | % | — | % | — | % | |||
The weighted-average fair value of shares issued under the ESPP during fiscal year 20152017 and 2016 was
The ESPP was suspended as of May 1, 2017 because we did not have sufficient shares of common stock available for issuance.
Employee Tax-Deferred Savings Plans
We offer a 401(k) plan (the “Plan”) to all full time employees that provides for tax-deferred salary deductions for eligible employees (beginning the first month following an employee’s hire date). Employees may choose to make voluntary contributions of their annual compensation to the Plan, limited to an annual maximum amount as set periodically by the Internal Revenue Service. Employee contributions are fully vested when made. Under the Plan, there is no option available to the employee to receive or purchase our common stock. Matching contributions of 2% under the Plan aggregated $0.4$0.5 million, $0.3$0.6 million and $0.3$0.4 million for the years ended October 31, 2017, 2016, and 2015, 2014, and 2013, respectively.
The components of loss from continuing operations before income taxes for the years ended October 31, 2015, 2014,2017, 2016, and 20132015 were as follows (in thousands):
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
U.S. |
| $ | (49,723 | ) |
| $ | (46,708 | ) |
| $ | (26,459 | ) |
Foreign |
|
| (4,136 | ) |
|
| (3,981 | ) |
|
| (2,951 | ) |
Loss before income taxes |
| $ | (53,859 | ) |
| $ | (50,689 | ) |
| $ | (29,410 | ) |
| 2015 | 2014 | 2013 | ||||||||||
| U.S. | $ | (26,459 | ) | $ | (35,167 | ) | $ | (31,044 | ) | |||
| Foreign | (2,951 | ) | (3,228 | ) | (3,904 | ) | ||||||
| Loss before income taxes | $ | (29,410 | ) | $ | (38,395 | ) | $ | (34,948 | ) | |||
There was current income tax expense of $0.3$0.04 million, $0.5 million and $0.4$0.3 million related to foreign withholding taxes and income taxes in South Korea and no deferred federal income tax expense (benefit) for the years ended October 31, 2015, 20142017, 2016 and 2013.2015. Franchise tax expense, which is included in administrative and selling expenses, was $0.5 million, $0.4 million and $0.2 million for each of the years ended October 31, 2017, 2016 and 2015, 2014 and 2013.
The reconciliation of the federal statutory income tax rate to our effective income tax rate for the years ended October 31, 2015, 20142017, 2016 and 20132015 was as follows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Statutory federal income tax rate |
|
| (34.0 | )% |
|
| (34.0 | )% |
|
| (34.0 | )% |
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of Federal benefits |
|
| (1.3 | )% |
|
| (0.2 | )% |
|
| (0.1 | )% |
Foreign withholding tax |
|
| 0.1 | % |
|
| 1.1 | % |
|
| 0.9 | % |
Net operating loss adjustment and true-ups |
|
| (4.6 | )% |
|
| 3.3 | % |
|
| 4.7 | % |
Nondeductible expenditures |
|
| 1.9 | % |
|
| 0.9 | % |
|
| 0.1 | % |
Change in state tax rate |
|
| (0.8 | )% |
|
| (0.3 | )% |
|
| 1.6 | % |
Other, net |
|
| 0.6 | % |
|
| 0.2 | % |
|
| 0.4 | % |
Valuation allowance |
|
| 38.2 | % |
|
| 30.1 | % |
|
| 27.3 | % |
Effective income tax rate |
|
| 0.1 | % |
|
| 1.1 | % |
|
| 0.9 | % |
| 2015 | 2014 | 2013 | |||||||
| Statutory federal income tax rate | (34.0 | )% | (34.0 | )% | (34.0 | )% | |||
| Increase (decrease) in income taxes resulting from: | |||||||||
| State taxes, net of Federal benefits | (0.1 | )% | (1.8 | )% | (1.7 | )% | |||
| Foreign withholding tax | 0.9 | % | 1.0 | % | 0.9 | % | |||
| Net operating loss adjustment and true-ups | 4.7 | % | (25.4 | )% | 0.1 | % | |||
| Nondeductible expenditures | 0.1 | % | 14.5 | % | 0.8 | % | |||
| Change in state tax rate | 1.6 | % | (0.8 | )% | 10.5 | % | |||
| Other, net | 0.4 | % | 0.4 | % | 4.1 | % | |||
| Valuation allowance | 27.3 | % | 47.1 | % | 20.3 | % | |||
| Effective income tax rate | 0.9 | % | 1.0 | % | 1.0 | % | |||
Our deferred tax assets and liabilities consisted of the following at October 31, 20152017 and 20142016 (in thousands):
|
| 2017 |
|
| 2016 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Compensation and benefit accruals |
| $ | 11,158 |
|
| $ | 9,625 |
|
Bad debt and other allowances |
|
| 605 |
|
|
| 1,276 |
|
Capital loss and tax credit carry-forwards |
|
| 13,398 |
|
|
| 12,772 |
|
Net operating losses (domestic and foreign) |
|
| 282,022 |
|
|
| 265,799 |
|
Deferred license revenue |
|
| 7,850 |
|
|
| 8,616 |
|
Inventory valuation allowances |
|
| 111 |
|
|
| 278 |
|
Accumulated depreciation |
|
| 5,095 |
|
|
| 4,653 |
|
Grant revenue |
|
| 1,522 |
|
|
| 1,327 |
|
Gross deferred tax assets: |
|
| 321,761 |
|
|
| 304,346 |
|
Valuation allowance |
|
| (321,761 | ) |
|
| (304,346 | ) |
Deferred tax assets after valuation allowance |
|
| — |
|
|
| — |
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
In process research and development |
|
| (3,377 | ) |
|
| (3,377 | ) |
Net deferred tax liability |
| $ | (3,377 | ) |
| $ | (3,377 | ) |
| 2015 | 2014 | |||||||
| Deferred tax assets: | ||||||||
| Compensation and benefit accruals | $ | 8,389 | $ | 7,591 | ||||
| Bad debt and other allowances | 1,109 | 1,859 | ||||||
| Capital loss and tax credit carry-forwards | 12,998 | 13,486 | ||||||
| Net operating losses (domestic and foreign) | 257,373 | 247,170 | ||||||
| Deferred license revenue | 9,313 | 8,894 | ||||||
| Inventory valuation allowances | 77 | 521 | ||||||
| Investment in partnerships | — | 404 | ||||||
| Accumulated depreciation | 535 | 590 | ||||||
| Gross deferred tax assets: | 289,794 | 280,515 | ||||||
| Valuation allowance | (289,794 | ) | (280,515 | ) | ||||
| Deferred tax assets after valuation allowance | — | — | ||||||
| Deferred tax liability: | ||||||||
| In process research and development | (3,377 | ) | (3,377 | ) | ||||
| Net deferred tax liability | $ | (3,377 | ) | $ | (3,377 | ) | ||
We continually evaluate our deferred tax assets as to whether it is “more likely than not” that the deferred tax assets will be realized. In assessing the realizability of our deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based on the projections for future taxable income over the periods in which the deferred tax assets are realizable, management
believes that significant uncertainty exists surrounding the recoverability of the deferred tax assets. As a result, we recorded a full valuation allowance against our deferred tax assets. Approximately $4.6 millionNone of the valuation allowance will reduce additional paid in capital upon subsequent recognition of any related tax benefits.
As of October 31, 2015,2017, we had federal and state NOL carryforwards of $721.0$752.7 million and $406.0$414.7 million, respectively, for which a portion of thewhich ($7.4 million and $6.3 million of federal and state NOL hascarryforwards, respectively) have not been recognized in connection withas they relate to windfall benefits arising from share-based compensation. The Federalfederal NOL carryforwards expire in varying amounts from 20202019 through 20352037 while state NOL carryforwards expire in varying amounts from fiscal year 20152018 through 2035.2037. Additionally, we had $11$11.6 million of state tax credits available, of which $1.0$0.6 million expires in fiscal year 2018. The remaining credits do not expire.
Certain transactions involving the Company’s beneficial ownership occurred in fiscal year 2014 and prior years, which could have resulted in a stock ownership change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended. We have completed a detailed Section 382 study in fiscal year 20152017 to determine if any of our NOL and credit carryovers will be subject to limitation. Based on that study we have determined that there was no ownership change as of the end of our fiscal year 20152017 under Section 382. The acquisition of VERSAVersa in fiscal year 2013 triggered a Section 382 ownership change which will limit the future usage of some of the Federalfederal and state NOLs. The Federalfederal and state NOLs that are non 382-limited are included in the NOL deferred tax assets as disclosed.
As discussed in Note 1, the Company’s financial statements reflect expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return (including a decision whether to file or not file a return in a particular jurisdiction) presuming the taxing authorities’ full knowledge of the position and all relevant facts.
The liability for unrecognized tax benefits atas of October 31, 20152017 and 20142016 was $15.7 million. This amount is directly associated with a tax position taken in a year in which federal and state NOL carryforwards were generated. Accordingly, the amount of unrecognized tax benefit has been presented as a reduction in the reported amounts of our federal and state NOL carryforwards. It is our policy to record interest and penalties on unrecognized tax benefits as income taxes; however, because of our significant NOLs, no provision for interest or penalties has been recorded.
We file income tax returns in the U.S. and variouscertain states, primarily Connecticut and California, as well as income tax returns required internationally for South Korea and Germany. We are open to examination by the Internal Revenue Service and various states in which we file for fiscal years 1999year 2000 to the present. We areOur 2016 U.S. federal tax return is currently not under any income tax examinations.
Note 16.17. Earnings Per Share
Basic earnings (loss) per common share (“EPS”) are generally calculated as income (loss) available to common shareholdersstockholders divided by the weighted average number of common shares outstanding. Diluted EPS is generally calculated as income (loss) available to common shareholdersstockholders divided by the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents.
The calculation of basic and diluted EPS for the years ended October 31, 2015, 20142017, 2016 and 20132015 was as follows:follows (amounts in thousands, except share and per share amounts):
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (53,903 | ) |
| $ | (51,208 | ) |
| $ | (29,684 | ) |
Net loss attributable to noncontrolling interest |
|
| — |
|
|
| 251 |
|
|
| 325 |
|
Preferred stock dividend |
|
| (3,200 | ) |
|
| (3,200 | ) |
|
| (3,200 | ) |
Net loss attributable to common stockholders |
| $ | (57,103 | ) |
| $ | (54,157 | ) |
| $ | (32,559 | ) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares |
|
| 49,914,904 |
|
|
| 29,773,700 |
|
|
| 24,513,731 |
|
Effect of dilutive securities (1) |
|
| — |
|
|
| — |
|
|
| — |
|
Weighted average diluted common shares |
|
| 49,914,904 |
|
|
| 29,773,700 |
|
|
| 24,513,731 |
|
Basic loss per share |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
Diluted loss per share (1) |
| $ | (1.14 | ) |
| $ | (1.82 | ) |
| $ | (1.33 | ) |
| 2015 | 2014 | 2013 | ||||||||||
| Numerator | ||||||||||||
| Net loss | $ | (29,684 | ) | $ | (38,883 | ) | $ | (35,319 | ) | |||
| Net loss attributable to noncontrolling interest | 325 | 758 | 961 | |||||||||
| Preferred stock dividend | (3,200 | ) | (3,200 | ) | (3,200 | ) | ||||||
| Net loss attributable to common shareholders | $ | (32,559 | ) | $ | (41,325 | ) | $ | (37,558 | ) | |||
| Denominator | ||||||||||||
| Weighted average basic common shares | 24,513,731 | 20,473,915 | 15,543,750 | |||||||||
Effect of dilutive securities (1) | — | — | — | |||||||||
| Weighted average diluted common shares | 24,513,731 | 20,473,915 | 15,543,750 | |||||||||
| Basic loss per share | (1.33 | ) | (2.02 | ) | (2.42 | ) | ||||||
Diluted loss per share (1) | (1.33 | ) | (2.02 | ) | (2.42 | ) | ||||||
(1) | |
Due to the net loss to common |
|
| October 31, 2017 |
|
| October 31, 2016 |
|
| October 31, 2015 |
| |||
May 2017 Offering – Series C Warrants |
|
| 11,580,900 |
| �� |
| — |
|
|
| — |
|
May 2017 Offering – Series D Warrants |
|
| 2,584,174 |
|
|
| — |
|
|
| — |
|
July 2016 Offering - Series A Warrants |
|
| 7,680,000 |
|
|
| 7,680,000 |
|
|
| — |
|
July 2016 Offering - Series B Warrants |
|
| — |
|
|
| 3,826,000 |
|
|
| — |
|
July 2014 Offering - NRG Warrants |
|
| — |
|
|
| 166,666 |
|
|
| 166,666 |
|
Outstanding options to purchase common stock |
|
| 309,950 |
|
|
| 246,923 |
|
|
| 257,769 |
|
Unvested RSAs |
|
| 1,898,692 |
|
|
| 915,831 |
|
|
| 450,783 |
|
Series C Preferred Shares to satisfy conversion requirements (1) |
|
| 18,097,826 |
|
|
| — |
|
|
| — |
|
5% Series B Cumulative Convertible Preferred Stock (2) |
|
| 454,043 |
|
|
| 454,043 |
|
|
| 454,043 |
|
Series 1 Preferred Shares to satisfy conversion requirements (2) |
|
| 15,167 |
|
|
| 15,167 |
|
|
| 15,167 |
|
Total potentially dilutive securities |
|
| 42,620,752 |
|
|
| 13,304,630 |
|
|
| 1,344,428 |
|
(1) | The number of |
(2) | Refer to Note 13, Redeemable Preferred Stock, for information on the calculation of |
Lease agreements
As of October 31, 20152017 and 2014,2016, we had capital lease obligations of $0.6 million and $0.7 million.million, respectively. Lease payment terms are thirty-six months from the date of lease.
We also lease certain computer and office equipment and manufacturing facilities in Torrington and Danbury, Connecticut under operating leases expiring on various dates through 2019.2030. Rent expense was $1.6 million, $1.8 million and $1.7 million
Non-cancelable minimum payments applicable to operating and capital leases at October 31, 20152017 were as follows (in thousands):
|
| Operating Leases |
|
| Capital Leases |
| ||
2018 |
| $ | 1,181 |
|
| $ | 353 |
|
2019 |
|
| 910 |
|
|
| 211 |
|
2020 |
|
| 403 |
|
|
| 54 |
|
2021 |
|
| 381 |
|
|
| 10 |
|
2022 |
|
| 377 |
|
|
| 4 |
|
Thereafter |
|
| 3,289 |
|
|
| — |
|
Total |
| $ | 6,541 |
|
| $ | 632 |
|
Operating Leases | Capital Leases | |||||||
| 2016 | $ | 1,771 | $ | 422 | ||||
| 2017 | 1,360 | 243 | ||||||
| 2018 | 891 | 61 | ||||||
| 2019 | 755 | — | ||||||
| 2020 | 374 | — | ||||||
| Thereafter | 62 | — | ||||||
| Total | $ | 5,213 | $ | 726 | ||||
Service and Warranty Agreements
Under the provisions of our service agreements, we provide services to maintain, monitor, and repair customer power plants to meet minimum operating levels. Under the terms of our service agreements, the power plant must meet a minimum operating output during the term. If minimum output falls below the contract requirement, we may be subject to performance penalties and/or may be required to repair or replace the customer’s fuel cell module.module(s). An estimate is not recorded for a potential performance guarantee liability until a performance issue has occurred onat a particular power plant. At that point, the actual power plant’s output is compared against the minimum output guarantee and an accrual is recorded. The review of power plant performance is updated for each reporting period to incorporate the most recent performance of the power plant and minimum output guarantee payments made to customers, if any. The Company has provided for an accrual for performance guarantees, based on actual historical fleet performance, which totaled $2.6$2.2 million and $0.8$3.3 million atas of October 31, 20152017 and 2014,2016, respectively, and is recorded in Accrued Liabilities.
Our loss accrual on service agreements, excluding the accrual for performance guarantees, totaled
Power Purchase Agreements
Under the terms of our PPAs, customers agree to purchase power from our fuel cell power plants at negotiated rates. Electricity rates are generally a function of the customers’ current and future electricity pricing available from the grid. As ownerlessee of the power plants, we are responsible for all operating costs necessary to maintain, monitor and repair the power plants. Under certain agreements, we are also responsible for procuring fuel, generally natural gas, to run the power plants. We are typically not required to produce minimum amounts
Expansion of power under our PPA agreementsTorrington Facility and we typically haveRelated Low-Cost Financing
In December 2015, the right to terminate PPA agreements by giving written notice to the customer, subject to certain exit costs.
square feet. Initially, this additional space will be used to enhance and streamline logistics functions through consolidation of satellite warehouse locations and will provide the space needed to reconfigure the existing production process to improve manufacturing efficiencies. The company has substantially completed the first phase of the expansion during the fourth quarter of fiscal year 2017.
On November 9, 2015, the Company closed on a definitive Assistance Agreement with the State of Connecticut and received a disbursement of$10of $10.0 million to bethat was used for the first phase of the expansion project. SeeIn conjunction with this financing, the Company entered into a $10.0 million Promissory Note 20and related security agreements. The second phase of our manufacturing expansion, for which we will be eligible, subject to certain conditions to receive an additional information.
Other
At October 31, 2015,2017, the Company has unconditional purchase commitments aggregating $57.1$29.1 million, for materials, supplies and services in the normal course of business.
Under certain sales and financing agreements the Company is contractually committed to provide compensation for any losses that our customers and finance partners may suffer in certain limited circumstances resulting from reductions in the U.S. Investment Tax Credit. Such obligations would arise as a result of reductions to the value of the underlying fuel cell projects as assessed by the U.S. Internal Revenue Service (the “IRS”). The Company does not believe that any payments under these contracts are probable based on the facts known at the reporting date. The maximum potential future payments that the Company could have to make under this obligation would depend on the difference between the fair values of the fuel cell projects sold or financed and the values the IRS would determine as the fair value for the systems for purposes of claiming the Investment Tax Credit. The value of the Investment Tax Credit in the Company’s agreements is based on guidelines provided by the statutory regulations from the IRS. The Company and its customers use fair values determined with the assistance of independent third-party appraisals.
We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually, or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.
The following represents supplemental cash flow information (dollars in thousands):
|
| Year Ended October 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cash interest paid |
| $ | 2,715 |
|
| $ | 1,941 |
|
| $ | 677 |
|
Income taxes paid |
| $ | 2 |
|
| $ | 80 |
|
| $ | 8 |
|
Noncash financing and investing activity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for Employee Stock Purchase Plan in settlement of prior year accrued employee contributions |
| $ | 50 |
|
| $ | 105 |
|
| $ | 169 |
|
Noncash reclass from inventory to project assets |
| $ | 7,282 |
|
| $ | — |
|
| $ | — |
|
Assumption of debt in conjunction with asset acquisition |
| $ | 2,289 |
|
| $ | — |
|
| $ | — |
|
Acquisition of project assets |
| $ | 2,386 |
|
| $ | — |
|
| $ | — |
|
Accrued sale of common stock, cash received in a subsequent period |
| $ | — |
|
| $ | 357 |
|
| $ | 494 |
|
Accrued purchase of fixed assets, cash paid in subsequent period |
| $ | 2,490 |
|
| $ | 3,952 |
|
| $ | — |
|
Accrued purchase of project assets, cash paid in subsequent period |
| $ | 2,380 |
|
| $ | 1,797 |
|
| $ | — |
|
| Year Ended October 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Cash interest paid | $ | 677 | $ | 1,892 | $ | 280 | ||||||
| Income taxes paid | $ | 8 | $ | 35 | $ | 17 | ||||||
| Noncash financing and investing activity: | ||||||||||||
| Common stock issued for convertible note conversions and make-whole settlements | $ | — | $ | 46,186 | $ | — | ||||||
| Common stock issued for Employee Stock Purchase Plan in settlement of prior year accrued employee contributions | $ | 169 | $ | 106 | $ | 85 | ||||||
| Common stock issued for acquisition of Versa | $ | — | $ | — | $ | 3,563 | ||||||
| Accrued sale of common stock, cash received in a subsequent period | $ | 494 | $ | 633 | $ | 509 | ||||||
Note 18.20. Quarterly Information (Unaudited)
Selected unaudited financial data for each quarter of fiscal year 20152017 and 20142016 is presented below (in thousands).below. We believe that the information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented.
(in thousands) |
| First Quarter |
|
| Second Quarter |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Full Year |
| |||||
Year ended October 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 17,002 |
|
| $ | 20,417 |
|
| $ | 10,358 |
|
| $ | 47,889 |
|
|
| 95,666 |
|
Gross profit (loss) |
|
| 1,813 |
|
|
| 383 |
|
|
| (2,626 | ) |
|
| 3,164 |
|
|
| 2,734 |
|
Loss on operations |
|
| (10,928 | ) |
|
| (11,496 | ) |
|
| (14,330 | ) |
|
| (8,181 | ) |
|
| (44,935 | ) |
Net loss |
|
| (13,685 | ) |
|
| (13,238 | ) |
|
| (17,001 | ) |
|
| (9,979 | ) |
|
| (53,903 | ) |
Preferred stock dividends |
|
| (800 | ) |
|
| (800 | ) |
|
| (800 | ) |
|
| (800 | ) |
|
| (3,200 | ) |
Net loss to common stockholders |
|
| (14,485 | ) |
|
| (14,038 | ) |
|
| (17,801 | ) |
|
| (10,779 | ) |
|
| (57,103 | ) |
Net loss to common stockholders per basic and diluted common share (1) |
| $ | (0.39 | ) |
| $ | (0.33 | ) |
| $ | (0.31 | ) |
| $ | (0.17 | ) |
|
| (1.14 | ) |
Year ended October 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 33,482 |
|
| $ | 28,581 |
|
| $ | 21,716 |
|
| $ | 24,473 |
|
| $ | 108,252 |
|
Gross (loss) profit |
|
| (166 | ) |
|
| (157 | ) |
|
| 434 |
|
|
| (468 | ) |
|
| (357 | ) |
Loss on operations |
|
| (11,517 | ) |
|
| (12,708 | ) |
|
| (10,323 | ) |
|
| (11,805 | ) |
|
| (46,353 | ) |
Net loss |
|
| (11,779 | ) |
|
| (15,414 | ) |
|
| (11,067 | ) |
|
| (12,948 | ) |
|
| (51,208 | ) |
Preferred stock dividends |
|
| (800 | ) |
|
| (800 | ) |
|
| (800 | ) |
|
| (800 | ) |
|
| (3,200 | ) |
Net loss to common stockholders |
|
| (12,512 | ) |
|
| (16,173 | ) |
|
| (11,810 | ) |
|
| (13,662 | ) |
|
| (54,157 | ) |
Net loss to common stockholders per basic and diluted common share (1) |
| $ | (0.48 | ) |
| $ | (0.56 | ) |
| $ | (0.38 | ) |
| $ | (0.41 | ) |
|
| (1.82 | ) |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | ||||||||||||||||
| Year ended October 31, 2015 | ||||||||||||||||||||
| Revenues | $ | 41,670 | $ | 28,600 | $ | 41,356 | $ | 51,451 | $ | 163,077 | ||||||||||
| Gross profit | 4,014 | 2,023 | 3,595 | 3,144 | 12,776 | |||||||||||||||
| Loss on operations | (5,130 | ) | (8,793 | ) | (7,103 | ) | (7,866 | ) | (28,892 | ) | ||||||||||
| Net loss | (4,154 | ) | (9,997 | ) | (6,628 | ) | (8,905 | ) | (29,684 | ) | ||||||||||
| Preferred stock dividends | (800 | ) | (800 | ) | (800 | ) | (800 | ) | (3,200 | ) | ||||||||||
| Net loss to common shareholders | (4,866 | ) | (10,694 | ) | (7,339 | ) | (9,660 | ) | (32,559 | ) | ||||||||||
Net loss to common shareholders per basic and diluted common share (1) | $ | (0.20 | ) | $ | (0.44 | ) | $ | (0.29 | ) | $ | (0.38 | ) | $ | (1.33 | ) | |||||
| Year ended October 31, 2014 | ||||||||||||||||||||
| Revenues | $ | 44,434 | $ | 38,274 | $ | 43,176 | $ | 54,409 | $ | 180,293 | ||||||||||
| Gross profit | 2,199 | 1,611 | 3,961 | 5,955 | 13,726 | |||||||||||||||
| Loss on operations | (7,570 | ) | (8,773 | ) | (6,000 | ) | (4,968 | ) | (27,311 | ) | ||||||||||
| Net loss | (10,815 | ) | (16,039 | ) | (7,139 | ) | (4,890 | ) | (38,883 | ) | ||||||||||
| Preferred stock dividends | (800 | ) | (800 | ) | (800 | ) | (800 | ) | (3,200 | ) | ||||||||||
| Net loss to common shareholders | (11,404 | ) | (16,643 | ) | (7,778 | ) | (5,500 | ) | (41,325 | ) | ||||||||||
Net loss to common shareholders per basic and diluted common share (1) | $ | (0.68 | ) | $ | (0.82 | ) | $ | (0.36 | ) | $ | (0.26 | ) | (2.02 | ) | ||||||
(1) | |
The full year net loss to common |
Authorized Common Stock
On December 14, 2017, the number of authorized shares of the Company’s common stock was increased from 125,000,000 to year-end, we commenced225,000,000, by a vote of the holders of a majority of the outstanding shares of the Company’s common stock.
NASDAQ Marketplace Rule 5635(d)
On December 14, 2017, in accordance with NASDAQ Marketplace Rule 5635(d), the Company’s common stockholders approved the issuance of shares of the Company’s common stock exceeding 19.9% of the number of shares outstanding on September 5, 2017, upon the conversion and/or redemption of the Series C Convertible Preferred Stock issued in an underwritten offering in September 2017.
Tax Cuts and Jobs Act
On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. While enacted subsequent to this balance sheet date, the Act changes existing United States tax law and includes numerous provisions that will affect the Company. Specifically, the reduction of the U.S. federal tax rate from 34% to 21% effective January 1, 2018 will reduce the Company’s deferred tax liability IPR&D by approximately $1.0 million with the benefit to be reflected in the first phasequarter of our project to expandfiscal year 2018. The reduction in the existing 65,000 square foot manufacturing facility in Torrington, Connecticut by approximately 102,000 square feet for a total size of 167,000 square feet. Initially, this additional spacefederal tax rate will be used to enhance and streamline logistics functions through consolidation of satellite warehouse locations and will providealso reduce the space needed to reconfigure the existing production process to improve manufacturing efficiencies and realize cost savings.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH |
Not applicable.
Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures, which are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting.
We, as members of management of FuelCell Energy, Inc., and its subsidiaries (the “Company”), are responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles ofin the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed the Company’s internal control over financial reporting as of October 31, 2015,2017, based on criteria for effective internal control over financial reporting established in the Internal Control — Integrated Framework (1992)(2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, we have concluded that the Company maintained effective internal control over financial reporting as of October 31, 20152017 based on the specified criteria. The Company's independent registered public accounting firm, KPMG LLP, has issued an audit report on the Company's internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.
Our management has evaluated, with the participation of our principal executive and principal financial officers, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, our management has concluded that no such changes have occurred.
None.
The information required by this Item 10, with respect to our executive officers, is included in Part I of the Annual Report on Form 10-K. The other information required by this Item 10 is incorporated by reference to the Company’s 20152018 Proxy Statement to be filed with the SEC within 120 days from fiscal year end.
Our board of directors has adopted a Code of Ethics (the “Code”), which applies to the board of directors, named executive officers, and all employees. The Code provides a statement of certain fundamental principles and key policies and procedures that govern the conduct of our business. The Code covers all major areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. As required by the Sarbanes-Oxley Act of 2002, our Audit and Finance Committee has procedures to receive, retain, investigate and resolve complaints received regarding our accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Code can be found in the Corporate Governance sub-section of the section entitled “Investors” on our website at www.fuelcellenergy.com. We intend to disclose any changes in, or waivers from, the Code by posting such information on the same website or by filing a Current Report on Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
Information required under this Item is incorporated by reference to the Company’s 20152018 Proxy Statement to be filed with the SEC within 120 days from fiscal year end.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information required under this Item is incorporated by reference to the Company’s 20152018 Proxy Statement to be filed with the SEC within 120 days from fiscal year end.
Information required under this Item is incorporated by reference to the Company’s 20152018 Proxy Statement to be filed with the SEC within 120 days from fiscal year end.
Information required under this Item is incorporated by reference to the Company’s 20152018 Proxy Statement to be filed with the SEC within 120 days from fiscal year end.
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this report:
1 | |
Financial Statements — See Index to Consolidated Financial Statements at Item 8 of the Annual Report on Form 10-K. |
2 | |
Financial Statement Schedules — Supplemental schedules are not provided because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto |
3 | |
Exhibits — The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. |
Exhibit No. | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
3.7 | ||
3.8 | ||
3.9 | ||
3.10 | ||
3.11 | ||
4.1 | ||
4.2 | ||
4.3 | ||
Exhibit No. | Description | |
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.36 | ||
10.54 | ||
10.55 | ||
10.56 | ||
10.57 | ||
10.58 | ||
10.59 | ||
Exhibit No. | Description | |
10.63 | ||
10.65 |
10.66 | ||
10.67 | ||
10.68 | ||
10.69 | Letter Agreement, dated March 31, 2011, and Guarantee, dated April 1, 2011, by and between the Company and Enbridge, Inc., and Revised Special Rights and Restrictions attributable to the Class A Preferred Stock of FuelCell Energy, Ltd. for each (incorporated by reference to Exhibits 4.1, 4.2 and 4.3 to the Company’s Current Report on Form 8-K dated | |
10.73 | ||
10.74 | ||
10.76 | ||
| Securities Purchase Agreement, dated April 30, 2012, by and between the Company and POSCO Energy Co., Ltd, dated April 30, 2012 (incorporated by reference to | ||
10.80 | ||
10.81 | ||
10.82 | ||
Exhibit No. | Description | |
10.84 | ||
10.85 | ||
10.86 | ||
10.87 | ||
10.88 | ||
10.89 | ||
10.90 | ||
10.91 | ||
10.92 | ||
10.93 | ||
10.94 | ||
10.95 | ||
10.96 | ||
10.97 | ||
Exhibit No. | Description | |
10.99 | ||
10.100 | ||
10.101 | ||
10.102 | ||
21 | ||
23.1 | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |
32.1 |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | ||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | |
101.SCH# | XBRL Schema Document | |
101.INS# | XBRL Instance Document | |
101.CAL# | XBRL Calculation Linkbase Document | |
101.LAB# | XBRL Labels Linkbase Document | |
101.PRE# | XBRL Presentation Linkbase Document | |
101.DEF# | XBRL Definition | |
The exhibits marked with the section symbol (#) are interactive data files.
* | ||
Management Contract or Compensatory Plan or Arrangement |
** | ||
Confidential Treatment has been granted for portions of this document |
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on January 8, 2016.
FUELCELL ENERGY, INC.
/s/ Arthur A. Bottone | Dated: | January 11, 2018 | |
Arthur A. Bottone | |||
President, Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Capacity | Date | ||
/s/ Arthur A. Bottone Arthur A. Bottone | President, Chief Executive Officer and Director (Principal Executive Officer) | January | ||
/s/ Michael S. Bishop Michael S. Bishop | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and | January | ||
/s/ James H. England James H. England | Director | January |
| 7, 2018 | ||||
/s/ Matthew Hilzinger Matthew Hilzinger | Director | January | ||
/s/ John A. Rolls John A. Rolls | Director - Chairman of the Board | January | ||
/s/ Christopher S. Sotos Christopher S. Sotos | Director | January | ||
/s/ Natica von Althann Natica von Althann | Director | January 10, 2018 | ||
/s/ Togo Dennis West Jr. Togo Dennis West Jr. | Director | January | ||
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