Let's start the day off with some less-than-encouraging news for anyone who's been rooting for A123 Systems: bankruptcy may be just around the corner.

In an Securities and Exchange Committee filing yesterday (download or view it here), A123 says it "does not expect to timely pay" the next payment due on the $143 million it owes on notes that will come due in 2016 and that it "does not intend to timely pay a 6% P&I Payment due today, October 15, 2012." It has thus defaulted on these loans and is "considering a broad set of strategic alternatives to address its liquidity constraints." Then there's this:

The Company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code to, among other things, obtain access to new financing and facilitate one or more of the transactions it is contemplating. No assurance can be given that the Company will be able to avoid restructuring, reorganization, or a bankruptcy filing.

A123 has contracts with automakers like Fisker and BMW. A battery recall involving the Fisker Karma earlier this year is said to have cost A123 around $67 million. So, it's not like we didn't have any warnings that A123 was in trouble. In July, A123 filed an SEC report that said it "expects to have approximately four to five months of cash to support its ongoing operations." In August, Chinese company Wanxiang Group Corporation and A123 made a deal to give Wanxiang an 80 percent ownership stake for an investment of up to $450 million.

There is a decent chance that this will come up during the presidential debate tonight, since Republican candidate Mitt Romney attacked President Obama for giving money to green energy "losers" like Fisker Automotive and Tesla Motors in the last debate and A123 got a $249 million federal grant in 2009. Of course, A123, based in Waltham, MA, also received money during the Bush Administration (it was started in 2001 with a $100,000 Department of Energy grant and, in 2006, was given a $7.5-million award from the United States Advanced Battery Consortium) and said in 2009 it was "seeking rebates, tax exemptions, tax credits and financing that the Commonwealth of Massachusetts has offered to support the expansion of our facilities in Massachusetts." Romney was governor of Massachusetts from 2003-2007, but we haven't yet found any proof he supported the company at that time. Anyone have any links to share on this topic?

*UPDATE: And, this morning, A123 did indeed file for bankruptcy and will sell its automotive assets to Johnson Control. See press release below.
Show full PR text
A123 SYSTEMS REACHES AGREEMENT TO SELL AUTOMOTIVE BUSINESS ASSETS TO JOHNSON CONTROLS
  • A123 and its U.S. Subsidiaries File Voluntary Chapter 11 Petitions To Facilitate Transaction Process
  • Johnson Controls to Provide $72.5 Million in DIP Financing To Support A123's Continued Operations
  • A123 Actively Pursuing Strategic Alternatives for Grid, Commercial, Government and other Businesses and Operations
WALTHAM, Mass., October 16, 2012 – A123 Systems, Inc. (Nasdaq: AONE) ("A123" or "the Company"), a developer and manufacturer of advanced Nanophosphate® lithium iron phosphate batteries and systems, today announced that it has entered into an asset purchase agreement with Johnson Controls, Inc. (NYSE: JCI) in a transaction valued at $125 million. Under the terms of the agreement, Johnson Controls plans to acquire A123's automotive business assets, including all of its automotive technology, products and customer contracts; its facilities in Livonia and Romulus, Michigan; its cathode powder manufacturing facilities in China, and A123's equity interest in Shanghai Advanced Traction Battery Systems Co., A123's joint venture with Shanghai Automotive. The asset purchase agreement also includes provisions through which Johnson Controls intends to license back to A123 certain technology for its grid, commercial and government businesses. A123 also continues to engage in active discussions regarding strategic alternatives for its grid, commercial, government and other operations, and has received several indications of interest for these businesses.

To facilitate the transaction process, A123 and all of its U.S. subsidiaries today filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The Company's subsidiaries located outside the U.S. were not included in the filings. This action is expected to allow the Company to provide for an orderly sale of the automotive business assets and all other assets and business units under Section 363 of the Bankruptcy Code and enable the Company to maximize the value of its assets for its stakeholders in a controlled, court- supervised environment.

In conjunction with the proposed transaction, A123 has received a commitment from Johnson Controls for $72.5 million in "debtor in possession" financing to support the Company's continued operations during the pendency of the sale process. The Company has filed a number of customary motions seeking court authorization to continue to support its business operations during the transaction process, including the continued payment of employee wages, salaries and health benefits without interruption.

"We believe the asset purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time," said David Vieau, Chief Executive Officer of A123. "We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion. Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets. We are also pleased that we have received indications of interest that recognize the value of our grid and commercial businesses. We are encouraged by the significant interest we have received, as multiple parties have submitted proposals for these businesses. As we move through this transaction process, we expect to continue operating and working with customers and suppliers."

"Our interest in A123 Systems is consistent with our long-term growth strategies and overall commitment to the development of the advanced battery industry," said Alex Molinaroli, president, Johnson Controls Power Solutions. "Requirements for more energy efficient vehicles continue to increase, which is driving automotive manufacturers to pursue new technologies across a broad spectrum of powertrains and associated energy storage solutions. We believe that A123's automotive capabilities are a good complement to our existing portfolio and will further advance Johnson Controls' position as a market leader in this industry."

The transaction with Johnson Controls is being completed pursuant to Section 363 of the U.S. Bankruptcy Code and is subject to, among other things, higher or otherwise better offers to purchase any or substantially all assets of the Company, Court approval, antitrust approval, any other such approvals as may be required by law, and other customary conditions. Given these conditions, there can be no assurance that the proposed transaction will be consummated.

Additional information is available on A123's website at www.a123systems.com or by calling A123's Restructuring Hotline, toll-free in the U.S., at 1-800-224-7654. For calls originating outside the U.S., please dial +1 973-509-3190. Court documents and additional information can be found at a dedicated website administrated by the Company's Claims Agent, Logan & Company: www.loganandco.com.

Latham & Watkins LLP and Richards, Layton & Finger are serving as legal advisors, Lazard is serving as financial advisor, and Alvarez & Marsal is serving as restructuring advisor to A123.

About A123 Systems

A123 Systems, Inc. (Nasdaq: AONE) is a leading developer and manufacturer of advanced lithium-ion batteries and energy storage systems for transportation, electric grid and commercial applications. The company's proprietary Nanophosphate® lithium iron phosphate technology is built on novel nanoscale materials initially developed at the Massachusetts Institute of Technology and is designed to deliver high power and energy density, increased safety and extended life. A123 leverages breakthrough technology, high-quality manufacturing and expert systems integration capabilities to deliver innovative solutions that enable customers to bring next-generation products to market. For additional information please visit www.a123systems.com.

Safe Harbor Disclosure

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended that are subject to risks, uncertainties and other important factors, including statements with respect to the expected benefits of A123's proposed asset sale and financing transactions with Johnson Controls, the potential of the transactions and Chapter 11 filing to create value for A123 and its stakeholders, the satisfaction of conditions to closing of the transactions, the anticipated growth of the market for energy efficient vehicles, the expectation that a Chapter 11 filing will enable A123 to sell its automotive and other assets in an orderly manner and maximize value to its stakeholders, and the necessity of bankruptcy court and other approvals, including antitrust and other regulatory approvals, to conduct and complete the transactions and other potential asset sales. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: failure to obtain required bankruptcy court and other approvals, failure to satisfy the conditions to closing of the transactions, delays in the development of A123's products, adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which A123 and Johnson Controls operate, and other risks detailed in A123 Systems' quarterly report on Form 10-Q for the quarter ended June 30, 2012 and other publicly available filings with the Securities and Exchange Commission. All forward-looking statements reflect A123's expectations only as of the date of this release and should not be relied upon as reflecting A123's views, expectations or beliefs at any date subsequent to the date of this release.


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    • 1 Second Ago
  • 71 Comments
      oktrader
      • 2 Years Ago
      I hope it's quite clear now why some fund operators chose to heavily short the electrification issues since late 2010. The script plays over and over the same way you'd see in a slasher movie, with the promiscuous teens dismembered in the first big scene, and the rest falling into place. Optimistic scientists (typically former academics) bring visionary technologies to the investment community. Government seeds the process, along with VCs. Business plans based on absurd projections of EV acceptance levels (thanks for the pump, DoE) are pushed by underwriters. Never cracking the prospectus, hapless investors are captivated by sell-side analysts hoping to get the next offering. Highly-publicized PR visits by vapid politicians sprinkle some accelerant on the process. Valuations climbed precipitously, and outrageous estimates push numbers yet higher with serious questions receiving silence at best, spiced with "hater" accusations by the faithful. Meanwhile, as VCs have LONG since escaped with bags of dough, naive investors pile on. Then, suddenly, as the conference call themes wear thin, like a bolt of lightning the world says "this makes no sense", and the rapid, irreversible decline accelerates as quickly as the meteoric rise. Understanding that simple and obvious script has made life very, very good for those of us who have seen through the hype in the first scene. Here's the backbone of the Mobility Electrification Short Fund (Jan 2011 to date), starting with battery and pure EV issues: Valence Technology (VLNC): -100% (BK), from $1.70 to zero Ener Del (HEV): -100% (BK), from $4 to zero A123 (AONE): -99%, from $9 to $0.06 EVCarCO (EVCA): -99%, from $0.50 to $0.001 Ecotality (ECTY): -86%, from $3.22 to $0.48 UQM (UQM): -25%, from $1.80 to $1.35 Then come the established companies claiming huge near-term upside from a wave of near-term electrification acceptance: Maxwell Technology (MXWL): -59%, from $19.16 to $7.90 Axion Power International (AXPW): -45%, from $0.57 to $0.31 Aerovironment (AVAV): -14%, from $27.50 to $23.67 The three biggest major auto electification story stocks: General Motors: -35%, from $37.90 to $24.66 Nissan Motors (NSANY): -5%, from $18.32 to $17.42 Tesla Motors: +4.5%, from $26.62 to $27.83... stand by, folks. This won't last. All you pumpers and evangelists and rent-seekers and, yes, scam artists: thanks for making me a lot of money, but shame on you for setting fire to ~$2B. While it has been a great ride for all of us who saw it coming, this value destruction does no good to public acceptance of electrification efforts. My family is very thankful for the contribution to our financial security from smart bets against these companies. Nonetheless, I'm sad to see how dramatically the hype and hubris has hurt investors, customers, and creditors. BTW, in case you've read this far, just buying QQQ power shares that ride the indices and walking away since Jan 3 '11 would have netted you 18.6%.
        DaveMart
        • 2 Years Ago
        @oktrader
        One quibble: Axion Power International is hardly an established player, it is in fact a typical penny stock, much hyped by the classic stock pumps of John Petersen, who, after years of knocking all things to do with lithium batteries, jumped on the bandwagon for AONE, in December 2011: 'While I think 2012 will be a tough year for many lithium-ion battery manufacturers, A123 Systems (AONE) is solidly financed and seems to be gaining ground in the commercial EV space while its last standing competitor Valence Technologies (VLNC) seems to be losing ground. A123 is also making significant headway in large-scale energy storage systems for minute-to-minute output smoothing of wind and solar power. In light of a growing awareness that coupling renewable energy generation with energy storage can increase investment returns by up to 50 percent, I continue to believe that A123 Systems is undervalued while Valence is overvalued. ' http://seekingalpha.com/article/314623-fear-loathing-and-extraordinary-opportunity-in-energy-storage No doubt many more mugs were parted from their money by that one. Nice one, John
          DaveMart
          • 2 Years Ago
          @DaveMart
          Sorry, I wrote that poorly. Axion is a company which is trying to do lead carbon batteries, and is nothing to do with AONE, aka A123, other than Petersen having hyped both. He is an ex-director of Axion, and has been pumping them for years. AONE was more of a one off hit.
          oktrader
          • 2 Years Ago
          @DaveMart
          DM: Thanks; I understood your point in the first note. Since AXPW's story was primarily around the locomotive solution (railyard and "roundhouse" operation at low speeds) in the near term, I include them in the "mobility" mix. As far as stationary energy storage goes, pretty much everyone in the battery business is trying to make a go of it without financial success, AONE included, as you point out.
        Spec
        • 2 Years Ago
        @oktrader
        Commodore Pet, Atari 800, Sinclair ZX, TI 99/4, TRS-80 . . . Welp, I guess that must mean the PC industry completely failed.
          Spec
          • 2 Years Ago
          @Spec
          I loved my Amiga 500. I still have my Apple ][+.
          Aaron
          • 2 Years Ago
          @Spec
          I loved my TI-99/4a... {sniff}
          oktrader
          • 2 Years Ago
          @Spec
          Spec, you miss my point entirely. Unlike the stumbles and failures in the personal computer story, where homebrewers and visionaries and electronics tinkerers and angel investors changed the world, the electrification failures are all about the clumsy incestual mix of heavy government, academia, and Wall Street. There is no bigger waster of wealth and time than such a mix. And to top that off they really don't give a s__t about who gets hurt amongst retail investors, bond holders, or gullible customers and suppliers. What they will do (and much of the ABG crowd will swallow it) is spin a tale of how Chevron and E-M and Tesoro secretly undermined their noble work. You do understand that I FAVOR electrification? That I own an EV (of the ER persuasion) and love it? That I have two electric bicycles (one with a homebrewed 48V / 1100w-hr battery)? What I despise is the political lunacy that surrounds technical mobility solutions, the bizarre righteousness that accompanies it, and the casual destruction of wealth that ALWAYS completes the storyline. But if that crap is going to happen -- and believe me I can spot it -- I'm going to make money off of it in the public markets. I will say again, with all sincerity, that the primary upshot of AONE's tale to everyone reading it is to understand this repeating pattern of deceitful behavior and to guard your wallets. It's just so sad that this has to happen with something that will be as useful and beneficial to us as electrification. But people will tell you anything in order to take your money and play with it, much to your ultimate disappointment. Be careful.
        Ford Future
        • 2 Years Ago
        @oktrader
        1) How many auto's are sole each year? This year 12 Million, but, that number used to be 16 million on average. So, there's your answer as to why Investors would look for a break thru product for this segment. That's millions of primary and secondary jobs for the country that controls those sales. This age is the FUTURE OF TRANSPORTATION. We're talking about 100 years of jobs. And let me say this, this is the FIRST Generation of Republicans So STUPID as to intentionally LOSE the future of the auto industry. Not even NIXON would thru the US Economy down the Drain with the relish the Tea Party does. This is Your Year America: You have a Choice: Throw the idiots OUT and get jobs, or LOSE YOUR FUTURE. Can't be plainer then that.
        raktmn
        • 2 Years Ago
        @oktrader
        You are profiteering on the consolidation of a new industry. That happens every time a new industry starts. Or do you still go home and toss your clothes in your Crosley washing machine, and watch your Admiral television? There is nothing wrong with the fact that you are fulfilling the role of bottom-feeder. But there is no reason to be a jerk about it, and to insult everyone here. A perfectly viable industry is emerging from the consolidation, so enjoy your profits from being a bottom-feeder, and we'll enjoy driving around cars with A123 batteries that will now have a big Johnson label on them.
          SVX pearlie
          • 2 Years Ago
          @raktmn
          @raktmn: Oh, noes, someone smart made money based on the stupidity of others. There are a lot of obvious market plays, and oktrader has been following some. Why shouldn't he lay that bare to those who actually care about the underlying technology, but are apparently clueless (and emotional) about the business side?
          oktrader
          • 2 Years Ago
          @raktmn
          How can you possibly perceive "insult" when someone is pointing out the pitfalls of wildly optimistic business schemes in the very things that captivate our collective interest? There has been consolidation in plenty of industries (such as aerospace) that did not follow this repeating pattern of wealth destruction. How bizarre that you would find a factual accounting of this situation to be "insulting". BTW, I am already propelled electrically in most of my driving, and have been for several months. Are you? If not, you should really can the attitude. Or is it more important that I "believe in EVs" so strongly that I ignore the transgressions in the current marketplace, and the fact that I OWN AND USE an electric vehicle does not prove my righteousness? Auto propulsion is not a religion. Neither is stock trading. BTW, just a Beavis and Butthead moment here: you said "big Johnson". Heh heh. Heh heh.
      Aaron Schwarz
      • 2 Years Ago
      JC buys A123 : everyone wins at their LiFePO4 battery technology goes mainstream with Johnson Control ^^ WOOT WOOT
        Spec
        • 2 Years Ago
        @Aaron Schwarz
        Yeah, Johnson Controls has long-time supplier relationships with many auto & truck makers. So that should help get some real sales for the A123 batteries.
      • 2 Years Ago
      Great. More of my tax dollars down the stinking drain. Thanks Obama.
        Spec
        • 2 Years Ago
        At least this had a shot at a pay-off. What is the return we get on the $1Trillion burned up in Iraq?
      2 Wheeled Menace
      • 2 Years Ago
      Of course - there is a large differential in specifications and cost for all the batteries out there. It's just that A123 is rather spendy compared to other options. Always has been. This was fine when A123 was the only game in town for high discharge lithium cells, but that is no longer the case.
      DaveMart
      • 2 Years Ago
      What a shame. They seem to have got their act together to produce really good technology: http://www.a123systems.com/lithium-ion-battery-technology.htm That should sort battery degradation issues out on the Leaf, for example. Still, the technology will survive, even if the company doesn't. The shareholders will get hosed though.
        Aaron
        • 2 Years Ago
        @DaveMart
        Agreed on all points. At least Johnson Controls will have access to that technology now. This also means Livonia, Michigan, a suburb of Detroit, will take another hit on jobs. Glad I left Detroit when I did.
          brotherkenny4
          • 2 Years Ago
          @Aaron
          JCI will likely continue to operate for the customers that A123 has (fisker etc.), so jobs shouldn't change at all. Wanxiang never consumated the deal, they really own nothing. JCI gets the tech. It must be the election season that gets everyone so negative on everything. You know, it will be over soon and either way, the president will support the battery industry. The negativity of the right is only a political ploy. It will only continue if they remain in the minority role. They however risk losing all credibility as people become more educated to the types of ploys they use. Think about some of these ploys, such as exploding batteries, rare earth metals in batteries, lithium shortages, range anxiety. All things that can be debunked, if your brain is working. Now, think about just how manipulated the discussion around batteries and EV are and how dishonest the discourse. Then extrapolate that to all topics of interest in the election. We are certainly crazy to have a process like this for electing our leaders.
          Brian H
          • 2 Years Ago
          @Aaron
          brotherk; It's been said: "Democracy is the worst system -- except for all the others which have been tried from time to time."
          DaveMart
          • 2 Years Ago
          @Aaron
          Dunno. They have taken over their automotive interests. I am not clear on whether that includes their battery technology. I suspect that Wanxiang Group will make sure they hang onto that - that is what the recently put substantial sums of money in to get.
      Fgergergrergr
      • 2 Years Ago
      "We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion. Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets."
      DaveMart
      • 2 Years Ago
      'Johnson Controls could emerge as the beneficiary of the A123 bankruptcy. The company will get A123’s automotive assets, including lithium-ion battery technology, products and customer contacts. It will take over factories in Michigan, cathode ray factories in China and an equity interest in a Chinese battery company. The keyword in today’s statement from Johnson Controls is “long-term.” Alex Molinaroli, president of Johnson Controls Power Solutions, said, “Our interest in A123 Systems is consistent with our long-term growth strategies and overall commitment to the development of the advanced battery industry." For the short-term, supporters of electric cars—and the potential for EVs to displace use of petroleum and reduce emissions—will need to reset expectations about how long it will take to supplant internal combustion. It will require ardent EV fans and investors to apply new levels of scrutiny to companies promising to topple the fossil fuel paradigm, and earn handsome profits at the same time.' http://www.plugincars.com/ev-battery-maker-a123-systems-files-bankruptcy-124922.html
      raktmn
      • 2 Years Ago
      The program succeeded in starting a company that makes batteries for EV's, and now those batteries will be built by Johnson. The reason for the program was to make sure batteries for EV's started getting manufactured instead of just being another of a long line of lab experiments. Johnson is going to continue manufacturing the batteries, so the goal of the program was achieved. All the rest is election year politics. Take it somewhere else.
      Spiffster
      • 2 Years Ago
      Unfortunate that A123 had to file for bankruptcy... but, JCI picking them up is VERY good news! Now sell these batts on Amazon already!
        SVX pearlie
        • 2 Years Ago
        @Spiffster
        I'm surprised ExxonMobil didn't buy them outright. /tinfoil
          2 Wheeled Menace
          • 2 Years Ago
          @SVX pearlie
          Haha, that would be funny, but they have outdated tech. No reason to lock it up for 15 years :) Unfortunately they might be still doing this with newer battery technologies..
          Ford Future
          • 2 Years Ago
          @SVX pearlie
          Exxon hasn't innovated anything in years. Propaganda, lies and "infomercials", green wash, but no actual product. Rex Tillerson is NO Steve Jobs.
          HVH20
          • 2 Years Ago
          @SVX pearlie
          Pull a Cobasys and drill them straight into the ground hoping for more oil.
          Spec
          • 2 Years Ago
          @SVX pearlie
          Ugh. I hate such conspiracy theories. You cannot buy up an emerging technology and bury it that way. That would violate anti-trust laws.
      raktmn
      • 2 Years Ago
      This is the start of the consolidation of a major new industry. This is proof that the lithium ion battery industry is maturing. It is going through all the same steps that all major new industries must go through. New industries start with many companies competing in the industry. Competition consolidates the number of successful companies as the industry matures when a set of leaders emerge. That is why we don't have 25 major oil companies anymore, and there are not 25 major US car makers anymore like there was when these were new industries.
      DaveMart
      • 2 Years Ago
      Now I am really confused. Guys, especially 2WM and Aaron, please, please provide links to the data you give whenever possible. You are informing me that the Leaf uses NMC chemistry, My understanding was that the chemistry used is lithium manganese, not using nickel and cobalt. This chemistry has a lifetime of sub-1,000 cycles, hence the problems the Leaf has had. It also has a specific energy at the cell level of around 100Wh/kg, not far off of LiFePo. My understanding of the various NMC technologies is that the life cycle varies wildly between the variants of this, but I have not been able to track down good data graphs for the variants, and some of the ones with hhigh cycle life seem to be experimental, not yet in production. I am no chemical engineer, so please give the background to the comments you are making, and above all the data sheets.
      lad
      • 2 Years Ago
      From a nationalistic standpoint, A123 selling out to Johnson is the best move for our country; it should keep control of the company and it's IP here and not send it to China. In the long run we will be better off. and this should help keep some jobs at home. People, the future of the automobile is in EVs and the success of EVs is based on the success of traction batteries. This is a business we can build and operate within our country and we don't need to give away the technology. So far we have not learned to keep out technology at home and not give it away. That is the true sin of our Government...not enough nationalism!
        Ziv
        • 2 Years Ago
        @lad
        I had read earlier that JCI might not get all the tech from A123 but the below quote seems to indicate that they get it all, not just the US based assets: "Johnson Controls plans to acquire A123’s automotive business assets, including its facilities in Livonia and Romulus, Michigan. The Milwaukee, Wisconsin-based company also will obtain A123’s cathode powder plant in China and its equity interest in Shanghai Advanced Traction Battery Systems Co., A123’s joint venture with Shanghai Automotive Industry Corp." http://www.washingtonpost.com/business/electric-car-battery-maker-a123-systems-files-for-bankruptcy/2012/10/16/98203dee-17b6-11e2-a346-f24efc680b8d_story.html
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