Annual Report 2015
Ultra-Clean, Efficient, Reliable Power
Micro-grid
Power resiliency
for critical
functions
Financing
Solutions
On-site Combined
Heat and Power
Supports both sustainability
and economics
Utility Grid
Support
and Solar
Integration
Continuous clean
power that supports
intermittent solar
Storage
Hydrogen
as an energy
carrier
Carbon Capture
Scalable, affordable
CO2 capture and
pollutant reduction
Distributed
Hydrogen
Renewable hydrogen for
transportation
On-site clean and affordable
hydrogen for industry
Solar array
Dear Shareholders,
Our solutions utilize a chemical reaction to deliver energy to our customers
cleanly, efficiently and affordably. In addition to power, our fuel cell plants are
configurable to generate a variety of value streams including thermal energy,
high-purity hydrogen, energy storage, and carbon capture, and delivered in a
manner that enhances power resiliency.
The ability to affordably generate energy while simultaneously providing
these additional value streams drives the economic value proposition for
preferred resource distributed power generation, renewable hydrogen and
carbon capture. Just as importantly, all these varied solutions utilize our core
technology and expertise via our integrated business model. I will explain
these unique attributes of our solutions and how they benefit customers,
which leads to strengthening and growing the FuelCell Energy business for
you, the shareholder.
Strong Customer Value Proposition
Growing global recognition of the value of clean and low carbon power
generation supports our solutions for the customer-side of the electric
meter as well as utility-scale projects for grid support. Customers base
their decisions on the economics of a fuel cell project first, followed by the
added benefit of an attractive sustainability profile. Highly efficient power
generation, with combined heat and power capabilities, supports the
economics of fuel cell power plant installations. The return on investment
1
of our installations
attracted new customers
in 2015 including Eon,
a European utility that
is one of the largest in
the world, and Pfizer, a
global pharmaceutical
company, as well as repeat
customers, including
utility United Illuminating,
Pepperidge Farm, and two
municipalities in California.
The utility industry is
adopting the term preferred
resource to designate power
generation solutions that cleanly meet urban power
demands with distributed power generation that defers
or even eliminates the need for new combustion-based
generation plants. Avoiding burning of fuels is critical
for meeting the societal push for clean air and reducing
greenhouse gas emissions. Our fuel cell power plants do
not combust fuel, thus avoiding the emission of virtually
any pollutants and the need to obtain clean air permits
in many locales. As such, they are a preferred resource.
Our fuel cell projects deliver affordable power that is
comparably priced to the electric grid in the markets in
which we operate, before including any type of clean power
generation benefits. The preferred resource concept is
further illustrated by our megawatt-class plants being
installed near and supporting existing electrical substations,
and our leading-edge micro-grid application with a utility
that enhances power resiliency for a town center via a fuel
cell micro-grid. Our solutions also integrate with other
forms of power generation such as solar. Another advantage
of our fuel cell plants is their high power density, using
only about 1/10th the land as solar while delivering about
375 times the megawatt hours of power from the same
amount of land. This is a key factor in our value proposition
to customers in urban areas as land is a limited resource
that can be expensive in regions with high population
densities. Additionally, renewable portfolio standard (RPS)
requirements are based on power produced, so a fuel
cell project delivers substantially more power for RPS
compliance than an intermittent solar array of the same
2
Multi-megawatt
fuel cell parks
megawatt output as fuel cells are not dependent on the
weather or time of day.
Finally, our projects are valued by local and state
governments as they deliver tax revenue, enhance power
resiliency for the community where they are located,
advance urban redevelopment, and the clean power
generation supports RPS standards.
Expanding Ownership Choices
We continue to focus on providing project financing choices
to optimize the value creation for our various stakeholders.
This process begins with project development and design,
leading to installation and operation of the plants under
a long-term service agreement, or the power end-user
enters into a power purchase agreement (PPA) to purchase
the power and heat/steam over a period of time. There are
multiple financing paths for our projects.
We are attracting first-tier financial institutions due to
the competitive financial profile of our fuel cell projects,
as illustrated by the $30 million project finance facility we
closed with PNC Energy Capital in late 2015. In addition,
we have sold our PPA projects to energy project investors
such as NRG Yield. As our business grows, we expect
to continue to expand our project finance platform. Our
customers benefit from our project finance platform
because they do not need to directly invest in the power
generation equipment and we are obtaining lower costs
for this capital, improving the financial profile of the
projects. Benefits to FuelCell Energy include:
University of Bridgeport
Fuel Cell Microgrid Layout Diagram
Critical Facility
Non-Critical Facility
University micro-grid supporting critical facilities
in the event of a grid disruption
Accelerating order flow as project closure is driven
by execution of a power purchase agreement
Participating in a greater portion of the project value
chain beyond just supplying equipment
Flexibility to selectively retain projects, supporting
higher revenue, margins and cash generation
Recurring and predictable Service revenue, including
power sales, adds stability to financial results
Our Business Model is a Differentiator
We have built our business model to maximize market
opportunity, provide sustainable competitive advantage,
and position the Company for growth, including:
A broad range of applications including on-site power,
utility grid support, carbon capture and distributed
hydrogen using a single and tested technology foundation
Fostering diverse revenue streams from a variety of
products, services and advanced technology offerings
Developing our Services business, which has attractive
margin profiles, maintains customer connectivity and
drives repeat business
Leveraging strategic partners globally for market
development and manufacturing redundancy, along
with cost and capital leverage
Expanding our global customer base of utilities,
municipalities and leading companies
Applying institutional capabilities to new opportunities
such as modeling, building and operating micro-grids
Attracting project finance that provides flexibility for
our customers and FuelCell Energy
Prudently expanding North American capacity in two
phases with long-term, low-interest, partially forgivable
loans from state government
Leveraging private and government research capital to
develop new market applications
Our intellectual property, including patents, trade secrets
and retained institutional knowledge, is critical to the
Company and is well-protected. This intellectual property
is a differentiator that represents significant value and a
sustainable competitive advantage that can’t be easily or
quickly replicated by others. Carbon capture and distributed
hydrogen are examples of the unique market applications
of our intellectual property that have the potential to drive
significant future value.
Our ability to manufacture high volume with consistent
quality is a further differentiator. We are expanding our
North American production facility in two phases with
the benefit of state financial support. Appropriately timing
a capacity expansion requires careful planning and we
feel we are approaching it prudently and at the appropriate
time based on activity levels.
Hydrogen as a Key Energy Source
Hydrogen is an energy carrier that can be created and
stored for various periods of time at affordable prices. We
are pursuing clean and affordable distributed generation of
hydrogen for the global transportation, industrial and energy
storage markets utilizing our leading carbonate and solid
oxide fuel cell technologies.
Our distributed hydrogen strategy for the transportation
market is to locate our tri-generation power plants at
wastewater treatment facilities. The waste biogas is used
as a renewable fuel source and the power and thermal
energy support the facility operation. This 100% renewable
hydrogen can be supplied at an affordable price to fueling
stations serving fuel cell electric vehicles (FCEV) and
fuel cell buses. The strong credit profile of municipalities
buying power and heat attracts private capital so we
assist regulators and legislators with renewable hydrogen
generation that doesn’t require public investment.
Our distributed hydrogen approach for industry utilizes
clean natural gas to generate power, heat and hydrogen,
with the hydrogen used for industrial processes. The
hydrogen produced in a tri-generation plant with natural gas
has a lower carbon footprint than other natural gas-based
hydrogen generators. Our North American manufacturing
3
Generating
renewable
hydrogen for
transportation
that is clean
and affordable
coal/gas-fired plants. As we speak with utilities about the
value of fuel cell parks within their service territory, we are
also highlighting our carbon capture solution so we are
positioned to assist these utilities in addressing a wide
array of challenges they face.
I am pleased with how the Company is positioned entering
2016 with strong partners that are supporting market
access, project finance capital that provides flexibility and
ownership options, a global presence, and most importantly,
an affordable solution that is solving customer challenges.
During 2015, we added power industry and financial
expertise to the Board of Directors with the addition of three
new members. They are each adding new perspectives and
value to the Board and the management team.
Success in any business comes down to talented associates
and we have a solid team ranging from leading scientific
experts in fuel cell technology, process engineers that are
continually improving our manufacturing, construction
managers who deliver projects on-time and on-budget, and
service technicians that monitor and operate the plants
around-the-clock and around-the-world. I would like to
acknowledge and thank all of the talented associates of
FuelCell Energy that are continually improving the Company
for the benefit of our shareholders.
Sincerely,
Arthur (Chip) Bottone
President and
Chief Executive Officer
FuelCell Energy, Inc.
facility utilizes a tri-generation
fuel cell power plant to power
and heat the facility and supply
hydrogen for the process
ovens used to manufacture fuel
cell components. Whether used
with biogas or natural gas, tri-generation is unique in that
it produces hydrogen without consuming water, an attribute
in water-scarce regions.
Our solid oxide fuel cell technology uses a reversing cycle to
affordably create hydrogen for storage or to use and produce
power. Affordable longer-term storage at utility scale is
critical to support the growing deployment of intermittent
power generation.
Global Emphasis on Carbon Reduction
Reducing greenhouse gas emissions has taken on a greater
focus and sense of urgency globally. Fuel cell power plants
are well-suited to help address carbon emissions while
supporting clean air standards and avoiding residual waste.
For example, the State of California has an active carbon
cap-and-trade program. Fuel cells operating on either
clean natural gas or renewable biogas are exempt from the
California carbon emission regulations, due to their high
electrical efficiency, power profile, and lack of combustion.
Both continuous and daily dispatchable power sources are
needed as the energy sector transitions to a cleaner future
and we have configurations to meet these needs.
Our plants are uniquely positioned to help reduce carbon
emissions from coal and gas-fired power plants with a
scalable carbon capture solution. Unlike conventional
carbon capture technologies that use power and represent
an expense, our fuel cell carbon capture solution efficiently
concentrates CO2 from coal/gas plant flue gas as a side
reaction while the fuel cells generate a revenue stream from
selling the power produced. Using natural gas as the fuel
source, we can affordably capture CO2 as well as destroy
approximately 70 percent of the NOx produced by the coal
plant, significantly reducing this smog producing pollutant.
The potential market for affordable and scalable carbon
capture is sizeable, as we are targeting fuel cell projects
of 20 to 50 megawatts located adjacent to existing or new
4
FINANCIAL INFORMATION
Selected Financial Data
Business Overview
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Management’s Annual Report on
Internal Control Over Financial Reporting
Report of Independent Registered
Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and
Comprehensive Income (Loss)
Consolidated Statements of Changes
In Equity (Deficit)
Consolidated Statements of Cash Flows
Notes To Consolidated Financial Statements
Forward-Looking Statement Disclaimer
Shareholder Information
Directors and Officers
7
8
21
32
33
34
35
36
37
38
54
55
56
Annual Report 2015
5
SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of the end of each of the years in the five-year period ended October 31,
2015 have been derived from our audited consolidated financial statements together with the notes thereto included elsewhere in
this annual report. 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 report.
Consolidated Statement of Operations Data:
(Amounts presented in thousands, except for per share amounts)
Revenues:
Product sales
Service agreements and license revenues
Advanced technology contracts
Total revenues
Costs and expenses:
Cost of product sales
Cost of service agreement and license revenues
Cost of advanced technology contracts
Total cost of revenues
Gross profit (loss)
Operating expenses:
Administrative and selling expenses
Research and development costs
Total costs and expenses
Loss from operations
Interest expense
Income (loss) from equity investments
Impairment of equity investment
License fee and royalty income
Other income (expense), net
Redeemable minority interest
Provision for income tax
Net loss
Net loss attributable to noncontrolling interest
Net loss attributable to FuelCell Energy, Inc.
Adjustment for modification of redeemable
preferred stock of subsidiary
Preferred stock dividends
Net loss to common shareholders
Net loss to common shareholders
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
2015
Years Ended October 31,
2014
2013
2012
2011
$128,595
21,012
13,470
163,077
$136,842
25,956
17,495
180,293
$145,071
28,141
14,446
187,658
$ 94,950
18,183
7,470
120,603
$103,007
12,097
7,466
122,570
118,530
18,301
13,470
150,301
12,776
24,226
17,442
41,668
(28,892)
(2,960)
—
—
—
2,442-
—
(274)
(29,684)
325
(29,359)
126,866
23,037
16,664
166,567
13,726
22,797
18,240
41,037
(27,311)
(3,561)
—
—
—
(7,523 )
—
(488)
(38,883)
758
(38,125)
136,989
29,683
13,864
180,536
7,122
21,218
15,717
36,935
(29,813)
(3,973)
46
—
—
(1,208)
—
(371)
(35,319)
961
(34,358)
93,876
19,045
7,237
120,158
445
18,220
14,354
32,574
(32,129)
(2,304)
(645)
(3,602)
1,599
1,244
—
(69)
(35,906)
411
(35,495)
96,525
30,825
7,830
135,180
(12,610)
16,299
16,768
33,067
(45,677)
(2,578)
58
—
1,718
1,047
(525)
(17)
(45,974)
261
(45,713)
—
(3,200)
$ (32,559)
—
(3,200)
$ (41,325)
—
(3,200)
$ (37,558)
—
(3,201)
$ (38,696)
(8,987)
(3,200)
$ (57,900)
$ (1.33)
$ (1.33)
$ (2.02)
$ (2.02)
$ (2.42)
$ (2.42)
$ (2.81)
$ (2.81)
$ (5.58)
$ (5.58)
24,514
24,514
20,474
20,474
15,544
15,544
13,789
13,789
10,375
10,375
Consolidated Balance Sheet Data:
(Amounts presented in thousands, except for per share amounts)
2015
2014
2013
2012
2011
At October 31,
Cash and cash equivalents (1)
Short-term investments (U.S. treasury securities)
Working capital
Total current assets
Total assets
Total current liabilities
Total non-current liabilities
Redeemable preferred stock
Total equity (deficit)
Book value per share (2)
$ 85,740
—
129,010
203,898
277,231
74,888
47,732
59,857
94,754
$ 3.65
$108,833
—
141,970
217,031
280,636
75,061
47,269
59,857
98,449
$ 4.11
$ 77,699
—
83,066
189,329
237,636
106,263
84,708
59,857
(13,192)
$ (0.81)
$ 57,514
—
55,729
140,626
191,485
84,897
32,603
59,857
14,128
$ 0.91
$ 51,415
12,016
18,783
132,948
183,630
114,165
23,983
59,857
(14,375)
$ (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 date.
Annual Report 2015
7
BUSINESS OVERVIEW
BUSINESS
Overview
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
stationary fuel cell power plants for distributed 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 locations on three
continents and have generated more than four billion kilowatt
hours (kWh) of electricity, which is equivalent to powering more
than 391,000 average size U.S. homes for one year. Our growing
installed base 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 operation and maintenance under multi-year
service agreements. We both develop projects and sell direct to
the end-user of the power and utilities, either the full turn-key
solution or the fuel cell equipment only. For projects that we
develop, the end-user of the power enters into a PPA and based
on the project and credit profile, we either identify a project
investor to purchase the power plant, selling the power and
heat under the PPA. We target large-scale power users with our
megawatt-class installations. To provide a frame-of-reference,
one megawatt is adequate to 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 enterprises. Our leading geographic
markets are South Korea and the United States and we are
pursuing expanding opportunities in Asia, Europe, and Canada.
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 pollutant free, operate
quietly and without vibrations, and have only modest space
requirements. 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 by adopting
distributed generation. 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.
Utilizing our core DFC plants, we are commercializing both a
tri-generation distributed hydrogen configuration that generates
electricity, heat and hydrogen for industrial or transportation
uses, and carbon capture for coal or gas-fired power plants.
We also are developing and commercializing SOFC for adjacent
sub-megawatt applications to the markets for our megawatt-
class DFC power plants as well as energy storage applications.
The market potential for these products is sizeable and these
applications are complementary to our core products, as they
leverage our existing customer base, project development, sales
and service expertise.
FuelCell Energy was founded in Connecticut 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
8
FuelCell Energy
in Delaware in 1999. We began selling stationary fuel cell
power plants commercially in 2003. Today we develop turn-
key distributed power generation solutions and provide
comprehensive service for the life of the asset.
MARKETS
Vertical Markets
Access 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 of
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 cost 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.
We have two primary markets for our products. The first is
Ultra-Clean Power consisting of our products operating on
clean natural gas or directed biogas across seven distinct and
diversified vertical markets. The second primary market is
Renewable Power with our products operating on renewable
biogas across four distinct and diversified vertical markets.
These are summarized as follows:
Ultra-Clean Power markets: Renewable Power markets:
1) Wastewater
2) Food and Beverage
3) Agriculture
4) Landfill Gas
1) Utilities and Independent
Power Producers (IPP)
2) Education and Healthcare
3) Gas Transmission
4) Industrial and Data Centers
5) Commercial and Hospitality
6) Oil Production and Refining
7) Government
The utilities and Independent Power Producers segment is our
largest vertical market with customers that include utilities
on both the East and West coast of the USA such as Dominion
(NYSE: D), one of the largest utilities in the USA, Avangrid
Holdings (NYSE: AGR), and NRG Energy (NYSE: NRG), the
largest IPP in the USA. In Europe, utility customers include EON
Connecting Energies (DAX: EOAN), one of the largest utilities in
the world, and Switzerland-based ewz. The greatest number of
installed DFC 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
partner 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 DFC power plants are producing power for a variety of
industrial, commercial, municipal and government customers
including manufacturing, food processing plants, universities,
healthcare facilities and wastewater treatment facilities.
These institutions desire efficient, ultra-clean baseload
power to reduce operating expenses, reduce greenhouse
gas emissions to meet their sustainability goals, and achieve
secure and reliable on-site power. Our products can utilize
either renewable biogas generated by the customer on-site
or directed biogas, generated at a distant location and
transported via the existing gas network.
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 DFC power plants convert this biogas into electricity
and heat efficiently and economically. By doing so, DFC
plants transform waste disposal challenges into clean energy
solutions. The wastewater vertical market is the largest biogas
market for DFC power plants. Since our fuel cells operate on
the renewable biogas produced by the wastewater treatment
process and their heat is used to support daily operations at
the wastewater treatment facility, the overall thermal efficiency
of these installations is very attractive, supporting economics
and sustainability. A 2.8 MW DFC3000 power plant operating
on renewable biogas at a waste water treatment facility in
California is the world’s largest fuel cell plant utilizing on-site
renewable biogas.
We estimate that the distributed generation market and
geographies in which we compete is approximately an $18
billion opportunity, composed of $7 billion of power plant sales
and $11 billion of associated service agreements. We estimate
that the market for distributed hydrogen in the geographies
where we compete is approximately a $7 billion opportunity,
oriented towards industrial applications at this point in time
with transportation application opportunities expanding in
the future. We estimate that the market for carbon capture
configured fuel cell power plants for coal and gas-fired
central generation is approximately $25 billion assuming only
a 1% penetration rate and only 5% carbon capture within the
geographies where we do business.
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. Our installed
base includes a number of locations where our customers use
DFC plants for meeting power needs that complements their
intermittent wind and/or solar power generation.
Geographic Markets
We target geographic markets with high urban density that
value clean distributed generation. We are pursuing a density
strategy, targeting markets with the potential for recurring order
flow that justify investment in local service infrastructure. Our
target markets currently have regulatory and legislative policy
support such as clean air requirements and economic incentives
to support the adoption of clean and renewable distributed
power generation. Renewable Portfolio Standards (RPS) is a
mechanism designed to promote the adoption of renewable
power generation and is one market enabler for demand of our
power generation solutions. Fuel cells can play a role in meeting
RPS clean power mandates by generating highly efficient, clean
electricity continuously and near the point of use.
United States: We have active business development activities
in the Northeast and on the West Coast where high population
density, higher energy costs, the need for distributed generation
solutions with a small footprint, and public policy value our
product offerings. Most of our installed base in the USA is
located in California and Connecticut, both of which have
enacted RPS programs. As states look to meet their RPS
requirements and utilities further deploy distributed generation
to meet consumer demand and improve the resiliency of their
service network, we see significant opportunities to grow
our U.S. footprint. Trends away from central generation to a
distributed generation model are supportive of demand and our
initiatives to continue to improve affordability are expected to
lead to increased adoption. Both our standard DFC plants and
the carbon capture configuration can support the Environmental
Protection Agency Clean Power Plan, announced in mid-2015.
South Korea and the Broader Asia Market: High efficiency fuel
cells are well-suited for South Korea due to the need to import
fuel for power generation, ease of siting in populated areas,
and high urban density that makes siting transmission more
difficult. Intermittent renewable technologies such as solar and
wind are not as well suited due to the geography (high urban
densities limit available land for power generation) and climate/
topography. The South Korean government has made clean
distributed generation power sources a priority to support its
growing power needs while minimizing additional investment
and congestion of the transmission grid. Fuel cells address
these needs and have been designated a key economic driver for
the country due to their ultra-clean emissions, high efficiency
and reliable distributed generation capabilities that are helping
South Korea achieve its RPS and electricity generation goals.
The RPS in South Korea requires an increase of new and
renewable power generation to 10% by 2024 from 2% in 2012.
The program mandates the addition of 0.5% of renewable
power generation per year through 2016, which equates to
approximately 350 megawatts, increasing to I% per year through
2022 or approximately 700 megawatts per year. Fuel cells
operating on natural gas and biogas qualify under the mandates
of the program.
Select Asian markets with high urban densities, lack of
domestic fuel sources, movement away from nuclear power,
and a need for cleaner power to reduce smog represent
market opportunities. Highly efficient fuel cells maximize
power output from high cost imported fuel, and do so without
the need to add costly transmission.
Europe: The European power generation market values
distributed generation, efficiency and low emissions and
represents opportunity for stationary fuel cell power plants,
particularly Germany, as it transitions away from nuclear
power generation and struggles to integrate a significant
amount of intermittent power generation capacity; the United
Kingdom, as it works to achieve aggressive carbon reduction
goals; Italy with growing adoption of distributed generation;
and other West European countries. FuelCell Energy Solutions,
GmbH (FCES), with its German manufacturing base, is the
sales, manufacturing and service business for the European
Served Area for FuelCell Energy, Inc. FCES is a joint venture
that is 89% owned by FuelCell Energy and 11% owned by
German-based Fraunhofer Institute for Ceramic Technologies
and Systems IKTS (Fraunhofer IKTS). Fraunhofer IKTS focuses
on the development of new energy supply systems using
ceramic system components, including fuel cells. As discussed
in greater detail in the following section, Fraunhofer IKTS
has expertise in fuel cell technology and is assisting with the
development of the European market for our products.
Annual Report 2015
9
STRATEGIC ALLIANCES
We leverage our core capabilities by forging strategic alliances
with carefully selected business partners that bring power
generation experience, financial resources, and market
access. Our partners 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 partners’ understanding of broad range of
markets and customers, products and services, enhances the
sales and development of our products, as well as providing
endorsement of our power generation solutions. Our global
business partners include:
NRG Energy: In 2013, we entered into a teaming and co-
marketing agreement with NRG Energy (NYSE: NRG),
encompassing both direct sales to NRG Energy customers
in North America as well as sales to NRG Energy, who will
own the fuel cell power plants and sell the power and heat
to the end user under power purchase agreements. NRG
owns approximately 1.4 million shares of our common stock
or approximately 5% of our outstanding shares, extends a
$40 million revolving construction and term financing facility
to FuelCell Finance, our wholly-owned subsidiary, and a
senior NRG executive is a member of the FuelCell Energy
Board of Directors. NRG is the largest IPP in the U.S. with
approximately 50,000 megawatts of generation capacity and
almost three million retail and commercial customers. We
are actively marketing with NRG Energy to their existing
customer base.
POSCO Energy: We partner with POSCO Energy, an IPP with
2014 annual revenues of approximately $2.2 billion and a
subsidiary of South Korean-based POSCO, one of the world’s
largest steel manufacturers (NYSE: PKX), with 2014 annual
revenue of approximately $60 billion. POSCO Energy owns 2.6
million of our common shares or approximately 10% of our
outstanding shares. POSCO Energy has extensive experience in
power plant project development, owning and operating power
plants in multiple countries and is the largest independent
power producer in South Korea.
Our relationship with POSCO Energy has expanded to support
growing market demand for clean distributed generation.
The relationship began in 2003 with the sale of a sub-mega-
watt demonstration plant and South Korea is now our largest
market, including a 59 megawatt facility, the world’s largest
fuel cell park consisting of 21 DFC3000 power plants. POSCO
Energy is a licensed manufacturer for Asia of our products and
collaborates with the Company on many market and product
development initiatives.
Fraunhofer IKTS: The Fraunhofer Institute for Ceramic
Technologies and Systems IKTS is the minority shareholder
in FCES. Fraunhofer IKTS, with its staff of approximately 600
engineers, scientists and technicians, is a world leading institute
in the field of advanced ceramics for high tech applications,
including fuel cells. The parent organization, Fraunhofer, was
founded in 1949 and is Europe’s largest application-oriented
research organization with an annual research budget of €2
billion (approximately $2.4 billion) and approximately 24,000
staff, primarily scientists and engineers. Fraunhofer maintains
66 research centers and representative offices in Europe, USA,
Asia and the Middle East.
10
FuelCell Energy
Fraunhofer IKTS contributed proprietary carbonate fuel cell
technology and patents to FCES. In addition, Fraunhofer IKTS
is contributing their expertise and extensive research and
development capabilities with fuel cells and materials science
as well as sharing their industry and government relationships.
E.ON Connecting Energies GmbH: During fiscal year 2015,
we executed a Project Development Agreement with E.ON
Connecting Energies GmbH to offer decentralized CHP
solutions with megawatt and multi-megawatt fuel cell
power plants to EON’s existing and prospective customer
base, via a power purchase agreement financing or leasing
structure. The first sale announced under this agreement
was a CHP configured fuel cell plant installation at a German
manufacturing company. E.ON will own the power plant and
FuelCell Energy Solutions will install, operate and maintain
the plant under a long-term service agreement. With
approximately 59,000 megawatts of power generation assets,
a presence in more than 14 countries, and more than 58,000
employees, E.ON is one of the world’s largest utilities.
BUSINESS STRATEGY
Our business model consists of growing and expanding diverse
revenue streams, selectively utilizing strategic partnerships
for market development and cost reductions, protecting
and leveraging intellectual property to generate value, and
identifying and developing new markets for our core technology.
Revenue streams include power plant and component sales,
engineering, procurement and construction (EPC) revenue,
royalty and license revenue, service revenue including long-term
service agreements and the sale of power under PPA’s, and
revenue from public and private industry research contracts
under Advanced Technologies.
Our Company vision is to provide ultra-clean, highly efficient,
reliable distributed power generation at a cost per kilowatt
hour that is less than the cost of grid-delivered electricity in
our target markets. We have a clear path to attaining this vision
through increased Market Adoption and continued reduction in
the Levelized Cost of Energy (LCOE) for our fuel cell projects.
We believe our vision can be achieved more broadly and without
incentives, at a global production volume of approximately 210
megawatts annually.
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, 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 USA and California. We have also installed
and are operating plants in the United Kingdom, Germany, and
Switzerland and are pursuing further opportunities in Western
Europe and certain other states in the USA. We selectively
partner with some of the leading 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 distributed generation
has the potential to disrupt existing utility models, it is being
embraced in an increasing number of markets to improve grid
operations. We work with utilities and IPPs to demonstrate how
our solutions complement central generation by incrementally
adding clean power generation when and where needed. It takes
time to build awareness with prospective customers and develop
an operating history. We believe that we have a strong business
model and strategy, demonstrated project development
execution and plant operating performance and committed
partners which will enable the Company to overcome these
challenges and grow into a sustainable business.
Levelized Cost of Energy
Our fuel cell projects are delivering power at a rate comparable
to pricing from the grid in our targeted markets. Federal and
state level 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) 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.
The Company is integrated across substantially the entire value
chain for our projects. We design and own our proprietary fuel
cell technology, we sell direct and through partners, we develop
and execute comprehensive fuel cell turn-key projects, and
manufacture, install, operate and service our plants. Given this
level of integration, there are multiple areas and opportunities
for cost reductions. There are four primary elements to LCOE
for our fuel cell projects, including 1) Capital Cost, 2) Operations
and Maintenance, 3) Fuel, and 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 reducing the per-unit cost
of materials purchasing from higher volumes, supported by
continued actions with engineering and manufacturing cost
reductions. We recently integrated a global supply chain with
our Asian partner, POSCO Energy so as Asian production leads
to increased levels of purchasing from the integrated global
supply chain, both FuelCell Energy and POSCO Energy will
benefit with reductions in LCOE by obtaining lower pricing
tiers from suppliers from the greater combined purchasing
volume. On-site, our experienced Engineering, Procurement
and Construction (“EPC”) team has substantial experience
in working with contractors and local utilities to safely and
efficiently execute our projects and we expect continued cost
reduction in this area with experience and continued transition
to multi-MW fuel cell parks. In addition to these cost reduction
efforts, our technology roadmap includes plans to increase
the output of our power plants which will add further value
for our customers and reduce LCOE.
• Operations and Maintenance - We provide services to
remotely monitor, operate, and maintain customer power
plants to meet specified performance levels. Operations
and maintenance (O&M) is a key driver for power plants
to deliver on projected electrical output and revenues for
our customers. Many of our service agreements include
guarantees for system performance levels including
electrical output. While the electrical and mechanical
balance of plant (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 developing fuel cells that
have a longer life which will reduce O&M costs by increasing
our scheduled module replacement period to seven years.
• Fuel - Our fuel cells directly convert chemical energy (fuel)
into electricity, heat, water and in certain configurations,
other value streams such as high purity hydrogen. 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 (C02) and only trace levels of pollutants compared to
combustion-type power generation. Our power plants operate
on a variety of existing and readily available fuels including
natural gas, renewable biogas, directed biogas and propane.
Our core DFC power plants deliver electrical efficiencies of
47% and hybrid applications and advanced configurations are
capable of delivering electrical efficiencies of 60% or greater.
In a CHP configuration, our plants can deliver up to 90% total
system efficiency, depending on the application. Increasing
electrical efficiency and reducing fuel costs is a key element
of our operating cost reduction efforts.
• Cost of Capital - Most of our MW scale projects are financed
either by the 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 added 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 witnessing greater interest
in the pay-as -you-go approach by end users 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
given our operating experience. With continued execution, we
expect our ability to attract bank credit, financial and project
performance credibility to continue to improve which we
expect will lead to further decreases in financing costs.
Annual Report 2015
11
Today, on an unsubsidized basis, our LCOE is approximately
$0.12/kWh with natural 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 LCOE is
approximately 1/3 fuel costs, 1/3 for both cost of capital and
capital costs, and 1/3 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 to
be similar on a percentage basis in Europe and Asia. An LCOE
in the range of $0.09-$0.11/kWh will enable pricing below the
electric grid without incentives, which we expect will accelerate
adoption and broaden potential target markets.
Our core fuel cell platform is versatile and part of our strategy
is finding new applications for our power generation solution.
Advanced Technology Programs, discussed in 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 oxide fuel cell technology.
PRODUCTS
Our core fuel cell products (Direct FuelCell® or DFC® power
plants) offer ultra-clean, highly efficient power generation
for customers including the 2.8 MW DFC3000®, the 1.4 MW
DFC1500® and the 300 kW DFC300® 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) services, O&M and project finance.
Our proprietary DFC 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. This “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. The Direct FuelCell operates
at approximately 1,200° Fahrenheit. 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 exchange membrane (PEM) and
phosphoric acid. 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 DFC product line is a global platform based on carbonate
fuel cell technologic. Utilizing 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,
12
FuelCell Energy
produces virtually no 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, suitable for making
steam or hot water for facility use as well as absorption
cooling. System efficiencies can reach up to 90%, depending
on the application, when configured for CHP.
We market different configurations of the DFC plants to meet
specific market needs, including:
• 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 their associated cost, pollutants and
carbon emissions. On-site CHP power projects generally
range in size from a single 1.4 MW DFC1500 to combining
multiple 2.8 MW DRC3000 power plants for projects up to
about 14 MW in size.
• Utility Grid Support: The DFC power plants are scalable,
which enables siting multiple fuel cell power plants together
in a fuel cell park. Fuel cell parks enable utilities to add
clean and continuous power generation when and where
needed and enhance the resiliency of the electric grid by
reducing reliance on large central generation plants and
the associated transmission grid. Consolidating certain
steps for multiple plants, such as fuel processing, reduces
the cost per megawatt hour for fuel cell parks compared to
individual fuel cell power plants. Fuel cell park examples
include a five plant, 14.9 MW fuel cell park in Bridgeport,
Connecticut that is supplying the electric grid, and multiple
fuel cell parks in South Korea in excess of 10 megawatts
each that supply power to the electric grid and high quality
heat to district heating systems, such as a 59 MW installation
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. The DFC 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 plants operating within micro-grids, some individually
and some with other forms of power generation.
• Higher Electrical Efficiency - Multi-megawatt applications:
The HEFCTM (High Efficiency Fuel Cell) system is configured
with a series of three fuel cell modules that operate in
sequence, yielding a higher electrical efficiency than the
standard DFC3000 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,
along with some natural gas to generate additional
electricity. The HEFC configuration is designed to extract
more electrical power from each unit of fuel with electrical
efficiency of approximately 60%. The HEFC system is
targeted at applications with large load requirements and
limited waste heat utilization such as utility/grid support or
data center.
• Gas Pipeline Applications: DFC-ERG® (Direct FuelCell
Energy Recovery GenerationTM) (DFC-ERG) power plants
are used in natural gas pipeline applications, harnessing
energy that is otherwise lost during the station’s natural
gas pressure-reduction (“letdown”) process. Also, thermal
energy produced as a byproduct of the fuel cell’s operation
supports the letdown process, improving the station’s carbon
footprint and enhancing the project’s economics. Depending
on the specific gas flows and application, the DFC-ERG
configuration is capable of achieving electrical efficiencies
up to 70%. A 3.4 megawatt DFC-ERG system is being
installed in Connecticut, purchased by UIL Holdings.
• Carbon Capture: The DFC carbon capture system separates
C02 from the flue gases of natural gas or coal-fired power
plants or industrial facilities while producing ultra-clean
power. Exhaust flue gas from the coal/gas plant is supplied
to the cathode side of the fuel cell, instead of ambient air.
The C02 in the exhaust is transferred to the anode side of the
fuel cell, where it is much more concentrated and easy to
separate. The C02 from the anode exhaust stream is liquefied
using common chilling equipment. The purified C02 is then
available for enhanced oil recovery, industrial applications
or sequestration. Carbon concentration and capture within
the carbonate fuel cell is a side reaction of the natural gas-
fueled power generation process. Carbon capture systems
can be implemented in increments, starting with as little as
5% capture with no appreciable change in the cost of power
and with minimum capital outlay. Our solution generates a
return on capital resulting from the fuel cell’s production
of electricity rather than increase in operating expense
required by other carbon capture technologies, and can
extend the life of existing coal-fired power plants, enabling
low carbon utilization of domestic coal and gas resources.
We are currently evaluating sites with coal plant operators
for the first installation of a carbon capture configured
DFC3000 power plant, which will be partially funded by
the US Department of Energy under an award received
in September of this year.
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.
We are offering a dispatchability option for utility-scale
applications where some degree of power production cycling is
valued on a pre-determined schedule to accommodate periods
of lower power demand. Our power plants can also provide
reactive power avoiding the need for separate static or dynamic
VAR (volt-ampere reactive) compensation systems.
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 plants 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 reach up to 90%,
depending on the application.
• Reliability/continuous operation: Our DFC 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 DFC power plants operate on a variety
of existing and readily available fuels including natural gas,
renewable biogas, directed biogas and propane.
• Scalability: Our DFC power plants 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.
• Distributed Hydrogen: The DFC fuel cells internally
• Quiet operation: Because they produce power without
reform the fuel source (i.e. natural gas or biogas) to obtain
hydrogen. DFC plants can be configured for tri-generation,
supplying power, heat and high purity hydrogen. Power
output is modestly reduced 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
combustion and contain very few moving parts, our DFC
power plants operate quietly and without vibrations.
• Easy to site: Our DFC 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 similar rated output. These characteristics facilitate the
installation of the power plants in urban locations with
scarce and expensive land.
Annual Report 2015
13
DFC Emissions Profile
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 (C02) 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 efficiency power plants:
Average U.S. Fossil Fuel Plant
Microturbine (60 kW)
Small Gas Turbine
DFC® Power Plant
HEFCTM High Efficiency Fuel Cell Plant
For power plants operating on natural gas, higher fuel efficiency
results in lower CO2, and also results in less fuel needed per
kWh of electricity generated and Btu of heat produced. The high
efficiency of our products results in significantly less C02 per
unit of power production compared to the average U.S. fossil
fuel power plant, and the carbon emissions are reduced even
further when configured for combined heat and power. When
operating on renewable biogas, government agencies and
regulatory bodies generally classify our power plants as carbon
neutral due to the renewable nature of the fuel source.
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% total efficiency in a CHP configuration,
depending on the application. The electric grid in the United
States is only approximately 36% electrically efficient and
does not support CHP configurations.
MANUFACTURING
We design and manufacture the core DFC fuel cell components
that are stacked on top of each other to build a fuel cell stack.
For MW 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 and expertise. BOP components are shipped
directly to a customer’s site and are assembled with the
fuel cell module into a complete power plant.
Cell Manufacturing and Capacity
Our strategy is to produce power for prices that are below
typical grid prices. Without incentives, annual global
production of approximately 210 MW will provide the needed
cost reductions to support these price targets. Higher
purchasing volume reduces the per unit cost of raw materials
and componentry. As explained below, the North American
production facility has an annual capacity of 100 MW with an
14
FuelCell Energy
Emissions (Lbs. Per MWh)
NOX
5.06
0.44
1.15
0.01
0.01
SO2
11.6
0.008
0.008
0.0001
0.0001
PM10
0.27
0.09
0.08
0.00002
0.00002
CO2
2,031
1,596
1,494
940
740
CO2 with CHP
NA
520 - 680
520 - 680
520 - 680
520 - 680
expansion underway, and the Asian manufacturing, owned and
operated by our partner, POSCO Energy, has 100 MW of annual
capacity in a building that is sized for 200 MW annually. Our
global cell manufacturing capabilities are described below:
North America: We operate a 65,000 square-foot
manufacturing facility in Torrington, Connecticut where we
produce the DFC cell packages and assemble the fuel cell
modules. The completed modules are then conditioned
at our facility in Danbury, Connecticut for the final step in
the manufacturing process and shipped to customer sites.
Our overall DFC manufacturing process in North America
(module manufacturing, final assembly, testing and
conditioning) has a production capacity of 100 MW per
year, with full utilization under its current configuration.
We are undertaking a multi-year project to reduce costs and
position ourselves for future growth in two phases. The first
phase is underway to add a 102,000 square-foot addition
of our North American manufacturing facility. The building
expansion will allow for consolidation of warehousing and
service facilities enabling manufacturing efficiencies by
providing the needed space to reconfigure production. The fuel
cell module conditioning process will be moved to Torrington
from Danbury, for example. As demand supports, the second
phase will involve the addition of manufacturing equipment to
increase annual capacity to at least 200 megawatts. The State
of Connecticut is extending two low interest long-term loans
to us for each of the two phases and up to $10 million of tax
credits. Each loan is $10 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, and Field
Service are ISO 900I:2008 certified, reinforcing the tenets of
the FuelCell Energy Quality Management System and our core
values of continual improvement and commitment to quality.
South Korea: Given the strong demand in Asia, POSCO Energy
built a cell manufacturing facility in Pohang, Korea and the
facility became operational in late 2015. Annual production
capacity is I00 MW and the building is sized to accommodate
up to 200 MW of annual production to support future growth
in the Asian market.
Additionally, under a multi-year order that began in 2012
and concludes at the end of 2016, DFC components are
manufactured in the USA and then shipped to South Korea
for assembly of modules and conditioning.
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.
financing and can assist customers in certain situations
when the commercial operating date is time sensitive.
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 Asian production facilities.
In addition to manufacturing the fuel cell module in our
Torrington facility, the electrical and mechanical BOP are
assembled by and procured from several suppliers. All of our
suppliers must undergo a qualification process. We continually
evaluate new suppliers and are currently qualifying several
new suppliers. We purchase mechanical and electrical balance
of plant componentry from third-party vendors, based on our
own proprietary designs.
Product Cost Reduction
Our overall cost reduction strategy is based on the assumption
that continued increases in production will result in further
economies of scale, reducing the per-unit cost of the raw
materials and componentry we purchase. In addition, our
cost reduction strategy relies on implementation of further
advancements in our manufacturing process, global
competitive sourcing integrated with POSCO sourcing volumes,
engineering design and technology improvements (including
modules with longer life and increased module power output).
We have a broad range of initiatives to reduce costs and
improve our overall project affordability.
Improvements in affordability, driven by product cost
reductions, are critical for us to accelerate market adoption
of our fuel cell products and attain company profitability.
Cost reductions will also reduce or eliminate the need for
incentive funding programs which currently allow us to price
our products to compete with grid-delivered power and other
distributed generation technologies.
We have reduced the product cost of our megawatt-class
power plants by more than 60% from the first commercial
installation in 2003 through engineering redesign, sourcing,
and improved power output and module life. Growing
purchasing volume has reduced costs and strengthened the
supply chain by enabling direct purchasing rather than through
distributors and the ability to access stronger national and
international suppliers rather than small local or regional
fabricators. Once POSCO’s Asian manufacturing facility is
operational, we expect that increased levels of purchasing
from the integrated global supply chain, whether by POSCO
Energy or the Company, will benefit both parties by obtaining
lower pricing tiers from suppliers from the greater combined
purchasing volume.
Engineering, Procurement and Construction
We provide customers with complete turn-key solutions
including the development, engineering, procurement,
construction, operations and interconnection for our fuel cell
projects. From an Engineering, Procurement and Construction
(EPC) standpoint, FCE has an extensive history of safe and timely
delivery of turn-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. states and some European countries with
an exemplary safety record. The ability to rapidly and safely
execute installations minimizes high cost construction period
SERVICES AND WARRANTY AGREEMENTS
We offer a comprehensive portfolio of services including:
engineering, project management and installation, 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 all of our customers
purchase service agreements ranging 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 the 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.
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. Our warranty is
limited to a tenn generally 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. We accrue for estimated
future warranty costs based on historical experience.
LICENSE AGREEMENTS AND ROYALTY INCOME
We 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 to manufacture
Direct FuelCell power plants in South Korea and the market
access to sell power plants throughout Asia for an initial term
of 15 years with two renewal options of five years each. In
conjunction with the CTTA, the Company receives 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 terms of the Master Service
Agreement between the Company and POSCO Energy.
Annual Report 2015
15
We expect royalties to be a growing revenue and margin stream
for the Company as POSCO Energy continues to develop the
market in Asia and deploy DFC power plants. As we expand into
other vertical or geographic markets, we may pursue additional
licensing and royalty opportunities.
ADVANCED TECHNOLOGY PROGRAMS (THIRD-PARTY
FUNDED RESEARCH AND DEVELOPMENT)
We undertake both public and privately-funded 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 the versatility of our fuel cell power
plants and contributes to the development of potentially
new end markets. Our power plants provide various value
streams including clean electricity, high quality usable heat,
hydrogen suitable for vehicle fueling or industrial purposes
as well as use of DFC power plants to concentrate carbon
dioxide from coal and natural gas fired power plants. Our
Advanced Technology Programs are focused on three
strategic areas for commercialization within a reasonable
timeframe: (1) Distributed hydrogen production, compression,
and recovery, (2) Carbon capture for emissions reduction
and power generation and (3) Solid oxide fuel cells (SOFC)
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 technologies contract revenues” and “Cost of
advanced technologies contract revenues,” respectively, in our
consolidated financial statements.
We have 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), Office
of Naval Research (ONR), and the National Aeronautics and
Space Administration (NASA). Government funding, principally
from the DOE, provided 6%, 6%, and 5% of our revenue for
the fiscal years ended 2015, 2014 and 2013, respectively.
Significant commercialization programs on which we are
currently working include:
Distributed hydrogen production, compression, and
recovery - On-site or distributed hydrogen generation
represents an attractive market for the DFC technology. Our
high temperature DFC power plant generates 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. This value-added proposition
may be compelling for industrial users of hydrogen and
transportation applications, further summarized as follows:
Industrial Applications: We are currently operating a
tri-generation DFC300-H2 power plant at our Torrington
manufacturing facility, utilizing natural gas to supply
1) electricity for the facility, 2) heat for the building, and
3) 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.
Vehicle Fueling Applications: A tri-generation DFC300-H2
power plant completed a three-year demonstration at the
Orange County Wastewater Treatment Facility in Irvine,
California, utilizing renewable biogas to supply hydrogen
for use in fuel cell vehicle fueling and clean renewable
electricity. The demonstration was performed under sub-
contract to Air Products (NYSE: APD) with funding provided
by the DOE, California Air Resources Board, South Coast Air
Quality Management District, the Orange County Sanitation
District, and Southern California Gas Company.
Carbon Capture - Coal and natural gas are abundant, low
cost, domestic resources that are widely used to generate
electricity, but with a significant carbon footprint. 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 domestic fuels. Our
carbonate fuel cell technology separates and concentrates
carbon dioxide (C02) as a side reaction during the power
generation process. DFC carbon capture research conducted
by us has demonstrated that this is a viable technology for
the efficient separation of C02 from coal or natural gas power
plant exhaust streams. Capturing C02 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 recently received an award
from the US Department of Energy to design and build the first
MW-scale carbon capture system, after having proven the
technology in cell and sub-megawatt stack tests. The project
will be installed at an operating coal fired power plant, and we
are currently in discussions with a number of possible utility
site hosts. Following the DOE-supported project, which will be
based on one DFC3000 plant modified for carbon capture, a
second phase is planned which will involve the installation of
up to eleven additional fuel cell power plants, for 25 megawatts
of fuel cell power plants in total.
Solid oxide fuel cell (SOFC) development and
commercialization - We are working towards commercialization
of solid oxide fuel cell technology to target sub-megawatt
commercial applications including smaller wastewater
treatment facilities that do not have enough gas production to
support a multi-megawatt solution and storage applications
utilizing hydrogen. The potential market opportunity for sub-
megawatt applications is for customers that need on-site power
generation in either combined heat and power or electric-
only configurations. SOFC technology is complementary to
our carbonate technology-based MW scale DFC product line
and affords us the opportunity to leverage our field operating
history, existing expertise in power plant design, fuel processing
and high volume manufacturing and will leverage our existing
installation and service infrastructure.
We have been a prime contractor in the DOE’s Solid State
Energy Conversion Alliance (SECA) since 2003 and are currently
finishing an award that commenced in September 2014 to
demonstrate a sub-megawatt 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.
16
FuelCell Energy
We see significant market opportunities for Distributed
Hydrogen Production, Carbon Capture, Solid Oxide Fuel Cells
solutions and energy storage. The demonstration projects
described above are steps on the commercialization road map
as we prudently leverage third-party resources and funding
to accelerate the commercialization and realize the market
potential for each of these solutions.
RESEARCH AND DEVELOPMENT (COMPANY-FUNDED
RESEARCH AND DEVELOPMENT)
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. 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. Greater power output and improved longevity
will lead to improved gross margin profitability on a per 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 also 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, are
as follows:
Years Ended October 31,
(dollars in thousands)
2015
2014
2013
Cost of advanced technologies
contract revenues
Research and development
expenses
Total research and
development
$13,470 $16,664 $13,864
17,442
18,240
15,717
$30,912 $34,904
$29,581
COMPETITION
The electric generation market is competitive with continually
evolving participants. Our DFC 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.
Fuel cell technologies are classified according to the electrolyte
used by each fuel cell type. Our DFC technology utilizes a
carbonate electrolyte. Carbonate-based fuel cells offer a
number of advantages over other types of fuel cells designed for
megawatt-class commercial applications. 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 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 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
Technology
Carbonate (CFC)
Phosphoric Acid
(PAFC)
Solid Oxide (SOFC)
PEM/SOFC
Mobile
Polymer
Electrolyte
Membrane (PEM)
Plant Size
300kW - 2.8 MW or
higher
400kW
up to 240 kW
< 10 kW
5 - 100 kW
Typical Application
Utilities,
universities,
industrial - baseload
Commercial
buildings -
baseload
Commercial
buildings -
baseload
Residential and
small commerical
Transportation
Fuel
Advantages
Natural gas,
biogas, others
Natural gas
Natural gas
Natural gas
Hydrogen
Efficiency, lowest cost,
fuel flexible & CHP
CHP
Efficiency
Load following &
CHP
Load following
Electrical Efficiency
CHP
43% - 47% (or higher
w/hybrid or HEFC
configuration)
Steam, hot water,
chilling &
hybrid electrical
applications
40% - 42%
50% - 60%
25% - 35%
25% - 35%
Hot water,
chilling
Depends on
technology used
Suitable for
facility heating
n/a
Annual Report 2015
17
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
commercialization of stationary carbonate fuel cells. Emerging
fuel cell technologies (and the companies developing them)
include stationary PEM fuel cells (Ballard Power Systems),
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, Bloom
Energy), and small residential solid oxide fuel cells (Parker
Hannifin, Toyota/Kyocera and Ceramic Fuel Cells Ltd.). Each of
these competitors with stationary fuel cell applications has the
potential to capture market share in our target markets.
There are other potential fuel cell competitors internationally.
In Japan, Fuji Electric has been involved with both PEM and
phosphoric acid fuel cells and Panasonic is involved with PEM
fuel cells for micro-CHP applications. In the United Kingdom,
AFC Energy is engaged in alkaline fuel cell development and
Intelligent Energy Holdings is engaged in PEM development
for consumer products and transportation.
Other than fuel cell developers, we also 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 solar and wind, but can complement their
intermittency with the continuous power output of the fuel
cells. Solar and wind require specific geographies and weather
profiles, as well as up to ten times the land requirements of
our DFC plants, making them difficult to site 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 DFC 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 Onsite and H2 Logic. Hydrogenics is pursuing both
transportation and utility-scale electrolyzer applications.
INCENTIVE PROGRAMS
We are continuing to transition 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. Support programs for
fuel cells, depending on the jurisdiction, include renewable
portfolio standards, feed-in tariffs and 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.
In the United States, the federal government provides an
uncapped investment tax credit (ITC) that allows a taxpayer
to claim a credit of 30% of qualified expenditures (up to a
tax credit limit of $3,000/kW) for eligible power generation
technologies, including fuel cell power plants, that are placed
in service on or before December 31, 2016. In December 2015,
the United States Congress extended the ITC for 5 years,
beginning on January 1, 2017, and phased down to 26% in
2020 and 22% in 2021. The intention, as publicly stated by
Congressional leaders, was to extend the ITC to all eligible
technologies; however, the actual approved language only
extended the ITC for solar energy technologies. Senior
Congressional leadership, as stated in the Congressional
Record on December 18, 2015 and in the media, acknowledged
a drafting issue with the legislation and their commitment
to correct this oversight in early 2016. The expectation is
that a bill will be introduced for vote to include all eligible
technologies in the ITC extension, including fuel cells. The
ITC is a primary economic driver of fuel cell projects in the
USA. The ITC expiration at the end of 2016 (unless extended)
underscores the need for the LCOE on our projects to continue
to decline to grid parity and below. While the expiration of
the 30% ITC poses some potential uncertainty in the USA,
we believe that our LCOE reduction plans can off-set the
potential impact, if for some reason Congress does not follow
through with including all eligible technologies in the ITC
extension. The federal government also provides accelerated
depreciation for eligible fuel cell projects.
The majority of states in the U.S. have enacted legislation
adopting Renewable Portfolio Standards (RPS) mechanisms.
Under an RPS, regulated utilities and other load serving
entities are required to procure a specified percentage of their
total electricity sales to end-user customers from eligible
renewable resources, by a specified date. RPS legislation
and implementing regulations vary significantly from state to
state, particularly with respect to the percentage of renewable
energy required to achieve the state’s RPS, the definition of
eligible renewable energy resources, and the extent to which
renewable energy credits (certificates representing the
generation of renewable energy) qualify for RPS compliance.
Fuel cells using biogas qualify as renewable power generation
technology in all of the RPS states in the U.S., and eight states
specify that fuel cells operating on natural gas are also eligible
for these initiatives in recognition of the high efficiency of fuel
cells and near-zero pollutants.
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FuelCell Energy
In addition to RPS programs, states and municipalities in
the USA have also adopted programs for which our products
qualify. Most notably there are strong programs in California
supporting self-generation, clean air power generation and
carbon reduction. In the Northeast, Connecticut, New York
and New Jersey all have programs supporting on-site power
production, combined heat and power applications, carbon
reduction, grid resiliency/micro-grids and utility ownership
of fuel cell projects.
Internationally, South Korea has adopted an RPS to promote
clean energy, reduce carbon emissions, and develop a local
green-industry to accelerate economic growth. The RPS is
designed to increase renewable power generation to ten percent
of total power generation by 2022 from two percent in 2012
by requiring an additional one half of one percent of new &
renewable power added annually from 2012 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 have in excess of 500 MW of power
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.
In Europe, there are a number of renewable energy programs
and several feed-in tariffs which contribute to growth in
our markets. In addition, there are a variety of research and
development funding programs for fuel cells and hydrogen at
the European Union-level as well as state-level within specific
countries. In Germany, there are several financial incentives
for stationary fuel cell power plants operating on either
natural gas or renewable biogas. CHP configurations receive
additional incentives as the German government is targeting
25% of electricity generation to include CHP by 2020, up from
the current level of 22%. Germany uses a power production
bonus as the foundational incentive program driving adoption
of CHP, and the National Organization Hydrogen and Fuel Cell
Technology (NOW) program as the tool to differentiate fuel
cells versus combustion-based technology.
GOVERNMENT REGULATION
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 CO2 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. Due to the
high temperature of the flue gas emissions, we are required
to site or configure our power plants in a manner that allows
the flue gas to be vented at acceptable and safe distances. The
discharge of water from our power plants requires permits
that depend on whether the water is to be discharged into a
storm drain or into the local wastewater system.
We are also subject to federal, state, provincial or local
regulation with respect to, among other things, emissions and
siting. In addition, utility companies and several states in the
USA 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. We are dedicated to
seeing that safety and health hazards are adequately addressed
through appropriate work practices, training and procedures.
PROPRIETARY RIGHTS AND LICENSED TECHNOLOGY
Our intellectual property consists of patents, trade secrets and
institutional knowledge that we feel 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) 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’t be easily or quickly replicated and combined
with our trade secrets, proprietary processes and patents,
safeguard our intellectual property rights.
As of October 31, 2015, the Company, excluding its subsidiaries,
has 93 patents in the U.S. and 94 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 FuelCell technology, SOFC
technology, PEM fuel cell technology, and applications thereof.
We also have 10 patent applications pending in the U.S. and
56 pending in other jurisdictions. Our U.S. patents will expire
between 2016 and 2033, and the current average remaining life
of our U.S. patents is approximately 10.2 years.
Our subsidiary, Versa Power Systems, Inc., has 30 current
U.S. patents and 73 international patents covering their SOFC
technology (in certain cases covering the same technology in
multiple jurisdictions), with an average remaining U.S. patent
life of approximately 8.7 years. Versa Power Systems, Inc. also
has 3 pending U.S. patent applications and 9 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 as well as
9 U.S. and 49 patents outside the U.S. for carbonate fuel cell
technology licensed from its co-owner, Fraunhofer IKTS.
No patents have expired 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.
Annual Report 2015
19
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.
the sustainability concept of “cradle-to-cradle.” 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 plant 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.
SIGNIFICANT CUSTOMERS AND INFORMATION ABOUT
GEOGRAPHIC AREAS
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, 2014 and 2013, our
top customers, POSCO Energy (which is a related party and owns
approximately 10% of the outstanding common shares of the
Company), The United Illuminating Company, Dominion Bridgeport
Fuel Cell, LLC, Department of Energy, Pepperidge Farms and NRG
Energy (which is a related party and owns approximately 5%
of the outstanding common shares of the Company), accounted
for an aggregate of 94%, 88% and 88%, 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,
2015
2014
2013
POSCO Energy
The United Illuminating Company
Dominion Bridgeport Fuel Cell, LLC
Department of Energy
Pepperidge Farms
NRG Energy
67%
14%
3%
5%
3%
2%
69%
9%
3%
4%
—
3%
54%
—
29%
5%
—
—
Total
94%
88%
88%
See Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Consolidated Financial Statements
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 plant components from a diverse global supply chain.
In 2015, the foreign country with the greatest concentration
risk was South Korea, accounting for 67% of our consolidated
net sales. As part of our Strategic Plan, we are in the process
of diversifying our sales mix from both a customer specific and
geographic perspective.
SUSTAINABILITY
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, Social and
Economic considerations.
We value sustainability just as seriously as our customers.
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 for 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
20
FuelCell Energy
We have a designated Sustainability Officer who promotes
sustainable business practices in our manufacturing and
administrative functions. For example, on the production floor,
we reuse scrap from the manufacturing process, minimizing
production waste. We have 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 our carbon footprint and benefiting
the surrounding community. Other examples include routing
excess heat from 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.
While we continue to enhance and adopt sustainable business
practices, we recognize this is an ongoing effort with more
to be accomplished; such as further reducing the direct and
indirect aspects of our carbon footprint. Our manufacturing
process has a very low carbon footprint, utilizing an assembly
oriented production strategy and obtaining low carbon 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 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 suppliers in our supply
chain comply with the Fair Labor Standards Act (FLSA) of 1938,
as amended. Our employees with supply chain responsibilities
are trained on sustainability, social risks and human rights and
utilize this knowledge 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.
ASSOCIATES
At October 31, 2015, we had 596 full-time associates, of whom
279 were located at the Torrington, Connecticut manufacturing
plant, 273 were located at the Danbury, Connecticut facility
or various field offices, and 44 were located at our foreign
locations. In addition, at October 31, 2015, the Company had 23
temporary workers. None of our associates is represented by
a labor union or covered by a collective bargaining agreement.
We believe our relations with our associates are good.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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 stationary fuel cell power plants for
distributed 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 locations on three continents and have generated
more than four billion kilowatt hours (kWh) of electricity,
which is equivalent to powering more than 391,000 average
size U.S. homes for one year. Our growing installed base and
backlog exceeds 300 megawatts (MW).
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 reference,
one megawatt is adequate to power approximately 1,000
average sized U.S. homes. Our customer base includes utility
companies, municipalities, universities, government entities
and businesses in a variety of industrial 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 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®
(DFC®) power plants utilize carbonate fuel cell technology,
which is a very versatile type of fuel cell technology. Utilizing our
core DFC plants, we have developed and are commercializing
both a tri-generation distributed hydrogen configuration that
generates electricity, heat and hydrogen for industrial or
transportation uses, and a carbon capture application for coal
or gas-fired power plants. We also are developing and working
to commercialize solid oxide fuel cells (SOFC) for adjacent sub-
megawatt applications to the markets for our megawatt-class
DFC power plants as well as energy storage applications. These
applications are complementary to our core products, leverage
our existing customer base, project development, sales and
service expertise, and are potentially large markets.
FuelCell Energy was founded in Connecticut 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 generation combined heat and power solutions for
our customers and provide comprehensive service for the life
of the project.
RECENT DEVELOPMENTS
Expansion of Torrington Facility and Related
Low-Cost Financing
Subsequent to year-end, we commenced the first phase of our
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. 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 million to be used for the
first phase of the expansion project. In conjunction with this
financing, the Company entered into a $10 million Promissory
Note and related security agreements 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%
is payable beginning 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.
In addition, the Company will receive up to $10 million of tax
credits earned during the first phase of the expansion.
The second phase of our manufacturing expansion, for which
we will be eligible to receive an additional $10 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
megawatts to at least 200 megawatts. Plans for this phase
also include the installation of a megawatt scale tri-generation
fuel cell plant to power and heat the facility as well as provide
hydrogen for the manufacturing process of the fuel cell
components, and the creation of an Advanced Technology Center
for technology testing and prototype manufacturing. In addition,
the final stage of the fuel cell module manufacturing will be
relocated to the Torrington facility from its current location
at the Danbury, Connecticut headquarters, which will reduce
logistics costs.
Annual Report 2015
21
The first phase of the expansion is expected to result in
expenditures of up to $23 million that will be partially off-set by
the $10 million of first phase funding received from the State
of Connecticut. The total investment for both phases of the
expansion could be up to $65 million over a five year period, of
which $20 million will be funded by low cost financing from the
State of Connecticut.
Sale Leaseback Tax Equity Financing Facility
In December 2015, the Company entered into a sale leaseback
tax equity facility with PNC Energy Capital, LLC. (“PNC”) Under
this facility, the Company’s project finance subsidiaries may
enter into up to $30 million of lease agreements for projects
currently under development. The first project to close under
the facility on December 23, 2015 was a sale leaseback of the
UCI Fuel Cell, LLC power plant which entered into commercial
operations in December 2015. Proceeds from PNC totaled
approximately $8.8 million and were partially used to settle
outstanding construction period debt to NRG referenced
under Note 8 to the financial statements. The Company and
its project finance subsidiaries will establish reserves for up
to $10.0 million to support obligations of the power purchase
and service agreements. Such reserves will be classified as
restricted cash on the Consolidated Financial Statements
and released over time based on project performance. Under
the terms of the terms of the sale lease back transactions we
make fixed monthly payments to PNC for a period of 10 years
and have the option of repurchasing the plants at the end of the
term. While we receive financing for the full value of the power
plant asset, we do not expect to recognize revenue on the sale
leaseback transaction. Instead, revenue is recognized through
the sale of electricity and energy credits which are generated
as energy is produced.
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 of Operations” and “Liquidity and Capital 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, 2015 AND 2014
Revenues and Costs of Revenues
Our revenues and cost of revenues for the years ended October 31, 2015 and 2014 were as follows:
(dollars in thousands)
Total revenues
Total costs of revenues
Gross profit
Gross margin
Years Ended October 31,
Change
2015
2014
$
$163,077
$180,293
$150,301
$166,567
$ 12,776
$ 13,726
7.8%
7.6%
$(17,216)
$(16,266)
$
(950)
%
(10)
(10)
(7)
Total revenues for the year ended October 31, 2015 decreased $17.2 million, or 10%, to $163.1 million from $180.3 million during
the same period last year. Total cost of revenues for the year ended October 31, 2015 decreased by $16.3 million, or 10%, to
$150.3 million from $166.6 million during the same period last year. The Company generated a 7.8% gross margin percentage
in fiscal year 2015, which is improved from the prior year margin of 7.6% despite lower revenue. A discussion of the changes in
product sales, service agreement and license revenues, and advanced technologies contract revenues follows. Refer to Critical
Accounting Policies and Estimates for more information on revenue and cost of revenue classifications.
Product Sales
Our product sales, cost of product sales and gross profit for the years ended October 31, 2015 and 2014 were as follows:
Years Ended October 31,
2015
2014
$128,595
$ 13 6,8 4 2
118,530
126,866
$ 10,065
$
9,976
7.8%
7.3%
Change
$
$ (8,247)
(8,336)
$
89
%
(6)
(7)
1
(dollars in thousands)
Product sales
Cost of product sales
Gross profit from product sales
Product sales gross margin
22
FuelCell Energy
Product sales for the year ended October 31, 2015 included
$19.6 million of power plant revenue, $84.5 million from sales
of fuel cell kits and modules and $24.5 million of revenue
primarily related to power plant component sales and
engineering, procurement and construction services (EPC
services). This is compared to product sales for the year ended
October 31, 2014 which included $22.2 million of power plant
revenue, $95.7 million fuel cell kits and module revenue and
$18.9 million of revenue primarily from power plant component
sales and EPC services. Product sales decreased $8.2 million,
or 6%, for the year ended October 31, 2015 to $128.6 million
from $136.8 million for the prior year period. The decline in
revenue during the period is due to decreased sales of fuel
cell kits to POSCO and power plant revenue partly offset by
an increase engineering and construction services.
Cost of product sales decreased $8.3 million for the year
ended October 31, 2015, to $118.5 million compared to $126.9
million in the same prior year period. Gross profit increased
slightly despite the lower sales volume primarily due to
lower warranty and quality expenses. 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.
At October 31, 2015, product sales backlog totaled approximately
$90.7 million compared to $113.1 million at October 31, 2014.
Service Agreements and License Revenues and Cost of Revenues
Our service agreements and license revenues and associated cost of revenues for the years ended October 31, 2015 and 2014 were
as follows:
Years Ended October 31,
Change
(dollars in thousands)
Service agreements and license revenues
Cost of service agreements and license revenues
2015
$ 21,012
18,301
2014
$ 25,956
23,037
Gross profit from service agreements and license revenues
$ 2,711
$ 2,919
Service agreements and license revenues gross margin
12.9%
11.2%
$
$(4,944)
(4,736)
$ (208)
%
(19)
(21)
7
Revenues for the year ended October 31, 2015 from service
agreements and license fee and royalty agreements totaled
$21.0 million, compared to $26.0 million for the prior year. The
decrease was due to the timing of module exchanges during
the year ended October 31, 2015 compared to the prior year
period. Revenue for license fee and royalty agreements totaled
$4.7 million and $4.3 million for the years ended October 31,
2015 and 2014, respectively.
Service agreements and license cost of revenues decreased
to $18.3 million for fiscal year 2015 from $23.0 million for
the prior year, resulting in an increase in gross margin to
12.9% from 11.2% during the year-ago period. The increase
in gross margin reflects higher margins recognized on new
service agreements related to the growing 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.
At October 31, 2015, service backlog totaled approximately
$254.1 million compared to $196.8 million at October 31, 2014.
Service backlog does not include future royalties, license or
electricity revenues.
Advanced Technologies Contracts
Advanced technologies contracts revenue and related costs for the years ended October 31, 2015 and 2014 were as follows:
(dollars in thousands)
Advanced technologies contracts
Cost of advanced technologies contracts
Gross profit
Years Ended October 31,
Change
2015
2014
$
$13,470
$17, 495
13,470
16,664
$ (4,025)
(3,194)
%
(23)
(19)
$ —
$
831
$ (831
)
(100)
Advanced technologies contracts gross margin
—%
4.7%
Annual Report 2015
23
Advanced technologies contracts revenue for the year ended
October 31, 2015 was $13.5 million, representing a decrease
of $4.0 million when compared to $17.5 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. Cost of advanced technologies
contracts decreased $3.2 million to $13.5 million for the year
ended October 31, 2015, compared to $16.7 million for the
prior year. Gross profit from advanced technologies contracts
for the year ended October 31, 2015 was breakeven compared
to $0.8 million for the year ended October 31, 2014, and gross
margin was breakeven compared to 4.7% during the prior
year period. The decrease in gross margin is related to the
mix of contracts currently being performed which include
cost share obligations.
At October 31, 2015, advanced technology contract backlog
totaled approximately $36.5 million compared to $24.0 million
at October 31, 2014.
Administrative and selling expenses
Administrative and selling expenses were $24.2 million for the
year ended October 31, 2015 compared to $22.8 million for the
year ended October 31, 2014. The increase results primarily
from increased marketing activity and project proposal
expenses for multiple power plant installations and advanced
technology contracts.
Research and development expenses
Research and development expenses decreased $0.8 million
to $17.4 million for the year ended October 31, 2015, compared
to $18.2 million during the year ended October 31, 2014. The
decrease in research and development expenses resulted
from completion of prior year initiatives in enhancing 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, 2015 was
$28.9 million compared to a loss of $27.3 million for the year
ended October 31, 2014.
Interest expense
Interest expense for the years ended October 31, 2015 and
2014 was $3.0 million and $3.6 million, respectively. 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 periods includes interest for the amortization
of the redeemable preferred stock of a subsidiary fair value
discount of $1.8 million and $2.0 million, respectively.
Other income (expense), net
Other income (expense), net, was net income of $2.4 million
for the year ended October 31, 2015 compared to net expense
of $7.5 million for the year ended October 31, 2014. The
2015 income includes unrealized foreign exchange gains of
$1.7 million which primarily related to the preferred stock
obligation of our Canadian subsidiary, FCE Ltd for which
the functional currency is U.S. dollars, which is payable in
Canadian dollars and refundable research and development
tax credits of $0.6 million. The 2014 expense includes a
charge of $8.4 million related to the make-whole payment
upon conversion of the $38.0 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), although we
have paid income taxes in South Korea. For the year ended
October 31, 2015, our provision for income taxes was $0.3
million. 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 losses or other deferred
tax assets as significant uncertainty exists surrounding the
recoverability of these deferred tax assets.
At October 31, 2015, we had $721 million of federal NOL
carryforwards that expire in the years 2020 through 2035 and
$406 million in state NOL carryforwards that expire in the
years 2015 through 2035. Additionally, we had $11 million of
state tax credits available, of which $1.0 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
years ended October 31, 2015 and 2014 was $0.3 million 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, 2015
and 2014.
Net loss attributable to common shareholders and loss
per common share
Net loss attributable to common shareholders 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, 2015 and 2014, net loss attributable to common
shareholders was $32.6 million and $41.3 million, respectively,
and basic and diluted loss per common share was $1.33 and
$2.02, respectively.
24
FuelCell Energy
COMPARISON OF THE YEARS ENDED OCTOBER 31, 2014 AND 2013
Revenues and Costs of Revenues
Our revenues and cost of revenues for the years ended October 31, 2014 and 2013 were as follows:
(dollars in thousands)
Total revenues
Total costs of revenues
Gross profit
Gross margin
Years Ended October 31,
Change
2014
2013
$
$180,293
$187,658
$ (7,365)
$166,567
$180,536
$ (13,969)
$ 13,726
$ 7,122
$ 6,604
%
(4)
(8)
93
7.6%
3.8%
Total revenues for the year ended October 31, 2014 decreased $7.4 million, or 4%, to $180.3 million from $187.7 million during the
same period last year as a result of a change in product mix with less revenue from multi-megawatt installations and associated
EPC services. Total cost of revenues for the year ended October 31, 2014 decreased by $14.0 million, or 8%, to $166.6 million from
$180.5 million during the same period last year. The Company generated a 7.6% gross margin percentage in fiscal year 2014 which
is approximately double the prior year.
Product Sales
Our product sales, cost of product sales and gross profit for the years ended October 31, 2014 and 2013 were as follows:
(dollars in thousands)
Product sales
Cost of product sales
Gross profit from product sales
Product sales gross margin
Product sales decreased $8.2 million, or 6%, for the year ended
October 31, 2014 to $136.8 million from $145.1 million for the
prior year period. The factory production level in fiscal year 2014
totaled 70 MW versus 63 MW in the prior year. While production
was up, the decrease in revenue is primarily due to lower turn-
key projects including EPC services compared to the prior year.
Product sales for the year ended October 31, 2014 included
$118.0 million of power plant revenue and fuel cell kits and
modules and $18.9 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, 2013 which
included $117.1 million of power plant revenue and fuel cell kits
revenue and $28.0 million of revenue primarily from power plant
component sales and EPC services.
Years Ended October 31,
Change
2014
2013
$
$136,842
$145,071
126,866
136,989
$
9,976
$ 8,082
7.3%
5.6%
$ (8,229)
(10,123)
$ 1,894
%
(6)
(7)
23
Cost of product sales decreased $10.1 million for the year ended
October 31, 2014 to $126.9 million, compared to $137.0 million
in the same prior year period on less EPC activity. Gross profit
increased $1.9 million to a gross profit of $10.0 million for the
year ended October 31, 2014 compared to a gross profit of $8.1
million for the year ended October 31, 2013. The increase was
due to improved overhead absorption from higher production
levels and lower overall product costs and a sales mix that
included module sales partially offset by lower margins as a
result of less EPC activity. 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, liquidated
damages and inventory excess and obsolescence charges.
Service Agreements and License Revenues and Cost of Revenues
Our service agreements and license revenues and associated cost of revenues for the years ended October 31, 2014 and 2013 were
as follows:
Years Ended October 31,
Change
(dollars in thousands)
Service agreements and license revenues
Cost of service agreements and license revenues
2014
2013
$ 25,956
$ 2 8,141
23,037
29,683
Gross profit (loss) from service agreements and license revenues
$ 2,919
$ (1,542)
Service agreements and license revenues gross margin
11.2%
(5.5)%
$
$ (2,185)
(6,646)
$ 4,461
%
(8)
(22)
289
Annual Report 2015
25
Revenues for the year ended October 31, 2014 from service
agreements and license fee and royalty agreements totaled
$26.0 million, compared to $28.1 million for the prior year.
Service agreement revenue decreased year over year due to the
prior year recognition 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 agreement fleet leading to incremental
increases in revenue and margins. License and royalty revenues
totaled $4.3 million and $4.1 million for the years ended
October 31, 2014 and 2013, respectively.
Service agreements and license cost of revenues decreased
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 million for the year ended October 31,
2014, compared to a gross loss of $1.5 million for the year ended
October 31, 2013. The historical loss on service agreements
has been due to high maintenance, module exchange and other
costs on older and sub-MW product designs and 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.
Total costs incurred under the Master Service Agreement during
the fourth quarter of fiscal year 2013 of $10.1 million resulted
in associated revenue recognized of $10.2 million. Such costs
primarily related to the provision of fuel cell stacks to POSCO
Energy upon execution of the agreement to service the power
plant installations under the ongoing service contract. Excluding
the revenue recognized from the Master Service Agreement,
revenue increased from the prior year due to a higher level of
scheduled module exchanges in the current year compared to
the prior year as well as the growing installed base of power
plants. Service revenue associated with scheduled module
exchanges is recognized at the time of the module exchange
activity whereas the remaining portion of service revenue from
service agreements is recognized ratably over the life of the
service contract such that a consistent margin is recognized
throughout the term of the contract. Cost of service agreements
include maintenance and scheduled module exchanges costs
and operating costs for our units under PPAs, performance
guarantees and service agreement loss accrual charges.
Advanced Technologies Contracts
Advanced technologies contracts revenue and related costs for the years ended October 31, 2014 and 2013 were as follows:
(dollars in thousands)
Advanced technologies contracts
Cost of advanced technologies contracts
Gross profit
Advanced technologies contracts gross margin
Advanced technologies contracts revenue for the year ended
October 31, 2014 was $17.5 million, which increased $3.0
million when compared to $14.4 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.
Cost of advanced technologies contracts increased $2.8 million
to $16.7 million for the year ended October 31, 2014, compared
to $13.9 million for the prior year. Gross profit from advanced
technologies contracts for the year ended October 31, 2014
was $0.8 million compared to $0.6 million for the year ended
October 31, 2013.
Years Ended October 31,
Change
2014
2013
$ 17,495
$ 14,446
16,664
13,864
$
831
$
582
4.7%
4.0%
$
$ 3,049
2,800
$ 249
%
21
20
43
Administrative and selling expenses
Administrative and selling expenses were $22.8 million for the
year ended October 31, 2014 compared to $21.2 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.
Research and development expenses
Research and development expenses increased $2.5 million
to $18.2 million during the year ended October 31, 2014,
compared to $15.7 million during the year ended October 31,
2013. Our internal research and development continues
to be focused on initiatives that have near-term product
implementation potential and product cost reduction
opportunities. The increase in research and development
expenses resulted from continued product development
initiatives to consolidate select componentry and processes for
the balance of plant functions as part of ongoing cost reduction
programs, product enhancements to further enhance the
customer value proposition such as high-efficiency solutions
for targeted applications, and a program to support European
market development.
26
FuelCell Energy
Loss from operations
Loss from operations for the year ended October 31, 2014 was
$27.3 million compared to a loss of $29.8 million 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, 2014 and 2013
was $3.6 million and $4.0 million, respectively. Interest expense
includes 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 million.
Income/(loss) from equity investments
Income of $0.05 million from equity investments recorded in the
year ended October 31, 2013 represents our share of Versa’s
income through the acquisition date in December 2012.
Other income (expense), net
Other income (expense), net, was expense of $7.5 million for
the year ended October 31, 2014 compared to net expense of
$1.2 million for the same period in fiscal year 2013. The current
period expense includes a charge of $8.4 million related to the
make-whole payment upon conversion of the $38.0 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), although we
have paid income taxes in South Korea. For the year ended
October 31, 2014, our provision for income taxes was $0.5
million. 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 losses or other deferred
tax assets as significant uncertainty exists surrounding the
recoverability of these deferred tax assets.
At October 31, 2014, we had $655.0 million of federal NOL
carryforwards that expire in the years 2020 through 2034 and
$396.0 million in state NOL carryforwards that expire in the
years 2014 through 2034. Additionally, we had $10.4 million of
state tax credits available, of which $1.0 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
years ended October 31, 2014 and 2013 was $0.8 million 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, 2014
and 2013.
Net loss attributable to common shareholders and loss
per common share
Net loss attributable to common shareholders 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, 2014 and 2013, net loss attributable to common
shareholders was $41.3 million and $37.6 million, respectively,
and basic and diluted loss per common share was $2.02 and
$2.42, respectively.
Customer Concentrations
We contract with a concentrated number of customers for
the sale of our products and for research and development
contracts. Refer to Note 1 of notes to consolidated financial
statements for more information on customer concentrations.
There can be no assurance that we will continue to achieve
historical levels of sales of our products to our largest
customers. Even though our customer base is expected
to expand, diversifying our revenue streams, a substantial
portion of net revenues could continue to depend on sales to
a concentrated number of customers. Our agreements with
these customers may be canceled if we fail to meet certain
product specifications or materially breach the agreements,
and our customers may seek to renegotiate the terms of
current agreements or renewals. The loss of or reduction in
sales to one or more of our larger customers could have a
material adverse effect on our business, financial condition
and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2015, we believe that our cash, 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 12 months.
Cash and cash equivalents including restricted cash totaled
$85.7 million at October 31, 2015 compared to $108.8 million
at October 31, 2014. In addition, the Company has $36.2 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.
Subsequent to October 31, 2015, the Company closed on a
definitive Assistance Agreement with the State of Connecticut
and received a disbursement of $10 million to be used for
the first phase of its planned expansion of the Torrington
manufacturing facility. Additionally, we have an effective shelf
registration statement on file with the SEC for issuance of debt
or equity securities.
The Company’s future liquidity will be dependent on obtaining
the order volumes 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.
Annual Report 2015
27
The Company has a contract backlog totaling approximately
$381.4 million at October 31, 2015. This backlog includes
approximately $254.1 million of service agreements, with
an average term in excess of 10 years and utility service
contracts up to 20 years in duration, providing a committed
source of revenue to the year 2036. The Company also has
a strong sales and service pipeline of potential projects in
various stages of development in both North America 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. On-site
projects being developed are for project sizes ranging from
1.4 MW - 14.0 MW for end users such as pharmaceuticals
companies, hospitals, and universities. In addition, a number
of multi-megawatt utility grid support projects are being
developed for utilities and independent power producers to
support the grid where power is needed. Utility scale projects
in our pipeline range in size from 5.6 MW up to 63 MW. These
projects help both utilities and states meet their renewable
portfolio standards.
The Company produced approximately 65 MW during fiscal
year 2015 at its production facility in Torrington, Connecticut,
which is a reduction from the 70 MW production rate resulting
from weather and timing of customer requirements. The
production facility has an annual manufacturing capacity of
100 MW under its current configuration. At October 31, 2015,
backlog included approximately 30 MW of fuel cell kits to be
delivered to POSCO Energy in 2016, as well as approximately
15 MW of orders for the U.S. and European markets and
scheduled module exchanges under service agreements.
The Company is targeting converting approximately 30 to 40
MW of our sales pipeline into incremental backlog in 2016 in
order to utilize our available capacity.
Factors that may impact our liquidity in 2016 and beyond include:
• Our expanding development of large scale turn-key projects
in the United States requires liquidity and is expected to
continue to have liquidity requirements in the future. Our
business model includes the development of turn-key
projects and we may commence construction upon the
execution of a multi-year power purchase agreement with an
end-user that has a strong credit profile. We may choose to
substantially complete the construction of a project before it
is sold to a project investor. Alternatively, 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 to do so. If, for example, we cannot
sell a project at economics that are attractive to us, we may
instead elect to own and operate such projects, generally
until such time that we can sell a project on economically
attractive terms. In markets where there is a compelling
value proposition, we may also build one or more power
plants on an uncontracted “merchant” basis in advance of
securing long-term power contracts. Delays in construction
progress or in completing the sale of our projects which we
are self-financing may impact our liquidity. At October 31,
2015, we had $40.0 million of committed project financing,
of which $36.2 million was available, to enable this strategy
though we may seek to use our cash balances or other
forms of financing as necessary. Subsequent to fiscal year
end 2015, we executed a $30 million project finance facility
with PNC New Energy Capital that is structured as a sale/
leaseback facility for projects where we entered into a
PPA with end-user of power and site host. This financing
facility enables us to generate cash from operating power
plants that we choose to retain, effectively monetizing our
investment in the power plant.
• 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 or other
forms of security, and incurring engineering, permitting,
legal, and other expenses.
• The amount of accounts receivable at October 31, 2015 and
2014 was $60.8 million and $64.4 million, respectively.
Included in accounts receivable at October 31, 2015 and
2014 was $41.0 million and $53.0 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.
• The amount of total inventory at October 31, 2015 and 2014
was $65.8 million and $55.9 million, respectively, which
includes work in process inventory totaling $36.7 million
and $30.4 million, respectively. 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. As a result, we may
manufacture modules or acquire balance of plant 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.
• Cash and cash equivalents at October 31, 2015 included
$9.6 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 at October 31, 2015 and October 31, 2014 was
$12.2 million and $0.8 million, respectively. Project assets
consist primarily of capitalized costs for fuel cell projects
in various stages 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 portion of project assets of $5.3 million
28
FuelCell Energy
is actively being marketed and intended to be sold although
we may choose to retain such projects during initial stages
of operations. 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 will be sold under a sales leaseback
transaction during the first quarter of fiscal year 2016.
• Under the terms of certain contracts, the Company will
provide performance security for future contractual
obligations. At October 31, 2015, we have pledged
approximately $26.9 million of our cash and cash equivalents
as collateral as 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, we forecast capital expenditures in the
range of $16 to $18 million compared to $6.9 million in fiscal
year 2015. We have commenced the first phase of our 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.
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 million to be used for the
first phase. 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
December 2015. Up to 50 percent of the principal balance is
forgivable if certain job creation and retention targets are met.
In addition to cash flows from operations, we may also pursue
raising capital through a combination of: (i) sales of equity
to public markets or strategic investors, (ii) debt financing
(with improving operating results as the business grows,
the Company expects to have increased access to the debt
markets to finance working capital and capital expenditures),
(iii) project level debt and equity financing and (iv) potential
local or state Government loans or grants in return for
manufacturing job creation and retention. 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 Flows
Cash and cash equivalents and restricted cash and cash
equivalents totaled $85.7 million at October 31, 2015
comparedto $108.8 million at October 31, 2014. At October 31,
2015, restricted cash and cash equivalents was $26.9 million,
of which $6.3 million was classified as current and $20.6
million was classified as non-current, compared to $25.1
million total restricted cash and cash equivalents at October 31,
2014, of which $5.5 million was classified as current and
$19.6 million was classified as non-current.
The following table summarizes our consolidated cash flows:
2015
2014
2013
Consolidated Cash Flow Data:
Net cash used in
operating activities
$(44,274) $(57,468) $(16,658)
Net cash used in
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—Cash used in operating activities was
$44.3 million during fiscal year 2015 compared to $57.5
million used in operating activities during fiscal year 2014.
Net cash used in operating activities during fiscal year 2015
is primarily a result of increases in current project assets
and inventory of $11.4 million and $10.1 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 were partially offset by a decrease
in accounts receivable of $3.2 million and an increase in
accrued liabilities of $6.4 million. Net cash used in operating
activities during fiscal year 2014 is a result of an increase in
accounts receivable of $15.4 million due to revenue recognized
on multiple projects, a 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 decrease in other assets of $3.4 million due to the reduction
in debt issuance costs relating to the 8% convertible Note
conversions during fiscal year 2014.
Investing Activities—Cash used in investing activities was
$6.9 million during fiscal year 2015 compared to net cash
used in investing activities was $7.1 million during fiscal
year 2014. Net cash used during fiscal year 2015 pertains to
capital expenditures including expenditures for upgrades to
existing machinery, equipment and investments in automation
equipment that we believe will improve the efficiency and cost
profile of our operations and facilitate our Torrington facility
Annual Report 2015
29
expansion. Net cash used during fiscal year 2014 related to
capital expenditures 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
was $26.5 million during fiscal year 2015 compared to $80.8
million in the prior year period. Net cash provided by financing
activities during the year ended October 31, 2015 includes
proceeds from open market sales of common stock of $27.1
million and net debt proceeds of $5.2 million, partially offset
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 agreement for the Bridgeport Fuel Cell
Park Project, the net paydown of the JPMorgan Chase revolving
credit facility of $5.7 million and the payment of preferred
dividends and return of capital of $4.3 million.
Commitments and Significant Contractual Obligations
A summary of our significant future commitments and contractual obligations at October 31, 2015 and the related payments by fiscal
year is summarized as follows:
(dollars in thousands)
Contractual Obligations
Purchase commitments (1)
Series 1 Preferred obligation (2)
Term loans (principal and interest)
Capital and operating lease commitments (3)
Revolving Credit Facility (4)
Series B Preferred dividends payable (5)
Payments Due by Period
Total
Less than
1 year
1-3
years
3-5 More than
5 years
years
$57,108
$56,460
$ 613
$ 35
$ —
8,176
15,619
5,939
2,945
—
956
4,435
2,193
2,945
—
1,911
3,414
2,555
—
—
1,911
612
1,129
—
—
3,398
7,158
62
—
—
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 Class A Preferred Shares of Cdn. $21.1 million and the balance of the principal redemption price of Cdn. $4.4 million will be due to the
holders of the Series 1 preferred shares. The Company has the option of making dividend payments in the form of common stock or cash under terms
outlined in the preferred share agreement. For purposes of preparing the above table, the final balance of accrued and unpaid dividends due December 31,
2020 of Cdn. $21.1 million is assumed to be paid in the form of common stock and not included in this table.
(3) Future minimum lease payments on capital and operating leases.
(4) The amount represents the amount outstanding at October 31, 2015 on the $4.0 million revolving credit facility with JPMorgan Chase Bank, N.A. and the
Export-Import Bank of the United States. The outstanding principal balance of the facility bears interest, at the option of the Company, of either the one-
month LIBOR plus 1.5% or the prime rate of JPMorgan 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 has been renewed and the
Company is working with JPMorgan on reinstating the facility.
(5) 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 ($141) for 20 trading days during any consecutive 30 trading day period.
On November 9, 2015, the Company closed on a definitive
Assistance Agreement with the State 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. In conjunction with this financing, the
Company entered into a $10 million Promissory Note and
related security agreements 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% is payable beginning December 2015. The financing is
payable over 15 years, and is predicated on certain terms and
conditions, including the forgiveness of up to 50% of the loan
principal if certain job retention and job creation targets are
reached. In addition, the Company will receive up to $10 million
of tax credits earned during the first phase of the expansion.
30
FuelCell Energy
The second phase of our manufacturing expansion, for which
we will be eligible to receive an additional $10 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
megawatts to at least 200 megawatts. Plans for this phase
also include the installation of a megawatt scale tri-generation
fuel cell plant to power and heat the facility as well as provide
hydrogen for the manufacturing process of the fuel cell
components, and the creation of an Advanced Technology
Center for technology testing and prototype manufacturing. In
addition, the final stage of the fuel cell module manufacturing
will be relocated to the Torrington facility from its current
location at the Danbury, Connecticut headquarters, which will
reduce logistics costs. The total cost of both phases of the
expansion could be up to $65.0 million over a five-year period.
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%
thereafter. At October 31, 2015, drawdowns on the
facility aggregated $3.8 million.
On March 5, 2013, the Company closed 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
Project. The loan agreement carries an interest rate of 5.0% and
principal repayments will commence on the eighth anniversary
of the project’s provisional acceptance date in December 2021.
Outstanding amounts are secured by future cash flows from the
Bridgeport contracts. The outstanding balance on the CEFIA
Note at October 31, 2015 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. At October 31,
2015, we had an outstanding balance of $2.8 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 million of our cash and
cash equivalents as performance security and for letters of
credit for certain banking requirements and contracts. At
October 31, 2015, outstanding letters of credit totaled $8.7
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 at October 31, 2015 includes $15.0
million which has been placed in a Grantor’s Trust account
to secure certain FCE obligations under the 15-year service
agreement for the Bridgeport Fuel Cell Park Project and has
been 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.
At October 31, 2015, we have uncertain tax positions
aggregating $15.7 million and have reduced our net operating
loss carryforwards by this amount. Because of the level of net
operating losses 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:
Service and warranty agreements
We warranty our products for a specific period of time against
manufacturing or performance defects. Our standard warranty
period is generally 15 months after shipment or 12 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 20 years. Pricing for service
contracts is based upon estimates of future costs, which
could be materially different from actual expenses.
Advanced technologies 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. At October 31, 2015, Advanced technologies contracts
backlog totaled $36.5 million, of which $33.4 million is funded.
Should funding be delayed or if business initiatives change, we
may choose to devote resources to other activities, including
internally funded research and development.
Annual Report 2015
31
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 of 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, based on criteria for effective internal
control over financial reporting established in the Internal Control — Integrated Framework (1992), 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, 2015 based on the specified criteria.
Arthur A. Bottone
President and Chief Executive Officer
Michael S. Bishop
Senior Vice President, Chief Financial Officer, Corporate Secretary and Treasurer
32
FuelCell Energy
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2015 and
2014, and the related consolidated statements of operations and comprehensive income (loss), changes in equity (deficit), and cash
flows for each of the years in the three-year period ended October 31, 2015. We also have audited FuelCell Energy, Inc.’s internal
control over financial reporting as of October 31, 2015, based on criteria established in Internal Control - Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). FuelCell Energy, Inc.’s
management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
management report on internal controls over financial reporting. Our responsibility is to express an opinion on these consolidated
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
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, 2015 and 2014, and the results of its operations and its cash flows for
each of the years in the three year period ended October 31, 2015, 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, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Hartford, Connecticut
January 8, 2016
Annual Report 2015
33
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents—short-term
Accounts receivable, net of allowance for doubtful accounts of $544 and $132 at October 31, 2015
and 2014, respectively
Inventories
Project assets current
Other current assets
Total current assets
Restricted cash and cash equivalents—long-term
Project assets noncurrent
Property, plant and equipment, net
Goodwill
Intangible assets
Other assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenue
Preferred stock obligation of subsidiary
Total current liabilities
Long-term deferred revenue
Long-term preferred stock obligation of subsidiary
Long-term debt and other liabilities
Total liabilities
Redeemable preferred stock (liquidation preference of $64,020 at October 31, 2015 and October 31, 2014)
Total equity:
Shareholders’ equity
Common stock ($.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)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock, Common, at cost (5,845 and 3,796 shares at October 31, 2015 and 2014,
respectively)
Deferred compensation
Total shareholders’ equity
Noncontrolling interest in subsidiaries
Total equity
Total liabilities and equity
October 31,
2015
2014
$ 58,852
$ 83,710
6,288
5,523
60,790
65,754
5,260
6,954
203,898
20,600
6,922
29,002
4,075
9,592
3,142
64,375
55,895
—
7,528
217,031
19,600
784
25,825
4,075
9,592
3,729
$ 277,231
$ 280,636
$
7,358
$
1,439
15,745
19,175
31,787
823
74,888
22,646
12,088
12,998
122,620
59,857
3
934,488
(838,673)
(509)
(78)
78
95,309
(555)
94,754
22,969
12,066
37,626
961
75,061
20,705
13,197
13,367
122,330
59,857
2
909,458
(809,314)
(159)
(95)
95
99,987
(1,538)
98,449
$ 277,231
$ 280,636
All shares and per share data presented in these consolidated financial statements and accompanying footnotes have been retroactively adjusted to reflect the
1-for-12 reverse stock split.
See accompanying notes to consolidated financial statements.
34
FuelCell Energy
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except share and per share amounts) For the Years Ended October 31,
Revenues:
Product sales (including $100.5 million, $115.0 million and $81.6 million of
related party revenue)
Service agreements and license revenues (including $11.4 million, $14.9 million
and $20.1 million of related party revenue)
Advanced technologies contract revenues (including $0.6 million, $0.4 million
and $0.3 million of related party revenue)
Total revenues
Costs of revenues:
Cost of product sales
Cost of service agreements and license revenues
Cost of advanced technologies contract revenues
Total cost of revenues
Gross profit
Operating expenses:
Administrative and selling expenses
Research and development expenses
Total operating expenses
Loss from operations
Interest expense
Income from equity investments
Other income (expense), net
Loss before provision for income taxes
Provision for income taxes
Net loss
Net loss attributable to noncontrolling interest
Net loss attributable to FuelCell Energy, Inc.
Preferred stock dividends
Net loss to common shareholders
Net loss to common shareholders per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustments
Comprehensive loss
2015
2014
2013
$128,595
$136,842
$145,071
21,012
25,956
28,141
13,470
163,077
118,530
18,301
13,470
150,301
12,776
24,226
17,442
41,668
(28,892)
(2,960)
—
2,442
(29,410)
(274)
(29,684)
325
(29,359)
(3,200)
17,495
180,293
126,866
23,037
16,664
166,567
13,726
22,797
18,240
41,037
(27,311)
(3,561)
—
(7,523)
(38,395)
(488)
(38,883)
758
(38,125)
(3,200)
14,446
187,658
136,989
29,683
13,864
180,536
7,122
21,218
15,717
36,935
(29,813)
(3,973)
(46)
(1,208)
(34,948)
(371)
(35,319)
961
(34,358)
(3,200)
$ (32,559)
$ (41,325)
$ (37,558)
$ (1.33)
$ (1.33)
$
$
(2.02)
(2.02)
$
$
(2.42)
(2.42)
24,513,731
24,513,731
20,473,915
15,543,750
20,473,915
15,543,750
For the Years Ended October 31,
2015
2014
2013
$ (29,684)
$ (38,883)
$ (35,319)
(350)
(260)
35
$ (30,034)
$ (39,143)
$ (35,284)
All shares and per share data presented in these consolidated financial statements and accompanying footnotes have been retroactively adjusted to reflect the
1-for-12 reverse stock split.
See accompanying notes to consolidated financial statements.
Annual Report 2015
35
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Years Ended October 31, 2015, 2014 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
(Deficit)
Balance, October 31, 2012
15,488,010
$2 $ 751,272 $ (736,831)
$ 66 $ (53)
$ 53 $ (381) $ 14,128
Sale of common stock
Common stock issued for acquisition
Share-based compensation
Taxes paid upon vesting of restricted
stock awards, net of stock issued
under benefit plans
Reclass of noncontrolling interest due
to liquidation of subsidiaries
Preferred dividends — Series B
Noncontrolling interest in subsidiaries
Effect of foreign currency translation
Net loss attributable to
FuelCell Energy, Inc.
357,983 —
293,897 —
— —
5,548
3,563
2,226
219,310 —
(173)
— —
— —
— —
— —
— —
(562)
(3,200)
—
—
—
—
—
—
—
—
—
—
—
(34,358)
—
—
—
—
—
—
—
35
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
562
—
(961)
—
—
5,548
3,563
2,226
(173)
—
(3,200)
(961)
35
(34,358)
Balance, October 31, 2013
16,359,200
$2 $ 758,674 $ (771,189)
$ 101 $ (53)
$ 53 $ (780) $ (13,192)
Sale of common stock
Common stock issued for convertible
note conversions including interest
Common stock issued to settle make-
whole obligation
Share-based compensation
Taxes paid upon vesting of restricted
stock awards, net of stock issued
under benefit plans
Noncontrolling interest in subsidiaries
Preferred dividends — Series B
4,973,604 — 105,966
2,063,896 —
33,306
459,523 —
— —
12,883
2,908
76,136 —
— —
— —
(1,079)
—
(3,200)
Adjustment for deferred compensation
(2,359) —
Effect of foreign currency translation
—
Net loss attributable to
FuelCell Energy, Inc.
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(260)
(38,125)
—
—
—
—
—
—
—
—
(42)
—
—
—
—
—
—
—
—
—
42
—
—
— 105,966
—
—
—
33,306
12,883
2,908
—
(758)
—
—
—
(1,079)
(758)
(3,200)
—
(260)
— (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
Share-based compensation
1,845,166
1
— —
26,920
3,157
Taxes paid upon vesting of restricted
stock awards, net of stock issued
under benefit plans
Reclassification of noncontrolling interest
due to liquidation of subsidiary
Noncontrolling interest in subsidiaries
Preferred dividends — Series B
Adjustment for deferred compensation
Effect of foreign currency translation
Net loss attributable to
FuelCell Energy, Inc.
191,593 —
(539)
— —
— —
— —
(2,049) —
— —
— —
(1,308)
—
(3,200)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17
(350) —
(29,359)
—
—
—
—
—
— 26,921
—
3,157
—
(539)
— 1,308
(325)
—
—
(325)
(3,200)
—
(350)
—
—
—
— (29,359)
—
(17)
—
—
Balance, October 31, 2015
25,964,710
$3 $934,488 $(838,673 )
$(509) $ (78)
$ 78 $ (555) $ 94,754
All shares and per share data presented in these consolidated financial statements and accompanying footnotes have been retroactively adjusted to reflect the
1-for-12 reverse stock split.
See accompanying notes to consolidated financial statements.
36
FuelCell Energy
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share amounts) For the Years Ended October 31,
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation
Income in equity investments
(Gain) loss from change in fair value of embedded derivatives
Make whole derivative expense
Depreciation
Amortization of convertible note discount and non-cash interest expense
Foreign currency transaction gains
Other non-cash transactions
Decrease (increase) in operating assets:
Accounts receivable
Inventories
Project assets
Other assets
(Decrease) increase in operating liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities:
Capital expenditures
Expenditures for long-term project assets
Cash acquired from acquisition
Net cash used in investing activities
Cash flows from financing activities:
Repayment of debt
Proceeds from debt
Financing costs for convertible debt securities
(Increase) decrease in restricted cash and cash equivalents
Proceeds from sale of common stock, net of registration fees
Payment of preferred dividends and return of capital
Common stock issued for stock plans and related expenses
Net cash provided by financing activities
Effects on cash from changes in foreign currency rates
Net increase in cash and cash equivalents
Cash and cash equivalents—beginning of year
Cash and cash equivalents—end of year
See accompanying notes to consolidated financial statements.
2015
2014
2013
$(29,684)
$(38,883)
$(35,319)
3,157
—
(23)
—
4,099
1,830
(2,075)
412
2,908
—
(126)
8,347
4,384
2,140
(571)
146
3,173
(15,378)
(10,100)
(11,398)
1,022
(7,224)
6,435
(3,898)
(44,274)
1,059
—
3,417
(1,566)
(11,056)
(12,289)
(57,468)
2,226
(46)
1,359
—
4,097
2,480
(443)
61
(12,000)
(5,901)
—
6,076
11,776
(172)
9,148
(16,658)
(6,930)
(6,295)
(6,551)
—
—
(784)
—
—
357
(6,930)
(7,079)
(6,194)
(1,535)
6,763
—
(1,765)
27,060
(4,202)
133
26,454
(108)
(24,858)
83,710
(5,971)
250
—
(15,120)
105,844
(4,343)
161
80,821
(260)
16,014
67,696
(374)
45,250
(2,472)
632
5,040
(4,442)
—
43,634
35
20,817
46,879
$ 58,852
$ 83,710
$ 67,696
Annual Report 2015
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 31, 2015, 2014 and 2013 (Tabular amounts in thousands, except share and per share amounts)
Note 1. Nature of Business, Basis of Presentation and
Significant Accounting Policies
Nature of Business and Basis of Presentation
FuelCell Energy, Inc. and 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 FuelCell power plants continuously produce base load
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, 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. All intercompany accounts and
transactions have been eliminated.
On December 3, 2015, we effected a 1-for-12 reverse stock
split, reducing the number 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.
Certain reclassifications have been made to the prior year
amounts to conform 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. At October 31,
2015, $26.9 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 million pledged at October 31, 2014. The restricted cash
balance includes $15.0 million which has been placed in a
Grantor’s Trust account to secure certain FCE obligations 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. At October 31, 2015 and 2014, we had
outstanding letters of credit of $8.7 million and $7.4 million,
respectively, which expire on various dates through April 2019.
Cash and cash equivalents at October 31, 2015 also included
$9.6 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.
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 other current assets on
the consolidated balance sheets.
38
FuelCell Energy
Inventories are reviewed to determine if valuation allowances are
required for obsolescence (excess, obsolete, and slow-moving
inventory). 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 has entered into power purchase agreements prior
to entering into a definitive sales or long-term financing
agreement for the project. 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. 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 of 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. 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) 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 intangible assets with indefinite lives at
July 31, 2015. The goodwill and intangible assets all relate
to the Company’s Versa reporting unit. 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 is 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, (ii) the sale of fuel cell modules, component
part kits and spare parts to customers, (iii) site engineering
and construction services, (iv) providing services under service
agreements, (v) the sale of electricity under a power purchase
agreement (“PPA”), (vi) license fees and royalty income from
manufacturing and technology transfer agreements, and (vii)
customer-sponsored advanced technology projects.
The Company periodically enters into arrangements with
customers that involve multiple elements of the above items.
We assess such contracts to evaluate whether there are
multiple deliverables, and whether the consideration under
the arrangement is being appropriately allocated to each of
the deliverables.
Our revenue is primarily generated from customers located
throughout the U.S. 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
Annual Report 2015
39
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
which the Company has adequate cost history and estimating
experience, and that 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. 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’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. Revenues are recognized based on the
proportion of costs incurred to date relative to total estimated
costs at completion as compared to the contract value. 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, we recognize anticipated contract
losses as soon as they become known and estimable. We have
recorded an estimated contract loss accrual of $0.03 million at
October 31, 2014. There was no contract loss accrual recorded at
October 31, 2015. Actual results could vary from initial estimates
and reserve estimates will be updated as conditions change.
Revenue from the sale of fuel cell modules, component part
kits and spare parts 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 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.
Site engineering and construction services revenue is recognized
on a percentage of completion basis as costs 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 are 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 exchange is deferred and is recognized
upon such module replacement event.
Revenue from funded advanced technology contracts is
recognized as direct costs are incurred plus allowable overhead
less cost share requirements, if any. Revenue from customer
funded advanced technology programs are generally multi-
year, 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. While
advanced technology contracts may extend for many years,
funding is often provided incrementally on a year-by-year
basis if contract terms 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 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. 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. At October 31, 2015 and October 31, 2014, the
warranty accrual, which is classified in accrued liabilities on
the consolidated balance sheet, totaled $1.0 million and $1.2
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 million and
$0.8 million at October 31, 2015 and 2014, 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
40
FuelCell Energy
and include cost assumptions based on what we anticipate
the service requirements will be to fulfill obligations for each
contract. At October 31, 2015, our loss accruals on service
agreements totaled $0.8 million compared to $3.0 million
at October 31, 2014.
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. 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 at October 31, 2014.
License Agreements and Royalty Income
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 (“CTTA”) we entered into on
October 31, 2012 provides POSCO Energy with the technology to
manufacture Direct FuelCell 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.
In conjunction with the CTTA, a $10.0 million fee was paid to
the Company on November 1, 2012. Future fees totaling $8.0
million are payable on a milestone basis between 2014 and 2016.
In conjunction with the CTTA, the Company also amended the
royalty provisions in the 2007 Technology Transfer, Distribution
and Licensing Agreement (“TTA”) and the 2009 Stack Technology
Transfer and License Agreement (“STTA”) revising the royalty
from 4.1% to 3.0% of POSCO Energy net sales. The reduction in
the royalty rate resulted in a net fee of $6.7 million paid to the
Company in January 2013.
Under the terms of the 2007 TTA, POSCO Energy manufactures
balance of plant (“BOP”) in South Korea using its design,
procurement and manufacturing expertise. The 2009 STTA
allows POSCO Energy to produce fuel cell modules which will be
combined with BOP manufactured in South Korea to complete
electricity-producing fuel cell power plants for sale in South
Korea. Under the STTA and prior to the CTTA, we were receiving
4.1% of the revenues generated from sales of fuel cell modules
manufactured and sourced by POSCO Energy. The STTA also
provided for an upfront license fee of $10.0 million. License fee
income was recognized ratably over the 10-year term of the STTA
through October 31, 2012. As a result of the CTTA, the remaining
license fee income of $7.0 million is being recognized ratably
over an additional 15 years beginning November 1, 2012.
In September 2013, the Company entered into a revised Master
Service Agreement with POSCO Energy, whereby POSCO Energy
assumed more responsibility for servicing installations in Asia
that utilize power plants manufactured by POSCO Energy. The
Company will perform engineering and support services for each
unit in the installed fleet and receive quarterly fees as well as a
3.0% royalty on each fuel cell module replacement under service
agreements that were built by POSCO Energy and installed at any
plant in Asia.
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 compensation as recognized revenue for
services rendered.
The Company recorded license and royalty income of $3.9
million, $4.3 million and $4.1 million for the years ended
October 31, 2015, 2014 and 2013, 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 3.0% royalty on POSCO Energy net product sales
related to FCE’s technology and each scheduled fuel cell module
replacement under terms of our Master Service Agreement.
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.
Annual Report 2015
41
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 technologies contracts. For the years ended
October 31, 2015, 2014 and 2013, our top customers
accounted for 94%, 88% and 88%, respectively, of our total
annual consolidated revenue.
The percent of consolidated revenues from each customer for
the years ended October 31, 2015, 2014 and 2013, respectively,
are presented below.
POSCO Energy
The United Illuminating Company
Bridgeport Dominion Fuel Cell, LLC
Department of Energy
Pepperidge Farms
NRG Energy
Total
2015
2014
2013
67%
14%
3%
5%
3%
2%
94%
69%
9%
3%
4%
—%
3%
88%
54%
—%
29%
5%
—%
—%
88%
POSCO Energy is a related party and owns approximately 10%
of the outstanding common shares of the Company and NRG
Energy is a related party and owns approximately 5% of the
outstanding common shares of the Company.
Derivatives
We do not use derivatives for speculative purposes and through
fiscal year end 2015, 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 12
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,
service agreement loss accruals, allowance for uncollectable
receivables, depreciation and amortization, impairment of
goodwill, intangible 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 FuelCell Korea Ltd’s and FCES GmbH’s
financial statements results in translation gains or losses, which
are recorded in accumulated other comprehensive income (loss)
within stockholders’ equity (deficit).
Our Canadian subsidiary, FCE Ltd., is financially and operationally
integrated and the functional currency is U.S. dollars. We are
subject to foreign currency transaction gains and losses as
certain transactions are denominated in foreign currencies. We
recognized gains of $1.7 million, $0.6 million and $0.4 million for
the years ended October 31, 2015, 2014 and 2013, respectively.
These amounts have been classified as other income (expense),
net in the consolidated statements of operations.
Recent Accounting Guidance Not Yet Effective
In April 2015, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) 2015-03,
“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 amendments in this ASU are
effective for fiscal years beginning after December 15, 2015 and
for interim periods therein. Adoption of this ASU is not expected
to have a material impact on the Company’s consolidated
financial position.
In May 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (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, but
42
FuelCell Energy
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 reserves of
approximately $0.2 million and $1.4 million at October 31,
2015 and 2014, respectively.
Note 4. Project Assets
Project assets at October 31, 2015 and 2014 consisted of the
following:
Current project assets
Long-term project assets
Project assets
2015
$ 5,260
6,922
$12,182
2014
$ —
784
$784
Current project assets include projects that are currently
under construction by the Company under a PPA. The current
portion 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 incurred
during the year.
Note 5. Property, Plant and Equipment
Property, plant and equipment at October 31, 2015 and 2014
consisted of the following:
Land
$
524
$
524
—
2015
2014
Estimated
Useful Life
allow adoption as of the original adoption date. We are evaluating
the financial statement impacts of the guidance in this ASU and
determining which transition method we will utilize.
Note 2. Accounts Receivable
Accounts receivable at October 31, 2015 and 2014 consisted of
the following:
Advanced Technology (including
U.S. Government (1)):
Amount billed
Unbilled recoverable costs
Commercial customers:
Amount billed
Unbilled recoverable costs
Accounts receivable
2015
2014
$
433
3,077
3,510
19,331
37,949
57,280
$60,790
$ 2,517
2,886
5,403
8,871
50,101
58,972
$64,375
(1) Total U.S. Government accounts receivable outstanding at October 31,
2015 and 2014 is $2.6 million and $1.7 million, respectively.
We bill customers for power plant and module kit 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 technology contracts
are billed based on actual recoverable costs incurred, typically
in the month subsequent to incurring costs. Some advanced
technology contracts are billed based on contractual milestones
or costs incurred. Unbilled recoverable costs relate to revenue
recognized on customer contracts that have not been billed.
Accounts receivable are presented net of an allowance for
doubtful accounts of $0.5 million and $0.1 million at October 31,
2015 and 2014, respectively.
Commercial customers accounts receivable (including unbilled
recoverable costs) include amounts due from POSCO Energy
of $34.4 million and $29.9 million, and amounts due from NRG
of $0.02 million and $5.5 million at October 31, 2015 and 2014,
respectively.
Note 3. Inventories
Inventories at October 31, 2015 and 2014 consisted of the
following:
Raw materials
Work-in-process (1)
Inventories
Building and improvements
Machinery, equipment
and software
Furniture and fixtures
Power plants for use
under PPAs
2015
2014
$29,103
$25,460
36,651
30,435
Construction in progress
$65,754
$55,895
9,263
9,117 10-26 years
83,578
75,084
3-8 years
3,137
2,955
10 years
—
9,948
106,450
996
3-10 years
10,534
99,210
—
(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 at October 31, 2015 and 2014 is $13.3 million
and $19.2 million, respectively, of completed standard components.
Accumulated
depreciation
Property, plant and
equipment, net
(77,448)
(73,385)
$ 29,002
$ 25,825
Annual Report 2015
43
Depreciation expense was $4.1 million, $4.4 million and $4.1
million for the years ended October 31, 2015, 2014 and 2013,
respectively.
Note 9. Accrued Liabilities
Accrued liabilities at October 31, 2015 and 2014 consisted of the
following:
—
964
3,437
3,292
7,568
34
1,156
3,882
2,562
—
Note 6. Goodwill and Intangible Assets
At October 31, 2015 and 2014, 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.
Accrued contract and operating costs
Accrued product warranty costs (1)
Accrued service agreement costs
Accrued payroll and employee benefits
$ 3,914
$ 4,432
2015
2014
The Company has completed a qualitative assessment at July 31,
2015 and determined that the goodwill and indefinite-lived
intangible asset are not impaired.
Accrued taxes, legal, professional and other
Accrued material purchases (2)
Note 7. Other Current Assets
Other current assets at October 31, 2015 and 2014 consisted of
the following:
Advance payments to vendors (1)
Deferred finance costs (2)
Notes receivable
Prepaid expenses and other (3)
Other current assets
2015
$2,281
198
585
3,890
$6,954
2014
$2,372
129
529
4,498
$7,528
(1) Advance payments to vendors relate to inventory purchases.
(2) Primarily represents the current portion of direct deferred finance costs
relating to securing a $40.0 million loan agreement (see Note 10) and will
be amortized over the five-year life of the facility.
(3) Primarily relates to other prepaid vendor expenses including insurance,
rent and lease payments.
Note 8. Other Assets, net
Other assets, net at October 31, 2015 and 2014 consisted of the
following:
Long-term stack residual value (1)
Deferred finance costs (2)
Other
2015
$2,509
354
279
2014
$ 2,725
483
521
Other assets, net
$3,142
$ 3,729
(1) Relates to expected residual value for module exchanges performed
under the Company’s service agreements where the useful life extends
beyond the contractual term of the service agreement and the Company
obtains title for the module from the customer upon expiration or non-
renewal of the service agreement. If the Company does not obtain rights to
title from the customer, the full cost of the module is expensed at the time
of the module exchange.
(2) Represents the long-term portion of direct deferred finance costs relating
to securing a $40.0 million loan facility (see Note 10) and will be amortized
over the five-year life of the facility.
Accrued liabilities
$19,175
$12,066
(1) Activity in the accrued product warranty costs during the year ended
October 31, 2015 and 2014 included additions for estimates of potential
future warranty obligations of $0.6 million and $2.4 million, respectively,
on contracts in the warranty period and reductions related to actual
warranty spend of $0.8 million and $1.2 million, respectively, as contracts
progress through the warranty period or are beyond the warranty period.
(2) The Company acts as a procurement agent for POSCO under the Integrated
Global Supply Chain Plan (“IGSCP”) whereby the Company procures
materials on POSCO’s behalf for its production facility. The liability
represents amounts received for the purchase of materials on behalf
of POSCO. Amounts due to vendors is recorded as Accounts Payable.
Note 10. Debt
Debt at October 31, 2015 and 2014 consisted of the following:
Revolving credit facility
2015
$ 2,945
$
Connecticut Development Authority Note
2,817
Connecticut Clean Energy and Finance
Investment Authority Note
NRG loan agreement
Capitalized lease obligations
6,052
3,763
726
2014
945
3,033
6,052
—
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, 2015 are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
$ 4,412
482
2,411
—
—
6,053
$13,358
44
FuelCell Energy
On August 1, 2014, the Company entered into a revolving credit
facility with JPMorgan Chase Bank, N.A. (the “Bank”) which
has a total borrowing capacity of $4.0 million. This credit facility
replaces the Company’s previous credit facility with the Bank.
The credit facility is used for working capital to finance the
manufacture and production and subsequent export sale of
the Company’s products or services. The outstanding principal
balance of the facility will bear interest, at the option of the
Company, of either the one-month LIBOR plus 1.5% or the
prime rate of JPMorgan 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 and the
Company is working with JPMorgan on reinstating the facility.
On July 30, 2014, FuelCell Finance entered into a Loan
Agreement for a revolving credit facility with NRG (the “Loan
Agreement”). 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% thereafter. Fees that
were paid by FuelCell Finance to NRG for making the loan
facility available and related legal fees incurred were capitalized
and will be amortized straight-line over the life of the related
loan agreement, which is five years. During fiscal year 2015,
our project finance subsidiary, UCI Fuel Cell LLC, borrowed
$3.8 million which is secured by project assets of this subsidiary.
The term of this loan is up to five years but the intent is to
repay within one year in anticipation of the project being sold
or refinanced at the option of the Company.
On June 25, 2013, the Company sold $38.0 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 conversion of the
Notes, the Company recorded an increase in common stock
and additional paid in capital based on the carrying value of the
converted Notes 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 embedded in the Notes
required bifurcation from the host debt contract. As a result
of the conversion of all the outstanding Notes, there is no
remaining derivative balance at October 31, 2014.
As a result of the Note conversions, 0.5 million shares were
issued and a payment of $0.3 million was made to settle the
make-whole payment. The total fair value of the shares issued
for the make-whole payment was $12.9 million which resulted
in a charge of $8.7 million. The make-whole charge is included
in Other income (expense), net on the consolidated statements
of operations.
In April 2008, we entered into a 10-year loan agreement with
the Connecticut Development Authority to finance equipment
purchases associated with manufacturing capacity expansion
allowing for a maximum amount borrowed of $4.0 million. The
interest rate is 5.0% 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.
On March 5, 2013, the Company closed 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 commenced in January 2014 and
principal payments will commence on the eighth anniversary 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.
We lease computer equipment under master lease agreements.
Lease payment terms are generally thirty-six months from the
date of acceptance for leased equipment.
Subsequent to October 31, 2015, the Company closed on a
definitive Assistance Agreement with the State of Connecticut
and received $10 million of low-cost financing, to be used for
the first phase of our expansion of the Torrington facility. See
Note 20.
Note 11. Shareholders’ Equity
Common Stock and Warrant Issuances
During the year ended October 31, 2014, investors elected to
convert the total outstanding $38.0 million in aggregate principal
of the 8.0% Senior Unsecured Convertible Notes. As a result of
these conversions, the Company issued 2.04 million shares of
common stock related to the conversions, 0.5 million shares
to settle the make-whole obligation and 0.03 million shares
for accrued interest.
On July 30, 2014, the Company entered 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 stock to NRG, the Company
Annual Report 2015
45
also issued a warrant to NRG to purchase up to 0.2 million
shares of the Company’s common stock at an exercise price of
$40.20 per share, expiring July 30, 2017. The warrants qualify
for permanent equity accounting treatment.
On January 23, 2014, the Company completed a public offering
of 1.9 million shares of common stock, including 0.3 million
shares sold pursuant to the full exercise of an over-allotment
option granted to the underwriters. All shares were offered by
the Company at a price of $18.00 per share. Total net proceeds
to the Company were approximately $32.0 million.
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 I and Series B preferred shares.
During fiscal year 2015 and 2014, the Company sold 1.9 million
and 1.6 million shares, respectively, of the Company’s common
stock at prevailing market prices through periodic trades on the
open market and raised approximately $26.9 million and $41.3
million, respectively, net of fees.
Note 12. Redeemable Preferred Stock
Redeemable Series B Preferred Stock
We have 250,000 shares of our 5% Series B Cumulative
Convertible Perpetual Preferred Stock (Liquidation Preference
$1,000) (“Series B Preferred Stock”) authorized for issuance. At
October 31, 2015 and 2014, there were 64,020 shares of Series B
Preferred Stock issued and outstanding, with a carrying value of
$59.9 million. The following is a summary of certain provisions
of our Series B Preferred Stock.
• 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.
• Dividends — The Series B Preferred Stock pays cumulative
annual dividends of $50 per share which are payable
quarterly in arrears on February 15, May 15, August 15 and
November 15, and if declared by the board of directors.
Dividends accumulate and are cumulative from the date of
original issuance. Accumulated dividends on the Series B
Preferred Stock 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.
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 cash in each of the years ended
October 31, 2015, 2014 and 2013. There were no cumulative
unpaid dividends at October 31, 2015 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 voluntary or involuntary,
$1,000 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. At
October 31, 2015 and 2014, 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 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 ($141 at October 31, 2015) for
20 trading days during any consecutive 30 trading day period,
as described in the Certificate of Designation.
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
46
FuelCell Energy
Preference of the shares to be redeemed in the case of a
fundamental change, as defined.
($14.2 million), respectively, and is classified as preferred stock
obligation of subsidiary on the consolidated balance sheets.
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.
Series 1 Preferred Shares
In connection with our acquisition of Global Thermoelectric
Inc. (“Global”) in November 2003, we acquired the obligations
of Global pursuant to its outstanding 1,000,000 Series 2
Preferred Shares (“Series 2 Preferred Shares”) which
continued to be held by Enbridge, Inc. (“Enbridge”), the sole
holder of the Series 1 Preferred Shares. With the sale of Global
in May of 2004, the Series 2 Preferred Shares were canceled,
and replaced with substantially equivalent Series 1 Preferred
Shares (“Series 1 Preferred Shares”) issued by FuelCell
Energy Ltd. (“FCE Ltd”).
On March 31, 2011, the Company entered into an agreement
with Enbridge to modify the Class A Cumulative Redeemable
Exchangeable Preferred Shares agreement (the “Series 1
preferred share agreement”) between FCE Ltd, a wholly-
owned subsidiary of FuelCell, and Enbridge, the sole holder
of the Series 1 preferred shares. Consistent with the previous
Series 1 preferred share agreement, FuelCell continues to
guarantee the return of principal and dividend obligations of
FCE Ltd. to the Series 1 preferred shareholders under the
modified agreement.
The modified terms of the Series 1 Preferred Shares provides
for payments of (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. 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 Series 1 Preferred Shares provisions.
The Company assessed the accounting guidance related to the
classification of the preferred shares after the modification on
March 31, 2011 and concluded that the preferred shares should
be classified as a mandatorily redeemable financial instrument,
and presented as a liability on the consolidated balance sheet.
The Company made its scheduled payments of Cdn. $1.3
million during each of fiscal years 2015, 2014 and 2013, under
the terms of the modified agreement, including the recording
of interest expense, which reflects the amortization of the fair
value discount, of approximately Cdn. $2.3 million, Cdn. $2.1
million and Cdn. $2.0 million, respectively. At October 31, 2015
and 2014, the carrying value of the Series 1 Preferred shares
was Cdn. $16.9 million ($12.9 million) and Cdn. $15.8 million
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 US 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 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 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. $1,664.52 per share of common stock after July 31,
2015 until July 31, 2020; and
• 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
Annual Report 2015
47
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 at October 31, 2015 and 2014 was $0.7 million.
Note 13. 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 the 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, 2014
and 2013 were as follows:
United States
South Korea
England
Germany
Canada
Spain
Total
2015
2014
2013
$ 52,109 $ 52,765 $ 80,199
109,953
124,669
101,928
142
764
—
109
119
869
820
1,051
2,036
1,503
1,912
80
$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 million, $21.7 million and
$24.0 million, for the years ended October 31, 2015, 2014 and
2013, respectively.
Long-lived assets located outside of the United States at
October 31, 2015 and 2014 are not significant individually
or in the aggregate.
Note 14. Benefit Plans
We have shareholder approved equity incentive plans, a
shareholder 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 and 2010 Equity Incentive Plans
(collectively, the “Equity Plans”). Pursuant to the Equity
Plans, 2 million shares of common stock were reserved for
issuance. The Board is authorized to grant incentive stock
options, nonstatutory stock options, stock appreciation rights
(“SARs”), restricted stock awards (“RSAs”), restricted stock
units (“RSUs”), performance units, performance shares,
dividend equivalent rights and other stock-based awards to
our officers, key employees and non-employee directors.
Stock options, RSAs and SARs have restrictions as to
transferability. Stock option exercise prices are fixed by the
Board but shall not be less than the fair market value of our
common stock on the date of the grant. SARs may be granted
in conjunction with stock options. Stock options generally
vest ratably over 4 years and expire 10 years from the date of
grant. The Company also has an international award program
to provide RSUs for the benefit of certain employees outside
the United States. At October 31, 2015, there were 0.4 million
shares available for grant. At October 31, 2015, equity awards
outstanding consisted of incentive stock options, nonstatutory
stock options, RSAs and RSUs. The 1998 Equity Incentive Plan
remains in effect only to the extent of awards outstanding
under the plan at October 31, 2015.
Share-based compensation was reflected in the consolidated
statements of operations as follows:
Cost of revenues
General and
administrative expense
Research and
development expense
2015
$ 769
2014
$ 751
2013
$ 584
1,990
1,718
1,325
360
436
308
$3,119
$2,905
$2,217
48
FuelCell Energy
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:
Expected life (in years)
Risk free interest rate
Volatility
Dividends yield
2015
7.0
1.7%
80.3%
—%
2014
7.0
2.3%
81.1%
—%
2013
7.0
1.2%
76.5%
—%
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:
Options
Weighted Average
Option
Price
Shares
Outstanding at October 31, 2014
252,340
$ 77.04
Granted
Cancelled
31,106
$ 13.24
(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, 2015, 2014 and
2013 was $13.24, $21.48 and $7.92, respectively. There were
no options exercised in fiscal year 2015, 2014 or 2013.
The following table summarizes information about stock options outstanding and exercisable at October 31, 2015:
Range of
Exercise Prices
$ 3.24 — $ 61.20
$ 61.21 — $119.04
$119.05 — $176.88
Options Outstanding
Weighted Average
Remaining
Contractual Life
Options Exercisable
Weighted Average
Exercise
Price
Number
exercisable
Weighted Average
Exercise
Price
6.7
1.8
0.6
4.4
$ 20.64
$ 96.85
$ 127.42
$ 57.89
128,392
81,546
31,728
241,666
$ 21.72
$ 96.85
$127.42
$ 60.95
Number
outstanding
144,495
81,546
31,728
257,769
There was no 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:
Restricted Stock Awards and Units
Outstanding at October 31, 2014
Granted
Vested
Forfeited
Outstanding at October 31, 2015
Weighted
Average
Price
$ 17.88
$15.26
$17.51
$17.31
$16.67
Shares
393,673
253,902
(148,920)
(15,085)
483,570
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 four years. At October 31, 2015, the 0.5 million
outstanding RSAs and RSUs had an average remaining life of 1.8
years and an aggregate intrinsic value of $4.7 million.
At October 31, 2015, total unrecognized compensation cost
related to nonvested stock options and RSAs including RSUs was
$0.1 million and $6.3 million, respectively, which is expected to
be recognized over the next 1.0 and 1.7 years, respectively, on a
weighted-average basis.
Stock Awards
During the years ended October 31, 2015, 2014 and 2013, we
awarded 2,399, 979 and 2,482 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
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 of six months after the date of purchase.
At October 31, 2015, there were 4,708 shares of common stock
available for issuance under the ESPP.
Annual Report 2015
49
ESPP activity for the year ended October 31, 2015 was as follows:
ESPP
Balance at October 31, 2014
Issued at $20.64 per share
Issued at $12.60 per share
Available for issuance at October 31, 2015
Number of
Shares
23,517
(8,182)
(10,627)
4,708
The reconciliation of the federal statutory income tax rate to our
effective income tax rate for the years ended October 31, 2015,
2014 and 2013 was as follows:
2015
2014
2013
Statutory federal income tax rate (34.0)%
Increase (decrease) in income
taxes resulting from:
State taxes net of
Federal benefits
(0.1)%
(34.0)%
(34.0)%
(1.8)%
(1.7)%
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:
Foreign withholding tax
Net operating loss adjustment
and true-ups
Nondeductible expenditures
Change in state tax rate
2015
0.5
2014
0.5
2013
0.5
0.07% 0.08% 0.15%
Other, net
72.0% 75.0% 75.0%
Valuation allowance
—%
—%
—%
Effective income tax rate
0.9%
1.0%
0.9%
4.7%
0.1%
1.6%
0.4%
27.3%
0.9%
(25.4)%
14.5%
0.1%
0.8%
(0.8)%
10.5%
0.4%
4.1%
47.1%
20.3%
1.0%
1.0%
Expected life (in years)
Risk free interest rate
Volatility
Dividends yield
The weighted-average fair value of shares issued under the
ESPP during fiscal year 2015 was $16.08 per share.
Our deferred tax assets and liabilities consisted of the following
at October 31, 2015 and 2014:
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 million, $0.3 million and $0.3 million for the years ended
October 31, 2015, 2014 and 2013, respectively.
Note 15. Income Taxes
The components of loss from continuing operations before
income taxes for the years ended October 31, 2015, 2014,
and 2013 were as follows:
2015
2013
$ (26,459) $ (35,167) $ (31,044)
2014
U.S.
Foreign
Deferred tax assets:
Compensation and benefit accruals
Bad debt and other reserves
Capital loss and tax credit
carryforwards
Net operating losses
(domestic and foreign)
Deferred license revenue
Inventory valuation allowances
Investment in partnerships
Accumulated depreciation
Gross deferred tax assets:
Valuation allowance
Deferred tax assets after
valuation allowance
Deferred tax liability:
2015
2014
$
$
8,389
1,109
7,591
1,859
12,998
13,486
257,373
247,170
9,313
8,894
77
—
535
521
404
590
289,794
280,515
(289,794)
(280,515)
—
—
In process research and development
(3,377)
(3,377)
(2,951)
(3,228)
(3,904)
Net deferred tax liability
$ (3,377) $
(3,377)
Loss before income taxes
$ (29,410) $ (38,395) $ (34,948)
There was current income tax expense of $0.3 million, $0.5
million and $0.4 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, 2014 and
2013. Franchise tax expense, which is included in administrative
and selling expenses, was $0.2 million for each of the years
ended October 31, 2015, 2014 and 2013.
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 million of the valuation
allowance will reduce additional paid in capital upon subsequent
50
FuelCell Energy
recognition of any related tax benefits. In connection with our
2012 acquisition of Versa we recorded a deferred tax liability
for IPR&D, which has an indefinite life. Accordingly, we do not
consider it to be a source of taxable income in evaluating the
recoverability of our deferred tax assets.
At October 31, 2015, we had federal and state NOL carryforwards
of $721.0 million and $406.0 million, respectively, for which a
portion of the NOL has not been recognized in connection with
share-based compensation. The Federal NOL carryforwards
expire in varying amounts from 2020 through 2035 while state
NOL carryforwards expire in varying amounts from fiscal year
2015 through 2035. Additionally, we had $11 million of state
tax credits available, of which $1.0 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
2015 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 2015 under Section 382. The acquisition of VERSA in fiscal
year 2013 triggered a Section 382 ownership change which will
limit the future usage of some of the Federal and state
NOLs. The Federal and state NOLs that are non 382-limited are
included in the NOL deferred tax assets as disclosed.
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 at October 31,
2015 and 2014 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 various 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 1999 to the present. We are currently
not under any income tax examinations.
Note 16. Earnings Per Share
Basic earnings (loss) per common share (“EPS”) are generally calculated as income (loss) available to common shareholders divided
by the weighted average number of common shares outstanding. Diluted EPS is generally calculated as income (loss) available to
common shareholders 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, 2014 and 2013 was as follows:
Numerator
Net loss
Net loss attributable to noncontrolling interest
Preferred stock dividend
Net loss attributable to common shareholders
Denominator
Weighted average basic common shares
Effect of dilutive securities (1)
Weighted average diluted common shares
Basic loss per share
Diluted loss per share (1)
2015
2014
2013
$(29,684)
$(38,883)
$(35,319)
325
(3,200)
758
(3,200)
961
(3,200)
$(32,559)
$(41,325)
$(37,558)
24,513,731
20,473,915
15,543,750
—
—
—
24,513,731
20,473,915
15,543,750
$(1.33)
$(1.33)
$(2.02)
$(2.02)
$(2.42)
$(2.42)
(1) Due to the net loss to common shareholders in each of the years presented above, diluted earnings per share was computed without consideration
to potentially dilutive instruments as their inclusion would have been antidilutive. Potentially dilutive instruments include stock options, warrants,
unvested RSAs and RSUs and convertible preferred stock. At October 31, 2015, 2014 and 2013, there were options to purchase 0.3 million shares of
common stock. At October 31, 2015, 2014 and 2013, respectively, there were warrants to purchase 0.2 million, 0.5 million and 0.4 million shares of
common stock, which were not included in the calculation of diluted earnings per share as they would be antidiulutive.
Annual Report 2015
51
Note 17. Commitments and Contingencies
Lease agreements
At October 31, 2015 and 2014, we had capital lease obligations
of $0.7 million. 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.
Rent expense was $1.7 million, $1.7 million and $1.6 million for
the years ended October 2015, 2014 and 2013, respectively.
Non-cancelable minimum payments applicable to operating and
capital leases at October 31, 2015 were as follows:
2016
2017
2018
2019
2020
Thereafter
Total
Operating
Leases
$1,771
1,360
891
755
374
62
Capital
Leases
$422
243
61
—
—
—
$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. An estimate is
not recorded for a potential performance guarantee liability
until a performance issue has occurred on 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 million and $0.8 million at October 31, 2015 and 2014,
respectively, and is recorded in Accrued Liabilities.
Our loss accrual on service agreements, excluding the
accrual for performance guarantees, totaled $0.8 million
and $3.0 million at October 31, 2015 and 2014, respectively,
and is recorded in Accrued Liabilities. Our accrual 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.
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
owner 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
of power under our PPA agreements and we typically have the
right to terminate PPA agreements by giving written notice to
the customer, subject to certain exit costs.
Plant Expansion
Subsequent to year-end, we commenced the first phase of our
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. On November 9,
2015, the Company closed on a definitive Assistance Agreement
with the State of Connecticut and received a disbursement
of $10 million to be used for the first phase of the expansion
project. See Note 20 for additional information.
Other
At October 31, 2015, the Company has unconditional purchase
commitments aggregating $57.1 million, for materials,
supplies and services in the normal course of business.
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.
52
FuelCell Energy
Note 18. Supplemental Cash Flow Information
The following represents supplemental cash flow information:
Cash interest paid
Income taxes paid
Noncash financing and investing activity:
Common stock issued for convertible note conversions and make-whole settlements
Common stock issued for Employee Stock Purchase Plan in settlement of prior year accrued
employee contributions
Common stock issued for acquisition of Versa
Accrued sale of common stock, cash received in a subsequent period
Year Ended October 31,
2014
2015
$ 677 $ 1,892
2013
$ 280
8
35
— 46,186
169
—
494
106
—
633
17
—
85
3,563
509
Note 19. Quarterly Information (Unaudited)
Selected unaudited financial data for each quarter of fiscal year 2015 and 2014 is presented 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)
Year ended October 31, 2015
Revenues
Gross profit
Loss on operations
Net loss
Preferred stock dividends
Net loss to common shareholders
Net loss to common shareholders per basic
and diluted common share (1)
Year ended October 31, 2014
Revenues
Gross profit
Loss on operations
Net loss
Preferred stock dividends
Net loss to common shareholders
Net loss to common shareholders per basic
and diluted common share (1)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$ 41,670
$ 28,600
$41,356
$51,451
$163,077
4,014
(5,130)
(4,154)
(800)
(4,866)
2,023
(8,793)
(9,997)
(800)
(10,694)
3,595
(7,103)
(6,628)
(800)
(7,339)
3,144
(7,866)
(8,905)
(800)
(9,660)
12,776
(28,892)
(29,684)
(3,200)
(32,559)
$ (0.20)
$
(0.44)
$ (0.29)
$ (0.38)
$
(1.33)
$ 44,434
$ 38,274
$ 43,176
$ 54,409
$ 180,293
2,199
(7,570)
1,611
(8,773)
(10,815)
(16,039)
(800)
(800)
(11,404)
(16,643)
3,961
(6,000)
(7,139)
(800)
(7,778)
5,955
(4,968 )
(4,890 )
(800 )
(5,500 )
13,726
(27,311)
(38,883)
(3,200)
(41,325)
$
(0.68)
$ (0.82)
$ (0.36)
$ (0.26 )
$
(2.02)
[1] The full year net loss to common shareholders basic and diluted share may not equal the sum of the quarters due to weighting of outstanding shares.
Note 20. Subsequent Events
Expansion of Torrington Facility and Related Low-Cost
Financing
Subsequent to year-end, we commenced the first phase of our
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. 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 million to be used for the
first phase of the expansion project. In conjunction with this
financing, the Company entered into a $10 million Promissory
Note and related security agreements securing the loan with
Annual Report 2015
53
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%
is payable beginning 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.
In addition, the Company will receive up to $10 million of tax
credits earned during the first phase of the expansion.
The second phase of our manufacturing expansion, for which
we will be eligible to receive an additional $10 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
megawatts to at least 200 megawatts. Plans for this phase
also include the installation of a megawatt scale tri-generation
fuel cell plant to power and heat the facility as well as provide
hydrogen for the manufacturing process of the fuel cell
components, and the creation of an Advanced Technology
Center for technology testing and prototype manufacturing. In
addition, the final stage of the fuel cell module manufacturing
will be relocated to the Torrington facility from its current
location at the Danbury, Connecticut headquarters, which
will reduce logistics costs.
The first phase of the expansion is expected to result in
expenditures of up to $23 million that will be partially off-set by
the $10 million of first phase funding received from the State
of Connecticut. The total investment for both phases of the
expansion could be up to $65 million over a five-year period, of
which $20 million will be funded by low cost financing from the
State of Connecticut.
Revolving Credit Facility
The Company’s revolving credit facility with JPMorgan referenced
in Note 10 expired on November 28, 2015 in conjunction with
the Export-Import Bank charter expiration. The outstanding
balance was paid back subsequent to year-end on November 24,
2015. The Export-Import Bank Charter has subsequently been
renewed by the U.S. Government and the Company is working
with JPMorgan on reinstating the facility during fiscal 2016.
Sale Leaseback Tax Equity Facility
In December 2015, the Company entered into a sale leaseback
tax equity facility with PNC Energy Capital, LLC (“PNC”). Under
this facility, the Company’s project finance subsidiaries may
enter into up to $30 million of lease agreements for projects
currently under development. The first project to close under
the facility on December 23, 2015 was a sale leaseback of the
UCI Fuel Cell, LLC power plant which entered into commercial
operations in December 2015. Proceeds from PNC totaled
approximately $8.8 million and were partially used to settle
outstanding construction period debt to NRG referenced under
Note 8 to the financial statements. The Company and its project
finance subsidiaries will establish reserves for up to $10.0
million to support obligations of the power purchase and service
agreements. Such reserves will be classified as restricted cash
on the Consolidated Financial Statements and released over
time based on project performance. Under the terms of the
terms of the sale lease back transactions we make fixed monthly
payments to PNC for a period of 10 years and have the option of
repurchasing the plants at the end of the term. While we receive
financing for the full value of the power plant asset, we do not
expect to recognize revenue on the sale leaseback transaction.
Instead, revenue is recognized through the sale of electricity and
energy credits which are generated as energy is produced.
FORWARD-LOOKING STATEMENT DISCLAIMER
When used in this report, the words “expects”, “anticipates”, “estimates”, “should”, “will”, “could”, “would”, “may”, “forecast”, and similar
expressions are intended to identify forward-looking statements. Such statements relate to, among other things, the following: the development
and commercialization by FuelCell Energy, Inc. and its subsidiaries (“FuelCell Energy”, “Company”, “we”, “us” and “our”) of fuel cell technology and
products and the market for such products, expected operating results such as revenue growth and earnings, our belief that we have sufficient
liquidity to fund our business operations for the next 12 months, future funding under government research and development contracts, future
financing for projects including publicly issued bonds, equity and debt investments by investors and commercial bank financing, the expected cost
competitiveness of our technology, and our ability to achieve our sales plans and cost reduction targets.
The forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results
to differ materially from those forward-looking statements, including, without limitation, the following: general risks associated with product
development and manufacturing; general economic conditions; changes in the utility regulatory environment; changes in the utility industry and
the markets for distributed generation, distributed hydrogen, and carbon capture configured fuel cell power plants for coal and gas-fired central
generation; potential volatility of energy prices; availability of government subsidies and economic incentives for alternative energy technologies;
rapid technological change; competition; market acceptance of our products; changes in accounting policies or practices adopted voluntarily or as
required by accounting principles generally accepted in the United States; factors affecting our liquidity position and financial condition; government
appropriations; the ability of the government to terminate its development contracts at any time; the ability of the government to exercise “march-in”
rights with respect to certain of our patents; POSCO’s ability to develop the market in Asia, deploy DFC power plants and successfully operate its
Asian manufacturing facility; our ability to implement our strategy; our ability to reduce our levelized cost of energy; the risk that commercial field
trials of our products will not occur when anticipated; our ability to increase the output and longevity of our power plants; and our ability to expand
our customer base and maintain relationships with our largest customers.
We cannot assure you that: we will be able to meet any of our development or commercialization schedules, 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, any of our new products or technology, once developed, will be commercially successful, our existing DFC power plants will remain
commercially successful, 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
54
FuelCell Energy
SHAREHOLDER INFORMATION
Corporate Offices
FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06813-1305
Form 10-K
A copy of the Annual Report on Form 10-K for the year ended
October 31, 2015, which is filed with the U.S. Securities and
Exchange Commission, can be accessed from our website
at www.fuelcellenergy.com. We will provide, without charge,
a copy of the Annual Report on Form 10-K for the year ended
October 31, 2015. You may request a copy by writing to Investor
Relations at the address below.
Company Contacts
For additional information about FuelCell Energy, Inc.
please contact:
FuelCell Energy, Inc.
Investor Relations
3 Great Pasture Road
Danbury, CT 06813-1305
IR@fce.com
Corporate Website
www.fuelcellenergy.com
Registrar and Transfer Agent
Shareholders with questions regarding lost certificates, address
changes or changes of ownership should contact:
American Stock Transfer & Trust Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
(800) 937.5449
(718) 921.8124
info@amstock.com
www.amstock.com
Auditors
KPMG LLP
Legal Counsel
Patterson Belknap Webb & Tyler LLP
Robinson & Cole LLP
Annual Meeting
The Annual Meeting of Shareholders will be held Thursday,
April 7, 2016 at 10:00 a.m. at:
The Hartford Marriott Downtown
200 Columbus Boulevard
Hartford, CT 06103-2807
Common Stock Price Information
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.
On 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, 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 I 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.
The following table has been retroactively adjusted to give effect
to the reverse stock split.
Common Stock Price
High
Low
First Quarter 2016
(through December 31, 2015)
Year Ended October 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended October 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$12.24
$ 4.90
$27.60
17.40
15.36
12.00
$23.40
56.88
31.80
34.08
$12.60
13.68
9.72
7.68
$15.36
16.44
22.32
18.60
On December 31, 2015, the closing price of our common
stock on the Nasdaq Global Market was $4.96 per share.
At December 31, 2015, there were 489 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 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.
Non-Discrimination Statement
FuelCell Energy, Inc. is an Equal Opportunity/Affirmative Action employer. In order to provide equal employment and advancement opportunities to
all individuals, our employment decisions will be based on merit, qualifications and abilities. We do not discriminate in employment opportunities
or practices on the basis of race, color, religion, creed, age, sex, marital status, national origin, ancestry, past or present history of mental disorder,
mental retardation, learning disabilities, physical disability, sexual orientation, gender identification, genetic information, or any other characteristic
protected by law.
Annual Report 2015
55
William A. Lawson 2, 4, 5, 7
Retired Chairman of the Board of Newcor, Inc.
Christopher S. Sotos 6
Senior Vice President of Strategy and Mergers and
Acquisitions of NRG Energy, Inc.
Natica von Althann 3, 5
Founding partner of C&A Advisors and a former financial
executive at Bank of America and Citigroup
Togo Dennis West, Jr. 3, 4, 6
Former U.S. Secretary of the Army and
U.S. Secretary of Veterans Affairs
1 Chairman of the Board of Directors
2 Executive Committee
3 Audit and Finance Committee
4 Compensation Committee
5 Nominating and Corporate Governance Committee
6 Government Affairs Committee
7 Will not be standing for re-election
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
John A. Rolls 1, 2, 3, 5
Managing Partner of Core Capital Group, a private
investment partnership and former Executive Vice
President and Chief Financial Officer of United
Technologies
Arthur A. Bottone 2, 6
President and Chief Executive Officer of
FuelCell Energy, Inc.
Richard A. Bromley 4, 6, 7
Retired Vice President—Law and Government Affairs
for AT&T
Paul Browning 4, 6
Former President and Chief Executive Officer of Irving
Oil Company Limited and former President and CEO
of the Thermal Products division for General Electric
James H. England 3, 4, 5
Corporate Director and Chief Executive Officer of
Stahlman—England Irrigation, Inc.
Matthew Hilzinger 3, 5
Executive Vice President and Chief Financial Officer,
USG Corporation and former Chief Financial Officer
of Exelon Corporation
OFFICERS
Arthur A. Bottone
President and Chief Executive Officer
Michael S. Bishop
Senior Vice President, Chief Financial Officer,
Corporate Secretary and Treasurer
Anthony F. Rauseo
Senior Vice President and Chief Operating Officer
Statements in this Report relating to matters not historical are forward-looking statements that involve important factors that could
cause actual results to differ materially from those anticipated. Cautionary statements identifying such important factors are described in
reports, including the Form 10-K for the fiscal year ended October 31, 2015, filed by FuelCell Energy, Inc. with the Securities and Exchange
Commission and available at www.fuelcellenergy.com.
FuelCell Energy with the corresponding logo is a registered trademark of FuelCell Energy, Inc. “Direct FuelCell,” “DFC,” “DFC-H2” and
“DFC/T” are registered trademarks of FuelCell Energy, Inc. DFC-ERG is a registered trademark of FuelCell Energy, Inc. and Enbridge Inc.
All rights reserved. © FuelCell Energy, Inc. 2016
56
FuelCell Energy
Efficient and Affordable Carbon Capture with Fuel Cells
3 Great Pasture Road | Danbury, CT 06813-1305 | 203.825.6000
www.FuelCellEnergy.com