Ballard Issues 2001 First Quarter Report
VANCOUVER, B.C.--April 30, 2001--Ballard Power Systems today issued its report to shareholders, including financial results, for the first quarter ended March 31, 2001. All amounts are reported in Canadian dollars.A conference call is scheduled for Monday, April 30, 2001 at 5:00 pm EDT (2:00 pm PDT) to review Ballard's first quarter highlights. Access to the call may be obtained by calling the operator at (416) 641-6440 prior to the scheduled start time. A playback version of the conference call will be available for 24 hours after the call at (416) 626-4100. The confirmation number to access the playback version is 18516162. A live webcast can be accessed from Ballard's Web site at www.ballard.com. A playback of the call will also be available on Ballard's Web site for two weeks.
"In the first quarter of 2001 momentum continued to build in the fuel cell industry, with particular interest in BALLARD(r) fuel cells coming from the transportation sector," said Kip Smith, Ballard's President and Chief Operating Officer. "The order from DaimlerChrysler for fuel cells for bus engines and the supply agreement signed with Honda for fuel cells for automotive use evidence the transportation industry's commitment to the development of fuel cell technology for vehicles."
During the first quarter of 2001 Ballard prepared for the commercial introduction of fuel cell products with a continued emphasis on cost reduction and strategic and customer relationships.
On April 2, Honda, a long-time Ballard customer, signed a $25.9-million, two-year supply agreement for automotive fuel cells. This supply agreement follows the supply relationships that Ballard has already with its strategic partners, DaimlerChrysler and Ford.
In March, DaimlerChrysler, the world's largest bus manufacturer, placed an order for BALLARD(r) fuel cells for use in 30 buses to be delivered to customers in 10 European cities in 2002 and 2003. With this order Ballard completed the only objective remaining from 2000.
Nissan, a customer since 1991, took delivery of BALLARD(r) fuel cells valued at $2.4 million early in the quarter and placed an additional order for $3.4-million in March. In April, Nissan demonstrated an Xterra sport utility vehicle powered by BALLARD(r) fuel cells in Los Angeles. Nissan has now introduced two prototype fuel cell vehicles, both of which are powered by BALLARD(r) fuel cells.
In February, Mazda introduced a prototype minivan, the Premacy FC-EV, powered by a BALLARD(r) fuel cell. The vehicle entered a testing program in Japan on February 15.
Another significant first quarter event was the California Air Resources Board (CARB) decision of January 25, 2001, to amend its zero-emission vehicle (ZEV) regulations. The regulations require that, beginning in 2003, a minimum of 10 per cent of vehicles sold by auto manufacturers in California meet low or zero-emission vehicle standards. In revising the ZEV regulations, CARB is providing an incentive and a clear roadmap for the continued investment in fuel cell vehicle technology by the automobile industry, and is encouraging the development of electric-drive technologies that are required for fuel cell-powered vehicles.
Ballard's affiliated company, EBARA BALLARD, demonstrated progress in developing an engineering prototype of a one-kilowatt combined heat and power fuel cell stationary power generator for the Japanese residential market. During the quarter, Ballard also announced its plans to demonstrate 10-kilowatt and 60-kilowatt engineering prototype backup stationary power generators in 2001.
In its portable business, Ballard is continuing to support Coleman Powermate's plans to introduce a commercial fuel cell-powered product by the end of this year. Ballard also continued to work with other companies who are testing and evaluating BALLARD(r) fuel cells for use in a range of portable power applications.
To further strengthen Ballard's position as a leader in the industry, Ballard continues to explore opportunities for the establishment of joint development programs, supply agreements and other strategic ventures. In January, Ballard entered into an agreement with Victrex plc to develop and manufacture ionomers (proton conductive polymers) for use in membranes for BALLARD(r) fuel cells. Ballard and Victrex will develop the manufacturing processes for Ballard's proprietary ionomer and collaborate on the development of Victrex's own proprietary ionomer.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis covers Ballard's interim consolidated financial statements for the three-month period ended March 31, 2001. As well, it provides an update to the discussion and analysis contained in Ballard's 2000 Annual Report. This discussion and analysis should be read in conjunction with the "Management's Discussion and Analysis" section and the annual consolidated financial statements contained in Ballard's 2000 Annual Report.
Results from Operations
Ballard's net loss for the quarter ended March 31, 2001 was $22.4 million, or ($0.25) per share, compared with a net loss of $14.7 million, or ($0.17) per share, during the same period in 2000. The increased loss reflects the accelerated pace of research and development activities and higher spending related to the implementation of business systems and infrastructure necessary to support Ballard's commercial introduction of fuel cell products. The results of operations in detail are as follows:
Revenues increased by $2.1 million or 52% from the same quarter last year primarily due to increased purchases of fuel cells by Ballard's Vehicular Alliance partners and other auto manufacturers, including Honda and Nissan. Revenues also benefited from the sale of portable fuel cells for field trials in preparation for the commercial launch at the end of this year. Revenues from fuel cell systems were relatively unchanged from the corresponding period in 2000.
Investment Income increased by $7.2 million in 2001 because of a higher average balance of cash and short-term investments resulting from a $504.6-million public equity offering in March 2000. Foreign currency gains in 2001, attributable to the effect of the strengthening U.S. dollar on Ballard's U.S. dollar portfolio, also played a secondary factor in increasing investment income.
Cost of revenues increased by $3.1 million compared to the same period last year consistent with the increased revenues. Manufacturing costs associated with the early stages of producing new products, the accrual of conservative warranty provisions and customer service costs related to having field trial units in service, were also contributing factors.
Research and product development expenses for the quarter increased by $6.8 million, or 40%, to $24.0 million. The increase is due to higher development activity related to fuel cell engineering and manufacturing process development, the advanced Mark 900 fuel cells, stationary fuel cell power generators, portable fuel cells and fuel processing systems.
General and administrative and marketing expenses increased by $2.0 million and $0.9 million, respectively, from the same period one year ago. The increases largely reflect costs associated with implementing the business systems and capabilities required to support Ballard's commercial introduction of fuel cell products.
Equity in loss of associated companies increased by $3.6 million from the comparative period in 2000 to $8.1 million. This is primarily the result of increased research and development activities undertaken by associated companies.
Minority Interest was lower by $0.5 million during the first three months of 2001 relative to the corresponding period last year. The reason for the decline was lower net losses in Ballard's subsidiary, Ballard Generation Systems Inc. (BGS), partly offset by a higher minority interest in that company. The minority ownership in BGS increased to 40.9% at March 31, 2001 from 34.9% at this time last year as a result of the completion of milestone investments by ALSTOM SA (ALSTOM) in the quarter.
Gain on the issuance of shares by subsidiary relates to the issuance of shares of BGS to ALSTOM during the three months ended March 31, 2001 and to ALSTOM and GPU during the same period in 2000.
License and royalty fees were nil for the current quarter compared to $3.1 million during the same period in 2000. The 2000 amount relates to a license fee for access to manufacturing technology and know-how from ALSTOM as part of its equity investment in BGS.
Financial Condition
Cash and short-term investments were $750.1 million at the end of the first quarter in 2001, compared to $769.7 million at the end of 2000. Net losses, increased working capital requirements, additional investments and capital spending were partly offset by the issue of share capital, including share capital issued by BGS.
Accounts Receivables declined by $1.5 million from the beginning of the year, to $21.5 million due to the timing of sales and a focused effort on account collection.
Inventory increased by $5.3 million during the quarter to $23.0 million. The increase reflects the timing of finished product shipments and the purchase of raw materials required for expected increases in production for portable and automotive fuel cells.
Property, plant & equipment increased to $89.9 million from $86.8 million at the beginning of the quarter. The increase is due to capital spending of $6.0 million primarily on manufacturing process and testing equipment and facility improvements in Plant One, Ballard's initial manufacturing facility, partially offset by depreciation of $2.9 million.
Investments decreased by $4.2 million during the quarter due to an equity loss in associated companies of $8.1 million, partly offset by investments in Ballard's associated company, XCELLSIS GmbH, and in QuestAir Technologies Inc. of $1.9 million and $2.0 million, respectively.
Accounts Payables decreased by $5.0 million from the beginning of the quarter due primarily to the timing of payments for equipment purchased for Plant One late in 2000.
Allowance for warranty increased by $0.8 million to $26.9 million during the quarter, in line with the increase in sales.
Minority interest remained steady at $16.4 million during the period due to an investment by ALSTOM in BGS, offset by the minority interest portion of BGS's losses.
Share capital increased by $8.9 million during the quarter to $1,178.1 million due to the exercise of warrants granted to joint development partners in prior years amounting to $4.6 million and employee stock options of $4.3 million. The total number of shares outstanding at March 31, 2001 was 90,132,706.
Capital Requirements, Resources And Liquidity
As of March 31, 2001, Ballard had cash, cash equivalents and short-term investments totaling $750.1 million. Ballard believes that its cash, cash equivalents and short-term investments will provide it with sufficient capital to fund its operations through to the initial commercialization of its fuel cell products. Ballard's current intention is to raise funds as required so as to maintain a minimum cash balance of approximately $200 million to cover operating expenses.
Ballard's cash funds will be used to meet its capital needs for fuel cell research and product development, stationary power generator development, the development of new applications, the purchase of equipment for Plant One, the development of higher volume manufacturing processes, to make acquisitions of technology or capability, and to make investments in its associated and affiliated companies under Ballard's Vehicular Alliance and Ballard's Stationary Power Alliance to fund its commercialization programs. Ballard's actual funding requirements will vary depending on a variety of factors, including the progress of its research and development efforts, its relationships with strategic partners, the results of development and demonstration programs, the funding of future manufacturing plants, and the funding of its associated and subsidiary companies and its strategic investments.
Risks And Uncertainties
Risks and uncertainties related to economic and industry factors as discussed in detail in the "Management's Discussion and Analysis" section of Ballard's 2000 Annual Report, remain substantially unchanged.
This release contains forward-looking statements reflecting Ballard's current expectations as contemplated under the Safe Harbour provisions of the US Private Securities Litigation Reform Law of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, without limitation, product development delays, changing environmental regulations, the ability to attract and retain business partners, future levels of government funding, competition from other fuel cell manufacturers, competition from other advanced power technologies, competition from existing power technologies, evolving markets for generating electricity and power for transportation vehicles, and the ability to provide the capital required for product development, operations and marketing. These factors should be considered carefully and readers should not place undue reliance on Ballard's forward-looking statements. Investors are encouraged to review the section titled "Operating Results, Capital Requirements and Risks" (pages 41 to 46) in the Management's Discussion and Analysis section of Ballard's 2000 Annual Report for a more complete discussion of factors that could affect Ballard's future performance.
Consolidated Balance Sheets
Unaudited
Expressed in thousands of Canadian dollars
March 31, December 31,
2001 2000
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Assets
Current assets
Cash and cash equivalents $ 403,641 $ 288,729
Short-term investments 346,410 480,944
Accounts receivable 21,542 23,054
Inventories 22,966 17,643
Prepaid expenses 853 667
------------------------
795,412 811,037
Property, plant and equipment 89,878 86,765
Fuel cell technology acquired 41,844 42,760
Investments 113,152 117,370
Long-term receivables 1,700 1,700
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$1,041,986 $1,059,632
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Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 24,050 $ 29,085
Current portion of capital lease obligation 117 117
Deferred revenue 871 784
Allowance for warranty 26,930 26,098
------------------------
51,968 56,084
Capital lease obligation 161 191
Long-term deferred revenue 5,989 5,989
Minority interest 16,415 16,395
------------------------
74,533 78,659
Shareholders' equity
Share capital 1,178,107 1,169,231
Accumulated deficit (210,654) (188,258)
------------------------
967,453 980,973
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$1,041,986 $1,059,632
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Consolidated Statements of Operations and Accumulated Deficit
Unaudited Expressed in thousands of Canadian dollars, except per share
amounts
Three months ended March 31
---------------------------
2001 2000
---------------------------------------------------------------------
Revenues $ 6,117 $ 4,022
Investment income 13,905 6,732
------------------------
20,022 10,754
Cost of revenues and expenses
Cost of revenues 6,760 3,640
Research and product development 24,008 17,201
General and administrative 4,388 2,398
Marketing 1,477 536
Amortization of fuel cell technology 916 916
Capital taxes 104 120
------------------------
37,653 24,811
------------------------
Loss before undernoted (17,631) (14,057)
Equity in loss of associated companies (8,100) (4,481)
Minority interest 1,860 2,389
Gain on issuance of shares by subsidiary 1,867 5,042
License and royalty fees - (3,138)
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Loss before income taxes (22,004) (14,245)
Income taxes 392 497
------------------------
Net loss for period (22,396) (14,742)
Accumulated deficit, beginning of period (188,258) (102,525)
------------------------
Accumulated deficit, end of period ($210,654) ($117,267)
------------------------
Net loss per share ($0.25) ($0.17)
------------------------
Weighted average number of common
shares outstanding 89,461,981 85,476,506
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Consolidated Statements of Cash Flows
Unaudited
Expressed in thousands of Canadian dollars
Three months ended March 31 2001 2000
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Cash provided by (used for):
Operating activities:
Net loss for period ($22,396) ($14,742)
Items not affecting cash:
Gain on issuance of shares by subsidiary (1,867) (5,042)
Depreciation and amortization 3,826 3,050
License received on issuance of shares
of subsidiary - 3,138
Equity in loss of associated companies 8,100 4,481
Minority interest (1,860) (2,389)
Other - -
------------------------
(14,197) (11,504)
Changes in non-cash working capital:
Accounts receivable 1,512 4,605
Inventories (5,323) (3,779)
Prepaid expenses (186) (86)
Accounts payable and accrued liabilities (5,035) (4,493)
Deferred revenue 87 50
Allowance for warranty 832 (146)
------------------------
(8,113) (3,849)
------------------------
(22,310) (15,353)
Investing activities:
Net decrease (increase) in short-term
investments 134,534 (9,387)
Additions to property, plant and equipment (6,023) (4,426)
Investments (3,882) -
Long-term receivables 0 (350)
------------------------
124,629 (14,163)
Financing activities:
Net proceeds on issuance of share capital 8,876 491,381
Proceeds on issuance of shares by subsidiary 3,747 5,855
Capital lease obligation (30) (28)
------------------------
12,593 497,208
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Increase (decrease) in cash and cash equivalents 114,912 467,692
Cash and cash equivalents, beginning of period 288,729 86,462
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Cash and cash equivalents, end of period $ 403,641 $ 554,154
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Notes to Consolidated Financial Statements
Unaudited
Expressed in thousands of Canadian dollars
1. Basis of Presentation
The accompanying financial information reflects the same accounting policies and methods of application as Ballard's fiscal 2000 Annual Report. The accompanying financial information does not include all disclosure required under generally accepted accounting principles because certain information included in Ballard's fiscal 2000 Annual Report has not been included in this report. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Ballard's Annual Report.
As at March 31, 2001, Ballard retroactively adopted the Canadian Institute of Chartered Accountants new recommendations on earnings per share calculations. Under these recommendations, diluted earnings per share under Canadian GAAP is calculated using the treasury share method which is consistent with the calculation under U.S. GAAP for diluted earnings per share. However, there was no impact on the figures presented.
2. Investments
During the first quarter of 2001 Ballard made an additional investment of $2,000 in cash in QuestAir Technologies Inc. as part of QuestAir's subsequent financing. The payment maintained Ballard's ownership at approximately 10%.
Ballard also made an additional investment of $1,882 in cash in XCELLSIS GmbH (XCELLSIS) representing Ballard's proportionate share of a financing of XCELLSIS by that company's shareholders. Ballard's equity interest in XCELLSIS continues to be 26.7%.
3. Share Capital
During the first quarter of 2001 540,000 warrants were exercised upon payment of $8.54 per warrant.
As part of Ballard's share option plan 1,750,000 options were issued during the first quarter of 2001. At March 31, 2001 6,399,783 options were outstanding.
4. Segmented financial information
Fuel Cell
Three months ended March 31, 2001 Fuel Cells Systems Total
---------------------------------------------------------------------
Total revenues for reportable
segments $ 4,874 $ 1,311 $ 6,185
Elimination of intersegment
revenues (68) - (68)
---------------------------------
Total revenues to external
customers $ 4,806 $ 1,311 $ 6,117
---------------------------------
Segment loss for period $ (25,317)$ (5,199)$ (30,516)
---------------------------------
Identifiable assets $ 874,727 $ 167,258 $1,041,986
---------------------------------
Reconciliation of net loss for period
---------------------------------------------------------------------
Segment loss for period $ (30,516)
Investment income 13,905
Gain on issuance of shares by subsidiary 1,867
Equity in loss of associated companies (8,100)
Amortization of fuel cell technology (916)
Minority interest 1,860
Other (104)
---------------------------------------------------------------------
Loss before income taxes $ (22,004)
-----------
Fuel Cell
Three months ended March 31, 2000 Fuel Cells Systems Total
---------------------------------------------------------------------
Revenues $ 3,070 $ 952 $ 4,022
---------------------------------
Segment loss for period $ (15,634)$ (4,119)$ (19,753)
---------------------------------
Identifiable assets $ 940,089 $ 151,624 $1,091,713
---------------------------------
Reconciliation of net loss for period
---------------------------------------------------------------------
Segment loss for period $ (19,753)
Investment income 6,732
Gain on issuance of shares by subsidiary 5,042
Equity in loss of associated companies (4,481)
Amortization of fuel cell technology (916)
Minority interest 2,389
License received on issuance of shares of subsidiary (3,138)
Other (120)
---------------------------------------------------------------------
Loss before income taxes $ (14,245)
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5. Financial Instruments
Ballard enters into forward exchange contracts to manage exposure to currency rate fluctuations. The purpose of Ballard's foreign currency hedging activities is to minimize the effect of exchange rate fluctuations on business decisions and the resulting uncertainty on future financial results.
Over the next 10 months Ballard has forward contracts to purchase 24.8 million EUR. At March 31, 2001 Ballard would have to pay $802 to settle its outstanding forward exchange contracts. As these forward exchange contracts qualify for accounting as hedges, gains or losses are deferred and recognized in the same period and in the same financial statement category as the gains or losses on the corresponding hedged transactions.
Ballard Power Systems is recognized as the world leader in developing, manufacturing and marketing zero-emission proton exchange membrane fuel cells for use in transportation, electricity generation and portable power products. Ballard Power Systems' proprietary fuel cell technology is enabling automobile, electrical equipment and portable power product manufacturers to develop environmentally clean products for sale. The fundamental component of these end-user products is the BALLARD(r) fuel cell that combines hydrogen (which can be obtained from methanol, natural gas, petroleum or renewable sources) and oxygen (from air) without combustion to generate electricity. Ballard is partnering with strong, world-leading companies, including DaimlerChrysler, Ford, GPU International, ALSTOM and EBARA, to commercialize BALLARD(r) fuel cells. Ballard has also supplied fuel cells to Honda, Nissan, Volkswagen, Yamaha, Cinergy, Coleman Powermate and Matsushita Electric Works, among others.
Ballard's Common shares are listed on The Toronto Stock Exchange under the trading symbol "BLD" and on the Nasdaq National Market System under the symbol "BLDP". Ballard and the Ballard logo are registered trademarks of Ballard Power Systems Inc.