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Capstone Turbine Announces Fourth Quarter and Year End Results

    CHATSWORTH, Calif.--Feb. 7, 2002--Capstone Turbine Corporation (www.microturbine.com; Nasdaq:CPST), the world's leading microturbine power systems manufacturer, today reported revenue of $10.1 million for the quarter ended December 31, 2001, compared with revenue of $7.1 million for the fourth quarter of 2000.
    For the fourth quarter of 2001, Capstone's net loss was $14.6 million, or ($0.19) per share, compared to a net loss of $6.4 million, or ($0.08) per share, in the fourth quarter of 2000. The increase in net loss is primarily attributable to increased expenses related to expanding the Company's sales organization and increased overhead related to the expansion of its production capabilities.
    For the full year 2001, Capstone reported revenue of $36.0 million, compared with revenue of $23.2 million in 2000. Capstone's net loss decreased to $46.9 million, or ($0.61) per share, for the year ended December 31, 2001, compared with a net loss of $591.3 million, or ($12.82) per share, for the prior year. The Company's net loss in 2000 was impacted by non-cash charges, triggered by the Company's initial public offering, totaling $559.9 million associated with recording the preferred stock deemed dividend and fair market value accretion.
    "During 2001, Capstone shipped 38 megawatts of power, which was an increase of more than 50% over 2000," said Dr. Ake Almgren, President and CEO of Capstone Turbine Corporation. "Although some of the factors that created near-term demand in the first half of 2001 -- such as the energy shortage in California -- have abated, the fundamental drivers of demand for economically and environmentally beneficial distributed generation solutions continue to exist. Domestically, we still see growing levels of power consumption, high utility rates in significant regions, grid transmission constraints, increasing demand for more reliable and higher quality power, and both security and financial risks delaying or eliminating a number of large centralized power plant projects.
    "In international markets, particularly Europe and Japan, demand is driven by a continuing interest in clean energy and maximized fuel efficiency, which also addresses global warming concerns. So we are optimistic about the future, and we believe that we can further grow megawatts shipped by 30% to 50% in 2002."

    Financial Highlights

    Capstone shipped 225 units, comprised of 145 of its 60-kilowatt systems and 80 of its 30-kilowatt systems, in the fourth quarter of 2001 for a total of 11.1 megawatts versus 7.5 megawatts in the fourth quarter of 2000. Gross margin in the fourth quarter of 2001 was negative $2.4 million, compared with a slightly less than break-even gross margin in the same period of 2000. The decrease in gross margin was primarily attributable to higher overhead costs and larger inventory charges in 2001. The overhead costs resulted primarily from the Company's new recuperator core manufacturing facility, and the inventory charges related to write-offs of certain materials in inventory rendered obsolete in part by product improvements. These factors offset the improvements in gross margin gained through increased shipments of the higher margin 60-kilowatt systems.
    Research and development expenses decreased to $2.5 million, compared with $2.9 million in the fourth quarter of 2000. R&D expenses are reported net of contract offsets such as the U.S. Department of Energy advanced microturbine program. Contract offsets were $0.7 million in the fourth quarter of 2001 and $0.1 million in the same period a year ago.
    Selling, general and administrative expenses increased to $10.8 million, compared with $6.8 million in the fourth quarter of 2000. The increase is primarily attributable to the continued expansion of the Company's sales and marketing organization and higher legal fees related to patent support efforts.
    The Company reduced cash utilization to $10.8 million in the fourth quarter, substantially less than the $18.7 million used in the third quarter of 2001. Overall, the Company continues to be in a strong financial position. As of December 31, 2001, Capstone held approximately $171 million in cash and cash equivalents, with no long-term debt.
    Inventory was reduced to $22.0 million from $27.0 million at September 30, 2001. The reduction in inventory is primarily attributable to improved inventory management processes put in place during the fourth quarter. Accounts receivable increased to $8.0 million at year-end 2001, compared with $7.6 million at the end of the third quarter.

    Sales and Marketing Initiatives

    "Since I joined Capstone in November, we have focused our efforts on transitioning the Company to a market-focused sales operation," said Capstone COO Norm Chambers. "We have realigned our sales organization to better support the needs of both the end users and our sales channel partners. We have assembled an experienced team to focus on reducing installation and commissioning costs, which have represented a significant portion of the total installed cost of our microturbines. We also have expanded the reach of our quality organization to look not only to the quality of our microturbines, but also to quality solutions for end users.
    "Through the current structure of our sales and marketing organization, we feel that we are in a much better position to provide the necessary expertise and support to our business partners to ultimately drive volume sales," said Mr. Chambers.
    "While it is clear we have some challenges ahead, I am very pleased with how the Company is adapting to better position itself for success in the marketplace," said Dr. Almgren. "With the additions we have made to the management team in the past few months, and our enhanced understanding of how to effectively drive our products into the commercial markets, I feel that we have a solid platform upon which to make clear progress in 2002."

    About Capstone Turbine

    Capstone Turbine Corporation (www.microturbine.com; Nasdaq: CPST) is the world's leading producer of low-emission microturbine systems. In 1998, Capstone was the first to offer commercial power products utilizing microturbine technology, the result of more than ten years of focused research. Capstone Turbine has sold and shipped 2,000 commercial production Capstone MicroTurbine systems to customers worldwide. These award-winning systems have logged more than one million hours of operation serving, among others, the following applications:

-- Hybrid electric vehicles (HEVs): onboard generation
-- Resource recovery: converting oilfield, landfill and sewage waste gases into electricity
-- Micro-cogeneration: combined heat/power/chilling/drying solutions
-- The 9s market: power security, quality and reliability

    This press release contains "forward-looking statements," as that term is used in the federal securities laws, about Capstone's business, with regard to the expected level of shipments and its ability to reduce the total cost of ownership for its products. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause Capstone's actual results to be materially different from any future results expressed or implied in such statements. Such factors include, but are not limited to: 1) market acceptance and quality of Capstone's technology and products; 2) the size, timing, shipment and pricing of individual orders; 3) the ability of Capstone to successfully execute its production and marketing plans; 4) the ability of Capstone's sales channel partners to provide quality and cost effective solutions for customers; 5) the Company's ability to develop additional microturbine product releases; and other factors detailed in the Company's filings with the Securities and Exchange Commission. Capstone cautions readers not to place undue reliance on these statements, which speak only as of the date of this release. Capstone undertakes no obligation, and specifically disclaims any obligation, to release any revisions to any forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

    "Capstone Turbine Corp." is a registered trademark of Capstone Turbine Corporation. All other trademarks mentioned in this press release are the property of their respective owners.



                     CAPSTONE TURBINE CORPORATION
                      CONSOLIDATED BALANCE SHEETS

                                                   December 31,
                                              2000             2001

Assets
Current Assets:
 Cash and cash equivalents                 $236,947,000  $170,868,000
 Accounts receivable, net of allowance
  for doubtful accounts of $85,000 in 2000
  and $163,000 in 2001                        3,664,000     8,016,000
 Inventory                                   14,123,000    21,973,000
 Prepaid expenses and other current assets    1,689,000     1,422,000
    Total current assets                    256,423,000   202,279,000
Equipment and Leasehold Improvements:
 Machinery, equipment, and furniture         13,664,000    22,895,000
 Leasehold improvements                       3,055,000     9,235,000
 Molds and tooling                            1,331,000     4,534,000
                                             18,050,000    36,664,000
 Less accumulated depreciation and
  amortization                                6,434,000     9,362,000
    Total equipment and leasehold
     improvements                            11,616,000    27,302,000

Deposits on Fixed Assets                      6,649,000     2,550,000
Other Assets                                    302,000       242,000
Intangible Assets, Net                       27,028,000    21,881,000
    Total                                  $302,018,000  $254,254,000

Liabilities and Stockholders' Equity
Current Liabilities:
 Accounts payable                          $  4,728,000  $  3,490,000
 Accrued salaries and wages                   1,135,000     1,440,000
 Other accrued liabilities                    1,282,000     1,263,000
 Accrued warranty reserve                     5,589,000     4,145,000
 Deferred revenue                             4,064,000     1,471,000
 Current portion of capital lease obligations 1,497,000     1,308,000
    Total current liabilities                18,295,000    13,117,000
Long-Term Portion of Capital Lease
 Obligations                                  3,999,000     2,525,000
Other long-term liabilities                     342,000     1,158,000

Commitments and Contingencies                    --            --

Stockholders' Equity:

 Common stock, $.001 par value; 415,000,000
  shares authorized; 75,771,303 and 77,207,383
  shares issued and outstanding at
  December 31, 2000 and 2001                     76,000        77,000
 Additional paid-in capital                 516,738,000   521,668,000
 Accumulated deficit                       (237,432,000) (284,291,000)
    Total stockholders' equity              279,382,000   237,454,000
    Total                                  $302,018,000  $254,254,000


                     CAPSTONE TURBINE CORPORATION
                 CONSOLIDATED STATEMENTS OF OPERATIONS

                      Three Months Ended           Years Ended
                         December 31,              December 31,
                      2000        2001          2000          2001

Revenues         $ 7,134,000   $10,145,000   $23,163,000  $35,956,000

Cost of Goods Sold 7,157,000    12,569,000    27,815,000   39,602,000

    Gross Loss       (23,000)   (2,424,000)   (4,652,000)  (3,646,000)

Operating Costs and
 Expenses:

  Research and
   development     2,903,000     2,487,000    11,319,000   10,658,000

  Selling, general and
   administrative  6,803,000    10,765,000    24,067,000   40,780,000

    Total operating
     costs and
     expenses      9,706,000    13,252,000    35,386,000   51,438,000

Loss from
 Operations       (9,729,000)  (15,676,000)  (40,038,000) (55,084,000)

Interest Income    3,582,000     1,079,000     9,589,000    8,690,000

Interest Expense    (182,000)     (128,000)     (915,000)    (585,000)

Other Income
 (Expense)           (28,000)       83,000       (59,000)     121,000

Loss Before Income
 Taxes            (6,357,000)  (14,642,000)  (31,423,000) (46,858,000)

Provision for
 Income Taxes                                      1,000        1,000

Net Loss          (6,357,000)  (14,642,000)  (31,424,000) (46,859,000)

Preferred Stock
 Dividends and
 Accretion                                  (559,862,000)

Net Loss
 Attributable to
 Common
 Shareholders    $(6,357,000) $(14,642,000)$(591,286,000)$(46,859,000)

Weighted Average
 Common Shares
 Outstanding      75,474,465    77,098,076    46,107,074   76,694,670

Net Loss Per Share
 of Common Stock
 -- Basic
 and Diluted     $     (0.08) $      (0.19)$      (12.82)$      (0.61)