29.7.2004: Meldung: Ballard Power Systems 2nd Quarter Results
"Ballard continues to demonstrate its leadership as it expands what is already the world"s largest fuel cell vehicle demonstration fleet. Our second quarter results are in line with our plan and we continue to demonstrate strong fiscal discipline," said Dennis Campbell, Ballard"s President and Chief Executive Officer. "In addition, in July we completed a Memorandum of Understanding with our Vehicular Alliance partners, DaimlerChrysler and Ford, which will enable Ballard to extend our leadership by allowing us to focus on the heart of the fuel cell engine (the fuel cell stack) while our partners focus on the more conventional vehicular fuel cell system components, or balance-of-plant technology and vehicle integration. Ballard remains the exclusive supplier of automotive fuel cells and fuel cell technology to DaimlerChrysler and Ford through 2021."
Ballard"s revenue in the second quarter ending June 30, 2004 was $21.2 million, down from $29.1 million for the same period in 2003, primarily due to lower product revenue as a result of the completion of deliveries of heavy-duty bus engines to the European Fuel Cell Bus Project in 2003. Ballard"s net loss for the quarter was $30.6 million ($0.26 per share), compared to a loss of $33.4 million ($0.28 per share) for the same period in 2003. Cash used by operations and capital expenditures for the quarter was $22.5 million, compared to $0.1 million, excluding business integration and restructuring expenditures, for the same period last year, primarily due to unfavorable working capital and foreign exchange impacts.
Dave Smith, Ballard"s Chief Financial Officer, stated, "Our financial position remains solid with $317 million in cash reserves and Alliance partner equity commitments, and will be further strengthened by up to $58 million in engineering services revenue for our next generation fuel cell and electric drive programs from our Alliance partners."
In July, Ballard announced a detailed, non-binding, Memorandum of Understanding ("MOU") with DaimlerChrysler and Ford to realign responsibilities within, and strengthen, the Vehicular Alliance. Ballard expects to finalize definitive agreements and complete the transaction later this year, subject to the ratification of the MOU by DaimlerChrysler"s Supervisory Board, and further approvals of the definitive agreements from the boards of each company, of Ballard"s shareholders and of regulatory agencies in Canada, the United States and Germany.
Key terms of the MOU include:
-- DaimlerChrysler and Ford will acquire Ballard"s vehicular fuel cell system components, or balance-of-plant assets and in consideration, DaimlerChrysler and Ford will return 9 million common shares to Ballard for cancellation, while a further 7.6 million shares reserved for issuance to DaimlerChrysler under a forward sale agreement will no longer be issued
-- Ballard will focus on its core strength - fuel cell design, development and manufacturing
-- DaimlerChrysler and Ford will increase their commitment to Ballard and fuel cells by:
-- Making a Cdn.$55 million equity investment in Ballard
-- Providing up to $58 million in engineering services revenue to Ballard
-- Funding 100 percent of the balance-of-plant development expenses going forward
-- Confirming program plans for the next generation fuel cell and electric drive
-- Agreeing on a framework for the follow-on generation vehicular fuel cell
-- Proactively supporting the building of the Ballard(R) fuel cell brand
-- DaimlerChrysler will purchase the next generation fuel cell electric drive (this is in addition to Ford"s existing purchase commitment through 2021).
"This transaction reduces Ballard"s risk and increases our focus," said Dennis Campbell, Ballard"s President and Chief Executive Officer. "It reduces our risk in financial terms, in operational terms, and in terms of commercialization. Ballard will be financially stronger due to higher cash balances, lower cash consumption and clear definition of, and funding for, our next generation vehicular fuel cell technology. It provides us with greater flexibility to work with other automakers to extend our industry-leading market share. DaimlerChrysler and Ford remain committed to fuel cells and will focus considerable resources and expertise on the refinement of the automotive fuel cell balance-of-plant and vehicle integration."
The following table provides selected financial results adjusted for the effects of the transaction, on a pro-forma basis. The management proxy circular to be delivered to shareholders later this year in connection with the transaction will contain detailed pro-forma financial information.
(Expressed in thousands of U.S. dollars)
Six months ended Year ended
June 30, 2004 December 31, 2003
Pro-Forma As Reported Pro-Forma As Reported
Revenue $ 26,557 $ 37,209 $ 84,751 $ 119,566
Expenses $ 58,083 $ 79,307 $ 121,800 $ 177,436
Net Loss $ (52,940) $ (67,718) $ (86,491) $ (125,092)
Management realignment to support commercialization
The following appointments are effective immediately. Mr. Noordin Nanji is appointed Vice President, Marketing & Business Development, a new position, replacing Ross Witschonke, Vice President Sales & Marketing, who is leaving Ballard by mutual agreement, to pursue other outside interests. Mr. Nanji"s former position, Vice President Corporate Strategy & Development, is eliminated with the functions of that group reassigned. Dave Smith, Chief Financial Officer, will assume responsibility for all strategy, legal and corporate relations activities in addition to his finance related responsibilities. Michael Rosenberg is appointed to the new position of Treasurer, reporting to Mr. Smith, and he will continue to be responsible for corporate relations. Ballard"s search for a Chief Technology Officer continues to be a top priority.
"This realignment of our executive team is aimed at strengthening our execution capability by building on the strengths we have within our organization," said Dennis Campbell, Ballard"s President and Chief Executive Officer. "In addition to sales and service, a key focus for Noordin in this new role will be to strengthen our capabilities in product marketing and brand development. With Noordin retaining responsibility for corporate development and broadening that scope to include business development, we are well positioned to exploit strategic relationships with our current and prospective customers and suppliers."
Ballard continues to set the standard in transportation fuel cells
DaimlerChrysler has delivered two F-Cell fuel cell vehicles to each of Deutsche Telecom and Bewag in Germany for addition to their vehicle fleets and will deliver six F-Cell vehicles for its Singapore fleet to Michelin, Lufthansa, BP Singapore, the Conrad Hotel, the National Environmental Agency and DaimlerChrysler Singapore. These vehicles are part of a fleet of up to 100 Ballard(R) fuel cell-powered vehicles to be rolled-out by DaimlerChrysler in 2004. DaimlerChrysler will also provide three Ballard(R) fuel cell-powered Citaro buses to Beijing, China, for a two-year fleet demonstration program expected to begin in late-2005.
Honda recently delivered two Ballard(R) fuel cell-powered FCX vehicles to the South Coast Air Quality Management District ("SCAQMD") in California, adding to the fleet of Ballard-powered Honda fuel cell vehicles driving in real-world conditions in the U.S. and Japan.
Ballard will provide a light-duty fuel cell engine and related technology to the Japan Automotive Research Institute ("JARI") to assist in the establishment of codes and standards in Japan. This order follows upon the delivery of a Ballard(R) fuel cell module for similar objectives last year. The information collected will assist JARI in benchmarking fuel cell engine performance and in advancing the development of codes and standards for fuel cell engines in Japan.
Over the next two years, Ballard customers will demonstrate over 160 Ballard(R) fuel cell-powered vehicles in 13 countries around the world.
Ballard continues to advance its power generation business
"Ballard"s power generation business is building momentum with the addition of new distributors and the launching of new power generation products," said Dennis Campbell, Ballard"s President and Chief Executive Officer. "Our developing relationships with industry-leading distributors in our target markets will give us access to a wide range of end-use customers for our fuel cell and other power generation products."
BC Hydro initiated field testing of Ballard"s Nexa(R) RM Series fuel cell modules for electric utility repeater stations and electric utility sub-stations under a Memorandum of Understanding with Ballard that includes the potential for commercializing the Nexa(R) RM Series for utility backup applications. BC Hydro has 500 battery-based systems within its own operations which could potentially be replaced with fuel cells.
In July, Ballard introduced its 30 kW Ecostar(TM) power converter product for photovoltaic applications. The Ecostar(TM) power converter combines superior inverter and transformer efficiency with ease of installation and use, offering customers improved reliability and a reduced payback period for their product investment as compared to incumbent technologies. The 30 kW grid-tie Ecostar(TM) power converter joins Ballard"s recently announced 75 kW grid-tie inverter available for sale for the photovoltaic market.
In addition, Ballard has appointed five distributors to enhance sales channels for its Ecostar(TM) power converter products for photovoltaic applications - Energy Outfitters, Akeena Solar, DC Power, MBL & Sons and Solar Depot.
A conference call will be held at 7:00 a.m. Pacific Time (10:00 a.m. Eastern Time) on July 28, 2004 to discuss the results for the second quarter. 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 is 21054791#. The audio web cast can be accessed on Ballard"s web site at www.ballard.com and will be archived for replay.
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 section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. 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.
This financial review covers our interim consolidated financial statements for the three and six-month periods ended June 30, 2004. The Corporation"s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Unless the context otherwise requires, all references to "Ballard", "we", "us" and "our" refer to Ballard Power Systems Inc. and its subsidiaries. This discussion and analysis is dated July 19, 2004.
All amounts in this report are in U.S. dollars, unless otherwise stated.
Our net loss for the three months ended June 30, 2004 was $30.6 million, or ($0.26) per share, compared with a net loss of $33.4 million, or ($0.28) per share, for the same period in 2003. A foreign exchange loss of $1.5 million compared to a foreign exchange gain of $8.3 million in 2003, was partly offset by $4.9 million of lower operating expenses and the fact that the 2003 period included a $7.3 million writedown of our investment in MicroCoating Technologies, Inc. ("MCT") and business integration and restructuring costs of $1.8 million. Our net loss for the six months ended June 30, 2004 was $67.7 million, or ($0.57) per share, compared to a net loss of $56.0 million, or ($0.48) per share, for the same period in 2003. The higher loss for 2004 primarily results from a foreign exchange loss of $2.5 million compared to a foreign exchange gain of $16.2 million in 2003, a $14.1 million decline in engineering service revenue reflecting the near completion of the current generation light-duty fuel cell engine development program, and lower minority interest share of losses in subsidiaries of $4.6 million. This was partly offset by a $10.0 million decline in operating expenses, a $5.7 million improvement in product margins and the fact that the 2003 results included the $7.3 million writedown of investments discussed above and $4.4 million of business integration and restructuring costs.
Our revenues for the three months ended June 30, 2004 were $21.2 million, compared to $29.1 million for the same period in 2003. This includes a $7.6 million or 33% decrease in product revenues and a $0.4 million or 6% decrease in engineering service and other revenue. Our revenues for the six months ended June 30, 2004 were $37.2 million compared to $62.2 million for the same period in 2003. This includes a $10.9 million or 28% decrease in product revenues and a $14.1 million or 62% decrease in engineering service and other revenue. The decreases in product revenue primarily relate to lower shipments of heavy-duty bus engines and related product support services for the European Fuel Cell Bus Project. The decline in engineering service revenue results from the development phase of the current generation light-duty fuel cell engine program nearing completion and the next generation light-duty fuel cell engine development program being in the early stages.
Cash used by operations and capital expenditures for the three and six-month periods ended June 30, 2004 were $22.5 million and $49.6 million respectively, compared to $0.1 million and $18.3 million (excluding business integration and restructuring expenditures) for the same periods in 2003. The increases are primarily due to the higher losses (excluding non-cash items) described above and period over period changes in working capital requirements, which were driven primarily by swings in accounts receivable, accounts payable and accrued liabilities and accrued warranty liabilities.
On July 8, 2004, we entered into a comprehensive, non-binding Memorandum of Understanding ("MOU") with our Vehicular Fuel Cell Alliance partners, DaimlerChrysler AG ("DaimlerChrysler") and Ford Motor Company ("Ford"), under which DaimlerChrysler and Ford will acquire our 50.1% interest in Ballard Power Systems AG ("BPSAG"), formerly XCELLSIS GmbH. In exchange, DaimlerChrysler and Ford will return to us 9 million of our common shares that they currently own, valued at $73.8 million based on the average quoted market price of our common shares around the announcement date of $8.20 per share. These shares will then be cancelled. Further, the existing forward sale agreement related to the purchase by Ballard of the remaining 49.9% interest of BPSAG from DaimlerChrysler in exchange for the issuance of 7.6 million shares of Ballard to DaimlerChrysler, will be modified accordingly, resulting in 100% ownership of BPSAG by DaimlerChrysler and Ford. As a result of this transaction, it is anticipated that we will record an estimated loss of $23 million in the third quarter of 2004. The estimated loss is subject to change due to a number of variables, including changes in our net investment in BPSAG and purchase price adjustments.
On completion of this transaction we will continue to be responsible for the research, development and manufacture of fuel cells and DaimlerChrysler and Ford will jointly be responsible for the research, development and manufacture of the vehicular fuel cell system (balance-of-plant).
Under the terms of the MOU, DaimlerChrysler and Ford will also provide to us up to $58 million in funding for our development of the next two generations of vehicular fuel cells and the next generation electric drive system, subject to achieving pre-defined milestones. At closing, DaimlerChrysler and Ford will also invest a total of Cdn.$55 million in exchange for 4,457,545 shares.
Under the terms of the MOU, following the close of the transaction, DaimlerChrysler"s ownership in Ballard is expected to increase from 16.6% to 18.8% and Ford"s ownership in Ballard is expected to decrease from 18.7% to 13.9%.
After giving effect to the proposed share cancellations and the issuance of the 4,457,545 shares discussed above, our issued and outstanding share capital is expected to be reduced from 118,426,540 as at July 19, 2004 to 113,884,085 common shares at the closing of the transaction.
We expect to finalize definitive agreements and complete the transaction later this year, subject to the ratification of the MOU by DaimlerChrysler"s Supervisory Board, and further approvals from the boards of directors of Ballard and Ford, of our shareholders and of regulatory agencies in Canada, the United States and Germany.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with Canadian GAAP, which require us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. We have identified the policies below as critical to our business operations and to an understanding of our results of operations. The application of these and other accounting policies are described in note 1 to our consolidated financial statements contained in our 2003 Annual Report. Our preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may vary from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED
In late 2003, the Emerging Issues Committee (the "EIC") of the Canadian Institute of Chartered Accountants (the "CICA") issued EIC-141 Revenue Recognition, EIC-142 Revenue Arrangements with Multiple Deliverables and EIC-143 Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts. The EIC guidelines provide interpretive guidance for applying the standards in Section 3400 Revenue, of the CICA Handbook and bring Canadian standards in line with U.S. standards. The new guidance had no impact on us, as our accounting for revenues is consistent with U.S. GAAP.
CICA Accounting Guideline 13 ("AcG-13") Hedging Relationships came into effect for our fiscal 2004 results. To manage our exposure to currency rate fluctuations, we periodically enter into forward foreign exchange contracts, which do not qualify for hedge accounting under AcG-13. Therefore we have applied the guidance in EIC-128 Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments and have adopted the fair value method of accounting for forward foreign exchange contracts. The fair value of the contract is recognized on the balance sheet and changes in the fair value are recorded as gains or losses in the period of change. There were no material impacts to any of the periods reported as a result of adopting EIC-128.
Ballard Power Systems Inc.
4343 North Fraser Way
Canada V5J 5J9