Ballard Power Systems Issues 2002 First Quarter Results
VANCOUVER, British Columbia--April 29, 2002-- Ballard Power Systems today released its report to shareholders for the first quarter ending March 31, 2002. All amounts are reported in U.S. dollars.A conference call will be held to discuss the results for the first quarter ending March 31, 2002 on Monday, April 29, 2002 at 2:00 p.m. PDT (5:00 p.m. EDT). Access to the call may be obtained by calling the operator at (416) 640-4127 before the scheduled start time. A playback version of the call will be available for 24 hours after the call at (416) 640-1917. The confirmation number to access the playback version is 183207#. The live webcast can be accessed on Ballard's web site at www.ballard.com and will be archived for replay for a two-week period.
Ballard's revenue in the first quarter was $12.1 million, compared to $3.8 million for the same period in 2001. Net loss for the quarter, excluding $7.9 million of costs related to the integration of XCELLSIS and Ecostar, was $42.8 million ($0.41 per share) compared to a loss of $14.1 million ($0.16 per share) for the same period in 2001. Including integration related costs, the loss for the quarter was $50.7 million ($0.48 per share). The majority of the change in financial results between the two periods is a result of the acquisition of XCELLSIS and Ecostar that occurred in November 2001.
"Ballard made significant progress in the quarter and met its internal operational and financial expectations," said Firoz Rasul, Ballard's Chairman and Chief Executive Officer. "The integration of XCELLSIS and Ecostar into Ballard is progressing well and we are meeting all of our customer deliverables. The early revenue opportunities combined with the synergies of bringing these three companies together, along with the project rationalizations and savings realized from the facilities integration and personnel reductions, will decrease our cash requirements beginning in the second half of the year. We are comfortable with our previously stated revenue guidance for 2002 of $82 million and our annual cash burn guidance of between $122 million and $142 million, excluding integration activities."
The acquisition of XCELLSIS and Ecostar has expanded Ballard's business to be a complete fuel cell power system supplier. This has allowed Ballard to advance its technology and provided opportunities for sale of its system components for both fuel cell and non-fuel cell applications. Ballard's agreement to develop commercial power generation products with Ford Power Products for generator engines is consistent with this business strategy. The commercial availability of one of Ballard's gas diffusion layers ("GDL") to the fuel cell industry also supports Ballard's business strategy in terms of cost reduction and revenue.
"During the first quarter, momentum continued to build in the fuel cell industry, with particular focus on the transportation sector," said Firoz Rasul, Ballard's Chairman and Chief Executive Officer. "Ford, Honda and Toyota all reiterated their plans to introduce their first fuel cell vehicles for fleet applications in the 2003 to 2004 timeframe. Governments, most notably the U.S. government, began developing and implementing programs to help accelerate the introduction of fuel cell vehicles through the establishment of a hydrogen fuel infrastructure, incentives for early fleet purchases and funding for technology development. We view these developments as confirmation that fuel cells are recognized as the next generation propulsion system."
In March 2002, Ford unveiled the prototype of the fuel cell vehicle that it will begin placing in fleets in limited quantities in 2004. The prototype is based on the Focus platform and highlights a number of technical advancements. This is the first public demonstration of Ballard's most advanced fuel cell power train. Ford announced that it will build prototype vehicles this year for testing before introducing fuel cell vehicles to customers in 2004.
Ballard remains on schedule with DaimlerChrysler on the European Fuel Cell Bus Project. Ballard has provided the heavy-duty fuel cell engine for the prototype Citaro bus, operating in Vancouver, and has delivered the first fuel cell engine to DaimlerChrysler, which is currently being tested in a Citaro bus in Germany.
During the quarter, Ballard continued to work with its customers, Honda and Nissan, in support of their development programs. Honda announced during the quarter that it plans to introduce its first fuel cell vehicles for fleet applications next year. Nissan is increasing its development efforts and expects to complete its development program in 2005.
The desire for energy security has led the U.S. government to focus on the positive impact fuel cell- powered automobiles can have on reducing reliance on foreign oil imports. Recently announced tax incentives for hydrogen fuel cell vehicles, refueling stations and stationary fuel cells, passed by the Congress and the Senate, total in excess of $3 billion. The FreedomCAR program, announced in January, will focus on fuel cell vehicles, hydrogen storage and production, and hydrogen fuel infrastructure for fuel cell vehicles. Additional initiatives, including the upcoming Fuel Cell Reports to Congress (Department of Energy and Department of Defense), will establish a roadmap for the commercialization of fuel cell technology. These initiatives are aimed at increasing energy independence while maintaining fuel affordability, vehicle choice and refueling convenience.
The Japanese government continues to actively support fuel cells, as it focuses on reducing Japan's dependence on foreign oil imports and reducing greenhouse gas emissions. Hydrogen refueling facilities are being installed in Tokyo to support the commercialization of fuel cell-powered vehicles.
In the power generation business, Ballard's affiliate company EBARA BALLARD Corporation ("EBARA BALLARD") unveiled the second generation of its 1 kW cogeneration stationary system for the Japanese residential market. This unit continues to be the best performing fuel cell system in the Millennium Project of the Japanese Ministry of Economy, Trade and Industry and has demonstrated the highest combined heat and electrical efficiency. The project is designed to provide formal stage gate approvals for emerging cogeneration fuel cell technology, enabling qualified products to be eligible for government subsidies. In January, Ballard, EBARA BALLARD, Tokyo Gas and EBARA Corporation ("EBARA") signed a three-year agreement to commercialize residential 1 kW cogeneration stationary systems, powered by Ballard(r) fuel cells, and incorporating fuel processing systems manufactured by EBARA BALLARD based on Tokyo Gas' fuel processing technology.
Ballard continued its $2.3 million field testing program with the German Ministry for Economics and Technology to develop a Nexa(TM) power module for the European market. This two-year program will support the commercialization of Ballard's Nexa(TM) power module in Europe through its evaluation in multiple applications and through establishing the appropriate codes and standards.
At Hannover Fair, an annual technology showcase event in Germany, IdaTech, a subsidiary of IDACORP, Inc., which is the holding company over the regulated electric utility, Idaho Power Co., displayed a portable fuel cell system powered by Ballard's Nexa(TM) power module. The unit was fueled with methanol, highlighting the fuel versatility of the Nexa(TM) power module.
This release contains forward-looking statements that are based on the beliefs of Ballard's management and reflect Ballard's current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation reform Act of 1995. When used in this release, the words "estimate", "project", "believe", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", the negative of these words or such other variations thereon or comparable terminology are intended to identify forward-looking statements. Such statements reflect the current views of Ballard with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in those forward-looking statements.
MANAGEMENT'S DISCUSSION & ANALYSIS AND FINANCIAL STATEMENTS
In this Management's Discussion & Analysis, unless the context otherwise requires, all references to "Ballard", "we", "us" and "our" refer to Ballard Power Systems Inc.
Management's Discussion & Analysis
This discussion and analysis covers our interim consolidated financial statements for the three months ended March 31, 2002. As well, it provides an update to the discussion and analysis contained in our 2001 Annual Report. This discussion and analysis should be read in conjunction with the "Management's Discussion & Analysis" section and the annual consolidated financial statements contained in our 2001 Annual Report. All amounts are expressed in U.S. dollars unless otherwise noted.
Overview
During 2001, we made three acquisitions which significantly expanded our business. On May 25, 2001, we acquired the carbon products division of Textron Systems Inc. through our wholly-owned subsidiary, Ballard Material Products Inc. ("BMP"). On November 30, 2001, we increased our ownership of XCELLSIS AG (subsequently changed to Ballard Power Systems AG ("BPSAG")) to 50.1% and agreed to acquire the remaining 49.9% on or before November 15, 2004. Also on November 30, 2001, we increased our ownership of Ecostar Electric Drive Systems L.L.C. (subsequently changed to Ballard Power Systems Corporation ("BPSC")) to 100%. Our additional interests in BPSAG and BPSC were acquired from DaimlerChrysler AG ("DaimlerChrysler") and Ford Motor Company ("Ford") in exchange for common shares. Collectively, these acquisitions are referred to in this discussion and analysis as the "Acquired Businesses". Since these acquisitions occurred subsequent to March 31, 2001, they account for the majority of the differences in the current quarter's results from those reported in the comparative period of 2001.
As a result of the acquisitions, we changed the way we manage our business with respect to making operating decisions and assessing performance and therefore have restructured our segmented reporting into five reportable segments: Technology and Corporate, Power Generation, Transportation, Electric Drives and Power Conversion, and Material Products. Technology and Corporate comprise the technology, development and manufacture of proton exchange membrane fuel cells and corporate administrative services. Our Power Generation Division develops, manufactures and markets fuel cell power generation equipment for markets ranging from 1 kW portable power products to larger stationary generators. Our Transportation Division develops, manufactures and markets fuel cell components and complete fuel cell engines for the transportation market. The Electric Drives and Power Conversion Division develops, manufactures and markets electric drives for both fuel cell and battery-powered electric vehicles, and power electronics for fuel cell and combustion engine generators, microturbines and other distributed generation products. The Material Products Division develops, manufactures and markets carbon fiber products to automotive manufacturers for automotive transmissions and gas diffusion layer materials for the fuel cell industry.
Our net loss for the quarter ended March 31, 2002 was $50.7 million, or ($0.48) per share, compared with a net loss of $14.1 million, or ($0.16) per share, during the same period in 2001. The increased loss for the quarter reflects losses of $24.7 million from the Acquired Businesses and $7.9 million from business integration and restructuring costs. Cash required for operations and capital expenditures for the three months ended March 31, 2002, excluding acquisition and business integration and restructuring costs, was $50.0 million compared to $17.8 million in the same quarter in 2001.
Results of Operations
Product and engineering service revenues increased by $8.3 million or 215% from 2001 to $12.1 million for the quarter ended March 31, 2002. The improved revenues for 2002 include $9.3 million of revenues from the Acquired Businesses. Revenues from the Acquired Businesses were primarily from sales by our Material Products Division and the sale of fuel cell engines by our Transportation Division. The increase in revenues from the Acquired Businesses was partly offset by lower service and automotive fuel cell revenues during the quarter. Included in the current quarter were revenues of $0.8 million from engineering services. The related costs of providing these engineering services are included in research and development expenses.
Investment and other income declined by $6.5 million or 74% during the current quarter relative to the same period in 2001. A decline in interest rates, lower average balances of cash and short-term investments, and foreign exchange losses of $0.4 million compared to a foreign exchange gain of $2.3 million in 2001, were the primary reasons for the reduction.
Cost of product revenues increased by $10.1 million or 238% during the three months ended March 31, 2002 as compared to the same period in 2001. The increased costs reflect the cost of product revenues from our Material Products Division, the cost of fuel cell engines sold by our Transportation Division and the cost of product revenues from our Electronic Drives and Power Conversion Division. Due to the timing of business acquisitions, there was no cost of product revenues from these divisions in the comparative quarter of 2001. Excluding the Acquired Businesses, cost of product sales for the quarter declined by $1.8 million from the previous year due to lower costs for our Mark 900 series fuel cells.
Research and product development expenses for the three months ended March 31, 2002 increased by $17.3 million or 123% to $31.3 million as compared to expenditures of $14.1 million for the same quarter in 2001. This increase is almost entirely related to research and product development expenses from the Acquired Businesses. These increased costs relate to the development of light and heavy-duty fuel cell vehicle engines and sub-systems and electric drive products and power electronics. Research and product development activities related to fuel cells for the quarter remained relatively unchanged from the comparative period in 2001.
General and administrative and marketing expenses for the quarter increased by $3.6 million or 140% and $1.3 million or 143%, respectively, when compared to the corresponding period in 2001. The increases primarily reflect the general and administrative and marketing expenses of the Acquired Businesses. General and administrative and marketing expenses (excluding the Acquired Businesses) for the three months ended March 31, 2002, remained relatively unchanged from the comparative period in 2001.
Depreciation and amortization of intangible assets increased by $9.8 million to $11.6 million, compared to $1.8 million during the same period in 2001. The increase reflects $6.7 million of amortization from intangible assets and $2.0 million of depreciation of the property, plant and equipment from the Acquired Businesses and the remainder from depreciation of fixed assets acquired since March 31, 2001.
Equity in loss of associated companies for the quarter ended March 31, 2002 decreased by $4.8 million relative to the same period in 2001. The decrease primarily reflects the change in accounting for BPSAG and BPSC, which were previously recorded as equity investments but which, with their acquisition by us in November 2001, are now fully consolidated.
Minority interest for the quarter ended March 31, 2002 was $9.5 million compared to $1.2 million during the 2001 comparative period. The $8.3 million increase reflects the 49.9% minority interest portion of BPSAG's losses. This was partly offset by a reduced minority interest in the losses of Ballard Generation Systems Inc. ("BGS") due to the reduction in the minority interest in BGS from 40.9% in 2001 to 31.5% in 2002 resulting from the acquisition by us of EBARA Corporation's interest in BGS in December 2001.
Business integration and restructuring costs of $7.9 million during the current quarter relate to expenditures for severance, the closure of facilities, asset write-downs and other costs associated primarily with realizing synergies from the acquisition of BPSAG and BPSC.
Gain on the issuance of shares by subsidiary was nil for the three months ended March 31, 2002 and $1.2 million for the comparative quarter in 2001. The comparative amounts for 2001 primarily include the issuance of shares of BGS to ALSTOM SA.
Cash Flows, Liquidity & Capital Resources
Cash Flows
Cash and short-term investments decreased by $60.8 million to $360.4 million as at March 31, 2002, compared to $421.2 million at the end of 2001. The decrease was primarily driven by increased net losses (excluding non-cash items) of $42.3 million, higher working capital requirements of $18.7 million and capital spending of $5.4 million, which were partly offset by the issuance of $5.4 million of share capital from the exercise of stock options. Cash used in operations was negatively impacted by the payment of $16.4 million of acquisition and business integration and restructuring costs.
Cash used in operations was $61.0 million for the three months ended March 31, 2002 compared to $14.0 million during the comparative period of 2001. Net losses were higher due to the cash requirements of BPSAG and BPSC acquired in November 2001. Non-cash working capital requirements increased by $18.7 million during the quarter ended March 31, 2002, driven primarily by higher accounts receivable and inventory and lower accounts payable and accrued liabilities, partly offset by an increase in deferred revenue deposits for future Transportation Division product deliveries. Accounts receivable increased by $0.9 million due to the timing of shipments by our Transportation Division. Inventory increased by $2.8 million due to the timing of shipments, and higher raw material inventories required for planned increases in production for portable and transportation fuel cells and fuel cell engines. Accounts payable and accrued liabilities decreased by $15.8 million from the beginning of the year, primarily driven by the net payment of $8.5 million of acquisition and business integration and restructuring costs, the payment of liabilities to development partners and bonus payments.
Investing activities resulted in a cash inflow of $0.5 million for the quarter ended March 31, 2002, consisting primarily of a decrease in short-term investments of $5.7 million, partly offset by capital spending of $5.4 million. The decrease in short-term investments resulted from changes in our investment portfolios to optimize investment returns based on changes in interest rates. Capital spending was primarily for manufacturing equipment and facility upgrades.
Financing activities resulted in a cash inflow of $5.4 million for the three months ended March 31, 2002, consisting primarily of proceeds from the issuance of share capital resulting from the exercise of employee stock options.
As at March 31, 2002, we had 105,218,451 common shares issued and outstanding, employee stock options for 6,848,477 shares outstanding, and 450,000 warrants outstanding.
Liquidity and Capital Resources
As of March 31, 2002, we had cash, cash equivalents and short-term investments totaling $360.4 million. We will use our funds to meet capital funding requirements for the commercialization of products in our target markets. This includes research and product development for PEM fuel cell products, electric drives and power electronics conversion products, the purchase of equipment for our manufacturing facilities and the further development of high-volume manufacturing processes and business systems. Our actual funding requirements will vary depending on a variety of factors, including our success in integrating BPSAG and BPSC, the progress of our research and development efforts, our relationships with our strategic partners, our commercial sales and the results of our development and demonstration programs.
We expect to incur net losses for the next several years as we continue to make significant investments in research and product development activities required to commercialize our products. We expect the acquisitions made during 2001, and the resulting expansion of our business, will increase our cash requirements. In 2002, we expect our cash requirements for ongoing operations and capital expenditures, excluding acquisition and business integration and restructuring costs, to be between $122 million and $142 million.
During 2002, we expect to fund an additional $36 million in cash requirements related to acquisition and business integration and restructuring costs as a result of the acquisition of BPSAG and BPSC. Of that amount $18 million is related to paying accruals of costs made in 2001. The 2002 expenditures will be for severance, the closure of facilities and other costs associated primarily with realizing synergies from the acquisition of BPSAG and BPSC.
Based on our current business strategy, as BPSAG and BPSC are fully integrated into Ballard, we expect our 2003 and 2004 total cash requirements, excluding any cash required for merger and acquisition activity, to decline relative to 2002.
We believe that our cash, cash equivalents and short-term investments will provide us with sufficient capital to fund our current operations through 2004. However, we expect to raise additional capital before 2004 to continue to expand our business and production capacity beyond 2004. In addition to the CDN $55.0 million (US $34.5 million) provided on November 30, 2001, DaimlerChrysler and Ford have agreed to invest at least an additional CDN $55.0 million if we undertake any equity offerings before November 30, 2004. At that time, DaimlerChrysler would invest CDN $30.0 million and Ford would invest CDN $25.0 million. If external sources of financing are not available when needed or on acceptable terms, or if we experience significant cost overruns on any of our programs for which we cannot obtain additional funds, certain of our research and development activities or investments in manufacturing capacity may be delayed or eliminated, resulting in potential delays in the commercialization of our products. In addition, we regularly review acquisition opportunities and, depending on the size of the transaction, we may be required to raise additional capital through the issuance of equity or debt. If we are unable to raise additional capital on acceptable terms, we may be unable to pursue these acquisition opportunities.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. We believe that the critical accounting policies affecting our consolidated financial statements are the following:
Inventory Provision
In establishing the appropriate provision for inventory, we estimate the likelihood that inventory carrying values will be affected by changes in market demand for our products and by changes in technology, which could make inventory on hand obsolete. Where we determine that such changes have occurred and will have a negative impact on current inventory on hand, appropriate provisions are made. Unforeseen changes in these factors could result in additional inventory provisions being required.
Recoverability of Intangible Assets and Goodwill
We have a significant amount of intangible assets and goodwill on our balance sheet. In accordance with Canadian GAAP, we do not amortize goodwill and amortize intangible assets over a period ranging from 5 to 15 years. At least annually, we review the carrying value of our intangible assets and goodwill for potential impairment. Should circumstances indicate that an impairment in the value of these assets has occurred, we would be required to record this impairment in the earnings of the current period.
Warranty Provision
In establishing the accrued warranty liability, we estimate the likelihood that products sold will be subject to warranty claims. In making such determinations, we use estimates based on the nature of the contract and past experience with the products. Should these estimates prove to be incorrect, we may incur costs different from those provided for in our warranty provisions.
Revenue Recognition
We earn revenues under certain contracts to provide engineering services. These contracts provide for the payment for services based on our achieving defined milestones. Revenues are recognized under these contracts based on conservative assessments of progress achieved against these milestones. There is risk that the customer may ultimately disagree with our assessment of the percentage of work completed. Should this occur, the revenues recognized in the period may require adjustment in a subsequent period.
RISKS & UNCERTAINTIES
Risks & uncertainties related to economic and industry factors are discussed in detail in the "Management's Discussion & Analysis" section of our 2001 Annual Report and remain substantially unchanged.
Consolidated Balance Sheets
Unaudited (Expressed in thousands of U.S. dollars)
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March 31, December 31,
2002 2001
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Assets
Current assets:
Cash and cash equivalents $ 85,687 $ 140,774
Short-term investments 274,726 280,475
Accounts receivable 18,258 17,312
Inventories 30,842 28,046
Prepaid expenses 1,259 873
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410,772 467,480
Property, plant and equipment 104,998 109,006
Intangible assets 162,504 170,453
Goodwill 185,097 184,930
Investments 26,286 26,241
Other long-term assets 1,559 1,209
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$ 891,216 $ 959,319
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 43,529 $ 59,307
Deferred revenue 3,296 1,944
Accrued warranty liabilities 16,441 16,622
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63,266 77,873
Long-term liabilities 8,499 7,723
Minority interest 27,220 36,517
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98,985 122,113
Shareholders' equity:
Share capital 1,057,553 1,051,811
Accumulated deficit (265,322) (214,605)
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792,231 837,206
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$ 891,216 $ 959,319
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations and Accumulated Deficit
Unaudited (Expressed in thousands of U.S. dollars, except per share
amounts and number of shares)
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Three months ended March 31
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2002 2001
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Product revenues $ 11,354 $ 3,841
Engineering service revenue 758 -
Investment and other income 2,266 8,731
---------------------------
14,378 12,572
Cost of revenues and expenses:
Cost of product revenues 14,365 4,245
Research and product development 31,312 14,061
General and administrative 6,197 2,583
Marketing 2,232 920
Depreciation and amortization 11,608 1,768
Capital taxes 66 65
---------------------------
65,780 23,642
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Loss before undernoted (51,402) (11,070)
Equity in loss of associated companies (306) (5,086)
Minority interest 9,465 1,168
Business integration and restructuring costs (7,917) -
Gain on issuance of shares by subsidiary - 1,172
---------------------------
Loss before income taxes (50,160) (13,816)
Income taxes 557 246
---------------------------
Net loss for period (50,717) (14,062)
Accumulated deficit, beginning of period (214,605) (118,208)
---------------------------
Accumulated deficit, end of period $ (265,322) $ (132,270)
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Loss per share $ (0.48) $ (0.16)
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Weighted average number of common shares
outstanding 105,024,342 89,461,981
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Unaudited (Expressed in thousands of U.S. dollars)
----------------------------------------------------------------------
Three months ended March 31
----------------------------------------------------------------------
2002 2001
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Cash provided by (used for):
Operating activities:
Net loss for period $ (50,717) $ (14,062)
Items not affecting cash:
Gain on issuance of shares by subsidiary - (1,172)
Compensatory shares 302 -
Depreciation and amortization 13,682 2,402
Loss on sale and writedowns of property,
plant and equipment 3,588 -
Equity in loss of associated companies 306 5,086
Minority interest (9,465) (1,168)
---------------------------
(42,304) (8,914)
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Changes in non-cash working capital:
Accounts receivable (946) 949
Inventories (2,796) (3,342)
Prepaid expenses (386) (117)
Accounts payable and accrued liabilities (15,778) (3,161)
Deferred revenue 1,352 55
Accrued warranty liabilities (181) 522
---------------------------
(18,735) (5,094)
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Cash used by operations (61,039) (14,008)
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Investing activities:
Net decrease in short-term investments 5,749 84,474
Additions to property, plant and equipment (5,408) (3,782)
Proceeds on sale of fixed assets 92 -
Investments (351) (2,438)
Other long-term assets (350) -
Long-term liabilities 799 -
---------------------------
531 78,254
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Financing activities:
Net proceeds on issuance of share capital 5,440 5,573
Proceeds on issuance of shares by subsidiary - 2,353
Other (19) (19)
---------------------------
5,421 7,907
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Increase (decrease) in cash and cash
equivalents (55,087) 72,153
Cash and cash equivalents, beginning of
period 140,774 181,294
---------------------------
Cash and cash equivalents, end of period $ 85,687 $ 253,447
---------------------------
Supplemental disclosure of cash flow information (note 3). See
accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Unaudited (Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
1. Basis of Presentation:
The accompanying financial information reflects the same accounting policies and methods of application as Ballard's 2001 Annual Report except as described in Note 2 below. The accompanying financial information does not include all disclosure required under Canadian generally accepted accounting principles (GAAP) because certain information included in the Ballard's 2001 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 thereto included in Ballard's 2001 Annual Report.
Certain comparative figures have been reclassified to conform with the basis of presentation adopted in the current year.
2. Share Capital:
Effective January 1, 2002, Ballard adopted, on a prospective basis, the Canadian Institute of Chartered Accountants ("CICA") recommendations for accounting for stock-based compensation. The new standard requires that Ballard recognize or, at its option, disclose the impact of the fair value of stock options and other forms of stock-based compensation in the determination of income. Ballard measures compensation cost by the intrinsic value method.
Under the new accounting standard, Ballard's share distribution plan is deemed to be compensatory which resulted in a compensatory charge to the income statement of $ 302,000.
There were no options granted during the current period. As at March 31, 2002, options for 6,848,477 shares were outstanding.
3. Supplemental disclosure of cash flow information:
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Three months
ended March 31
2002 2001
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Interest paid $ 5 $ 5
Income taxes paid $ 252 $ 280
Non-cash financing and
investing activities
Compensatory shares $ 302 $ -
---------------------------------------------------------------------
Unaudited (Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Segmented financial information:
As a result of the acquisition of Ballard Power Systems AG ("BPSAG") and Ballard Power Systems Corporation ("BPSC"), Ballard has changed the way it manages its business with respect to making operating decisions and assessing performance. As a result, Ballard has changed its segmented disclosure into five reportable segments: Technology and Corporate, Power Generation, Transportation, Electric Drives and Power Conversion, and Material Products.
Technology and Corporate comprise the technology, development and manufacture of proton exchange membrane fuel cells and corporate administrative services. Ballard's Power Generation Division develops, manufactures and markets fuel cell power generation equipment for markets ranging from 1 kW portable power products to larger stationary generators. Ballard's Transportation Division develops, manufactures and markets fuel cell components and complete fuel cell engines for the transportation market. The Electric Drives and Power Conversion Division develops, manufactures and markets electric drives for both fuel cell and battery-powered electric vehicles, and power electronics for fuel cell and combustion engine generators, microturbines and other distributed generation products. The Material Products Division develops, manufactures and markets carbon fiber products to automotive manufacturers for automatic transmissions and gas diffusion layer materials to the fuel cell industry.
The prior years' comparative figures have been reclassified to conform with the segmented disclosure adopted in the current year.
Three months ended March Technology Power 31, 2002 & Corporate Generation Transportation --------------------------------------------------------- Total product revenues for reportable segments $ - $ 39 $ 7,349 Engineering service revenue - - 758 Elimination of intersegment revenues - (3) - --------------------------------------------------------- Total revenues to external customers $ - $ 36 $ 8,107 --------------------------------------------------------- Segment loss for period $(14,956) $ (4,402) $ (16,106) --------------------------------------------------------- Identifiable assets $448,219 $ 30,011 $ 195,131 --------------------------------------------------------- Three months Electric ended March Drives & Power Material 31, 2002 Conversion Products Total --------------------------------------------------------- Total product revenues for reportable segments $ 681 $ 4,020 $ 12,089 Engineering service revenue - - 758 Elimination of intersegment revenues (436) (296) (735) --------------------------------------------------------- Total revenues to external customers $ 245 $ 3,724 $ 12,112 --------------------------------------------------------- Segment loss for period $ (7,013) $ 177 $ (42,300) --------------------------------------------------------- Identifiable assets $200,366 $ 17,489 $ 891,216 --------------------------------------------------------- Reconciliation of net loss for period Segment loss for period $(42,300) Investment and other income 2,266 Depreciation and amortization (11,608) Business integration and restructuring costs (7,917) Minority interest 9,465 Other (66) --------------------------------------------------------- Loss before income taxes $(50,160) --------------------------------------------------------- Notes to Consolidated Financial Statements Continued Unaudited (Tabular amounts expressed in thousands of U.S. dollars) 4. Segmented financial information (continued): Three months Technology Power Transpor ended March 31, & Corporate Generation -tation 2001 --------------------------------------------------------------------- Total product revenues for reportable segments $ - $ 651 $ 3,190 Engineering service revenue - - - Elimination of intersegment revenues - - - --------------------------------------------------------------------- Total revenues to external customers $ - $ 651 $ 3,190 --------------------------------------------------------------------- Segment loss for period $ (10,703) $ (4,899) $ (6,548) --------------------------------------------------------------------- Identifiable assets $ 561,574 $ 33,491 $ 28,874 --------------------------------------------------------------------- Three months Electric Drives Material Total ended March 31, & Power Products 2001 Conversion --------------------------------------------------------------------- Total product revenues for reportable segments $ - $ - $ 3,841 Engineering service revenue - - - Elimination of intersegment revenues - - - --------------------------------------------------------------------- Total revenues to external customers $ - $ - $ 3,841 --------------------------------------------------------------------- Segment loss for period $ (904) $ - $(23,054) --------------------------------------------------------------------- Identifiable assets $ 30,328 $ - $654,267 --------------------------------------------------------------------- Reconciliation of net loss for period --------------------------------------------------------------------- Segment loss for period $ (23,054) Investment and other income 8,731 Depreciation and amortization (1,768) Gain on issuance of shares by subsidiary 1,172 Minority interest 1,168 Other (65) --------------------------------------------------------------------- Loss before income taxes $ (13,816) ---------------------------------------------------------------------
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
As at March 31, 2002, Ballard has forward contracts to purchase 18,686,812 EUR which mature during 2002. At March 31, 2002, Ballard would receive $261,942 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.