UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended: December 31, 2011June 30, 2012

For the transition period fromto             to             .

Commission File Number: 0-19672

American Superconductor Corporation

(Exact name of registrant as specified in its charter)

(978) 842-3000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Shares outstanding of the Registrant’s common stock:

AMERICAN SUPERCONDUCTOR CORPORATION

INDEX

AMERICAN SUPERCONDUCTOR CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.      Description of the Business and Basis of Presentation

American Superconductor Corporation (“AMSC”(the “Company” or the “Company”“AMSC”) was founded on April 9, 1987. The Company is a leading provider of megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power grid. In the wind power market, the Company enables manufacturers to field wind turbines through its advanced engineering, support services and power electronics products. In the power grid market, the Company enables electric utilities and renewable energy project developers to connect, transmit and distribute power through its transmission planning services and power electronics and superconductor-based products. The Company’s wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to its customers.

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended December 31,June 30, 2012 and 2011 and 2010 and the financial position at December 31, 2011. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. Certain reclassifications of prior year amounts have been made to conform to current year presentation. These reclassifications had no effect on net income, cash flows from operating activities or stockholders’ equity.

The Company operates its business in two market-facing business units: Wind and Grid. The Company believes this market-centric structure enables it to effectively anticipate and meet the needs of wind turbine manufacturers, power generation project developers and electric utilities.

On March 12, 2011, the Company entered into a Share Purchase Agreement, by and among the Company and the shareholders of The Switch Engineering Oy, a power technologies company headquartered in Finland (“The Switch”), which was amended on June 29, 2011 (as amended, the “Agreement”). Pursuant to the Agreement, the Company agreed to acquire all of the outstanding shares of The Switch. On October 28, 2011, the Company and The Switch entered into a termination agreement pursuant to which the parties mutually agreed to terminate the Agreement due to adverse market conditions for a financing required to fund the acquisition. Under the termination agreement, The Switch retained a $20.6 million advance payment as a break-up fee. As a result, the Company recorded a write-off of the advance payment during the nine months ended December 31, 2011.30, 2012.

At December 31, 2011,June 30, 2012, the Company had cash, cash equivalents, and marketable securities of $63.9$65.7 million. The Company has experienced a substantial decline in revenues, and incurred a net loss of $115.7$136.8 million and used $141.0 million of cash for operations during the nine months ended December 31, 2011. The Company’s business plan anticipates a substantial use of cash from operations in its fiscal year endingended March 31, 2012 in light of2012. As a result, the difficult and uncertain current economic environment in China, the significant

restructuring actions undertaken and the slowdown in the Chinese wind power market, which has accounted for more than two-thirds of the Company’s revenues in recent fiscal years. At December 31, 2011, the Company has accrued liabilities related to adverse purchase commitments for inventory totaling $28.8 million. From April 1, 2011 through the date of this filing, the Company has reduced its global workforce by approximately 50%, which is expected and consolidated certain business operations in three locations to result in annual savings of approximately $50 million.reduce facility costs. As of December 31, 2011,June 30, 2012, the Company hashad a global workforce of over 400approximately 430 persons.

The Company’sCompany expects that its cost reduction efforts and anticipated revenue growth are expected towill result in a substantial reduction in cash used for operations during the fiscal year endedending March 31, 2013. The Company plans to continue to closely monitor its expenses and if required, willexpects to further reduce operating costs and capital spending to enhance liquidity.

On April 4, 2012, the Company completed a private placement of $25.0 million of 7% senior convertible notes (“Convertible Notes”). On June 5, 2012, the Company entered into a Loan and Security Agreement (“Term Loan”), under which the Company borrowed $10.0 million. See Note 10, “Debt”, for further information regarding these debt arrangements, including the covenants, restrictions and events of default under the agreements. The Company is workingin compliance with its inventory suppliers to delay cash settlementsthe covenants and reducerestrictions included in the gross liability associated with its adverse purchase commitments. Convertible Notes and Term Loan as of the date of this Quarterly Report on Form 10-Q.

The Company believes that its available cash, together with additional reductions in operating costs and capital expenditures asthat it expects to make if necessary, will be sufficient to fund its operations, capital expenditures and otherany scheduled cash requirements forpayments under its debt obligations through June 30, 2013. The Company’s liquidity is highly dependent on its ability to profitably grow revenues, successfully manage adverse purchase commitments, fund and maintain compliance with the next twelve months. To bolstercovenants and restrictions on its long-term liquidity, thedebt obligations, and raise additional capital, as required. The Company intends tomay seek financing through means that may include public and private equity offerings, debt financings, and other financing alternatives. However,additional financing; however, there can be no assurance that financing will be available on commercially acceptable terms or at all. The Company’s liquidity is highly dependent on its ability to profitably grow its revenues, successfully manage its adverse purchase order commitments and raise additional capital as required.

The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended March 31, 20112012 (fiscal 2010)2011) which are contained in the Company’s Annual Report on Form 10-K.

The Company’s fiscal year begins on April 1 and ends on March 31. This document refers to fiscal 2011, which is defined as the period beginning on April 1, 2011 and concluding on March 31, 2012. The third quarter of fiscal 2011 began on October 1, 2011 and concluded on December 31, 2011.

2.      Stock-Based Compensation

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the three and nine months ended December 31,June 30, 2012 and 2011 and 2010 (in thousands):

During the ninethree months ended December 31, 2011,June 30, 2012, the Company granted approximately 815,000 and 408,000 shares of427,000 stock options and restrictedissued 214,886 shares of common stock respectively,in-lieu of cash bonuses, which vested immediately, to employees under the 2007 Stock Incentive Plan. The restrictedCompany recorded the issuance of stock granted duringin-lieu of bonuses as a non-cash issuance of stock to settle liabilities in the nine months ended December 31, 2011 includes approximately 109,000 sharesunaudited consolidated condensed statement of performance-based restricted stock, which will vest upon achievement of certain financial performance measurements.cash flows. The Company recognizes the fair value of the performance based awards over the estimated period of each award for which the achievement of the performance measures are probable to occur. As of December 31, 2011, the Company has assessed the weighted average probability for these awards as likely to occur and has recorded expenses accordingly. The remaining sharesoptions granted vest upon the passage of time, generally three3 years. For awards that vest upon the passage of time, expense is being recorded over the vesting period.

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested outstanding stock options was $7.4$6.9 million as of December 31, 2011.for the three months ended June 30, 2012. This expense will be recognized over a weighted average expense period of approximately 2.12.4 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $4.0$4.2 million as of December 31, 2011.for the three months ended June 30, 2012. This expense will be recognized over a weighted average expense period of approximately 1.71.6 years.

The weighted-average assumptions used in the Black-Scholes valuation model for stock options granted during the three and nine months ended December 31,June 30, 2012 and 2011 and 2010 are as follows:

The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. The expected term was estimated based on an analysis of the Company’s historical experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based on the average of the five and seven year U.S.United States Treasury rates.

In conjunction with the departure of certain former executive officers, the Company agreed to modify certain vested awards by extending the period over which two former officers would be entitled to exercise stock options and accelerated the vesting of certain other outstanding awards for one former officer. Accordingly, the Company recorded stock-based compensation expense related to these modifications of $0.9 million in the nine months ended December 31, 2011.

3.      Computation of Net (Loss) Income per Common Share

Basic net (loss) income per share (“EPS”) is computed by dividing net (loss) income by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net (loss) income by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. For the three and nine months ended December 31, 2011 and 2010, 2.4June 30, 2012, 6.3 million shares were not included in the calculation of diluted EPS as they were considered anti-dilutive, of which 3.1 million relate to unvested stock options and 2.03.2 million relate to the issuance of warrants. For the three months ended June 30, 2011, 3.0 million shares respectively, and 2.4 million shares and 2.0 million shares, respectively,of unvested stock options were not included in the calculation of diluted EPS as they were considered anti-dilutive.

The following table reconciles the numerators and denominators of the earnings per share calculation for the three and nine months ended December 31,June 30, 2012 and 2011 and 2010 (in thousands, except per share data):

4.	4.      Fair Value Measurements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to disclosures of fair value measurements. The guidance requires gross presentation of activity within the Level 3 measurement roll-forward and details of transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. A change in the hierarchy of an investment from its current level will be reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the three months ended June 30, 2012.

A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has been established. This hierarchy prioritizes the inputs into three broad levels as follows:

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company presents financial asset and liability activity on a gross basis within the Level 3 measurement roll-forward and details of transfers in and out of Level 1 and 2 measurements. Changes in the hierarchy of financial assets and liabilities from its current level will be reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three or nine months ended December 31, 2011.

The following table provides the assets carried at fair value, measured as of December 31, 2011June 30, 2012 and March 31, 20112012 (in thousands):

The table below reflects the activity for the Company’s major classes of liabilities measured at fair value for the period ended June 30, 2012 (in thousands).

Valuation Techniques

Cash Equivalents

Cash equivalents consist of highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments and are measured using such inputs as quoted prices, and are classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of deposits and money market accounts.

Marketable Securities

Marketable securities consist primarily of government-backed securities and commercial paper and are measured using such inputs as quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals), and inputs that are derived principally from or corroborated by observable market data by correlation or other means, and are classified within Level 2 of the valuation hierarchy. The Company’s marketable securities generally have maturities of greater than three months from original purchase date but less than twelve months from the date of the balance sheet. The Company determines the appropriate classification of its marketable securities at the time of purchase and re-evaluates such classification as of each balance sheet date. All marketable securities are considered available-for-sale and are carried at fair value. The Company periodically reviews the realizability of each short-term and long-term marketable security when impairment indicators exist with respect to the security. If an other-than-temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value.

DerivativesDerivative Liability

The Company has identified all of the derivatives entered into by(“Derivative Liability”) associated with the Convertible Notes which include put rights to require the investor to acquire an additional $15.0 million convertible note and additional warrants, holder change of control redemption rights, issuer optional redemption rights, sale redemption rights and a right to make payment in the form of stock rather than cash if certain equity conditions are met. The Derivative Liability is subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of its exercise or expiration. The Company arerelies on assumptions in a lattice model to determine the fair value of Derivative Liability. The Company has appropriately valued using over-the-counter quoted market prices for similar instruments, and are classifiedthe Derivative Liability within Level 23 of the valuation hierarchy. See Note 10, “Debt”, for discussion on the Convertible Notes, Derivative Liability and valuation assumptions used.

5.      Accounts ReceivableWarrants

Warrants were issued in conjunction with the Convertible Notes and the Term Loan. See Note 10, “Debt”, for additional information on warrants. These warrants are subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of their exercise or expiration.

The Company relies on assumptions used in a Black-Scholes model to determine the fair value of warrants. The Company has appropriately valued the warrants within Level 3 of the valuation hierarchy. See Note 11, “Warrants and Derivative Liabilities”, for a discussion of the warrants and the valuation assumptions used.

Accounts receivable at June 30, 2012 and March 31, 2012 consisted of the following (in thousands):

The Company records bank acceptance notes receivable arranged with third-party financial institutions by certain customers to settle their transactions within prepaid expenses and other current assets. These notes are typically non-interest bearing and generally have maturities of less than six months. The carrying amount of notes receivable approximate their fair values. The Company had notes receivable outstanding of $3.2 million and $2.0 million as of December 31, 2011 and March 31, 2011, respectively.

6.      Inventory

The components of inventory at June 30, 2012 and March 31, 2012 are as follows (in thousands):

TheFor the three months ended June 30, 2012, the Company recorded an inventory write-downswrite-down of approximately $0.7$0.3 million based on evaluating its ending inventory on hand for excess quantities and $2.2 million in the three and nine months ended December 31, 2011, respectively.obsolescence.

Deferred program costs as of December 31, 2011June 30, 2012 and March 31 20112012 primarily represent costs incurred on D-VAR turnkey projects and programs accounted for under contract accounting where the Company needs to complete development programs before revenue and costs will be recognized.

7.      Product Warranty

The Company generally provides a one to three-yearthree year warranty on its products, commencing upon installation. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience.

Product warranty activity was as follows (in thousands):

The Company includes warranty period expirations as changes in accruals for warranties in the table above. The Company includes the warranty accrual within accounts payable and accrued expenses in the unaudited condensed consolidated balance sheets.

8.      Income Taxes

The Company recorded income tax expense of less than $0.1 million and $1.2 million forFor the three and nine months ended December 31,June 30, 2012 and 2011, respectively, and the Company recorded an income tax benefit of $2.5$0.8 million and income tax expense of $12.6$0.2 million, respectively. The income tax benefit for the three and nine months ended December 31, 2010, respectively.June 30, 2012, was primarily due to a refund of Chinese income taxes of $0.9 million. The Company has provided a valuation allowance against all net deferred tax assets as of December 31, 2011,June 30, 2012, as it is more likely than not that its net deferred tax assets are not currently realizable due to the net operating losses incurred by the Company since its inception in the U.S., its significant write-offs in the fiscal year ended March 31, 2011 and the losses that are forecasted in certain foreign jurisdictions in the future.inception.

During the nine months ended December 31, 2011, the Company recorded additional income tax expense of $0.8 million for uncertain tax positions related to its Austrian subsidiary.

9.      Restructuring and Impairments

Restructuring

The Company accounts for charges resulting from operational restructuring actions in accordance with ASC Topic 420,Exit or Disposal Cost Obligations (“ASC 420”) and ASC Topic 712,Compensation—Nonretirement Postemployment Benefits(“ASC 712”). In accounting for these obligations, the Company is required to make assumptions related to the amounts of employee severance, benefits, and related costs and the time period over which leased facilities will remain vacant, sublease terms, sublease rates and discount rates. Estimates and assumptions are based on the best information available at the time the obligation arises. These estimates are reviewed and revised as facts and circumstances dictate; changes in these estimates could have a material effect on the amount accrued on the consolidated balance sheet.

TheDuring the year ended March 31, 2012, the Company initiated restructuring activities in order to reorganize global operations, streamline various functions of the business, and reduce its global workforce to better reflect the demand for its products. From April 1, 2011 throughThese activities resulted in the datereduction of this filing, the Company has reduced its global workforce by approximately 50%, which is expected to generate annualized savings of more than $50 million annually.. During the three and nine months ended December 31, 2011,June 30, 2012, the Company incurred costs associated with the workforce reduction consisting of severance pay, outplacement services, medical benefits, and other related benefits. As a result, for the three and nine months ending December 31, 2011, the Company recorded employee severance and benefitrestructuring costs of $2.2 million$0.1 million. These additional charges were paid as of June 30, 2012 and $5.4 million, respectively. These charges arethe remaining balance of accrued restructuring is expected to be paid through the fiscal year ending March 31, 2012.2013.

The following table presents restructuring charges and cash payments (in thousands):

In addition, during the nine months ended December 31, 2011 the Company consolidated certain of its business operations in Europe to reduce overall facility costs. The consolidation plan entailed vacating approximately 8,937 square feet of occupied space in Klagenfurt, Austria and plans to vacate approximately 3,300 square feet of occupied space in Nuremburg, Germany. The Klagenfurt facility closure was accounted for in accordance with ASC 420, pursuant to which the Company recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. Fair value was determined based upon the discounted present value of remaining lease rentals (using a discount rate of 10.1%) for the space no longer occupied, considering future estimated potential sublease income. As a result, the Company recorded facility exit costs of $0.1 million related to the remaining lease commitment on the leased space. These charges are expected to be paid through fiscal 2012. As of December 31, 2011, the Company had not ceased using the Nuremburg facility and therefore recorded no liability for remaining lease payments. All restructuring charges discussed above are included within restructuring and impairments in the Company’s unaudited condensed consolidated statements of operations. The Company includes accrued restructuring within accounts payable and accrued expenses in the unaudited condensed consolidated balance sheets.

ImpairmentsSenior Convertible Notes

On April 4, 2012, the Company entered into a Securities Purchase Agreement and completed a private placement of $25.0 million of 7% senior convertible notes with Capital Ventures International (“CVI”), an affiliate of Heights Capital Management. After fees and expenses, the net proceeds were $23.2 million. The Convertible Notes have an initial conversion price of $4.85 per share, representing a premium of approximately 20% over AMSC’s closing price on April 3, 2012. The Convertible Notes are payable in monthly installments beginning four months from issuance and ending on

October 4, 2014. Monthly payments are payable in cash or common stock at the option of the Company, subject to certain trading volume, stock price and other conditions. The Company registered 10,262,311 shares of common stock which may be used as payment for principal and interest in lieu of cash for resale under the Securities Act as required under a Registration Rights Agreement with CVI.

The Company periodically evaluates its long-lived assets consisting principallyhas accounted for the Convertible Notes as an instrument that has the characteristics of fixed assetsa debt host contract containing several embedded derivative features that would require bifurcation and amortizable intangible assetsseparate accounting as a derivative instrument pursuant to the provisions of ASC 815. The Company elected not to use the fair value option for potential impairment. In accordancethe payable of $25M and will record the liability at the stated value under the loan agreement on the date of issuance with no changes in fair value reported in subsequent periods.

The Company has identified the following derivatives associated with the applicableConvertible Notes: put rights to require the investor to acquire an additional $15.0 million convertible note and additional warrant; holder change of control redemption rights; issuer optional redemption rights; sale redemption rights and a right to make payment in the form of the stock rather than cash if certain equity conditions are met. The Company valued these derivatives at $3.8 million upon issuance and recorded the value as a debt discount and a derivative liability. See Note 11, “Warrants and Derivative Liabilities”, for additional information regarding derivative liabilities.

In addition, CVI received a warrant to purchase approximately 3.1 million additional shares of common stock exercisable at a strike price of $5.45 per share, subject to adjustment, until October 4, 2017. Due to certain adjustment provisions within the warrant, it qualified for liability accounting guidanceand had a fair value of $7.0 million upon issuance. The Company recorded the value as a debt discount and a warrant liability. See Note 11, “Warrants and Derivative Liabilities”, for additional information regarding the treatmentwarrant.

The process of long-lived assets,valuing financial and derivative instruments utilizes facts and circumstances as of the measurement date as well as certain inputs, assumptions, and judgments that may affect the estimated fair value of the instruments. Upon issuance of the Convertible Notes, the Company reviewsdetermined the carrying value of its long-lived assets or asset group that is held and used, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that theinitial carrying value of the assets may not be recoverable. Under the held and used approach, the asset or asset groupConvertible Notes to be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company evaluates its long-lived assets whenever events or circumstances suggest that the carrying amount of an asset or group of assets may not be recoverable from the estimated undiscounted future cash flows.

$25.0 million. In November 2011,addition, the Company completed certain restructuring activities to reducealso incurred $1.8 million of legal and origination costs and to align its strategic priorities to capitalize on near and long-term opportunities in its Grid segment. As a result, the Company concluded that there were indicatorsas of potential impairment of certain long-lived assets in its Grid segment and therefore conducted an assessment of the recoverability of these assets during the three months ended December 31, 2011 by comparingJune 30, 2012, which have been recorded as a discount on the carrying valueConvertible Notes. The total debt discount, including the embedded derivatives, warrant and legal and origination costs of $12.6 million is being amortized into interest expense over the term of the assetsConvertible Notes using the effective interest method. Under this method, interest expense is recognized each period until the debt instruments reach maturity. If the maturity of the Convertible Notes is accelerated because of prepayment, then the amortization will be accelerated. During the quarter ended June 30, 2012, the Company recorded non-cash interest expense for amortization of the debt discount related to the pre-tax undiscountedConvertible Notes of $2.2 million.

The Convertible Notes contain certain covenants and restrictions, including, among others, that for so long as the Convertible Notes are outstanding, the Company will not incur any indebtedness (other than permitted indebtedness under the Convertible Notes), permit liens on its properties (other than permitted liens under the Convertible Notes), make payments on junior securities or make dividends. The Convertible Notes also contain limitations on the transfer of certain assets. Events of default under the Convertible Notes include failure to pay principal or interest as due on the Convertible Notes, failure to deliver registered shares of common stock upon the holders request for conversion of part or all of the Convertible Notes, failure to maintain the Company’s common stock eligible for trading on defined markets, cross defaults to other material indebtedness, receipt of uninsured judgments against the Company in excess of defined limits and other administrative covenants, as defined in the Convertible Notes and related documentation. Upon an event of default, the holders may require the Company to redeem all or any portion of the outstanding principal amount of the Convertible Notes in cash flows estimatedplus a penalty as specified in the agreement. Also, if the Company fails to maintain an effective registration statement covering common stock to be generatedused in settling obligations under the Convertible Notes, the Company will be required to pay a penalty as specified in the agreement.

In addition, subject to certain conditions contained in the definitive agreements, on October 4, 2012, the Company may issue an additional $15 million aggregate principal amount of convertible notes and warrant to the same investor.

Senior Secured Term Loan

On June 5, 2012, the Company entered into a Term Loan with Hercules Technology Growth Capital (“Hercules”), under which the Company borrowed $10.0 million (the “Term Loan”). After the closing fees and expenses, the net proceeds to the Company were $9.7 million. The Term Loan bears interest at a floating per annum rate equal to 11% plus the percentage, if any, by those assets over their remaining book useful lives. Basedwhich the prime rate exceeds 3.75%. The Company will make interest only payments beginning July 1, 2012 and continuing through October 1, 2012, after which the Company will repay the loan in equal monthly installments ending on the calculation performedDecember 1, 2014. The Term Loan is secured by management, the sum of the undiscounted cash flows forecasted to be generated by certain assets within its Grid segment were less than the carrying value of those assets. Therefore, there was an indication that certainsubstantially all of the Company’s Grid assets were impairedexisting and as

future assets. In addition, Hercules received a result,warrant to purchase approximately 139,000 shares of common stock, exercisable at an initial strike price of $3.59 per share, subject to adjustment, until December 5, 2017. Due to certain adjustment provisions within the Company performed additional analysis. An evaluation of the level of impairment was made by comparing the implied fair value of those definite long-lived tangiblewarrant, it qualified for liability accounting and intangible assets of its Grid segment against their carrying values.

The fair values of the impacted property and equipment were based on what the Company could reasonably expect to sell each asset from the perspective of a market participant. The determination of the fair value of its property$0.4 million was recorded upon issuance, which the Company recorded as a debt discount and equipment includes estimatesa warrant liability. See Note 11, “Warrants and judgments regardingDerivative Liabilities”, for a discussion on warrants and the marketability and ultimate sales price of individual assets.valuation assumptions used. The Company utilized market data and approximations from comparable analyses to arrive atwill pay an end of term fee of $0.5 million upon the estimated fair valuesearlier of maturity or prepayment of the impacted property and equipment.loan. The fair valuesCompany has accrued this as of amortization intangible assets related to completed technology were determined

using the relief-from-royalty method over the estimated economic lives of those assets from the perspective of a market participant. During the three months ended December 31, 2011,June 30, 2012 and recorded a corresponding amount into the Company determined that certain of its Grid segment property, plant and equipment were impaired as their carrying value exceeded their fair value. Accordingly, the Company recorded an impairment charge of $1.7 million.

debt discount. In addition, the Company recorded impairment chargesincurred $0.3 million of $0.2 millionlegal and $1.1 million duringorigination costs in the three and nine months ended December 31, 2011, respectively, primarilyJune 30, 2012, which have been recorded as a debt discount. The total debt discount including the warrant, end of term fee and legal and origination costs of $1.2 million is being amortized into interest expense over the term of the Term Loan using the effective interest method. Under this method, interest expense is recognized each period until the debt instrument reaches maturity. If the maturity of the Term Loan is accelerated because of prepayment, then the amortization will be accelerated. During the quarter ended June 30, 2012, the Company recorded non-cash interest expense for amortization of the debt discount related to long-livedthe Term Loan of $0.1 million.

The Term Loan contains certain covenants that restrict the Company’s ability to, among other things, incur or assume certain debt, merge or consolidate, materially change the nature of our business, make certain investments, acquire or dispose of certain assets, make guaranties or grant liens on its assets, make certain loans, advances or investments, declare dividends or make distributions or enter into transactions with affiliates. In addition, the Term Loan contains a covenant which requires the Company to maintain a minimum unrestricted cash balance in the United States of at least $10.0 million at the inception of the Term Loan, which will decrease starting November 1, 2012 and monthly thereafter by the amount of principal paid. The events of default under the Term Loan include, but are not limited to, failure to pay amounts due, breaches of covenants, bankruptcy events, cross defaults under other material indebtedness and the occurrence of a material adverse effect and/or change in control. In the case of a continuing event of default, the Lender may, among other remedies, declare due all unpaid principal amounts outstanding and any accrued but unpaid interest and foreclose on all collateral granted to the Lender as security under the Term Loan.

Although the Company is in compliance with the covenants and restrictions under the Convertible Notes and Term Loan as of the date of this Interim Report on Form 10-Q, there can no assurance that the Company will continue to be in compliance.

Interest expense on the Convertible Notes and Term Loan for the three month period ended June 30, 2012 was $2.8 million, which included $2.3 million of non-cash interest expense related to the amortization of the debt discount on the Convertible Notes and Term Loan.

On April 4, 2012, the Company entered into a Securities Purchase Agreement as described in Note 10, which included a warrant to purchase 3.1 million shares of the Company’s common stock. The warrant is exercisable at any time on or after the date that is six months after the issuance of the warrant and entitles CVI to purchase shares of the Company’s common stock for a period of five years from the initial date the warrant becomes exercisable at a price equal to $5.45 per share, subject to certain price-based and other anti-dilution adjustments. The warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates would beneficially own in excess of 4.99% of the Company’s common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of the holder of the warrant, upon at least 61-days’ prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.

The Company accounts for the warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. The Company used the Black-Scholes option pricing model to calculate the fair value of the warrant, using the following assumptions:

The Company recorded the change in the fair value of the CVI warrant of $1.5 million to change in fair value of derivatives and warrants in the three months ended June 30, 2012.

The Company determined certain embedded derivatives issued with the Convertible Notes required accounting as a liability, which requires they be accounted for as a standalone liability subject to revaluation at each balance sheet date with changes in fair value recorded as change in fair value of derivatives and warrants until the earlier of exercise or expiration.

The Company calculated the fair value of the derivative liabilities bifurcated from the Convertible Notes (see Note 10, “Debt”) utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. Following is a summary of the key assumptions used to value the convertible note derivative feature:

The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. To determine the risk-free interest rate an interpolated rate was used based on the two and three year United States Treasury rates. The bond yield was estimated by comparing comparable corporate debt and yield information. The recovery rate of the Convertible Note was estimated by reviewing historical corporate debt that went into default. The bond is redeemable by the Company at any point after the one-year anniversary of the grant date provided certain provisions within the note. The total time is based on the actual contractual terms, 30 months. It was determined that there is no remaining future economic benefita dilution effect based on the Company’s ability to make payments in shares of common stock.

The Company recorded the change in the fair value of the derivative liabilities of $0.8 million to changes in fair value of derivatives and warrants in the three months ended June 30, 2012.

On June 5, 2012, the Company entered into a Loan and Security Agreement with Hercules (see Note 10, “Debt”, for additional information regarding the Loan and Security Agreement). In conjunction with this agreement, the Company issued a warrant to purchase approximately 139,000 shares of the Company’s common stock. The warrant is exercisable at any time after the issuance of the warrant and entitles Hercules to purchase shares of the Company’s common stock for a period of five and half years from the initial date the warrant becomes exercisable at a price equal to $3.59 per share subject to certain price-based and other anti-dilution adjustments.

The Company accounts for the warrant as a resultliability due to certain provisions within the warrant, which requires that it be recorded at fair value. The warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as changes in fair value of derivatives and warrants until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. The Company calculated the fair value of the consolidationwarrant using the Black-Scholes option pricing model to value the warrant, using the following assumptions:

The company prepared their estimates for the assumptions used to determine the fair value of operationsthe warrants issued in Europe.conjunction with both the Convertible Note and Term Loan utilizing the respective terms of the warrants with similar inputs under the Black Scholes valuation method more fully described in Note 2.

10.    CommitmentsThe company recorded the change in the fair value of the Hercules warrant of $0.1 million to changes in fair value of derivatives and Contingencieswarrants in the three months ended June 30, 2012.

Commitments

Purchase Commitments

The Company periodically enters into non-cancelable purchase contracts in order to ensure the availability of materials to support production of its products. Purchase commitments represent enforceable and legally binding agreements with suppliers to purchase goods or services. The Company periodically assesses the need to provide for impairment on these purchase contracts and recordsrecord a loss on purchase commitments when required. As of December 31, 2011,June 30, 2012, the Company has $28.8 million ofrecorded a liability for adverse purchase commitments in excess of its estimated future demand from certain of its customers in China, which the Company has recorded as a liability. The Company recorded adverse purchase commitment recoveries of $0.1 million and losses of less than $0.1 million during the three and nine months ended December 31, 2011, respectively. Adverse purchase commitment recoveries in$17.5 million. During the three months ended DecemberJune 30, 2012, the Company adjusted its accrual for adverse purchase commitments by $7.3 million due to settlements with certain vendors.

During the fourth quarter of the year ended March 31, 2011 are2012, several vendors notified the Company that they had suffered losses as a result of reductionsprocuring safety stock in anticipation of receiving future purchase orders or contracts from the Company and subsequently three vendors have filed suits through the Chinese legal system seeking payment for inventories held to be delivered under purchase orders and safety stock. The Company has accrued outstanding adverse purchase commitments tobased on legally binding contracts and purchase materials due to renegotiationsorders that were placed with certain suppliersits vendors for parts with no future demand. The vendor claims for safety stock were not supported by valid purchase orders or valid executed contracts and are recordednot considered part of the adverse purchase commitment liability. The claims for safety stock have not been accrued as of June 30, 2012. The Company has determined that although it believes that there is no legally enforceable contract for safety stock and will continue to defend its legal position that it does not owe amounts for safety stock, that it is reasonably possible that a case may be made against cost of revenues.the Company under certain situations. As the loss is reasonably possible but not probable, the Company has not accounted for the loss. The Company has determined that the range for this potential loss is between $0 and $4 million.

Contingencies

From time to time, the Company is involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

Between April 6, 2011 and May 12, 2011, seven putative securities class action complaints were filed against the Company and two of its officers in the United States District Court for the District of Massachusetts; one complaint additionally asserted claims against the underwriters who participated in our November 12, 2010 securities offering. On June 7, 2011, the United States District Court for the District of Massachusetts consolidated these actions under the caption

Lenartz v. American Superconductor Corporation, et al., Docket No. 1:11-cv-10582-WGY. On August 31, 2011, Lead Plaintiff, the Plumbers and Pipefitters National Pension Fund, filed a consolidated amended complaint against the Company, its officers and directors, and the underwriters who participated in our November 12, 2010 securities offering, asserting claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as well as under sections 11, 12(a)(2) and 15 of the Securities Act of 1933.1933 (the “Securities Act”). The complaint alleges that during the relevant class period, the Company and its officers omitted to state material facts and made materially false and misleading statements relating to, among other things, its projected and recognized revenues and earnings, as well as its relationship with Sinovel Wind Group Co., Ltd. that artificially inflated the value of the Company’s stock price. The complaint further alleges that the Company’s November 12, 2010 securities offering contained untrue statements of material facts and omitted to state material facts required to be stated therein. The plaintiffs seek unspecified damages, rescindment of the Company’s November 12, 2010 securities offering, and an award of costs and expenses, including attorney’s fees. All defendants moved to dismiss the consolidated amended complaint. On December 16, 2011, the district court issued a summary order declining to dismiss the Securities Act claims against the Company and its officers, and taking under advisement the motion to dismiss the Exchange Act claims against the Company and its officers and the motion to dismiss the Securities Act claims made against the underwriters. On July 26, 2012, the district court dismissed the Exchange Act claims against the Company and its officers and denied the motion to dismiss the Securities Act claims made against the underwriters.

Between May 4, 2011 and June 17, 2011, four putative shareholder derivative complaints were filed against the Company (as a nominal defendant) and certain of its directors in the United States District Court for the District of Massachusetts. On July 5, 2011, the District Court consolidated three of these actions, and that matter is now captionedIn re American Superconductor Corporation Derivative Litigation, Docket No. 1:11-cv-10784-WGY. On June 1, 2011, the plaintiff in the fourth action,Marlborough Family Revocable Trust v. Yurek, et al., moved to voluntarily dismiss its complaint and refiled its complaint in Superior Court for the Commonwealth of Massachusetts, Middlesex County. On September 7, 2011, theMarlboroughaction and another putative shareholder derivative complaint filed in Superior Court for the Commonwealth of Massachusetts were consolidated. That consolidated matter is captionedMarlborough Family Revocable Trust v. Yurek, et al., Docket No. 11-1961. On January 12, 2012, an additional shareholder derivative complaint was filed in the Court of Chancery for the State of Delaware. That matter is captionedKrasnoff v. Budhraja, et al., Docket No. 7171.The allegations of the

derivative complaints mirror the allegations made in the putative class action complaints described above. The plaintiffs purport to assert claims against the director defendants for breach of fiduciary duty, abuse of control, gross mismanagement, unjust enrichment and corporate waste. The plaintiffs seek unspecified damages on behalf of the Company, as well as an award of costs and expenses, including attorney’s fees.

With respect to the above referenced litigation matters, an estimate of loss or range of loss cannot be made. There are numerous factors that make it difficult to meaningfully estimate possible loss or range of loss at this stage of these litigation matters, including that: the proceedings are in relatively early stages, there are significant factual and legal issues to be resolved, information obtained or rulings made during the lawsuits could affect the methodology for calculation of rescission and the related statutory interest rate. In addition, with respect to claims where damages are the requested relief, no amount of loss or damages has been specified. Therefore, the Company is unable at this time to estimate possible losses. The Company believes that these litigations are without merit, and it intends to defend these actions vigorously. Therefore no adjustment has been made to the financial statements to reflect the outcome of these uncertainties.

On September 13, 2011, the Company commenced a series of legal actions in China against Sinovel Wind Group Co. Ltd. (“Sinovel”). The Company’s Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd., filed a claim for arbitration with the Beijing Arbitration Commission in accordance with the terms of the Company’s supply contracts with Sinovel. The case is captioned(2011) Jin Zhong An Zi No. 06930963. On March 31, 2011, Sinovel refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts that the Company was prepared to deliver. The Company alleges that these actions constitute material breaches of its contracts because Sinovel did not give it notice that it intended to delay deliveries as required under the contracts. Moreover, the Company alleges that Sinovel has refused to pay past due amounts for prior shipments of core electrical components and spare parts. The Company is seeking compensation for past product shipments and retention (including interest) and monetary damages in the amount of approximately RMB 430485 million ($6776 million) due to Sinovel’s breaches of its contracts. The Company is also seeking specific performance of our existing contracts as well as reimbursement of all costs and reasonable expenses with respect to the arbitration. The value of the undelivered components under the existing contracts, including the deliveries refused by Sinovel in March 2011, amounts to approximately RMB 4.6 billion ($720 million).

On October 8, 2011, Sinovel filed with the Beijing Arbitration Commission an application under the caption(2011) Jing Zhong An Zi No. 0693,0963,for a counterclaim against the Company for breach of the same contracts under which the Company filed its original arbitration claim. Sinovel claimed, among other things, that the goods supplied by the Company do not conform to the standards specified in the contracts and claimed damages in the amount of approximately RMB 370 million ($58 million). On October 17, 2011, Sinovel filed with the Beijing Arbitration Commission a request for change of counterclaim to increase its damage claim to approximately RMB 1 billion ($157 million). On December 22, 2011, Sinovel filed with the Beijing Arbitration Commission an additional request for change of counterclaim to increase its damages claim to approximately RMB 1.2 billion ($190 million). DeductingOn February 27, 2012, Sinovel filed with the RMB 430 million ($67 million)Beijing Arbitration Commission an application under the caption(2012) Jing Zhong An Zi No. 0157,against the Company for breach of past product shipmentsthe same contracts under which the Company filed its original arbitration claim. Sinovel claimed, among other things, that the goods supplied by the Company do not conform to the netstandards specified in the contracts and claimed damages in the amount of damages claimed by Sinovel is approximately RMB 770105 million ($12017 million). The Company believes that Sinovel’s claims are without merit and it intends to defend these actions vigorously. Since the proceedings in this matter are in relatively early stages, the Company cannot reasonably estimate possible losses or range of losses at this time.

The Company also submitted a civil action application to the Beijing No. 1 Intermediate People’s Court under the caption(2011) Yi Zhong Min Chu Zi No. 15524, against Sinovel for software copyright infringement on September 13, 2011. The application alleges Sinovel’s unauthorized use of portions of the Company’s wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines and the binary code, or upper layer, of the Company’s software for the PM3000 power converters in 1.5MW wind turbines. In July 2011, a former employee of the Company’s AMSC Windtec GmbHAustrian subsidiary was arrested in Austria on charges of economic espionage and fraudulent manipulation of data. In September 2011, the former employee pled guilty to the charges, and he is currently serving a prison sentence.was imprisoned. As a result of the Company’s internal investigation and a criminal investigation conducted by Austrian authorities, the Company believes that this former employee was contracted by Sinovel through an intermediary while employed by the Company and improperly obtained and transferred to Sinovel portions of its wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines. Moreover, the Company believes the former employee illegally used source code to develop for Sinovel a software modification to circumvent the encryption and remove technical protection measures on the Company’s PM3000 power converters in 1.5MW wind turbines in the field. The Company is seeking a cease and desist order with respect to the unauthorized copying, installation and use of its software, monetary damages of approximately RMB 38 million ($6 million) for our economic losses and reimbursement of all costs and reasonable expenses. The No. 1 Intermediate People’s Court accepted the case, which was necessary in order for the case to proceed. In November 2011, Sinovel filed a motion to remove this case from the Beijing No. 1 Intermediate People’s Court and transfer the matter to the Beijing Arbitration Commission. The Company is awaitingOn February 14, 2012, the court’s decision.court denied Sinovel’s motion to remove the case. On February 21, 2012, Sinovel filed an appeal of the Beijing No. 1 Intermediate People’s Court decision to the Beijing Higher People’s Court. On April 25, 2012, the Beijing Higher People’s Court issued a final Civil Ruling which supports the Beijing No.1 Intermediate People’s Court’s civil ruling and rejected Sinovel’s appeal. Sinovel has filed an appeal of the Beijing Higher People’s Court’s decision with China’s Supreme People’s Court. On June 18, 2012, Sinovel filed a new motion to remove this case from the Beijing No. 1 Intermediate People’s Court to the court located in Gansu Province.

The Company submitted a civil action application to the Beijing Higher People’s Court against Sinovel and certain of its employees for trade secret infringement on September 13, 2011 under the caption(2011) Gao Min Chu Zi No. 4193. The application alleges the defendants’ unauthorized use of portions of the Company’s wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines as described above with respect to the Copyright Action. The Company is seeking monetary damages of RMB 2.9 billion ($453 million) for the trade secret infringement as well as reimbursement of all costs and reasonable expenses. The Beijing Higher People’s Court accepted the case, which was necessary in order for the case to proceed. On December 22, 2011, the Beijing Higher People’s Court transferred this case to the Beijing No. 1 Intermediate People’s Court under the caption(2011) Gao Min Chu Zi No. 4193. On June 7, 2012, the Company received an Acceptance Notice from the Beijing No.1 Intermediate People’s Court under the caption(2012) Yi Zhong Min Chu Zi No.6833.The Company is currently awaiting notice from the Beijing No. 1 Intermediate People’s Court regarding the evidence submission deadline and the first hearing date.

On September 16, 2011, the Company filed a civil copyright infringement complaint in the Hainan Province No. 1 Intermediate People’s Court against Dalian Guotong Electric Co. Ltd. (“Guotong”), a supplier of power converter products to Sinovel, and Huaneng Hainan Power, Inc. (“Huaneng”), a wind farm operator that has purchased Sinovel wind turbines containing Guotong power converter products. The case is captioned(2011) Hainan Yi Zhong Min Chu Zi No. 62. The application alleges that the Company’s PM1000 converters in certain Sinovel wind turbines have been replaced by converters produced by Guotong. Because the Guotong converters are being used in wind turbines containing the Company’s wind turbine control software, the Company believes that its copyrighted software is being infringed. The Company is seeking a cease and desist order with respect to the unauthorized use of its software, monetary damages of RMB 1.2 million ($0.2 million) for its economic losses (with respect to Guotong only) and reimbursement of all costs and reasonable expenses. The

court has accepted the case, which was necessary in order for the case to proceed. In addition, upon the request of the defendant Huaneng, Sinovel has been added by the court to this case as a defendant and Huaneng has been released from this case. In December 2011, Sinovel filed a jurisdiction opposition motion requesting dismissal by the Hainan Province No. 1 Intermediate People’s Court, saying the case should be governed by the Beijing Arbitration Commission. On February 3, 2012, the Company received the Civil Ruling from the court, which granted Sinovel’s motion, and dismissed the entire case. The Company plans to appealappealed the court’s ruling.ruling to the Hainan Higher Court, which on April 5, 2012 upheld the decision of the Hainan Province No. 1 Intermediate People’s Court. On April 9, 2012, the Company filed an appeal of the Hainan Higher Court’s decision with China’s Supreme People’s Court. The Supreme Court accepted the appeal on May 23, 2012. The case is captioned, (2012) Min Shen Zi No. 630.

Ghodawat Energy Pvt Ltd (“Ghodawat”), a company registered in India carrying on the business of wind power development, lodged a Request for Arbitration with the Secretariat of the ICC International Court of Arbitration on May 12, 2011 and named AMSC Windtec GmbH (“AMSC Windtec”Austria”) as the Respondent. Under the Request for Arbitration, Ghodawat alleges that AMSC WindtecAustria breached an agreement dated March 19, 2008 pursuant to which AMSC WindtecAustria granted a license to Ghodawat to manufacture, use, sell, market, erect, commission and maintain certain wind turbines using its technical information and wind turbine design (the “License Agreement”). Under the Request for Arbitration, Ghodawat’s claims in this arbitration amount to approximately €18 million ($24 million). AMSC WindtecAustria filed an Answer to Request for Arbitration and Counterclaim (“Answer and Counterclaim”), in which AMSC WindtecAustria denied Ghodawat’s claims in their entirety. AMSC WindtecAustria has also submitted counterclaims under the License Agreement against Ghodawat in the amount of approximately €6 million ($9 million). Ghodawat has filed a Reply to Answer to Request for Arbitration and Counterclaim in which it denies AMSC Windtec’sAustria’s counterclaims. The arbitration proceedings are currently ongoing. The Company has recorded a loss contingency based on its assessment of probable losses on this claim; however this amount is immaterial to its consolidated financial statements.

Other

The Company enters into long-term construction contracts with customers that require the Company to obtain performance bonds. The Company is required to deposit an amount equivalent to some or all the face amount of the performance bonds into an escrow account until the termination of the bond. When the performance conditions are met, amounts deposited as collateral for the performance bonds are returned to the Company. In addition, the Company has various contractual arrangements in which minimum quantities of goods or services have been committed to be purchased on an annual basis.

As of December 31, 2011,At June 30, 2012, the Company had two performance bonds in support of customer contracts. The total value of the outstanding performance bonds was $0.4 million with various expiration dates through October 2012. In the event that the payment is made in accordance with the requirements of any of these performance bonds, the Company would record the payment as an offset to revenue.

At December 31, 2011, the Company had $9.0$16.7 million of restricted cash included in current assets, and $2.5$4.8 million of restricted cash included in long-term assets. These amounts included in restricted cash represent deposits to secure letters of credit for various supply contracts. These deposits are held in interest bearing accounts.

The Company had unused, unsecured linesis working with its inventory suppliers to delay cash settlements and to reduce the gross liability associated with its adverse purchase commitments. During the quarter ending June 30, 2012, the Company agreed to settle adverse purchase commitments with certain of its vendors. In conjunction with these settlements, the Company agreed to provide letters of credit consistingand bank guarantees in the amount of €2.3approximately $9.0 million (approximately $3.0 million)with expirations through January 31, 2013. The letters of credit and bank guarantees were secured with cash collateral of $8.5 million and resulted in Austria asa reduction of December 31, 2011. Duringits adverse purchase commitments liability of $7.3 million recorded in the ninethree months ended December 31, 2011,June 30, 2012.

As of June 30, 2012, the Company’s unsecured credit lineCompany had three performance bonds in support of customer contracts. The total value of the outstanding performance bonds is $3.5 million with expiration dates through March 2014. In the event that the payment is made in accordance with the Bankrequirements of China expired and it repaid borrowings on linesany of credit of $4.6 million. There were no borrowings outstandingthese performance bonds, the Company would record the payment as of December 31, 2011.an offset to revenue.

11.    Equity Investments

Investment in Tres Amigas

On October 9, 2009, the Company made an investment in Tres Amigas LLC, a Delaware limited liability company (“Tres Amigas”), is focused on providing the first common interconnection of America’s three power grids to help the country achieve its renewable energy goals and facilitate the smooth, reliable and efficient transfer of green power from region to region, for $1.8 million, consisting of $0.8 million in cash and $1.0 million in AMSC common stock. On January 6, 2011 and May 20, 2011, the Company increased its minority position in Tres Amigas by investing an additional $1.8 million in cash on each date. As of December 31, 2011,June 30, 2012, the Company holds a 34%26% ownership interest in Tres Amigas.

The Company has determined that Tres Amigas is a variable interest entity (“VIE”) and that the Company is not the primary beneficiary of the VIE. Therefore, the Company has not consolidated Tres Amigas as of December 31, 2011. The investment is carried at the acquisition cost, plus the Company’s equity in undistributed earnings or losses. The Company’s maximum exposure to loss is limited to the Company’s recorded investment in this VIE.

The Company’s investment in Tres Amigas is included in other assets on the consolidated balance sheet and the equity in undistributed losses of Tres Amigas is included in other income, net, on the unaudited condensed consolidated statements of operations.

The net investment activity for the ninethree months ended December 31, 2011June 30, 2012 is as follows (in thousands):

Investment in Blade Dynamics Ltd.

On August 12, 2010, the Company acquired (through its Austrian subsidiary), a minority ownership position in Blade Dynamics Ltd. (“Blade Dynamics”), a designer and manufacturer of advanced wind turbine blades based on proprietary materials and structural technologies, for $8.0 million in cash. TheAs of June 30, 2012, the Company uses the equity method of accounting for this investment since it does not haveholds a controlling25% ownership interest in the operating and financial policies of Blade Dynamics. As such,

The Company has determined that Blade Dynamics is a variable interest entity (“VIE”) and that the Company is not the primary beneficiary of the VIE. Therefore, the Company has not consolidated Blade Dynamics as of June 30, 2012. The investment is carried at the acquisition cost, plus the Company’s equity in undistributed earnings or losses. The Company’s maximum exposure to loss is limited to the Company’s recorded investment in this VIE. The Company’s investment in Blade Dynamics is included in other assets on the unaudited condensed consolidated balance sheetssheet and the minority interestequity in netundistributed losses of Blade Dynamics is included in other income, net, on the unaudited condensed consolidated statements of operations. As of December 31, 2011, the Company holds a 25% ownership interest in Blade Dynamics.

The net investment activity for the ninethree months ended December 31, 2011June 30, 2012 is as follows (in thousands):

12.    Business Segments

Business segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in assessing performance and deciding how to allocate resources.

14.	Business Segments

The Company segmentsreported its financial results in two reportable business into two market-facing business units:segments: Wind and Grid.

Through its Windtec Solutions, the Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. The Company licenses its highly engineered wind turbine designs, provides extensive customer support services and supplies advanced power electronics and control systems to wind turbine manufactures. Its design portfolio includes a broad range of drive trains and power ratings up to 10 megawatts. The Company believes this market-centric structureits advanced engineering capabilities, ranging from bearings to advanced synchronous generators to blades, enables it to more effectively anticipate and meet the needs ofprovide its partners with highly-optimized wind turbine manufacturers,platforms. Furthermore, these designs and support services typically lead to sales of its power generationelectronics and software-based control systems, which are designed for optimized performance, efficiency and grid compatibility.

Through its Gridtec Solutions, the Grid business segment enables electric utilities and renewable energy project developers to connect, transmit and electric utilities.

Prior to April 1, 2011,identify power grid congestion, poor power quality and other risks, which help the Company segmenteddetermine how its operations through two technology-centric business units: AMSC Power Systems and AMSC Superconductors. AMSC Power Systems included allsolutions can improve network performance. These services often lead to sales of its Wind products, as well as Grid products that regulate voltagegrid interconnection solutions for wind farm voltage electric utilities, renewable generation project developersfarms and industrial operations. Solutions from the Company’s AMSC Superconductors business unit have been incorporated into its Grid business unit. All prior period segment disclosures have been revised to conform to management’s current view of the Company’s business segments.solar power plants, power quality systems and transmission and distribution cable systems.

The operating results for the two business segments are as follows (in thousands):

The accounting policies of the business segments are the same as those for the consolidated Company. The Company’s business segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment revenues and segment operating (loss) income. The disaggregated financial results of the segments reflect allocation of certain functional expense categories consistent with the basis and manner in which Company management

internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain corporate expenses which the Company does not believe are specifically attributable or allocable to either of the two business segments have been excluded from the segment operating (loss) income.

For the three and nine months ended December 31, 2011, unallocated corporate expenses primarily consist of restructuring and impairment charges of $4.1 million and $8.4 million, respectively, and stock-based compensation expense of $2.1 million and $7.7 million, respectively. In addition, the nine months ended December 31, 2011 includes expense of $20.6 million for the write-off of an advanced payment to The Switch. Unallocated corporate expenses primarily consist of stock-based compensation expense of $2.2$2.0 million and $10.1$3.5 million for the three and nine months ended December 31, 2010,June 30, 2012 and 2011, respectively.

Total assets for the two business segments are as follows (in thousands):