Ballard Power Systems Issues 1999 Third Quarter Report
1 November 1999
Ballard Power Systems Issues 1999 Third Quarter Report
VANCOUVER, British Columbia--Nov. 1, 1999--Ballard Power Systems Inc. (TSE:BLD) today issued its third quarter report including financial results for the third quarter and for the nine months ended September 30, 1999. All amounts reported are in Canadian dollars."We passed several important milestones during the quarter on our path towards commercialization and the achievement of our 1999 corporate objectives," said Ballard President and Chief Operating Officer Layle (Kip) Smith. "The increased expenditures on research and development serve our goal of reducing manufacturing costs through the development of low-cost materials and manufacturing processes. Our emphasis continues on securing supplier relationships for key fuel cell components and on building customer relationships."
Developments in the automobile industry during the quarter demonstrated a strong and ongoing commitment on the part of automobile manufacturers to their fuel cell vehicle programs. In late September, Ballard received a $3.9-million (US$2.6 million) order from Honda, already a Ballard customer, for Ballard(R) fuel cells. This order reflects Honda's continued commitment to their aggressive fuel cell vehicle development and commercialization program. Earlier in September, Honda introduced two prototype fuel cell vehicles. One of these, the FCX-V1, is powered by Ballard fuel cells. At that time, Honda restated its plan to make a fuel cell vehicle commercially available by 2003.
An important development in the commercialization process was the addition of Honda and Volkswagen as members in The California Fuel Cell Partnership, founded last April by Ballard, the State of California, energy providers ARCO, Shell and Texaco, and automobile manufacturers DaimlerChrysler and Ford. The partnership now aims to put more than 55 fuel cell vehicles on the road in California for testing and demonstration between 2000 and 2003.
"Industry momentum towards the commercialization of fuel cell vehicles is continuing to build," said Ballard Chairman and Chief Executive Officer Firoz Rasul. "Our participation in the California Fuel Cell Partnership, with four automobile manufacturers, three fuel producers and the State of California, ensures that Ballard will continue to play a leading role in the commercialization of fuel cells."
At the beginning of October, Ballard affiliate dbb fuel cell engines inc. (dbb) introduced the next-generation commercial prototype fuel cell bus engine. dbb presented a bus powered by this engine to transit agency and government representatives and the news media at the International Public Transportation Exposition in Orlando, Florida. Improvements to this 205 kilowatt (275 hp) engine resulted directly from knowledge gained during in-service testing of buses using the previous generation fuel cell engine in Chicago and Vancouver, BC. Performance and ease of service have been greatly improved with the new engine, which is almost 2,000 kilograms (4,000 lb) lighter, uses fewer components, and uses off-the-shelf heavy duty bus engine components in place of custom components. In the remaining months of the Chicago and Vancouver field trial programs, Ballard and dbb will continue to collect information for improvements needed to develop a commercial fuel cell engine for introduction in 2002 and to enhance fuel cell stack design.
At the 1999 Frankfurt Motor Show in September, Daimler-Chrysler exhibited a Mercedes-Benz S-Class research vehicle to demonstrate that fuel cells can be used as an auxiliary power source for conventional automobiles. The car is equipped with a 3 kilowatt Ballard fuel cell system that generates electric power for the air conditioning and heating, television receiver, and multimedia system while the engine is switched off.
Ballard and its subsidiary Ballard Generation Systems Inc. (BGS) made important progress in the quarter with the delivery of their first 250 kilowatt-class stationary power generator to Cinergy Technology Inc. in the U.S. This marked the beginning of a field trial program that will provide information that will be used to improve the design and performance of the 250 kilowatt generators and the fuel cell stacks that power them. Additional field trial units will be shipped to customers during the remainder of 1999 and throughout 2000.
Ballard is continuing market development for portable fuel cell systems by focusing on the establishment of relationships to develop fuel cell powered products for various portable power markets with original equipment manufacturers and system integrators.
At the beginning of the quarter, Yamaha Motor Co., Ltd. placed a $365,000 (US$250,000) order with Ballard for fuel cells and related equipment and support services. Yamaha, a new Ballard customer, is a broadly diversified manufacturer of products for leisure, marine, power, and automotive applications.
In addition to the significant steps taken in our transportation, stationary and portable business, we made strong progress toward meeting our technology and manufacturing objectives. We achieved the target set for construction of our first manufacturing-scale production facility ("Plant 1"), which is scheduled to become operational in late 2000.
In September, Ballard signed an exclusive collaboration and supply agreement with UCAR International Inc. for the joint development and exclusive supply of flexible graphite -- a key material in the manufacture of flow field plates for fuel cells. Supplier agreements such as this are important as Ballard moves to reduce costs and establish volume manufacturing capability.
Ballard continues to build on its already strong intellectual property. By the end of the third quarter, Ballard had 325 patents, issued, allowed or pending worldwide, covering 104 distinct inventions relating to fuel cell technology. In August, Ballard added to its own Direct Methanol Fuel Cell (DMFC) intellectual property position with the acquisition of rights to technology developed at the California Institute of Technology and the University of Southern California. In a DMFC, methanol is fed directly into the PEM fuel cell as the fuel, rather than passing first through a fuel processor where it is converted into a hydrogen fuel stream.
At the Frankfurt Auto Show, in mid-September, Ballard received a 1999 Financial Times Global Automotive Award. The award, The FT Automotive World Special Jury Prize, was presented in recognition of Ballard's "major significance to the automobile industry."
Revenues for the third quarter were $7.25 million compared with $4.5 million in the same period last year. The increase is a result of revenues earned in the quarter primarily related to greater activity in Ballard's stationary power generator business. The net loss was $22.2 million, or $0.26 per share, compared with a net loss of $10.5 million, or $0.13 per share in the same quarter of 1998. The difference is, in part, a result of increased spending on research and development, which increased from $9.4 million in the third quarter of 1998 to $20.4 million in the same quarter this year. Equity in loss of associated companies, and increased general and administrative spending due to the growth of the Company also contributed to higher expenses for the quarter.
For the nine-month period, revenues were essentially the same as 1998, at $18.2 million for 1999 from $18.5 million in 1998. Ballard's loss for this nine-month period was $0.58 per share compared with a gain of $0.03 per share during the same period in 1998. Results for the nine-month period in 1998 included gains on the sale of intellectual property and capital assets, and issuance of shares in subsidiary and associated companies offset by the corresponding licence fee. Removing these transactions from the equation in both 1998 and 1999 results in a loss of $0.29 per share for the nine-month period in 1998, compared to a loss of $0.60 per share for the most recent nine-month period. At September 30, 1999, Ballard's financial condition was strong, with shareholders' equity of $583.9 million, and cash and short-term investments of $386.1 million.
"Events during this quarter reflect growing momentum in the industry-wide drive to commercialize a range of fuel cell powered products as well as our own commitment to bring fuel cells to market for a variety of applications," said Mr. Rasul. "We have maintained our strong financial position and are on track to meet the objectives we set out for 1999 as we move closer to volume manufacturing and commercialization."
A conference call is scheduled for Monday, November 1, 1999 at 12:00 noon EST (9:00 am PST) to review Ballard's third quarter highlights. Access to the call may be obtained by calling the Confertech operator at (416) 641-6663 five minutes before the call. 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 13385801. The conference call playback will also be available on Ballard's Web site at www.ballard.com.
This release contains forward-looking statements reflecting Ballard Power Systems' current expectations as contemplated under the Safe Harbor 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 energy technologies, competition from existing energy technologies, evolving markets for electric power and transportation vehicles, and the ability to provide the capital required for product development, operations and marketing. Investors are encouraged to review the Management's Discussion and Analysis section in Ballard's 1998 Annual Report titled "Operating Results, Capital Requirements, and Risks" (pages 30 to 34) for a more complete discussion of factors that could affect Ballard's future performance.
Consolidated Balance Sheets
unaudited
expressed in thousands of Canadian dollars
September 30 1999 1998
Assets
Current assets
Cash and cash equivalents $ 187,953 $ 356,565
Short-term investments 198,124 73,572
Accounts receivable 16,563 9,255
Inventories 13,002 3,957
Prepaid expenses 1,420 1,262
----------------------
417,062 444,611
Capital assets 55,772 41,238
Fuel cell technology acquired 47,342 51,008
Investments in associated companies 118,064 135,186
----------------------
$ 638,240 $ 672,043
----------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities $ 17,706 $ 14,516
Current portion of capital lease
obligation 91 91
Deferred revenue 7,923 10,235
Allowance for warranty 14,496 12,742
----------------------
40,216 37,584
Capital lease obligation 362 468
Minority interest 13,725 5,784
----------------------
54,303 43,836
Shareholders' Equity
Share capital 660,653 655,117
Accumulated deficit (76,716) (26,910)
----------------------
583,937 628,207
----------------------
$ 638,240 $ 672,043
----------------------
Consolidated Statements of Income
and Accumulated Deficit
unaudited
expressed in thousands of Canadian dollars
except per share amounts
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
Revenues $ 7,252 $ 4,505 $ 18,202 $ 18,451
Investment
income 4,730 6,302 12,547 13,822
Gain on issuance of
shares by subsidiary
and associated
company 4,334 - 4,334 27,121
Gain on sale of
capital assets and
intellectual
property - - - 5,606
----------------------------------------------------
16,316 10,807 35,083 65,000
Cost of revenues and expenses
Cost of revenues 7,641 6,354 15,296 14,728
Research and product
development 20,401 9,405 42,999 24,146
General and
administrative 2,821 2,011 6,675 5,241
Marketing 697 857 2,231 1,987
Minority interest (2,205) (346) (4,581) (662)
Capital taxes 102 70 265 210
Equity in loss of
associated
companies 5,238 1,988 14,318 6,575
Amortization of fuel
cell technology 916 916 2,749 2,749
License fee 2,571 - 2,571 7,653
----------------------------------------------------
38,182 21,255 82,523 62,627
----------------------------------------------------
Earnings (loss) before
income taxes (21,866) (10,448) (47,440) 2,373
Income taxes 315 56 941 183
Net earnings (loss)
for period (22,181) (10,504) (48,381) 2,190
Accumulated deficit,
beginning of
period (54,535) (16,406) (28,335) (29,100)
----------------------------------------------------
Accumulated deficit,
end of period ($76,716) ($26,910) ($76,716) ($26,910)
----------------------------------------------------
Net earnings (loss)
per share ($0.26) ($0.13) ($0.58) $0.03
----------------------------------------------------
Weighted average number
of common shares
outstanding 83,872,459 83,037,973 83,861,684 78,073,779
----------------------------------------------------
Consolidated Statements of Cash Flow
unaudited
expressed in thousands of Canadian dollars
Nine months ended September 30 1999 1998
Cash provided by (used for) operating activities
Operations
Net earnings (loss) for period ($48,381) $ 2,190
Items not affecting cash:
Amortization 7,649 6,064
Minority interest (4,581) (662)
Gain on issuance of shares by
subsidiary and associated company (4,334) (27,121)
Gain on sale of capital assets and
intellectual property - (5,606)
Equity in loss of associated companies 14,318 6,575
License fee 2,571 7,653
----------------------
(32,758) (10,907)
Changes in non-cash working capital
Accounts receivable (2,841) 12,185
Inventories (6,386) (2,638)
Prepaid expenses (584) (761)
Accounts payable and accrued liabilities (4,494) 150
Deferred revenue (1,129) 2,991
Allowance for warranty 798 3,514
----------------------
(14,636) 15,441
----------------------
(47,394) 4,534
Cash provided by (used in) financing activities
Net proceeds on issuance of
share capital 4,626 317,266
Proceeds on issuance of shares by
subsidiary and associated company 2,896 25,410
Proceeds on sale of capital assets
and intellectual property - 5,606
Capital lease obligation (80) (74)
----------------------
7,442 348,208
Cash used in investing activities
Net changes in short-term investments (105,218) (48,276)
Additions to capital assets (15,274) (21,427)
Investments in associated companies - (70,999)
----------------------
(120,492) (140,702)
----------------------
Increase (decrease) in cash and
cash equivalents (160,444) 212,040
Cash and cash equivalents,
beginning of period 348,397 144,525
----------------------
Cash and cash equivalents,
end of period $ 187,953 $ 356,565
----------------------
Ballard Power Systems is the world leader in developing, manufacturing and marketing zero-emission PEM 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 fuel cell that combines hydrogen (which can be obtained from methanol, natural gas or petroleum) 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 fuel cells. Ballard has also supplied fuel cells to General Motors, Honda, Nissan, Volkswagen, Yamaha, Cinergy and Matsushita Electric Works.
Note to Editors: 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.