Ballard Power Systems Inc.
Notice of Annual Meeting,
Management Proxy Circular and
2011 Annual Report
BALLARD POWER SYSTEMS INC.
9000 Glenlyon Parkway
Burnaby, British Columbia, Canada V5J 5J8
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
Our 2012 Annual Meeting (the "Meeting") will be held at the Sheraton Centre Toronto Hotel, 123 Queen
Street West, Toronto, Ontario, on Tuesday, June 5, 2012 at 1:00 p.m. (Eastern Daylight Time) for the
following purposes:
1.
2.
3.
4.
5.
To receive our audited financial statements for the financial year ended December 31,
2011and the report of our auditors thereon;
To elect our directors for the ensuing year;
To appoint our auditors for the ensuing year and to authorize our Audit Committee to fix the
remuneration of the auditors;
To consider and, if thought appropriate, to approve resolutions to implement the equity-
based compensation matters described in the accompanying Management Proxy Circular;
and
To consider and, if thought appropriate, to approve a resolution, on an advisory basis,
accepting the Corporation’s approach to executive compensation.
In addition, shareholders will be asked to consider any amendment to or variation of a matter identified in
this Notice and to transact such other business as may properly come before the Meeting or any adjournment
thereof.
A detailed description of the matters to be dealt with at the Meeting, our 2011 Annual Report, our
consolidated financial statements for the year ended December 31, 2011 and the report of our auditors
thereon, and our 2011 Management’s Discussion and Analysis, are included with this Notice.
If you are unable to attend the Meeting in person and wish to ensure that your shares will be voted at the
Meeting, you must complete, date and execute the enclosed form of proxy and deliver it in accordance with
the instructions set out in the form of proxy and in the Management Proxy Circular accompanying this
Notice, so that it is received by Computershare Investor Services Inc. no later than 1:00 p.m. (Eastern
Daylight Time) on Friday, June 1, 2012.
If you plan to attend the Meeting you must follow the instructions set out in the form of proxy and in the
Management Proxy Circular to ensure that your shares will be voted at the Meeting.
DATED at Burnaby, British Columbia, April 10, 2012.
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems
i
TABLE OF CONTENTS
Notice of Annual Meeting........................................................................................................................................................ i
Letter from IAN A. BOURNE Chair of the Board.......................................................................................................... 1
Letter from JOHN W. SHERIDAN President and Chief Executive Officer ................................................................... 2
Management Proxy Circular ................................................................................................................................................. 7
Matters to be Voted Upon ...................................................................................................................................................... 7
Election Of Directors ...................................................................................................................................................... 7
Appointment Of Auditors.............................................................................................................................................. 10
Equity-Based Compensation Matters ............................................................................................................................ 11
Advisory Vote on Approach to Executive Compensation ............................................................................................. 12
Voting Information ............................................................................................................................................................... 13
Corporate Governance ......................................................................................................................................................... 15
Executive Compensation ...................................................................................................................................................... 18
Performance Graph ....................................................................................................................................................... 27
Executive Compensation Tables ................................................................................................................................... 28
Incentive Plan Awards................................................................................................................................................... 31
Pension Plan Benefits.................................................................................................................................................... 33
Termination and Change of Control Benefits................................................................................................................ 33
Director Compensation.................................................................................................................................................. 36
Interest of Informed Persons in Material Transactions..................................................................................................... 39
Indebtedness of Directors and Executive Officers ............................................................................................................. 39
Directors’ and Officers’ Liability Insurance ...................................................................................................................... 39
Additional Information ........................................................................................................................................................ 39
Proposals ............................................................................................................................................................................... 39
Approval by the Board ......................................................................................................................................................... 40
Defined Terms....................................................................................................................................................................... 40
APPENDIX "A" Description of Option Plan ................................................................................................................... A-1
APPENDIX "B" Description of SDP ................................................................................................................................ B-1
Financial Information......................................................................................................................................................... F-1
Management’s Discussion and Analysis ..................................................................................................................... F-2
Consolidated Financial Statements.............................................................................................................................. F-3
CORPORATE INFORMATION ...................................................................................................................................... F-4
This document contains forward-looking statements concerning: revenue estimates; market growth
projections; operating expenses; cost savings; adjusted EBIDTA; product cost reductions and
product shipments. These forward-looking statements reflect Ballard’s current expectations as
contemplated under section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any such forward-looking statements are based on
Ballard’s assumptions relating to its financial forecasts and expectations regarding its product
development efforts, manufacturing capacity, and market demand.
These statements involve risks and uncertainties that may cause Ballard's actual results to be
materially different, including general economic and regulatory changes, detrimental reliance on
third parties, successfully achieving our business plans and achieving and sustaining profitability.
For a detailed discussion of these and other risk factors that could affect Ballard's future
performance, please refer to Ballard's most recent Annual Information Form. Readers should not
place undue reliance on Ballard's forward-looking statements and Ballard assumes no obligation to
update or release any revisions to these forward-looking statements, other than as required under
applicable legislation.
ii
Letter from IAN A. BOURNE
Chair of the Board
Fellow Shareholders:
A Positive Trajectory
The past several years have seen increases in Ballard’s revenue and margin, together with continued
reductions in corporate operating expense. This trajectory sets the foundation for what I believe will be a
‘tipping point’ for Ballard. As Malcolm Gladwell first wrote in his famous book of the same name, a tipping
point is “…the moment of critical mass, the threshold, the boiling point.” And, indeed, it is toward just such
a point in the evolution of fuel cell products – and their adoption in the marketplace – that I believe we are
headed.
Ballard’s Management has established effective underpinnings for a sustainable business, including a
strong liquidity position, deep direct sales capability and increasingly effective channel relationships with the
right partners. Within our target markets, sales prospects and customers are beginning to order products in
growing volumes.
Toward A Sustainable Fuel Cell Business
Despite the turbulent global economic backdrop against which the Company is working to displace
incumbent solutions, progress has been significant. Your Board of Directors congratulates Management,
under John’s leadership, for positive results in 2011. We saw strong growth in orders, as reflected in the year
end order book, and in revenue. Margins improved and costs were reduced. At the same time, we were
disappointed with the share price compared to 2010, but are confident that business fundamentals are strong
entering 2012, and this year will provide the basis for increasing shareholder value.
I would like to acknowledge the contribution of two Board members who will not be standing for re-
election in 2012. Mr. Douglas Whitehead and Mr. Mark Suwyn have been active and supportive members of
the Board for 15 and 8 years, respectively. Their contributions have been important and their absence will be
felt by us all.
On behalf of the Board of Directors, I would like to thank you for your commitment and support of
Ballard as we move forward toward commercial sustainability in clean energy markets. Thanks also to a
dedicated employee population who will make success achievable – shareholders may wish to view the
“Employee Awards of Excellence for 2011” on page 6 this Annual Report.
"Ian A. Bourne"
IAN A. BOURNE
Chair of the Board of Directors
1
Letter from JOHN W. SHERIDAN
President and Chief Executive Officer
2011 – “Putting Fuel Cells to Work”
As outlined in Annual Reports over the past few years, our over-arching priority has been to drive a
successful transformation of Ballard to become a commercially-focused and customer-driven fuel cell
products company. This is a sharp contrast from the decades in which Ballard operated as a high cash burn
R&D organization. With the transformation work successfully completed in 2010, Ballard employees were
able to concentrate fully in 2011 on ‘putting fuel cells to work’. We have focused this market development
work on four applications: backup power; distributed generation; bus; and material handling.
This has been challenging work, especially in these difficult economic times. New clean energy
product solutions must deliver customer value propositions and meet desired targets for key product
attributes, such as cost, operating life, availability and energy efficiency.
In 2011 we saw growing momentum in delivery of compelling value to important customers –
including Walmart, BMW, Proctor & Gamble, Wind Mobile, Toyota, BAE Systems and Van Hool. This
market progress led to a continuing improvement in our company’s performance metrics – bottom line as
well as top line.
2011 Operating Results – Progress on the Path to Profitability
On the top line, our revenue grew by 17% to $76 million. This was less than our expectations for
2011, primarily due to timing delays in the shipment of bus modules. On the bottom line, we reduced our
operating cost base by 7% and improved product gross margins by 2 points. This resulted in an improvement
of 15% in Adjusted EBITDA.
We also put in place enablers that will further reduce the cost base going forward. For example, we
leased surplus manufacturing space to Daimler AG, which is expected to save $1 million per year and we
leveraged third-party funding to partially offset the cost of product development – including a $7 million
award from Sustainable Development Technology Canada (SDTC) to extend operating life and lower
product cost of the FCgen®-1300, which powers the CLEARgen™ distributed generation system. Given our
positive fourth-quarter cash flow, we ended the year with cash reserves of $46.2 million, or $41.6 million net
of our operating line, which we use to finance working capital.
So, from an operational perspective, Ballard demonstrated progress in all key financial metrics in
2011 and advanced on our path to profitability. We also made progress in terms of the order book – with a
number of key sales over the year, we increased the yearend order book to $45.3 million, up 29% from one
year earlier. This positions us strongly to drive growth in 2012.
2
What This Progress Means More Fundamentally
At a more ‘macro’ level, we believe the progress in market development over the past several years
is now leading towards large-scale commercialization of clean energy fuel cell products. But as we all
recognize, this has been slow in coming. This is partly due to the historically high cost of fuel cell products,
which we have effectively addressed by reducing average product costs more than 50% over the past four
years. And beyond reducing product costs, it has taken time to start to overcome inertia, with companies and
individuals being reluctant to give up long standing energy solutions – while not environmentally friendly,
diesel engines, diesel generators and lead-acid batteries are cheap and are deeply embedded in everyday life.
Making a fundamental shift to new, clean energy products is not an easy one for individuals or
organizations -- particularly in the last few years with the pressures and uncertainties of global economic
crises. However, we now are seeing significant signs of momentum in commercialization of clean fuel cell
energy products. Consider the following 2011 signs in this regard:
(cid:131) Initial order activity in important new geographic markets, including some of the biggest and
fastest growing in the world … India, South Africa and Brazil.
(cid:131) New and strengthened partner relationships with major global companies, such as Delta Solutions,
Anglo American, BAE Systems and Van Hool.
(cid:131) New fuel cell applications in mining, waste-to-energy and large scale backup power.
(cid:131) High visibility of fuel cells at COP17, the global climate change conference held in Durban, South
Africa.
(cid:131) Major sales of fuel cell products across the sector:
o Ballard’s announcements of 21 fuel cell modules for transit buses in Europe.
o Bloom Energy’s announcement of a deal to deliver 30-megawatts (MW) of fuel cell
product over the next 21-years to Delmarva Power in Delaware.
o ClearEdge Power’s announcement of a plan to deliver 50MW of fuel cell power in
Austria through 2020.
o Fuel Cell Energy’s announcement of a 70MW order with POSCO of South Korea.
3
Looking Forward – A Milestone Opportunity For Ballard in 2012
This momentum, we believe, positions us to take a ‘milestone step’ in 2012 on our path to
profitability. With this broader macro backdrop and the specific progress we have made in our cost base and
order book, Ballard is solidly positioned for a strong year in 2012.
We expect strong revenue growth in 2012, driven by our fuel cell products segment. As well, we are
committed to achieve continued reductions in product costs in 2012, improved gross margins and maintain
our downward trajectory in operating expenses. With our projected progress on these three fronts, we believe
that Ballard is positioned to post approximately breakeven Adjusted EBITDA results for the full year. This
will be a challenging goal, particularly given the current macroeconomic volatility, but attainable given our
recent progress and our trajectory.
I look forward to reporting our progress as we move through 2012. Thank you for your continued
support of Ballard and for a future of widely deployed, clean energy fuel cell products.
"John Sheridan"
JOHN SHERIDAN
President & CEO
Ballard Power Systems
4
Sustainability Report
Sustainability Report 2011
BALLARD’S VISION OF A CLEAN ENERGY FUTURE continues to be shared by our passionate
employees, who have dedicated their careers to the commercialization of fuel cell products. In addition to
corporate programs, Ballard’s Green Team is an employee-led group focused on corporate sustainability,
as well as helping co-workers make informed choices at home.
Ballard’s GREEN INITIATIVE has three pillars:
PRODUCTS
2011 ACHIEVEMENTS
Ballard’s FCvelocity™-9SSL fuel
cell stack
OUR PRODUCTS
We will maximize the
environmental benefits of
our fuel cell products over
incumbent technologies.
OPERATIONS
P E O P L E
OUR OPERATIONS
We will improve the way
we operate our business
to minimize environmental
impacts.
OUR PEOPLE
We will promote participation in events and provide
access to information about green choices we can
make in our daily lives.
Worked with BC Hydro and
Fortis to evaluate new ways to
reduce energy consumption
Supported a multi-material
recycling system
Liaised with suppliers to
continue reducing packaging
material
Helped decrease commuting
emissions by encouraging
employee carpooling and our
work-from-home program
Conducted an employee
education campaign for power
conservation in our daily
operations
Reduce, reuse, recycle.
We share access to information about green choices.
Ballard offers smarter solutions for a clean energy future
Commercialization of our clean energy fuel cell products is where Ballard can make the greatest positive impact on the
environment. We are already seeing examples of the significant benefits that deployments of our fuel cell products can
have on the environment.
For example, BC Transit has the largest hydrogen fuel cell-powered bus fleet
anywhere, with 20 buses incorporating Ballard’s FCvelocity™-HD6 fuel cell
modules operating in the Resort Municipality of Whistler, BC. The fleet was
deployed in time for the 2010 Olympic and Paralympic Winter Games, and
has been an effective showcase for clean transportation alternatives. Late
in 2011, this became the first hydrogen fuel cell bus fleet to surpass
1-million miles (1.6-million kilometers) of revenue service:
• The 20-bus fleet had operated a total of 80,000 hours;
• More than 9,600 safe refuellings had been completed, by which
220,000 kilograms of hydrogen was dispensed to the fleet’s buses, and;
• 2,200 tons of greenhouse gas (GHG) emissions have been avoided, in
comparison to diesel buses, which is equivalent to removing
approximately 400 passenger vehicles from the roads.
BC Transit Fuel Cell Bus, Whistler, BC.
5
EEmmppllooyyeeee AAwwaarrddss ooff EExxcceelllleennccee ffoorr 22001111
“Above and Beyond” Winners
(cid:190) CUSTOMER SUCCESS
MERCEDES BENZ CUSTOMER RELATIONSHIP TEAM
Duarte Sousa
Chris Ekholm
Colin Redekop
•
•
•
• Mike Misajon
(cid:190) PRODUCT LEADERSHIP
CLEARgen®-PRODUCT DEVELOPMENT TEAM
•
•
•
•
•
•
•
•
•
•
•
Adel Jilani
Alex Tielker
Ali Kurt
Andrew Bogacki
Brent McKay
Bruce Meuhlchen
Buz McCain
Byron Somerville
Brenon Knaggs
Catharine Reid
Dana Ayotte
Denise Abassi
•
Don Line
•
Ed Peters
•
David Tai
•
David Wardrop
•
Ed Vink
•
Emerson Gallagher
•
•
Frank Wilms
• Greg James
Ian Gilchrist
•
Jake DeVaal
•
Jason Hicks
•
Jeff Glandt
•
Jenny Hoang
•
Joel Orum
•
Joel Lancaster
•
•
Kevin Bell
• Manpal Ghuman
• Mario Casol
• Martin Chow
• Mike Grieve
• Mike Padmore
• Mike Steffl
• Mink Tran
• Monte Jensen
Neal Fink
•
Nicolae Mosoiu
•
Peter Bach
•
Rob David
•
•
Sanjiv Kumar
• William Yoshihara
(cid:190) MANUFACTURING LEADERSHIP
100% ON-TIME PRODUCT DELIVERY
•
•
•
Production
Production Planning &
Material Management
IQC
• Maintenance
• ME&D
Sales
•
Supply Chain
•
(cid:190) FINANCIAL SUCCESS
DAIMLER SUB-LEASE AGREEMENT
Chris Ekholm
•
•
Kerry Hillier
• Mike Hainke
•
•
Scott McFarlane
Steve Pratt
(cid:190) BALLARD SPIRIT AWARD
YEAR-END EMPLOYEE CELEBRATION PLANNING TEAM
•
Don Johnson
• Greg James
Jan Laishley
•
Jyoti Sidhu
•
Phyllis Bowman
•
• Monique Dunn
Steve Pratt
•
Yudi Deamer
•
6
MANAGEMENT PROXY CIRCULAR
dated as of April 10, 2012
MATTERS TO BE VOTED UPON
Registered Shareholders or their duly appointed proxyholders will be voting on:
(cid:131)
(cid:131)
the election of directors to our Board;
the re-appointment of our auditors and authorization for our Audit Committee to fix the
remuneration of the auditors; and
(cid:131)
the implementation of certain equity-based compensation matters; and
(cid:131) on an advisory basis, the Corporation’s approach to executive compensation.
As of the date of this Management Proxy Circular, we know of no amendment, variation or other
matter that may come before the Meeting other than the matters referred to in the Notice of Annual Meeting.
If any other matter is properly brought before the Meeting, it is the intention of the persons named in the
enclosed proxy to vote the proxy on that matter in accordance with their best judgment.
With respect to resolutions to be voted on at the Meeting, a simple majority of the votes (greater than
50%) cast in favour by Registered Shareholders, by proxy or in person, will constitute approval.
ELECTION OF DIRECTORS
At the Meeting you will be asked to elect eight directors. Six of our eight nominees are currently
members of the Board, two are new nominees. Each elected director will hold office until the end of our
next annual shareholders’ meeting (or if no director is then elected, until a successor is elected) unless the
director resigns or is otherwise removed from office earlier. If any nominee for election as a director advises
us that he or she is unable to serve as a director, the persons named in the enclosed proxy will vote to elect a
substitute director at their discretion.
The following information pertains to our nominees for election as directors at the Meeting, as of
April 10, 2012. The number of Shares shown as being held by each nominee constitute the number
beneficially owned, or controlled or directed, directly or indirectly, by that nominee and such information has
been provided to us by that nominee.
Mr. Bourne’s principal occupation is corporate director, and he has been the Chair of the Board of Ballard since May 2006. Mr.
Bourne was also our lead director from October 2005 to February 2006. As of March 27, 2012, Mr. Bourne is interim CEO of
SNC-Lavalin Group Inc. Previously, Mr. Bourne was the Executive Vice President and the Chief Financial Officer of TransAlta
Corporation (electricity generation and marketing) from January 1998 to December 2006 and from January 1998 to December
2005, respectively. He has completed the Directors Education Program of the Institute of Corporate Directors and has received his
ICD.D designation.
Board and Committee
Membership
Board (Chair)
Audit
Corporate Governance
Management Development,
Nominating & Compensation
Ian A. Bourne
Age: 64
Alberta, Canada
Director since: 2003
Independent
Attendance
Board Memberships
6
6
4
4
100%
100%
100%
100%
Current: SNC-Lavalin Group Inc.; Canadian Public
Accountability Board; Wajax Corporation (formerly
Wajax Income Fund); Canada Pension Plan Investment
Board; Canadian Oil Sands Limited; The Calgary
Foundation
Previous: TransAlta Power LP; TransAlta CoGen LP;
Glenbow Museum; Calgary Philharmonic Orchestra
Securities Held(1)
Year
2012
2011
Shares
26,824
26,824
DSUs
77,706
77,706
Total of Shares and
DSUs
Total Value of Shares and
DSUs (C$)(2)
104,530
104,530
$144,251
$211,151
7
Mr. Hayhurst’s principal occupation is corporate director. Previously, Mr. Hayhurst was an executive with IBM Canada Business
Consulting Services (consulting services) and a Partner with PricewaterhouseCoopers Management Consultants (consulting
services). Prior to that, Mr. Hayhurst held various senior executive management roles with Price Waterhouse including National
Deputy Managing Partner (Toronto) and Managing Partner for British Columbia (Vancouver). He has completed the Directors
Education Program of the Institute of Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
n/a
Attendance
-
n/a
Board Memberships
Current: Accend Capital Corporation; Canexus
Corporation; Catalyst Paper Corporation(4); The Layfield
Group Limited; Nature Conservancy of Canada;
Canadian Institute of Chartered Accountants Risk
Oversight and Governance Board
Previous: Northgate Minerals Corporation
Securities Held(1)
Year
2012
2011
Shares
-
-
DSUs
-
-
Total of Shares and
DSUs
-
Total Value of Shares and
DSUs (C$) (2)
-
-
-
Douglas P. Hayhurst
Age: 65
B.C., Canada
Nominee
Independent
Mr. Kilroy’s principal occupation is corporate director. Previously, Mr. Kilroy was the Chief Executive Officer of Symcor Inc.
(business process outsourcing services), from January 2005 to November 2010. Prior to that, Mr. Kilroy was the Chief Executive
Officer of IBM Canada Ltd. (information technology) from April 2001 to January 2005.
Board and Committee
Membership
Board
Audit (Chair)
Management Development,
Nominating & Compensation
Year
2012
2011
Shares
2,752
2,752
Edwin J. Kilroy
Age: 52
Ontario, Canada
Director since: 2002
Independent
Attendance(3)
Board Memberships
4
6
1
67%
100%
100%
Current:: not applicable
Previous: Symcor Inc.; The Conference Board of Canada
Securities Held(1)
DSUs
42,844
42,844
Total of Shares and
DSUs
45,596
45,596
Total Value of Shares and
DSUs (C$) (2)
$62,922
$92,104
Dr. Park’s principal occupation is corporate director. Previously, Dr. Park was the Chief Executive Officer and Chairman of the
Board of Maxtor Corporation (storage solutions and hard disk drives) from November 2004 to May 2006. Dr. Park was also the
Managing Director, Investment Partner and Senior Advisor of H&Q Asia Pacific (private equity investment) from November 2002
to September 2004.
Board and Committee
Membership
Board
Corporate Governance
Management Development,
Nominating & Compensation
Year
2012
2011
Shares
17,091
17,091
Attendance
Board Memberships
6
4
4
100%
100%
100%
Current: Brooks Automation, Inc.; Seagate Technology;
Computer Sciences Corp.; Enphase Energy; Meltwater
Group; American Leadership Forum (Silicon Valley);
Silicon Valley Community Foundation
Previous: Smart Modular Technologies, Inc.; Sand Force
Inc.
Securities Held(1)
DSUs
0
0
Total of Shares and
DSUs
17,091
17,091
Total Value of Shares and
DSUs (C$) (2)
$23,586
$34,524
Dr. Chong Sup
(C.S.) Park
Age: 64
California, U.S.A.
Director since: 2007
Independent
8
John W. Sheridan
Age: 57
B.C., Canada
Director since: 2001
Non-Independent
Mr. Sheridan is President and Chief Executive Officer of Ballard, a position he has held since February 2006. Mr. Sheridan was
also Chair of our Board from June 2004 to February 2006.
Board and Committee
Membership
Board
Attendance
6
100%
Board Memberships
Current: AFCC Automotive Fuel Cell Cooperation Corp.;
Dantherm Power; Premier’s Technology Council;
Canadian Hydrogen Fuel Cells Association; Midway Gold
Corporation
Previous: Aliant Inc.; Bell Canada, Bell Actimedia, Bell
Distribution, Bell Express Vu, Bell Mobility, Bell West,
Bell Sygma UK Ltd; Encom Cable TV &
Telecommunications, plc; Manitoba Telecom Services
Inc.; MTS Communications Inc.; Photowatt Technologies;
Sun Media Corp. Ltd.; NewPage Corporation(4); BC
Hydrogen Highway
Year
2012
2011
Shares
472,430
269,913
Securities Held(1)
DSUs
57,943
57,943
Total of Shares and
DSUs
530,373
327,856
Total Value of Shares and
DSUs (C$) (2)
$731,915
$662,269
Mr. Smith is a part-time Commissioner of the British Columbia Securities Commission (provincial securities regulator), a position
he has held since July 2006. Mr. Smith was counsel with Lawson Lundell LLP (law firm) from May 2005 until April 2006, and
prior to that, he was a partner at Lawson Lundell LLP and predecessor firms practicing corporate, commercial and securities law.
He has completed the Directors Education Program of the Institute of Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Board
Corporate Governance (Chair)
6
4
Attendance
Board Memberships
100%
100%
Current:: not applicable
Previous: Member of Executive Committee, British
Columbia Chapter, Institute of Corporate Directors
Securities Held(1)
Year
2012
2011
Shares
8,411
8,411
DSUs
14,841
14,841
Total of Shares and
DSUs
Total Value of Shares and
DSUs (C$) (2)
23,252
23,252
$32,088
$46,969
David J. Smith
Age: 77
B.C., Canada
Director since: 2006
Independent
Ms. Stephenson is the Dean of the Richard Ivey School of Business at the University of Western Ontario, a position she has held
since 2003. Previously, served as President and Chief Executive Officer of Lucent Technologies Canada from 1999 to 2003. Ms.
Stephenson was invested as an Officer into the Order of Canada in 2010.
Board and Committee
Membership
n/a
Attendance
-
n/a
Board Memberships
Current: General Motors Company; Intact Financial
Services Corporation (formerly ING Canada); Manitoba
Telecom Services Inc.; Vancouver Olympic Games
Organizing Committee (VANOC); Women on Boards;
Catalyst Advisory Board
Previous:Union Energy Waterheater Income Fund;
London Economic Development Corporation; Ontario
Research Fund Advisory Board
Year
2012
2011
Shares
3,550
-
Securities Held(1)
DSUs
-
-
Total of Shares and
DSUs
3,550
-
Total Value of Shares and
DSUs (C$) (2)
$4,899
-
Carol M. Stephenson
Age: 61
Ontario, Canada
Nominee
Independent
9
Mr. Sutcliffe’s principal occupation is corporate director. Previously, Mr. Sutcliffe was the Chief Executive Officer of Sierra
Wireless, Inc. (electrical and electronic industrial products) from May 1995 to October 2005. From May 2001 to April 2005, he
was also the Chair of the Board of Sierra Wireless, Inc. He has completed the Directors Education Program of the Institute of
Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Board
Management Development,
Nominating & Compensation
(Chair)
Attendance
Board Memberships
6
4
100%
100%
Current: Sierra Wireless, Inc.; SMART Technologies
Inc.; BC Social Ventures Partners
Previous: E-Comm 911
Securities Held(1)
Year
2012
Shares
3,600
DSUs
25,528
Total of Shares and
DSUs
29,128
Total Value of Shares and
DSUs (C$) (2)
$40,197
David B. Sutcliffe
Age: 52
B.C., Canada
Director since: 2005
Independent
2011
3,600
(1) As of April 15, 2011 and April 10, 2012, respectively.
(2) Based on a C$1.38 and C$2.02 closing Share price on the TSX as of April 10, 2012 and April 15, 2011, respectively.
(3) Mr. Kilroy missed board meetings on May 31and June 1, 2011 due to a family matter. He stepped down from the MDNCC following the March
$58,839
25,528
29,128
meeting.
(4) Canadian securities legislation requires disclosure of any company that becomes insolvent while a director is a member of its board, or within
one year from ceasing to act as a director. In this regard, Mr. Hayhurst is a director of Catalyst Paper Corporation, which sought an Initial Order
under the Companies’ Creditors Arrangement Act on January 31, 2012. NewPage Corporation filed for Chapter 11 protection in U.S.
Bankruptcy Court in September 2011, 9 months after Mr. Sheridan resigned as a director of the company.
If the nominees are elected, Mr. Hayhurst, Mr. Kilroy and Mr. Sutcliffe will be appointed to the audit
committee; Dr. Park, Mr. Smith and Ms. Stephenson will be appointed to the corporate governance
committee; and Mr. Hayhurst, Dr. Park, Ms. Stephenson and Mr. Sutcliffe will be appointed to the
compensation committee. Mr. Bourne will become an ex officio member of each committee.
APPOINTMENT OF AUDITORS
Our Audit Committee has recommended that KPMG LLP, Chartered Accountants, of 777 Dunsmuir
Street, Vancouver, British Columbia, be nominated at the Meeting for re-appointment as our external
auditors. Our Audit Committee will fix the remuneration of our external auditors if authorized to do so by
shareholders at the Meeting. It is expected that representatives of KPMG LLP will be present at the Meeting.
KPMG LLP were appointed as our external auditors in 1999. Total fees paid to KPMG in 2011and 2010 are
set forth in the table below. We comply with the requirement regarding the rotation of our audit engagement
partner every five years. The current audit engagement partner at KPMG LLP may continue in his role until
the end of 2016.
The following table shows the fees we incurred with KPMG LLP in 2011 and 2010:
Type of Audit Fees
Audit Fees
Audit-Related Fees
Tax Fees(1)
All Other Fees
2011
(C$)
$351,078
Nil
Nil
Nil
2010
(C$)
$353,302
Nil
$19,265
Nil
(1)
The Tax Fees for 2010 related to tax advisory and transfer pricing services.
For a more detailed description of the Audit Committee or to see the Audit Committee’s mandate, a
copy of which is posted on our website, see the section entitled "Board Committees – Audit Committee" in
our Annual Information Form dated February 23, 2011, which section is incorporated by reference into this
Management Proxy Circular.
10
EQUITY-BASED COMPENSATION MATTERS
Equity-Based Compensation Plans
The Corporation adopted two equity-based compensation plans approved by our shareholders at the
2009 Annual Meeting(1):
(a)
(b)
a consolidated share option plan (the "Option Plan"; and
a consolidated share distribution plan (the "SDP").
For a detailed description of the principal terms of our equity-based compensation plans, see
Appendix "A" and "B" of this Management Proxy Circular.
The following table sets out, as of December 31, 2011, the number of securities we are authorized to
issue under our equity-based compensation plans and the relevant exercise prices at which such securities
may be issued.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (#)
(a)
8,014,784
Weighted -Average Exercise
Price of Outstanding
Options, Warrants and
Rights (CDN$)
(b)
5.35
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans excluding securities
reflected in column (a)
(c)
440,268
Nil
8,014,784
N/A
5.35
N/A
440,268
Plan Category
Equity-based compensation plans
approved by security holders
Equity-based compensation plans
not approved by security holders
Total
At the Meeting, shareholders will be asked to approve, by way of two separate ordinary resolutions,
the following matters related to our equity-based compensation plans:
1.
2.
Overgrant - ratification of the issuance to our executives, on February 23 and 24, 2012, of a
total of approximately 710,678 RSUs and Options which were granted in excess of a
specified limit in our consolidated share distribution plan (“SDP”) and Option Plan; and
Equity-based Compensation Plans - re-confirmation and approval of the Option Plan and
SDP, as amended.
Each of these proposed actions is described below.
Overgrant of Restricted Share Units and Options
The Option Plan and SDP provide that the maximum number of the Corporation’s Shares available
for issuance under them cannot exceed 10% of the issued and outstanding Shares at that time of grant (the
"10% rolling cap").
The board approves equity-based compensation awards at the first meeting of each year, typically in
February or March. In 2002, the annual option grant did not occur until May. These 2002 grants will expire
in May 2012 and are not likely to be exercised before expiry. The residual effect of the May 2002 award
timing (later than usual) and other underwater options is to put pressure on the 10% rolling cap. As a result,
approximately 710,678 RSUs and Options planned for issuance to our executives were in excess of the 10%
rolling cap (the “Overgrant”).
(1) The Corporation also adopted a plan, administered by an independent trustee, for the purchase of Ballard Shares on the open
market for the redemption of RSU awards (the "Market Purchase RSU Plan"). The independent trustee makes these open
market purchases through the facilities of the TSX, and holds the purchased Shares in escrow until the restriction period is
complete and any performance criteria have been satisfied. Shares purchased under this plan do not count against the 10% rolling cap
under the Option Plan or SDP.
11
As of the Meeting, it is expected that the number of Shares available for issuance under the Equity-
based Compensation Plans will once again be below the 10% rolling cap. This is expected to result from the
exercise or expiry of 600,000 previously-granted Options mentioned above and approximately 110,000
previously-granted RSUs either vesting and being redeemed for Shares or expiring in the normal course.
In other words, the Overgrant is expected to be temporary (lasting approximately 3 months) and to
be rectified by the time this matter is considered by the Shareholders at this Meeting. Even so, the TSX
requires that the Corporation obtain Shareholder approval of the Overgrant.
Shareholders will be asked at the Meeting to consider and, if deemed appropriate, to approve, by a
simple majority of votes cast at the Meeting, a resolution, in the form below, to ratify, confirm and approve
the Overgrant. If this resolution is not passed at the Meeting, the approximately 710,678 RSUs and Options
which were granted in the Overgrant will be cancelled and new awards will be granted to the recipients on
the same terms (subject to the prevailing fair-market value of the Corporation’s shares at the time of re-
grant).
"BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1.
2.
The Overgrant be and is hereby ratified, confirmed and approved on the same terms and conditions
as previously granted.
Any one officer or director of the Corporation is authorized on behalf and in the name of the
Corporation to execute all such documents and to take all such actions as may be necessary or
desirable to implement and give effect to this resolution or any part thereof."
In order for this ordinary resolution to be passed, it requires the positive approval of a simple majority
(greater than 50%) of the votes cast thereon at the Meeting.
Reconfirmation of Equity-Based Compensation Plans
The TSX requires that equity-based compensation plans of a listed issuer be re-approved by a
majority of the issuer’s directors and by its shareholders every three years if such plan does not have a fixed
maximum number of securities that can be issued under them. The Option Plan and SDP provide that the
maximum number of the Corporation’s Shares available for issuance under them cannot exceed 10% of the
issued and outstanding Shares at that time of grant.
Shareholders will be asked at the Meeting to consider and, if deemed appropriate, to approve, by a
simple majority of votes cast at the Meeting, a resolution, in the form below, to re-confirm and approve the
Option Plan and SDP. If this resolution is not passed at the Meeting, no further awards will be made under
the Equity-based Compensation Plans, however, the plans will continue on the same terms as they were the
day before the Meeting in respect of equity-based compensation previously granted.
"BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1.
2.
3.
The consolidated option plan (“Option Plan”), in the form approved by the directors, and its adoption
by the Corporation, is hereby re-confirmed and approved.
The consolidated share distribution plan (“SDP”), in the form approved by the directors, and its
adoption by the Corporation, is hereby re-confirmed and approved.
Any one officer or director of the Corporation is authorized on behalf and in the name of the
Corporation to execute all such documents and to take all such actions as may be necessary or
desirable to implement and give effect to this resolution or any part thereof."
In order for this ordinary resolution to be passed, it requires the positive approval of a simple majority
(greater than 50%) of the votes cast thereon at the Meeting.
ADVISORY VOTE ON APPROACH TO EXECUTIVE COMPENSATION
The Corporate Governance Committee continues to monitor developments and trends relating to say-
on-pay in Canada and elsewhere. In the United States, the SEC has established say-on-pay advisory
12 shareholder vote requirements. Although the Corporation’s shares are traded on NASDAQ, Ballard is a
“foreign private issuer” with the SEC and accordingly these requirements do not apply to it. Say-on-pay
shareholder votes have been implemented by a number of larger issuers in Canada, but such votes are still
not mandated in Canada to date. At last year’s annual meeting the shareholders, at the request of the Board,
passed a resolution on an advisory basis accepting the Corporation’s approach to executive compensation.
The Corporate Governance Committee recommended to the Board that Ballard shareholders again be
provided the opportunity, on an advisory basis, to vote at the Meeting in respect of the Corporation’s
approach to executive compensation. The Corporate Governance Committee also recommended that
adoption of a formal say-on-pay policy by the Board should continue to be deferred until Canadian
regulatory requirements applicable to the Corporation are known.
Accordingly, the shareholders of the Corporation are being given the opportunity to vote at this
Meeting, on an advisory and non-binding basis, “FOR” or “AGAINST” the Corporation’s approach to
executive compensation through the following resolution:
“RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board of
Directors of the Corporation, that the shareholders accept the approach to executive compensation
disclosed in the Corporation’s management information circular delivered in advance of the
Corporation’s 2012 annual meeting of shareholders.”
The Board believes that shareholders should be well informed as to, and fully understand, the
objectives, philosophy and principles that it has used to make executive compensation decisions. For
information regarding Ballard’s approach to executive compensation, shareholders should review the section
entitled "Compensation – Compensation Discussion and Analysis" appearing below in this Management
Information Circular.
Approval of the above resolution will require an affirmative vote of a majority of the votes cast on
the matter at the Meeting. As the vote on this resolution is advisory, the results will not be binding on the
Board or the Management Development, Nominating & Compensation Committee ("MDNCC"). However,
the Board and the MDNCC will take the results of the advisory vote into account, as appropriate, as part of
their ongoing review of executive compensation philosophy, policies and programs.
The Board recommends that shareholders vote “FOR” the foregoing resolutions. The
representatives of management named in the enclosed form of proxy, if named as proxyholders, intend
to vote for the resolution, unless the shareholder has specified in the form of proxy that his or her
shares are to be voted against the resolution.
VOTING INFORMATION
SOLICITATION OF PROXIES
This Management Proxy Circular is furnished in connection with the solicitation of proxies by our
management in connection with the Meeting to be held on Tuesday, June 5, 2012 at 1:00 p.m. Eastern
Daylight Time in Toronto, Ontario, Canada, or the date and place of any adjournment thereof. We are
soliciting proxies primarily by mail, but our directors, officers and employees may solicit proxies personally,
by telephone, by facsimile transmission or by other means of electronic communication. The cost of the
solicitation will be borne by us. The approximate date on which this Management Proxy Circular and the
related materials are first being sent to Registered Shareholders is April 27, 2012.
HOW TO VOTE
Only Registered Shareholders or their duly appointed proxyholders are permitted to vote at the
Meeting. Beneficial Shareholders are not permitted to vote at the Meeting as only proxies from Registered
Shareholders can be recognized and voted at the Meeting. You may vote as follows:
13 Registered Shareholders: If you are a Registered Shareholder you may vote by attending the
Meeting in person, or if you do not plan to attend the Meeting, by completing the proxy and delivering it
according to the instructions contained in the form of proxy and this Management Proxy Circular.
Beneficial Shareholders: If you are a Beneficial Shareholder you may only vote by carefully
following the instructions on the voting instruction form or proxy form provided to you by your stockbroker
or financial intermediary. If you do not follow the special procedures described by your stockbroker or
financial intermediary, you will not be entitled to vote.
EXECUTION AND REVOCATION OF PROXIES
A Registered Shareholder or the Registered Shareholder’s attorney authorized in writing or, where
the Registered Shareholder is a company, a duly authorized officer or attorney of that company, must execute
the proxy. In order to be effective, completed proxies must be deposited at the office of the registrar and
transfer agent for the Shares, being Computershare Investor Services Inc. ("Computershare"), Proxy Dept.,
100 University Avenue, 9th Floor, Toronto Ontario, M5J 2Y1 (Fax: within North America: 1-866-249-7775;
outside North America: 1-416-263-9524), not less than 48 hours (excluding Saturdays and holidays) before
the time of the Meeting. The individuals named as proxyholders in the accompanying form of proxy are
directors and officers of Ballard. A Registered Shareholder desiring to appoint a person or company
(who need not be a shareholder) to represent him or her at the Meeting, other than the persons or
companies named in the enclosed proxy, may do so by inserting the name of such other person or
company in the blank space provided in the proxy.
A proxy may be revoked by written notice executed by the Registered Shareholder or by his or her
attorney authorized in writing or, where the Registered Shareholder is a company, by a duly authorized
officer or attorney of that company, and delivered to:
(cid:131) Computershare, at the address or fax number set out above, at any time up to and including the last
business day preceding the day of the Meeting at which the proxy is to be used;
(cid:131)
(cid:131)
the registered office of the Corporation at any time up to and including the last business day
preceding the day of the Meeting at which the proxy is to be used; or
the chair of the Meeting on the day of the Meeting and before any vote in respect of which the
proxy is to be used is taken.
A proxy may also be revoked in any other manner provided by law. Any revocation of a proxy will
not affect a matter on which a vote is taken before such revocation.
VOTING OF SHARES AND EXERCISE OF DISCRETION BY PROXIES
If you complete and deposit your proxy properly, then the proxyholder named in the accompanying
form of proxy will vote or withhold from voting the Shares represented by the proxy in accordance with your
instructions. If you do not specify a choice on any given matter to be voted upon, your Shares will be
voted in favour of such matter. The proxy grants the proxyholder the discretion to vote on
amendments to or variations of matters identified in the Notice of Annual Meeting and with respect to
other matters that may properly come before the Meeting.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
As of the Record Date of April 10, 2012 we had 84,613,120 Shares issued and outstanding, each
carrying the right to one vote. On a show of hands, every individual who is present as a Registered
Shareholder or as a representative of one or more corporate Registered Shareholders, or who is holding a
proxy on behalf of a Registered Shareholder who is not present at the Meeting, will have one vote, and on a
poll, every Registered Shareholder present in person or represented by proxy and every person who is a
representative of one or more corporate Registered Shareholders, will have one vote for each Share recorded
in the Registered Shareholder’s name on the register of shareholders, which is available for inspection during
normal business hours at Computershare and will be available at the Meeting.
14 As of the Record Date, to the knowledge of our directors and executive officers, no person
beneficially owns, controls or directs, directly or indirectly, Shares carrying more than 10% of the voting
rights attached to all issued and outstanding Shares carrying the right to vote in all circumstances.
INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON
No one who has been a director or executive officer of ours at any time since January 1, 2011, or any
of his or her associates or affiliates, has any material interest, direct or indirect, by way of beneficial
ownership of Shares or otherwise, in any matter to be acted on at the Meeting other than the election of
directors.
CORPORATE GOVERNANCE
Our Board and senior management consider good corporate governance to be central to our effective
and efficient operation. We monitor corporate governance initiatives as they develop and benchmark
industry practices to ensure that we are in compliance with corporate governance rules.
Our corporate governance practices are reflected in our Corporate Governance Guidelines, which
provide for director qualification standards, director responsibilities, the form and amount of director
compensation, director orientation and continuing education, management succession planning and
performance evaluation of the Board. A copy of the Corporate Governance Guidelines can be found on our
website. We have also reviewed our internal control and disclosure procedures, and are satisfied that they
are sufficient to enable our Chief Executive Officer and Chief Financial Officer to certify our interim and
annual reports filed with Canadian securities regulatory authorities, and to certify our annual reports filed
with or submitted to the SEC.
In addition, we have set up a process for shareholders to communicate to the Board, the details of
which can be found on our website. A summary of shareholder feedback is provided to the Board through a
semi-annual report.
For a more detailed description of our corporate governance policies and practices, see the section
entitled "Corporate Governance" in our Annual Information Form dated February 23, 2011, which section is
incorporated by reference into this Management Proxy Circular.
BOARD COMPOSITION AND NOMINATION PROCESS
Our Management Development, Nominating & Compensation Committee ("MDNCC") conducts an
annual process under which an assessment is made of the skills, expertise and competencies of the directors
and is compared to our needs and the needs of the Board. This process culminates in a recommendation to
the Board of individual nominee directors for election at our annual shareholders’ meeting. With the consent
of the Board, the Corporate Governance Committee assisted the MDNCC in its process for making this
year’s recommendation.
Directors are elected yearly at our annual shareholders’ meeting and serve on the Board until the
following annual shareholders’ meeting, at which time they either stand for re-election or leave the Board. If
no meeting is held, each director serves until his or her successor is elected or appointed, unless the director
resigns earlier. The Board has established director resignation guidelines, which set out the circumstances
under which a director would be compelled to submit a resignation or be asked to resign.
The following table identifies some of the current skills and other factors considered as part of the
competency matrix developed by the MDNCC, along with identification of each nominee for election to the
Board of Directors possessing each skill:
15 Sales/
Marketing
Finance/
Accounting
Legal &
Regulatory
Strategy
President/
CEO
Experience
Product
Development
Power
Generation
Corporate
Governance
Ian A. Bourne
Douglas P. Hayhurst
Edwin J. Kilroy
Dr. Chong Sup
(C.S.) Park
John W. Sheridan
David J. Smith
Carol M.
Stephenson
David B. Sutcliffe
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
MAJORITY VOTING POLICY
The Board has adopted a policy which requires that any nominee for director who receives a greater
number of votes "withheld" than "for" his or her election shall tender his or her resignation to the Board
following our annual shareholders’ meeting, to take effect immediately upon acceptance by the Board. Upon
receipt of such conditional resignation, the Corporate Governance Committee will consider the matter and, as
soon as possible, make a recommendation to the full Board regarding whether or not such resignation should
be accepted. After considering the recommendation of the Corporate Governance Committee, the Board will
decide whether or not to accept the tendered resignation and will, not later than 90 days after the annual
shareholders’ meeting, issue a press release which either confirms that it has accepted the resignation or
provides an explanation for why it has refused to accept the resignation. The director tendering his or her
resignation will not participate in any meeting of the Board or the Corporate Governance Committee at
which the resignation is considered. Subject to any restrictions or requirements contained in applicable
corporate law or Ballard’s constating documents, the Board may: (a) leave a resulting vacancy unfilled until
the next annual shareholders’ meeting; (b) appoint a replacement director whom the Board considers merits
the confidence of the shareholders; or (c) call a special meeting of shareholders to elect a replacement
director who may be a person nominated by management. The policy does not apply in respect of any
contested shareholders’ meeting, which is any meeting of shareholders where the number of nominees for
director is greater than the number of directors to be elected.
BOARD MEETINGS
The Board meets on a regularly scheduled basis and directors are kept informed of our operations at
meetings of the Board and its committees, and through reports by and discussions with management. In
2011, in-camera sessions, chaired by the Chair of the Board, were held after each regularly scheduled Board
meeting involving all of the independent directors without the presence of management. In addition,
communications between the directors and management occur apart from regularly scheduled Board and
committee meetings. The Board has set a minimum meeting attendance guideline of 70%. Non-compliance
with this guideline by a director is one of the factors considered in his or her individual performance
evaluation at the end of the year.
COMMITTEES OF THE BOARD
The Board has established three standing committees: (1) the Audit Committee; (2) the MDNCC;
and (3) the Corporate Governance Committee. Each committee has been delegated certain responsibilities,
performs certain advisory functions and either makes certain decisions or makes recommendations to the
Board. Each committee chair reports on the activities of the committee to the Board following each
committee meeting. None of the members of these committees are current or former officers or employees
of ours, or any of our subsidiaries.
16
Effective following this year’s annual meeting, the mandates of the MDNCC and the Corporate
Governance Committee will be amended to transfer responsibility for director succession planning and
nomination from the MDNCC to the Corporate Governance Committee and to change the name of the
MDNCC to the Human Resources and Compensation Committee.
The information below sets out the members of each of our standing committees and indicates the
number of meetings that each committee held in 2011. After the Meeting, we will reconstitute all of the
committees to reflect the newly elected Board.
The following chart sets out current committee members:
Corporate Governance
Committee
(cid:57)
(cid:57)
**
(cid:57) (Chair)
Management
Development,
Nominating &
Compensation
Committee
(cid:57)
(cid:57)
**
(cid:57) (Chair)
(cid:57)
Ian A. Bourne*
Edwin J. Kilroy
Dr. Chong Sup (C.S.) Park
John W. Sheridan
David J. Smith
David B. Sutcliffe
Mark A. Suwyn
Audit Committee
(cid:57)
(cid:57) (Chair)
**
(cid:57)
Douglas W. G. Whitehead
* Chair of the Board and designated financial expert.
** Non-independent director and ex officio member of the committees.
(cid:57)
Audit Committee
The Audit Committee met 6 times during the financial year ended December 31, 2011. The
members in 2011 were Ian A. Bourne, Edwin J. Kilroy (Chair), Mark A. Suwyn and Douglas W.G.
Whitehead. All of the members of the Audit Committee are independent of our management in accordance
with the applicable Canadian and United States securities laws and exchange requirements.
For a more detailed description of the Audit Committee or to see the Audit Committee’s mandate, a
copy of which is posted on our website, see the section entitled "Board Committees – Audit Committee" in
our Annual Information Form dated February 23, 2011, which section is incorporated by reference into this
Management Proxy Circular.
Management Development, Nominating & Compensation Committee
The MDNCC met 4 times during the financial year ended December 31, 2011. The members in
2011 were Ian A. Bourne, Edwin J. Kilroy (January – March), Dr. C.S. Park, David B. Sutcliffe (Chair) and
Mark Suwyn (April – December). Mr. Kilroy served on the committee until May, 2011, at which time he
stepped down and Mr. Suwyn joined the committee. All of the members of the MDNCC are independent of
our management in accordance with the applicable Canadian and United States securities laws and exchange
requirements.
For a more detailed description of the MDNCC or to see the MDNCC’s mandate, a copy of which is
posted on our website, see the section entitled "Board Committees – Management Development, Nominating
& Compensation Committee" in our Annual Information Form dated February 23, 2011, which section is
incorporated by reference into this Management Proxy Circular.
17
Corporate Governance Committee
The Corporate Governance Committee met 4 times during the financial year ended December 31,
2011. The members in 2011 were Ian A. Bourne, Dr. C.S. Park and David J. Smith (Chair). All of the
members of the Corporate Governance Committee are independent of our management in accordance with
the applicable Canadian and United States securities laws and exchange requirements.
For a more detailed description of the Corporate Governance Committee or to see the Corporate
Governance Committee’s mandate, a copy of which is posted on our website, see the section entitled "Board
Committees – Corporate Governance Committee" in our Annual Information Form dated February 23, 2011,
which section is incorporated by reference into this Management Proxy Circular.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This section of this Management Proxy Circular contains a discussion of the elements of
compensation earned by our "Named Executive Officers", who are listed in the Summary Compensation
Table below: John W. Sheridan (President and Chief Executive Officer), Tony Guglielmin (Vice President
and Chief Financial Officer), Christopher J. Guzy (Vice President and Chief Technical Officer), Michael
Goldstein (Vice President and Chief Commercial Officer) and William Foulds (Vice President and President,
Ballard Material Products).
Objectives of Our Executive Compensation Program
The structure of our executive compensation program is designed to compensate and reward
executives appropriately for driving superior performance. For our Named Executive Officers, a significant
portion of their total direct compensation is "at risk" and tied closely to the success of the Corporation’s short
and long-term objectives. "At risk" means that the executive will not realize value unless specified goals,
many of which are directly tied to the Corporation’s performance, are achieved or the price at which our
common shares are traded on the TSX or NASDAQ appreciates. In 2011, these performance goals, and
resulting compensation awards, were largely focused on the Corporation’s key business drivers including
growing revenue and building the long term order book, Adjusted EBITDA(2) performance, gross margin,
cash reserves, on-time product deliveries and the delivery of key strategic business enablers to position the
Corporation for long term success. This compensation philosophy puts a strong emphasis on pay for
performance, and uses equity awards as a significant component in order to correlate the long-term growth of
shareholder value with management’s most significant compensation opportunities. The strategic goals of
the Corporation are reflected in the incentive-based executive compensation programs so that executives’
interests are aligned with shareholders interests.
Philosophy and Objectives
Our philosophy and objectives regarding compensation are to:
(a)
(b)
(c)
attract and retain experienced, qualified, capable executive officers by paying
salaries which are competitive in the markets in which we compete for executive
talent;
motivate short and long-term performance by directly linking annual bonuses to
performance; and
link our executive officers' interests with those of our shareholders by providing our
executive officers with equity-based compensation, requiring them to comply with
minimum share ownership guidelines and build a sustained ownership position.
(2) For a discussion of EBITDA and Adjusted EBITDA, please refer to Ballard’s Management’s Discussion & Analysis.
18
Compensation Risk Considerations
The MDNCC and board of directors believe that relative to other market sectors (e.g. Financial) the risk
associated with our compensation practices is low. However, given the increased emphasis being placed on
ensuring that compensation practices do not encourage behaviours that expose the corporation to greater risk,
this is an area that the MCNCC and board intend to address more fully in the future.
The MDNCC and board of directors currently consider the risks associated with the company’s
compensation policies and practices are mitigated by:
•
evaluating the impact of each compensation component on management behaviour:
o
o
o
for base pay, there is no unusual risk-taking being encouraged;
for long-term equity-based incentive programs, the potential risks are considered low, in part
due to the mix of RSU and Option awards with time and/or performance based vesting
terms, and overall generally consistent with other public company risks;
for short term cash incentives, the potential risks are low since the plan uses multiple metrics
in the Corporate Multiplier, both quantitative and qualitative (described below).
•
ensuring the committee and board mandates reflect the correct accountabilities, oversight and
controls on the company’s compensation policies and practices, especially as they relate to executive
compensation; and
• working with management and/or external consultants to stress test each compensation component,
to ensure boundary conditions are reasonable and do not produce unexpected or unintended financial
windfalls
The MDNCC and board of directors consider that these mitigation approaches results in the Corporation’s
risk profile associated with its compensation practices being low.
How Executive Compensation is Determined
The MDNCC, consisting of 4 independent directors, is charged, on behalf of our Board, with
reviewing and approving executive officers’ benefit policies and compensation plans, including our annual
bonus plan and our long-term equity-based compensation plans. As part of its mandate, the committee
approves and recommends to the Board the appointment of our executive officers. The committee also
reviews and approves the amount and form of their compensation, their development and succession plans,
The committee retains independent
and any significant organizational or management changes.
compensation consultants for professional advice and as a source of competitive market information. In
2011, the committee directly retained Towers Watson to perform a full benchmarking assessment of
executive compensation, including an update of the comparator group, and on an as-needed basis, to provide
independent advice related to Ballard executive compensation items. The committee also seeks the advice
and recommendations of our President and Chief Executive Officer with respect to the compensation of our
other executive officers. The President and Chief Executive Officer does not participate in the portions of
the committee discussions that relate directly to his personal compensation.
Executive Pay Mix and the Emphasis on "At Risk" Pay
We place emphasis on performance by having a significant proportion of our executive officers’ total
annual compensation linked to corporate and individual performance. For 2011, an average of 59% of the
annual compensation earned by each of our Named Executive Officers came from "at risk", variable,
performance-related compensation containing inherent market performance risk, where annual compensation
includes base salary, annual bonus and equity-based long-term incentives (including share options and
RSUs).
19 The Use of Benchmarking
Our overall compensation objective is to pay executives on average at the 50th percentile of the
comparator group for full achievement of performance goals. Over-achievement or under-achievement will
result in being over or under the average.
In 2011, the MDNCC, working with Towers Watson, updated the comparator companies contained
within the Corporation’s compensation comparator group to reflect the Corporation’s current business size
and market focus. A revised list of comparator companies was reviewed and accepted by the committee,
which selected the group of comparators ensuring a suitable mix of Canadian and United States companies
exhibiting a growth oriented mix of revenues, employee base, asset base, market capitalization and market
focus. This comparator group comprises the primary source of compensation data for review of the
Corporation’s market competitiveness. The committee reviews the composition of the comparator company
list on an annual basis.
The committee compares each executive officer’s annual salary, target annual incentive bonus and
long-term incentive compensation value, both separately and in the aggregate, to amounts paid for similar
positions at comparator group companies. As noted above, the committee’s practice is to target annual total
direct compensation for each executive at approximately the 50th percentile among the comparator group
companies.
The Corporation’s current comparator group (as approved by the MDNCC in December 2011) is:
Canadian Companies
EXFO Inc
Gennum Corporation
Hydrogenics Corp.
United States Companies
AeroVironment Inc
Allied Motion Technologies Inc
American Superconductor Corporation
Neo Material Technologies Inc
Ener1 Inc
New Flyer Industries Inc
Sierra Wireless Inc
Westport Innovations Inc
Energy Conversion Devices Inc
Fuel Cell Energy Inc
GrafTech International Ltd
Plug Power Inc
Towers Watson have been retained by the Committee since 2008 to provide executive compensation
benchmarking and general executive compensation, equity plan and board compensation advisory services.
During 2011, in addition to the executive benchmarking study, Towers Watson provided a similar
compensation benchmarking study to the Corporate Governance Committee related to Board Director
compensation levels. Towers Watson provided no additional services to management during this period. The
total fees paid to Towers Watson during 2011 were $51,700.
Current Executive Compensation Elements
Our compensation program for our executive officers has three primary components:
(a)
(b)
(c)
annual salary;
annual incentives (bonus); and
equity-based long-term incentives comprised of awards that may be issued under our
Option Plan, Share Distribution Plan or under the Market Purchase RSU Plan
20
Significant Compensation program changes planned in 2012
Consistent with the recent benchmarking study conducted by Towers Watson (mentioned above), the
Corporation plans to reduce the target bonus of Named Executive Officers, starting in 2012. The CEO’s new
individual bonus target will be 80% of base earnings, and the VP individual bonus target level will be
reduced to 60% of base earnings.
In addition, in 2012 the Corporation intends to implement changes to LTI awards. These changes will
include a reduced dollar target value for executives, a higher mix of RSUs relative to options, and a revised
approach to the RSU performance criteria, incorporating multi-level performance vesting approach.
Due to the overgrant issue described earlier in this document, the executives were issued LTI awards in
February 2012 that are conditional on shareholder approval of the overgrant resolution contained herein.
As part of its ongoing review of the Corporation’s equity plans, the board has approved amendments to the
definition of “retired” in the Equity-based Compensation Plans (from the previous definition linked to
mandatory retirement age of 65 for employees and 70 for directors, to a definition that takes into account
both age and length of service, as well as other considerations). Vesting of option and RSU awards for
retired individuals will now continue on the same terms as if they were employees of the Corporation.
In 2012, the Corporation plans to resume the issuance of Restricted Share Units from the SDP, managing
within the rolling 10% cap, to conserve the Company’s cash reserves. Going forward it may choose to issue
RSUs from either the Market Purchase RSU Plan or SDP.
Annual Salary
The MDNCC approves the annual salary of our executive officers. Salary guidelines and salary
adjustments for our executive officers are considered with reference to:
(a)
(b)
(c)
(d)
comparative market assessments performed by external compensation consultants;
the experience and qualifications of each executive officer;
the individual performance of each executive officer; and
the roles and responsibilities of each executive officer.
The Corporation chooses to pay this element of compensation, because the Corporation’s view is that
a competitive base salary is a necessary element for attracting and retaining qualified and experienced
executive talent.
The Corporation’s decisions about this element of compensation and its annual level impacts
decisions about the level of target annual incentive an executive might receive, but only in the sense that the
incentive bonus target is set as a percentage of annual salary.
In 2011, there were no annual salary increases for the Named Executive Officers (with the exception
of Mr. Foulds, who received an increase to CDN$269,5053 to position him at a level more consistent with
market data and the other Senior Executives).
Annual Bonus for Executive Officers
The MDNCC reviews and approves the annual bonus for each executive officer based on the
recommendations of our President and Chief Executive Officer in accordance with the factors described in
the foregoing section.
(3) Mr. Foulds’ salary was paid in United States dollars (US$265,000) and was converted into Canadian dollars for the purpose of this disclosure
using the Bank of Canada noon rate of exchange on December 30, 2011.
21
The annual target bonus for executive officers (excluding the President and Chief Executive Officer)
was set at 70% of base salary in 2011. This bonus target had been reduced in 2008 to 70% from 75% in
2007 (this reduction followed a similar reduction in the target bonus level of 5% from 2006 levels to better
align annual incentive levels to market levels relative to the Corporation’s comparator group). The
Corporation intends a further reduction in 2012 to 60% of base salary, to ensure consistency with the
benchmark levels recently reviewed relative to the compensation comparator group. Each executive officer’s
actual 2011 bonus was based on a combination of his individual performance and our corporate performance
relative to goals, as discussed below under the section entitled "Methodology for Determining Annual
Incentives".
The Corporation maintains an annual bonus program in order to motivate short and long-term
performance by directly linking annual bonuses to the performance and progress of the Corporation.
The Corporation’s decisions about this element of compensation do not directly affect decisions
about any other element of the Corporation’s compensation program.
For a full discussion of annual incentive compensation for our President and Chief Executive
Officer, see the section entitled "Chief Executive Officer Compensation". The section below entitled
"Methodology for Determining Annual Incentives" applies equally to the President and Chief Executive
Officer as it does to the other executives.
Methodology for Determining Annual Incentives
The actual annual bonus for each executive officer is determined by the MDNCC on the basis of the
following formula:
annual base salary x target bonus percentage x individual performance multiplier x corporate multiplier
The corporate multiplier is determined by the MDNCC and approved by the Board with reference to
achievement against the corporate goals set out in a Corporate Performance Scorecard approved by the
MDNCC and the Board prior to the commencement of the year. Each corporate performance goal on the
scorecard is assigned a relative weighting in terms of importance to annual performance and growth of the
Corporation, as well as a range of targeted outcomes, such that below a certain performance level the
contribution of that goal to the overall corporate multiplier is zero. For 2011, the Corporate Performance
Scorecard reflected a balance of Quantitative annual goals focussed on delivery of the 2011 operating plan
(70% of the scorecard) and Qualitative goals focussed on key strategic outcomes during 2011 to position the
Corporation for longer term success (30% of the scorecard). The Quantitative portion of the scorecard had 4
financial elements (Revenue, Net Cash, Gross Margin and Adjusted EBITDA) and 2 operational elements
(on-time product delivery and sales order book for 2012). The Qualitative portion of the scorecard had 3
elements (Establishing a sustainable, high margin bus business, delivering on execution priorities in the DG
market and establishing a Quality Assurance centric organizational culture).
The overall corporate multiplier for 2011, as approved by the MDNCC and the Board was 62%,
reflecting the following levels of achievement on the corporate goals. Goals related to 2012 order book and
on-time product delivery targets were exceeded and received between 100% to 150% scoring. The Quality
Assurance organizational goal and strategic Bus business goal were both met, and received 100% scoring,
while the Gross Margin and DG business segment growth targets were both partially met and received
between 50% and 100% score. While significant progress was made in 2011 in overall revenue growth and
EBITDA performance, stretch targets related to Revenue, Net Cash and Adjusted EBITDA were not met and
received 0% scoring.
Given the nature of the corporate performance multiplier, for any particular year the corporate
performance multiplier is not determined until our annual financial statements for that particular financial
year are complete. However, notwithstanding that the corporate performance multiplier is not determined,
and the annual bonus based thereon is not paid until the end of the first quarter following each particular
financial year, in our summary compensation table we report the annual bonus for each particular financial
year as if it had been determined and paid in the particular financial year.
22 A discussion of the annual base salary, target bonus percentage and corporate multiplier components
of this annual incentive formula for each executive officer is set out above. The individual performance
multiplier is determined with reference to achievement against the individual goals set for each executive
officer, with an individual performance multiplier greater than 100% being awarded for superior
performance against these goals, and an individual performance multiplier of less than 100% being awarded
for substandard performance against these goals. Individual goals are set for individual executive officers by
the Chief Executive Officer and are based on agreed-upon objective/identifiable measures relative to their
respective functional accountabilities, which are aligned to the corporate performance goals. Our Named
Executive Officers’ individual performance multipliers for 2011 ranged from 90% to 135%.
Mr. Guglielmin met or exceeded his overall performance goals for his CFO role, related among other
items, to a successful transition to the IFRS reporting standard, expanding the reach and scope of the Investor
Relations program and strong leadership of internal fiscal management initiatives.
Mr. Guzy met his overall performance goals largely related to the delivery of key product
development programs, focused on cost reduction and product feature enhancement. In addition, Mr. Guzy
expanded the scope of external funding for Research and Product Development via new customer and
government partnerships.
Mr. Goldstein continued key programs in 2011 to build stronger capabilities in sales and marketing
through the recruitment of external talent, sales training, improving processes, etc., however overall revenue
performance fell below target levels.
Mr Foulds met or exceeded his various performance goals for 2011, which included both financial
and operational targets for the Ballard Material Products division.
Long Term Incentives
We provide our executive officers with equity-based long-term incentives through the Option Plan,
Market Purchase RSU Plan and the SDP. These plans are designed to reinforce the connection between
executive officer remuneration and our performance by motivating and rewarding participants for improving
our long-term financial strength and enhancing shareholder value, and also providing retention value to
executives. With respect to equity-based long-term compensation awards for our executive officers,
individual performance and future contribution expectations are taken into account in determining the award.
In 2011, the President and Chief Executive Officer recommended to the MDNCC a value amount in dollars
for each Named Executive Officer: see the amounts set out under “Share-Based Awards” and “Option-Based
Awards” in our Summary Compensation Table. 50% of this value amount was then converted to RSUs at the
then current market price by dividing the dollar value by the closing share price on either the TSX or
NASDAQ on the award date. 50% of this value amount was converted to options by dividing the dollar value
by the Black-Scholes value of a Ballard option on the award date. These options were then priced at the
closing share price on the day prior to the award date.
This element of compensation and the Corporation’s decisions about this element fit into the
Corporation’s overall compensation objectives in that they link our shareholders’ interests with those of our
executive officers by providing our executive officers with equity-based compensation, and requiring them to
comply with minimum share ownership guidelines.
The Corporation’s decisions about this element of compensation do not affect decisions about any
other element of the Corporation’s compensation.
Share Options
Share options are granted annually in respect of approximately 50% of the long-term incentive
compensation to be provided to an executive. As a result, previous grants of Share options are not generally
taken into account when making new grants. The actual number of Share options granted is determined by
dividing the dollar value of the portion of the long-term incentive to be satisfied though an option grant by
the Black-Scholes value of a Ballard option on the award date.
23
Under our Option Plan:
(a)
(b)
the exercise price of each option is determined by the Board, but must not be less
than the closing price per Share on the TSX or NASDAQ on the last trading day
before the date the option is granted; and
each option may be exercised by the holder in respect of up to one-third of the
Shares subject to the option on or after the first, second and third anniversary of the
effective date of the option on a cumulative basis.
Share options are typically granted for a term of seven years.
Restricted Share Units
Employees and executive officers are eligible to receive new RSU awards under the Market
Purchase RSU Plan or SDP, which provide for vesting over periods of up to three years and awards may be
subject to certain performance criteria, as determined by the Board upon the recommendation of the
MDNCC. Redemption of these RSUs is satisfied either with Shares bought under the Market Purchase RSU
Plan or by treasury based shares reserved under the SDP.
The amount of the long-term incentive that is awarded to each executive officer is typically
determined in the first quarter of each financial year, in conjunction with the determination of that executive
officer’s annual bonus for the prior financial year. Since the long-term incentive is tied to future (as opposed
to past) corporate performance, in our summary compensation table we report the grant of the long-term
incentive in the "Share-Based Awards" column and the "Option-Based Awards" column for the particular
year in which they were actually granted. The year-end values of unexercised or unvested Share options and
RSUs, and the vesting during the year of Share options and RSUs are reported in the tables under the heading
"Incentive Plan Awards".
New Issuances
On March 8, 2011, 464,570 RSUs were issued to the Named Executive Officers, including the
President and Chief Executive Officer. For all our executive officers who received an award on that date, the
RSU awards included a performance criteria achievement goal of a minimum corporate multiplier of 75% in
each of the 3 years of the award. With redemption of each 1/3 of the award subject to a minimum corporate
performance of 75% in 2011, 2012 and 2013. Failure to meet this minimum corporate performance
threshold in any one year results in that year’s award portion expiring and not being redeemed (see the
section above entitled "Methodology for Determining Annual Incentives" for a description of the
determination of the corporate multiplier). In February 2012, the board determined that the first 1/3 of this
award had not reached the required performance level and this portion of the award expired unvested. At this
time, the board also decided to amend the performance criteria for the final 2 tranches of this award to reflect
the revised multi-level vesting approach adopted for 2012 awards.
Redemptions
On February 21, 2011, 33,191 RSUs reached the end of their restriction period and after statutory
withholdings, 18,993 RSUs were redeemed into Shares, representing one-third of the 2008 annual RSU long-
term incentive award granted to Mr. Sheridan on May 12, 2008 and to Mr. Guzy and Mr. Foulds on February
21, 2008. These RSUs were redeemed into Shares following the Board’s previous confirmation that the
performance criteria (>75% achievement of the corporate multiplier in 2008) was met.
On March 3, 2011, 87,921 RSUs reached the end of their restriction period and after statutory
withholdings, 50,654 RSUs were redeemed into Shares, representing one-third of the 2009 annual RSU long-
term incentive award granted to Mr. Sheridan, Mr. Guzy and Mr. Foulds on March 23, 2009. These RSUs
were redeemed into Shares following the Board’s previous confirmation that the performance criteria (>75%
achievement of the corporate multiplier in 2010) was met.
On March 11, 2011, 84,863 RSUs reached the end of their restriction period and after statutory
withholdings, 48,742 RSUs were redeemed into Shares, representing one-third of the 2010 annual RSU long-
term incentive award granted to Mr. Sheridan, Mr. Guzy, Mr. Goldstein and Mr. Foulds on March 11, 2010.
24 These RSUs were redeemed into Shares following the Board’s previous confirmation that the performance
criteria (>75% achievement of the corporate multiplier in 2010) was met.
On May 5, 2011, 19,943 RSUs reached the end of their restriction period and after statutory
withholdings, 11,227 RSUs were redeemed into Shares for Mr. Goldstein. This award was the second 1/3 of
his new hire award, granted on May 5, 2009 and subject to time vesting only.
On May 11, 2011, 359,712 RSUs reached the end of their restriction period and after statutory
withholdings, 202,517 RSUs were redeemed into Shares for Mr. Sheridan. This retention award was granted
on May 12, 2008 and subject to time vesting only.
On June 14, 2011, 25,225 RSUs reached the end of their restriction period and after statutory
withholdings, 14,201 RSUs were redeemed into Shares for Mr. Guglielmin. This award was the first 1/3 of
his new hire award, granted on June 14, 2010 and subject to time vesting only.
Chief Executive Officer Compensation
Mr. Sheridan was appointed President and CEO by the Board on February 22, 2006. When
appointed, his base salary at that time was fixed at $530,000 Cdn per year. The CEO base salary has been
frozen since that time, other than a 10% voluntary temporary reduction during the 2nd half of 2009. In
January 2010, Mr. Sheridan’s base salary returned to its original level of $530,000 Cdn per year and
continued at that level throughout 2011.
Mr. Sheridan is entitled to receive an RRSP contribution (CDN$11,225 in 2011). The corporate
RRSP program was changed in 2010 and this benefit was reduced by 50% relative to 2009. This benefit is
now subject to an equivalent matching contribution from Mr. Sheridan. Mr. Sheridan is also entitled to
receive company paid insurance premiums (CDN$2,021 in 2011).
Mr. Sheridan’s target bonus for 2011, as detailed below was equal to 90% of his annual base salary.
This level of target bonus has been reduced from 100% in 2007. In 2012, Mr. Sheridan’s bonus will be
reduced to 80%, consistent with reductions to the other executive officers. Mr. Sheridan’s bonus for 2011was
determined by the MDNCC on the basis of corporate financial and operational performance reflected in the
Corporate Performance Scorecard rating, plus performance relative to the CEO’s individual goals for 2011,
as approved by the Board.
As outlined earlier, the Corporate Performance Scorecard was determined to be 62%. This reflects
that some Corporate goals were missed, while the goals for on-time product deliveries and year end order
book were exceeded, and other Corporate qualitative goals were met or partially met. Also, while the
Corporate goals for revenue and adjusted EBITDA were missed, the actual results represent significant
progress year over year on revenue growth and adjusted EBITDA.
With respect to individual CEO goals, the MDNCC determined that Mr. Sheridan met or exceeded
his personal performance goals for risk management, leadership, employee engagement and external profile
development. Also, while the Shareholder value growth goal was met on a relative basis (sector
comparables), it was missed on an absolute basis (share price). After assessing the above achievements
relative to the goals, the Board approved an individual performance multiplier of 128%. Applying this
individual multiplier and the corporate multiplier of 62% (determined in accordance with the corporate
multiplier methodology set forth in the section entitled "Methodology for Determining Annual Incentives"),
to Mr. Sheridan’s target bonus for 2011 of 90% of base salary, resulted in a bonus payment to Mr. Sheridan
of CDN$380,000 for the fiscal year ended December 31, 2011.
On March 8, 2011, the Board approved the recommendation by the MDNCC and Mr. Sheridan was
granted a long-term incentive award, equivalent at the time of grant to a total value of CDN$900,000; with
CDN$400,000 converted to options in respect of 344,827 Shares (at an exercise price of CDN$2.10 per
Share) and a RSU award of CDN$500,000 (238,095 RSUs at a price of CDN$2.10 per Share). These awards
formed Mr. Sheridan’s 2011 long-term incentive package, and the overall value and equity mix was
approved by the MDNCC and the Board following consultations with Towers Watson. Consistent with other
Named Executive Officers, the RSU award has performance criteria and time vesting as described above in
25 the Restricted Share Units – New Issuances section, and the share options were granted with a 7-year term,
with one-third of the options vesting at the end of each of the first three years.
The total value of Mr. Sheridan's compensation in 2011, including cash and non-cash compensation,
was CDN$1,841,218.
Termination and Change of Control Benefits
For a description of the termination and change of control benefits under Ballard's employee
contracts and equity compensation plans for the President & CEO and other Named Executive Officers, see
the section entitled "Termination and Change of Control Benefits" below.
Perquisites
In addition to cash and equity compensation, the Corporation provides Named Executive Officers
with certain personal benefits, consistent with similar benefits coverage within the comparator group. These
benefits include a car allowance, medical benefits program, long and short-term disability coverage, life
insurance, an annual medical and a financial planning allowance.
Retirement Benefits
In 2011, each Canadian Named Executive Officer received an RRSP contribution from the
Corporation, equal to 50% of the maximum amount allowable under the Income Tax Act (Canada), based on
the Named Executive Officer making an equivalent personal matching contribution. In 2010, the
Corporation made changes to its overall RRSP program. Starting on January 1, 2010, each executive was
required to make a matching contribution to receive an RRSP benefit. As a result of these changes, the
maximum benefit each executive can receive is up to 50% of the maximum amount allowable under the
Income Tax Act (Canada), based on the executive making an equal matching contribution. This is both a
reduction of 50% in value of the total benefit relative to the program prior to 2010, and also requires a
matching contribution from the executive.
In the United States, Mr. Foulds participated in a similar 401k matching program. Based on personal
contributions from Mr. Foulds, the Corporation will make matching contributions up to a value of 10% of his
base salary, subject to annual personal and catch-up contribution limits.
None of the Named Executive Officers currently participates in a Corporation-sponsored Defined
Benefits Plan, Defined Contribution Plan, or Supplemental Executive Retirement Plan, nor do they receive
contributions to any such plan on their behalf from the Corporation. Mr. Foulds retains a frozen retirement
benefit under a previously active Defined Benefits Plan.
Total Executive Officer Compensation
The total value of the compensation of the Chief Executive Officer together with all of the other
Named Executive Officers (as defined below in the section entitled "Executive Compensation") was
CDN$4,863,252
Minimum Share Ownership Guidelines
We established executive officer minimum share ownership guidelines in 2003, which obligate each
executive officer to own a minimum number of our Shares. Those guidelines were modified by our Board in
2006 and 2007 to increase the minimum share ownership requirements for the President and Chief Executive
Officer and our other executive officers, respectively.
Under the guidelines, the minimum share ownership requirement for the President and Chief
Executive Officer is the lesser of:
26 (a)
the number of Shares that have a fair market value of three times the President and
Chief Executive Officer’s base salary; or
(b)
181,903 Shares.
The President and Chief Executive Officer has five years from his date of hire to to comply with this
requirement.
The minimum share ownership requirement for our other executive officers is the lesser of:
(a)
the number of Shares with a fair market value equal to the executive officer’s annual
base salary; or
(b)
35,300 Shares.
Other executive officers who were employed at the time the guidelines were amended in 2007 have
eight years from the date of their hire to comply with this requirement; executive officers hired after
that date have 5 years to comply.
For the purposes of this section, the "fair market value" is defined as the closing price of our Shares
as listed on the TSX on the date of review of the guideline. All executive officers have met or are on track to
achieve the applicable guidelines.
Executives are not permitted to hedge the market value of the Company securities they hold.
PERFORMANCE GRAPH
The following graph compares the total cumulative return to a shareholder who invested $100 in our
Shares on December 31, 2006, assuming reinvestment of dividends, with the total cumulative return of $100
on the NASDAQ Composite Index for the last five years.
Cumulative Value of a $100 Investment
$
120
100
80
60
40
20
0
2006
2007
2008
2009
2010
2011
Ballard (BLDP)
NASDAQ Composite
2006 (Dec 31)
($)
2007 (Dec 31)
($)
2008 (Dec 31)
($)
2009 (Dec 31)
($)
2010 (Dec 31)
($)
2011 (Dec 31)
($)
100
100
92
110
20
65
33
94
26
110
19
108
Ballard
NASDAQ
Composite
Index
27
The trend shown by this graph does not reflect the trend in the Corporation’s compensation to its
Named Executive Officers.
EXECUTIVE COMPENSATION TABLES
The following table summarizes the compensation paid for the fiscal years ended on December 31,
2009, December 31, 2010 and December 31, 2011 to our Named Executive Officers.
Name and Principal
Position
John W. Sheridan(1)
President and Chief Executive
Officer
Tony Guglielmin
Vice President and Chief
Financial Officer
William Foulds(2)
Vice President and President,
Ballard Material Products
Christopher J. Guzy
Chief Technical Officer
Michael Goldstein
Vice President and Chief
Commercial Officer
Year
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
Summary Compensation Table
Long-Tern Incentives
Salary(3)
(CDN$)
Bonus(4)
(CDN$)
Share-Based
Awards(5)
(CDN$)
Option-Based
Awards(6)
(CDN$)
All Other
Compensation(7)
(CDN$)
Total
Compensation
(CDN$)
530,000
530,000
509,671
310,000
169,863
0
263,068
229,312
192,448
310,000
310,000
298,110
380,000
380,000
243,616
380,000
536,625
353,934
168,175
96,899
0
170,561
258,106
79,746
134,540
195,300
92,008
148,428
215,460
122,183
500,000
250,000
192,500
120,000
140,000
0
122,040
122,040
70,478
120,000
120,000
92,400
120,000
120,000
140,000
400,000
250,000
120,561
120,000
176,750
0
122,040
122,040
44,758
120,000
120,000
57,869
120,000
120,000
220,500
31,218
36,669
44,610
28,627
15,194
0
53,590
52,111
134,436
44,042
49,499
42,890
46,923
90,500
203,501
1,841,218
1,603,294
1,221,276
746,802
598,706
0
731,299
783,609
521,866
728,582
794,799
583,277
815,351
925,960
929,800
(1) Mr. Sheridan is also a director, but receives no compensation for his service as a director.
(2) Mr. Foulds’ compensation was paid in United States dollars. The United States dollar amounts were converted into Canadian dollars for the
purpose of this disclosure using the Bank of Canada noon rate of exchange on December 30, 2011.
(3) Salary of each of the Named Executive Officers was paid in Canadian dollars with the exception of Mr. Foulds, who was paid in United States
dollars (US$258,671, US$225,479 and US$189,231 for 2011, 2010 and 2009, respectively). The United States dollar amounts for 2011 were
US$521,141, US$304,818, US$304,818 and US$373,648 for Messrs. Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United
States dollar amounts for 2010 were US$521,141, US$167,024, US$304,818, and US$373,648 for Messrs. Sheridan, Guglielmin, Guzy and
Goldstein, respectively. The United States dollar amounts for 2009 were US$501,152, US$293,126 and US$239,544 for Messrs. Sheridan,
Guzy and Goldstein, respectively. Note that each full-time Named Executive Officer voluntarily accepted a temporary 10% base salary cut
starting in August 2009. The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the
Bank of Canada noon rate of exchange on December 30, 2011.
(4)
The bonus of each of the Named Executive Officers was paid in Canadian dollars with the exception of Mr. Foulds, who was paid in United
States dollars (US$167,710, US$253,792 and US$78,413 for 2011, 2010 and 2009, respectively). The United States dollar amounts for 2011
were US$373,648, US$165,364, US$132,291 and US$145,947 for Messrs. Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United
States dollar amounts for 2010 were US$527,655, US$95,279, US$192,036 and US$211,858, for Messrs. Sheridan, Guglielmin, Guzy and
Goldstein, respectively. The United States dollar amounts for 2009 were US$348,018, US$90,470 and US$120,140 for Messrs. Sheridan, Guzy
and Goldstein, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the
Bank of Canada noon rate of exchange on December 30, 2011.
(5) Represents the total fair market value of RSUs issued to each Named Executive Officer during the 2009, 2010 and 2011 fiscal years. This
amount is based on the grant date fair market value of the award, which equals the closing price of the Shares on the TSX and NASDAQ on the
date of issuance of the award. Fair value is determined in accordance with IFRS 2 of the International Financial Reporting Standards
(accounting fair value) is recorded as compensation expense in the statement of operations over vesting periods of one to three years. There is
no difference in Canadian dollars between the grant date fair market value of the award and the accounting fair value.
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 50% of this amount is
awarded in the form of RSUs with the remaining 50% being awarded in the form of Share options in 2011. In 2010, 50% of this amount was
awarded in the form of RSUs with the remaining 50% being awarded in the form of Share options. In 2009, 55% of this amount was awarded in
the form of RSUs with the remaining 45% being awarded in the form of Share options. The number of RSUs awarded is equal to the dollar
amount of the award divided by the fair market value of the Shares at the time of issuance (based on the closing price of the Shares on the TSX
and NASDAQ on the date of issuance). The number of RSUs issued to each Named Executive Officer in respect of the fiscal years ended
December 31, 2009, December 31, 2010 and December 31, 2011 is as follows:
28
Share-Based Awards
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
William Foulds(A)
Christopher J. Guzy
Michael Goldstein
Year
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
RSUs
(#)
238,095
104,167
137,500
57,143
75,676
0
55,046
50,420
60,261
57,143
50,000
66,000
57,143
50,000
59,829
Fair Market Value
of a Share
(CDN$)(A)
Total
(CDN$)(B)
2.10
2.40
1.40
2.10
1.85
0
2.22
2.42
1.17
2.10
2.40
1.40
2.10
2.40
2.34
500,000
250,000
192,500
120,000
140,000
0
122,040
122,040
70,478
120,000
120,000
92,400
120,000
120,000
140,000
(A) The fair market value of a Share has been calculated using the Canadian dollar closing price of the Shares underlying the RSUs
on the TSX on the date of issuance with the exception of RSUs issued to Mr. Foulds, which have been calculated using the
United States dollar closing price of the Shares underlying the RSUs on the NASDAQ on the date of issuance (US$2.18,
US$2.38 and US$1.15 for 2011, 2010 and 2009, respectively). The total value of share-based awards issued to Mr. Foulds in
United States dollars were US$120,000, US$120,000 and US$69,300 for 2011, 2010 and 2009, respectively. The United States
dollar amounts were converted to Canadian dollars for the purpose of this disclosure using the Bank of Canada noon rate of
exchange on December 30, 2011.
(B) The United States dollar amounts for 2011 were US$491,642, US$117,994, US$117,994 and US$117,994 for Messrs.
Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United States dollar amounts for 2010 were US$245,821,
US$137,660, US$117,994, and US$117,994 for Messrs. Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United
States dollar amounts for 2009 were US$189,282, US$90,855 and US$137,660 for Messrs. Sheridan, Guzy and Goldstein,
respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the
Bank of Canada noon rate of exchange on December 30, 2011.
(6) Represents the total of the fair market value of options to purchase our Shares issued under the Option Plan granted to each Named Executive
Officer during each fiscal year. This amount is based on the grant date fair market value of the award determined using the Black-Scholes
valuation model using the following key assumptions: expected life of 5 years, expected volatility of 64% and risk free interest rate of 3% for
2011; expected life of 5 years, expected volatility of 65% and risk free interest rate of 3% for 2010; and expected life of 5 years, expected
volatility of 60% and risk free interest rate of 2% for 2009. Accounting fair value is recorded as compensation expense in the statement of
operations over the vesting period. There is no difference in Canadian dollars between the grant date fair market value of the award determined
using the Black-Scholes valuation model and accounting fair value determined in accordance with IFRS 2 of the International Financial
Reporting Standards (accounting fair value).
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 50% of this amount is
awarded in the form of RSUs with the remaining 50% being awarded in the form of Share options. In 2010, 50% of this amount was awarded in
the form of RSUs with the remaining 50% being awarded in the form of Share options. In 2009, 55% of this amount was awarded in the form of
RSUs with the remaining 45% being awarded in the form of Share options. The number of Share options awarded is equal to the dollar amount
of the award divided by the fair market value of the Shares at the time of issuance (based on the closing trading price of the Shares on the TSX
on the day prior to issuance). The number of Share options issued to each Named Executive Officer in respect of the fiscal years ended
December 31, 2009, December 31, 2010 and December 31, 2011 is as follows:
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Year
2011
2010
2009
2011
2010
2009
Option-Based Awards
Shares Under
Options
(#)
Black-Scholes Value of Shares
Underlying Options on Date of
Grant
(CDN$/Share)(A)
Fair Market Value
(CDN$))(B)
344,827
185,185
177,295
103,448
175,000
0
1.16
1.35
0.68
1.16
1.01
0
400,000
250,000
120,561
120,000
176,750
0
29
Named Executive
Officer
William Foulds(A)
Christopher J. Guzy
Michael Goldstein
Year
2011
2010
2009
2011
2010
2009
2011
2010
2009
Option-Based Awards
Shares Under
Options
(#)
Black-Scholes Value of Shares
Underlying Options on Date of
Grant
(CDN$/Share)(A)
Fair Market Value
(CDN$))(B)
100,000
93,750
81,500
103,448
88,888
85,101
103,448
88,888
175,000
1.22
1.30
0.55
1.16
1.35
0.68
1.16
1.35
1.26
122,040
122,040
44,758
120,000
120,000
57,869
120,000
120,000
220,500
(A) The fair market value of a Share has been calculated based on the Black-Scholes valuation model using the Canadian dollar closing
price of the Shares underlying the options on the TSX on the date of issuance, with the exception of options issued to Mr. Foulds,
which have been calculated using the United States dollar closing price of the Shares underlying the options on the NASDAQ on the
date of issuance. The United States dollar amount of the Black-Scholes value of a Share issued to Mr. Foulds’ were US$1.20,
US$1.28 and US$0.54 for 2011, 2010 and 2009, respectively, and the total option-based awards issued to Mr. Foulds were
US$120,000, US$120,000 and US$44,010 for 2011, 2010 and 2009, respectively. The United States dollar amounts were converted
into Canadian dollars for the purpose of this disclosure using the Bank of Canada noon rate of exchange on December 30, 2011.
(B) The United States dollar amounts for 2011 were US$393,313, US$117,994, US$117,994 and US$117,994 for Messrs. Sheridan,
Guglielmin, Guzy and Goldstein, respectively. The United States dollar amounts for 2010 were US$245,821, US$173,795,
US$117,994, and US$117,994 for Messrs. Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United States dollar
amounts for 2009 were US$118,545, US$56,901 and US$216,814 for Messrs. Sheridan, Guzy and Goldstein, respectively. The
Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the Bank of Canada noon
rate of exchange on December 30, 2011.
(7) All Other Compensation was paid in Canadian dollars with the exception of Other Compensation for Mr. Foulds, which was paid in United
States dollars (US$52,694, US$51,239 and US$132,189 for 2011, 2010 and 2009, respectively). The United States dollar amounts for 2011
were US$30,695, US$28,148, US$43,305 and US$46,139 for Messrs. Sheridan, Guglielmin, Guzy and Goldstein, respectively. The United
States dollar amounts for 2010 were US$36,057, US$14,940, US$48,672 and US$88,987 for Messrs. Sheridan, Guglielmin, Guzy and
Goldstein, respectively. The United States dollar amounts for 2009 were US$43,864, US$42,172 and US$200,100 for Messrs. Sheridan, Guzy
and Goldstein, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of the table above using the
Bank of Canada noon rate of exchange on December 30, 2011.
The value of the items included in this amount was based on the aggregate incremental cash cost to the Corporation. All Other Compensation,
including the type and amount of each perquisite, the value of which exceeds 25% of the total value of perquisites reported for a Named
Executive Officer, includes:
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
William Foulds(A)
Christopher J. Guzy
Michael Goldstein
Year
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
All Other Compensation
Retirement Benefits
(RRSP / 401k /
Defined Benefits)
(CDN$)
Insurance Premiums
(CDN$)
Other(B)
(CDN$)
11,225
11,000
21,000
11,225
6,042
0
22,374
22,374
109,924
11,225
11,000
21,000
11,225
11,000
14,175
2,021
1,816
2,021
967
460
0
862
1,172
1,025
967
888
857
967
888
571
17,972
23,853
21,589
16,435
8,692
0
30,354
28,565
23,487
31,850
37,611
21,033
34,731
78,612
188,755
Total
(CDN$)
31,218
36,669
44,610
28,627
15,194
0
53,590
52,111
134,436
44,042
49,499
42,890
46,923
90,500
203,501
(A)
The amounts in this table were paid in Canadian dollars with the exception of Mr. Foulds, who was paid in United States
dollars. which were converted into Canadian dollars for the purpose of this disclosure using the Bank of Canada noon rate of
exchange on December 30, 2011. The retirement benefits paid for Mr. Foulds were US$22,000, US$22,000 and US$108,086
for 2011, 2010 and 2009, respectively. The retirement benefits for Mr. Foulds include defined benefit pension plan benefits of
US$105,248 for 2009. No defined benefit pension plan benefits were earned in 2011 and 2010 as the plan was frozen on
December 31, 2009.
30 The insurance premiums for Mr. Foulds were US$848, US$1,152 and US$1,008 for 2011, 2010 and 2009, respectively. The
“other” compensation paid for Mr. Foulds were US$29,846, US$28,087 and US$23,095 for 2011, 2010 and 2009,
respectively.
(B)
Includes automobile allowances, temporary living and travel allowances, financial planning services and medical and health
benefits. Mr. Goldstein’s amount in 2009 includes a one-time signing bonus of C$150,000.
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our Named Executive
Officers that are outstanding as of December 31, 2011.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2011)
Option-Based Awards
Share-Based Awards
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
William Foulds
Christopher J.
Guzy
Michael Goldstein
Number of
Securities
Underlying
Unexercised
Options
(#)
Option
Exercise
Price(1)
(CDN$)
6,000
76,713
123,762
177,295(4)
175,000
185,185(5)
344,827(6)
175,000(7)
103,448(6)
20,000
8,750
16,169
10,000
28,469
20,000
25,000
76,500(8)
93,750(9)
100,000(6)
22,484
40,000
42,553
35,000
85,101(10)
60,000
88,888(11)
103,448(6)
175,000(12)
88,888(11)
103,448(6)
38.75
7.80
4.17
1.34
7.18
2.40
2.10
1.80
2.10
25.33
10.17
6.76
10.59
5.09
6.31
6.20
1.03
2.42
2.22
7.80
7.95
5.08
7.57
1.34
7.18
2.40
2.10
2.34
2.40
2.10
Value of
Unexercised
In-The-
Money
Options(2)
(CDN$)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3,512
0
0
0
0
0
0
0
0
0
0
0
0
0
Option
Expiration
Date
May 16, 2012
Feb. 23, 2014
May 13, 2015
Mar. 5, 2016
Mar. 8, 2016
Mar. 12, 2017
Mar. 9, 2018
Jun. 14, 2017
Mar. 9, 2018
May 16, 2012
Mar. 28, 2013
Feb. 23, 2014
Mar. 5, 2014
Feb. 22, 2015
Mar. 2, 2015
Feb. 24, 2016
Mar. 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Feb. 23, 2014
Feb. 1, 2015
Feb. 22, 2015
Mar. 2, 2015
Mar. 5, 2016
Mar. 8, 2016
Mar. 12, 2017
Mar. 9, 2018
May 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Number of RSUs
That Have Not
Vested
(#)
Market or Payout
Value of RSUs That
Have Not Vested(3)
(CDN$)
353,373
388,711
107,594
118,353
108,747
119,443
112,476
123,724
110,419
121,461
(1) All figures are in Canadian dollars. Where options are exercisable in United States dollars, the exercise price has been converted to Canadian
dollars using the Bank of Canada noon rate of exchange on December 30, 2011.
(2)
(3)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX and NASDAQ as at December
30, 2011, and the exercise price of the option. For options with an exercise price in United States dollars, the price was converted to Canadian
dollars using the Bank of Canada noon rate of exchange on December 30, 2011. Where the difference is a negative number, the value is deemed
to be 0. The United States dollar amount was US$3,453 for Mr. Foulds.
This amount is calculated by multiplying the number of RSUs that have not vested by the closing price of the Shares underlying the RSUs on the
TSX as at December 30, 2011, with the exception of Mr. Foulds, whose unvested RSUs were multiplied by the closing price of the Shares
underlying the RSUs on the NASDAQ as at December 30, 2011 and then converted to Canadian dollars for the purpose of this disclosure using
the Bank of Canada noon rate of exchange on December 30, 2011. The United States dollar amount was US$117,446 for Mr. Foulds.
31
Such amounts may not represent the actual value of the RSUs which ultimately vest, as the value of the Shares underlying the RSUs may be of
greater or lesser value and/or the exchange rate may be higher or lower on vesting. However, given that it would be not be feasible for the
Corporation to estimate, with any certainty, the market value of its Shares or the exchange rate on vesting, the Corporation has used the market
value and exchange rate at the end of the most recently completed financial year for the purpose of calculating the amount disclosed.
(4) Comprising 118,196 vested and 59,099 unvested options.
(5) Comprising 61,728 vested and 123,457 unvested options.
(6) Unvested options.
(7)
Comprising 58,333 vested and 116,667 unvested options.
(8) Comprising 49,333 vested and 27,167 unvested options.
(9) Comprising 31,250 vested and 62,500 unvested options.
(10) Comprising 56,734 vested and 28,367 unvested options.
(11) Comprising 29,629 vested and 59,259 unvested options.
(12) Comprising 116,666 vested and 58,334 unvested options.
The following table sets forth the value of the incentive plan awards vested or earned during the year
ended December 31, 2011 by our Named Executive Officers.
Incentive Plan Awards – Value Vested or Earned During the Year
(2011)
Named Executive Officer
John W. Sheridan
Tony Guglielmin
William Foulds
Christopher J. Guzy
Michael Goldstein
Option-Based Awards –
Value Vested During the
Year(1)
(CDN$)
Share-Based Awards – Value
Vested During the Year(2)
(CDN$)
Non-equity incentive plan
compensation – Value earned
during the year
(CDN$)
44,914
0
32,326
21,559
0
823,930
38,594
91,207
96,644
67,169
0
0
0
0
0
(1)
(2)
This value was determined by calculating the difference between the market price of the underlying Shares on the TSX on the vesting date and
the exercise price of the options on the vesting date, with the exception of Mr. Foulds’ vested options, which were determined by calculating the
difference between the market price of the underlying Shares on the NASDAQ on the vesting date and the exercise price of the options on the
vesting date, which were then converted to Canadian dollars for the purpose of this disclosure using the Bank of Canada noon rate of exchange
on December 30, 2011. Where the difference is a negative number the value is deemed to be 0. The United States dollar amount was
US$31,785 for Mr. Foulds.
This value was determined by calculating the dollar value realized by multiplying the number of Shares by the market value of the underlying
Shares on the TSX on the vesting date, with the exception of Mr. Foulds’ vested RSUs, which were determined by multiplying the number of
Shares by the market value of the underlying Shares on the NASDAQ on the vesting date, which were then converted to Canadian dollars for the
purpose of this disclosure using the Bank of Canada noon rate of exchange on December 30, 2011. The United States dollar amount was
US$89,682 for Mr. Foulds.
The number of options vesting to Named Executive Officers under the Option Plan during the most
recently completed financial year is 448,463.
As noted in the Outstanding Share-Based Awards and Option-Based Awards table, as at December
31, 2011, there were 792,609 RSUs awarded to Named Executive Officers that were still unvested. The
performance criteria for each of these RSUs will be determined by the board at the appropriate time, and they
are set to vest (subject to the terms of the Consolidated Share Distribution Plan or Market Purchase RSU
Plan) as follows:
Named Executive Officer
Number of RSUs That Have Not Vested(1)
John W. Sheridan
45,833
79,365
34,722
79,365
34,723
79,365
Vesting Date
March 3, 2012
March 8, 2012
March 11, 2012
March 8, 2013
March 10, 2013
March 7, 2014
32
Named Executive Officer
Number of RSUs That Have Not Vested(1)
Tony Guglielmin
William Foulds
Christopher J. Guzy
Michael Goldstein
19,048
25,225
19,048
25,226
19,047
20,088
18,349
16,807
18,349
16,806
18,348
22,000
19,048
16,667
19,048
16,666
19,047
19,048
16,667
19,943
19,048
16,666
19,047
Vesting Date
March 8, 2012
June 14, 2012
March 8, 2013
June 14, 2013
March 7, 2014
March 3, 2012
March 8, 2012
March 11, 2012
March 8, 2013
March 10, 2013
March 7, 2014
March 3, 2012
March 8, 2012
March 11, 2012
March 8, 2013
March 10, 2013
March 7, 2014
March 8, 2012
March 11, 2012
May 4, 2012
March 8, 2013
March 10, 2013
March 7, 2014
(1)
In February 2012, the board determined that the performance criteria relating to those RSUs due to vest in March 2012 had not been achieved,
resulting in the expiry of those RSUs. Consequently, no Shares were issued in respect of those RSUs.
PENSION PLAN BENEFITS
None of the Named Executive Officers participate in a Corporation-sponsored Defined Benefits Plan
or Defined Contribution Plan, nor do they receive contributions to any such plan on their behalf from the
Corporation. Mr. Foulds retains a frozen retirement benefit under a previously active Defined Benefits Plan.
TERMINATION AND CHANGE OF CONTROL BENEFITS
Employment Contracts
Ballard employs a standard-form executive employment agreement which all of our Named
Executive Officers have executed. These agreements have indefinite terms, provide for payments to be made
on termination and otherwise include standard industry terms and conditions, including intellectual property,
confidentiality, and non-competition and non-solicitation provisions in favour of Ballard.
The annual salary paid(4) to each of our Named Executive Officers under their employment
agreements for 2011 was as follows: Mr. Sheridan received C$530,000, Mr. Guglielmin received C$310,000,
Dr. Guzy received C$310,000, Mr. Goldstein received C$380,000 and Mr. Foulds received C$263,068.
Pursuant to these employment agreements, we can terminate a Named Executive Officer’s
employment immediately, without any required period of notice or payment in lieu thereof, for just cause,
upon the death of the executive, or if the executive does not renew any required work permits. In every other
circumstance, other than one following a change of control, we are required to provide notice of 12 months
plus one month for every year of employment completed with us, to a maximum of 24 months, or payment in
(4)
All figures are in Canadian dollars. However, Mr. Foulds is compensated in US dollars and for the purpose of this disclosure
his amounts were converted into Canadian dollars using the Bank of Canada noon rate of exchange on December 30, 2011.
33
lieu of such notice, consisting of the salary, bonus and other benefits that would have been earned during
such notice period.
All of the employment contracts for the Named Executive Officers include a "double-trigger" in
relation to a change of control – if the executive’s employment is terminated (including a constructive
dismissal) within 2 years following the date of a change of control, the executive is entitled to a payment
equivalent to payment in lieu of a 24 month notice period. For these purposes, a "change of control" under
the employment agreements is defined as occurring when:
(a)
(b)
(c)
(d)
a person or persons acting in concert acquires at least one-half of Ballard’s shares;
the persons who comprise the Board of Ballard do not consist of a majority of
persons who were previously directors of Ballard, or who were recommended to the
shareholders for election to the Board by a majority of the Directors;
there is a disposition of all or substantially all of Ballard’s assets to an entity in
which Ballard does not have a majority interest; or
Ballard is involved in any business combination that results in Ballard’s
shareholders owning less than one-half of the voting shares of the combined entity.
In addition, the CEO’s employment agreement includes an additional element in a Change of
Control situation, whereby the 2nd trigger can be initiated should he no longer be included on
the slate of directors in the annual Proxy Circular.
Equity-Based Compensation Plans
The Option Plan provides that, if a participant ceases to be an employee of Ballard or its subsidiaries
(other than by reason of death/disability or being retired), he or she will have up to 90 days, in the event of
termination other than for just cause, or 30 days, in the event of voluntary resignation, in which to exercise
his or her vested options (in each case subject to extension if the option would otherwise expire during, or
within 9 business days after the end of, a blackout period). In the event of termination other than for just
cause, the CEO has the discretion to extend the exercise period to up to one year after the optionee ceases to
work for Ballard and to accelerate the vesting of unvested options that would have otherwise vested during
that period in the next year (in effect, enabling the continuance of the options during a notice period).
All Ballard RSUs awarded under either the SDP or the Market Purchase RSU Plan expire on the last
day on which the participant works for Ballard or any of its subsidiaries (other than by reason of
death/disability or being retired).
DSUs will be redeemed for Shares under the SDP by no later than December 31 of the first calendar
year commencing after the holder’s employment with Ballard and its subsidiaries is terminated, except in the
case of US holders, whose DSUs will be redeemed for Shares approximately 6 months after termination of
employment.
The Option Plan provides for the acceleration of vesting of options upon a change of control, which
is defined as:
(a)
(b)
(c)
(d)
a person making a take-over bid that could result in that person or persons acting in
concert acquiring at least two-thirds of Ballard’s shares and in respect of which the
Board approves the acceleration of options;
any person or persons acting in concert acquiring at least two-thirds of the
outstanding Shares;
there is a disposition of all or substantially all of Ballard’s assets to an entity in
which Ballard does not have a majority interest;
Ballard joins in any business combination that results in Ballard’s shareholders
owning one-third or less of the voting shares of the combined entity and Ballard is
34 privatized (or the parties to the business combination have publicly expressed an
intention to privatize Ballard); or
(e)
any other transaction, a consequence of which is to privatize Ballard is approved by
Ballard securityholders or, if such approval is not required, is approved by Ballard.
If an accelerated vesting event occurs, any outstanding option may be exercised at any time before the 60th
day after such event.
Under the SDP and the Market Purchase RSU Plan, the occurrence of any of the accelerated vesting
events described above triggers (subject to Board approval in the case of a take-over bid) the termination of
the restriction period applicable to RSUs such that holders will become immediately entitled to receive
Shares in respect of their RSUs (subject to satisfaction of any performance criteria or other conditions
specified in the award).
The following table shows, for each Named Executive Officer, the amount such person would have
been entitled to receive on the termination of his employment, without just cause, on December 31, 2011, the
amount such person would have been entitled to if a change of control occurred on December 31, 2011 and
the amount such person would have been entitled to receive on the termination of his employment, without
just cause, on December 31, 2011 if that termination occurred following a change in control.
Named Executive Officer
Termination of Employment (2)
(CDN$)(1)
Change of Control (3)
(CDN$)(1)
Termination of Employment
following Change of Control
(CDN$)(1)
Triggering Event
John W. Sheridan
Severance
Other benefits
Accelerated vesting
Total
Tony Guglielmin
Severance
Other benefits
Accelerated vesting
Total
William Foulds
Severance
Other benefits
Accelerated vesting
Total
Michael Goldstein
Severance
Other benefits
Accelerated vesting
Total
Christopher J. Guzy
Severance
Other benefits
Accelerated vesting
Total
$1,426,583
$65,015
$0
$1,491,598
$570,917
$46,911
$0
$617,827
$479,884
$71,681
$0
$551,565
$753,667
$91,125
$0
$844,792
$790,500
$88,076
$0
$878,576
$0
$0
$388,710
$388,710
$0
$0
$118,353
$118,353
$0
$0
$122,965
$122,965
$0
$0
$121,461
$121,461
$0
$0
$123,724
$123,724
$2,014,000
$116,786
$0
$2,130,786
$1,054,000
$111,604
$0
$1,165,604
$768,928
$156,916
$0
$925,845
$1,292,000
$181,214
$0
$1,473,214
$1,054,000
$142,434
$0
$1,196,434
35
(1) All values are in Canadian dollars, with the exception of Mr. Foulds whose amounts disclosed above were converted into Canadian dollars using
the Bank of Canada noon rate of exchange on December 31, 2011.
(2) Based on accrued service to December 31, 2011.
(3) All options and RSUs vest immediately upon a change of control. Value shown equals, in the case of RSUs, the price of the underlying Shares
on December 31, 2011 multiplied by the number of RSUs, and in the case of options, for Mr Foulds where the exercise price of the relevant
options exceeded the market price of the underlying Shares on December 31, 2011, for the grant he received in March 2009, the value calculates
the differential in share price between the December 31, 2011 close price and the original strike price, multiplied by the number of options
awarded. For Messrs. Sheridan, Guglielmin, Goldstein and Guzy no value is attributable to options.
DIRECTOR COMPENSATION
Our Corporate Governance Committee has the responsibility for determining compensation for our
Directors. The committee has determined that the principal method of compensating Directors should be
through an annual retainer and meeting fees. Directors have not been issued any stock options in the last 5
years, and there is no current intention to do so in the future.
The objective of the committee is to ensure that the annual retainer and meeting fees paid to
Directors is commensurate with the high quality of candidates Ballard has enjoyed in the past and expects in
the future. As a result, the committee seeks to provide compensation for directors at approximately the 50%
mark for the comparator group of North American companies. The committee retains independent
compensation consultants for professional advice and as a source of competitive market information. In
2011, the committee retained Towers Watson to provide independent compensation analysis and advice
related to director compensation. Based on Towers Watson’s report in December 2011, which utilized the
same comparator group of companies as those used for the Executive Compensation benchmarking study, the
compensation provided to directors is slightly lower than the 50% mark. In 2009, in support of the
Corporation's cost reduction initiatives, on the recommendation of the Committee, the Board decided to
reduce the retainer fees for both the Chair and other Board members. To further reduce expenses, Committee
sizes were reduced, such that Committee Chairs no longer sit on multiple Committees. The Board Chair also
voluntarily decided to forego meeting fees for board meetings, effectively making his annual retainer an 'all-
in' fee. In 2012, based on the Towers Watson report the board intends to raise its retainer fees to better
approximate the median of the market comparators, raising the annual board chair retainer from $138,000 to
$140,000; the annual board retainers for other directors from $40,000 to $65,000; and annual retainers for
Committee Chairs will be normalised at $10,000. At the same time, the use of DSUs as partial compensation
for board and committee retainers will be reinstituted.
The Board sets annual focus priorities and reviews its performance against those priorities.
In 2011, compensation was earned by the directors as follows(1):
Name
Ian A. Bourne
Edwin J. Kilroy
Dr. C.S. Park
David J. Smith
David B. Sutcliffe
Mark A. Suwyn
Douglas W.G. Whitehead
Fees Earned
(CDN$)(2)
138,000
69,325
63,461
59,600
64,600
62,825
58,300
(1) All figures are in Canadian dollars. However, the compensation paid to Dr. Park and Mr. Suwyn were actually paid in United States dollars.
The United States dollar amounts were US$62,400 and US$61,775 for Dr. Park and Mr. Suwyn, respectively. The United States dollar amounts
were converted into Canadian dollars for the purpose of the table above using the Bank of Canada noon rate of exchange on December 30, 2011.
36 (2) Represents the aggregate retainers and attendance fees paid:
Director
Ian A. Bourne
Edwin J. Kilroy
Dr. C.S. Park
David J. Smith
David B. Sutcliffe
Mark A. Suwyn
Douglas W.G. Whitehead
Compensation
Board Retainer
(CDN$)
Committee Retainer
(CDN$)
Board and Committee
Attendance Fees
(CDN$)
Total Compensation
(CDN$)
138,000
N/A
N/A
138,000
40,000
40,680
40,000
40,000
40,680
40,000
13,625
3,051
5,000
10,000
3,941
3,000
15,700
19,730
14,600
14,600
18,204
15,300
69,325
63,461
59,600
64,600
62,825
58,300
All figures are in Canadian dollars. However, the compensation paid to Dr. Park and Mr. Suwyn were actually paid in United States dollars and
converted into Canadian dollars for the purpose of the table above using the Bank of Canada noon rate of exchange on December 30, 2011. The
United States dollar amounts in respect of Board Retainer were US$40,000 and US$40,000 for Dr. Park and Mr. Suwyn, respectively. The
United States dollar amounts in respect of Committee Retainer were US$3,000 and US$3,875 for Dr. Park and Mr. Suwyn, respectively. The
United States dollar amounts in respect of Board and Committee Attendance Fees were US$19,400 and US$17,900 for Dr. Park and Mr. Suwyn,
respectively.
We remunerate directors who are not executive officers for services to the Board, committee
participation and special assignments. The following table describes the compensation of independent
directors in 2011(1):
Annual Retainer (Non-Executive Chair of the Board)
Annual Retainer (Director)
Annual Retainer (Committee Chairs)
- Audit Committee
-Management Development, Nominating & Compensation Committee
- Corporate Governance Committee
Annual Retainer for Committee Members
-Audit Committee
-All other Committees
Committee Meeting Attendance Fee (per meeting)
- Committee Chair
- Committee Member
Board Meeting Attendance Fee (per meeting)
C$(1)
$138,000
$40,000
$13,000
$10,000
$5,000
$3,000
$1,500
$1,400
$1,300
$1,500
(1) The majority of compensation is paid in Canadian dollars. However, Dr. Park’s and Mr. Suwyn’s compensation was payable in United States
dollars and they received the following amounts:
Annual Retainer (Director)
Annual Retainer for Committee Members
-Audit Committee
-All other Committees
Committee Meeting Attendance Fee (per meeting)
- Committee Chair
- Committee Member
Board Meeting Attendance Fee (per meeting)
US$40,000
US$3,000
US$1,500
US$1,400
US$1,300
US$1,500
37
At the discretion of the Chair, a meeting fee may be paid to independent directors for meetings that
the director is requested or required to attend that are not official meetings of the Board or committees.
Directors are also reimbursed for travel and other reasonable expenses incurred in connection with
fulfilling their duties. If a meeting or group of meetings is held on a continent other than the continent on
which an independent director is resident, that director will receive an additional fee of U.S.$2,250 (or
C$2,250 in the case of a non-United States resident), in recognition of the additional time required to travel
to and from the meeting or meetings.
Historically, we have satisfied our Chair’s annual retainer by utilizing up to 1/3 cash and the
remainder in equity-based compensation, and our Directors’ annual retainers by utilizing 100% in equity-
based compensation. In 2003, we ceased the practice of annual grants of share options to our independent
Directors.
Previously, Directors were entitled to elect to participate in the deferred share unit section for
directors (the "DSU Plan for Directors") in the SDP. Under this plan, each independent outside director
was able to elect annually the proportion (0% to 100%) of his or her annual retainer that he or she wished to
receive in DSUs. Each DSU was convertible into one Share. The number of DSUs to be credited to a
Director was determined on the relevant date by dividing the amount of the eligible remuneration to be
deferred into DSUs by the fair market value per Share, being a price not less than the closing sale price at
which the Shares are traded on the TSX (in respect of a DSU issued or to be issued to a person who is
resident in any country other than the U.S.) or NASDAQ (in respect of a DSU issued or to be issued to a
person who is resident in the U.S.) on the trading day before the relevant date. For the Directors, DSUs were
credited to an account maintained for each eligible person by Ballard at the time specified by the Board
(historically, DSUs were granted in equal instalments over the course of a year, at the end of each quarter).
However, a DSU is not redeemed until the Director leaves the Board, and its value on redemption will be
based on the value of our Shares at that time. The SDP or any successor plans will be used to satisfy the
redemption of DSUs issued pursuant to the DSU Plan for Directors.
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our non-executive
directors that are outstanding as of December 31, 2011.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2011)
Option-Based Awards
Number of Securities
Underlying
Unexercised Options
(#)
Option Exercise Price(1)
(CDN$)
Option Expiration Date
Value of Unexercised
In-The-Money
Options(2)
(CDN$)
0
6,000
0
0
0
0
─
38.75
─
─
─
─
─
May 16, 2012
─
─
─
─
May 16, 2012
─
0
─
─
─
─
0
Name
Ian A. Bourne
Edwin J. Kilroy
Dr. C.S. Park
David J. Smith
David B. Sutcliffe
Mark A. Suwyn
Douglas W.G. Whitehead
6,000
38.75
(1) All figures are in Canadian dollars.
(2)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX as at December 30, 2011, and
the exercise price of the option. Where the difference is a negative number the value is deemed to be 0.
No incentive plan awards vested for, or were earned by, our Directors during the year ended
December 31, 2011.
Directors are not permitted to hedge the market value of the Company securities they hold.
38
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
To the best of our knowledge, no informed person, proposed director or person who has been a director or
executive officer of the Corporation (or any associate of affiliate of such persons) had any interest in any
material transactions during the past year or has any interest in any material transaction to be considered at
the Meeting, except as disclosed in this Management Proxy Circular.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
In compliance with Sarbanes-Oxley, we do not make or arrange personal loans to directors or
executive officers. As of April 10, 2012, our current or former directors, officers and employees have no
outstanding indebtedness to the Corporation, its subsidiaries or to any other entity and which is guaranteed
by the Corporation or its subsidiaries.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
We purchase and maintain insurance for the benefit of our directors and officers for losses arising
from claims against them for certain actual or alleged wrongful acts they may undertake while performing
their director or officer function. The total annual premium in respect of our directors’ and officers’ liability
insurance program was approximately US$245,000 for 2011 and US$257,750 for 2010. The aggregate
maximum coverage provided by the policy for all claims, for both directors and officers, in any single policy
year is US$30 million. In addition to the payment of the premiums, we are accountable for the payment of
the policy deductible of US$0 to US$200,000 per claim. We have also agreed to indemnify each of our
directors and officers against all expenses, liability and loss, reasonably incurred or suffered, arising from the
performance of his or her duties as an officer or director of Ballard.
ADDITIONAL INFORMATION
Additional information relating to us is included in the following public filings, which are
incorporated by reference (the "Incorporated Documents") into, and form an integral part of, this
Management Proxy Circular:
(cid:131) Annual Information Form dated February 23, 2011;
(cid:131) Audited Annual Financial Statements for the year ended December 31, 2011 together with the
auditors’ report thereon; and
(cid:131) Management's Discussion and Analysis for the year ended December 31, 2011.
Copies of the Incorporated Documents and all our other public filings providing additional
information relating to us may be obtained at www.sedar.com or www.sec.gov, or upon request and without
further charge from either our Corporate Secretary, at 9000 Glenlyon Parkway, Burnaby, British Columbia,
Canada V5J 5J8, or by calling our Investor Relations Department at (604) 454-0900.
PROPOSALS
Any shareholder who intends to present a proposal at our 2013 annual shareholders’ meeting must
send the proposal to our Corporate Secretary at 9000 Glenlyon Parkway, Burnaby, British Columbia, Canada
V5J 5J8. In order for the proposal to be included in the proxy materials we send to shareholders for that
meeting, the proposal:
(cid:131) must be received by us no later than January 9, 2013; and
(cid:131) must comply with the requirements of section 137 of the Canada Business Corporations Act.
We are not obligated to include any shareholder proposal in our proxy materials for the 2013 annual
shareholders’ meeting if the proposal is received after the January 9, 2013 deadline.
39 Our Board has approved the contents and the sending of this Management Proxy Circular to the
APPROVAL BY THE BOARD
shareholders of the Corporation.
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems
Dated: April 10, 2012
In this Management Proxy Circular:
DEFINED TERMS
"Ballard", "Corporation", "we", "us" and "our" refer to Ballard Power Systems Inc.
"Beneficial Shareholders" means holders of our Shares that do not hold our Shares in their own name, but
instead, whose Shares are held on the Record Date by a bank, trust company, securities broker or other
nominee.
"Board" means the board of directors of Ballard.
"C$" refers to Canadian currency.
“Equity-based Compensation Plans” means the Option Plan and the SDP.
"DSU" means deferred share unit.
"$" or "dollars" refer to United States currency unless specifically stated otherwise.
"Meeting" means the 2012 annual meeting of our Registered Shareholders and includes any adjournment
thereof, unless otherwise indicated.
"NASDAQ" means the NASDAQ Global Market.
“Option Plan” means the Corporation’s consolidated share option plan, the principal terms of which are set
out in Appendix "A".
"Record Date" means 5:00 p.m. Pacific Daylight Time on April 10, 2012.
"Registered Shareholders" means registered holders of our Shares on the Record Date.
"RSU" means restricted share unit.
“SDP” means the Corporation’s consolidated share distribution plan, the principal terms of which are set out
in Appendix "B".
“SEC” means the U.S. Securities and Exchange Commission
"Shares" means common shares without par value in the capital of Ballard.
"TSX" means the Toronto Stock Exchange.
"US$" refers to United States currency.
40
APPENDIX "A"
DESCRIPTION OF OPTION PLAN
All directors, officers and employees of Ballard and its subsidiaries are eligible to participate in the
Option Plan. Former Ballard employees who were transferred to AFCC Automotive Fuel Cell Cooperation
Corp. ("AFCC") on January 31, 2008 (the "Transferred Employees") are also permitted to participate in the
Option Plan for so long as they remain employees of AFCC. New Ballard options may not be granted to
Transferred Employees under either the Option Plan or the prior option plans.
As at April 10, 2012, the total number of Shares issued and reserved and authorized for issue under
the Option Plan was 8,165,351 Shares, representing 9.7% of the issued and outstanding Shares as of April
10, 2012.
The number of options granted under the Option Plan may adjust if any share reorganization, stock
dividend or corporate reorganization occurs.
The Option Plan limits insider participation such that the number of Shares issued to insiders, within
any one-year period, and issuable to insiders, at any time, under the plan and any other Ballard equity-based
compensation arrangements, cannot exceed 10% of Ballard’s issued and outstanding Shares.
In any year, a non-executive Director’s participation in all Ballard equity-based compensation
arrangements is limited to that number of shares (or that number of securities in respect of underlying shares)
having a value of not more than C$100,000 on the date of grant, excluding any securities issued in respect of
the non-executive Director’s annual retainer.
Apart from the limits on Shares issued or issuable to insiders and to non-executive Directors,
described above, the Option Plan does not restrict the number of Shares that can be issued to any one person
or to Directors.
The exercise price of a Ballard option will be determined by the Board and is to be no less than the
closing price per Share on the TSX on the last trading day before the date the option is granted.
Ballard options may have a term of up to 10 years from the date of grant, and unless otherwise
determined by the Board, will vest in equal amounts on the first, second and third anniversaries of the date of
grant.
If an "accelerated vesting event" occurs, any outstanding option may be exercised at any time before
the 60th day after such event. An accelerated vesting event occurs when: (a) a person makes a take-over bid
that could result in that person or persons acting in concert acquiring at least two-thirds of Shares; (b) any
person or persons acting in concert acquire at least two-thirds of Shares; (c) there is a disposition of all or
substantially all of Ballard’s assets; (d) Ballard joins in any business combination that results in Ballard’s
shareholders owning one-third or less of the voting shares of the combined entity and Ballard is privatized
(or the parties to the business combination have publicly expressed an intention to privatize Ballard); or (e)
any other transaction is approved, a consequence of which is to privatize Ballard.
The Option Plan also contains a "double trigger" in the event of a take-over. Accordingly, vesting
will only be accelerated if the Board approves the acceleration. In such circumstances, the Board will also
have the ability to make such changes as it considers fair and appropriate, including accelerating vesting,
otherwise modifying the terms of options to assist the holder to tender into the take-over bid or terminating
options which have not been exercised prior to the successful completion of the accelerated vesting event.
Under the Option Plan each option will expire (or no longer be capable of being exercised) on the
earlier of:
(a)
(b)
the expiration date as determined by the Board, which date will not be more than 10
years from the date of grant; and
if the optionee is a director, officer or employee, the optionee ceases to hold such
position, except that, an option will be capable of exercise, if the optionee ceases to
be a director, officer or employee:
A-1
(i)
(ii)
(iii)
because of his or her death, for one year after the optionee dies;
as a result of voluntary resignation, for 30 days after the last day on which
the optionee ceases to be a director, or the officer or employee ceases to
work for Ballard; or
other than as a result of voluntary resignation (in the case of a director) or
termination other than for just cause (in the case of an officer or employee),
for 90 days after the last day on which the optionee ceases to be a director,
or the officer or employee ceases to work for Ballard (although in these
circumstances, the Chief Executive Officer has discretion to extend the
exercise period to up to one year after the optionee ceases to work for
Ballard).
In the event that the optionee dies, all previously unvested options vest and, in the circumstances
described in (b)(iv) above, the Chief Executive Officer has discretion to accelerate the vesting of unvested
options that would have otherwise vested in the next year. In the other circumstances described above, an
option is only capable of being exercised in respect of options that were vested at the time the optionee
ceased to be a director or ceased to work for Ballard.
In the event that an optionee becomes "totally disabled" (as defined in the Option Plan), his or her
options will continue to vest and be exercisable as they would have had the optionee continued to be a
director, officer or employee of Ballard.
Similarly, if an optionee becomes "retired" (as defined in the Option Plan), his or her options will
continue to vest and be exercisable as they would have had the optionee continued to be a director, officer or
employee of Ballard.
If an option would otherwise expire or cease to be exercisable during a blackout period or within
nine business days after the end of a blackout period (that is, a period during which employees and/or
directors cannot trade in securities of the Corporation because they may be in possession of insider
information), the expiry date of the option is extended to the date which is 10 business days after the end of
the blackout period.
The Board is entitled to make, at any time, and from time to time, and without obtaining shareholder
approval, any of the following amendments
(a)
(b)
amendments to the definitions and other amendments of a clerical nature;
amendments to any provisions relating to the granting or exercise of options,
including but not limited to provisions relating to the term, termination, amount and
payment of the subscription price, vesting period, expiry or adjustment of options,
provided that, without shareholder approval, such amendment does not entail:
(i)
(ii)
a change in the number or percentage of Shares reserved for issuance under
the plan;
a reduction in the exercise price of an option or the cancellation and
reissuance of options;
(iii)
an extension of the expiry date of an outstanding option;
(iv)
an increase to the maximum number of Shares that may be:
(A)
(B)
issued to insiders within a one-year period; or
issuable to insiders at any time,
under all of Ballard’s equity-based compensation arrangements, which could exceed
10% of the issued and outstanding Shares at that time;
(v)
an increase in the maximum number of securities that can be granted to
directors (other than directors who are also officers) under all of Ballard’s
A-2
equity-based compensation arrangements, which could exceed such number
of securities in respect of which the underlying Shares have a Fair Market
Value (as defined in the plan) on the date of grant of such securities of
C$100,000;
(vi)
permitting options to be transferable or assignable other than for normal
course estate settlement purposes; or
(vii)
a change to the amendment provisions of the plan;
(c)
(d)
(e)
(f)
the addition or amendment of terms relating to the provision of financial assistance
to optionees or resulting in optionees receiving any Ballard securities, including
pursuant to a cashless exercise feature;
any amendment in respect of the persons eligible to participate in the plan, provided
that, without shareholder approval, such amendment does not permit non-employee
directors to re-gain participation rights under the plan at the discretion of the Board
if their eligibility to participate had previously been removed or increase limits
previously imposed on non-employee director participation;
such amendments as are necessary for the purpose of complying with any changes in
any relevant law, rule, regulation, regulatory requirement or requirement of any
applicable stock exchange or regulatory authority; or
amendments to correct or rectify any ambiguity, defective provision, error or
omission in the plan or in any agreement to purchase options.
Options are not assignable except as permitted by applicable regulatory authorities in connection
with a transfer to an optionee’s registered retirement savings plan or registered retirement income fund or to
the personal representative of an optionee who has died.
A-3
APPENDIX "B"
DESCRIPTION OF SDP
The SDP is a single plan divided into the following three principal sections:
(a)
(b)
A deferred share unit section for senior executives (the "DSU Plan for Executive
Officers"). Under the SDP, DSUs are granted at the election of each executive
officer of Ballard who is eligible (as determined by the Board) in partial or full
payment of his or her annual bonus, which otherwise is paid in Shares.
A deferred share unit section for directors (the "DSU Plan for Directors"). Under
the DSU Plan for Directors, each independent outside director elects annually the
proportion (0% to 100%) of his or her annual retainer that he or she wishes to
receive in DSUs.
Under the SDP, DSUs are credited to an account maintained for each eligible person by
Ballard. Each DSU is convertible into one Share. The number of DSUs to be credited to an
eligible person is determined on the relevant date by dividing the amount of the eligible
remuneration to be deferred into DSUs by the fair market value per Share, being a price not
less than the closing sale price at which the Shares are traded on the TSX (in respect of a
DSU issued or to be issued to a person who is resident in any country other than the U.S.) or
NASDAQ (in respect of a DSU issued or to be issued to a person who is resident in the U.S.)
on the trading day before the relevant date. In the case of the executive officers, the relevant
date is set by the Board but if such date occurs during a trading blackout, the number of
DSUs will be determined on the first trading day after the day on which the blackout is
lifted. For directors, DSUs are credited at the time specified by the Board (currently DSUs
are granted in equal instalments over the course of a year, at the end of each quarter).
On any date on which a dividend is paid on the Shares, an eligible person's account will be
credited with the number of DSUs calculated by: (i) multiplying the amount of the dividend
per Share by the aggregate number of DSUs that were credited to that account as of the
record date for payment of the dividend; and (ii) dividing the amount obtained in (i) by the
fair market value (determined as set out above) of Shares on the date on which the dividend
is paid.
A departing director or executive officer may receive Shares in respect of the DSUs credited
to that person's account (at the ratio of one Share per DSU, subject to the deduction of any
applicable withholding tax in the case of an eligible person who is a United States citizen or
resident for the purpose of United States tax). A DSU, however, cannot be redeemed until
such time as the director leaves the Board or the executive officer ceases to work for Ballard,
and its value on redemption will be based on the value of Shares at that time. All DSUs vest
immediately as they are issued in respect of remuneration that would have otherwise been
paid in Shares or cash. DSUs do not expire. Except in the case of death, DSUs can only be
assigned with consent.
(c)
A restricted share unit section (the "RSU Plan"). All employees (excluding non-
executive directors) are eligible to participate in the RSU Plan.
The vesting of RSUs issued under the SDP occurs up to three years from the date of
issuance, subject to the achievement of any performance criteria which may be set by the
Board and to earlier vesting upon the occurrence of any accelerated vesting event (as defined
in the SDP). Each RSU is convertible into one Share, which will be issued under the SDP.
A "double trigger" is included in the event of a take-over. Accordingly, in the event of a
take-over the accelerated vesting of an RSU (technically, the shortening of the restriction
period) will only occur if the Board so determines. In such circumstances, the Board will
also have the ability to make such changes as it considers fair and appropriate in the
B-1
circumstances, including the date on which the restriction period ends or otherwise
modifying the terms of RSUs to assist the holder to tender into the take-over bid.
In addition, the Board has the discretion to deem performance criteria or other conditions to
have been met on the occurrence of an accelerated vesting event.
If any performance criteria or other conditions specified in an award of RSUs is not met on
or before the last day of the restriction period applicable to the relevant grant (usually three
years less one day from the date of grant), the RSUs will expire and the participant will no
longer be entitled to receive any Shares upon conversion of those RSUs.
All RSUs awarded to a participant under the SDP will also expire on the last day on which
the participant works for Ballard or any of its subsidiaries (or, in the case of a Transferred
Employee, AFCC or its subsidiaries) except that,
(a)
(b)
in the event of the participant's death or total disability, the performance criteria and
conditions specified in the participant's award of RSUs will, unless otherwise
specified in the award, be deemed satisfied and the RSUs will be converted into
Shares; and
if the participant is retired, the vesting of RSUs will continue on the same terms as
they would have had the participant continued to be an officer or employee of
Ballard.
RSUs cannot be assigned other than by will or the laws of descent and distribution.
Under the SDP, the Board can elect to satisfy the conversion of RSUs through Ballard
Shares purchased on the open market.
As of April 10, 2012, the total number of Shares issued and reserved and authorized for issue under
the SDP was 692,983 Shares, representing 0.8% of the issued and outstanding Shares as of April 10, 2012.
The SDP limits insider participation such that the number of Shares issued to insiders, within any
one-year period, and issuable to insiders, at any time, under the plan and any other Ballard equity-based
compensation arrangements, cannot exceed 10% of Ballard’s issued and outstanding Shares.
Under the SDP, in any year, a non-executive Director’s participation in all Ballard equity-based
compensation arrangements is limited to that number of shares (or that number of securities in respect of
underlying shares) having a value of not more than C$100,000 on the date of grant, excluding any securities
issued in respect of the non-executive Director’s annual retainer.
The SDP does not limit the number of DSUs that can be issued to executive officers.
The SDP does not limit the number of RSUs that can be issued to any one participant.
Apart from the limits on Shares issued or issuable to insiders and non-executive Directors described
above, the SDP does not restrict the number of Shares that can be issued to any one person, to executive
officers or to Directors.
The SDP permits the Board, without obtaining shareholder approval, to amend any provision of the
SDP and/or any RSU and/or DSU governed by it (whether outstanding or otherwise) (subject to any stock
exchange or regulatory requirement at the time of any such amendment) including, without limitation, any of
the following amendments:
(a)
(b)
amendments to the definitions and other amendments of a clerical nature;
amendments to any provisions relating to the issuance of Shares, granting or
conversion of DSUs or RSUs, including but not limited to provisions relating to the
term, termination, and number of DSUs or RSUs to be awarded, provided that,
without shareholder approval, such amendment does not entail:
B-2
(i)
(ii)
(iii)
(iv)
a change in the number or percentage of Shares reserved for issuance under
the plan;
a reduction of the issue price of the Shares issued under the plan or the
cancellation and reissue of Shares;
a reduction to the fair market value used to calculate the number of DSUs to
be awarded;
an extension of time for redemption of a DSU or an extension beyond the
original restriction period of a RSU;
(v)
an increase to the maximum number of Shares that may be:
(A)
(B)
issued to insiders within a one-year period; or
issuable to insiders at any time,
under all of Ballard’s equity-based compensation arrangements, which could exceed
10% of the issued and outstanding Shares at that time;
(vi)
an increase in the maximum number of securities that can be granted to
directors (other than directors who are also officers) under all of Ballard’s
equity-based compensation arrangements, which could exceed such number
of securities in respect of which the underlying Shares have a Fair Market
Value (as defined in the plan) on the date of grant of such securities of
C$100,000;
(vii) permitting DSUs or RSUs to be transferable or assignable other than for
normal course estate settlement purposes; or
(viii) a change to the amendment provisions of the plan;
(c)
any amendment in respect of the persons eligible to participate in the plan (or any
part of it), provided that, without shareholder approval, such amendment does not
permit non-employee directors to:
(i)
(ii)
participate as holders of RSUs at the discretion of the Board;
re-gain participation rights under any section of the plan at the discretion of
the Board if their eligibility (as a class) to participate had previously been
removed; or
(iii)
increase limits previously imposed on non-employee director participation;
(d)
(e)
such amendments as are necessary for the purpose of complying with any changes in
any relevant law, rule, regulation, regulatory requirement or requirement of any
applicable stock exchange or regulatory authority; or
amendments to correct or rectify any ambiguity, defective provision, error or
omission in the plan or in any option agreement, notice to redeem DSUs or RSU
agreement.
B-3
FINANCIAL INFORMATION
Management’s Discussion and Analysis
Consolidated Financial Statements
F-1
MANAGEMENT’S DISCUSSION AND ANALYSIS
This discussion and analysis of financial condition and results of operations of Ballard
Power Systems Inc. (“Ballard”, “the Company”, “we”, “us” or “our”) is prepared as at
February 22, 2012 and should be read in conjunction with the audited consolidated
financial statements and accompanying notes for the year ended December 31, 2011.
The results reported herein are presented in U.S dollars unless otherwise stated and
have been prepared in accordance with International Financial Reporting Standards
(“IFRS”). Additional information relating to the Company, including our Annual
Information Form, are filed with Canadian (www.sedar.com) and U.S. securities
regulatory authorities (www.sec.gov) and are also available on our website at
www.ballard.com.
BUSINESS OVERVIEW
At Ballard, we are building a clean energy growth company. We are recognized as a
world leader in proton exchange membrane (“PEM”) fuel cell development and
commercialization. Our principal business is the design, development, manufacture,
sale and service of fuel cell products for a variety of applications, focusing on motive
power (material handling and buses) and stationary power (backup power and
distributed generation) markets. We also provide engineering services for a variety of
fuel cell applications.
A fuel cell is an environmentally clean electrochemical device that combines hydrogen
fuel with oxygen (from the air) to produce electricity. The hydrogen fuel can be
obtained from natural gas, kerosene, methanol or other hydrocarbon fuels, or from
water through electrolysis. Ballard fuel cell products feature high fuel efficiency, low
operating temperature, low noise and vibration, compact size, quick response to
changes in electrical demand, modular design and environmental cleanliness. Embedded
in each Ballard PEM fuel cell product lies a stack of unit cells designed with our
proprietary esenciaTM technology which draws on intellectual property from our patent
portfolio together with our extensive experience in key areas of fuel cell stack operation,
system integration, and fuel processing.
We provide our customers with the positive economic and environmental benefits unique
to fuel cell power. We plan to build value for our shareholders by developing,
manufacturing, selling and servicing industry-leading fuel cell products to meet the
needs of our customers in select target markets. We are focused on our core
competencies of PEM fuel cell design, development, manufacture, sales and service.
Over the past five years, we have refined the Company’s business strategy to establish a
sharp focus on what we believe to be key growth opportunities with near-term
commercial prospects in our core fuel cell markets. To support this strategy, we have
focused on bolstering our cash reserves to strengthen our capability to execute on our
clean energy growth priorities.
In March 2010, we completed a sale and leaseback agreement whereby we sold our
head office building in Burnaby, British Columbia in return for gross cash proceeds of
$20.4 million and then leased this property back for an initial 15-year term plus two
renewal options. In December 2009 and July 2010, we completed agreements with a
financial institution to monetize our rights under a Share Purchase Agreement with Ford
F-2
Motor Company (“Ford”) relating to our 19.9% equity investment in AFCC Automotive
Fuel Cell Cooperation Corp. (“AFCC”) for an initial cash payment in 2009 of $37.0 million
and a subsequent cash payment in 2010 of $5.0 million.
In March 2011, we completed a sub-lease agreement with Mercedes-Benz Canada Inc.
(“MBC”) for the rental of 21,000 square feet of surplus production space in our
specialized fuel cell manufacturing facility located in Burnaby, British Columbia. This
sub-lease is effective from August 1, 2011 until July 31, 2019 and is expected to result
in annual savings of approximately $1 million in real estate and related overhead costs.
In June 2011, we obtained a $7.0 million Canadian award agreement from Sustainable
Development Technology Canada (“SDTC”) for the period from 2011 to 2013 to be used
to extend the operating life and lower the product cost of FCgen™-1300, the fuel cell
product that powers Ballard’s CLEARgen™ distributed generation system. This award is
in addition to a $4.8 million Canadian award agreement from SDTC announced in 2010
for the period from 2010 to 2012 to be used to further develop fuel cell power module
technology for the transit bus market. These awards are recorded primarily as a cost
offset against our research and product development expenses as the expenses are
incurred on these programs.
We are based in Canada, with head office, research and development, testing and
manufacturing facilities in Burnaby, British Columbia. In addition, we have sales,
research and development and manufacturing facilities in Lowell, Massachusetts and
Hobro, Denmark.
In 2011, we reported our results in the following operating segments:
1. Fuel Cell Products: fuel cell products and services for motive power (material handling
and bus markets) and stationary power (backup power and distributed generation
markets) applications; and engineering services for a variety of fuel cell applications;
2. Contract Automotive: contract manufacturing services provided primarily for Daimler
AG (“Daimler”);
3. Material Products: carbon fiber products primarily for automotive transmissions and
gas diffusion layers (“GDLs”) for fuel cells.
During the last half of 2011, we refined the Company’s business strategy and
established a new engineering services operating unit in order to leverage our expertise
in fuel cell design, prototyping, manufacturing and servicing. This new operating unit
offers a full suite of fuel cell engineering solutions for a variety of fuel cell applications
and is recorded in our core Fuel Cell Products segment. As a result of this increased
management focus on engineering services, and the completion of our Contract
Automotive manufacturing supply agreement with Daimler in October 2011, we have
made changes to the composition of our operating segments to align to our current
reporting structure. As a result, revenues of $2.1 million for the first three quarters of
2011, and revenues of $1.5 million for 2010, previously recorded in our Contract
Automotive segment relating to engineering services have been retroactively restated to
the Fuel Cell Products segment. While the Contract Automotive segment will continue to
be reported on in 2012 from a comparative perspective, it will cease to be an active
operating unit as of the end of 2011.
2
SELECTED ANNUAL FINANCIAL INFORMATION
Years ended December 31 (Expressed in thousands of U.S. dollars, except per share amounts)
Revenues
Net income (loss) attributable to Ballard
Net income (loss) per share attributable to Ballard
Adjusted EBITDA (1)
Cash, cash equivalents and short-term investments
2011
2010
2009
$
$
$
$
$
76,009
(33,420)
(0.40)
(22,295)
46,194
$
$
$
$
$
65,019
$
46,722
(31,532) $
(3,258)
(0.37) $
(0.04)
(26,163) $
(38,974)
74,445
$
82,231
Total assets
$ 165,290
$ 190,027
$ 195,348
1 Adjusted EBITDA is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP
measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by
other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section.
RESULTS OF OPERATIONS – Fourth Quarter of 2011
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2011
2010
$ Change
% Change
Fuel Cell Products
$
16,871
$
13,723
• $
Contract Automotive
Material Products
Revenues
Cost of goods sold
101
4,024
20,996
16,854
3,014
4,346
21,083
15,987
Gross Margin
$
4,142
$
5,096
$
Gross Margin %
20%
24%
3,148
(2,913)
(322)
(87)
867
(954)
n/a
23%
(97%)
(7%)
-%
5%
(19%)
n/a
Our revenues for the fourth quarter of 2011 of $21.0 million were flat compared to the
fourth quarter of 2010 as increases in our core Fuel Cell Products segment of $3.1
million were offset by declines in Contract Automotive revenues of $2.9 million and
declines in Material Products revenues of $0.3 million.
In our core Fuel Cell Products segment, fourth quarter of 2011 revenues increased 23%,
or $3.1 million, to $16.9 million compared to the fourth quarter of 2010, primarily as a
result of our increased focus on building our engineering services business. This increase
in engineering services revenues, combined with relatively stable Stationary power
revenues, was partially offset by lower Motive power market revenues. In our Motive
power market, higher material handling revenues as a result of increased shipments to
support Plug Power Inc.’s GenDrive™ systems were more than offset by lower fuel cell
bus revenues. Fuel cell bus revenues in the fourth quarter of 2011 were lower than
anticipated (see 2011 Revenue section) as new fourth quarter of 2011 shipments to Van
Hool NV and UNDP-EMTU Brazil, were lower than fuel cell bus revenues in the fourth
quarter of 2010 arising from shipments to Daimler and to the Transport for London fuel
cell bus program. Stationary power revenues were relatively stable quarter over quarter
as increased shipments of Dantherm Power backup power system products including a
150kW fuel cell system supplied to Anglo American Platinum Limited, were offset by a
decline in shipments of hydrogen-based backup power units.
The following table provides a summary of our fourth quarter fuel cell stack shipments):
3
Material handling
Backup power
Distributed generation
Other
Fuel Cell Stack Shipments
Three months ended December 31,
2011
799
124
7
12
942
2010
345
654
52
68
1,119
% Change
132%
(81%)
(87%)
(82%)
(16%)
In our Contract Automotive and Material Products segments, fourth quarter of 2011
revenues declined 44%, or $3.2 million, to $4.1 million compared to the fourth quarter
of 2010. Contract Automotive segment revenues were down significantly as we
completed our supply agreement with Daimler and made the final shipments of
FCvelocity 1100 fuel cell products for Daimler’s Hyway 2/3 programs in October 2011.
Material Products segment revenues were down slightly as increased volumes of carbon
friction material products were offset by lower fuel cell GDL shipments.
Gross margins declined to $4.1 million, or 20% of revenues, for the fourth quarter of
2011, compared to $5.1 million, or 24% of revenues, for the fourth quarter of 2010. The
decline in gross margin is primarily as a result of lower shipments of higher margin fuel
cell bus units combined with lower platinum prices in December 2011 which negatively
impacted our fourth quarter platinum recycling efforts and the mark to market value of
our 2012 platinum purchase contracts. These gross margin declines were partially offset
by our ongoing product cost reduction efforts across all of our platforms.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2011
2010
$ Change
% Change
Research and Product
Development
General and Administration
Sales and Marketing
Operating costs
Less: Stock-based compensation
(expense) recovery
$
4,169
$
2,308
1,892
8,369
257
4,353
3,866
2,550
10,769
$
(184)
(1,558)
(658)
(2,400)
(1,114)
1,371
(4%)
(40%)
(26%)
(22%)
123%
Cash Operating Costs
$
Cash Operating Costs is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP
measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by
other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating expenses
for stock-based compensation expense, depreciation and amortization, restructuring charges and acquisition costs.
(1,029)
(11%)
8,626
9,655
$
$
Cash Operating Costs (see Supplemental Non-GAAP Measures) for the fourth quarter of
2011 were $8.6 million, a decline of $1.0 million, or 11%, compared to the fourth
quarter of 2010. The 11% reduction in the fourth quarter of 2011 was driven by lower
general and administrative and sales and marketing expenses primarily as a result of a
downward adjustment to accrued compensation expense as a result of not achieving our
corporate performance targets relating to revenue and Adjusted EBITDA for the year.
While excluded from Cash Operating Costs, stock-based compensation expense declined
significantly in the fourth quarter of 2011 to a recovery position, as a result of a
downward adjustment to accrued share-based compensation expense as certain
outstanding restricted share units failed to meet the vesting criteria and were cancelled.
4
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2011
2010
$
Change % Change
Adjusted EBITDA
$
(3,765)
$
(3,588)
$
(177)
(5%)
EBITDA and Adjusted EBITDA are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-
GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures
presented by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, finance and other income, and acquisition costs.
Adjusted EBITDA (see Supplemental Non-GAAP Measures) for the fourth quarter of 2011
was ($3.7) million, flat compared to the fourth quarter of 2010. Gross margin declines of
$1.0 million in the fourth quarter of 2011 were primarily a result of lower shipments of
higher margin fuel cell bus units, combined with lower platinum prices in December
2011 which negatively impacted our fourth quarter platinum recycling proceeds, and the
mark to market value of our 2012 platinum purchase contracts. This decline in gross
margin was offset by lower Cash Operating Costs of $1.0 million primarily as a result of
a downward adjustment to accrued compensation expense as a result of not achieving
our corporate performance targets relating to revenue and Adjusted EBITDA for the
year.
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2011
2010
$
Change % Change
Net loss attributable to Ballard
$
(7,289)
$
(8,998)
$
1,709
19%
Net loss attributable to Ballard for the fourth quarter of 2011 was ($7.3) million, or
($0.09) per share, compared to net loss of ($9.0) million, or ($0.11) per share, in the
fourth quarter of 2010. The $1.7 million reduction in net loss for the fourth quarter of
2011 was driven by lower stock-based compensation expense of $1.4 million.
Net loss in the fourth quarter of 2011 includes a $1.7 million impairment charge related
to the write-down of manufacturing equipment whereas net loss in the fourth quarter of
2010 includes an acceleration of depreciation expense of $2.3 million.
Cash provided by operating activities
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Cash provided by operating activities
$
3,876
$
1,794
2011
2010
$
$
Change % Change
2,082
116%
Cash provided by operating activities in the fourth quarter of 2011 was $3.9 million, an
increase of $2.1 million compared to cash provided by operating activities of $1.8 million
in the fourth quarter of 2010. The $2.1 million increase was driven by improvements in
changes of working capital of $1.7 million combined with reductions in cash operating
losses of $0.4 million.
5
RESULTS OF OPERATIONS –2011
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Years ended December 31,
2011
2010
$ Change
% Change
Fuel Cell Products
$
46,468
$
34,244
$
12,224
Contract Automotive
Material Products
Revenues
Cost of goods sold
9,305
20,236
76,009
62,124
9,811
20,964
65,019
54,887
Gross Margin
$
13,885
$
10,132
$
Gross Margin %
18%
16%
(506)
(728)
10,990
7,237
3,753
n/a
36%
(5%)
(3%)
17%
13%
37%
n/a
Our revenues in 2011 increased 17%, or $11.0 million, to $76.0 million, compared to
$65.0 million for 2010. The 17% increase was driven by increases in our core Fuel Cell
Products segment of 36%, or $12.2 million, which more than offset minor declines in our
Contract Automotive and Material Products revenues.
While revenue growth for the year of 17% was less than expected, and less than our
original 2011 full year guidance for growth in excess of 30%, the negative variance was
largely attributable to delays in the timing of module shipments (particularly fuel cell bus
modules to Brazil) initially planned in 2011 that are now expected in 2012. While we
achieved significant revenue growth in 2011, the heightened risk factors to our original
2011 revenue guidance that were identified in our third quarter of 2011 Outlook update,
ultimately ended up materializing. In particular, delays in the timing of completion of
negotiations with Sao Paulo Transit Agency in Brazil for a 10 to 30 fuel cell bus RFP,
resulted in the deferral of approximately $5 million of expected 2011 fuel cell bus
module shipments. In addition, unexpected delays in the closing of fuel cell bus
contracts in the United States and Europe, and planned backup power system contracts
in Dantherm Power, resulted in an additional deferral of approximately $3.5 million from
2011. While delays in the timing of planned shipments negatively impacted 2011 results,
these delays had a positive impact on our year-end 12-month order book which
increased to $45.3 million, an improvement of 29% over 2010.
In our core Fuel Cell Products segment, 2011 revenues improved 36%, or $12.2 million,
to $46.5 million compared to 2010, due to improvements in both our Motive power and
Stationary power markets, combined with our increased focus on building our
engineering services business. Motive power market increases were driven by higher fuel
cell bus revenues as a result of new shipments in 2011 to Tuttotrasporti, Van Hool NV,
UNDP, Daimler and FTA National Fuel Cell Bus Programs, partially offset by slightly lower
material handling market revenues. Material handling revenues were down slightly due
to a decline in service revenues and a change in sales mix to lower power units, which
offset the overall impact of the increase in volume in support of Plug Power Inc.’s
GenDrive™ systems. Stationary power revenues increased as a result of a change in
sales mix to larger scale hydrogen-based backup power units which offset the overall
impact of the decline in volume, increased shipments of distributed generation units,
increased shipments of Dantherm Power backup power systems, and work performed on
the K2 Pure Solutions and Toyota distributed power CLEARgen™ fuel cell system
6
projects.
The following table provides a summary of our fuel cell stack shipments for the year:
Material handling
Backup power
Distributed generation
Other
Fuel Cell Stack Shipments
Years ended December 31,
2011
1,422
1,447
176
220
3,265
2010
1,100
1,664
52
198
3,014
% Change
29%
(13%)
238%
11%
8%
In our Contract Automotive and Material Products segments, 2011 revenues declined
4%, or $1.2 million, to $29.5 million, compared to 2010. Contract Automotive segment
revenues of $9.3 million were down 5%, or $0.5 million, due to slightly lower shipments
of FCvelocity 1100 fuel cell products to Daimler. As we have now completed all
FCvelocity 1100 shipments to Daimler under our initial supply agreement, this segment
will cease to be an operating unit as of the end of 2011. Material Products segment
revenues of $20.2 million were down 3%, or $0.7 million, as increased shipments of fuel
cell GDL products were offset by lower carbon friction material product revenues.
Gross margins increased to $13.9 million, or 18% of revenues, for 2011, compared to
$10.1 million, or 16% of revenues, for 2010. The increase in gross margin is primarily as
a result of increased revenues in all of our Fuel Cell Products markets (except material
handling) including increased shipments of higher margin fuel cell bus modules,
combined with our ongoing product cost reduction efforts across all of our platforms,
lower unabsorbed manufacturing overhead as a result of the higher overall volume, and
improved warranty performance on our material handling and backup power products.
These gross margin improvements were partially offset by lower margins in our Material
Products segment.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Years ended December 31,
2011
2010
$ Change
% Change
Research and Product
Development
General and Administration
Sales and Marketing
Operating costs
Less: Stock-based compensation
$ 21,623
$
23,766
$
(2,143)
10,838
9,487
41,948
(2,646)
13,044
8,847
45,657
(3,579)
(2,206)
640
(3,709)
933
(9%)
(17%)
7%
(8%)
26%
Cash Operating Costs
$
Cash Operating Costs is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP
measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by
other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating expenses
for stock-based compensation expense, depreciation and amortization, restructuring charges and acquisition costs.
$ 39,302
(2,776)
42,078
(7%)
$
Cash Operating Costs (see Supplemental Non-GAAP Measures) for 2011 were $39.3
million, a decline of $2.8 million, or 7%, compared to 2010. The 7% reduction in 2011
was primarily as a result of operational efficiencies, the aggressive pursuit of
government funding for our research and product development efforts, the redirection of
engineering resources to revenue bearing engineering service projects, lower accrued
compensation expense as a result of not achieving our corporate performance targets
7
relating to revenue and Adjusted EBITDA for the year, and by lower operating costs in
Dantherm Power as a result of our cost reduction efforts in the third quarter of 2010
which included a 25% workforce reduction. These expense reductions in 2011 were
partially offset by increased investment in sales and marketing capacity in support of
commercial efforts, and by the negative effects (approximately $2.0 million) of a 4%
stronger Canadian dollar relative to the U.S. dollar on our Canadian operating cost base.
While excluded from Cash Operating Costs, stock-based compensation expense declined
26% in 2011, as compared to 2010, as a result of lower accrued share-based
compensation expense as certain outstanding restricted share units failed to meet the
vesting criteria and were cancelled.
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Years ended December 31,
2011
2010
$
Change % Change
Adjusted EBITDA
$
(22,295)
$
(26,163)
$
3,868
15%
EBITDA and Adjusted EBITDA are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-
GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures
presented by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, finance and other income, and acquisition costs.
Adjusted EBITDA (see Supplemental Non-GAAP Measures) for 2011 was ($22.3) million,
an improvement of $3.9 million, or 15%, compared to 2010. The 15% reduction in
Adjusted EBITDA loss in 2011 was driven by gross margin improvements of $3.8 million
primarily as a result of the 17% increase in revenues, and by lower Cash Operating
Costs of $2.8 million primarily as a result of our continued cost optimization efforts,
which more than offset the negative impacts (approximately $2.0 million) of a 4%
stronger Canadian dollar relative to the U.S. dollar on our Canadian operating cost base.
A 1% increase in the Canadian dollar, relative to the U.S. dollar, negatively impacts
annual Cash Operating Costs and Adjusted EBITDA by approximately $0.4 million to
$0.5 million. These improvements in Adjusted EBITDA were partially offset by
restructuring charges of $1.4 million in 2011, relating to a corporate leadership
leadership
restructuring
restructuring initiated in March 2011, and by a decline in the net loss attributable to
Dantherm Power’s non-controlling interests of $1.2 million.
in September 2011 and a Dantherm Power
initiated
As part of our focus on profitability, we have taken steps to reduce our cost base in
2011. In addition to the measures taken earlier in the year at Dantherm Power to
streamline its organization with the reduction in the number of executive officers, a
similar action was taken at corporate headquarters in September of 2011, with a
reduction in the number of executive officers from six to five. These actions have
resulted in the above noted restructuring charge of $1.4 million for the year.
While improvement in Adjusted EBITDA of 15% for the year was less than expected and
less than our original 2011 full year guidance for improvement in excess of 40%, the
negative variance was largely attributable to the above noted delays in the timing of fuel
cell bus shipments, combined with the above noted negative foreign exchange impacts
of approximately $2.0 million and restructuring charges of $1.4 million that we were
unable to offset. The heightened risk factors to our original 2011 Adjusted EBITDA
guidance that were identified in our third quarter of 2011 Outlook update ultimately
ended up materializing.
8
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Years ended December 31,
2011
2010
$
Change % Change
Net loss attributable to Ballard
$
(33,420)
$
(31,532)
$
(1,888)
(6%)
Net loss attributable to Ballard for 2011 was ($33.4) million, or ($0.40) per share,
compared to net loss of ($31.5) million, or ($0.37) per share, in 2010. Net loss in 2010
includes a $4.8 million transactional gain related to the monetization of the Share
Purchase Agreement with Ford, as well as a gain on sale of property, plant and
equipment of $3.3 million related to the land portion of the sale and leaseback of our
head office building. Net loss in 2011 includes a $1.7 million impairment charge related
to a write-down of manufacturing equipment.
Excluding the impact of these transactional gains of $8.1 million in 2010 and impairment
charges of $1.7 million in 2011, Normalized Net Loss (see Supplemental Non-GAAP
Measures) in 2011 would have improved by $7.9 million, or 20%, as compared to 2010.
Cash used by operating activities
(Expressed in thousands of U.S. dollars)
Years ended December 31,
Cash used by operating activities
$
(33,221)
$
(29,312)
2011
2010
$
$
Change % Change
(3,909)
(13%)
Cash used by operating activities in 2011 increased by ($3.9) million to ($33.2) million,
compared to ($29.3) million for 2010. The increase in cash used by operating activities
of ($3.9) million was driven by increased working capital requirements of ($10.2)
million, which more than offset reductions in cash operating losses of $6.3 million.
Total working capital requirements of ($6.7) million in 2011 were driven by higher
accounts receivable of $4.3 million as a result of the timing of revenues and the related
customer collections, combined with increased inventory levels of $1.3 million to support
future growth. This compares to total working capital sources of $3.5 million in 2010.
OPERATING EXPENSES AND OTHER ITEMS
Research and product development expenses
(Expressed in thousands of U.S. dollars)
Research and product development
Research and product development expense
Less: depreciation and amortization expense
Research and product development
(Expressed in thousands of U.S. dollars)
Research and product development
Research and product development expense
Less: depreciation and amortization expense
Research and product development
Three months ended December 31,
2011
5,125
(956)
4,169
2011
25,480
(3,857)
21,623
$
$
$
$
$
$
$
$
$
$
$
$
2010
$
Change
% Change
6,887
(2,534)
4,353
$
$
$
(1,762)
1,578
(184)
(26%)
62%
(4%)
Years ended December 31,
2010
$
Change
% Change
28,749
(4,983)
23,766
$
$
$
(3,269)
1,126
(2,143)
(11%)
23%
(9%)
Research and product development expenses for the three months ended December 31,
2011 were $5.1 million, a decrease of $1.8 million, or 26%, compared to the
corresponding period of 2010. Excluding depreciation and amortization expense of $1.0
million and $2.5 million, respectively, research and product development expense
9
declined $0.2 million, or 4%, compared to 2010. Depreciation and amortization expense
of $2.5 million in the fourth quarter of 2010 includes a charge related to the acceleration
of depreciation expense of $1.5 million for research and product development assets
that were considered no longer in use or impaired.
Research and product development expenses for the year ended December 31, 2011
were $25.5 million, a decrease of $3.3 million, or 11%, compared to 2010. Excluding
depreciation and amortization expense of $3.9 million and $5.0 million, respectively,
research and product development expense declined $2.1 million, or 9%, compared to
2010.
The respective 4% and 9% reductions in 2011 were primarily as a result of the
aggressive pursuit of government funding for our research and product development
efforts, the redirection of engineering resources to revenue bearing engineering service
projects, lower operating costs in Dantherm Power as a result of our cost reduction
efforts in the third quarter of 2010 which included a 25% workforce reduction, and
downward adjustments to accrued share-based and cash-based compensation expense
in 2011 as a result of not achieving our corporate performance targets relating to
revenue and Adjusted EBITDA for the year. Government research funding is reflected as
a cost offset to research and product development expenses. These expense reductions
and improved cost recoveries in 2011 were partially offset by the negative effects of a
4% stronger Canadian dollar relative to the U.S. dollar on our Canadian operating cost
base.
General and administrative expenses
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Restructuring expense
General and administrative
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Restructuring expense
General and administrative
2011
2,464
(77)
(79)
2,308
2011
12,500
(306)
(1,356)
10,838
$
$
$
$
$
$
$
$
Three months ended December 31,
2010
$
Change
% Change
$
$
$
$
$
$
$
$
5,026
(1,160)
-
3,866
$
$
$
$
(2,562)
1,083
(79)
(1,558)
(51%)
93%
n/a
(40%)
Years ended December 31,
2010
$
Change
% Change
14,777
(1,448)
(285)
13,044
$
$
$
$
(2,277)
1,142
(1,071)
(2,206)
(15%)
79%
376%
(17%)
General and administrative expenses for the three months ended December 31, 2011
were $2.5 million, a decrease of $2.6 million, or 51%, compared to the corresponding
period of 2010. Excluding depreciation and amortization expense and restructuring
charges, general and administrative expense declined $1.6 million, or 40%, compared to
2010. The 40% reduction in the fourth quarter of 2011 was driven by downward
adjustments to accrued share-based and cash-based compensation expense in 2011 as
a result of not achieving our corporate performance targets relating to revenue and
Adjusted EBITDA for the year, combined with lower impairment losses on trade
receivables. General and administrative expense includes impairment losses on trade
receivables of $0.3 million and $0.7 million, respectively, in the fourth quarters of 2011
and 2010. Depreciation and amortization expense of $1.2 million in the fourth quarter of
2010 includes a charge related to the acceleration of depreciation expense of $0.8
10
million for information technology assets that were considered no longer in use or
impaired.
General and administrative expenses for the year ended December 31, 2011 were $12.5
million, a decrease of $2.3 million, or 15%, compared to 2010. Excluding depreciation
and amortization expense and restructuring charges, general and administrative
expense declined $2.2 million, or 17%, compared to 2010. The 17% expense reduction
in 2011 was driven by lower accrued compensation expense combined with lower
impairment losses on trade receivables and the continued cost optimization efforts
across the company. General and administrative expense includes impairment losses on
trade receivables of $0.1 million and $0.7 million, respectively, in 2011 and 2010. These
expense reductions were partially offset by the negative effects of a 4% stronger
Canadian dollar relative to the U.S. dollar on our Canadian operating cost base.
Restructuring charges of $1.4 million in 2011 relate to a Dantherm Power leadership
restructuring initiated in March 2011 and a corporate leadership restructuring initiated in
September 2011, whereas the restructuring charge of $0.3 million in 2010 relates to a
25% workforce reduction initiated at Dantherm Power in August 2010.
Sales and marketing expenses
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: acquisition costs
Sales and marketing
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: acquisition costs
Sales and marketing
Three months ended December 31,
2011
1,892
-
1,892
2011
9,487
-
9,487
$
$
$
$
$
$
$
$
$
$
$
$
2010
$
Change
% Change
2,734
(184)
2,550
$
$
$
(842)
184
(658)
(31%)
100%
(26%)
Years ended December 31,
2010
$
Change
% Change
9,113
(266)
8,847
$
$
$
374
(266)
640
4%
100%
7%
Sales and marketing expenses for the three months ended December 31, 2011 were
$1.9 million, a decrease of $0.8 million, or 31% compared to the corresponding period
of 2010. The 31% reduction in the fourth quarter of 2011 was driven by downward
adjustments to accrued share-based and cash-based compensation expense as a result
of not achieving our corporate performance targets relating to revenue and Adjusted
EBITDA for the year.
Sales and marketing expenses for 2011 were $9.5 million, an increase of $0.4 million, or
4% compared to 2010. The 4% increase in 2011 was primarily as a result of increased
investment in sales and marketing capacity in support of commercial efforts, combined
with the negative effects of a 4% stronger Canadian dollar relative to the U.S. dollar on
our Canadian operating cost base. This increase was partially offset by lower accrued
compensation expenses and acquisition costs of $0.3 million in 2010 related to costs
incurred for the acquisition of Dantherm Power.
Finance and other income (loss) for the three months ended December, 2011 were
$0.1 million, a decrease of $0.5 million, compared to the corresponding period of 2010.
Finance and other income (loss) for the year ended December 31, 2011 were $0.2
million, an increase of $0.3 million, compared to 2010. The following table provides a
11
breakdown of our finance and other income (loss) for the reported periods:
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2011
2010
$ Change
% Change
Employee future benefit plan expense
$
(37)
$
(124)
$
Investment income
Foreign exchange gain (loss)
Other income
Finance and other income (loss)
77
38
-
155
484
46
87
(78)
(446)
(46)
70%
(50%)
(92%)
(100%)
$
78
$
561
$
(483)
(86%)
(Expressed in thousands of U.S. dollars)
Years ended December 31,
2011
2010
$ Change
% Change
Employee future benefit plan expense
$
(37)
$
(124)
$
Investment income
Foreign exchange gain (loss)
Other income
Finance and other income (loss)
303
(71)
-
323
(527)
224
87
(20)
456
70%
(6%)
86%
(224)
(100%)
$
195
$
(104)
$
299
288%
Employee future benefit plan expense for the three months and year ended December
31, 2011 were $0.1 million, respectively, compared to an expense of and $0.1 million,
respectively, for the corresponding periods of 2010. Employee future benefit plan
expense primarily represents the excess of interest cost over the expected return on
plan assets on a curtailed defined benefit pension plan for our current and former United
States employees.
Investment income approximated between $0.1 million and $0.3 million, respectively,
for the three months and years ended December 31, 2011 and 2010 and was earned on
our cash, cash equivalents and short-term investments.
liabilities (capital
Foreign exchange gains and losses are attributable to the effect of the changes in the
value of the Canadian dollar, relative to the U.S. dollar, on our Canadian dollar-
denominated net monetary position. At December 31, 2011, our Canadian dollar-
denominated assets (cash, cash equivalents and short-term investments approximated
our Canadian dollar-denominated
lease obligations, warranty
obligations and accounts payable and accrued liabilities), resulting in an insignificant
foreign exchange loss in 2011. During 2011, we increased our Canadian dollar
denominated cash reserves to better balance our overall balance sheet exposure to
currency fluctuations. The foreign exchange loss in 2010 of $0.5 million resulted
primarily from the impact of a strengthening Canadian dollar on our Canadian dollar-
denominated net liability position at that time. At December 31, 2010, our Canadian
dollar-denominated liabilities (capital lease obligations, warranty obligations and
accounts payable and accrued liabilities) exceeded our Canadian dollar-denominated
assets (cash and short-term investments).
Finance expense for the three months and year ended December 31, 2011 was $0.5
million and $1.4 million, respectively, compared to $0.3 million and $0.9 million,
respectively, for the corresponding periods of 2010. Finance expense relates primarily to
the sale and leaseback of our head office building in Burnaby, British Columbia which
12
was completed on March 9, 2010. Due to the long term nature of the lease, the
leaseback of the building qualifies as a finance (or capital) lease.
Gain on sale of property, plant and equipment for the year ended December 31,
2011 was $0.7 million and relates primarily to a gain on sale of property, plant and
equipment to Mercedes-Benz Canada Inc. in conjunction with the sub-lease of 21,000
square feet of surplus production space in Burnaby, B.C, effective in August 2011.
Gain on sale of assets for the year ended December 31, 2010 was $8.1 million, and
consists of a gain of $4.8 million related to the monetization of the Share Purchase
Agreement with Ford, and a gain of $3.3 million on the land component of the sale and
leaseback of our head office building in Burnaby, B.C. in March, 2010.
The $4.8 million gain resulted from the extinguishment of the contingent payment
related to the 2009 monetization of our rights under the Share Purchase Agreement with
Ford relating to our 19.9% equity investment in AFCC. This Share Purchase Agreement
has been fully monetized for $42.0 million, comprising an initial cash payment of $37.0
million received in 2009 and a subsequent contingent cash payment of $5.0 million
received in 2010.
The $3.3 million gain on the land component of the sale and leaseback of our head office
building in 2010 was retroactively recorded on our conversion to IFRS. Under former
Canadian GAAP, sale and leaseback gains are deferred and amortized over the term of
the lease when the leaseback is classified as an operating lease. Under IFRS, such gains
are recognized immediately if the sale and leaseback transaction results in an operating
lease, and is undertaken at fair value. As the land component of our March 2010 sale
and leaseback of our head office building was determined to be an operating lease and
therefore met this IFRS criteria for immediate gain recognition, the unamortized portion
of the deferred gain of $3.3 million attributed to the land leaseback has been recognized
in 2010 net income on application of IFRS, and the related deferred gain of $3.3 million
previously recorded under Canadian GAAP has been derecognized in the presented 2010
comparative financial information. The $6.2 million remaining balance of the $9.5 million
deferred gain initially recorded under former Canadian GAAP on the closing of this
transaction in 2010 relates solely to the building component of the sale and leaseback
transaction. This $6.2 million building component did not meet the above operating
lease criteria as it was determined to be a Finance (or “capital”) lease under IFRS and
therefore remains recorded as a deferred gain ($5.7 million deferred gain as of
December 31, 2011) which is being recognized to income under IFRS on a straight-line
basis over the term of the 15-year lease.
Impairment loss on property, plant and equipment for the three months and year
ended December 31, 2011 was $1.7 million and consists primarily of an impairment
charge related to a write-down of manufacturing equipment.
Net loss attributed to non-controlling interests for the three months and year
ended December 31, 2011 was $0.3 million and $2.7 million, respectively, compared to
$0.3 million and $3.9 million, respectively, for the corresponding periods of 2010.
Amounts represent the non-controlling interest of Dantherm A/S and Danfoss A/S in the
losses of Dantherm Power as a result of their 48% total equity interest. The improved
performance in 2011 at Dantherm Power is primarily a result of lower operating costs in
2011 as a result of our continued cost reduction efforts which included a leadership
13 restructuring in the first quarter of 2011 and a 25% workforce reduction initiated in the
third quarter of 2010. These benefits were partially offset by a restructuring charge
recorded in the first quarter of 2011 related to the above noted Dantherm Power
leadership restructuring.
SUMMARY OF QUARTERLY RESULTS
The following table provides summary financial data for our last eight quarters:
(Expressed in thousands of U.S. dollars, except per share amounts
Quarter ended,
which are expressed in thousands)
Revenues
Net income (loss) attributable to Ballard
Net income (loss) per share attributable to
Ballard, basic and diluted
Dec 31,
2011
Sep 30,
2011
Jun 30,
2011
$
$
$
20,996
(7,289)
(0.09)
$
$
$
20,602
(6,991)
(0.08)
$
$
$
19,112
(8,630)
(0.10)
$
$
$
Mar 31,
2011
15,299
(10,511)
(0.12)
Weighted average common shares outstanding
84,549
84,548
84,456
84,205
Revenues
Net income (loss) attributable to Ballard
Net income (loss) per share attributable to
Ballard, basic and diluted
Dec 31,
2010
Sep 30,
2010
$ 21,083
$
(8,998)
$
(0.11)
$
$
$
16,528
(5,559)
(0.07)
$
$
$
June 30,
2010
15,526
(10,411)
(0.12)
$
$
$
Mar 31,
2010
11,882
(6,564)
(0.08)
Weighted average common shares outstanding
84,140
84,128
84,127
84,012
Summary of Quarterly Results: There were no significant seasonal variations in our
quarterly results. Variations in our net income (loss) for the above periods were affected
primarily by the following factors:
• Revenues: Variations in fuel cell revenues reflect the timing of our customers’ fuel
cell vehicle, bus and fuel cell product deployments. Variations in fuel cell revenues
also reflect the timing of work performed and the achievements of milestones under
long-term fixed price contracts.
• Operating expenditures: Operating expenses were negatively impacted by
restructuring charges of $0.4 million in the third quarter of 2011 as a result of a
corporate leadership restructuring, restructuring charges of $1.0 million in the first
quarter of 2011 as a result of a leadership restructuring in Dantherm Power, and by
restructuring charges of $0.3 million in the third quarter of 2010 as a result of a 25%
workforce reduction at Dantherm Power. Restructuring charges are recognized in
general and administrative expense.
Operating expenses were negatively impacted in the fourth quarter of 2010 due an
acceleration of depreciation expense of $2.3 million for equipment that was
considered no longer in use or impaired. The $2.3 million depreciation charge was
recognized in product development expense ($1.5 million) and general and
administrative expense ($0.8 million).
Operating expenses also include the impact of changes in the value of the Canadian
dollar, versus the U.S. dollar, on our Canadian dollar denominated expenditures.
• Gain on sale of assets: The net loss for the first quarter of 2010 was positively
impacted by a gain on the sale of the land component of the sale and leaseback of
our head office building of $3.3 million. The net loss for the third quarter of 2010 was
positively impacted by a gain on the stub period monetization of the Share Purchase
14
Agreement with Ford of $4.8 million.
• Impairment loss on property, plant and equipment: The net loss for the fourth
quarter of 2011 was negatively impacted by an impairment charge of $1.7 million
related to the write-down of manufacturing equipment never put into use.
CASH FLOWS
Cash, cash equivalents and short-term investments were $46.2 million (or $41.6 million
net of Operating Facility draws of $4.6 million) at December 31, 2011, compared to
$74.4 million at the end of 2010. The decrease of ($28.2) million in 2011 was driven by
a net loss (excluding non-cash items) of ($26.5) million, working capital requirements of
($6.7) million and capital expenditures (net of proceeds on sale and leaseback of capital
equipment) of ($2.2) million. These outflows were partially offset by cash proceeds of
$1.7 million from the sale of property, plant and equipment to MBC in advance of the
sub-lease of 21,000 square feet of surplus production space in Burnaby, B.C., by
convertible debt financing of $1.7 million to Dantherm Power by the non-controlling
partners, and by the above noted net cash advances on our Operating Facility of $4.6
million.
For the three months ended December 31, 2011 and 2010, working capital requirements
resulted in cash inflows of $8.7 million and $7.0 million, respectively. In the fourth
quarter of 2011, net cash inflows of $8.7 million were driven by lower accounts
receivable of $3.3 million due primarily to the timing of collections of our fuel cell
product and service revenues, lower inventory of $1.9 million as we consumed
previously built-up inventory in order to fulfill the higher product shipments in the fourth
quarter, and higher deferred revenue and cost recovery of $2.0 million as we received
the next tranches of SDTC government funding for our distributed generation and bus
projects in advance of incurring the related research and product development
expenditures. Working capital inflows in the fourth quarter of 2010 of $7.0 million were
driven by lower inventory of $4.0 million as we consumed previously built-up inventory
in order to fulfill the higher product shipments in the fourth quarter, and higher deferred
revenue and cost recovery of $2.1 million as a result of the receipt of customer
payments and government funding awards in advance of work performed.
For the year ended December 31, 2011, working capital requirements resulted in cash
outflows of ($6.7) million, compared to inflows of $3.5 million for 2010. In 2011, net
cash outflows of ($6.7) million were driven by higher accounts receivable of ($4.3)
million due primarily to the timing of collections of our fuel cell product and service
revenues, higher inventory of ($1.3) million due primarily to the buildup of inventory to
support expected higher product shipments 2012, and by lower accounts payable and
accrued liabilities of ($1.7) million due primarily to the timing of supplier payments. In
2010, net cash inflows of $3.5 million were driven by increased accounts payable and
accrued liabilities of $2.9 million due primarily to higher 2010 accrued annual employee
bonuses as compared to 2009, combined with higher payables to suppliers as a result of
our increased inventory and production levels. In addition, net cash inflows in 2010
benefited from lower prepaid expenses of $1.3 million as a result of lower insurance and
information technology license renewal costs and higher deferred revenue and cost
recovery of $1.0 million as a result of the receipt of customer payments and government
funding awards in advance of work performed. These 2010 inflows were partially offset
by cash outflows as a result of increased inventory of ($2.4) million due to the buildup of
15 inventory to support expected future fuel cell shipments in 2011.
Investing activities resulted in cash outflows of ($15.5) million and ($3.8) million,
respectively, for the three months and year ended December 31, 2011, compared to
cash inflows of $9.8 million and $38.3 million, respectively, for the corresponding
periods in 2010. Changes in short-term investments resulted in cash outflows of ($15.6)
million and ($3.4) million, respectively, for the three months and year ended December
31, 2011, compared to cash inflows of $10.7 million and $17.7 million, respectively, for
the corresponding periods of 2010. Balances changed between cash equivalents and
short-term investments as we make investment decisions with regards to the term of
investments and our future cash requirements.
Other Investing activities in 2011 also include proceeds of $1.7 million received from
MBC on the closing of the facilities sub-lease agreement, proceeds on sale and leaseback
of capital equipment of $1.9 million, and capital expenditures of ($4.1) million primarily
for manufacturing equipment in order to build production capacity. Other investing
activities in 2010 include net proceeds received on the closing of the head office building
sale and leaseback transaction of $19.9 million, net proceeds of $4.8 million on the
extinguishment of the contingent payment related to the 2009 monetization of the Share
Purchase Agreement with Ford less the payment of accrued costs of ($1.4) million
related to the initial monetization which closed in December 2009, and net cash received
of $0.9 million on the acquisition of Dantherm Power, partially offset by capital
expenditures of ($3.5) million.
Financing activities resulted in cash outflows of ($3.1) million and cash inflows of $5.1
million, respectively, for the three months and year ended December 31, 2011,
compared to cash outflows of ($0.6) million and ($0.4) million, respectively, for the
corresponding periods of 2010. Financing activities in the fourth quarter of 2011
primarily represent net repayments against our Operating Facility of ($2.7) million,
whereas financing activities in 2011 primarily represent total advances, net of
repayments, of $4.6 million on our Operating Facility. The Operating Facility is used to
assist with the financing of working capital requirements. Financing activities in 2011
also include proceeds on convertible debenture financing from the Dantherm Power non-
controlling interests to Dantherm Power of $1.7 million for the year. These financing
inflows in 2011 were partially offset by finance lease payments of ($0.8) million and
treasury stock purchases of ($0.3) million under our market purchase restricted share
unit plan. Financing activities in 2010 primarily represent the minority partner cash
contribution to Dantherm Power for the second tranche investment of 5.0 million Danish
Kroner, or $0.9 million in August 2010, less capital lease payments of ($0.8) million and
treasury stock purchases of ($0.6) million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, we had total Liquidity of $41.6 million. We measure Liquidity as
our net cash reserves, consisting of the sum of our cash, cash equivalents and short-
term investments of $46.2 million, net of amounts drawn on our $10 million Canadian
demand revolving facility (“Operating Facility”) of $4.6 million. The Operating Facility is
used to assist in financing our short term working capital requirements and is secured by
a hypothecation of our cash, cash equivalents and short-term investments.
We also have a $3.3 million Canadian capital leasing facility (“Leasing Facility”) which is
16 used to finance the acquisition and / or lease of operating equipment and is secured by a
hypothecation of our cash, cash equivalents and short-term investments. At December
31, 2011, $3.2 million was outstanding on the Leasing Facility.
We will use our funds to meet net funding requirements for the development and
commercialization of products in our target markets. This includes research and product
development for fuel cells and material products, the purchase of equipment for our
manufacturing and testing facilities, the further development of business systems and
low-cost manufacturing processes, the further development of our sales and marketing,
product distribution and service capabilities, and working capital requirements to grow
our business.
At this stage of our development, we may record net cash losses for at least the next
few years as we continue to make significant investments in research and product and
market development activities necessary to commercialize our products, combined with
increased investments in working capital as we grow our business. Our actual funding
requirements will vary based on the factors noted above, our relationships with our lead
customers and strategic partners, our success in developing new channels to market and
relationships with customers, our success in generating revenue growth from near-term
product opportunities, our success in managing our working capital requirements,
foreign exchange fluctuations, and the progress and results of our research,
development and demonstration programs.
Our financial strategy is to manage our cash resources with strong fiscal discipline, focus
on markets with high product and service revenue growth potential, license technology
in cases where it is advantageous to us, and access available government funding for
research and development projects. Our current financing principle is to maintain cash
balances sufficient to fund at least six quarters of forecasted cash used by operating
activities at all times.
2012 BUSINESS OUTLOOK
As a result of the increase in our year-end 12-month order book to $45.3 million, the
continued improvements in our financial results over the past two years combined with
signs of increasing overall market momentum, we have a strong outlook for 2012, with
expectations for:
• Revenue of approximately $100 million; and
• Adjusted EBITDA of approximately breakeven.
Consistent with the past couple of years, we expect a majority of our 2012 revenue to
be realized in the second half of the year. Our business revenue outlook for 2012 is
based on our internal revenue forecast which reflects an assessment of overall business
conditions and takes into account actual sales in the first two months of 2012, sales
orders received for units and services to be delivered in 2012, and an estimate with
respect to the generation of new sales in each of our markets. Our 2012 business
revenue outlook is also supported by our 12-month order book of $45.3 million at
December 31, 2011 ($35.0 million at December 31, 2010). The primary risk factor that
could cause us to miss our target revenue guidance for 2012 are delays from forecast in
terms of closing and shipping expected sales orders, primarily in our Brazilian and
European bus markets and in our backup power markets.
17 The key drivers for this expected improvement in Adjusted EBITDA for 2012 are
expected increases in gross margins driven primarily by aggressive product cost
reduction efforts combined with the above noted overall increase in expected revenues
and a shift in product mix to higher margin fuel cell buses, supported by continued
operating expense optimization and a resulting reduction in Cash Operating Costs (see
Supplemental Non-GAAP Measures section) from 2011. Consistent with the expectation
that a majority of our 2012 revenue will fall in the last half of the year, Adjusted EBITDA
is expected to be materially improved in the last half of 2012, as compared to the first
half of 2012. Our Adjusted EBITDA outlook for 2012 is based on our internal Adjusted
EBITDA forecast and takes into account our forecasted gross margin related to the
above revenue forecast, the costs of our current and forecasted Cash Operating Costs,
and assumes an average U.S. dollar exchange rate of 1.00 in relation to the Canadian
dollar. The primary risk factor that could cause us to miss our target Adjusted EBITDA
outlook for 2012 are lower than expected gross margins due to (i) lower revenues from
forecast due to unexpected delays in terms of closing and shipping expected sales
orders; (ii) shifts in product sales mix negatively impacting projected gross margin as a
percentage of revenues; or (iii) delays in the timing of our projected product cost
reductions. In addition, Adjusted EBITDA could also be negatively impacted by increases
in Cash Operating Costs as a result of (i) increased product development costs due to
unexpected delays in new product introductions or by lower than anticipated
government cost recoveries; or (ii) negative foreign exchange impacts as a result of a
higher than expected Canadian dollar. A 1% increase in the Canadian dollar, relative to
the U.S. dollar, negatively impacts Adjusted EBITDA and Cash Operating Costs by
approximately $0.4 million to $0.5 million.
Similar to prior years and consistent with our revenue and Adjusted EBITDA
performance expectations for the year and the resulting impacts on gross margin and
working capital, we expect cash used in operating activities in 2012 to be materially
higher in the first and second quarters of 2012, as compared to the third and fourth
quarters of 2012. Cash used in operating activities in the first two quarters of 2012 is
expected to be negatively impacted by the buildup of inventory to support higher
product shipments in the third and fourth quarters, the payment of accrued 2011 annual
employee bonuses, and by the timing of revenues and the related customer collections
which are also skewed towards the last half of the year.
Finally, we will continue our focus on maintaining a strong liquidity position. We ended
2011 with cash, cash equivalents and short-term investments of $46.2 million (or $41.6
million net of Operating Facility draws of $4.6 million). We believe that with continued
focus on improving gross margin performance, managing our Cash Operating Costs and
our working capital requirements, we have sufficient liquidity to reach profitability
without the need for additional public market financing. However, we may choose to
access additional capital under circumstances advantageous to the Company.
OFF-BALANCE SHEET ARRANGEMENTS & CONTRACTUAL OBLIGATIONS
Periodically, we use forward foreign exchange and forward platinum purchase contracts
to manage our exposure to currency rate fluctuations and platinum price fluctuations.
We record these contracts at their fair value as either assets or liabilities on our balance
sheet. Any changes in fair value are either (i) recorded in our statement of
comprehensive income if formally designated and qualified under hedge accounting
18 criteria; or (ii) recorded in our statement of operations if either not designated, or not
qualified, under hedge accounting criteria.
At December 31, 2011, we had outstanding foreign exchange currency contracts
(qualified under hedge accounting criteria) to purchase a total of Canadian $7.0 million
at an average rate of $1.02 Canadian per $1.00 United States, resulting in an unrealized
gain of $0.1 million recorded in other comprehensive income. In addition, we had
outstanding platinum forward purchase contracts (not qualified under hedge accounting
criteria) to purchase 1,750 troy ounces of platinum at an average rate of $1,550 per
troy ounce, resulting in an unrealized loss of $0.3 million recorded in cost of product and
service revenues.
At December 31, 2010, we did not have any other material obligations under guarantee
contracts, retained or contingent interests in transferred assets, outstanding derivative
instruments or non-consolidated variable interests.
We have committed to make future capital contributions of $0.1 million in Chrysalix, in
which we have a limited partnership interest.
At December 31, 2011 we had the following contractual obligations and commercial
commitments:
(Expressed in thousands of U.S. dollars)
Contractual Obligations
Payments due by period,
Total
Less than
1-3 years
3-5 years
After 5
one year
years
Operating leases
Capital leases
$ 23,570 $
2,465 $
4,987 $
5,379 $
10,739
21,875
1,882
4,161
3,569
12,263
Asset retirement obligations
6,144
-
-
-
6,144
Total contractual obligations
$ 51,589 $
4,347 $
9,148 $
8,948 $
29,146
In addition to the contractual purchase obligations above, we have outstanding
commitments $0.9 million related primarily to purchases of capital assets as at
December 31, 2011. Capital expenditures pertain to our regular operations and are
expected to be funded through cash on hand.
The Arrangement with Superior Plus includes an indemnification agreement dated
December 31, 2008 (the "Indemnity Agreement"), which sets out the parties’ continuing
obligations to the other. The Indemnity Agreement has two basic elements: it provides
for the indemnification by each of the parties to the other for breaches of
representations and warranties or covenants as well as, in our case, any liability relating
to our business which is suffered by Superior Plus. Our indemnity to Superior Plus with
respect to our representation relating to the existence of our tax pools immediately prior
to the completion of the Arrangement is limited to an aggregate of $7.4 million
(Canadian $7.4 million) with a threshold amount of $0.5 million (Canadian $0.5 million)
before there is an obligation to make a payment. Second, the Indemnity Agreement
provides for adjustments to be paid by us, or to us, depending on the final
determination of the amount of our Canadian non-capital losses, scientific research and
development expenditures and investment tax credits generated to December 31, 2008,
to the extent that such amounts are more or less than the amounts estimated at the
time the Arrangement was executed. At December 31, 2011, we have not accrued any
amount owing, or receivable, as a result of the Indemnity Agreement.
19
RELATED PARTY TRANSACTIONS
Related parties include shareholders with a significant ownership interest in us, together
with their subsidiaries and affiliates, our key management personnel, and our minority
interest partners in Dantherm Power. Revenues and costs recognized from such
transactions reflect the prices and terms of sale and purchase transactions with related
parties, which are in accordance with normal trade practices at fair value. Related party
transactions and balances are as follows:
(Expressed in thousands of U.S. dollars)
Transactions with related parties
Revenues
Purchases
Key management personnel compensation
(Expressed in thousands of U.S. dollars)
Balances with related parties
Accounts payable and accrued liabilities
Convertible debenture payable
OUTSTANDING SHARE DATA
As at February 21, 2012
Common share outstanding
Options outstanding
Years Ended December 31,
2011
2010
$
-
$
134
744
5,384
1,301
6,103
As at December 31,
2011
$
260
$ 1,592
$
$
2010
517
-
84,550,524
7,594,801
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
Effective January 1, 2011 Canadian publicly listed entities are required to prepare their
financial statements in accordance with IFRS. Due to the requirement to present
comparative financial information in accordance with IFRS, the effective transition date
is January 1, 2010. The year ended December 31, 2011 is our first reporting period
under IFRS.
Our consolidated financial statements for the year ended December 31, 2011 are our
first annual financial statements that comply with IFRS. As 2011 is our first year of
reporting under IFRS, IFRS 1 First-time Adoption of IFRS is applicable. In accordance
with IFRS 1, we have applied IFRS retrospectively as of January 1, 2010, for
comparative purposes as if IFRS had always been in effect, subject to certain mandatory
exceptions and optional exemptions applicable to us, discussed below.
Senior management and the Audit Committee have approved the Company’s IFRS
accounting policies which were initially presented in our unaudited interim consolidated
condensed financial statements for the three months ended March 31, 2011. Our final
IFRS accounting policies are detailed in note 3 to our annual consolidated financial
statements. Our final IFRS accounting policies include a change in accounting policy (see
below) from what was initially disclosed in our first quarter of 2011 MD&A relating to a
change in how we will account for employee future benefit expenses.
20
TRANSITIONAL ELECTIONS (under IFRS 1 First Time Adoption)
The following summary provides details of the opening statement of financial position
transitional provisions which were adopted effective January 1, 2010.
• Share Based Payments: IFRS 2, Share Based Payment: As allowed, we did not
restate share-based payment balances in relation to fully vested awards of share-
based payments prior to January 1, 2010.
• Property, plant and equipment (“PP&E”): No transitional elections were taken. The
Company has elected to retain assets at historical cost upon transition rather than
taking the allowed election to recognize assets at fair value.
• Business Combinations: The Company did not retrospectively restate any business
combinations; IFRS 3 has been applied prospectively to acquisitions after January 1,
2010.
• Cumulative Translation Adjustments: All cumulative translation adjustments and
associated gains and losses have been “reset” to zero as at the date of transition,
with all historic amounts transferred from accumulated other comprehensive loss to
retained earnings.
• Employee Future Benefits (additional Transitional Election from those disclosed in our
first quarter of 2011 MD&A): We elected to apply the optional election in IFRS 1 and
recognized all cumulative unrecognized actuarial gains and losses through retained
earnings as at the date of transition.
IFRS OPENING STATEMENT OF FINANCIAL POSITION
Note 27 to our consolidated financial statements summarize the quantitative impact on
the consolidated statement of financial position of our transition to IFRS at January 1,
2010.
ADDITIONAL IMPACTS ON OUR IFRS 2010 FINANCIAL STATEMENTS
In addition to the above noted impacts on our consolidated statement of financial
position at January 1, 2010, the following matters have impacted our 2010 consolidated
financial statements as a result of our conversion to IFRS:
• Accelerated recognition of sale and leaseback gains: Under former Canadian GAAP,
sale and leaseback gains were deferred and amortized over the term of the lease
when the leaseback was classified as an operating lease. Under IFRS, such gains
may be recognized upfront if the sale and leaseback transaction results in an
operating lease, and is undertaken at fair value. As the land component of our March
2010 sale and leaseback of our head office building met this criteria, the unamortized
portion of the deferred gain under former Canadian GAAP of $3.3 million attributed
to the land leaseback has been fully recognized in our net income for the year ended
December 31, 2010 under IFRS.
• Foreign Currency Translation of Subsidiary (Dantherm Power): Under IFRS, the
functional currency of the subsidiary determines the translation methodology. As
Dantherm Power’s functional currency has been assessed as the Danish Kroner under
IFRS, Dantherm Power is consolidated under IFRS using the current rate method.
Under former Canadian GAAP, Dantherm Power was translated using the temporal
21
method.
• Actuarial gains and losses on Employee Future Benefit Plans (additional impact from
those disclosed in our first quarter of 2011 MD&A): Under IFRS, actuarial gains and
losses arising from defined benefit plans and post-retirement benefit plans may be
recorded immediately in either net income or other comprehensive income. Under
former Canadian GAAP, our accounting policy was to recognize actuarial gains and
losses in net income. On adoption of IFRS, we have elected to recognize actuarial
gains and losses in other comprehensive income. As a result, net actuarial gains
expensed under former Canadian GAAP in Finance and Other Income of $0.1 million
for the year ended December 31, 2010 has been reclassified to other comprehensive
income under IFRS.
IFRS ACCOUNTING POLICY IMPACTS
In addition to the transitional and other impacts described above, there are several
accounting policy selections that have impacted the Company on a go-forward basis.
This is not an exhaustive list, but it provides an indication of the main accounting policy
choices which applied to the Company under IFRS effective January 1, 2011, with
comparatives presented for 2010:
• Share-based payments: All share-based payments are valued at fair value under
IFRS using an option pricing model. The Company has selected the Black Scholes
option pricing model. This is consistent with the Company’s historic accounting policy
under former Canadian GAAP. However, under IFRS, the valuation of stock options
and restricted share unit (“RSU”) awards requires individual “tranche based”
valuations for those option and RSU plans with graded vesting, while former
Canadian GAAP allows a single valuation for all tranches. Therefore, under IFRS each
installment of option and RSU award will be treated as a separate option or RSU
grant, and the fair value of each installment will be amortized over each installment’s
vesting period instead of recognizing the entire award on a straight-line basis over
the term of the grant. The impact of this change on net income for the periods
presented has not been significant.
• Property, Plant and Equipment (“PP&E”): Under IFRS, PP&E may be accounted for
using either a cost or revaluation model. We have elected to use the cost model
under IFRS for all classes of property, plant and equipment. As this is consistent with
our historic accounting policy under former Canadian GAAP, this election has not
impacted our PP&E balances.
•
Impairment of Assets: If there is an indication that an asset may be impaired, an
impairment test must be performed. Under former Canadian GAAP, this is a two-step
impairment test in which (i) undiscounted future cash flows are compared to the
carrying value; and (ii) if those undiscounted cash flows are less than the carrying
value, the asset is written down to fair value. Under IFRS, an entity is required to
assess, at the end of each reporting period, whether there is any indication that an
asset may be impaired. If indicators of impairment exist, the entity shall estimate
the recoverable amount of the asset by performing a one-step impairment test,
which requires a comparison of the carrying value of the asset to the higher of (i)
value in use; and (ii) fair value less costs to sell. Value in use is defined as the
present value of future cash flows expected to be derived from the asset in its
22 current state. Fair value less costs to sell, is defined as the estimated price that
would be received on the sale of the asset in an orderly transaction between market
participants, calculated at the measurement date. In addition, IFRS requires PP&E,
goodwill and intangibles to be assessed for impairment at the cash-generating unit
(“CGU”) level, rather than the reporting unit level considered by former Canadian
GAAP.
As a result of this difference, in principle, impairment write downs may be more
likely under IFRS than are currently identified and recorded under former Canadian
GAAP. The extent of any new write downs, however, may be partially offset by the
requirement under IAS 36 Impairment of Assets, to reverse any previous impairment
losses where circumstances have changed such that the impairments have been
reduced. Canadian GAAP prohibits reversal of impairment losses. We have concluded
that the adoption of these standards has not resulted in a change to the carrying
value of our PP&E, Goodwill and Intangible Assets on transition to IFRS being
January 1, 2010.
• Business Combinations: Under IFRS, we account for all business combinations from
January 1, 2010 onwards in accordance with IFRS 3 Business Combinations. Given
that we adopted former Canadian CICA Handbook Section 1582 as of January 1,
2010 which is substantially converged with IFRS 3, we do not have any GAAP
difference relating to the acquisition of Dantherm Power.
• Provisions: Under former Canadian GAAP, a provision is required to be recorded in
the financial statements when required payment is considered “likely’ and can be
reasonably estimated. The threshold for recognition of provisions under IFRS is lower
than that under former Canadian GAAP as provisions must be recognized if required
payment is “probable”. Therefore, in principle, it is possible that there may be some
provisions which would meet the recognition criteria under IFRS that were not
recognized under former Canadian GAAP. Other differences between IFRS and former
Canadian GAAP exist in relation to the measurement of provisions, such as the
methodology for determining the best estimate where there is a range of equally
possible outcomes (IFRS uses the mid-point of the range, whereas Canadian GAAP
use the low end of the range), and the requirement under IFRS for provisions to be
discounted where material. We have reviewed our positions and have concluded that
there is no adjustment to our financial statements on transition to IFRS arising from
the application of IFRS provisions recognition and measurement guidance.
• Functional Presentation: Under IFRS, operating expenses must be presented on
either a functional or nature of expenditure basis. Under former Canadian GAAP,
operating expenses could be presented using a mix of both function and nature of
expenditure basis. We have elected to use the functional classification basis for the
presentation of operating expenses. As a result, depreciation and amortization
expense, restructuring expense, and acquisition costs, which were individually
presented in the Statement of Operations under former Canadian GAAP, have been
reallocated to research and product development, sales and marketing, and general
and administrative expense under IFRS.
• Employee Future Benefits (additional accounting policy impact from those disclosed
in our first quarter of 2011 MD&A): Under IFRS, actuarial gains and losses arising
from defined benefit plans and post-retirement benefit plans may be recorded in
23 either net income or other comprehensive income. Under former Canadian GAAP, our
accounting policy was to recognize actuarial gains and losses in net income. On
adoption of IFRS, we have elected to recognize actuarial gains and losses in other
comprehensive income. The effect of actuarial gains and losses arising from defined
benefit plans and post-retirement benefit plans will no longer affect net income
under our IFRS accounting policy choice. The effects of actuarial gains and losses will
instead be recognized immediately in equity, rather than being recognized
immediately in net income.
IFRS OTHER IMPACTS
In addition to the above noted impacts to our financial statements and accounting
policies, we have also reviewed the impact of our conversion to IFRS on our information
technology and data systems, internal controls over financial reporting, business
processes, contractual arrangements and compensation arrangements and have made
the appropriate adjustments to transition from former Canadian GAAP to IFRS.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENT APPLIED
Our consolidated financial statements are prepared in accordance with International
Financial Reporting Standards, which require us to apply judgment when making
estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, the reported amounts of revenues and expenses of
the reporting period, as well as disclosures made in the accompanying notes to the
financial statements. The estimates and associated assumptions are based on past
experience and other factors that are considered relevant. Actual results could differ
from these estimates. The following are our most critical accounting estimates, which
are those that require management’s most challenging, subjective and complex
judgments, requiring the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods. The application of these
and other accounting policies are described more fully in note 3 to the annual
consolidated financial statements.
REVENUE RECOGNITION
Revenues are generated primarily from product sales and services in our Fuel Cell
Products, Contract Automotive and Material Products segments. Product revenues are
derived primarily from standard equipment and material sales contracts and from long-
term fixed price contracts. Service revenues are derived primarily from cost-plus
reimbursable contracts. Engineering development revenues are derived primarily from
long-term fixed price contracts.
On standard equipment and material sales contracts, revenues are recognized when (i)
significant risks and rewards of ownership of the goods has been transferred to the
buyer; (ii) we retain neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold; (iii) the amount of
revenue can be measured reliably; (iv) it is probable that the economic benefits
associated with the sale will accrue to us; and (v) the costs incurred, or to be incurred,
in respect of the transaction can be measured reliably. Provisions are made at the time
of sale for warranties. Revenue recognition for standard equipment and material sales
contracts does not usually involve significant estimates.
24 On cost-plus reimbursable contracts, revenues are recognized as costs are incurred, and
include applicable fees earned as services are provided. Revenue recognition for cost-
plus reimbursable contracts does not usually involve significant estimates.
On long-term fixed price contracts, revenues are recorded on the percentage-of-
completion basis over the duration of the contract, which consists of recognizing revenue
on a given contract proportionately with its percentage of completion at any given time.
The percentage of completion is determined by dividing the cumulative costs incurred as
at the balance sheet date by the sum of incurred and anticipated costs for completing a
contract.
• The determination of anticipated costs for completing a contract is based on
estimates that can be affected by a variety of factors such as variances in the
timeline to completion, the cost of materials, the availability and cost of labour,
as well as productivity.
• The determination of potential revenues includes the contractually agreed
amount and may be adjusted based on the estimate of our attainment on
achieving certain defined contractual milestones. Management’s judgment is
required in determining the probability that the revenue will be received and in
determining the measurement of that amount.
Estimates used to determine revenues and costs of long-term fixed price contracts
involve uncertainties that ultimately depend on the outcome of future events and are
periodically revised as projects progress. There is a risk that a customer may ultimately
disagree with our assessment of the progress achieved against milestones or that our
estimates of the work required to complete a contract may change. The cumulative
effect of changes to anticipated revenues and anticipated costs for completing a contract
are recognized in the period in which the revisions are identified. In the event that the
anticipated costs exceed the anticipated revenues on a contract, such loss is recognized
in its entirety in the period it becomes known.
During the three months and year ended December 31, 2011 and 2010, there were no
material adjustments to revenues relating to revenue recognized in a prior period.
ASSET IMPAIRMENT
The carrying amounts of our non-financial assets other than inventories are reviewed at
each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. For goodwill
and intangible assets that have indefinite useful lives, the recoverable amount is
estimated annually.
The recoverable amount of an asset or cash-generating unit is the greater of its value in
use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to
the asset. In assessing fair value less costs to sell, the price that would be received on
the sale of an asset in an orderly transaction between market participants at the
measurement date is estimated. For the purposes of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash
inflows of other groups of assets. Cash-generating units to which goodwill has been
25 allocated reflects the lowest level at which goodwill is monitored for internal reporting
purposes. Many of the factors used in assessing fair value are outside the control of
management and it is reasonably likely that assumptions and estimates will change from
period to period. These changes may result in future impairments. For example, our
revenue growth rate could be lower than projected due to economic, industry or
competitive factors, or the discount rate used in our value in use model could increase
due to a change in market interest rates. In addition, future goodwill impairment
charges may be necessary if our market capitalization decreased due to a decline in the
trading price of our common stock, which could negatively impact the fair value of our
operating segments.
An impairment loss is recognized if the carrying amount of an asset or its cash-
generating unit exceeds its estimated recoverable amount. Impairment losses are
recognized in net loss. Impairment losses recognized in respect of the cash-generating
units are allocated first to reduce the carrying amount of any goodwill allocated to the
units, and then to reduce the carrying amounts of the other assets in the unit on a pro-
rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for
any indications that the loss has decreased or no longer exists. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.
We perform the annual review of goodwill as at December 31 of each year, more often if
events or changes in circumstances indicate that it might be impaired. Under IFRS, the
annual review of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to sell. Value in use is defined as
the present value of future cash flows expected to be derived from the asset in its
current state. As of December 31, 2011, of our consolidated goodwill balance of $48.1
million, we had allocated $46.3 million to our core Fuel Cell Products segment, and $1.8
million to our Material Products segment. Based on the impairment test performed as at
December 31, 2011, we have concluded that no goodwill impairment charge was
required on any of our segments for the year ended December 31, 2011. Details of our
goodwill impairment tests are as follows:
• One of the methods used to assess the recoverable amount of the goodwill in our
core Fuel Cells Products segment is a fair value, less costs to sale, test. Our fair
value test is in effect a modified market capitalization assessment, whereby we
calculate the fair value of the Fuel Cell Products segment by first calculating the
value of the Company at December 31, 2011 based on the average closing share
price in the month of December, add a reasonable estimated control premium of
25% to 30% to determine the Company’s enterprise value on a controlling basis, and
then deduct the fair value of our Materials Product and Contract Automotive
segments from this enterprise value, to arrive at the fair value of the Fuel Cell
Products segment. As a result of this assessment, we have determined that the fair
value of the Fuel Cell Products segment (with goodwill of $46.3 million) exceeds its
carrying value by approximately 15% to 20% as of December 31, 2011.
•
In addition to this fair value test, we also performed a value in use test on our Fuel
26 Cell Products segment that compared the carrying value of the segment to the
present value of future cash flows expected to be derived from the segment. The
principal factors used in this discounted cash flow analysis requiring judgment are
the projected results of operations, the discount rate based on the weighted average
cost of capital (“WACC”), and terminal value assumptions for each reporting unit.
Our value in use test was based on a WACC of 17.5% to 20%; an average estimated
compound annual growth rate of approximately 40% from 2011 to 2016; and a
terminal year EBITDA multiplied by a terminal value multiplier of 4.0. Our value in
use assessment resulted in a significantly higher value than as determined under the
fair value, less costs to sell, assessment.
• The fair value of our Material Products segment (with goodwill of $1.8 million),
determined using an estimated market value as a multiple of revenues, is
substantially in excess of its carrying value as of December 31, 2011.
As a result of our quarterly review of the carrying amounts of our non-financial assets
(other than inventories) to determine whether there is any indication of impairment, we
recorded an impairment charge of $1.7 million for the three months and year ended
December 31, 2011 related to a write-down of manufacturing equipment.
WARRANTY PROVISION
A provision for warranty costs is recorded on product sales at the time of shipment. In
establishing the accrued warranty liabilities, we estimate the likelihood that products
sold will experience warranty claims and the cost to resolve claims received. In making
such determinations, we use estimates based on the nature of the contract and past and
projected experience with the products. Should these estimates prove to be incorrect,
we may incur costs different from those provided for in our warranty provisions. During
the three months and year ended December 31, 2011, we recorded provisions to
accrued warranty liabilities of $1.0 million and $1.9 million, respectively, for new product
sales, compared to $0.8 million and $2.4 million, respectively, for the three months and
year ended December 31, 2010.
We review our warranty assumptions and make adjustments to accrued warranty
liabilities quarterly based on the latest information available and to reflect the expiry of
contractual obligations. Adjustments to accrued warranty liabilities are recorded in cost
of product and service revenues. As a result of these reviews and the resulting
adjustments, our warranty provision and cost of revenues for the three months and year
ended December 31, 2011 were adjusted downwards by a net amount of $0.5 million
and $1.7 million, respectively, compared to a net adjustment downwards of $1.5 million
and $1.6 million, respectively for the three months and year ended December 31, 2010.
The adjustments to reduce accrued warranty liabilities were primarily due to contractual
expirations, reductions in estimated costs to repair, and improved lifetimes and
reliability of our fuel cell products.
INVENTORY PROVISION
In determining the lower of cost and net realizable value of our inventory and
establishing the appropriate provision for inventory obsolescence, we estimate the
likelihood that inventory carrying values will be affected by changes in market pricing or
demand for our products and by changes in technology or design which could make
inventory on hand obsolete or recoverable at less than cost. We perform regular reviews
27 to assess the impact of changes in technology and design, sales trends and other
changes on the carrying value of inventory. Where we determine that such changes
have occurred and will have a negative impact on the value of inventory on hand,
appropriate provisions are made. If there is a subsequent increase in the value of
inventory on hand, reversals of previous write-downs to net realizable value are made.
Unforeseen changes in these factors could result in additional inventory provisions, or
reversals of previous provisions, being required. During the three months and year
ended December 31, 2011, inventory provisions (recoveries) of $0.3 million and $0.6
million, respectively, were recorded as a charge to cost of product and service revenues,
compared to ($0.2) million and $0.5 million, respectively, for the three months and year
ended December 31, 2010.
EMPLOYEE FUTURE BENEFITS
The present value of our defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that
have terms to maturity approximating the terms of the related pension liability.
Determination of benefit expense requires assumptions such as the discount rate to
measure obligations, expected plan investment performance, expected healthcare cost
trend rate, and retirement ages of employees. Actual results will differ from the recorded
amounts based on these estimates and assumptions. During the years ended December
31, 2011 and 2010, actuarial gains (losses) of ($2.9) million and $0.1 million,
respectively, were recognized in other comprehensive income (loss) as a result of
differences between expected and actual expense.
INCOME TAXES
income taxes are recognized
We use the asset and liability method of accounting for income taxes. Under this
method, deferred
income tax
consequences attributable to differences between the financial statement carrying values
of assets and liabilities and their respective income tax bases (temporary differences)
and for loss carry-forwards. The resulting changes in the net deferred tax asset or
liability are included in income.
for the deferred
Deferred tax assets and liabilities are measured using enacted, or substantially enacted,
tax rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on deferred income tax
assets and liabilities, of a change in tax rates, is included in income in the period that
includes the substantive enactment date. Deferred income tax assets are reviewed at
each reporting period and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized. As of December 31, 2011 and 2010, we have not
recorded any deferred income tax assets on our consolidated statement of financial
position.
FUTURE IFRS ACCOUNTING STANDARDS
The following is an overview of accounting standard changes that we will be required to
adopt in future years. Except as otherwise noted below for IFRS 9, IAS 32 and
amendments to IFRS 7, the standards are effective for our annual periods beginning on
or after January 1, 2013, with earlier application permitted. We do not expect to adopt
any of these standards before their effective dates. We continue to evaluate the impact
of these standards on our consolidated statement of operations and financial position.
28 IFRS 9 – FINANCIAL INSTRUMENTS
IFRS 9 introduces new requirements for the classification and measurement of financial
assets. IFRS 9 requires all recognized financial assets that are within the scope of IAS 39
Financial Instruments: Recognition and Measurement to be subsequently measured at
amortized cost or fair value. Specifically, financial assets that are held within a business
model whose objective is to collect the contractual cash flows, and that have contractual
cash flows that are solely payments of principal and interest on the principal outstanding
are generally measured at amortized cost at the end of subsequent accounting periods.
All other financial assets including equity investments are measured at their fair values
at the end of subsequent accounting periods.
Requirements for financial liabilities were added in October 2010 and they largely carried
forward existing requirements in IAS 39, Financial Instruments – Recognition and
Measurement, except that fair value changes due to credit risk for liabilities designated
at fair value through profit and loss would generally be recorded in other comprehensive
income. IFRS 9 is effective for annual periods beginning on or after January 1, 2015.
IFRS 10 – CONSOLIDATION
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Under existing IFRS, consolidation is
required when an entity has the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12
Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate
Financial Statements.
IFRS 11 – JOINT ARRANGEMENTS
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint
venture or joint operation. Joint ventures will be accounted for using the equity method
of accounting whereas for a joint operation the venturer will recognize its share of the
assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS,
entities have the choice to proportionately consolidate or equity account for interests in
joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13,
Jointly Controlled Entities – Non-monetary Contributions by Venturers.
IFRS 12 – DISCLOSURE OF INTERESTS IN OTHER ENTITIES
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint
arrangements, associates, special purpose vehicles and off balance sheet vehicles. The
standard carries forward existing disclosures and also introduces significant additional
disclosure requirements that address the nature of, and risks associated with, an entity’s
interests in other entities.
IFRS 13 – FAIR VALUE MEASUREMENT
Under existing IFRS, guidance on measuring and disclosing fair value is dispersed
among the specific standards requiring fair value measurements. IFRS 13 is a more
comprehensive standard for fair value measurement and disclosure requirements for use
across all IFRS standards. The new standard clarifies that fair value is the price that
would be received to sell an asset, or paid to transfer a liability in an orderly transaction
29 between market participants, at the measurement date. It also establishes disclosures
about fair value measurement.
AMENDMENTS TO IAS 19 – EMPLOYEE BENEFITS
The amendments to IAS 19 make significant changes to the recognition and
measurement of defined benefit pension expense and termination benefits, and to
enhance the disclosures for all employee benefits. Actuarial gains and losses are
renamed ‘remeasurements’ and will be recognized immediately in other comprehensive
income (“OCI”). Remeasurements recognized in OCI will not be recycled through profit
or loss in subsequent periods. The amendments also accelerate the recognition of past
service costs whereby they are recognized in the period of a plan amendment. The
annual expense for a funded benefit plan will be computed based on the application of
the discount rate to the net defined benefit asset or liability. The amendments to IAS 19
will also impact the presentation of pension expense as benefit cost will be split between
(i) the cost of benefits accrued in the current period (service cost) and benefit changes
(past-service cost, settlements and curtailments); and (ii) finance expense or income.
A number of other amendments have been made to recognition, measurement and
classification, including those re-defining short-term and other long-term benefits
guidance on the treatment of taxes related to benefit plans, guidance on risk/cost
sharing factors and expanded disclosures.
Our current accounting policy for employee benefits for the presentation of pension
expense and the immediate recognition of actuarial gains and losses in OCI is consistent
with the requirements in the new standard, however, additional disclosures and the
computation of annual expense based on the application of the discount rate to the net
defined benefit asset or liability will be required in relation to the revised standard.
AMENDMENTS TO IAS 1 – FINANCIAL STATEMENT PRESENTATION
The amendments to IAS 1 require entities to separate items presented in OCI into two
groups based on whether or not they may be recycled to profit or loss in the future.
Items that will not be recycled, such as remeasurements resulting from the amendments
to IAS 19, will be presented separately from items that may be recycled in the future,
such as deferred gains and losses on cash flow hedges. Entities that choose to present
OCI items before tax will be required to show the amount of tax related to the two
groups separately.
AMENDMENTS TO OTHER STANDARDS
In addition, there have been amendments to existing standards, including IFRS 7
Financial Instruments: Disclosure, IAS 27, Separate Financial Statements, IAS 28,
Investments in Associates and Joint Ventures, and IAS 32, Financial Instruments:
Presentation. IFRS 7 amendments require disclosure about the effects of offsetting
financial assets and financial liabilities and related arrangements on an entity’s financial
position. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and
associates in non-consolidated financial statements. IAS 28 has been amended to
include joint ventures in its scope and to address the changes in IFRS 10 – 13. IAS 32
addresses inconsistencies when applying the offsetting requirements, and is effective for
annual periods beginning on or after January 1, 2014.
30 SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with GAAP, we present certain
supplemental non-GAAP measures. These measures are Cash Operating Costs, EBITDA
and Adjusted EBITDA, and Normalized Net Loss. These non-GAAP measures do not have
any standardized meaning prescribed by GAAP and therefore are unlikely to be
comparable to similar measures presented by other companies. We believe these
measures are useful in evaluating the operating performance and liquidity of the
Company’s ongoing business. These measures should be considered in addition to, and
not as a substitute for, net income, cash flows and other measures of financial
performance and liquidity reported in accordance with GAAP.
Cash Operating Costs
This supplemental non-GAAP measure is provided to assist readers in determining our
operating costs on a cash basis. We believe this measure is useful in assessing
performance and highlighting trends on an overall basis. We also believe Cash Operating
Costs is frequently used by securities analysts and investors when comparing our results
with those of other companies. Cash Operating Costs differs from the most comparable
GAAP measure, operating expenses, primarily because it does not include stock-based
compensation expense, depreciation and amortization, restructuring charges and
acquisition costs.
The following table shows a reconciliation of operating expenses to Cash Operating Costs
for the three months and years ended December 31, 2011 and 2010:
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Operating Expense
$
Stock-based compensation (expense)
recovery
Acquisition costs
Restructuring charges
Depreciation and amortization
2011
9,481
257
-
(79)
(1,033)
Three months ended December 31,
2010
$
14,647
$
$
Change
(5,166)
(1,114)
(175)
-
(3,703)
1,371
175
(79)
2,670
Cash Operating Costs
$
8,626
$
9,655
$
(1,029)
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Years ended December 31,
2011
2010
Operating Expense
$
47,468
$
52,639
Stock-based compensation expense
Acquisition costs
Restructuring charges
Depreciation and amortization
(2,646)
-
(1,356)
(4,164)
(3,579)
(243)
(285)
(6,454)
$
$
Change
(5,171)
933
243
(1,071)
2,290
Cash Operating Costs
$
39,302
$
42,078
$
(2,776)
Adjusted EBITDA
These supplemental non-GAAP measures are provided to assist readers in determining
our operating performance and ability to generate operating cash flow. We believe this
measure is useful in assessing performance and highlighting trends on an overall basis.
We also believe EBITDA and Adjusted EBITDA are frequently used by securities analysts
and investors when comparing our results with those of other companies. EBITDA differs
from the most comparable GAAP measure, net income attributable to Ballard, primarily
because it does not include finance (or interest) expense, income tax expense or
31
recovery, depreciation of property, plant and equipment, amortization of intangible
assets, and goodwill impairment charges. Adjusted EBITDA adjusts EBITDA for stock-
based compensation expense, transactional gains and losses, asset impairment charges,
finance and other income, and acquisition costs.
The following table shows a reconciliation of net income attributable to Ballard to
EBITDA and Adjusted EBITDA for the three months and years ended December 31, 2011
and 2010:
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Three months ended December 31,
2011
2010
$
Change
Net loss attributable to Ballard
$
(7,289)
$
(8,998)
$
1,709
Depreciation and amortization
Finance expense
Income taxes
1,490
455
164
4,323
309
-
(2,833)
146
164
EBITDA attributable to Ballard
$
(5,180)
$
(4,366)
$
(814)
Stock-based compensation
Acquisition costs
Finance and other (income) loss
Impairment loss on property, plant and
equipment
Loss on sale of assets and property, plant
and equipment
(257)
-
(78)
1,727
23
1,114
175
(561)
-
50
(1,371)
(175)
483
1,727
(27)
Adjusted EBITDA
$
(3,765)
$
(3,588)
$
(177)
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Years ended December 31,
2011
2010
$
Change
Net loss attributable to Ballard
$
(33,420)
$
(31,532)
$
(1,888)
Depreciation and amortization
Finance expense
Income taxes
5,906
1,392
383
8,615
861
3
(2,709)
531
380
EBITDA attributable to Ballard
$
(25,739)
$
(22,053)
$
(3,686)
Stock-based compensation
Acquisition costs
Investment and other (income) loss
Impairment loss on property, plant and
equipment
Gain on sale of property, plant and
equipment
Gain on sale of assets
2,646
-
(195)
1,727
(734)
-
3,579
243
104
-
(4)
(8,032)
(933)
(243)
(299)
1,727
(730)
8,032
Adjusted EBITDA
$
(22,295)
$
(26,163)
$
3,868
Normalized Net Loss
This supplemental non-GAAP measure is provided to assist readers in determining our
financial performance. We believe this measure is useful in assessing our actual
performance by adjusting our actual results for one-time transactional gains and losses
and impairment losses. Normalized Net Loss differs from the most comparable GAAP
measure, net income (loss) attributable to Ballard, primarily because it does not include
transactional gains and losses and asset impairment charges.
32
The following table shows a reconciliation of net income (loss) attributable to Ballard to
Normalized Net Loss for the three months and years ended December 31, 2011 and
2010.
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net loss attributable to Ballard
Impairment loss on property, plant and
equipment
Normalized Net Loss
$
$
Three months ended December 31,
2011
2010
(7,289)
$ (8,998)
1,727
-
$
$
Change
1,709
1,727
(5,562)
$
(8,998)
$
3,436
Normalized Net Loss per share
$ (0.07)
$ (0.11)
$ 0.04
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Years ended December 31,
2011
2010
Net loss attributable to Ballard
Impairment loss on property, plant and
equipment
Gain on sale of assets
$
(33,420)
$
(31,532)
1,727
-
-
(8,032)
$
$
Change
(1,888)
1,727
8,032
Normalized Net Loss
$
(31,693)
Normalized Net Loss per share
$ (0.37)
$
$
(39,564)
$
7,871
(0.47)
$ 0.10
MANAGEMENT’S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance
that relevant information is gathered and reported to senior management, including the
Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), on a timely basis
so that appropriate decisions can be made regarding public disclosures.
As of the end of the period covered by this report, we evaluated, under the supervision
and with the participation of management, including the CEO and the CFO, the
effectiveness of the design and operation of our disclosure controls and procedures, as
defined in Rules 13a–15(e) and 15d-15(e) of the Securities Exchange Act of 1934
(“Exchange Act”). The CEO and CFO have concluded that as of December 31, 2011, our
disclosure controls and procedures were effective to ensure that information required to
be disclosed in reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified therein, and accumulated
and reported to management to allow timely discussions regarding required disclosure.
Internal control over financial reporting
The CEO and CFO, together with other members of management, are responsible for
establishing and maintaining adequate internal control over the Company’s financial
reporting. Internal control over financial reporting is designed under our supervision,
and effected by the Company’s board of directors, management, and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with IFRS.
There are inherent limitations in the effectiveness of internal control over financial
reporting, including the possibility that misstatements may not be prevented or
detected. Accordingly, even effective internal controls over financial reporting can
33
provide only reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of internal controls can change with circumstances.
Management, including the CEO and CFO, have evaluated the effectiveness of internal
control over financial reporting, as defined in Rules 13a–15(f) of the Exchange Act, in
relation to criteria described in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based
on this evaluation, Management has determined that internal control over financial
reporting was effective as of December 31, 2011.
KPMG LLP, our independent registered public accounting firm, has audited our
consolidated financial statements and expressed an unqualified opinion thereon. KPMG
has also expressed an unqualified opinion on the effective operation of our internal
control over financial reporting as of December 31, 2011.
Changes in internal control over financial reporting
During the year ended December 31, 2011, there were no material changes in internal
control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting. Our design of
disclosure controls and procedures and internal controls over financial reporting includes
controls, policies and procedures covering Dantherm Power.
RISKS & UNCERTAINTIES
An investment in our common shares involves risk. Investors should carefully consider
the risks and uncertainties described below and in our Annual Information Form. The
risks and uncertainties described below and in our Annual Information Form are not the
only ones we face. Additional risks and uncertainties, including those that we do not
know about now or that we currently deem immaterial, may also adversely affect our
business. For a more complete discussion of the risks and uncertainties which apply to
our business and our operating results (which are summarized below), please see our
Annual Information Form and other filings with Canadian (www.sedar.com) and U.S.
securities regulatory authorities (www.sec.gov).
Our business entails risks and uncertainties that affect our outlook and eventual results
of our business and commercialization plans. The primary risks relate to meeting our
product development and commercialization milestones, which require that our products
exhibit the functionality, cost, durability and performance required in a commercial
product and that we have sufficient access to capital to fund these activities. To be
commercially useful, most of our products must be integrated into products
manufactured by system integrators or OEMs. There is no guarantee that system
integrators or OEMs will provide products that use our products as components. There is
also a risk that mass markets for certain of our products may never develop, or that
market acceptance might take longer to develop than anticipated.
A summary of our identified risks and uncertainties are as follows:
• We may not be able to achieve commercialization of our products on the
timetable we anticipate, or at all;
• We expect our cash reserves will be reduced due to future operating losses and
working capital requirements, and we cannot provide certainty as to how long our
cash reserves will last or that we will be able to access additional capital when
34 necessary;
• A mass market for our products may never develop or may take longer to
develop than we anticipate;
• We may not be able to successfully execute our business plan;
• We have limited experience manufacturing fuel cell products on a commercial
basis;
• Global economic conditions are beyond our control and may have an adverse
impact on our business or on our key suppliers and / or customers;
• Potential fluctuations in our financial and business results make forecasting
difficult and may restrict our access to funding for our commercialization plan;
• We could be adversely affected by risks associated with acquisitions;
• We are subject to risks inherent in international operations;
• Exchange rate fluctuations are beyond our control and may have a material
adverse effect on our business, operating results, financial condition and
profitability;
• Commodity price fluctuations are beyond our control and may have a material
adverse effect on our business, operating results, financial condition and
profitability;
• We are dependent upon Original Equipment Manufacturers and Systems
Integrators to purchase certain of our products;
• We are dependent on third party suppliers for the supply of key materials and
components for our products;
• We currently face and will continue to face significant competition;
• We could lose or fail to attract the personnel necessary to run our business;
• Public Policy and regulatory changes could hurt the market for our products;
• We depend on our intellectual property, and our failure to protect that intellectual
property could adversely affect our future growth and success;
• We could be liable for environmental damages resulting from our research,
development or manufacturing operations; and
• Our products use flammable fuels, which could subject our business to product
liability claims.
FORWARD-LOOKING STATEMENTS DISCLAIMER
This document contains forward-looking statements that are based on the beliefs of
management and reflect our current expectations as contemplated under the safe
harbor provisions of Section 21E of the United States Securities Exchange Act of 1934,
as amended. Such statements include, but are not limited to, statements with respect
to our objectives, goals and outlook including our estimated revenue and gross margins,
cash flow from operations, Cash Operating Costs, EBITDA and Adjusted EBITDA (see
Non-GAAP Measures) contained in our “Business Outlook”, as well as statements with
35 respect to our beliefs, plans, objectives, expectations, anticipations, estimates and
intentions. Words such as "estimate", "project", "believe", "anticipate", "intend",
"expect", "plan", "predict", "may", "should", "will", the negatives of these words or other
variations thereof and comparable terminology are intended to identify forward-looking
statements. These statements are not guarantees of future performance and involve
assumptions, risks and uncertainties that are difficult to predict.
In particular, these forward-looking statements are based on certain factors and
assumptions disclosed in our “Outlook” as well as specific assumptions relating to our
expectations with respect to the generation of new sales, producing, delivering and
selling the expected product volumes at the expected prices, and controlling our costs.
They are also based on a variety of general factors and assumptions including, but not
limited to, our expectations regarding product development efforts, manufacturing
capacity, product pricing, market demand, and the availability and prices of raw
materials, labour and supplies. These assumptions have been derived from information
available to the Company including information obtained by the Company from third
parties. These assumptions may prove to be incorrect in whole or in part. In addition,
actual results may differ materially from those expressed, implied, or forecasted in such
forward-looking statements. Factors that could cause our actual results or outcomes to
differ materially from the results expressed, implied or forecasted in such forward-
looking statements include, but are not limited to: the condition of the global economy;
the rate of mass adoption of our products; changes in product pricing; changes in our
customers' requirements, the competitive environment and related market conditions;
product development delays; changes in the availability or price of raw materials, labour
and supplies; our ability to attract and retain business partners, suppliers, employees
and customers; changing environmental regulations; our access to funding and our
ability to provide the capital required for product development, operations and
marketing efforts, and working capital requirements; our ability to protect our
intellectual property; the magnitude of the rate of change of the Canadian dollar versus
the U.S. dollar; and the general assumption that none of the risks identified in the Risks
and Uncertainties section of this report or in our most recent Annual Information Form
will materialize. Readers should not place undue reliance on Ballard's forward-looking
statements.
The forward-looking statements contained in this document speak only as of the date of
this Management Discussion and Analysis. Except as required by applicable legislation,
Ballard does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of this
Management Discussion and Analysis, including the occurrence of unanticipated events.
36 Consolidated Financial Statements
(Expressed in U.S. dollars)
BALLARD POWER SYSTEMS INC.
Years ended December 31, 2011, and 2010
F-3
MANAGEMENT’S REPORT
Management’s Responsibility for the Financial Statements and
Report on Internal Control over Financial Reporting
The consolidated financial statements contained in this Annual Report have been
prepared by management in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board. The
integrity and objectivity of the data in these consolidated financial statements are
management’s responsibility. Management is also responsible for all other
information in the Annual Report and for ensuring that this information is consistent,
where appropriate, with the information and data contained in the consolidated
financial statements.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external
reporting purposes in accordance with IFRS. Internal control over financial reporting
may not prevent or detect fraud or misstatements because of limitations inherent in
any system of internal control. Management has assessed the effectiveness of the
Corporation’s internal control over financial reporting based on the framework in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and concluded that the Corporation’s
internal control over financial reporting was effective as of December 31, 2011. In
addition, management maintains disclosure controls and procedures to provide
reasonable assurance that material information is communicated to management
and appropriately disclosed. Some of the assets and liabilities include amounts,
which are based on estimates and judgments, as their final determination is
dependent on future events.
The Board of Directors oversees management’s responsibilities for financial reporting
through the Audit Committee, which consists of four directors who are independent
and not involved in the daily operations of the Corporation. The Audit Committee
meets on a regular basis with management and the external and internal auditors to
discuss internal controls over the financial reporting process, auditing matters and
financial reporting issues. The Audit Committee is responsible for appointing the
external auditors (subject to shareholder approval), and reviewing and approving all
financial disclosure contained in our public documents and related party transactions.
1
The external auditors, KPMG LLP, have audited the financial statements and
expressed an unqualified opinion thereon. KPMG has also expressed an unqualified
opinion on the effective operation of the internal controls over financial reporting as
of December 31, 2011. The external auditors have full access to management and
the Audit Committee with respect to their findings concerning the fairness of financial
reporting and the adequacy of internal controls.
“JOHN SHERIDAN”
“TONY GUGLIELMIN”
JOHN SHERIDAN
President and
Chief Executive Officer
February 22, 2012
TONY GUGLIELMIN
Vice President and
Chief Financial Officer
February 22, 2012
2
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Ballard Power Systems Inc.
We have audited the accompanying consolidated statements of financial position of Ballard Power Systems Inc. as at
December 31, 2011, December 31, 2010 and January 1, 2010 and the related consolidated statements of comprehensive
loss, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company as at December 31, 2011, December 31, 2010 and January 1, 2010, and its
consolidated financial performance and its consolidated cash flows for the years ended December 31, 2011 and December
31, 2010 in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 22, 2012 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
Chartered Accountants
Vancouver, Canada
February 22, 2012
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
3
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Ballard Power Systems Inc.
We have audited Ballard Power Systems Inc’s (“the Company”) internal control over financial reporting as of
December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the section entitled “Management’s Report on Disclosure Controls and
Procedures and Internal Controls over Financial Reporting” under the heading “Internal control over financial reporting”
included in Management Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
4
February 22, 2012
We also have audited, in accordance with the Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of the
Company as of December 31, 2011, December 31, 2010 and January 1, 2010, and the related consolidated statements of
comprehensive loss, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010,
and our report dated February 22, 2012 expressed an unqualified opinion on those consolidated financial statements.
Chartered Accountants
Vancouver, Canada
February 22, 2012
5
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Financial Position
(Expressed in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Intangible assets
Goodwill
Investments
Long-term trade receivables
Other long-term assets
Total assets
Liabilities
Current liabilities:
Bank operating line
Trade and other payables
Deferred revenue
Provisions
Finance lease liability
Total current liabilities
Finance lease liability
Deferred gain
Provisions
Convertible debenture
Employee future benefits
Total liabilities
Equity:
Share capital
Treasury shares
Contributed surplus
Accumulated deficit
Foreign currency reserve
Total equity attributable to equity holders
Dantherm Power A/S non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
“Ed Kilroy”
Director
“Ian Bourne”
Director
Note
December 31,
2011
December 31,
2010
January 1,
2010
6
7
8
9
10
11
6
12
13
14
12 & 15
12 & 15
14
16
17
18
18
18
$
$
$
$
$
$
20,316
25,878
17,164
13,614
934
77,906
35,085
2,249
48,106
635
1,126
183
165,290
4,587
22,834
3,560
9,573
978
41,532
13,749
5,653
4,733
1,592
5,686
72,945
$
$
$
51,937
22,508
11,614
12,382
957
99,398
36,945
2,975
48,106
673
1,596
334
190,027
-
21,885
2,506
10,019
681
35,091
13,354
5,947
3,102
-
2,950
60,444
43,299
38,932
12,903
9,168
2,114
106,416
39,517
824
48,106
632
-
50
195,545
-
16,509
1,607
11,625
316
30,057
1,739
-
2,848
-
3,311
37,955
837,686
(515)
289,219
(1,031,279)
209
95,320
(2,975)
92,345
165,290
$
$
836,245
(670)
289,444
(995,023)
-
129,996
(413)
129,583
190,027
$
835,565
(207)
285,814
(963,582)
-
157,590
-
157,590
195,545
6
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Comprehensive Loss
For the year ended December 31
(Expressed in thousands of U.S. dollars, except per share amounts and number of shares)
Revenues:
Product and service revenues
Cost of product and service revenues
Gross margin
Operating expenses:
Research and product development
General and administrative
Sales and marketing
Total operating expenses
Results from operating activities
Finance income (loss) and other
Finance expense
Net finance expense
Gain on sale of property, plant and equipment
Gain on sale of assets
Impairment loss on property, plant and equipment
Loss before income taxes
Income tax expense
Net loss
Foreign currency translation differences
Defined benefit plan actuarial gains (losses)
Net gain on hedge of forward contracts
Comprehensive loss
Net loss attributable to:
Ballard Power Systems Inc.
Dantherm Power A/S non-controlling interest
Net loss
Comprehensive loss attributable to:
Ballard Power Systems Inc.
Dantherm Power A/S non-controlling interest
Comprehensive loss
Note
2011
2010
26
26
8
8
22
17
$
76,009
$
62,124
13,885
25,480
12,500
9,488
47,468
65,019
54,887
10,132
28,749
14,777
9,113
52,639
(33,583)
(42,507)
195
(1,392)
(1,197)
734
-
(1,727)
(35,773)
(383)
(104)
(861)
(965)
4
8,032
-
(35,436)
(3)
(36,156)
(35,439)
363
(2,905)
20
-
112
-
$
(38,678)
$
(35,327)
$
(33,420) $
(31,532)
(2,736)
(3,907)
$
(36,156) $
(35,439)
$
(36,116) $
(31,420)
(2,562)
(3,907)
$
(38,678)
$
(35,327)
Basic and diluted loss per share attributable to
Ballard Power Systems Inc.
Weighted average number of common shares outstanding
$
(0.40) $
(0.37)
84,440,970
84,102,315
See accompanying notes to consolidated financial statements.
7
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Changes in Equity
(Expressed in thousands of U.S. dollars except per share amounts and number of shares)
Ballard Power Systems Inc. Equity
Number of
shares
Share
capital
Treasury
shares
Contributed
surplus
Accumulated
deficit
Dantherm
Power A/S
Non-
controlling
interests
Foreign
currency
reserve
Total
equity
Balance, January 1, 2010
83,973,988 $
835,565 $
(207) $
285,814 $
(963,582)
$
Acquisition of Dantherm Power A/S
Power A/S
Additional investment in Dantherm
Power A/S
Net loss
Defined benefit plan actuarial gain
Non-dilutive financing
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
915
-
-
-
-
-
-
-
-
-
(559)
-
-
(22)
-
(31,532)
112
-
-
RSUs and DSUs redeemed
101,986
542
96
(800)
(21)
Options exercised
Share distribution plan
72,491
138
-
-
-
-
(47)
3,584
-
-
Balance, December 31, 2010
84,148,465
836,245
(670)
289,444
(995,023)
Net loss
Foreign currency translation for
foreign operations
Defined benefit plan actuarial loss
Net gain on hedge of forward contracts
Non-dilutive financing
Purchase of treasury shares
RSUs redeemed
Options exercised
Share distribution plan
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(60)
-
(327)
-
(33,420)
(2,905)
-
-
-
376,225
1,393
482
(2,769)
69
25,834
-
48
-
-
-
(8)
2,612
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
- $ 157,590
3,543
3,543
(49)
866
(3,907)
(35,439)
-
-
-
-
-
-
112
(22)
(559)
(183)
91
3,584
(413)
129,583
(2,736)
(36,156)
-
20
-
-
-
-
-
-
(2,905)
-
-
-
-
-
20
(60)
(327)
(825)
40
-
2,612
-
189
174
363
Balance, December 31, 2011
84,550,524 $ 837,686 $
(515) $ 289,219 $ (1,031,279) $
209
$ (2,975) $ 92,345
See accompanying notes to consolidated financial statements.
8
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Cash Flows
For the year ended December 31
(Expressed in thousands of U.S. dollars)
Cash provided by (used for):
Operating activities:
Net loss for the year
Adjustments for:
Compensatory shares
Employee future benefits
Depreciation and amortization
Gain (loss) on sale of property, plant and equipment
Gain on sale of assets
Impairment loss on property, plant and equipment
Unrealized loss/(gain) on forward contracts
Changes in non-cash working capital:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Trade and other payables
Deferred revenue
Accrued warranty liabilities
Note
2011
2010
$
(36,156) $
(35,439)
8
2,646
(172)
5,906
(734)
-
1,727
285
(26,498)
(4,317)
(1,293)
42
(1,691)
1,052
(516)
(6,723)
3,579
(246)
8,615
16
(7,921)
-
(1,404)
(32,800)
(65)
(2,350)
1,276
2,915
965
747
3,488
Cash used by operating activities
(33,221)
(29,312)
Investing activities:
Net decrease (increase) in short-term investments
Additions to property, plant and equipment
Net proceeds on sale of property, plant and equipment and other
Net proceeds on monetization of other long-term assets
Net investments in associated companies
Other investment activities
Business acquisition including cash acquired
Financing activities:
Non-dilutive financing
Purchase of treasury shares
Payment of finance lease liabilities
Net proceeds from bank operating line
Net proceeds on issuance of share capital
Proceeds on issuance of convertible debenture from
Dantherm Power A/S non-controlling interests
Contribution from Dantherm Power A/S non-controlling interests
Effect of exchange rate fluctuations on cash and cash equivalents held
11
12
16
(3,370)
(4,107)
3,666
-
36
-
-
(3,775)
(60)
(327)
(830)
4,587
40
1,718
-
5,128
247
17,738
(3,453)
20,012
3,355
(33)
(152)
877
38,344
(22)
(559)
(770)
-
91
-
866
(394)
-
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
(31,621)
51,937
$
20,316
$
8,638
43,299
51,937
Supplemental disclosure of cash flow information (note 24).
See accompanying notes to consolidated financial statements.
9
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
1. Reporting entity:
The principal business of Ballard Power Systems Inc. (the “Corporation”) is the design,
development, manufacture, sale and service of fuel cell products for a variety of applications,
focusing on motive power (material handling and buses) and stationary power (back-up power
and distributed generation) markets; and engineering services for a variety of fuel cell
applications. A fuel cell is an environmentally clean electrochemical device that combines
hydrogen fuel with oxygen (from the air) to produce electricity. The Corporation’s technology
is based on proton exchange membrane (“PEM”) fuel cells.
The Corporation is a company domiciled in Canada and its registered office is located at 9000
Glenlyon Parkway, Burnaby, British Columbia, Canada, V5J 5J8. The consolidated financial
statements of the Corporation as at and for the year ended December 31, 2011 comprise the
Corporation and its subsidiaries (note 3(a)).
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements of the Corporation have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). These are the Corporation’s first consolidated annual
financial statements prepared in accordance with IFRS, and IFRS 1 First-Time Adoption of
International Financial Reporting Standards, has been applied.
An explanation of how the transition to IFRS has affected the reported financial position,
financial performance and cash flows of the Corporation is provided in note 27.
The consolidated financial statements were authorized for issue by the Board of Directors on
February 22, 2012.
(b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis except
for the following material items in the statement of financial position:
•
Financial instruments classified as fair value through profit or loss and available-for-
sale are measured at fair value;
• Derivative financial instruments are measured at fair value; and
• Employee future benefit plan assets are measured at fair value, determined directly
by reference to quoted market prices.
10
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
2. Basis of preparation (cont’d):
(c) Functional and presentation currency:
These consolidated financial statements are presented in U.S. dollars, which is the
Corporation’s functional currency.
(d) Use of estimates and judgments:
The preparation of the consolidated financial statements in conformity with IFRS requires the
Corporation’s management to make judgments, estimates and assumptions that affect the
amounts reported in these consolidated financial statements and notes. Actual results could
differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in
any future periods affected.
Significant areas requiring management to make estimates include revenue recognition,
product warranty provision, the net realizable value of inventory, recoverability of intangibles
and goodwill, and employee future benefits. These estimates and judgments are further
discussed in note 4.
3. Significant accounting policies:
The accounting policies set out below have been applied consistently to all periods presented
in these consolidated financial statements and in preparing the opening IFRS statement of
financial position at January 1, 2010 for the purposes of the transition to IFRS, unless
otherwise indicated.
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Corporation and its principal
subsidiaries as follows:
Ballard Material Products Inc.
Ballard Power Corporation
Dantherm Power A/S
Percentage ownership
2011
100%
100%
2010
100%
100%
52%
45% - 52%
January 1,
2010
100%
100%
-
11
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(a) Basis of consolidation (cont’d):
Subsidiaries are entities over which the Corporation exercises control, where control is defined
as the power to govern financial and operating policies, generally owning greater than 50% of
the voting rights. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
Intercompany balances and transactions are eliminated in the consolidated financial
statements.
The Corporation acquired a 45% interest in Dantherm Power A/S on January 18, 2010. In
August 2010, the Corporation acquired an additional 7% interest in Dantherm Power A/S. As
the Corporation obtained control over Dantherm Power A/S as of the date of acquisition of the
45% interest, Dantherm Power A/S has been consolidated since January 18, 2010.
Acquisitions of non-controlling interest are accounted as transactions with equity holders in
their capacity as equity holders; therefore no goodwill is recognized as a result of such
transactions.
(b) Foreign currency:
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of
the Corporation and its subsidiaries at the exchange rate in effect at the transaction date.
Monetary assets and liabilities denominated in other than the functional currency are
translated at the exchange rates in effect at the balance sheet date. The resulting
exchange gains and losses are recognized in earnings. Non-monetary assets and liabilities
denominated in other than the functional currency that are measured at fair value are
translated to the functional currency at the exchange rate at the date that the fair value
was determined. Non-monetary items that are measured in terms of historical cost in
other than the functional currency are translated using the exchange rate at the date of
the transaction.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to presentation currency at
exchange rates at the reporting date. The income and expenses of foreign operations are
translated to presentation currency at exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income.
12
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(c) Financial instruments:
(i) Financial assets
The Corporation initially recognizes loans and receivables and deposits on the date that
they are originated and all other financial assets on the trade date at which the
Corporation becomes a party to the contractual provisions of the instrument. The
Corporation derecognizes a financial asset when the contractual rights to the cash flows
from the asset expire, or when it transfers substantially all the risks and rewards of
ownership of the financial asset.
Financial assets at fair value through profit or loss
Financial assets are classified at fair value through profit or loss if they are held for trading
or if the Corporation manages such investments and makes purchase and sale decisions
based on their fair value in accordance with the Corporation’s documented risk
management or investment strategy. Financial assets at fair value through profit or loss
are measured at fair value, and changes therein are recognized in net loss.
The Corporation’s short-term investments, consisting of highly liquid interest bearing
securities with maturities at the date of purchase between three months and three years,
are classified as held for trading.
The Corporation also periodically enters into platinum futures and foreign exchange
forward contracts to limit its exposure to platinum price and foreign currency rate
fluctuations. These derivatives are recognized initially at fair value and are recorded as
either assets or liabilities based on their fair value. Subsequent to initial recognition,
these derivatives are measured at fair value and changes to their value are recorded
through net loss, unless these financial instruments are designated as hedges (note 3
(c)(iv)).
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are
not quoted in an active market. Such assets are recognized initially at fair value and
subsequently at amortized cost using the effective interest method, less any impairment
losses. Loans and receivables are comprised of the Corporation’s trade and other
receivables.
13
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(i) Financial assets (cont’d)
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest-
bearing securities with maturities at the date of purchase of three months or less.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated
as available-for-sale and that are not classified in any of the previous categories. The
Corporation’s investment in Chrysalix Energy Limited Partnership (“Chrysalix”) is classified
as available-for-sale financial assets. Subsequent to initial recognition, they are measured
at fair value and changes therein, other than impairment losses and foreign currency
differences, are recognized in other comprehensive income. When an investment is
derecognized, the cumulative gain or loss in other comprehensive income is transferred to
profit or loss.
Determination of fair value
The fair value of financial assets at fair value through profit or loss and available-for-sale
are determined by reference to their quoted closing bid price at the reporting date if they
are traded in an active market. For derivative instruments (foreign exchange forward
contracts, platinum futures contracts), fair value is estimated by Management based on
their listed market price or broker quotes that include adjustments to take account of the
credit risk of the Corporation and the counterparty when appropriate. The fair value of
loans and receivables is estimated as the present value of future cash flows, discounted at
the market rate of interest at the reporting date.
(ii) Financial liabilities
Financial liabilities comprise the Corporation’s trade and other payables. The financial
liabilities are initially recognized on the date they are originated and are derecognized
when the contractual obligations are discharged or cancelled or expire. These financial
liabilities are recognized initially at fair value and subsequently are measured at amortized
costs using the effective interest method, when materially different from the initial
amount. Fair value is determined based on the present value of future cash flows,
discounted at the market rate of interest.
14
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(iii) Share capital
Share capital is classified as equity. Incremental costs directly attributable to the issue of
shares and share options are recognized as a deduction from equity. When share capital
is repurchased, the amount of the consideration paid, including directly attributable costs,
is recognized as a deduction from equity. Repurchased shares are classified as treasury
shares and are presented as a deduction from equity. When treasury shares are
subsequently reissued, the amount received is recognized as an increase in equity, and
the resulting surplus or deficit on the transaction is transferred to or from retained
earnings.
(iv) Derivative financial instruments, including hedge accounting
The Corporation holds derivative financial instruments to hedge its foreign currency risk
exposures that are designated as the hedging instrument in a hedge relationship.
On initial designation of the hedge, the Corporation formally documents the relationship
between the hedging instrument and hedged item, including the risk management
objectives and strategy in undertaking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship.
The Corporation makes an assessment, both at the inception of the hedge relationship as
well as on an ongoing basis, whether the hedging instruments are expected to be “highly
effective” in offsetting the changes in the fair value or cash flows of the respective hedged
items during the period for which the hedge is designated, and whether the actual results
of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast
transaction, the transaction should be highly probable to occur and should present an
exposure to variations in cash flows that could ultimately affect reported net income.
Derivatives are recognized initially at fair value; attributable transaction costs are
recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are accounted for as described below.
15
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(iv) Derivative financial instruments, including hedge accounting (cont’d)
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in
cash flows attributable to a particular risk associated with a recognized asset or liability or
a highly probable forecast transaction that could affect profit or loss, the effective portion
of changes in the fair value of the derivative is recognized in other comprehensive income
and presented in unrealized gains/losses on cash flow hedges in equity. The amount
recognized in other comprehensive income is removed and included in profit or loss in the
same period as the hedged cash flows affect profit or loss under the same line item in the
statement of comprehensive income as the hedged item. Any ineffective portion of
changes in the fair value of the derivative is recognized immediately in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is
sold, terminated, exercised, or the designation is revoked, then hedge accounting is
discontinued prospectively. The cumulative gain or loss previously recognized in other
comprehensive income and presented in unrealized gains/losses on cash flow hedges in
equity remains there until the forecast transaction affects profit or loss.
If the forecast transaction is no longer expected to occur, then the balance in other
comprehensive income is recognized immediately in profit or loss. In other cases the
amount recognized in other comprehensive income is transferred to profit or loss in the
same period that the hedged item affects profit or loss.
Other non-trading derivatives
When a derivative financial instrument is not held for trading, and is not designated in a
qualifying hedge relationship, all changes in its fair value are recognized immediately in
profit or loss.
16
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(d) Inventories:
Inventories are recorded at the lower of cost and net realizable value. The cost of inventories
is based on the first-in first-out principle, and includes expenditures incurred in acquiring the
inventories, production or conversion costs and other costs incurred in bringing them to their
existing location and condition. In the case of manufactured inventories and work in progress,
cost includes materials, labor and appropriate share of production overhead based on normal
operating capacity. Costs of materials are determined on an average per unit basis.
Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses. In establishing any impairment of
inventory, management estimates the likelihood that inventory carrying values will be affected
by changes in market demand, technology and design, which would impair the value of
inventory on hand.
(e) Property, plant and equipment:
Property, plant and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses. Cost includes expenditure that is directly attributable to the
acquisition of the asset. The cost of self-constructed assets includes the cost of materials,
costs directly attributable to bringing the assets to a working condition for their intended use,
and the costs of dismantling and removing items and restoring the site on which they are
located.
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components).
Property, plant and equipment are depreciated from the date of acquisition or, in respect of
internally constructed assets, from the time an asset is completed and ready for use, using the
straight-line method less its residual value over the estimated useful lives of the assets as
follows:
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
20 years
15 years
3 to 7 years
5 to 14 years
5 years
Leasehold improvements
The shorter of initial term of the respective lease and
Production and test equipment
Production and test equipment under finance lease
estimated useful life
4 to 15 years
5 years
17
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(e) Property, plant and equipment (cont’d):
Depreciation methods, useful lives and residual values are reviewed at each financial year-end
and adjusted if appropriate.
Gains and losses on disposal of property, plant and equipment are determined by comparing
the proceeds from disposal with the carrying amount of property, plant and equipment, and
are recognized net within other income in profit or loss.
(f) Leases:
Leases where the Corporation assumes substantially all the risks and rewards of ownership are
classified as finance leases. Upon initial recognition the leased asset is measured at an
amount equal to the lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset. Other leases are operating leases and not
recognized in the statement of financial position.
Minimum lease payments made under finance leases are apportioned between the finance
expense and the reduction of the outstanding liability. The finance expense is allocated to
each period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Payments made under operating leases are recognized in income on a straight-line basis over
the term of the lease. Lease incentives received are recognized as a reduction to the lease
expense over the term of the lease.
(g) Goodwill and intangible assets:
Goodwill is recognized as the fair value of the consideration transferred including the
recognized amount of any non-controlling interest in the acquiree, less the fair value of the
net identifiable assets acquired and liabilities assumed, as of the acquisition date. Subsequent
to initial recognition, goodwill is measured at cost less accumulated impairment losses.
Goodwill acquired in a business combination is allocated to groups of cash generating units
that are expected to benefit from the synergies of the combination.
Intangible assets consist of fuel cell technology acquired from third parties and are recorded at
cost less accumulated amortization and impairment losses. Intangible assets less their
residual values are amortized over their estimated useful lives of 5 years using the straight-
line method from the date that they are available for use. Amortization methods, useful lives
and residual values are reviewed annually and adjusted if appropriate.
18
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(g) Goodwill and intangible assets (cont’d):
Costs incurred in establishing and maintaining patents and license agreements are expensed
in the period incurred.
Research costs are expensed as they are incurred. Product development costs are expensed
as incurred except when they meet specific criteria for capitalization. Development activities
involve a plan or design for the production of new or substantially improved products and
processes. Development costs are capitalized only if costs can be measured reliably, the
product or process is technically and commercially feasible, future economic benefits are
probable and the Corporation intends to and has sufficient resources to complete development
to use or sell the asset. Capitalized development costs are measured at cost less accumulated
amortization and accumulated impairment losses. Capitalized development costs, if any, are
amortized when commercial production begins, using the straight-line method over a period of
5 years.
(h) Impairment:
(i) Financial assets
Financial assets not carried at fair value through profit or loss are assessed for impairment
at each reporting date by determining whether there is objective evidence that indicates
that a loss event has occurred after the initial recognition of the asset, and that the loss
event had a negative effect on the estimated future cash flows of that asset that can be
estimated reliably.
Impairment
losses on available-for-sale
investment securities are recognized by
transferring the cumulative loss that has been recognized in other comprehensive income,
and presented in accumulated other comprehensive loss in equity, to net loss. The
cumulative loss that is removed from other comprehensive income and recognized in net
loss is the difference between the acquisition cost, net of any principal repayment and
amortization, and the current fair value less any impairment loss previously recognized in
net loss. If subsequently the fair value of an impaired available-for-sale security
increases, then the impairment loss is reversed, with the amount of the reversal
recognized in net loss. However, any subsequent recovery in the fair value of an
impaired available for sale equity security is recognized in other comprehensive income.
19
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(h) Impairment (cont’d):
(ii) Non-financial assets
The carrying amounts of the Corporation’s non-financial assets other than inventories are
reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. For goodwill and intangible assets that have indefinite useful lives, the
recoverable amount is estimated annually.
The recoverable amount of an asset or cash-generating unit is the greater of its value in
use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
Fair value less costs to sell is defined as the estimated price that would be received on the
sale of the asset in an orderly transaction between market participants at the
measurement date. For the purposes of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other
groups of assets. Cash-generating units to which goodwill has been allocated reflects the
lowest level at which goodwill is monitored for internal reporting purposes.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating
unit exceeds its estimated recoverable amount. Impairment losses are recognized in net
loss. Impairment losses recognized in respect of the cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to the units, and then to
reduce the carrying amounts of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment
loss had been recognized.
(i) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risk specific to the liability. The unwinding of
the discount is recognized as a finance cost.
20
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(i) Provisions (cont’d):
Warranty provision
A provision for warranty costs is recorded on product sales at the time the sale is recognized.
In establishing the warranty provision, management estimates the likelihood that products
sold will experience warranty claims and the estimated cost to resolve claims received, taking
into account the nature of the contract and past and projected experience with the products.
Decommissioning liabilities
Legal obligations to retire tangible long-lived assets are recorded at fair value at acquisition
with a corresponding increase in asset value. These include assets leased under operating
leases. The liability is accreted over the life of the asset to fair value and the increase in asset
value is depreciated over the remaining useful life of the asset.
(j) Revenue recognition:
The Corporation generates revenues primarily from product sales and services. Product
revenues are derived primarily from standard equipment and material sales contracts and
from long-term fixed price contracts. Service revenues are derived primarily from cost-plus
reimbursable contracts
On standard equipment and material sales contracts, revenues are recognized when (i)
significant risks and rewards of ownership of the goods has been transferred to the buyer; (ii)
the Corporation retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold; (iii) the amount of
revenue can be measured reliably; (iv) it is probable that the economic benefits associated
with the sale will accrue to the Corporation; and (v) the costs incurred, or to be incurred, in
respect of the transaction can be measured reliably. Provisions are made at the time of sale
for warranties.
On cost-plus reimbursable contracts, revenues are recognized as costs are incurred, and
include applicable fees earned as services are provided.
On long-term fixed price service contracts, revenues are recognized on the percentage-of-
completion basis over the duration of the contract, which consists of recognizing revenue on a
given contract proportionately with its percentage of completion at any given time. The
percentage of completion is determined by dividing the cumulative costs incurred as at the
balance sheet date by the sum of incurred and anticipated costs for completing a contract.
21
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(j) Revenue recognition (cont’d):
The cumulative effect of changes to anticipated revenues and anticipated costs for completing
a contract are recognized in the period in which the revisions are identified. In the event that
the anticipated costs exceed the anticipated revenues on a contract, such loss is recognized in
its entirety in the period it becomes known.
Deferred revenue represents cash received from customers in excess of revenue recognized
on uncompleted contracts.
(k) Finance income and costs:
Finance income comprises of interest income on funds invested, gains on the disposal of
available-for-sale financial assets and changes in the fair value of financial assets at fair value
through profit or loss. Interest income is recognized as it accrues in income, using the
effective interest method.
Finance costs comprise interest expense on capital leases, unwinding of the discount on
provisions, changes in the fair value of financial assets at fair value through profit or loss and
impairment losses recognized on financial assets.
Foreign currency gains and losses are reported on a net basis.
(l) Income taxes:
The Corporation follows the asset and liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the deferred income tax consequences
attributable to differences between the financial statement carrying values of assets and
liabilities and their respective income tax bases (temporary differences) and for loss carry-
forwards. The resulting changes in the net deferred tax asset or liability are included in
income.
Deferred tax assets and liabilities are measured using enacted, or substantively enacted, tax
rates expected to apply to taxable income in the years in which temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets and liabilities,
of a change in tax rates, is included in income in the period that includes the substantive
enactment date. Deferred income tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
22
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(m) Employee benefits:
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined contribution pension plans are
recognized as an employee benefit expense in profit or loss in the periods during which
services are rendered by employees. Prepaid contributions are recognized as an asset to the
extent that a cash refund or a reduction in future payments is available. Contributions to a
defined contribution plan that are due more than 12 months after the end of the period in
which the employees render the service are discounted to their present value.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution
plan. The Corporation’s net obligation in respect of defined benefit pension plans is calculated
separately for each plan by estimating the amount of future benefit that employees have
earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value. Any unrecognized past service costs and the fair value of any
plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-
rated bonds that have maturity dates approximating the terms of the Corporation’s obligations
and that are denominated in the same currency in which the benefits are expected to be paid.
The calculation is performed annually by a qualified actuary using the projected unit credit
method.
When the calculation results in a benefit to the Corporation, the recognized asset is limited to
the total of any unrecognized past service costs and the present value of economic benefits
available in the form of any future refunds from the plan or reductions in future contributions
to the plan. In order to calculate the present value of economic benefits, consideration is given
to any minimum funding requirements that apply to any plan in the Corporation. An economic
benefit is available to the Corporation if it is realizable during the life of the plan, or on
settlement of the plan liabilities.
As a result of the curtailment of the pension plan in 2009, there is no current service cost
associated with the plan.
The Corporation recognizes all actuarial gains and losses arising from defined benefit plans
immediately in other comprehensive income, and reports them in retained earnings.
23
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(m) Employee benefits (cont’d):
Other long-term employee benefits
The Corporation’s net obligation in respect of long-term employee benefits other than pension
plans is the amount of future benefit that employees have earned in return for their service in
the current and prior periods; that benefit is discounted to determine its present value, and
the fair value of any related assets is deducted. The discount rate is the yield at the reporting
date on AA credit-rated bonds that have maturity dates approximating the terms of the
Corporation’s obligations. The calculation is performed using the projected unit credit method.
Any actuarial gains and losses are recognized in other comprehensive income or loss in the
period in which they arise.
Termination benefits
Termination benefits are recognized as an expense when the Corporation is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either
terminate employment before the normal retirement date, or to provide termination benefits
as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancies are recognized as an expense if the Corporation has made an offer of
voluntary redundancy, it is probable that the offer will be accepted, and the number of
acceptances can be estimated reliably. If benefits are payable more than 12 months after the
reporting period, then they are discounted to their present value.
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or
profit sharing plans if the Corporation has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
24
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(n) Share-based compensation plans:
The Corporation uses the
fair-value based method of accounting
for share-based
compensation for all awards of shares and share options granted. The resulting compensation
expense, based on the fair value of the awards granted, excluding the impact of any non-
market service and performance vesting conditions, is charged to income over the period that
the employees unconditionally become entitled to the award, with a corresponding increase to
contributed surplus. Fair values of share options are calculated using the Black-Scholes
valuation method as of the grant date and adjusted for estimated forfeitures. For awards with
graded vesting, the fair value of each tranche is calculated separately and recognized over its
respective vesting period. Non-market vesting conditions are considered in making
assumptions about the number of awards that are expected to vest. At each reporting date,
the Corporation reassesses its estimates of the number of awards that are expected to vest
and recognizes the impact of any revision in the income statement with a corresponding
adjustment to contributed surplus.
The Corporation issues shares and share options under its share-based compensation plans as
described in note 18. Any consideration paid by employees on exercise of share options or
purchase of shares, together with the amount initially recorded in contributed surplus, is
credited to share capital.
(o) Earnings (loss) per share:
Basic earnings (loss) per share is computed using the weighted average number of common
shares outstanding during the period, adjusted for treasury shares. Diluted earnings per
share is calculated using the treasury stock method.
Under the treasury stock method, the dilution is calculated based upon the number of common
shares issued should deferred share units (“DSUs”), restricted share units (“RSUs”), and “in
the money” options, if any, be exercised. When the effects of outstanding stock-based
compensation arrangements would be anti-dilutive, diluted loss per share is not calculated.
(p) Government assistance and investment tax credits:
Government assistance and investment tax credits are recorded as either a reduction of the
cost of the applicable assets, or credited against the related expense incurred in the statement
of comprehensive loss, as determined by the terms and conditions of the agreements under
which the assistance is provided to the Corporation or the nature of the expenditures which
gave rise to the credits. Government assistance and investment tax credit receivables are
recorded when their receipt is reasonably assured.
25
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Significant accounting policies (cont’d):
(q) Segment reporting:
An operating segment is a component of the Corporation that engages in business activities
from which it may earn revenues and incur expenses, including revenues and expenses that
relate to transactions with any of the Corporation’s other components. Segment results
include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses,
and income tax assets and liabilities.
4. Critical accounting estimates and judgments:
The preparation of the consolidated financial statements requires the Corporation’s
management to make judgments, estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying notes. Actual results
may differ from those estimates.
Estimates and judgments are continually evaluated and are based on historical experience and
other factors including expectations of future events that are believed to be reasonable under
the circumstances. The estimates and assumptions critical to the determination of carrying
value of assets and liabilities are discussed below:
(a) Revenue:
Revenues under certain contracts for product and engineering development services, provide
for receipt of payment based on achieving defined milestones or on the performance of work
under product development programs. Revenues are recognized under these contracts based
on management’s estimate of progress achieved against these milestones or on the
proportionate performance method of accounting. Changes in management’s estimated costs
to complete a contract may result in an adjustment to previously recognized revenues.
(b) Warranty Provision:
In establishing the warranty provision, management estimates the likelihood that products
sold will experience warranty claims and the cost to resolve claims received. In making such
determinations, the Corporation uses estimates based on the nature of the contract and past
and projected experience with the products. Should these estimates prove to be incorrect, the
Corporation may incur costs different from those provided for in the warranty provision.
Management reviews warranty assumptions and makes adjustments to the provision at each
reporting date based on the latest information available, including the expiry of contractual
obligations. Adjustments to the warranty provision are recorded in cost of product and service
revenues.
26
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Critical accounting estimates and judgments (cont’d):
(c) Inventory:
In determining the lower of cost and net realizable value of inventory and in establishing the
appropriate impairment amount for inventory obsolescence, management estimates the
likelihood that inventory carrying values will be affected by changes in market pricing or
demand for the products and by changes in technology or design which could make inventory
on hand obsolete or recoverable at less than the recorded value. Management performs
regular reviews to assess the impact of changes in technology and design, sales trends and
other changes on the carrying value of inventory. Where it is determined that such changes
have occurred and will have an impact on the value of inventory on hand, appropriate
adjustments are made. If there is a subsequent increase in the value of inventory on hand,
reversals of previous write-downs to net realizable value are made. Unforeseen changes in
these factors could result in additional inventory provisions, or reversals of previous
provisions, being required.
(d) Goodwill:
The values associated with goodwill involve significant estimates and assumptions, including
those with respect to future cash inflows and outflows, discount rates, asset lives and
determination of cash generating units. At least annually, the carrying value of goodwill is
reviewed for potential impairment. Among other things, this review considers the fair value of
the cash-generating units based on discounted estimated future cash flows. These significant
estimates require considerable judgment, which could affect the Corporation’s future results if
the current estimates of future performance and fair values change.
(e) Employee future benefits:
The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high-quality corporate bonds that have terms to
maturity approximating the terms of the related pension liability. Determination of benefit
expense requires assumptions such as the discount rate to measure obligations, expected plan
investment performance, expected healthcare cost trend rate, and retirement ages of
employees. Actual results will differ from the recorded amounts based on these estimates and
assumptions.
27
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Recent accounting pronouncements:
The following is an overview of accounting standard changes that the Corporation will be
required to adopt in future years. Except as otherwise noted below for IFRS 9, IAS 32 and
amendments to IFRS 7, the standards are effective for the annual periods beginning on or
after January 1, 2013, with earlier application permitted. The Corporation does not expect to
adopt any of these standards before their effective dates. The Corporation continues to
evaluate the impacts of these standards on its financial statements.
(a) IFRS 9 – Financial Instruments:
IFRS 9 introduces new requirements for the classification and measurement of financial
assets. IFRS 9 requires all recognized financial assets that are within the scope of IAS 39
Financial Instruments: Recognition and Measurement to be subsequently measured at
amortized cost or fair value. Specifically, financial assets that are held within a business
model whose objective is to collect the contractual cash flows, and that have contractual cash
flows that are solely payments of principal and interest on the principal outstanding are
generally measured at amortized cost at the end of subsequent accounting periods. All other
financial assets including equity investments are measured at their fair values at the end of
subsequent accounting periods.
Requirements for financial liabilities were added in October 2010 and they largely carried
forward existing requirements
in IAS 39 Financial Instruments – Recognition and
Measurement, except that fair value changes due to credit risk for liabilities designated at fair
value through profit and loss would generally be recorded in other comprehensive income.
IFRS 9 is effective for annual periods beginning on or after January 1, 2015.
(b) IFRS 10 – Consolidated Financial Statements:
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Under existing IFRS, consolidation is required
when an entity has the power to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation – Special Purpose
Entities and parts of IAS 27 Consolidated and Separate Financial Statements.
(c) IFRS 11 – Joint Arrangements:
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or
joint operation. Joint ventures will be accounted for using the equity method of accounting
whereas for a joint operation the venturer will recognize its share of the assets, liabilities,
revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to
proportionately consolidate or equity account for interests in joint ventures. IFRS 11
supersedes IAS 31 Interests in Joint Ventures, and SIC-13 Jointly Controlled Entities – Non-
monetary Contributions by Venturers.
28
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
(d) IFRS 12 – Disclosure of Interests in Other Entities:
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint
arrangements, associates, special purpose vehicles, and off balance sheet vehicles. The
standard carries forward existing disclosures and also introduces significant additional
disclosure requirements that address the nature of, and risks associated with, an entity’s
interests in other entities.
(e) (e)
IFRS 13 – Fair Value Measurement:
Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the
specific standards requiring fair value measurements. IFRS 13 is a more comprehensive
standard for fair value measurement and disclosure requirements for use across all IFRS
standards. The new standard clarifies that fair value is the price that would be received to sell
an asset, or paid to transfer a liability in an orderly transaction between market participants,
at the measurement date. It also establishes disclosures about fair value measurement.
(f) (f)
Amendments to IAS 19 – Employee Benefits:
The amendments to IAS 19 make significant changes to the recognition and measurement of
defined benefit pension expense and termination benefits, and to enhance the disclosures for
all employee benefits. Actuarial gains and losses are renamed “remeasurements” and will be
recognized immediately in other comprehensive income (“OCI”). Remeasurements recognized
in OCI will not be recycled through profit or loss in subsequent periods. The amendments also
accelerate the recognition of past service costs whereby they are recognized in the period of a
plan amendment. The annual expense for a funded benefit plan will be computed based on
the application of the discount rate to the net defined benefit asset or liability. The
amendments to IAS 19 will also impact the presentation of pension expense as benefit cost
will be split between (i) the cost of benefits accrued in the current period (service cost) and
benefit changes (past-service cost, settlements and curtailments); and (ii) finance expense or
income.
A number of other amendments have been made to recognition, measurement and
classification, including those re-defining short-term and other long-term benefits guidance on
the treatment of taxes related to benefit plans, guidance on risk/cost sharing factors and
expanded disclosures.
The Corporation’s current accounting policy for employee benefits for the presentation of
pension expense and the immediate recognition of actuarial gains and losses in OCI is
consistent with the requirements in the new standard, however, additional disclosures and the
computation of annual expense based on the application of the discount rate to the net
defined benefit asset or liability will be required in relation to the revised standard.
29
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Recent accounting pronouncements (cont’d):
(g) Amendments to IAS 1 – Financial Statement Presentation:
The amendments to IAS 1 require entities to separate items presented in OCI into two groups
based on whether or not they may be recycled to profit or loss in the future. Items that will
not be recycled, such as remeasurements resulting from the amendments to IAS 19, will be
presented separately from items that may be recycled in the future, such as deferred gains
and losses on cash flow hedges. Entities that choose to present OCI items before tax will be
required to show the amount of tax related to the two groups separately.
(h) Amendments to other standards:
In addition, there have been amendments to existing standards, including IFRS 7 Financial
Instruments: Disclosure, IAS 27 Separate Financial Statements, IAS 28 Investments in
Associates and Joint Ventures, and IAS 32 Financial Instruments: Presentation. IFRS 7
amendments require disclosure about the effects of offsetting financial assets and financial
liabilities and related arrangements on an entity’s financial position. IAS 27 addresses
accounting for subsidiaries, jointly controlled entities and associates in non-consolidated
financial statements. IAS 28 has been amended to include joint ventures in its scope and to
address the changes in IFRS 10 to 13. IAS 32 addresses inconsistencies when applying the
offsetting requirements, and is effective for annual periods beginning on or after January 1,
2014.
6. Trade and other receivables:
Trade receivables
Other
Less: Non-current trade receivables
7. Inventories:
December 31,
December 31,
January 1,
2011
2010
2010
$
16,343
$
12,584
$
12,847
1,947
18,290
(1,126)
626
13,210
(1,596)
56
12,903
-
$
17,164
$
11,614
$
12,903
December 31,
December 31,
January 1,
Raw materials and consumables
$
8,353
$
Work-in-progress
Finished goods
1,820
3,441
2011
2010
6,962
2,951
2,469
$
$
13,614
$
12,382
$
2010
5,928
2,018
1,222
9,168
In 2011, changes in raw materials and consumables, finished goods and work-in-progress
recognized as cost of product and service revenues amounted to $37,227,000 (2010 -
$33,522,000).
30
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
7. Inventories (cont’d):
In 2011, the write-down of inventories to net realizable value amounted to $486,000 (2010 -
$604,000). There were no reversals of previously recorded write-downs in 2011 or 2010.
Write-downs and reversals are included in either cost of product and service revenues, or
research and product development expense, depending on the nature of inventory.
8. Property, plant and equipment:
Cost
Land
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under finance lease
Balance at
December
Balance at
December
31, 2010
Additions
Disposals
31, 2011
$
1,220 $
- $
3,666
12,180
6,339
741
-
7,518
45,382
2,078
-
-
403
93
317
2,568
2,785
1,589
$
-
-
-
1,220
3,666
12,180
(319)
6,423
-
-
-
834
317
10,086
(3,076)
45,091
-
3,667
Total
$
79,124 $
7,755 $
(3,395) $
83,484
Depreciation and impairment loss
31, 2010 Depreciation
loss
Disposals
31, 2011
Balance at
December
Impairment
Balance at
December
Land
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under finance
lease
Total
$
- $
-
$
- $
2,044
652
5,347
682
-
4,442
28,889
123
155
836
345
106
37
521
3,292
319
-
-
-
-
-
-
- $
-
-
(16)
-
-
-
-
2,199
1,488
5,676
788
37
4,963
1,727
(1,102)
32,806
-
-
442
$
42,179 $
5,611
$
1,727 $
(1,118) $
48,399
31
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
8. Property, plant and equipment (cont’d):
Acquisitions
Asset
Balance at
through
de-recognition
Balance at
January 1,
business
Other
and
December
2010
combination
additions
Disposals
reclassification
31, 2010
$
4,803 $
- $
- $
(3,583) $
13,596
-
11,421
4,692
9,201
67,651
2,078
-
-
113
58
376
136
-
-
(10,357)
12,180
366
48
78
3,163
-
-
-
(479)
(1,745)
(662)
-
- $
427
1,220
3,666
-
12,180
(5,561)
6,339
(3,578)
741
(392)
7,518
(24,906)
45,382
-
2,078
Cost
Land
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Leasehold improvements
Production and test equipment
Production and test equipment
under finance lease
Total
$ 113,442 $
683 $
15,835 $ (16,826) $
(34,010) $
79,124
Depreciation and
impairment loss
Land
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Leasehold improvements
Production and test equipment
Production and test equipment
under finance lease
Acquisitions
Balance at
through
January 1,
business
Asset
de-recognition
Balance at
and
December
2010
combination Depreciation
Disposals
reclassification
31, 2010
$
-
$
- $
-
$
- $
- $
-
5,661
-
10,319
4,629
5,824
47,492
-
-
-
47
20
60
20
-
216
652
905
30
578
3,946
123
(3,979)
146
2,044
-
-
(378)
(626)
(517)
-
-
652
(5,924)
5,347
(3,619)
682
(1,394)
4,442
(22,052)
28,889
-
123
Total
$
73,925
$
147 $
6,450
$
(5,500) $
(32,843) $
42,179
Carrying amounts
Land
Building
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under finance lease
Balance at
Balance at
December 31,
December 31,
Balance at
January 1,
$
2011
1,220
1,467
10,692
747
46
280
5,123
12,285
3,225
$
2010
1,220
1,622
11,528
992
59
-
3,076
16,493
1,955
$
2010
4,803
7,935
-
1,102
63
-
3,377
20,159
2,078
Total
$
35,085
$
36,945
$
39,517
32
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
8. Property, plant and equipment (cont’d):
Leased assets
The Corporation leases certain assets under finance lease agreements including the
Corporation’s head office building in Burnaby, British Columbia and certain production and test
equipment.
In June 2011, the Corporation completed a sale and leaseback agreement whereby the
Corporation sold certain property, plant and equipment in return for gross cash proceeds of
$1,922,000. The Corporation then leased the assets back for a term of 5 years. On the
closing of the transaction, the Corporation recorded a deferred gain of $150,000, which is
recognized to income on a straight-line basis over the term of the 5-year lease. The lease
transaction qualifies as a finance lease (note 15). As a result, on the closing of the
transaction, the Corporation recorded assets under finance lease and a corresponding
obligation under finance lease of $1,906,000.
Disposals
In March 2011, the Corporation completed a sub-lease agreement with Mercedes-Benz Canada
Inc. (“MBC”) for the rental of 21,000 square feet of surplus production space in the
Corporation’s specialized fuel cell manufacturing facility. As part of the sub-lease agreement,
certain production and test equipment with a net book value of $471,000 were sold to MBC in
advance of the sub-lease for cash proceeds of $1,639,000. At December 31, 2011, selling
costs of $479,000 were incurred to-date and estimated additional costs of $25,000 were
accrued against the disposition. As a result, a total gain on sale of assets of $663,000 was
recognized from the transaction. The remaining $71,000 gain on sale of property, plant and
equipment recognized during the year relates to other miscellaneous asset dispositions.
Impairment loss
During the year ended December 31, 2011, impairment losses of $1,727,000 (2010 - $nil)
were recognized with respect to obsolescence of production and test equipment. No
impairment losses were reversed in 2011 or 2010.
33
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
9. Intangible assets:
Fuel cell technology
Balance
At January 1, 2010
Acquisition through business combination
Amortization
At December 31, 2010
Amortization
At December 31, 2011
Accumulated
Net carrying
Cost
amortization
amount
$
40,567
$
39,743
$
2,876
-
43,443
-
-
725
40,468
726
$
43,443
$
41,194
$
824
2,876
(725)
2,975
(726)
2,249
During 2010, the Corporation acquired $2,876,000 in fuel cell technology as part of the
acquisition of Dantherm Power A/S.
Amortization and impairment losses of fuel cell technology and development costs are
allocated to research and product development expense. There were no impairment losses
recorded in 2011 and 2010.
10. Goodwill:
For the purpose of impairment testing, goodwill is allocated to the Corporation’s cash-
generating units which represent the lowest level within the Corporation at which the goodwill
is monitored for internal management purposes, which is not higher than the Corporation’s
operating segments (note 25).
The aggregate carrying amount of goodwill allocated to each cash-generating unit is as
follows:
Fuel cell products
Contract automotive
Material products
December 31,
December 31,
January 1,
2011
2010
2010
$
46,291
$
46,291
$
46,291
-
1,815
-
1,815
-
1,815
$
48,106
$
48,106
$
48,106
The impairment testing for the above cash-generating units requires a comparison of the
carrying value of the asset to the higher of (i) value in use; and (ii) fair value less costs to sell.
Value in use is defined as the present value of future cash flows expected to be derived from
the asset in its current state.
The Corporation’s fair value test is in effect a modified market capitalization assessment,
whereby the fair value of the Fuel Cell Products segment is calculated by first calculating the
value of the Corporation at December 31, 2011 based on the average closing share price in
the month of December, adding a reasonable estimated control premium of 25% to 30% to
determine the Corporation’s enterprise value on a controlling basis, and deducting the fair
value of the Materials Product and Contract Automotive segments from this enterprise value,
arriving at the fair value of the Fuel Cell Products segment.
34
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
10. Goodwill (cont’d):
Based on the fair value test, the Corporation has determined that the fair value of the Fuel Cell
Products segment exceeds it carrying value by approximately 15% to 20% as of December
31, 2011. The fair value of the Material Products segment, determined using an estimated
market value as a multiple of revenues, is substantially in excess of its carrying value of
December 31, 2011.
In addition to the fair value test, the Corporation also performed a value in use test on the
Fuel Cell Products segment, comparing the carrying value of the segment to the present value
of future cash flows expected to be derived from the segment. The principal factors used in
the discounted cash flow analysis requiring judgment are the projected results of operations,
the discount rate based on the weighted average cost of capital (“WACC”), and terminal value
assumptions for each reporting unit. The Corporation’s value in use test was based on a
WACC of 17.5% to 20%; an average estimated compound annual growth rate of
approximately 40% from 2011 to 2016; and a terminal year earnings before interest, taxes,
depreciation and amortization (“EBITDA”) multiplied by a terminal value multiplier of 4.0. The
value in use assessment resulted in a significantly higher value than as determined under the
fair value, less costs to sell, assessment.
As the recoverable amount of each cash-generating unit was determined to be greater than its
carrying amount, no impairment loss was recorded.
11. Investments:
Investments are comprised of the following:
December 31, 2011
December 31, 2010
January 1, 2010
Percentage
Percentage
Percentage
Amount
ownership
Amount
ownership
Amount
ownership
Chrysalix Energy Limited Partnership
$
627
15.0% $
663
15.0% $
632
15.0%
Other
8
$
635
10
$
673
-
$
632
Chrysalix Energy Limited Partnership (“Chrysalix”) is accounted for as an available-for-sale
financial asset and recorded at fair value.
During 2011, the Corporation made additional capital contributions of $103,000 (2010 -
$67,000) in Chrysalix, which was offset by cash distributions received from Chrysalix of
$139,000 (2010 - $36,000).
The Corporation maintains a 19.9% interest in AFCC Automotive Fuel Cell Cooperation Corp.
(“AFCC”), which is accounted for as an available-for-sale financial asset and recorded at fair
value of $1. The Corporation has no obligation to fund any of AFCC’s operating expenses.
35
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. Bank facilities:
In June 2011, the Corporation entered into a demand revolving facility (“Bank Operating
Line”) in which an operating line of credit of up to CDN $10,000,000 was made available to be
drawn upon by the Corporation. The Bank Operating Line is utilized to assist in financing the
day-to-day operating activities and short-term working capital requirements of the business.
Outstanding amounts are charged interest at the bank’s prime rate minus 0.50% per annum
and are repayable on demand by the bank. During 2011, the Corporation was advanced
$14,265,000 under the bank operating line of which $9,678,000 was repaid during the year.
At December 31, 2011, $4,587,000 was outstanding on the Bank Operating Line.
The Corporation also has a CDN $3,323,000 capital leasing facility (“Leasing Facility”) which
can be utilized to finance the acquisition and lease of operating equipment (notes 8 & 15).
Interest is charged on outstanding amounts at the bank’s prime rate per annum and is
repayable on demand by the bank.
Both the Bank Operating Line and Leasing Facility are secured by a hypothecation of the
Corporation’s cash, cash equivalents and short-term investments.
13. Trade and other payables:
Trade accounts payable
Compensation payable
Other liabilities
Taxes payable
Accrued monetization costs
December 31,
December 31,
January 1,
2011
$
10,195
$
6,615
5,568
456
-
2010
8,453
9,159
3,919
354
-
$
2010
6,670
5,235
2,861
302
1,441
$
22,834
$
21,885
$
16,509
36
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
14. Provisions:
Balance
Legal
Restructuring
provision
liabilities
Total
At January 1, 2010
$
1,675
$
2,137
$
7,813
$
2,848
$
14,473
Warranty
Decommissioning
Assumed through business
-
-
10
combination
Provisions made during the year
Provisions used during the year
Provisions reversed during the
year
52
(401)
(38)
305
(2,380)
(10)
2,410
(614)
(1,504)
-
84
-
-
10
2,851
(3,395)
(1,552)
Effect of movements in
83
26
455
170
734
exchange rates
At December 31, 2010
$
1,371
$
78
$
8,570
$
3,102
$
13,121
Provisions made during the year
Provisions used during the year
Provisions reversed during the
50
(897)
-
1,356
(401)
-
2,097
(716)
(1,721)
1,706
-
-
5,209
(2,014)
(1,721)
year
Effect of movements in
(4)
(29)
(181)
(75)
(289)
exchange rates
At December 31, 2011
Current
Non-current
Restructuring
$
$
$
520
$
1,004
$
8,049
$
4,733
$
14,306
520
$
1,004
$
8,049
$
-
$
-
-
-
4,733
9,573
4,733
520
$
1,004
$
8,049
$
4,733
$
14,306
The restructuring provision of $2,137,000 as at January 1, 2010, relates to the remaining
restructuring and related charges from the organizational restructuring and the elimination of
117 positions in 2009. In 2010, the Corporation completed an organizational restructuring at
Dantherm Power A/S resulting in restructuring and related charges of $285,000 primarily for
severance expense on elimination of 8 positions. In 2011, a leadership restructuring, which
reduced the number of executive officers at both the Corporation and at Dantherm Power A/S
resulted in the recognition of $1,356,000 of restructuring charges. The estimated
restructuring costs primarily include employee termination benefits and are expected to be
finalized and paid in 2012. Restructuring charges are recognized in general and administrative
expenses.
Warranty provision
During the year the warranty provision decreased by $521,000. A portion of the provision,
$1,721,000, was reversed during the year due primarily to contractual expirations, reductions
in estimated costs to repair, and improved lifetimes, and reliability of the Corporation’s fuel
cell products. Warranty expenditures during the year of $716,000 also decreased the
warranty provision.
37
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
14. Provisions (cont’d):
Decommissioning liabilities
Provisions for decommissioning liabilities have been recorded for the Corporation’s two leased
locations, the head office building and manufacturing facility, and are related to site
restoration obligations at the end of the lease terms. Due to the long-term nature of the
liability, the most significant uncertainty in estimating the provision is the costs that will be
incurred.
The Corporation has determined a range of reasonable possible outcomes of the total costs for
the manufacturing facility. In determining the fair value of the decommissioning liabilities, the
estimated future cash flows have been discounted at 3% per annum. The total undiscounted
amount of the estimated cash flows required to settle this obligation is $3,912,000. The
obligation will be settled at the end of the term of the operating lease, which extends to 2019.
The provision has increased during the period due to accretion costs.
At December 31, 2011, the Corporation assessed that a fair value of $1,615,000 of
decommissioning liabilities, discounted at 2% per annum was appropriate to record for the
Corporation’s head office building. The total undiscounted amount of the estimated cash flows
required to settle this obligation is $2,233,000. The obligation will be settled at the end of the
lease term, which extends to 2025.
15. Finance lease liability
The Corporation leases certain assets under finance lease agreements (note 8). The finance
leases have imputed interest rates ranging between 2.25% to 7.35% per annum and expire
between December 2014 and February 2025.
The future minimum lease payments for the Corporation’s finance leases are as follows:
Year ending December 31
2012
2013
2014
2015
2016
Thereafter
Total minimum lease payments
Less imputed interest
Total finance lease liability
Current portion of finance lease liability
Non-current portion of finance lease liability
$
1,882
1,882
2,279
1,697
1,872
12,266
21,878
(7,151)
14,727
978
$
13,749
At December 31, 2011, $3,113,000 was outstanding on the Leasing Facility which is included
in the finance lease liability. The remaining $11,614,000 finance lease liability relates to the
lease of the Corporation’s head office building.
38
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Convertible debenture
The convertible debenture relates to financing to Dantherm Power A/S by the non-controlling
partners and is redeemable at the option of Dantherm Power A/S subject to approval by all
convertible debenture holders on or after January 1, 2013 including interest which is accrued
at 12%. Prior to December 31, 2013 (the “Maturity Date”), the convertible debenture holders
may elect to convert all or part of the debenture into shares of Dantherm Power A/S at a
conversion price equal to DKK 3.40 per share. This conversion feature was determined to
have a nominal value. The Maturity Date may be extended to December 31, 2014 with
approval of the subscribers.
17. Employee future benefits:
2011
2010
Pension
plan
Other
benefit plan
Pension
plan
Other
benefit plan
Plan assets
Plan obligations
$
8,223 $
-
$
8,360 $
(13,329)
(580)
(10,819)
Employee future benefit plans deficit
$
(5,106) $
(580)
$
(2,459) $
-
(491)
(491)
The Corporation maintains a defined benefit pension plan covering employees in the United
States. The benefits under the pension plan are based on years of service and salary levels
accrued as of December 31, 2009. In 2009, amendments were made to the defined benefit
pension plan to freeze benefits accruing to employees at their respective years of service and
salary levels obtained as of December 31, 2009. Certain employees in the United States are
also eligible for post-retirement healthcare, life insurance and other benefits.
The Corporation accrues the present value of its obligations under employee future benefit
plans and the related costs, net of the present value of plan assets.
The measurement date used to determine pension and other post-retirement benefit
obligations and expense is December 31 of each year. The most recent actuarial valuation of
the employee future benefit plans for funding purposes was as of January 1, 2011. The next
actuarial valuation of the employee future benefit plans for funding purposes is expected to be
as of January 1, 2012.
The Corporation expects contributions of approximately $600,000 to be paid to its defined
benefit plans in 2012. Information about the Corporation’s employee future benefit plans, in
aggregate, is as follows:
39
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Employee future benefits (cont’d):
Movement in the present value of the defined benefit plan obligations:
2011
2010
Pension
Plan
Other
benefit plan
Pension
plan
Other
benefit plan
Defined benefit plan obligations at January 1
$
10,819 $
491
$
9,800 $
Current service cost
Interest cost
Benefits paid
Benefits payable
-
587
(251)
48
Actuarial (gains) losses in other comprehensive income
2,126
6
25
(44)
-
102
-
579
(217)
36
621
Defined benefit plan obligations at December 31
$
13,329 $
580
$ 10,819 $
616
3
35
(31)
-
(132)
491
Movement in the present value of plan assets:
2011
2010
Pension
plan
Other
benefit plan
Pension
plan
Other
benefit plan
Fair value of plan assets at January 1
$
8,360 $
Expected return on plan assets
Employer’s contributions
Benefits paid
Actuarial (losses) gains in other comprehensive income
582
210
(252)
(677)
Fair value of plan assets at December 31
$
8,223 $
-
-
44
(44)
-
-
$
7,105 $
502
370
(218)
601
-
-
28
(28)
$
8,360 $
-
Pension plan assets comprise:
Cash and cash equivalents
Equity securities
Debt securities
Total
Expense recognized in net income:
Current service cost
Interest on obligations
Expected (return) on plan assets
Benefits payable
Expense recognized in net income
2011
3%
70%
27%
100%
2010
2%
71%
27%
100%
2011
2010
Pension
plan
Other
benefit plan
Pension
plan
Other
benefit plan
$
- $
6 $
- $
587
(582)
48
53
25
579
-
-
31
(502)
36
113
3
35
-
-
38
Actuarial (gain) loss on plan assets and plan obligations
recognized in other comprehensive income
2,803
102
20
(132)
Total expense (income) recognized in net income and
other comprehensive income
$
2,856 $
133 $
133 $
(94)
The expense recognized in net income is recorded in Finance expense.
40
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Employee future benefits (cont’d):
Expense (income) recognized in other comprehensive income:
2011
2010
Pension
plan
Other
benefit plan
Pension
plan
Other
benefit plan
Actuarial (gain) loss on defined benefit plan obligations
$
2,126 $
102 $
621 $
(132)
Expected return on plan assets
Actual (return) loss on plan assets
Plan expenses
Actuarial (gain) loss recognized in other comprehensive
582
68
27
-
-
-
502
(1,137)
34
-
-
-
income
$
2,803 $
102 $
20 $
(132)
Cumulative actuarial gains and losses recognized in other comprehensive income:
2011
2010
Pension
plan
Other
benefit plan
Pension
plan
Other
benefit plan
Cumulative amount at January 1
Recognized during the period
$
20 $
(132) $
2,803
102
Cumulative amount at December 31
$
2,823 $
(30) $
- $
20
20 $
-
(132)
(132)
The significant actuarial assumptions adopted in measuring the fair value of benefit obligations
at December 31, 2011 and 2010 were as follows:
Discount rate
Rate of compensation increase
2011
2010
Pension
Other
Pension
Other
plan
benefit plan
plan
benefit plan
4.3%
n/a
4.3%
n/a
5.5%
n/a
5.5%
n/a
The significant actuarial assumptions adopted in determining net expense for the years ended
December 31, 2010 and 2009 were as follows:
Discount rate
Expected return on plan assets
Rate of compensation increase
2011
2010
Pension
Other
Pension
Other
plan
benefit plan
plan
benefit plan
5.5%
7.0%
n/a
5.5%
7.0%
n/a
6.0%
7.0%
n/a
6.0%
n/a
n/a
41
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Employee future benefits (cont’d):
The assumed health care cost trend rates applicable to the other benefit plans at December
31, 2010 and 2009 were as follows:
Initial medical health care cost trend rate
Initial dental health care cost trend rate
Cost trend rate declines to medical and dental
Year that the medical rate reaches the rate it is assumed to remain at
Year that the dental rate reaches the rate it is assumed to remain at
2011
8.0%
5.0%
5.0%
2017
2009
2010
8.5%
5.0%
5.0%
2017
2009
A one-percentage-point change in assumed health care cost trend rates would not have a
material impact on the Corporation’s financial statements.
18. Equity:
(a) Authorized and issued:
Unlimited number of common shares, voting, without par value.
Unlimited number of preferred shares, issuable in series.
At December 31, 2011, 84,550,524 (2010 – 84,148,465) common shares are issued and
outstanding.
(b) Share option plan:
The Corporation has options outstanding under a consolidated share option plan. All directors,
officers and employees of the Corporation, and its subsidiaries, are eligible to participate in the
share option plans although as a matter of policy, options are currently not issued to directors.
Option exercise prices are denominated in both Canadian and U.S. dollars, depending on the
residency of the recipient. Canadian dollar denominated options have been converted to U.S.
dollars using the year-end exchange rate for presentation purposes.
All options have a term of seven to ten years from the date of grant unless otherwise
determined by the board of directors. One-third of the options vest and may be exercised, at
the beginning of each of the second, third and fourth years after granting.
42
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Equity (cont’d):
(b) Share option plan (cont’d):
As at December 31, 2011, options outstanding from the consolidated share option plan was as
follows:
Balance
At January 1, 2010
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2010
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2011
Options for
common shares
Weighted average
exercise price
5,867,851
$
19.18
1,709,737
(72,491)
(589,408)
(233,100)
6,682,589
1,874,369
(25,834)
(260,016)
(655,139)
7,615,969
$
2.31
1.30
9.48
190.90
10.84
1.99
1.27
7.62
46.52
5.54
The following table summarizes information about the Corporation’s share options outstanding
as at December 31, 2011:
Options outstanding
Options exercisable
Range of exercise price
outstanding
(years)
price
exercisable
Number
contractual life
exercise
Number
Weighted
average
Weighted
remaining
average
$1.01 – $1.92
1,794,152
4.9 $
$2.06 – $2.36
3,104,218
$3.05 – $5.00
569,034
$5.69 – $7.82
1,405,766
$10.00 – $14.43
$17.99 – $38.10
292,955
449,844
7,615,969
5.7
3.2
3.3
1.5
0.4
1.54
2.21
4.74
7.19
13.57
35.12
965,601 $
540,950
569,034
1,405,766
292,955
449,844
4.4 $
5.54
4,224,150 $
Weighted
average
exercise
price
1.56
2.35
4.74
7.19
13.57
35.12
8.37
The Corporation uses the fair-value method for recording employee and director share option
grants. During 2011, compensation expense of $1,743,000 (2010 - $1,634,000) was
recorded in net income as a result of fair value accounting for share options granted. The
share options granted during the year had a weighted average fair value of $1.14 (2010 -
$1.23) and vesting periods of three years.
43
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Equity (cont’d):
(b) Share option plan (cont’d):
The fair values of the options granted were determined using the Black-Scholes valuation
model under the following weighted average assumptions:
Expected life
Expected dividends
Expected volatility
Risk-free interest rate
(c) Share distribution plan:
2011
5 years
Nil
63%
3%
2010
5 years
Nil
65%
3%
The Corporation has a consolidated share distribution plan that permits the issuance of
common shares for no cash consideration to employees of the Corporation to recognize their
past contribution and to encourage future contribution to the Corporation. At December 31,
2011, there were 440,268 (2010 – 1,089,491) shares available to be issued under this plan.
No compensation expense was recorded against income during the years ended December 31,
2011 and 2010 for shares distributed, and to be distributed, under the plan.
(d) Deferred Share Units:
Deferred share units (“DSUs”) are granted to the board of directors and executives. Eligible
directors may elect to receive all or part of their annual retainers and executives may elect to
receive all or part of their annual bonuses in DSUs. Each DSU is redeemable for one common
share in the capital of the Corporation after the director or executive ceases to provide
services to the Corporation. Shares will be issued from the Corporation’s share distribution
plan.
Balance
At January 1, 2010
DSUs exercised
At December 31, 2010 and 2011
DSUs for common shares
316,152
(25,355)
290,797
No compensation expense was recorded against income during the years ended December
31, 2011 and 2010.
(e) Restricted Share Units:
Restricted share units (“RSUs”) are granted to employees and executives. Each RSU is
convertible into one common share. The RSUs vest after a specified number of years from the
date of issuance, and under certain circumstances, are contingent on achieving specified
performance criteria.
44
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Equity (cont’d):
(e) Restricted Share Units (cont’d):
The Corporation has two plans under which RSUs may be granted, the consolidated share
distribution plan and the market purchase RSU plan. Awards under the consolidated share
distribution plan (note 18 (c)) are satisfied by the issuance of treasury shares on maturity.
Awards granted under the market purchase RSU Plan are satisfied by shares purchased on the
open market by a trust established for that purpose. During 2011, the Corporation
repurchased 230,211 (2010 – 269,877) common shares through the trust for cash
consideration of $327,000 (2010 – $559,000) for the purpose of funding future grants under
the Market Purchase RSU Plan. As at December 31, 2011 the Corporation held 309,089
shares as treasury shares.
Balance
At January 1, 2010
RSUs granted
RSUs exercised
RSUs forfeited
At December 31, 2010
RSUs granted
RSUs exercised
RSUs forfeited
At December 31, 2011
RSUs for common shares
Share
Market
Distribution Plan
Purchase Plan
Total RSUs
1,241,016
-
(154,006)
(235,040)
851,970
-
(660,522)
(4,975)
186,473
380,733
893,370
(38,990)
(176,015)
1,059,098
1,351,516
(371,626)
(52,084)
1,621,749
893,370
(192,996)
(411,055)
1,911,068
1,351,516
(1,032,148)
(57,059)
1,986,904
2,173,377
The fair value of RSU grants is measured based on the stock price of the shares underlying the
RSU on the date of grant. During 2011, compensation expense of $870,000 (2010 -
$1,944,000) was recorded against income.
19. Operating leases:
The Corporation leases a facility at its Burnaby, Canada location, which has been assessed as
an operating lease. The facility has a lease term expiring in 2019, with renewal options after
that date.
45
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Operating leases (cont’d):
At December 31, 2011, the Corporation is committed to payments under operating leases as
follows:
Less than 1 year
1-3 years
4-5 years
Thereafter
Total minimum lease payments
20. Commitments and contingencies:
$
$
2,465
4,987
5,379
10,739
23,570
The Corporation has agreed to pay royalties in respect of sales of certain fuel cell-based
stationary power products under two development programs with Canadian government
agencies. The total combined royalty is limited in any year to 4% of revenue from such
products. Under the terms of the Utilities Development Program (Phase 1) with the
Governments of Canada and British Columbia, total royalties are payable to a maximum equal
to the original amount of the government contributions of CDN$10,702,000. During 2009, a
Canadian government agency agreed to terminate potential royalties payable of CDN
$5,351,000 in respect of future sales of fuel cell based stationary power products under the
Utilities Development Program (Phase 1). As at December 31, 2011, no royalties have been
incurred for Phase 1.
Under the terms of the Utilities Development Program (Phase 2) with Technology Partnerships
Canada (“TPC”) total royalties are payable to a maximum of CDN$38,329,000. As at
December 31, 2011, a total of CDN $5,320,000 in royalty repayments have been incurred for
Phase 2. The Corporation has made no Phase 2 royalty repayments in 2011 and 2010.
Original maximum payable amount under Phase 1 and 2
CDN$
Termination of potential royalties payable
Prior year payments applied
Maximum payable amount, December 31, 2011
CDN$
49,031
(5,350)
(5,320)
38,361
Maximum payable amount, December 31, 2011
US$
37,719
At December 31, 2011, the Corporation has outstanding commitments aggregating up to a
maximum of $867,000 (2010 - $1,156,000) relating primarily to purchases of property, plant
and equipment.
The Corporation is also committed to make future investments totaling $98,000 in Chrysalix
(note 11).
The Corporation has agreed to pay royalties in respect of sales of Ballard fuel cells or fuel cell
systems under a July 31, 1996 Fuel Cell Bus Program Agreement (“FC Bus Agreement”), with
Province of British Columbia, BC Transit, and BC Transportation Financing Authority
(“BCTFA”). Under the terms of FC Bus Agreement, the royalty payable is at a rate of 2% on
46
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
deferred sales of such products for commercial transit application to a maximum of
$2,163,000 (CDN$ 2,200,000). No royalties have been paid to date.
On December 31, 2008, the Corporation completed a restructuring transaction with Superior
Plus Income Fund (“Superior Plus”), which included an indemnification agreement (the
“Indemnity Agreement”), which sets out the parties’ continuing obligations to the other. The
Indemnity Agreement provides for the indemnification by each of the parties to the other for
breaches of representations and warranties or covenants, as well as, in the Corporation’s case,
any liability relating to the business which is suffered by Superior Plus. The Corporation’s
indemnity to Superior Plus with respect to representation relating to the existence of the
Corporation’s tax pools immediately prior to the completion of the Arrangement is limited to
an aggregate of $7,227,000 (CDN $7,350,000) with a threshold amount of $492,000 (CDN
$500,000) before there is an obligation to make a payment. The Indemnity Agreement also
provides for adjustments to be paid by the Corporation, or to the Corporation, depending on
the final determination of the amount of 2008 Canadian non-capital losses, scientific research
and development expenditures and investment tax credits, to the extent that such amounts
are more or less than the amounts estimated at the time the Arrangement was executed.
At December 31, 2011, no amount payable or receivable has been accrued as a result of the
Indemnity Agreement.
21. Personnel expenses:
Personnel expenses are included in cost of product and services revenues, research and
product development expense, general and administrative expense, and sales and marketing
expense.
Salaries and employee benefits
Share-based compensation (note 18)
December 31,
December 31,
2011
55,362
$
2,646
58,008
$
2010
53,014
3,579
56,593
$
$
47
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
22. Income taxes:
(a) Current tax expense:
The components of income tax benefit / (expense) included in the determination of the profit
(loss) comprise of:
Current tax expense
Current period income tax
Withholding tax
Adjustment for prior periods
Total current tax expense
Deferred tax expense
2011
2010
$
102
$
135
146
$
383
$
3
-
-
3
Origination and reversal of temporary differences
$
8,907
$
61,850
Adjustments for prior periods
Change in unrecognized deductible temporary differences
Total deferred tax expense
Total income tax expense
(907)
(8,000)
(20,700)
(41,150)
$
$
-
$
383
$
-
3
The Corporation’s effective income tax rate differs from the combined Canadian federal and
provincial statutory income tax rate for companies. The principal factors causing the
difference are as follows:
Net loss before income taxes
Expected tax expense (recovery) at 26.5% (2010–28.5%)
Increase (reduction) in income taxes resulting from:
Non-deductible portion of capital gain (loss)
Non-deductible expenses (non-taxable income)
Investment tax credits earned
Foreign tax rate differences
Losses and other deductions for which no benefit has been
recorded
Income taxes
(b) Recognized deferred tax:
2011
$
$
(36,156)
(9,581)
$
$
2,838
700
(4,352)
349
10,429
2010
(35,439)
(10,100)
(1,289)
1,113
(4,559)
658
14,180
$
383
$
3
At December 31, 2011, the Corporation did not have any deferred tax liabilities resulting from
temporary differences recognized for financial statement and income tax purposes.
48
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
22. Income taxes (cont’d):
(c) Unrecognized deferred tax:
At December 31, 2011, the Corporation did not have any deferred tax liabilities resulting from
temporary differences for financial statement and income tax purposes.
Deferred tax assets
Scientific research expenditures
Investment in associated companies
Accrued warranty liabilities
Losses from operations carried forward
Capital losses carried forward
US investment tax credits
Investment tax credits
Property, plant and equipment and intangible assets
Deferred tax assets offset against deferred tax liabilities
2011
2010
$
11,647 $
2,246
8,454
17,373
30,681
827
15,188
48,465
-
9,350
2,296
7,965
14,695
30,681
707
12,049
49,139
-
Deferred tax asset not recognized
$
134,881 $
126,882
Deferred tax assets have not been recognized in respect of these items because it is not
probable that future taxable profit will be available against which the Corporation can utilize
the benefits.
The Corporation has available to carry forward the following as at December 31:
Canadian scientific research expenditures
Canadian losses from operations
Canadian investment tax credits
German losses from operations for corporate tax purposes
U.S. federal losses from operations
U.S. state losses from operations
U.S. research and development and investment tax credits
U.S. capital losses
Denmark losses from operations
2011
$
46,587 $
23,075
17,984
227
13,287
1,972
825
90,237
27,534
2010
37,398
19,652
13,990
220
14,727
1,703
707
90,237
18,359
The Canadian scientific research expenditures may be carried forward indefinitely. The
Canadian loses from operations may be used to offset future Canadian taxable income and
expire over the period from 2028 to 2031.
49
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
22. Income taxes (cont’d):
(c) Unrecognized deferred tax (cont’d):
The German and Denmark losses from operations may be used to offset future taxable income
in Germany and Denmark for corporate tax and trade tax purposes and may be carried
forward indefinitely.
The U.S. federal losses from operations may be used to offset future U.S. taxable income and
expire over the period from 2012 to 2030. The U.S. states losses from operations arising in
California may be used to offset future state taxable income and may be carried forward for
ten years. The U.S. federal and state research and development and investment tax credits
are available to reduce future U.S. taxable income and expire over the period from 2012 to
2030. The U.S. capital losses are available to reduce U.S. capital gains and expire over the
period from 2012 to 2013.
The Canadian investment tax credits may be used to offset future Canadian income taxes
otherwise payable and expire as follows:
2012
2013
2014
2015
2016
2017
2029
2030
2031
$
61
119
104
-
93
103
7,245
5,073
5,186
$
17,984
23. Related party transactions:
Related parties include shareholders with a significant ownership interest in the Corporation,
together with its subsidiaries and affiliates. The revenue and costs recognized from
transactions with such parties reflect the prices and terms of sales and purchase transactions
with related parties, which are in accordance with normal trade practices. Transactions
between the Corporation and its subsidiaries are eliminated on consolidation.
Balances with related parties:
Trade receivables
Trade payables
Transactions during the year with related parties:
Revenues
Purchases
$
$
$
$
2011
- $
260 $
2011
- $
744 $
2010
153
517
2010
134
1,301
50
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
23. Related party transactions (cont’d):
The Corporation provides key management personnel, being board directors and executive
officers, certain benefits, in addition to their salaries. Key management personnel also
participate in the Corporation’s share-based compensation plans (note 18).
In addition to cash and equity compensation, the Corporation provides the executive officers
with certain personal benefits, including car allowance, medical benefit program, long and
short-term disability coverage, life insurance and an annual medical and financial planning
allowance.
In accordance with the employment agreements of the executive officers, the Corporation is
required to provide notice of 12 months plus one month for every year of employment
completed with the Corporation, to a maximum of 24 months, or payment in lieu of such
notice, consisting of the salary, bonus and other benefits that would have been earned during
such notice period. If there is a change of control, and if the executive officer’s employment is
terminated, including a constructive dismissal, within 2 years following the date of a change of
control, the executive officer is entitled to a payment equivalent to payment in lieu of a 24
month notice period.
Key management personnel compensation is comprised of:
Salaries and employee benefits
Post-employment retirement benefits
Termination benefits
Share-based compensation (note 18)
2011
$
3,744
$
79
425
1,136
$
5,384
$
2010
4,390
75
-
1,638
6,103
24. Supplemental disclosure of cash flow information:
Non-cash financing and investing activities:
Compensatory shares
Assets acquired under finance lease (note 8)
2011
2,046 $
2010
540
1,906 $
12,180
$
$
51
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
25. Operating segments:
The Corporation’s business operates in three market segments:
• Fuel Cell Products: fuel cell products and services for motive power (material handling
and bus markets) and stationary power (backup power and distributed generation
markets) applications; and engineering services for a variety of fuel cell applications;
• Contract Automotive: contract manufacturing services provided primarily for Daimler
AG;
• Material Products: carbon fiber products primarily for automotive transmissions and gas
diffusion layers (“GDL”) for fuel cells.
In 2011, the Corporation completed its manufacturing services contract for the supply of
automotive fuel cell modules to Daimler AG. As a result, the Contract Automotive segment
will cease to be an operating segment as of December 31, 2011. The Corporation has
restated its comparative operating segment information to align to its current composition of
operating segments. Revenues relating to engineering services previously recorded in the
Contract Automotive segment of $1,460,000 for the year ended December 31, 2010, have
been reallocated to the Fuel Cell Products segment.
Segment revenues and segment income (loss) represent the primary financial measures used
by senior management in assessing performance and allocating resources, and include the
revenues, cost of product and service revenues and expenses for which management is held
accountable. Segment expenses include research and product development costs directly
attributable to individual segments.
Costs associated with shared services and other shared costs are allocated based on
headcount and square footage. Corporate amounts include expenses for research and product
development that are not attributable to individual segments, sales and marketing, and
general and administrative, which apply generally across all segments and are reviewed
separately by senior management.
A significant portion of the Corporation’s production, testing and lab equipment, and facilities,
as well as intellectual property, are common across the segments. Therefore, management
does not classify asset information on a segmented basis. Instead, performance assessments
of these assets and related resource allocations are done on a company-wide basis.
52
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
25. Operating segments (cont’d):
Total revenues
Fuel Cell Products
Contract Automotive
Material Products
Segment income (loss) for the year (1)
Fuel Cell Products
Contract Automotive
Material Products
Total
Corporate amounts
Research and product development
General and administrative
Sales and marketing
Net finance loss
Gain on sale of property, plant and equipment
Gain on sale of assets
Impairment loss on property, plant and equipment
Loss before income tax
(1)
2011
2010
$
46,468
$
9,305
20,236
$
76,009
$
34,244
9,811
20,964
65,019
$
(1,305) $
(8,762)
1,803
5,852
6,350
(17,945)
(12,500)
(9,488)
(1,197)
734
-
(1,727)
1,755
7,689
682
(19,299)
(14,777)
(9,113)
(965)
4
8,032
-
$
(35,773) $
(35,436)
Research and product development costs directly related to segments are included in segment income (loss) for the
year.
In 2011, sales to a single customer of $18,119,000 exceeded 10% of total revenue, of which
$7,264,000 were included in revenues from the Fuel Cell Products segment and $10,855,000
were included in revenues from the Contract Automotive segment. In addition, sales to a
single customer group of $11,518,000 in the Material Products segment exceeded 10% of
total revenue.
In 2010, sales to a single customer of $16,359,000 exceeded 10% of total revenue, of which
$8,107,000 were included in revenues from the Fuel Cell Products segment and $8,252,000
were included in revenues from the Contract Automotive segment. In addition, sales to a
single customer group of $13,586,000 in the Material Products segment exceeded 10% of
total revenue.
53
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
25. Operating segments (cont’d):
Revenues by geographic area, which are attributed to countries based on customer location
for the years ended December 31, is as follows:
Revenues
Canada
U.S.
Germany
United Kingdom
Denmark
Belgium
Brazil
Other countries
2011
$
9,320 $
27,842
19,771
3,868
2,631
4,992
2,810
4,775
$
76,009 $
2010
5,070
31,179
17,465
5,733
1,048
513
-
4,011
65,019
Non-current assets by geographic area is as follows:
Non-current assets
Canada
U.S.
Germany
Denmark
26. Financial instruments:
(a) Fair value:
December 31,
December 31,
January 1,
2011
2010
$
76,728 $
78,180 $
8,635
59
1,962
9,698
59
2,692
2010
78,450
10,620
59
-
$
87,384 $
90,629 $
89,129
The Corporation’s financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivables, long-term investments, accounts payable and accrued
liabilities, and obligations under capital lease. The fair values of cash, accounts receivable,
accounts payable and accrued liabilities approximate carrying value because of the short-term
nature of these instruments. The Corporation’s long-term investments are not actively
traded, therefore management estimates fair value using valuation techniques that require
inputs that are unobservable, including inputs made available by its investees (i.e. Level 3 of
the fair value hierarchy). The interest rates applied to the obligations under capital lease are
not considered to be materially different from market rates, thus the carrying value of
obligations under capital lease approximate fair value. The carrying value of cash equivalents
and short-term investments equal their fair values as they are classified as held for trading.
54
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Financial instruments (cont’d):
(a) Fair value (cont’d):
Fair value measurements recognized in the balance sheet must be categorized in accordance
with the following levels:
(i) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
(ii) Level 2: inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e., derived from prices);
(iii) Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The Corporation categorized the fair value measurement of its cash, cash equivalents and
short-term investments in Level 1 as they are primarily derived directly from reference to
quoted (unadjusted) prices in active markets.
(b) Financial risk management:
The Corporation primarily has exposure to currency exchange rate risk, interest rate risk and
credit risk. These risks arise primarily from the Corporation’s holdings of U.S. and Canadian
dollar denominated cash and cash equivalents and short-term investments.
2011
Canadian
dollar
portfolio(1)
U.S. dollar
portfolio
Other (1)
Total Canadian
dollar
portfolio(1)
2010
U.S. dollar
portfolio
Other (1)
Total
$
9,421 $ 10,284 $
611 $ 20,316 $ 16,759 $ 33,947 $ 1,231
$ 51,937
25,878
-
- 25,878
9,492
13,016
-
22,508
Cash and cash
equivalents
Short-term
investments
Total cash, cash
equivalents and
short- term
investments
$
35,299 $ 10,284 $
611 $ 46,194 $ 26,251 $ 46,963 $ 1,231
$ 74,445
(1) U.S. dollar equivalent
55
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Financial instruments (cont’d):
(b) Financial risk management:
Changes arising from these risks could impact the Corporation’s reported investment and
other income through either changes to investment income or foreign exchange gains or
losses. Reported finance income and expenses and other income are as follows:
Investment income
Other income
Pension costs
Foreign exchange loss
Finance income (loss) and other
Finance expense
2011
$
303
$
-
(37)
(71)
$
$
195
$
(1,392) $
2010
323
224
(124)
(527)
(104)
(861)
The Corporation did not realize any material gains or losses on its accounts receivable or its
financial liabilities measured at amortized cost.
Foreign currency exchange rate risk
Foreign currency exchange rate risk is the risk that the fair value of deferred cash flows of a
financial instrument will fluctuate because of changes in foreign exchange rates. The
Corporation is exposed to currency risks primarily due to its holdings of Canadian dollar
denominated cash equivalents and short-term investments and its Canadian dollar
denominated purchases and accounts payable. Substantially all receivables are denominated
in U.S. dollars.
The Corporation limits its exposure to foreign currency risk by holding Canadian denominated
cash, cash equivalents and short-term investments in amounts up to 100% of forecasted
twelve month Canadian dollar net expenditures and up to 50% of the following twelve months
of forecasted Canadian dollar net expenditures, thereby creating a natural hedge. Periodically,
the Corporation also enters into forward foreign exchange contracts to further limit its
exposure. At December 31, 2011, the Corporation had Canadian dollar cash, cash equivalents
and short-term investments of CDN $35,899,000, and outstanding forward foreign exchange
contracts outstanding to sell a total of CDN $7,000,000 in 2012 at an average rate of CDN
$1.02 to US $1.00.
The following exchange rates applied during the year ended December 31, 2011:
$U.S. to $1.00 CDN
$CDN to $1.00 $U.S.
January 1, 2011 Opening rate
$ 1.005
$ 0.995
December 31, 2011 Closing rate
Fiscal 2011 Average rate
0.983
1.011
1.017
0.989
56
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Financial instruments (cont’d):
(b) Financial risk management (cont’d):
Foreign currency exchange rate risk (cont’d)
Based on cash, cash equivalents and short-term investments held at December 31, 2011, a
10% increase in the Canadian dollar against the U.S. dollar, with all other variables held
constant, would result in an increase in foreign exchange gains of approximately $3,530,000
recorded against net income.
If the Canadian dollar weakened 10% against the U.S. dollar, there would be an equal, and
opposite impact, on net income. This sensitivity analysis includes foreign currency
denominated monetary items, and adjusts their translation at year-end, for a 10% change in
foreign currency rates.
Interest rate risk
Interest rate risk is the risk that the fair value of deferred cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Corporation is exposed to
interest rate risk arising primarily from fluctuations in interest rates on its cash, cash
equivalents and short-term investments. The Corporation limits its exposure to interest rate
risk by continually monitoring and adjusting portfolio duration to align to forecasted cash
requirements and anticipated changes in interest rates.
Based on cash, cash equivalents and short-term investments at December 31, 2011, a 0.25%
decline in interest rates, with all other variables held constant, would result in a decrease in
investment income $115,000, arising mainly as a result of an increase in the fair value of fixed
rate financial assets classified as held-for-trading. If interest rates had been 0.25% higher,
there would be an equal and opposite impact on net income.
Credit risk
Credit risk is the risk of financial loss to the Corporation if a counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the
Corporation’s cash, cash equivalents, short-term investments and accounts receivable. The
Corporation limits its exposure to credit risk on cash, cash equivalents and short-term
investments by only investing in liquid, investment grade securities. The Corporation
manages its exposure to credit risk on accounts receivable by assessing the ability of
counterparties to fulfill their obligations under the related contracts prior to entering into such
contracts, and continuously monitors these exposures.
57
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS:
As stated in note 2(a), these are the Corporation’s first consolidated financial statements
prepared in accordance with IFRS. The accounting policies set out in note 3 have been applied
in preparing the financial statements for the year ended December 31, 2011, the comparative
information presented in these financial statements for the year ended December 31, 2010
and in the preparation of the opening IFRS statement of financial position at January 1, 2010
(the Corporation’s “Transition Date”).
In preparing its opening IFRS statement of financial position, the Corporation has adjusted
amounts reported previously in financial statements prepared in accordance with Canadian
Generally Accepted Accounting Principles (“Canadian GAAP”). The following is an explanation
of how the transition from Canadian GAAP to IFRS has affected the Corporation’s financial
position, financial performance and cash flows.
(i) IFRS 1, First-Time Adoption of International Financial Reporting Standards:
IFRS 1, First-Time Adoption of International Financial Reporting Standard, permits those
companies adopting IFRS for the first time to take certain exemptions from the full
requirements of IFRS at the time of transition. The following are the initial IFRS 1 mandatory
elections and optional exemptions applied by the Corporation upon initial adoption of IFRS
from Canadian GAAP:
Estimates:
Hindsight is not used to create or revise estimates. The estimates previously made by the
Corporation under Canadian GAAP were not revised for application of IFRS except where
necessary to reflect any differences in accounting policies.
Share-based payments:
The Corporation has elected to apply IFRS 2, Share-based Payments, to all equity instruments
granted after November 7, 2002 that had not vested as of the Transition Date and elected not
to apply the standard to any equity instruments issued prior to this date.
Business combinations:
The Corporation has elected to prospectively apply IFRS 3, Business Combinations, from the
Transition Date, rather than retrospectively restating all business combinations that have
occurred prior to the Transition Date. As such, any goodwill arising from past business
combinations have not been adjusted from the carrying value previously determined under
Canadian GAAP.
58
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(i) IFRS 1, First-Time Adoption of International Financial Reporting Standards (cont’d):
Currency translation differences:
The Corporation has elected to reset its historical cumulative translation gains and losses to nil
at the Transition Date, rather than to retrospectively apply IAS 21, The Effects of Changes in
Foreign Exchange Rates. Historical cumulative translation adjustments arose prior to 2001 and
totaled $236,000. These were a result of the consolidation method applied at the time to the
Corporation’s German subsidiary.
Employee benefits:
The Corporation has elected to disclose comparative information with regards to the defined
benefit pension plan and other benefit plans for the current and previous period, rather than
the previous four periods as required under IAS 19, Employee Benefits.
In addition, the Corporation has elected to apply the optional election in IFRS 1 and recognize
all cumulative unrecognized actuarial gains and losses through retained earnings as at the
Transition Date.
Decommissioning liabilities:
The Corporation has elected not to retrospectively restate its decommissioning liabilities. The
Corporation elected rather to calculate the provision per IFRS 37, Provisions, Contingent
Liabilities and Contingent Assets, at the Transition Date, as if the obligation arose at that date.
The calculated value was then discounted to the date the obligation first arose and then the
provision was accreted up to the Transition Date.
(ii)
Reconciliations of Canadian GAAP to IFRS:
Reconciliation of equity from Canadian GAAP to IFRS as at:
Shareholders’ equity under Canadian GAAP
$
158,920
$
127,875
Differences:
Decommissioning liabilities
Sale and leaseback gain on operating lease
a
d
(1,330)
-
(1,381)
3,089
Total equity under IFRS
$
157,590
$
129,583
January 1,
December 31,
2010
2010
59
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS:
Reconciliation of comprehensive loss from Canadian GAAP to IFRS for the year ended:
Net loss and comprehensive loss under Canadian GAAP
Differences:
Decommissioning liabilities
Share-based payments
Sale and leaseback gain on operating lease
Defined benefit plan actuarial gain
Total net loss under IFRS
Defined benefit plan actuarial gain
Total comprehensive loss under IFRS
December 31,
2010
$
(38,843)
(51)
478
3,089
(112)
(35,439)
112
$
(35,327)
a
b
d
e
e
60
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
Reconciliation of the Canadian GAAP consolidated statement of financial position as at January
1, 2010 to IFRS:
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trade and other receivables
Inventories
Prepaid expenses and other
current assets
Total current assets
Property, plant and equipment
Intangible assets
Goodwill
Investments
Other long-term assets
Total assets
Liabilities and Equity
Current liabilities:
Trade and other payables
Deferred revenue
Current portion of finance lease
liability
Provisions
Total current liabilities
Finance lease liability
Provisions
Employee future benefits
Total liabilities
Equity:
Share capital
Treasury shares
Contributed surplus
Accumulated deficit
Accumulated other comprehensive
loss
Total equity
Total liabilities and equity
Note
Canadian
GAAP
Effect of
transition to
IFRS
Adjustments
Effect of
transition to
IFRS
Reclassifications
$
43,299 $
- $
- $
38,932
12,903
9,168
2,114
106,416
-
-
-
-
-
a
$
39,320
824
48,106
632
50
195,348 $
197
-
-
-
-
197 $
-
-
-
-
-
-
-
-
-
-
- $
- $
-
-
-
-
(3,812) $
-
-
3,812
-
i $
20,321 $
1,607
316
7,813
30,057
1,739
1,321
3,311
36,428
835,565
(207)
284,510
(960,712)
(236)
i
a
b
a, b, c
c
-
1,527
-
1,527
-
-
1,304
(2,870)
236
-
-
-
-
-
-
-
-
-
-
-
$
158,920
195,348 $
(1,330)
197 $
157,590
195,545
$
IFRS
43,299
38,932
12,903
9,168
2,114
106,416
39,517
824
48,106
632
50
195,545
16,509
1,607
316
11,625
30,057
1,739
2,848
3,311
37,955
835,565
(207)
285,814
(963,582)
-
61
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
Reconciliation of the Canadian GAAP consolidated statement of financial position as at
December 31, 2010 to IFRS:
Note
Canadian
GAAP
Effect of
transition to
IFRS
Adjustments
Effect of
transition to
IFRS
Reclassifications
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trade and other receivables
Inventories
Prepaid expenses and other
current assets
Total current assets
Property, plant and equipment
Intangible assets
Goodwill
Investments
Long-term trade receivables
Other long-term assets
Total assets
Liabilities and Equity
Current liabilities:
Trade and other payables
Deferred revenue
Current portion of finance lease
liability
Provisions
Total current liabilities
Finance lease liability
Deferred gain
Provisions
Employee future benefits
Total liabilities
Equity:
Share capital
Treasury shares
Contributed surplus
Accumulated deficit
Accumulated other
comprehensive loss
Total equity attributable to
equity holders
Dantherm Power A/S non-
controlling interests
Total equity
Total liabilities and equity
$
a
$
51,937 $
22,508
11,614
12,382
957
99,398
36,706
2,975
48,106
673
1,596
334
189,788 $
i $
23,334 $
2,506
681
8,570
35,091
13,354
9,036
1,482
2,950
61,913
836,245
(670)
288,618
(995,669)
(236)
i
d
a
b
a, b, c, d
c
- $
-
-
-
-
-
239
-
-
-
-
-
239 $
-
(3,089)
1,620
-
(1,469)
-
-
826
646
236
- $
-
-
-
-
(1,449)- $
-
-
1,449
-
IFRS
51,937
22,508
11,614
12,382
957
- $
-
-
-
-
-
99,398
-
-
-
-
-
-
- $
36,945
2,975
48,106
673
1,596
334
190,027
21,885
2,506
681
10,019
35,091
13,354
5,947
3,102
2,950
60,444
836,245
(670)
289,444
(995,023)
-
129,996
(413)
-
-
-
-
-
-
-
-
-
-
-
-
128,288
1,708
(413)
-
$
127,875
189,788 $
1,708
239 $
-
- $
129,583
190,027
62
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
Reconciliation of the Canadian GAAP consolidated statement of comprehensive loss for the
year-ended December 31, 2010 to IFRS:
Note
Canadian
GAAP
Effect of
transition to
IFRS
Adjustments
Effect of
transition to
IFRS
Reclassifications
$
65,019 $
- $
- $
Revenues:
Product and service revenues
Cost of product and service
revenues
Gross margin
Operating expenses:
Research and product
development
General and administrative
Sales and marketing
Restructuring and related costs
Acquisition charges
Depreciation and amortization
Total operating expenses
Operating loss
Finance income
Finance expense
Net finance income (loss)
Gain on sale of assets
Loss before income taxes
Income tax (recovery)
Net loss
a, b
54,808
10,211
b, d, j
23,812
b, j
b, j
j
j
j
a, e
a
d
13,315
8,861
285
243
6,454
52,970
(42,759)
128
(974)
(846)
4,765
(38,840)
3
79
(79)
(46)
(271)
(14)
-
-
-
(331)
252
(232)
113
(119)
3,271
3,404
-
(38,843)
3,404
IFRS
65,019
54,887
10,132
28,749
14,777
9,113
-
-
-
52,639
(42,507)
(104)
(861)
(965)
8,036
(35,436)
3
(35,439)
112
-
-
4,983
1,733
266
(285)
(243)
(6,454)
-
-
-
-
-
-
-
-
-
-
Defined benefit plan actuarial gain
e
-
112
Comprehensive loss
$
(38,843) $
3,516 $
- $
(35,327)
Net loss attributable to:
Ballard Power Systems Inc.
$
(34,936) $
3,404 $
- $
(31,532)
Dantherm Power A/S non-controlling interest
(3,907)
-
-
(3,907)
Net loss
$
(38,843) $
3,404 $
- $
(35,439)
Comprehensive loss attributable to:
Ballard Power Systems Inc.
$
(34,936) $
3,516 $
- $
(31,420)
Dantherm Power A/S non-controlling interest
(3,907)
-
-
(3,907)
Comprehensive loss
$
(38,843) $
3,516 $
- $
(35,327)
Basic and diluted loss per share
attributable to Ballard Power
Systems Inc.
Weighted average number of common
shares outstanding
$
(0.42) $
0.05 $
- $
(0.37)
84,102,315
84,102,315
84,102,315
84,102,315
63
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
The following is a summary of the effects of the differences between IFRS and Canadian GAAP
on the Corporation’s accounting policies, statement of financial position, and statement of
comprehensive income for periods previously reported under Canadian GAAP subsequent to
the Transition Date to IFRS. The adoption of IFRS did not change the Corporation’s actual
cash flows, but has resulted in changes to the Corporation’s statements of financial position
and comprehensive loss.
(a) Decommissioning liabilities
Under both Canadian GAAP and IFRS, the Corporation is required to determine a best
estimate of asset retirement obligations (termed decommissioning liabilities under IFRS)
for all of the Corporation’s facilities. Under IFRS, the liability is measured by applying the
risk-free discount rate to the estimated total cost of decommissioning each reporting
period whereas under Canadian GAAP the liability was measured using a company-specific
discount rate. As a result of the application of a lower discount rate under IFRS,
adjustments to increase provisions and other long-term liabilities and property, plant and
equipment were recorded by the Corporation. The impact arising from the change is
summarized as follows:
Consolidated statement of financial position
Increase to property, plant and equipment
Increase to provisions and other long-term liabilities
Increase to accumulated deficit
January 1,
December 31,
2010
197
$
(1,527)
2010
239
(1,620)
(1,330)
$
(1,381)
$
$
Consolidated statement of comprehensive income
Increase to cost of product and service revenues
Decrease to finance income and other
Decrease to finance expense
Increase to net loss and comprehensive loss
Year ended
December 31,
2010
(44)
(120)
113
(51)
$
$
64
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
(b) Share-based payments
Under Canadian GAAP, the Corporation valued stock-based compensation that vests in
tranches as a single grant. IFRS requires that each vesting tranche be valued individually
as a separate grant. Therefore under IFRS, the fair value of each share-based
compensation tranche will be amortized over each tranche’s vesting period instead of
recognizing the entire award on a straight-line basis over the term of the grant.
As a result of this difference, the Corporation has recorded a charge to contributed surplus
for vested stock-based compensation awards. The impact arising from the change is
summarized as follows:
Consolidated statement of financial position
Increase to contributed surplus
Increase to accumulated deficit
January 1,
December 31,
2010
(1,304)
(1,304)
$
$
2010
(826)
(826)
$
$
Consolidated statement of comprehensive income
Increase to cost of product and service revenues
Decrease to research and product development
Decrease to general and administrative
Decrease to sales and marketing
Decrease to net loss and comprehensive loss
(c) Accumulated other comprehensive loss
Year ended
December 31,
2010
(35)
228
271
14
478
$
$
As stated in note 27(i), the Corporation has elected to reset its historical cumulative
translation loss to nil at the Transition Date and therefore the Corporation has recorded a
charge to accumulated deficit in the IFRS opening statement of financial position. The
impact arising from the change is summarized as follows:
Consolidated statement of financial position
Decrease to accumulated other comprehensive loss
Increase to accumulated deficit
January 1,
December 31,
2010
(236)
(236)
2010
(236)
(236)
$
$
$
$
65
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
(d) Accelerated recognition of sale and leaseback gains
Under Canadian GAAP, sale and leaseback gains are deferred and amortized over the term
of the lease when the leaseback is classified as an operating lease. Under IFRS, such
gains may be recognized upfront if the sale and leaseback transaction results in an
operating lease, and is undertaken at fair value.
As a result of this difference, the land component of the March 2010 sale and leaseback of
the Corporation’s head office building has been determined to meet the IFRS criteria to be
treated as an operating lease. The unamortized portion of the deferred gain attributed to
the land leaseback has been recognized in 2010 net income and the related deferred gain
derecognized in 2010. The impact arising from the change is summarized as follows:
Consolidated statement of financial position
Decrease to deferred gain
Decrease to accumulated deficit
January 1,
December 31,
$
$
2010
-
-
2010
3,089
3,089
$
$
Consolidated statement of comprehensive income
Increase to research and product development
Increase to gain on sale of assets
Decrease to net loss and comprehensive loss
(e) Employee future benefits
Year ended
December 31,
2010
(182)
3,271
3,089
$
$
Under IFRS, actuarial gains and losses arising from defined benefit plans and post-
retirement benefit plans may be recorded immediately in either net income or other
comprehensive income. Under Canadian GAAP, the Corporation’s accounting policy was to
recognize actuarial gains and losses in net income. On adoption of IFRS, the Corporation
has elected to recognize actuarial gains and losses in other comprehensive income. This is
an accounting policy change made by the Corporation subsequent to the release of its first
consolidated interim financial statements under IFRS. The impact arising from the change
from prior Canadian GAAP is summarized as follows:
66
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
(e) Employee future benefits (cont’d)
Consolidated statement of comprehensive income
Decrease to finance income and other
Increase to net loss
Increase to defined benefit plan actuarial gain
Comprehensive loss
(f) Foreign currency translation of subsidiary (Dantherm Power A/S)
Year ended
December 31,
2010
(112)
(112)
112
-
$
$
Under IFRS, the functional currency of the subsidiary determines the translation
methodology. As Dantherm Power’s functional currency has been assessed as the Danish
Kroner under IFRS, Dantherm Power will be consolidated under IFRS using the current
rate method. Under Canadian GAAP, Dantherm Power was translated using the temporal
method. The impact arising from the change is not considered to be material.
(g) Property, plant and equipment
Under IFRS, property, plant and equipment may be accounted for using either a cost or
revaluation model. The Corporation has elected to use the cost model for all classes of
property, plant and equipment. This is consistent with the Corporation’s accounting policy
under Canadian GAAP and hence has no impact on the Corporation’s property, plant and
equipment balances.
(h) Impairment of assets
If there is an indication that an asset may be impaired, an impairment test must be
performed. Under Canadian GAAP, this is a two-step impairment test in which (i)
undiscounted future cash flows are compared to the carrying value; and (ii) if those
undiscounted cash flows are less than the carrying value, the asset is written down to fair
value.
67
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
(h) Impairment of assets (cont’d)
Under IFRS, an entity is required to assess, at the end of each reporting period, whether
there is any indication that an asset may be impaired. If such a condition exists, the
entity shall estimate the recoverable amount of an asset by performing a one-step
impairment test, which requires a comparison of the carrying value of an asset to the
higher of (1) value in use; and (ii) fair value less costs to sell. Value in use is defined as
the present value of future cash flows expected to be derived from the asset in its current
state. In addition, IFRS requires property, plant and equipment, goodwill and intangible
assets to be assessed for impairment at the cash-generating unit (“CGU”) level, rather
than the reporting unit level considered by Canadian GAAP. As a result of this difference,
in principle, impairment write downs may be more likely under IFRS than under Canadian
GAAP.
Also under IFRS, when circumstances have changed such that impairments have been
reduced, any previous impairment losses on assets other than goodwill and indefinite-lived
intangible assets should be reversed while Canadian GAAP prohibits the reversal of
impairment losses.
The Corporation has concluded that the adoption of these standards does not result in a
change to the carrying value of the Corporation’s property, plant and equipment, goodwill,
and intangible assets on transition to IFRS.
(i) Provisions
Under Canadian GAAP, a provision is required to be recorded in the financial statements
when required payment is considered “likely” and can be reasonably estimated. The
threshold for recognition of provisions under IFRS is lower than that under Canadian GAAP
as provisions must be recognized if required payment is “probable”. Therefore, in
principle, it is possible that there may be provisions which would meet the recognition
criteria under IFRS that were not recognized under Canadian GAAP.
There are also differences in the measurement of provisions under IFRS and Canadian
GAAP, including the requirement under IFRS for provisions to be discounted where
material and the methodology for determining the best estimate where there is a range of
equally possible outcomes. Under IFRS, the mid-point of the range us used, whereas
Canadian GAAP applies the low end of the range.
68
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2011, and 2010
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Transition to IFRS (cont’d):
(ii) Reconciliations of Canadian GAAP to IFRS (cont’d):
(i) Provisions (cont’d)
The Corporation has concluded that there is no adjustment to the Corporation’s
consolidated financial statements on transition to IFRS for the measurement of provisions;
however, certain reclassifications have been made in the statement of financial position in
classifying provisions.
(j) Functional presentation
Under IFRS, the income statement must be presented on a basis either by function or by
nature. Under Canadian GAAP, the income statement could be presented using a mix of
both function and nature of expenditure. The Corporation has elected to use the
functional classification basis for the presentation of its income statement.
As a result, the operating expenses of depreciation and amortization, restructuring
charges, and acquisition costs, which are individually presented under Canadian GAAP,
have been reallocated to research and product development, general and administrative,
and sales and marketing expense under IFRS.
69
This page intentionally left blank.
CORPORATE INFORMATION
Corporate Offices
Executive Management
Board of Directors
Ian A. Bourne
Corporate Director
Alberta, Canada
Edwin J. Kilroy
Corporate Director
Ontario, Canada
Dr. C.S. Park
Corporate Director
California, USA
John W. Sheridan
President & Chief Executive
Officer
Ballard Power Systems Inc.
British Columbia, Canada
David J. Smith
Member
British Columbia Securities
Commission
British Columbia, Canada
David B. Sutcliffe
Corporate Director
British Columbia, Canada
Ballard Power Systems Inc.
Corporate Headquarters
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.454.0900
F: 604.412.4700
Ballard Material Products Inc.
Two Industrial Avenue
Lowell, MA USA 01851-5191
Transfer Agent
Computershare Trust Company
of Canada
Shareholder Services Department
510 Burrard Street
Vancouver, BC Canada V6C 3B9
T: 1.800.564.6253
F: 1.866.249.7775
John W. Sheridan
President & Chief Executive Officer
Tony Guglielmin
Vice President & Chief Financial Officer
Paul Cass
Vice President, Operations
William T. Foulds
President, Ballard Material Products Inc.
Christopher J. Guzy
Vice President & Chief Technical Officer
Independent Auditors
KPMG LLP
Vancouver, BC Canada
Stock Listing
Legal Counsel
Canada:
Stikeman Elliott, LLP
Vancouver, BC Canada
United States:
Dorsey & Whitney LLP
Seattle, WA USA
Intellectual Property:
Seed Intellectual Property Law Group,
LLC
Seattle, WA USA
Ballard’s common shares are listed on
the Toronto Stock Exchange under
the trading symbol BLD and on the
NASDAQ Global Market under the
trading symbol BLDP.
Investor Relations
To obtain additional
please contact:
information
Ballard Power Systems
Investor Relations
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.412.3195
F: 604.412.3100
E: investors@ballard.com
W: www.ballard.com
F-4
Visit us at www.ballard.com.