ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Part II, "Item 1A. Risk Factors" and located elsewhere herein regarding industry prospects or our prospective results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management's current expectations and are inherently uncertain. The important factors discussed below under the caption "Risk Factors" in Item 1A, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Any such forward-looking statements represent management's estimates as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

American Superconductor and design, Revolutionizing the Way the World Uses Electricity, AMSC, Powered by AMSC, D-VAR, dSVC, PowerModule, PQ-IVR, Secure Super Grids, Windtec and SuperGEAR are trademarks or registered trademarks of American Superconductor Corporation or its subsidiaries. All other brand names, product names or trademarks belong to their respective holders. The Windtec logo and design is a registered European Union Community Trademark. All other brand names, product names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

Executive Overview

American Superconductor Corporation was founded in 1987. We offer an array of proprietary technologies and solutions spanning the electric power infrastructure-from generation to delivery to end use. Our company is a leader in alternative energy, providing proven, megawatt-scale wind turbine designs and electrical control systems. We also offer a host of Smart Grid technologies for power grid operators that enhance the reliability, efficiency and capacity of the grid, and seamlessly integrate renewable energy sources into the power infrastructure. These technologies include superconductor power cable systems, grid-level surge protectors and power electronics-based voltage stabilization systems. Our technologies are protected by a broad and deep intellectual property portfolio consisting of hundreds of patents and licenses worldwide.

Our company markets two primary, proprietary technologies: programmable power electronic converters and high temperature superconductor (HTS) wires. The programmability and scalability of our power electronic converters differentiates them from most competitive offerings. Our power electronic converters increase the quantity, quality and reliability of electric power that is produced by a renewable source, such as wind, transmitted by electric utilities or consumed by large industrial entities.

Our HTS wire can carry 150 times the electric current of comparatively sized copper wire and therefore increases the electric current carrying capacity of the transmission cables comprising these power grids and provides current limiting functionality in cables and stand-alone devices. In addition, our HTS wire, when incorporated into primary electrical equipment such as motors and generators, can provide increased manufacturing and operating savings due to a significant reduction in the size and weight of this equipment. Also, our power electronic converters increase the quantity, quality and reliability of electric power that is transmitted by electric utilities or consumed by large industrial entities.

Our products are in varying stages of commercialization. Our power electronic converters have been sold commercially, as part of integrated systems, to electric utilities, wind turbines and other manufacturers and wind farm developers, owners and operators since 1999. We began production of our first generation, or "1G," HTS wire in 2003, and ceased 1G production in 2007 in favor of second generation or "2G" HTS wire, as discussed below. We started initial production of 344 superconductors, our brand name for 2G HTS wire, in November 2007. Our gross production capacity is approximately 720,000 meters of 344 superconductors per year. The principal applications for HTS wire (power cables, fault current limiters, rotating machines and specialty magnets) are currently in the prototype stage. Some of these prototypes are

funded by U.S. government contracts, primarily with the Department of Defense ("DOD"), Department of Energy ("DOE") and the Department of Homeland Security ("DHS").

Our fiscal year begins on April 1 and ends on March 31. This document refers to fiscal 2009, which is defined as the period beginning on April 1, 2009 and concluding on March 31, 2010. The first quarter of fiscal 2009 began on April 1, 2009 and concluded on June 30, 2009.

Our cash requirements depend on numerous factors, including successful completion of our product development activities, ability to commercialize our product prototypes, rate of customer and market adoption of our products and the continued availability of U.S. government funding during the product development phase. Significant deviations to our business plan with regard to these factors, which are important drivers to our business, could have a material adverse effect on our operating performance, financial condition, and future business prospects. We expect to pursue the expansion of our operations through internal growth and potential strategic alliances and acquisitions.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ under different assumptions or conditions. There were no significant changes in the first quarter of fiscal 2009 in our critical accounting policies as disclosed in our Form 10-K for fiscal 2008, which ended on March 31, 2009.

Results of Operations

Three months ended June 30, 2009 compared to the three months ended June 30, 2008

We operate and report our financial results to the Chief Executive Officer in two reportable business segments: AMSC Power Systems and AMSC Superconductors.

AMSC Power Systems business unit produces a broad range of products to increase electrical grid capacity and reliability; supplies electrical systems used in wind turbines; sells power electronic products that regulate wind farm voltage to enable their interconnection to the power grid; licenses proprietary wind turbine designs to manufacturers of such systems; provides consulting services to the wind industry; and offers products that enhance power quality for industrial operations.

AMSC Superconductors business unit manufactures HTS wire and coils; designs and develops superconductor products, such as power cables, fault current limiters and motors; and manages large-scale superconductor projects.

During the first quarter of the year ending March 31, 2010, we corrected bonus expense for an immaterial error discovered during the quarter which increased net income by $0.3 million. The $0.3 million error consisted of a $0.4 million overstatement of bonus expense and a related $0.1 million understatement of income tax expense in the fourth quarter of the year ended March 31, 2009. The impact of correcting this error in the year ended March 31, 2009 would have increased net income by $0.3 million. We believe this error is immaterial to both the consolidated quarterly and annual financial statements for all periods affected.

Revenues

Total revenues increased by 83% to $73.0 million for the three months ended
June 30, 2009 from $39.8 million for the three months ended June 30, 2008. Our
revenues are summarized as follows (in thousands):



                                             Three months ended
                                                  June 30,
                                              2009         2008
                    Revenues:
                    AMSC Power Systems     $    70,696   $ 35,930
                    AMSC Superconductors         2,304      3,887

                    Total                  $    73,000   $ 39,817

Revenues in our AMSC Power Systems business unit consist of revenues from wind turbine electrical systems, wind turbine license and development contracts as well as D-VAR®, D-VAR RT, SVC, and PowerModule™ product sales, service contracts, and consulting arrangements. We also engineer, install and commission our products on a turnkey basis for some

customers. Our AMSC Power Systems business unit accounted for 97% and 90% of total revenues for the three months ended June 30, 2009 and 2008, respectively. Revenues in the AMSC Power Systems business unit increased 97% to $70.7 million in the three months ended June 30, 2009 from $35.9 million in the three months ended June 30, 2008. The increase in AMSC Power Systems business unit revenues was primarily due to higher sales of wind electrical systems and core components, primarily to customers in China, higher D-VAR shipments, as well as shipments of our D-VAR RT products to ACCIONA Energy in Spain. Based on the average Euro and renminbi exchange rates for the first quarter of fiscal 2009, revenue denominated in these foreign currencies translated into U.S. dollars was $0.6 million lower compared to the translation of these revenues using the average exchange rates of these currencies for the first quarter of fiscal 2008.

For the quarter ended June 30, 2009, a substantial portion of our revenues was derived from three customers: Sinovel Wind Co., Ltd., a manufacturer of wind turbines based in China; ACCIONA S.A., a Spanish renewable power company; and a U.S. subsidiary of National Grid, an energy company. Sales to Sinovel represented 53% and 68% of total revenues for the three months ended June 30, 2009 and 2008, respectively. Sales to ACCIONA and National Grid were 14% and 10% of total revenues, respectively, for the first quarter of fiscal 2009. Sales to the U.S. Department of Energy represented 16% of total revenues for the first quarter of fiscal 2008.

On July 29, 2009, we announced that Sinovel has amended its contract with us, resulting in an increase in contract value of approximately $20 million to more than $470 million. In addition, deliveries under this contract will be accelerated, resulting in an increase in forecasted revenues in fiscal 2009 as compared to the original contract.

Revenues in our AMSC Superconductors business unit consist of contract revenues, HTS wire sales, revenues under government-sponsored electric utility projects, and other prototype development contracts. AMSC Superconductors business unit revenue is primarily recorded using the percentage-of-completion method. AMSC Superconductors business unit accounted for 3% and 10% revenues for the first quarter of fiscal 2009 and 2008, respectively. AMSC Superconductors business unit revenue decreased 41% to $2.3 million in the first quarter of fiscal 2009 from $3.9 million in the first quarter of fiscal 2008. Revenues from significant AMSC Superconductors government funded contract revenues are summarized as follows (in thousands):

                                                        Revenue Earned         Revenue Earned for three months
                                    Expected Total          through                    ended June 30,
Project Name                        Contract Value       June 30, 2009          2009                 2008
HYDRA                               $        24,908     $         8,116     $         264     $             1,022
LIPA I                                       27,458              27,458                18                       7
LIPA II                                      12,500               3,984               689                     832
DOE-FCL                                       7,898               3,065                62                     564
NAVSEA Motor Study                            6,210               5,895                15                     620

These significant projects represented 45% and 78% of AMSC Superconductors business unit revenue for the three months ended June 30, 2009 and 2008, respectively.

The decrease in AMSC Superconductors business unit revenue for the first quarter of fiscal 2009 was driven primarily by lower HYDRA project revenues due to subcontractor-related delays. We recognize superconductor cable project revenues from the Project HYDRA contract with Consolidated Edison, Inc., which is being funded by the U.S. Department of Homeland Security ("DHS") and was signed on January 22, 2008. DHS is expected to invest up to a total of $24.9 million in the development of a new high temperature superconductor power grid technology to enable Secure Super Grids™. Secure Super Grids utilize customized HTS wires, superconductor power cables and ancillary controls to deliver more power through the grid while also being able to suppress power surges that can disrupt service. Of the total $24.9 million in funding expected from DHS, it has committed funding of $16.3 million to us as of June 30, 2009. We recognized $0.3 million in revenue related to the Project HYDRA during the first quarter of fiscal 2009, compared to $1.0 million in the same period of fiscal 2008. Consolidated Edison and Southwire Company are subcontractors to us on this project.

LIPA I is a project to install an HTS power cable system at transmission voltage using our first generation HTS wire for the Long Island Power Authority. LIPA II is a project to install an HTS power cable utilizing our second generation HTS wire for the Long Island Power Authority. DOE-FCL is a project to develop and demonstrate a transmission voltage SuperLimiter FCL. The NAVSEA Motor Study is a project designed to test the 36.5 MW superconductor motor developed for the U.S. Navy.

Revenues from our DOE-FCL project were negatively impacted by delayed funding resulting in capitalized costs which we anticipate to be recognized as revenue in the second quarter of fiscal 2009 as funding was authorized in July 2009. The

decrease in the NAVSEA Motor Study project revenue is a result of the project coming to a conclusion. The LIPA II decrease in project revenue is related to the 1st phase coming to a conclusion.

Cost-sharing funding

In addition to reported revenues, we also received funding of $0.7 million for the first quarter of fiscal 2009 under U.S. government cost-sharing agreements with the U.S. Air Force and DOE, compared to $0.8 million for the first quarter of fiscal 2008. The slight decrease in cost-sharing funding is primarily due to the DOE Wire Initiative program nearing completion. All of our cost-sharing agreements provide funding in support of development work on 344 superconductors being done in our AMSC Superconductors business unit. We anticipate that a portion of our funding in the future will continue to come from cost-sharing agreements as we execute joint programs with government agencies. Funding from government cost-sharing agreements is recorded as an offset to research and development ("R&D") and selling, general and administrative ("SG&A") expenses, rather than as revenue. As of June 30, 2009, we anticipate recognizing an additional $1.1 million offset to R&D and SG&A expenses related to these cost-sharing agreements over the next two years.

Cost of Revenues and Gross Margin

Cost of revenues increased by 79% to $50.4 million for the first quarter of fiscal 2009 compared to $28.2 million for the first quarter of fiscal 2008. Gross margin was 30.9% for the first quarter of fiscal 2009 compared to 29.2% for the first quarter of fiscal 2008. The increase in gross margin in the first quarter of fiscal 2009 as compared to the same period in fiscal 2008 was due primarily to a higher volume of wind turbine core electrical component shipments and a higher percentage of higher-margin AMSC Power Systems business unit sales as compared to AMSC Superconductor business unit sales.

Operating Expenses

Research and development

A portion of our R&D expenditures related to externally funded development contracts has been classified as costs of revenue (rather than as R&D expenses). Additionally, a portion of R&D expenses was offset by cost-sharing funding. Our R&D expenditures are summarized as follows (in thousands):