265028_Ballard_Cov_r2.indd 1
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CONTENTS
Notice of Annual Meeting .................................................................................................................................................. 1
Management Proxy Circular .............................................................................................................................................. 8
Matters to be Voted Upon ................................................................................................................................................. 8
Voting Information ............................................................................................................................................................ 8
Corporate Governance ..................................................................................................................................................... 14
Executive Compensation ................................................................................................................................................. 20
Additional Information .................................................................................................................................................... 40
Defined Terms .................................................................................................................................................................. 42
Appendix "A" Board Mandate ......................................................................................................................................... A1
Appendix "B" Description of Option Plan ....................................................................................................................... B1
Appendix"C" Description of SDP ..................................................................................................................................... C1
Financial Information ....................................................................................................................................................... D1
ABOUT BALLARD POWER SYSTEMS
Ballard Power Systems (NASDAQ: BLDP)(TSX: BLD) is a global leader in clean energy fuel cell products and
services. We have extensive expertise in proton exchange membrane (PEM) fuel cell technology, built on years
of experience in product design, testing, system integration and commercialization. Our 350 dedicated
employees – most of whom are located at our headquarters facility in Vancouver, Canada – sell to and support
customers in such international locations as Southeast Asia, China, India, U.S., Canada, Mexico, the Caribbean,
Europe and Africa. Our business model is focused on fuel cell product sales, engineering services and licensing
activities. Learn more in this document and at www.ballard.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
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.
PUTTING FUEL CELLS TO WORK
CORPORATE INFORMATION
CORPORATE(cid:3)OFFICES(cid:3)
Ballard(cid:3)Power(cid:3)Systems(cid:3)Inc.(cid:3)
Corporate(cid:3)Headquarters(cid:3)
9000(cid:3)Glenlyon(cid:3)Parkway(cid:3)
Burnaby,(cid:3)BC(cid:3)Canada(cid:3)V5J(cid:3)5J8(cid:3)
T:(cid:3)604.454.0900(cid:3)
F:(cid:3)604.412.4700(cid:3)
(cid:3)
(cid:3)
TRANSFER(cid:3)AGENT(cid:3)
Computershare(cid:3)Trust(cid:3)(cid:3)
Company(cid:3)of(cid:3)Canada(cid:3)
Shareholder(cid:3)Services(cid:3)Department(cid:3)
510(cid:3)Burrard(cid:3)Street(cid:3)
Vancouver,(cid:3)BC(cid:3)Canada(cid:3)V6C(cid:3)3B9(cid:3)
T:(cid:3)1.800.564.6253(cid:3)
F:(cid:3)1.866.249.7775(cid:3)
(cid:3)
(cid:3)
STOCK(cid:3)LISTING(cid:3)
Ballard’s(cid:3)common(cid:3)shares(cid:3)are(cid:3)(cid:3)
listed(cid:3)on(cid:3)the(cid:3)Toronto(cid:3)Stock(cid:3)(cid:3)
Exchange(cid:3)under(cid:3)the(cid:3)trading(cid:3)(cid:3)
symbol(cid:3)BLD(cid:3)and(cid:3)on(cid:3)the(cid:3)
NASDAQ(cid:3)Global(cid:3)Market(cid:3)(cid:3)
under(cid:3)the(cid:3)trading(cid:3)symbol(cid:3)BLDP.(cid:3)
(cid:3)
INVESTOR(cid:3)RELATIONS(cid:3)
To(cid:3)obtain(cid:3)additional(cid:3)information,(cid:3)
please(cid:3)contact:(cid:3)
(cid:3)
Ballard(cid:3)Power(cid:3)Systems(cid:3)
Investor(cid:3)Relations(cid:3)
9000(cid:3)Glenlyon(cid:3)Parkway(cid:3)
Burnaby,(cid:3)BC(cid:3)Canada(cid:3)V5J(cid:3)5J8(cid:3)
T:(cid:3)604.412.3195(cid:3)
F:(cid:3)604.412.3100(cid:3)
E:(cid:3)investors@ballard.com(cid:3)
W:(cid:3)www.ballard.com(cid:3)
EXECUTIVE(cid:3)MANAGEMENT(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
John(cid:3)W.(cid:3)Sheridan(cid:3)
President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Executive(cid:3)Officer(cid:3)
(cid:3)
Tony(cid:3)Guglielmin(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Financial(cid:3)Officer(cid:3)(cid:3)
(cid:3)
Paul(cid:3)Cass(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Operations(cid:3)Officer(cid:3)
(cid:3)
Christopher(cid:3)J.(cid:3)Guzy(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Technical(cid:3)Officer(cid:3)
(cid:3)
Steven(cid:3)Karaffa(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Commercial(cid:3)Officer(cid:3)
(cid:3)
INDEPENDENT(cid:3)AUDITORS(cid:3)
(cid:3)
KPMG(cid:3)LLP(cid:3)
Vancouver,(cid:3)BC(cid:3)Canada(cid:3)
(cid:3)
LEGAL(cid:3)COUNSEL(cid:3)
(cid:3)
Canada:(cid:3)
Stikeman(cid:3)Elliott,(cid:3)LLP(cid:3)
Vancouver,(cid:3)BC(cid:3)Canada(cid:3)
(cid:3)
United(cid:3)States:(cid:3)
Dorsey(cid:3)&(cid:3)Whitney(cid:3)LLP(cid:3)
Seattle,(cid:3)WA(cid:3)USA(cid:3)
(cid:3)
Intellectual(cid:3)Property:(cid:3)
Seed(cid:3)Intellectual(cid:3)Property(cid:3)(cid:3)
Law(cid:3)Group,(cid:3)LLC(cid:3)
Seattle,(cid:3)WA(cid:3)USA(cid:3)
BOARD(cid:3)OF(cid:3)DIRECTORS(cid:3)
(cid:3)
Ian(cid:3)A.(cid:3)Bourne(cid:3)
Corporate(cid:3)Director(cid:3)
Alberta,(cid:3)Canada(cid:3)
(cid:3)
Douglas(cid:3)P.(cid:3)Hayhurst(cid:3)
Corporate(cid:3)Director(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Edwin(cid:3)J.(cid:3)Kilroy(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
John(cid:3)W.(cid:3)Sheridan(cid:3)
President(cid:3)&(cid:3)Chief(cid:3)Executive(cid:3)
Officer(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Carol(cid:3)M.(cid:3)Stephenson(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
David(cid:3)B.(cid:3)Sutcliffe(cid:3)
Corporate(cid:3)Director(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Ian(cid:3)Sutcliffe(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
(cid:3)
(cid:3)
265028_Ballard_Cov_r2.indd 2
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BALLARD POWER SYSTEMS INC.
9000 Glenlyon Parkway
Burnaby, British Columbia, Canada V5J 5J8
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
Our 2014 Annual Meeting (the "Meeting") will be held at 9000 Glenlyon Parkway, Burnaby, British
Columbia, on Tuesday, June 3, 2014 at 1:00 p.m. (Pacific Daylight Time) for the following purposes:
1.
2.
3.
4.
5.
To receive our audited financial statements for the financial year ended December 31, 2013
and 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 a resolution, on an advisory basis,
accepting the Corporation’s approach to executive compensation; and
To transact such other business as may properly be brought before the Meeting or any
adjournment thereof.
A detailed description of the matters to be dealt with at the Meeting and our 2013 Annual Report 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. (Pacific
Daylight Time) on Friday, May 30, 2014.
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 11, 2014.
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems Inc.
1
Letter from IAN A. BOURNE
Chair of the Board
Fellow Shareholders:
I am pleased on behalf of my fellow Directors to report to you regarding Ballard’s progress in 2013.
We had quite a successful year, as our CEO John Sheridan describes in his letter.
We welcomed Ian Sutcliffe after you voted him onto the Board at the 2013 Annual General Meeting.
Our primary activities as a Board during 2013 were to oversee the continuing progress towards becoming a
commercially successful company. We reviewed and approved the Company Strategy at the June meeting
and dealt with a number of strategic issues, including those related to the financings that allowed us to
strengthen the balance sheet. As we do each year, we reviewed the succession planning for Ballard’s senior
leadership team. We also spend time at each meeting receiving Management’s updates on performance
compared to the annual operating plan. We were pleased that quarterly and annual performance was
consistent with our expectations. Ballard is maturing into a company focused on successful execution of
plans and increasing predictability.
Your Board appreciates that there are still risks in the business and we spend significant time
evaluating Management’s assessments of the risks and actions in place or planned to mitigate them. John
and his team have done very well over the last few years on this aspect of managing the Company.
We announced in February that John Sheridan informed us of his decision to retire as CEO later this
year. As a Board, we express our appreciation for the job he has done over the last 8 years. He has made an
enormous difference and the benefits of his leadership will be felt for years to come.
Finally, I want to recognize the continuing efforts of our dedicated employees and thank you, our
shareholders, for continuing to support Ballard.
"Ian A. Bourne"
IAN A. BOURNE
Chair of the Board of Directors
2
Letter from JOHN W. SHERIDAN
President and Chief Executive Officer
2013 was a very successful year for Ballard in terms of the top line, bottom line and shareholder
value growth. Your Management Team retained a sharp focus throughout 2013 on Ballard’s strategy to grow
shareholder value in our core business, with a three-level business model built around: product sales;
engineering services; and IP licensing. We believe that this core business focus provides a strong trajectory
to positive EBITDA and positive cash flow in the near term.
Beyond this near term horizon, we are also positioning for broader opportunities to grow shareholder
value in important development stage markets. These include key development stage business opportunities
for continuous power, distributed generation and zero emission fuel cell buses and cars. We continue to work
with partners to position for future value creation in these areas.
However, in the short term we remain obsessively focused on strong execution in our core business.
The following provides a brief overview of our progress in 2013 in our core business:
FUEL CELL PRODUCT SALES
Telecom Backup Power sales accelerated in 2013, led by methanol-fuelled ElectraGenTM-
ME systems. For the full year we shipped 796 ElectraGenTM systems, doubling the number
of shipments in comparison to 2012, with about 80% of the sales being methanol-fuelled
systems. Methanol-fuelled systems deliver a very strong value proposition to customers in
regions where hydrogen fuel is relatively difficult to source, transport or store – including
rural regions in Asia and South Africa – as well as regions where there is concern over
extreme events that could take the grid down.
Material Handling was a relatively modest growth area in 2013, with revenue from fuel cell
stack sales up 5%, accounting for $6.5 million of full-year revenue. However, with our
customer Plug Power making significant progress in its financing and order book, Plug
Power is now positioned to drive more meaningful growth in 2014.
ENGINEERING SERVICES
Our anchor Engineering Services contract is with Volkswagen – signed in March 2013. We
quickly ramped up to a run rate of $4-to-$5 million per quarter and expect to maintain that
cadence through the remaining term of the 4-year contract. Engineering Services generated
$21.1 million in 2013, 24% growth over 2012.
IP LICENSING
Our first IP licensing contract enables local assembly of Ballard power modules for zero-
emission buses in China, utilizing fuel cell stacks manufactured at our facility in Burnaby,
Canada. Signed in September 2013, the contract is expected to generate revenue of
approximately $11 million in the first 12-months.
3
This progress in our core business resulted in a positive trend in top line and bottom line financial
results throughout the year, as shown in the following quarterly results charts –
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The associated full year progress in 2013 relative to 2012 was impressive, with:
40% growth in revenue, to $61.3 million;
10 point improvement in gross margin, to 27%;
7% improvement in cash operating costs, to $28.3 million; and
63% improvement in Adjusted EBITDA, to ($8.2) million.
More broadly, as we have executed our corporate strategy over the past several years, revenue and
gross margin are up more than 2-times over the past two years, with cash operating cost and Adjusted
EBITDA each improving more than 50% over the same period.
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(cid:25)(cid:23)(cid:24)(cid:26)(cid:1)
(cid:40)(cid:41)(cid:39)(cid:40)(cid:40)(cid:1)(cid:27)(cid:16)(cid:33)(cid:16)(cid:24)(cid:32)(cid:16)(cid:1)(cid:12)(cid:15)(cid:21)(cid:32)(cid:28)(cid:29)(cid:16)(cid:15)(cid:1)(cid:17)(cid:25)(cid:27)(cid:1)(cid:3)(cid:25)(cid:24)(cid:29)(cid:27)(cid:12)(cid:14)(cid:29)(cid:1)(cid:8)(cid:12)(cid:24)(cid:32)(cid:17)(cid:12)(cid:14)(cid:29)(cid:32)(cid:27)(cid:20)(cid:24)(cid:18)(cid:1)(cid:15)(cid:32)(cid:16)(cid:1)(cid:29)(cid:25)(cid:1)(cid:29)(cid:19)(cid:16)(cid:1)(cid:14)(cid:25)(cid:23)(cid:26)(cid:22)(cid:16)(cid:30)(cid:25)(cid:24)(cid:1)(cid:25)(cid:17)(cid:1)(cid:12)(cid:32)(cid:29)(cid:25)(cid:23)(cid:25)(cid:30)(cid:33)(cid:16)(cid:1)(cid:23)(cid:12)(cid:24)(cid:32)(cid:17)(cid:12)(cid:14)(cid:29)(cid:32)(cid:27)(cid:20)(cid:24)(cid:18)(cid:1)(cid:28)(cid:32)(cid:26)(cid:26)(cid:22)(cid:36)(cid:1)(cid:12)(cid:18)(cid:27)(cid:16)(cid:16)(cid:23)(cid:16)(cid:24)(cid:29)(cid:28)(cid:1)(cid:34)(cid:20)(cid:29)(cid:19)(cid:1)(cid:4)(cid:12)(cid:20)(cid:23)(cid:22)(cid:16)(cid:27)(cid:1)(cid:2)(cid:6)(cid:1)(cid:12)(cid:24)(cid:15)(cid:1)(cid:12)(cid:1)(cid:4)(cid:12)(cid:20)(cid:23)(cid:22)(cid:16)(cid:27)(cid:1)(cid:2)(cid:6)(cid:1)
(cid:28)(cid:32)(cid:13)(cid:28)(cid:20)(cid:15)(cid:20)(cid:12)(cid:27)(cid:36)(cid:1)(cid:20)(cid:24)(cid:1)(cid:9)(cid:14)(cid:29)(cid:25)(cid:13)(cid:16)(cid:27)(cid:1)(cid:41)(cid:39)(cid:40)(cid:40)(cid:38)(cid:1)(cid:7)(cid:20)(cid:28)(cid:29)(cid:25)(cid:27)(cid:20)(cid:14)(cid:12)(cid:22)(cid:1)(cid:12)(cid:23)(cid:25)(cid:32)(cid:24)(cid:29)(cid:28)(cid:1)(cid:29)(cid:25)(cid:1)(cid:4)(cid:12)(cid:20)(cid:23)(cid:22)(cid:16)(cid:27)(cid:1)(cid:2)(cid:6)(cid:1)(cid:34)(cid:16)(cid:27)(cid:16)(cid:1)(cid:27)(cid:16)(cid:26)(cid:25)(cid:27)(cid:29)(cid:16)(cid:15)(cid:1)(cid:20)(cid:24)(cid:1)(cid:25)(cid:32)(cid:27)(cid:1)(cid:17)(cid:25)(cid:27)(cid:23)(cid:16)(cid:27)(cid:1)(cid:3)(cid:25)(cid:24)(cid:29)(cid:27)(cid:12)(cid:14)(cid:29)(cid:1)(cid:2)(cid:32)(cid:29)(cid:25)(cid:23)(cid:25)(cid:30)(cid:33)(cid:16)(cid:1)(cid:28)(cid:16)(cid:18)(cid:23)(cid:16)(cid:24)(cid:29)(cid:1)(cid:12)(cid:24)(cid:15)(cid:1)(cid:20)(cid:24)(cid:1)(cid:25)(cid:32)(cid:27)(cid:1)(cid:16)(cid:35)(cid:20)(cid:28)(cid:30)(cid:24)(cid:18)(cid:1)(cid:5)(cid:32)(cid:16)(cid:22)(cid:1)(cid:3)(cid:16)(cid:22)(cid:22)(cid:1)(cid:10)(cid:27)(cid:25)(cid:15)(cid:32)(cid:14)(cid:29)(cid:28)(cid:1)
(cid:12)(cid:24)(cid:15)(cid:1)(cid:11)(cid:16)(cid:27)(cid:33)(cid:20)(cid:14)(cid:16)(cid:28)(cid:1)(cid:28)(cid:16)(cid:18)(cid:23)(cid:16)(cid:24)(cid:29)(cid:38)(cid:1)
So, our strategy is working, we have execution momentum, we have strengthened our balance sheet
and we have grown shareholder value. And now, with this strengthened positioning of our Company and
4
having served as your CEO for 8 years, I believe that 2014 is the right time for a CEO transition at Ballard.
As such, I informed our Board of Directors in February of my decision to retire by the end of this year. This
yearend retirement plan gives the Board an ideal timeline for a comprehensive search process and a smooth
leadership transition.
Looking back, it has been a privilege to lead the Ballard Team over the past 8 years. We have
successfully delivered a remarkable transformation of Ballard:
from a Fuel Cell Car R&D organization, burning around $80 million of cash annually
… to become …
a leading customer focused commercial company, providing clean energy fuel cell products and
services on a global basis.
But to be clear, our work is ‘far from done’. So while the Board Search Committee leads the CEO
Search Process, it will be ‘business as usual’ for the Management Team; with an obsession on execution in
the short term, and on strengthening our growth ramp for the medium term. And in that regard, we continue
to be very bullish on our growth outlook for 2014 and beyond.
We expect sales of Telecom Backup Power systems to penetrate more deeply into geographic areas
in which we have established beachheads – in particular, Southeast Asia, South Africa and the CALA region.
In addition, leveraging the strength of our channel partners, we plan to enter new geographic markets where
our value proposition will ‘play’ well. In terms of other commercial fuel cell products, we expect sales of
fuel cell stacks for Material Handling to grow at an accelerated rate in 2014, given Plug Power’s
announcements regarding its extensive order book. As well, we expect continued growth in engineering
services and IP licensing.
With these exciting opportunities ahead of us, we look forward to reporting our progress as we move
through 2014. And, I thank you once again for your continued support of Ballard.
"John Sheridan"
JOHN SHERIDAN
President & CEO
Ballard Power Systems
5
Sustainability Report
2013
C O MM ERCIA L IZA T IO N O F OUR CLEAN E N ERGY FUEL
make the biggest positive impact on the environment. Ballard’s vision of a clean energy future is what continues
to drive our passionate employees who are dedicating their careers to providing customers with the positive
economic and environmental benefits that are unique to fuel cell products.
PRODUCTS is where Ballard can
CELL
Ballard’s GREEN INITIATIVE is focused on three pillars:
Ballard’s
ElectraGen™-ME
backup power
systems
OUR OPER AT I O N S
Reduce, reuse, recycle.
We will
improve the
way we
operate our
business to
minimize
environmental
impact.
OUR PRODUCTS
We will maximize the
environmental benefits of
our fuel cell products
compared to incumbent
technologies.
We share access to information
about green choices.
PRODUCTS
OPERATIONS
P E O P L E
OUR PEOPLE
We will promote
participation in
relevant events,
and provide
information about
green choices for
our daily lives.
2013 ACHIEVEMENTS
Received the “Busworld Ecology Award,”
in partnership with Van Hool of Belgium,
for demonstrating outstanding ecological
credentials in fuel cell bus design
Expanded the use of online meeting tools to
avoid carbon emissions generated through
travel
Sourced local suppliers where possible in
order to reduce the impact of extended
transportation distances
Continued liaising with our suppliers to
minimize packaging materials
Ensured an active recycling program is in
place: paper, cardboard, wood, metal, glass,
drink containers, electronics
OUR PRODUCTS IN ACTION
Extreme air pollution has become a common site in Beijing and other Chinese cities.
China’s rapid economic expansion over the past decade
has resulted in public concern regarding deteriorating
levels of air quality.
High levels of air pollution have become commonplace in Beijing and
other Chinese cities, highlighting the need for the country to start
deploying clean energy power solutions immediately. Sixteen of the
world’s twenty most polluted cities are in China. And, in Harbin, a city
of 11 million people, government officials recently shut down roads,
schools and the airport when air pollution levels hit 40-times the safe
limit set by the World Health Organization (WHO).
The opportunities for Ballard fuel cell products to contribute to a low
carbon economy in China are clear. Financial support from the Chinese
government is expected to be strong, with fuel cells identified as a
key future technology. For Ballard, zero emission buses and telecom
backup power systems are examples of significant opportunities to
provide environmental benefits:
• In 2013 Ballard signed a licensing agreement with a local system
integration partner in China, to support the introduction of clean
energy fuel cell buses. There is a large potential market
opportunity for the deployment of clean energy fuel cell bus
fleets in a country that deployed 75,000 new buses in 2012
alone. Ballard can therefore have a direct positive impact on
the severe air quality problem in major Chinese cities.
•
direct
ElectraGen™-H2
systems were put into trials by China Mobile, as a replacement
for toxic lead acid batteries at base station sites throughout
hydrogen
telecom
backup
power
Mainland China. And, China is the largest mobile
telecommunications market in the world, so this is an early-stage
activity that could have significant long-term implications.
With the severe air quality problems in major Chinese cities, and
China’s vast economic capabilities, the country presents a natural
market opportunity for deployment of clean energy fuel cell technology.
Through these initial market opportunities, Ballard has been witness to
a renewed commitment for clean energy solutions to China’s pressing
environmental challenges.
EMPLOYEE AWARDS OF EXCELLENCE FOR 2013
“Above and Beyond” Winners
CUSTOMER SUCCESS AWARD:
NSN/SOFTBANK SYSTEM DEPLOY MENTS
David Whyte
Dario Garin
Doug Bell
Eugenio Oracanza
Nicolas Pocard
Tony Cochrane
Alan Mace
The Assembly Team in Tijuana
TECHNOLOGY & PRODUCT INNOVATION AWARD:
IMPROVED CELL REVERSAL TOLERANCE
Ping He
Rajesh Bashyam
Kyoung Bai
Shanna Knights
Duarte Sousa
Jingping Gao
Paul Beattie
QUALITY AWARD:
EQUIPMENT CALIBRATION PROCESS EXCELLENCE
Ke Ji
BALLARD SPIRIT AWARD:
INNOVATION & INTELLECTUAL PROPERTY DEVELOPMENT
Shanna Knights
MANAGEMENT PROXY CIRCULAR
dated as of April 11, 2014
MATTERS TO BE VOTED UPON
Registered Shareholders or their duly appointed proxyholders will be voting on:
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;
on an advisory basis, the Corporation’s approach to executive compensation; and
to transact such other business as may properly be brought before the meeting.
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.
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 3, 2014 at 1:00 p.m. Pacific
Daylight Time in Burnaby, British Columbia, 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 28, 2014.
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:
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
8
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:
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;
the registered office of the Corporation at any time up to and including the last business day
preceding the day of the Meeting; 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 11, 2014, we had 126,563,503 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.
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, director nominee or executive officer of ours at any time since
January 1, 2013, 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.
9
ELECTION OF DIRECTORS
At the Meeting you will be asked to elect seven directors. All of our nominees are currently
members of the Board. 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 11, 2014. 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.Mr. Bourne was interim CEO of SNC-Lavalin Group Inc.
from March 27, 2012 to October 1, 2012. 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. Mr. Bourne was recognized as a Fellow of the ICD in 2011.
Board and Committee
Membership(1)
Current:
Board (Chair)
Audit
Corporate Governance & Compensation
Former:
Corporate Governance
Human Resources & Compensation
Ian A. Bourne
Age: 66
Alberta, Canada
Director since: 2003
Independent
Attendance
Board Memberships
7
5
2
2
2
100%
100%
100%
100%
100%
Current: SNC-Lavalin Group Inc.; Canadian Public
Accountability Board; Wajax Corporation; Canada
Pension Plan Investment Board; Canadian Oil Sands
Limited
Previous: TransAlta Power LP; TransAltaCoGen LP;
Glenbow Museum; Calgary Philharmonic Orchestra; The
Calgary Foundation
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
26,824
186,374
26,824
153,019
213,198
179,843
Total Value of Shares and
DSUs (C$)(3)
$918,883
$172,649
Mr. Hayhurst’s principal occupation is corporate director. Previously, Mr. Hayhurstwas an executive with IBM Canada Business
Consulting Services(consulting services)and a partner with PricewaterhouseCoopers Management Consultants (consulting
services). Prior to that, Mr. Hayhurst held various senior executive management roles with Pricewaterhouse including National
Deputy Managing Partner (Toronto) and Managing Partner for British Columbia (Vancouver). Mr. Hayhurst received a Fellowship
(FCA) from the Institutes of Chartered Accountants of British Columbia and of Ontario. He has completed the Directors Education
Program of the Institute of Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Current:
Board
Audit
Former:
Corporate Governance
Human Resources & Compensation
Douglas P. Hayhurst
Age: 67
B.C., Canada
Director since: 2012
Independent
Attendance(4)
Board Memberships
7
4
2
1
100%
80%
100%
50%
Current: Accend Capital Corporation; Canexus
Corporation; The Layfield Group Limited; Nature
Conservancy of Canada; Canadian Institute of Chartered
Accountants Risk Oversight and Governance Board
Previous: Catalyst Paper Corporation(5); Northgate
Minerals Corporation
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
5,000
-
71,816
43,036
76,816
43,036
Total Value of Shares and
DSUs (C$) (3)
$331,077
$41,315
10
Mr. Kilroy’s principal occupation is corporate director. Mr. Kilroy has been the Chief Executive Officer of MedAvail
Technologies Inc. (medication dispensing equipment and services) since November 2012. Previously, Mr. Kilroy was the Chief
Executive Officer of Symcor Inc. (business process outsourcing services), from January 2005 to November 2010. Prior to that, Mr.
Kilroy was the Chief Executive Officer of IBM Canada Ltd. (information technology) from April 2001 to January 2005.
Board and Committee
Membership
Attendance
Board Memberships
Current:
Board
Audit (Chair)
Former:
Corporate Governance
7
5
2
100%
100%
100%
Current::MedAvail Technologies Inc.
Previous: Symcor Inc.; The Conference Board of Canada
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
2,752
2,752
120,464
96,639
123,216
99,391
Total Value of Shares and
DSUs (C$) (3)
$531,061
$95,415
Mr. Sheridan is President and Chief Executive Officer of Ballard, a position he has held since February 2006. Mr. Sheridan was
also Chair of our Board from June 2004 to February 2006.
Board and Committee
Membership
Board
Attendance
7
100%
Board Memberships
Current: Dantherm Power; Canadian Hydrogen Fuel Cells
Association; Midway Gold Corporation
Previous: Aliant Inc.; Bell Canada, Bell Actimedia, Bell
Distribution, Bell Express Vu, Bell Mobility, Bell West,
Bell Sygma UK Ltd; Encom Cable TV &
Telecommunications, plc; Manitoba Telecom Services
Inc.; MTS Communications Inc.; Photowatt
Technologies; Sun Media Corp. Ltd.; NewPage
Corporation(5); BC Hydrogen Highway; AFCC
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
409,527
154,280
524,522
57,943
563,807
582,465
Total Value of Shares and
DSUs (C$) (3)
$2,430,008
$559,166
Ms. Stephenson’s principal occupation is corporate director. Previously, she was the Dean of the Richard Ivey School of Business
at the University of Western Ontario from 2003 until 2013. Prior to that, she served as President and Chief Executive Officer of
Lucent Technologies Canada from 1999 to 2003. Ms. Stephenson was invested as an Officer into the Order of Canada in 2010.
Board and Committee
Membership
Current:
Board
Corporate Governance & Compensation
(Chair)
Former:
Corporate Governance (Chair)
Human Resources & Compensation
Attendance
Board Memberships
7
2
2
2
100%
100%
100%
100%
Current: General Motors Company; Intact Financial
Services Corporation (formerly ING Canada); Manitoba
Telecom Services Inc.; Vancouver Olympic Games
Organizing Committee (VANOC); Women on Boards;
Catalyst Advisory Board
Previous: Union Energy Waterheater Income Fund;
London Economic Development Corporation; Ontario
Research Fund Advisory Board
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
3,550
3,550
83,693
50,149
87,243
53,699
Total Value of Shares and
DSUs (C$) (3)
$376,017
$51,551
Edwin J. Kilroy
Age: 54
Ontario, Canada
Director since: 2002
Independent
John W. Sheridan
Age: 59
B.C., Canada
Director since: 2001
Non-Independent
Carol M. Stephenson
Age: 63
Ontario, Canada
Director since: 2012
Independent
11
Mr. Sutcliffe’s principal occupation is corporate director. Previously, Mr. Sutcliffe was the Chief Executive Officer of Sierra
Wireless, Inc. (electrical and electronic industrial products) from May 1995 to October 2005. From May 2001 to April 2005, he
was also the Chair of the Board of Sierra Wireless, Inc. He has completed the Directors Education Program of the Institute of
Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Current:
Board
Audit
Corporate Governance & Compensation
Former:
Human Resources & Compensation
(Chair)
Attendance
Board Memberships
Current:BC Social Ventures Partners
Previous: Sierra Wireless, Inc.; E-Comm 911; SMART
Technologies Inc.
7
5
2
2
100%
100%
100%
100%
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
3,600
3,600
99,698
79,322
103,298
82,922
Total Value of Shares and
DSUs (C$) (3)
$445,214
$79,605
Mr. Sutcliffe’s principal occupation is corporate director. Mr. Sutcliffe has been a partner at Sutcliffe & Associates Management
Consultants (management consulting services) since June 1985. Previously, Mr. Sutcliffe was co-CEO of PHeMI, Inc. (medical
software and IT infrastructure) form July 2010 to November 2012; CEO, Chairman and independent director of BluePoint Data (IT
services) from Sept 2001 to June 2011; and Vice Chair and CEO of BCS Global (video conferencing services) from January 2003
to March 2004. Mr. Sutcliffe was President of Mediconsult.com (public internet health services) from June 1995 to June 1999 and
President and CEO from 1999 to 2001. Prior to that, Mr. Sutcliffe was with Coopers & Lybrand (chartered accounting and
consultancy firm) in Vancouver and London, England from June 1979 to June 1985.
Board and Committee
Membership
Attendance(6)
Board Memberships
Board
Audit
Corporate Governance & Compensation
5
3
2
100%
100%
100%
Current: Vita Nova Foundation; Restore Canada
Foundation
Previous: BluePoint Data Inc.(4)
Securities Held(2)
Year
2014
2013
Shares
DSUs
Total of Shares and DSUs
10,000
13,797
10,000
-
23,797
10,000
Total Value of Shares and
DSUs (C$) (3)
$102,565
$9,600
David B. Sutcliffe
Age: 54
B.C., Canada
Director since: 2005
Independent
Ian Sutcliffe
Age: 61
Ontario, Canada
Director since: 2013
Independent
(1) Mr. Bourne is an ex officio member of each of the committees.
(2) As of April 11, 2014 and April 10, 2013, respectively.
(3) Based on a C$4.31 and C$0.96 closing Share price on the TSX as of April 11, 2014 and April 10, 2013, respectively.
(4) Mr. Hayhurst attended a total of 14 board and committee meetings in 2014 for an overall attendance rate of 87.5%.
(5) 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 was 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. Mr. Ian Sutcliffe was a director of
BluePoint Data Inc. on May 12, 2012 when the British Columbia Securities Commission issued a cease trade order against it for failure to file its
financial statements and management’s discussion and analysis related thereto for the year ended December 31, 2011. Mr. Sutcliffe resigned as a
director on June 27, 2012, subsequent to which BluePoint sold its business and distributed the proceeds to its shareholders.
(6) Mr. Sutcliffe was elected to the board on June 3, 2013 and has attended all board and committee meetings from that date.
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 2013 and 2012 are
set forth in the table below. We comply with the requirement regarding the rotation of our audit engagement
12
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 2013 and 2012:
Type of Audit Fees
Audit Fees
Audit-Related Fees
Tax Fees(1)
All Other Fees
2013
(C$)
$447,170
Nil
Nil
Nil
2012
(C$)
$447,340
Nil
$3,374
Nil
(1)
The Tax Fees for 2012 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 "Audit Committee Matters" in our Annual
Information Form dated February 26, 2014, which section is incorporated by reference into this Management
Proxy Circular.
ADVISORY VOTE ON APPROACH TO EXECUTIVE COMPENSATION
The Corporate Governance & Compensation Committee ("CGCC") monitors developments and
trends relating to say-on-pay in Canada and elsewhere. In the United States, the SEC has established say-on-
pay advisory 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 the request of the Board, our shareholders have passed
resolutions on an advisory basis accepting the Corporation’s approach to executive compensation since 2011.
The CGCC 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 CGCC 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 2014 annual meeting of shareholders.”
The Board believes that shareholders should be well informed about 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 "Executive 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 CGCC. However, the Board and the CGCC 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.
13
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.
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.
We believe that we comply with all applicable Canadian securities administrators (“CSA”) and
NASDAQ corporate governance rules and guidelines. The CSA requires that listed corporations subject to
National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") disclose their
policies respecting corporate governance. We comply with NI 58-101, which addresses matters such as the
constitution and independence of corporate boards, the functions to be performed by boards and their
committees, and the effectiveness and education of board members. We are exempt from the NASDAQ
corporate governance rule requiring that each NASDAQ quoted company has in place a minimum quorum
requirement for shareholder meetings of 33 1/3% of the outstanding shares of the company’s voting common
stock. Our by-laws currently provide that a quorum is met if holders of at least five percent of the votes
eligible to be cast at a shareholders’ meeting are present or represented by proxy at the meeting.
BOARD COMPOSITION AND NOMINATION PROCESS
All of our directors are independent except for John Sheridan, our President and Chief Executive
Officer. "Independence" is judged in accordance with the provisions of the United States Sarbanes-Oxley
Act of 2002 ("Sarbanes-Oxley"), and as determined by the CSA and the NASDAQ. We conduct an annual
review of the other corporate boards on which our directors sit, and have determined that currently there are
no board interlocks with respect to our directors. The Board has also established a guideline for the
maximum number of corporate boards on which a director should sit. This guideline has been set at five
corporate boards (not including non-profit boards).
Our Corporate Governance& Compensation Committee 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.
The following table identifies some of the current skills and other factors considered as part of the
competency matrix developed by the CGCC. Each director was asked to indicate the top three competencies
which he/she believes they possess.
14
President/CEO
Experience
Strategy
Sales/
Marketing
Finance/
Accounting
Product
Development
Corporate
Governance
Early Stage
Business
Commercialization
Ian A. Bourne
Douglas P.
Hayhurst
Edwin J.
Kilroy
John W.
Sheridan
Carol M.
Stephenson
David B.
Sutcliffe
Ian Sutcliffe
2
1
1
1
1
2
2
3
2
3
1
2
2
1
1
3
3
3
3
3
2
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.
MAJORITY VOTING POLICY
The Board established director resignation guidelines, which set out the circumstances under which a
director would be compelled to offer a resignation or be asked to resign, including a majority voting policy.
This policy 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 CGCC 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 CGCC, 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 CGCC 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.
DIRECTOR SHARE OWNERSHIP GUIDELINES
We have minimum share ownership guidelines that apply to our independent directors. The
guidelines were revised by the Board effective September 21, 2011.
All independent directors must hold the number of Ballard common shares having a value equivalent
to three times the director’s annual retainer. Directors may apply DSUs they have received as payment for
all or part of their annual retainer towards the minimum share ownership requirements.
The value of shares held by directors will be measured on or about September 1st of each year based
on the purchase price actually paid by the director for such shares, or the value of DSUs or shares received
by the director when issued to him or her by the Corporation, as applicable.
15
Directors that were members of the Board at the time the guidelines were adopted in September 2011
have until September 2013 to comply with this requirement. Directors elected subsequently have five years
from the date that they are first elected to the Board to comply. The Chair of the Board has five years from
his original appointment as Chair in February 2006 to satisfy the minimum share ownership requirements for
the Chair. Any director who fails to comply with the share ownership requirement may not stand for re-
election. Currently, all directors have met or are on track to achieve these guidelines.
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
2013, 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.
ROLES AND RESPONSIBILITIES
The Board operates under a formal mandate (a copy of which is attached as Appendix "A" and is
posted on our website), which sets out its duties and responsibilities, including matters such as corporate
strategy, fiscal management and reporting, selection of management, legal and regulatory compliance, risk
management, external communications and performance evaluation. The Board has also established terms of
reference and corporate governance guidelines for individual directors (copies of which are also posted on
our website), which set out the directors’ individual responsibilities and duties. Terms of reference are also
established for the Board chair and the CEO. These terms of reference and guidelines serve as a code of
conduct with which each director is expected to comply, and address matters such as conflicts of interest, the
duties and standard of care of directors, the level of availability expected of directors, requirements for
maximizing the effectiveness of Board and committee meetings, and considerations that directors are to keep
in mind in order to make effective and informed decisions.
In addition, we have a Board-approved "Code of Ethics", which applies to all members of the Board,
as well as our officers and employees. A copy of the Code of Ethics can be found on our website. This
document is reviewed annually and updated or revised as necessary. Annually, all employees in Sales &
Marketing, Finance & Administration, Supply Chain, Customer Service and Quality, and all management
employees and officers, are required to formally acknowledge they have read, reviewed and comply with the
Code of Ethics. A compliance report is then presented to the Audit Committee and Board.
The Chair of the Board is responsible for ensuring the appropriate organization, content and flow of
information to the Board and that all concerns of the directors are addressed. The Chair of the Board reviews
and sets the agenda for each Board meeting. The Chair of the Board is also responsible for organizing and
setting the frequency of Board meetings and ensuring that Board meetings are conducted efficiently. The
Chair of the Board is an independent director.
Each year, the Board identifies a list of focus priorities for the Board during the year. The CGCC
regularly monitors the Board’s progress against these priorities throughout the year.
BOARD ORIENTATION AND EDUCATION
We have established a formal director orientation and ongoing education program. Upon joining our
Board, each director receives an orientation regarding our business. Such orientation consists of site visits to
all of our manufacturing facilities, presentations regarding our business, technology and products, and a
manual that contains various reference documents and information. Continuing education is offered by way
of ongoing circulation of informative materials aimed at topical subject matters and management
presentations at Board meetings, as well as guest speakers who are invited to speak to our Board on various
topics. In the past, we have invited guest speakers to speak to our Board about the fuel cell industry,
16
regulation, corporate governance and
internal management
government
representatives to speak about various issues relating to our technology and business. The educational
presentations that are made by internal management provide an opportunity for Board members to meet and
interact with members of our management team.
risk management, and
SHAREHOLDER FEEDBACK AND COMMUNICATION
We have set up an e-mail process for shareholders to communicate with the Board, through the Chair
of the Board. Shareholders who wish to send a message to the Chair of the Board can find the details of this
process on our website. In addition, a summary of shareholder feedback that is received by us is provided to
the Board through a semi-annual report.
BOARD AND DIRECTOR PERFORMANCE EVALUATIONS
Each year, the Board conducts an evaluation and review of its performance during the past year. The
evaluation is conducted through a process determined from time to time by the CGCC which elicits
responses from individual directors on a confidential basis regarding the Board and individual directors. The
process may include the completion of a questionnaire by all of the directors as well as individual director
self-evaluations and peer evaluations. The CGCC presents the summary results to the full Board, which then,
based on the results of the evaluation, determines appropriate changes to improve Board effectiveness.
COMMITTEES OF THE BOARD
The Board has established two standing committees effective July 1, 2013: (1) the Audit Committee;
and (2) the Corporate Governance & Compensation Committee (“CGCC”). The CGCC was established to
assume the duties and responsibilities of the former Human Resources & Compensation Committee
(“HRCC”) and Corporate Governance Committee, both of which were dissolved.
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.
In addition to the standing committees of the Board, an ad hoc committee, the Financing Advisory
Committee, was established in 2012 to consider and advise management on potential financing-related
transactions.
The following chart sets out current members of our standing committees:
Ian A. Bourne
Douglas P. Hayhurst
Edwin J. Kilroy
John W. Sheridan
Carol M. Stephenson
David B. Sutcliffe
Ian Sutcliffe
Audit Committee
*
(cid:57)
(cid:57) (Chair)
**
(cid:57)
(cid:57)
Corporate Governance &
Compensation
Committee
*
**
(cid:57) (Chair)
(cid:57)
(cid:57)
* Chair of the Board and designated financial expert. Mr. Bourne is an ex officio member of each of the committees.
** Non-independent director. Mr. Sheridan attends the meetings but is not a voting member of the committees.
17
The information below sets out the members of each of our standing committees and indicates the
number of meetings that each committee held in 2013. After the Meeting, we will reconstitute all of the
standing committees to reflect the newly elected Board.
Audit Committee
The Audit Committee is constituted in accordance with SEC rules, applicable securities laws and
applicable NASDAQ rules, and assists the Board in fulfilling its responsibilities by reviewing financial
information, the systems of corporate controls and the audit process.
The Audit Committee is responsible for overseeing the audit process and the preparation of our
financial statements, ensuring that our financial statements are fairly presented in accordance with
International Financial Reporting Standards (“IFRS”), approving our quarterly financial statements, and
reviewing and recommending to the Board our year-end financial statements and all financial disclosure
contained in our public documents. The Audit Committee meets with our financial officers and our internal
and external auditors to review matters affecting financial reporting, the system of internal accounting and
financial disclosure controls and procedures, and the audit procedures and audit plans. The Audit Committee
reviews our significant financial risks and the appointment of senior financial executives, and annually
reviews our insurance coverage, tax loss carry forwards, pension and health care liabilities, and off-balance
sheet transactions. The Audit Committee has at least two members, Ian A. Bourne and Douglas P. Hayhurst,
who qualify as audit committee financial experts under applicable securities regulations. All of the members
of the Audit Committee are independent directors and are financially literate.
The Audit Committee is responsible for recommending the appointment of our external auditors (for
shareholder approval at our annual general meeting), monitoring the external auditors’ qualifications and
independence, and determining the appropriate level of remuneration for the external auditors. The external
auditors report directly to the Audit Committee. The Audit Committee also approves in advance, on a case-
by-case basis, any services to be provided by the external auditors that are not related to the audit.
In addition, the Audit Committee is mandated to review all financial disclosure contained in
prospectuses, annual reports, annual information forms, management proxy circulars and other similar
documents. The Audit Committee is also responsible for ensuring that the internal audit function is being
effectively carried out. The Audit Committee reviews and approves, in advance, related party transactions
(including transactions and agreements in respect of which a director or executive officer has a material
interest) on a case-by-case basis.
The Audit Committee met 5 times during 2013. The members in 2013 were Ian A. Bourne (ex
officio), Edwin J. Kilroy (Chair), Douglas P. Hayhurst, David B. Sutcliffe and Ian Sutcliffe. 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 "Audit Committee Matters" in our Annual
Information Form dated February 26, 2014, which section is incorporated by reference into this Management
Proxy Circular.
Corporate Governance & Compensation Committee
The CGCC is responsible for the following1:
(cid:120) recommending the size of the Board and the formation and membership of committees of the
Board;
(cid:120) review and approval of all director nominations to the Board;
1Formerly the responsibilities and duties of the Corporate Governance Committee dissolved as of July 1, 2013.
18
(cid:120) determining director compensation;
(cid:120) maintaining an ongoing education program for Board members;
(cid:120) ensuring a formal process exists to evaluate the performance of the Board, Board committees,
individual directors, and the Chair of the Board, and ensuring that appropriate actions are taken,
based on the results of the evaluation, to improve the effectiveness of the Board;
(cid:120) conducting succession planning for the Chair of the Board; and
(cid:120) monitoring corporate governance and making recommendations to enable the Board to comply
with best corporate governance practices in Canada and the United States;
The CGCC is also responsible for2:
(cid:120) considering and authorizing the terms of employment and compensation of executive officers and
providing advice on organizational and compensation structures in the various jurisdictions in
which we operate;
(cid:120) reviewing and setting the minimum share ownership requirement for executive officers;
(cid:120) reviewing all distributions under our equity-based compensation plans, and reviewing and
approving the design and structure of, and any amendments to, those plans;
(cid:120) ensuring appropriate senior management succession planning, recruitment, development, training
and evaluation;
(cid:120) annually reviewing the performance objectives of our Chief Executive Officer and conducting his
annual performance evaluation.
Any compensation consultants engaged by us, at the direction of the committee, report directly to the
committee, and the committee has the authority to appoint such consultants, determine their level of
remuneration, and oversee and terminate their services.
A copy of the Corporate Governance & Compensation Committee’s mandate is posted on our
website. The mandate is reviewed annually and the committee’s performance is assessed annually through a
process overseen by the Board.
The CGCC met twice during 2013. The members were Ian A. Bourne (ex officio), Carol M.
Stephenson (Chair), David B. Sutcliffe and Ian Sutcliffe. All of the members of the CGCC are independent
of our management in accordance with the applicable Canadian and United States securities laws and
exchange requirements.
Collectively, the CCGC members have extensive compensation-related experience as senior
executives (past and present) and members of the board of directors and committees of other public and
private corporations. The Board is confident that the CCGC collectively has the knowledge, experience and
background to carry out the Committee’s mandate effectively and to make executive compensation decisions
in the best interests of the Corporation and its shareholders.
Former Committees
Corporate Governance Committee
The Corporate Governance Committee met twice in 2013. The members were Ian A. Bourne (ex
officio), Edwin J. Kilroy, Dr. C.S. Park, and Carol M. Stephenson (Chair). All of the members of the CGCC
were independent of our management in accordance with the applicable Canadian and United States
securities laws and exchange requirements.
2Formerly the responsibilities and duties of the Human Resources & Compensation Committee dissolved as of July 1,
2013.
19
The Corporate Governance Committee was dissolved as of July 1, 2013 and its duties and
responsibilities were assumed by the CGCC.
Human Resources & Compensation Committee
The HRCC met twice during 2013. The members were Ian A. Bourne (ex officio), Douglas P.
Hayhurst, Dr. C.S. Park, Carol M. Stephenson and David B. Sutcliffe (Chair). All of the members of the
HRCC were independent of our management in accordance with the applicable Canadian and United States
securities laws and exchange requirements.
The HRCC was dissolved as of July 1, 2013 and its duties and responsibilities were assumed by the
CGCC.
Financing Advisory Committee
The Financing Advisory Committee was a temporary committee of the Board established in June
2012 for the purpose of reviewing and analyzing the relevant facts and issues concerning financing-related
transactions and to make recommendations to enable the Board to determine whether any such transaction is
in the best interests of the Corporation.
The Financing Advisory Committee met twice during 2013. The members were Ian A. Bourne,
Douglas P. Hayhurst and Edwin J. Kilroy, all of whom are independent of our management in accordance
with the applicable Canadian and United States securities laws and exchange requirements.
The Financing Advisory Committee was dissolved in June 2013.
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), Paul Cass
(Vice President, Operations) and Karim Kassam (Vice President, Business & Corporate Development).
In this section the term “Compensation Committee” refers to (1) the HRCC for actions taken prior to
July 1, 2013, (2) the CGCC for actions taken after that date, and (3) to both committees where the context
does not imply a specific date.
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 2013, 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(3) performance, Gross Margin
performance, 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
(3)
For a discussion of EBITDA and Adjusted EBITDA, please refer to Ballard’s Management’s Discussion & Analysis.
20
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.
Compensation Risk Considerations
The Compensation Committee and Board believe that relative to other market sectors (e.g. Financial) the risk
associated with our compensation practices is low. 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 Compensation Committee and Board continue to monitor regularly.
The Compensation Committee and Board currently consider the risks associated with the company’s
compensation policies and practices are mitigated by:
(cid:120)
evaluating the impact of each compensation component on management behaviour:
o for base pay, there is no unusual risk-taking being encouraged;
o 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;
o 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) and has caps
to the maximum earnings available under each component of the plan.
(cid:120)
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
(cid:120) 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 Compensation Committee and Board 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 Compensation Committee, 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, and any significant organizational or management changes. The committee retains
independent compensation consultants for professional advice and as a source of competitive market
information. In 2013, the committee continued to retain Towers Watson on an as-needed basis, to provide
21
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 2013, an average of 54% 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).
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 late 2011, the Compensation Committee, 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 same comparator group was maintained in 2013. 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 Corporation’s current comparator group is:
Canadian Companies
EXFO Inc
Gennum Corporation
Hydrogenics Corp.
Neo Material Technologies Inc
New Flyer Industries Inc
Sierra Wireless Inc
Westport Innovations Inc
United States Companies
AeroVironment Inc
Allied Motion Technologies Inc
American Superconductor Corporation
Ener1 Inc
Energy Conversion Devices Inc
Fuel Cell Energy Inc
GrafTech International Ltd
Plug Power Inc
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.
Towers Watson have been retained by the Compensation Committee since 2008 to provide executive
compensation benchmarking and general executive compensation, equity plan and Board compensation
advisory services. Towers Watson continues to be the Committee’s advisors, available for ad-hoc consulting
services as needed; however, the Committee did not require any services in 2013.
The following table sets out the fees paid to Towers Watson during each of the two most recently
completed financial years:
22
Executive Compensation-
Related Fees
All Other Fees
2013
2012
Nil
$4,098
Nil
Nil
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.
Significant Compensation Program Changes Planned in 2014
There are no significant compensation program changes planned for 2014.
Annual Salary
The Compensation Committee 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 2013, there were no annual salary increases for the Named Executive Officers.
Annual Bonus for Executive Officers
The Compensation Committee 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.
The annual target bonus for Mr. Guglielmin, Mr. Guzy and Mr. Cass was set at 60% of base salary in
2013. This target, first established in 2012 in response to the Towers Watson benchmarking study conducted
in Fall 2011, was a reduction from the 70% level of 2011. This bonus target had previously been reduced by
5% points in each of 2008 and 2007 to better align annual incentive levels to market levels relative to the
Corporation’s comparator group). Mr. Kassam’s annual target bonus was set at 55% of base salary in 2013.
This annual bonus target is split into 2 parts. The first 50% is determined by individual and corporate
performance relative to the Corporation’s annual goals. The second 50% is based on a stretch performance
metric. In 2013, this stretch performance metric was over-achievement of a target Cashflow from Operations.
23
Therefore, 50% of each executive officer’s actual 2013 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", with the remaining 50% based on a stretch
performance element related to over-achievement of annual Cashflow from Operations targets.
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 CGCC on the basis of the
following formula:
actual bonus = annual base salary x bonus percentage x individual performance multiplier
bonus percentage = (50% of target bonus x corporate scorecard multiplier) +
(50% of target bonus x stretch performance goal multiplier)
Corporate Scorecard Multiplier
The corporate scorecard multiplier is determined by the Compensation Committee and approved by
the Board with reference to achievement against the corporate goals set out in a Corporate Performance
Scorecard approved by the Compensation Committee 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 scorecard multiplier is zero.
For 2013, the Corporate Performance Scorecard reflected a balance of Quantitative annual goals focussed on
delivery of the 2013 operating plan (70% of the scorecard) and Qualitative goals focussed on key strategic
outcomes during 2013 to position the Corporation for longer term success (30% of the scorecard). The
Quantitative portion of the scorecard had 3 financial elements (Revenue, Gross Margin, and Adjusted
EBITDA) and 2 operational elements (on-time product delivery and sales order book for 2014). The
Qualitative portion of the scorecard had 3 elements (Demonstrating critical mass in Telecoms Back-Up
Power systems deployment, Working with European bus partners to deliver demonstration fleets, and
securing an additional OEM automotive customer).
Goals related to on-time delivery, securing an additional OEM automotive customer, and gross
margin were delivered at achievement levels above the 100% level. Goals related to on-time delivery,
revenue, 2014 order book, Telecoms BUP deployment and Bus demonstrations fleets were delivered at the
100% level. The goal related to Adjusted EBITDA was delivered at close to the 100% achievement level.
In aggregate the Corporate Scorecard Multiplier achievement equalled 113%, which as previously
described, affected 50% of the executive’s annual bonus target.
Stretch Performance Goal Multiplier
The stretch performance goal related to over-achievement of the annual Cashflow from Operations
target was not achieved. As a result, the stretch performance goal multiplier for 2013 was 0%. This zero
payout affected 50% of the executive’s annual bonus target.
Individual Performance Multiplier
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%
24
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. Individual multipliers for each Executive ranged from 100% to 150%. A
summary of their individual performance is as follows:
Mr. Guglielmin: met all of his 2013 goals including departmental and corporate financial metrics,
with significant over-achievements on the goals for strengthening liquidity and growing shareholder value.
Mr. Guzy: met his key 2013 goals, relating to program development, engineering services
deliverables and product quality improvement; as well, he make key contributions to major corporate
achievements in engineering services and licensing contracts.
Mr. Cass: met his key 2013 goals in production, customer service and quality and provided key
support on numerous corporate priorities, related to the bus and material handling market segments.
Mr. Kassam: met his key goals related to various corporate and business development priorities,
primarily in areas related to continuous power in Africa and telecoms back-up power in African and India.
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.
For 2013 awards, the President and Chief Executive Officer recommended to the Compensation Committee 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. This value amount was broadly
the same as for 2012 awards (the 2012 value having been reduced to 90% of the 2011 award value to more
directly reflect the positioning relative to the comparator group). The recommendation for this year reflected
a higher percentage of RSU awards than prior years (approximately 75-90% of the total value). 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. The remaining approximately 10-25%
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 10-50% 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.
25
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
Compensation Committee. 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".
In 2012, the performance criteria for RSUs were amended to introduce a tiered approach to vesting
based on the annual performance of the Corporation (as prescribed by the Corporate Performance Scorecard).
Corporate Scorecard
RSU Vesting
< 50%
(cid:149)50% and <75%
(cid:149)75%
0%
50%
100%
New Issuances
On March 7, 2013, 1,063,524 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 scorecard multiplier
of 50% in each of the 3 years of the award, with 50% vesting if this threshold was achieved and 100%
vesting if a corporate scorecard multiplier achievement of greater than 75% is achieved. 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 scorecard multiplier). In February 2014, the Board
determined, after setting the corporate multiplier to 113% for the purpose of determining annual bonus, that
100% of this year’s RSUs vested, per the terms of the RSU awards.
Redemptions
A redemption of RSUs to shares for the Named Executive Officers, based on partial vesting of annual awards
granted in 2010, 2011 and 2012 was approved by the board on March 7, 2013.
On March 11, 2013, 37,847 RSUs vested and after statutory withholdings, 21,306 RSUs were
redeemed into Shares, representing 50% of one-third of the 2010 annual RSU long-term incentive award
granted to Messrs. Sheridan, Cass, Guzy and Kassam.
26
On March 11, 2013, 68,254 RSUs vested and after statutory withholdings, 38,424 RSUs were
redeemed into Shares, representing 50% of one-third of the 2011 annual RSU long-term incentive award
granted to Messrs. Sheridan, Guglielmin, Cass and Guzy.
On March 11, 2013, 117,949 RSUs vested and after statutory withholdings, 66,402 RSUs were
redeemed into Shares, representing 50% of one-third of the 2012 annual RSU long-term incentive award
granted to Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam.
On June 13, 2013, 25,226 RSUs reached the end of their restriction period and after statutory
withholdings, 14,202 RSUs were redeemed into Shares for Mr. Guglielmin. This award was the final 1/3 of
his new hire award, granted on June 14, 2010 and subject to time vesting only.
On September 26, 2013, 53,191 RSUs reached the end of their restriction period and after statutory
withholdings, 29,946 RSUs were redeemed into Shares for Mr. Kassam. This award was granted on
September 20, 2011 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 2010.
Mr. Sheridan is entitled to receive an RRSP contribution (CDN$11,910 in 2013). 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$2,198 in 2013).
Mr. Sheridan’s target bonus for 2013 was equal to 80% of his annual base salary, reduced from 90%
in 2011. This level of target bonus has been reduced from 100% in 2007. Mr. Sheridan’s bonus for 2013 was
determined by the Compensation Committee 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 2013, as approved by the Board.
The Compensation Committee determined that Mr. Sheridan performed strongly in 2013, exceeding
4 of his 5 individual goals related to refining the corporate strategic direction, strengthening the
Corporation’s liquidity position, growing shareholder value and strengthening employee engagement; and
meeting the 5th goal related to deepening director knowledge with increased firsthand exposure to customers,
suppliers and partners. Commensurate with this evaluation, the Compensation Committee determined that
the appropriate Individual Bonus Multiplier for Mr. Sheridan was 150%.
As noted earlier, the stretch performance goal related to over-achievement of the annual Cashflow
from Operations target was not achieved. As a result, the stretch performance goal multiplier for 2013 was
0%. This zero payout affected 50% of the Mr. Sheridan’s annual bonus target.
On March 7, 2013, the Board approved the recommendation by the Compensation Committee and
Mr. Sheridan was granted a long-term incentive award, equivalent at the time of grant to a total value of
CDN$831,250; with CDN$81,250 converted to options in respect of 125,000 Shares (at an exercise price of
CDN$1.22 per Share) and a RSU award of CDN$750,000 (614,754 RSUs at a price of CDN$1.22 per
Share). These awards formed Mr. Sheridan’s 2013 long-term incentive package, and the overall value and
equity mix was approved by the Compensation Committee and the Board. Consistent with other Named
Executive Officers, the RSU award has performance criteria and time vesting as described above in 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 cash portion of Mr. Sheridan’s total compensation in 2013 was CDN$566,829 (for base salary
and benefits). The non-cash compensation portion related to the theoretical value of Options and RSUs at
27
grant received in 2013, but to vest in later years, was CDN$831,250. The total value of Mr. Sheridan’s
nominal compensation in 2013, the sum of the cash and non-cash components, was CDN$1,757,419.
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 2013, Mr. Sheridan, Mr. Guglielmin, Mr. Guzy and Mr. Cass each 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 2013, Mr. Kassam received an RRSP contribution equal to 5%
of his base salary, based on his making an equivalent personal matching contribution.
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.
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$4,131,964.
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
December 2007 to increase the minimum share ownership requirements for our executive officers.
For the President and Chief Executive Officer the minimum share ownership guideline is equal to the
lesser of:
(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.
For executive officers other than the President and Chief Executive Officer, the minimum share
ownership guideline is equal to the lesser of:
(a)
the number of Shares with a fair market value equal to the executive officer’s annual
base salary; or
28
(c)
the number of Shares equal to the executive officer’s annual base salary divided by
the closing share price of Shares on the TSX or Nasdaq on the trading day of the
date of hire. (4)
Mr. Kassam is not subject to these minimum share ownership requirements.
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. (5)
Executives and directors are not permitted to hedge the market value of the Corporation securities
granted to them as compensation or otherwise held, directly or indirectly, by them.
PERFORMANCE GRAPH
The following graph compares the total cumulative return to a shareholder who invested $100 in our
Shares on December 31, 2008, assuming reinvestment of dividends, with the total cumulative return of $100
on the NASDAQ Composite Index for the last five years.
2008 (Dec 31)
($)
2009 (Dec 31)
($)
2010 (Dec 31)
($)
2011 (Dec 31)
($)
2012 (Dec 31)
($)
2013 (Dec 31)
($)
100
100
167
144
133
168
96
165
54
191
134
265
Ballard
NASDAQ
Composite
Index
The trend shown by this graph does not reflect the trend in the Corporation’s compensation to its
Named Executive Officers.
(4)
(5)
For executives who were employed as at December 2007, the minimum share ownership guideline is equal to the lesser of: (a) the number of
Shares with a fair market value equal to the executive officer’s annual base salary; or (b) 35,300 Shares.
For the President and Chief Executive Officer, the share acquisition period is five years from the date of hire. For other executive officers who
were employed as at December 2007, the time for acquiring the new minimum share ownership level is eight years. For executive officers hired
after December 2007, the minimum number of Shares must be acquired over a five-year period.
29
EXECUTIVE COMPENSATION TABLES
The following table summarizes the compensation paid for the fiscal years ended on December 31,
2011, December 31, 2012 and December 31, 2013 to our Named Executive Officers.
Name and Principal
Position
John W. Sheridan(1)
President and Chief Executive
Officer
Tony Guglielmin
Vice President and Chief
Financial Officer
Paul Cass
Vice President Operations
Christopher J. Guzy
Chief Technical Officer
Karim Kassam
Vice President, Business &
Corporate Development
Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
Summary Compensation Table
Long-Tern Incentives
Salary(2)
(CDN$)
Bonus(3)(4)
(CDN$)
Share-Based
Awards(5)
(CDN$)
Option-Based
Awards(6)
(CDN$)
All Other
Compensation(7)
(CDN$)
Total
Compensation
(CDN$)
530,000
530,000
530,000
310,000
310,000
310,000
265,000
265,000
258,671
310,000
310,000
310,000
200,000
166,797
163,932
359,340
0
380,000
157,635
0
168,175
89,835
0
151,320
136,617
0
134,540
64,847
0
79,091
750,000
675,000
500,000
167,500
162,000
120,000
167,500
162,000
120,000
167,500
162,000
120,000
45,000
35,000
75,000
81,250
225,000
400,000
48,750
54,000
120,000
48,750
54,000
120,000
48,750
54,000
120,000
22,750
8,900
46,400
36,829
29,910
31,218
31,533
29,596
28,627
29,959
28,318
32,117
43,443
43,154
44,042
19,176
17,572
17,299
1,757,419
1,459,910
1,841,218
715,418
555,596
746,802
601,044
509,318
682,108
706,310
569,154
728,582
351,773
228,269
381,722
(1) Mr. Sheridan is also a director, but receives no compensation for his service as a director.
(2)
(3)
Salary of each of the Named Executive Officers was paid in Canadian dollars. The United States dollar amounts for 2013 were US$498,308,
US$291,463, US$249,154, US$291,463 and US$188,041 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The United
States dollar amounts for 2012 were US$498,308, US$291,463, US$249,154, US$291,463 and US$156,823 for Messrs. Sheridan, Guglielmin,
Cass, Guzy and Kassam, respectively. The United States dollar amounts for 2011 were US$498,308, US$291,463, US$243,203, US$291,463
and US$154,129 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The Canadian dollar amounts were converted into
United States dollars for the purpose of this disclosure using the Bank of Canada noon rate of exchange on December 31, 2013.
In 2013, the bonus for Messrs. Sheridan, Guglielmin, Cass, and Guzy was issued as DSUs and this amount is based on the grant date fair market
value of the award, which equals the closing price of the Shares on the TSX on the date of issuance of the award. The number of DSUs awarded
is equal to the dollar amount of the award divided by the fair market value of the Shares at the time of issuance (based on the closing price of the
Shares on the TSX on the date of issuance). The number of DSUs issued to Messrs. Sheridan, Guglielmin, Cass, and Guzy in respect of the
fiscal year ended December 31, 2013 is as follows:
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Year
2013
2013
2013
2013
DSUs
(#)
96,338
42,261
24,084
36,627
Bonus
Fair Market Value
of a Share
(CDN$)(A)
3.73
3.73
3.73
3.73
Total
(CDN$)(B)
359,340
157,635
89,835
136,617
(A)
(B)
The fair market value of a Share has been calculated using the Canadian dollar closing price of the Shares underlying the DSUs
on the TSX on the date of issuance.
The United States dollar amounts for 2013 were US$337,853, US$148,209, US$84,463 and US$128,448 for Messrs. Sheridan,
Guglielmin, Cass and Guzy, 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 31, 2013.
Mr. Kassam’s bonus was paid in cash in Canadian dollars. The United States dollar amount for Mr. Kassam’s 2013 bonus was US$60,969. The
Canadian dollar amount was converted into United States dollars for the purpose of this disclosure using the Bank of Canada noon rate of
exchange on December 31, 2013.
(4)
The bonus of each of the Named Executive Officers was paid in Canadian dollars. The corresponding United States dollar amounts for 2012
were US$0, US$0, US$0, US$0 and US$0 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The corresponding United
States dollar amounts for 2011 were US$357,277, US$158,119, US$142,272, US$126,495 and US$74,361 for Messrs. Sheridan, Guglielmin,
Cass, Guzy and Kassam, 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 31, 2013.
30
(5) Represents the total fair market value of RSUs issued to each Named Executive Officer during the 2011, 2012 and 2013 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 75-90% of this amount is
awarded in the form of RSUs with the remaining 10-25% being awarded in the form of Share options in 2013. In 2012, approximately 75% of
this amount was awarded in the form of RSUs with the remaining 25% being awarded in the form of Share options. In 2011, 50% of this amount
was awarded in the form of RSUs with the remaining 50% 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, 2011, December 31, 2012 and December 31, 2013 is as follows:
Share-Based Awards
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Karim Kassam
Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
RSUs
(#)
614,754
399,408
238,095
137,295
95,858
57,143
137,295
95,858
57,143
137,295
95,858
57,143
36,885
20,710
53,191
Fair Market Value
of a Share
(CDN$)(A)
1.22
1.69
2.10
1.22
1.69
2.10
1.22
1.69
2.10
1.22
1.69
2.10
1.22
1.69
1.41
Total
(CDN$)(B)
750,000
675,000
500,000
167,500
162,000
120,000
167,500
162,000
120,000
167,500
162,000
120,000
45,000
35,000
75,000
(A)
(B)
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.
The United States dollar amounts for 2013 were US$705,152, US$157,484, US$157,484, US$157,484 and US$42,309 for
Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The United States dollar amounts for 2012 were
US$634,637, US$152,313, US$152,313, US$152,313 and US$32,907 for Messrs. Sheridan, Guglielmin, Cass, Guzy and
Kassam, respectively. The United States dollar amounts for 2011were US$470,102, US$112,824, US$112,824, US$112,824
and US$70,515 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, 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 31, 2013.
(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 63% and risk free interest rate of 1% for
2013; expected life of 5 years, expected volatility of 62% and risk free interest rate of 2% for 2012; and expected life of 5 years, expected
volatility of 64% and risk free interest rate of 3% for 2011. 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 75-90% of this amount is
awarded in the form of RSUs with the remaining 10-25% being awarded in the form of Share options. In 2012, approximately 75% of this
amount is awarded in the form of RSUs with the remaining 25% being awarded in the form of Share options. In 2011, 50% of this amount was
awarded in the form of RSUs with the remaining 50% 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, 2011, December 31, 2012 and December 31, 2013 is as follows:
31
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Karim Kassam
Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
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)
125,000
252,808
344,827
75,000
60,674
103,448
75,000
60,674
103,448
75,000
60,674
103,448
35,000
10,000
40,000
0.65
0.89
1.16
0.65
0.89
1.16
0.65
0.89
1.16
0.65
0.89
1.16
0.65
0.89
1.16
81,250
225,000
400,000
48,750
54,000
120,000
48,750
54,000
120,000
48,750
54,000
120,000
22,750
8,900
46,400
(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.
(B)
The United States dollar amounts for 2013 were US$76,392, US$45,835, US$45,835, US$45,835 and US$21,390 for Messrs.
Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The United States dollar amounts for 2012 were US$211,545,
US$50,771, US$50,771, US$50,771 and US$8,368 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The
United States dollar amounts for 2011 were US$376,081, US$112,824, US$112,824, US$112,824 and US$43,625 for Messrs.
Sheridan, Guglielmin, Cass, Guzy and Kassam, 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 31, 2013.
(7) All Other Compensation was paid in Canadian dollars. The United States dollar amounts for 2013 were US$34,628, US$29,648, US$28,168,
US$40,845 and US$18,029 for Messrs. Sheridan, Guglielmin, Cass, Guzy and Kassam, respectively. The United States dollar amounts for 2012
were US$28,122, US$27,826, US$26,625, US$40,574 and US$16,521 for Messrs. Sheridan, Guglielmin, Cass, and Guzy, respectively. The
United States dollar amounts for 2011 were US$29,351, US$26,916, US$30,197, US$41,409 and US$16,265 for Messrs. Sheridan, Guglielmin,
Cass, Guzy and Kassam, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of the table above
using the Bank of Canada noon rate of exchange on December 31, 2013.
The value of the items included in this amount was based on the aggregate incremental cash cost to the Corporation. All Other Compensation,
including the type and amount of each perquisite, the value of which exceeds 25% of the total value of perquisites reported for a Named
Executive Officer, includes:
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Karim Kassam
Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
All Other Compensation
Retirement Benefits
(RRSP / 401k /
Defined Benefits)
(CDN$)
Insurance Premiums
(CDN$)
11,910
11,485
11,225
11,910
11,485
11,225
11,910
11,485
11,225
11,910
11,485
11,225
9,748
8,340
8,194
2,198
2,128
2,021
1,075
1,041
967
1,075
1,041
964
1,075
1,041
967
632
496
453
Other(A)
(CDN$)
22,721
16,297
17,972
18,548
17,070
16,435
16,974
15,792
19,928
30,458
30,628
31,850
8,796
8,736
8,652
Total
(CDN$)
36,829
29,910
31,218
31,533
29,596
28,627
29,959
28,318
32,117
43,443
43,154
44,042
19,176
17,572
17,299
(A)
Includes automobile allowances, temporary living and travel allowances, financial planning services and medical and health
benefits.
32
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our Named Executive
Officers that are outstanding as of December 31, 2013.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2013)
Option-Based Awards
Share-Based Awards
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J.
Guzy
Karim Kassam
Number of
Securities
Underlying
Unexercised
Options
(#)
Option
Exercise
Price(1)
(CDN$)
123,762
177,295
185,185
344,827(4)
252,808(5)
125,000(6)
175,000
103,448(7)
60,674(8)
75,000(6)
14,000
50,000
88,888
103,448(7)
60,674(8)
75,000(6)
42,553
85,101
88,888
103,448(7)
60,674(8)
75,000(6)
15,000
25,000
30,000
40,000(9)
10,000(10)
35,000(6)
4.17
1.34
2.40
2.10
1.69
1.22
1.80
2.10
1.69
1.22
5.08
1.34
2.40
2.10
1.69
1.22
5.08
1.34
2.40
2.10
1.69
1.22
3.10
1.34
2.40
2.10
1.69
1.22
Value of
Unexercised
In-The-
Money
Options(2)
(CDN$)
0
47,870
0
0
0
0
0
0
0
0
0
13,500
0
0
0
0
0
22,977
0
0
0
0
0
6,750
0
0
0
0
Option
Expiration
Date
May 13, 2015
Mar. 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Jun. 14, 2017
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb 22, 2015
Mar. 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb. 22, 2015
Mar. 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Nov. 12, 2015
Mar. 5, 2016
Mar. 12, 2017
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Number of RSUs
That Have Not
Vested
(#)
Market or Payout
Value of RSUs That
Have Not Vested(3)
(CDN$)
960,391
1,546,230
220,246
354,596
220,246
354,596
220,246
354,596
50,691
81,613
(1) All figures are in Canadian dollars.
(2)
(3)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX as at December 31, 2013, and
the exercise price of the option. Where the difference is a negative number, the value is deemed to be 0.
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 31, 2013.
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 229,884 vested and 114,943 unvested options.
(5) Comprising 84,269 vested and 168,539 unvested options.
(6) Unvested options.
(7)
Comprising 68,965 vested and 34,483 unvested options.
(8) Comprising 20,224 vested and 40,450 unvested options.
(9) Comprising 26,666 vested and 13,334 unvested options.
(10) Comprising 3,333 vested and 6,667 unvested options.
33
The following table sets forth the value of the incentive plan awards vested or earned during the year
ended December 31, 2013 by our Named Executive Officers.
Incentive Plan Awards – Value Vested or Earned During the Year
(2013)
Named Executive Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Karim Kassam
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$)
0
583
0
0
0
159,459
79,563
43,645
43,645
105,124
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.
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.
The number of options vesting to Named Executive Officers under the Option Plan during the most recently
completed financial year is 569,321.
Summaries of the Corporations’ Option Plan and SDP are provided in Appendix “B” and “C”, respectively.
As noted in the Outstanding Share-Based Awards and Option-Based Awards table, as at December 31, 2013,
there were 1,671,820 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
Vesting Date
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Karim Kassam
February 23, 2014
March 7, 2014
February 22, 2015
March 7, 2015
March 6, 2016
February 23, 2014
March 7, 2014
February 22, 2015
March 7, 2015
March 6, 2016
February 23, 2014
March 7, 2014
February 22, 2015
March 7, 2015
March 6, 2016
February 23, 2014
March 7, 2014
February 22, 2015
March 7, 2015
March 6, 2016
February 23, 2014
March 7, 2014
February 22, 2015
March 7, 2015
March 6, 2016
133,136
284,283
133,136
204,918
204,918
31,952
64,812
31,952
45,765
45,765
31,952
64,812
31,952
45,765
45,765
31,952
64,812
31,952
45,765
45,765
6,903
12,295
6,903
12,295
12,295
34
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.
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 to each of our Named Executive Officers under their employment agreements for
2013 was as follows: Mr. Sheridan received C$530,000, Mr. Guglielmin received C$310,000, Dr. Guzy
received C$310,000, Mr. Cass received C$265,000 and Mr. Kassam received C$200,000.
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 for Mr. Sheridan, Mr. Guglielmin, Dr. Guzy and Mr. Cass, 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 lieu of such notice, consisting of the salary,
bonus and other benefits that would have been earned during such notice period. In the same circumstances
for Mr. Kassam we are required to provide notice of 6 months plus one month for every year of employment
completed with us, to a maximum of 18 months, or payment in lieu of the salary and benefits.
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 Management 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
35
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
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 security holders 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 if on December 31, 2013: their employment was terminated without just cause; a
change of control occurred; or, their employment was terminated without just cause and that termination
occurred following a change in control.
36
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 (as of December 31, 2013)
John W. Sheridan
Severance
Other benefits
Accelerated vesting
Total
Tony Guglielmin
Severance
Other benefits
Accelerated vesting
Total
Christopher J. Guzy
Severance
Other benefits
Accelerated vesting
Total
Paul Cass
Severance
Other benefits
Accelerated vesting
Total
Karim Kassam
Severance
Other benefits
Accelerated vesting
Total
$1,510,500
$73,313
$0
$1,583,813
$620,000
$54,640
$0
$674,640
$826,667
$98,545
$0
$925,212
$530,000
$98,146
$0
$628,146
$100,000
$18,600
$0
$118,600
$0
$0
$1,594,099
$1,594,099
$0
$0
$354,596
$354,596
$0
$0
$377,573
$377,573
$0
$0
$368,096
$368,096
$0
$0
$88,363
$88,363
$1,908,000
$117,606
$0
$2,025,606
$992,000
$112,424
$0
$1,104,424
$992,000
$143,254
$0
$1,135,254
$848,000
$182,034
$0
$1,030,034
$620,000
$37,200
$0
$657,200
(1) All values are in Canadian dollars.
(2) Based on accrued service to December 31, 2013.
(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, 2013 multiplied by the number of RSUs. Value shown in the case of Options is the difference between the market price on
December 31, 2013 and the exercise price for options, for those options where the market price on that date is greater than the exercise price.
DIRECTOR COMPENSATION
Our CGCC (and the Corporate Governance Committee prior to July 1, 2013) 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
37
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. The Board Chair also voluntarily
decided to forego meeting fees for Board meetings, effectively making his annual retainer an 'all-in' fee.
Effective June 1, 2012, based on the Towers Watson report the Board raised its retainer fees to better
approximate the median of the market comparators. At the same time, the use of DSUs as partial
compensation for Board and committee retainers was reinstituted. This fee structure continued in 2013.
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:
Annual Retainer (Non-Executive Chair of the Board)
Annual Retainer (Director)
Annual Retainer (Committee Chairs)
Committee Meeting Attendance Fee (per meeting)
Board Meeting Attendance Fee (per meeting)
C$(1)
$140,000
$65,000
$10,000
$1,500
$1,500
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$2,250 in the case of a non-United States resident), in recognition of the additional time required to travel
to and from the meeting or meetings.
In 2013, compensation was earned by the directors as follows(1):
Compensation
Director
Board Retainer
(CDN$)
Committee
Retainer
(CDN$)
Board and
Committee
Attendance Fees
(CDN$)
Total
Compensation
(CDN$)
Ian A. Bourne
140,000
Douglas P. Hayhurst
Edwin J. Kilroy
Dr. C.S. Park
Carol M. Stephenson
David B. Sutcliffe
Ian Sutcliffe
65,000
65,000
28,806
65,000
65,000
37,917
N/A
0
10,000
0
10,000
5,000
0
N/A
21,000
24,000
6,382
19,500
24,000
15,000
140,000
86,000
99,000
35,188
94,500
94,000
52,917
(1) All figures are in Canadian dollars. However, the compensation paid to Dr. Park was 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 31, 2013. The
United States dollar amounts paid to Dr. Park in respect of Board Retainer, Committee Retainer, and Board and Committee Attendance
Fees were US$27,083, US$0 and US$6,000, respectively.
38
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.
Commencing on June 1, 2012, the mix of cash and compensation was adjusted, such that the Chair
now receives 50% cash and 50% DSUs for his annual retainer, with the other directors receiving Committee
Chair fees 100% in DSUs and annual retainer fees in a cash/DSU mix (approx. 40%/60%, with the individual
option to elect a greater portion of DSUs).
Directors are entitled to participate in the deferred share unit section for directors (the "DSU Plan
for Directors") in the SDP. Each DSU is convertible into one Share. The number of DSUs to be credited to
a Director is determined quarterly 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 are credited to an
account maintained for each eligible person by Ballard at the time specified by the Board (DSUs are 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, 2013.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2013)
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$)
0
0
0
0
0
0
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
Name
Ian A. Bourne
Doug Hayhurst
Edwin J. Kilroy
Carol Stephenson
David B. Sutcliffe
Ian Sutcliffe
(1) All figures are in Canadian dollars.
(2)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX as at December 31, 2013, and
the exercise price of the option. Where the difference is a negative number the value is deemed to be 0.
No incentive plan awards vested for, or were earned by, our Directors during the year ended
December 31, 2013.
Directors are not permitted to hedge the market value of the Corporation securities they hold.
39
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of December 31, 2013, the number of securities we are authorized to
issue under our equity-based compensation plans and the relevant exercise prices at which such securities
may be issued.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (#)
(a)
Weighted -Average Exercise
Price of Outstanding
Options, Warrants and
Rights (CDN$)
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans excluding securities
reflected in column (a)
(c)
8,690,851(1)
Nil
8,690,851
2.17
N/A
2.17
2,322,539
N/A
2,322,539
Plan Category
Equity-based compensation plans
approved by security holders
Equity-based compensation plans
not approved by security holders
Total
(1)
Shares issuable under the DSU Plan for Directors and the DSU Plan for Executive Officers (together, the "DSU Plans") will be satisfied
with Shares reserved under the SDP or any successor plan.
For a detailed description of our equity-based compensation plans, see Appendix "B" and "C" of this
Management Proxy Circular.
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 11, 2014, 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 2013 and US$245,000 for 2012. 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:120) Annual Information Form dated February 26, 2014;
40
(cid:120) Audited Annual Financial Statements for the year ended December 31, 2013 together with the
auditors’ report thereon; and
(cid:120) Management's Discussion and Analysis for the year ended December 31, 2013.
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 2015 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:120) must be received by us no later than January 10, 2015; and
(cid:120) 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 2015 annual
shareholders’ meeting if the proposal is received after the January 10, 2015 deadline.
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 Inc.
Dated: April 11, 2014
41
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.
"CBCA" means the Canadian Business Corporations Act.
"Equity-based Compensation Plans" means the Option Plan and the SDP.
"DSU" means deferred share unit.
"$" or "dollars" refer to United States currency unless specifically stated otherwise.
"Meeting" means the 2012 annual meeting of our Registered Shareholders and includes any adjournment
thereof, unless otherwise indicated.
"NASDAQ" means the NASDAQ Global Market.
"Option Plan" means the Corporation’s consolidated share option plan, the principal terms of which are set
out in Appendix "B".
"Record Date" means 5:00 p.m. Pacific Daylight Time on April 11, 2014.
"Registered Shareholders" means registered holders of our Shares on the Record Date.
"RSU" means restricted share unit.
"SDP" means the Corporation’s consolidated share distribution plan, the principal terms of which are set out
in Appendix "C".
"SEC" means the U.S. Securities and Exchange Commission
"Shares" means common shares without par value in the capital of Ballard.
"TSX" means the Toronto Stock Exchange.
"US$" refers to United States currency.
42
APPENDIX "A"
BOARD MANDATE
PURPOSE
The board of directors (the "Board") is responsible for the overall corporate governance of the Corporation.
It oversees and directs the management of the Corporation’s business and affairs. In doing so, it must act
honestly, in good faith, and in the best interests of the Corporation. The Board guides the Corporation’s
strategic direction, evaluates the performance of the Corporation’s executive officers, monitors the
Corporation’s financial results, and is ultimately accountable to the Corporation’s shareholders, employees,
customers, suppliers, and regulators. Board members are kept informed of the Corporation’s operations at
meetings of the Board and its committees, and through reports and analyses by, and discussions with,
management. The Board manages the delegation of decision-making authority to management through
Board resolutions under which management is given authority to transact business, but only within specific
limits and restrictions. In this Mandate, the "Corporation" means Ballard Power Systems Inc. and a
"director" means a Board member.
COMPOSITION
A. As stated in the Articles of the Corporation, the Board will be composed of no fewer than five and no
more than fifteen directors.
B. The Board will have a majority of independent directors.
C. The Board will appoint its own Chair.
MEETINGS
D. Meetings of the Board will be held as required, but at least four times a year.
E. The Board will appoint its own Secretary, who need not be a director. The Secretary, in conjunction
with the Chair of the Board, will draw up an agenda, which will be circulated in advance to the
members of the Board along with the materials for the meeting. The Secretary will be responsible
for taking and keeping the Board’s meeting minutes.
F. As set out in the By-laws of the Corporation, meetings will be chaired by the Chair of the Board, or
if the Chair is absent, by a member chosen by the Board from among themselves.
G.
If all directors consent, and proper notice has been given or waived, a director or directors may
participate in a meeting of the Board by means of such telephonic, electronic or other
communication facilities as permit all persons participating in the meeting to communicate
adequately with each other, and a director participating in such a meeting by any such means is
deemed to be present at that meeting.
H. The Board will conduct an in-camera session excluding management at the end of each Board
meeting.
I. A majority of directors constitute a quorum.
J. All decisions made by the Board may be made at a Board meeting or evidenced in writing and
signed by all Board members, which will be fully effective as if it had been made or passed at a
Board meeting.
A-1
DUTIES AND RESPONSIBILITIES
K. Selection of Management
The Board is responsible for appointing the Chief Executive Officer ("CEO"), for monitoring and
evaluating the CEO’s performance, and approving the CEO’s compensation. Upon recommendation
of the CEO and the Corporate Governance & Compensation Committee, the Board is also
responsible for appointing all officers. The Board also ensures that adequate plans are in place for
management development and succession and conducts an annual review of such plans.
L. Corporate Strategy
The Board is responsible for reviewing and approving the Corporation’s corporate mission statement
and corporate strategy on a yearly basis, as well as determining the goals and objectives to achieve
and implement the corporate strategy, while taking into account, among other things, the
opportunities and risks of the business. Each year, the Board meets for a strategic planning session
to set the plans for the upcoming year. In addition to the general management of the business, the
Board expects management to achieve the corporate goals set by the Board, and the Board monitors
throughout the year the progress made against these goals.
In addition, the Board approves key transactions, which have strategic impact to the Corporation,
such as acquisitions, key collaborations, key supply arrangements, and strategic alliances. Through
the delegation of signing authorities, the Board is responsible for setting out the types of transactions
that require approval of the Board before completion.
M. Fiscal Management and Reporting
The Board monitors the financial performance of the Corporation and must ensure that the financial
results are reported: (a) to shareholders and regulators on a timely and regular basis; and (b) fairly
and in accordance with generally accepted accounting principles. The Board must also ensure that
all material developments of the Corporation are disclosed to the public on a timely basis in
accordance with applicable securities regulations. In the spring of each year, the Board reviews and
approves the Annual Report, which is sent to shareholders of the Corporation and describes the
achievements and performance of the Corporation for the preceding year.
N. Legal Compliance
The Board is responsible for overseeing compliance with all relevant policies and procedures by
which the Corporation operates and ensuring that the Corporation operates at all times in compliance
with all applicable laws and regulations, and to the highest ethical and moral standards.
O. Statutory Requirements
The Board is responsible for approving all matters, which require Board approval as prescribed by
applicable statutes and regulations, such as payment of dividends and issuances of shares.
Management ensures that such matters are brought to the attention of the Board as they arise.
P. Formal Board Evaluation
The Board, through a process led by the Corporate Governance& Compensation Committee,
conducts an annual evaluation and review of the performance of the Board, Board committees, and
the Chair of the Board. The Corporate Governance & Compensation Committee reviews the results
of such evaluation and together with the Chair of the Board, discusses potential ways to improve
Board effectiveness. The Corporate Governance& Compensation Committee discusses the results of
the evaluation and the recommended improvements with the full Board. The Board also sets annual
effectiveness goals and tracks performance against those goals. In addition, each individual
director’s performance is evaluated and reviewed regularly.
A-2
Q. Risk Management
The Board is responsible for identifying the Corporation’s principal risks and ensuring the
implementation of appropriate systems to manage these risks. The Board is also responsible for the
integrity of the Corporation’s internal controls and management information systems.
R. External Communications
The Board is responsible for overseeing the establishment, maintenance and annual review of the
Corporation’s external communications policies which address how the Corporation interacts with
analysts and the public and which also contain measures for the Corporation to avoid selective
disclosure. The Board is responsible for establishing a process for receiving shareholder feedback.
This is achieved through a semi-annual presentation of an investor relations report, which contains a
summary of the feedback and common enquiries received from shareholders, as well as a Board e-
mail address, which has been set up for the public to submit messages to the Board.
A-3
APPENDIX "B"
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 11, 2014, the total number of Shares issued and reserved and authorized for issue under
the Option Plan was 4,470,994 Shares, representing 3.5% of the issued and outstanding Shares as that date.
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)
the expiration date as determined by the Board, which date will not be more than 10
years from the date of grant; and
B-1
(b)
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:
(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)
(iii)
(iv)
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;
an extension of the expiry date of an outstanding option;
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,
B-2
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
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;
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.
(c)
(d)
(e)
(f)
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.
B-3
APPENDIX"C"
DESCRIPTION OF SDP
The SDP is a single plan divided into the following three principal sections:
1.
2.
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.
3.
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 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.
C-1
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 11, 2014, the total number of Shares issued and reserved and authorized for issue under
the SDP was 1,549,116 Shares, representing 1.2% of the issued and outstanding Shares as of April 11, 2014.
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:
(i)
(ii)
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;
C-2
(iii)
(iv)
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.
C-3
FINANCIAL INFORMATION
Management’s Discussion and Analysis
Consolidated Financial Statements
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 25,
2014 and should be read in conjunction with our audited consolidated financial statements
and accompanying notes for the year ended December 31, 2013. 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, is filed with
Canadian (www.sedar.com) and U.S. securities regulatory authorities (www.sec.gov) and is
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, service and license of
fuel cell products for a variety of applications, focusing on our “commercial stage” markets
of Telecom Backup Power and Material Handling and on our “development stage” markets
of Bus and Distributed Generation, as well as the provision of 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. Our focus is on leveraging the inherent reliability and durability
derived from our legacy automotive technology into non-automotive markets where
demand is near term and on our core competencies of PEM fuel cell design, development,
manufacture, sales and service.
Our business strategy is a three-pronged approach to build shareholder value through
product sales, engineering services, and licensing. In product sales, our focus is to leverage
our product leadership and early mover positioning in the Telecom Backup Power and
Material Handling markets. Through engineering services, our strategy is to leverage our
technical capabilities and intellectual property, working with lead customers in profitable
contract programs which could result in additional product sales opportunities. Our
approach to licensing is to monetize our extensive intellectual property portfolio and
fundamental knowledge in ways that establish new customer relationships as well as
opportunities in new markets. To support our business strategy and our capability to
execute on our clean energy growth priorities, we have also focused our efforts on
bolstering our cash reserves in addition to continued efforts on both product cost reduction
and managing our operating expense base including overall expense reductions, the pursuit
Page 1 of 38
of government funding for our research and product development efforts, and the
redirection of engineering resources to revenue generating engineering service projects.
We are based in Canada, with head office, research and development, testing and
manufacturing facilities in Burnaby, British Columbia. We also use a contract manufacturing
facility in Tijuana, Mexico, have research and development facilities in Oregon and
Maryland, U.S.A., and have a sales, manufacturing, and research and development facility
in Hobro, Denmark.
RECENT DEVELOPMENTS
On February 25, 2014, Ballard’s President and Chief Executive Officer, John Sheridan,
informed the Board of Directors of his intention to retire by the end of 2014. Ballard’s
Board of Directors has established a search committee and expects to have the new Chief
Executive Officer in place and the transition process completed by the fourth quarter of
2014.
On November 27, 2013, all of the convertible debt issued by our subsidiary Dantherm
Power to Ballard and the non-controlling interests in Dantherm Power was exercised and
converted into shares of Dantherm Power. The conversion did not impact the respective
ownership of Dantherm Power with Ballard retaining a 52% ownership interest as
compared to a 38% interest held by Dantherm A/S and a 10% interest held by Azure
Hydrogen Energy Science and Technology Corporation (“Azure”). On conversion, the
convertible debt held by the non-controlling interests, Dantherm A/S and Azure, totaling
$3.5 million was reclassified on Ballard’s statement of financial position from debt to equity.
On October 9, 2013, we closed an underwritten offering (“October Offering”) of 10.35
million units at a price of $1.40 per unit for gross October Offering proceeds of $14.5
million. Each unit in the October Offering was comprised of one common share and 0.25 of
a warrant to purchase one common share. Each whole warrant is exercisable immediately
upon issuance, having a five-year term and an exercise price of $2.00 per share.
Net proceeds from the October Offering were approximately U.S. $13.1 million, after
deducting underwriting discounts, commissions and other offering expenses.
On September 26, 2013 (and further to the non-binding Memorandum of Understanding
announced on May 28, 2013), we completed multi-year definitive agreements (“Azure Bus
Licensing Agreement”) with Azure to support Azure’s zero emission fuel cell bus program
for the China market. Azure plans to partner with Chinese bus manufacturers in a phased
development program for deployment of zero emission fuel cell buses in China, using
Ballard’s world leading fuel cell technology. For the first phase of the program, Ballard has
agreed to provide a license, associated equipment and engineering services to enable
assembly of Ballard’s FCvelocity®-HD7 bus power modules by Azure in China. Once this
assembly capability is established, Azure will assemble modules with fuel cell stacks to be
supplied exclusively by Ballard. The expected value of the contract to Ballard over the initial
12-months of the first phase will be approximately $11 million, related to the license for
module assembly together with associated equipment and engineering services. If Azure’s
China bus program progresses as planned, the contract will generate value beyond the $11
million license revenue, commensurate with the volume of fuel cell stacks to be ordered.
Azure plans to secure funding from Chinese sources, including both private investors and
governments, to enable the development of fuel cell bus fleets in China for initial public
transit service by 2015. Amounts earned from the Azure Bus Licensing Agreement
(approximately $4 million in the fourth quarter of 2013 and $7 million in 2014) are
recorded as either Bus or Engineering Services revenues depending on the nature of the
Page 2 of 38
work performed.
On March 31, 2013, our subsidiary Dantherm Power completed an agreement whereby
Azure acquired a 10% ownership position in Dantherm Power for proceeds of $2.0 million
to Dantherm Power. The $2.0 million investment consisted of the issuance of Dantherm
Power share capital of $1.4 million and Dantherm Power convertible debentures of $0.6
million (which was subsequently converted to Dantherm Power share capital in November
2013). Following the transaction in March 2013, Ballard’s ownership position in Dantherm
Power was reduced from 57% to 52% while still retaining control over Dantherm Power.
On March 28, 2013, we completed an agreement with Anglo American Platinum Limited
(“Anglo”) under which Anglo invested $4.0 million in Ballard through its PGM Development
Fund. The investment was in the form of a $4.0 million, 5-year, non-interest bearing
convertible promissory note (“Note”) issued by Ballard. The Note may be repaid in the form
of Ballard common shares with Anglo having the option of repayment in common shares on
or before the loan maturity date of April 1, 2018. Any Ballard common shares issued on
conversion or repayment would be at a fixed price of $0.84 per share (or 4.76 million
Ballard common shares on conversion or repayment of the entire $4.0 million Note). This
issue price was set at a 20% discount to the market price of the Ballard common shares on
the closing date of the transaction. The entire $4.0 million Note has been classified as an
equity instrument and is recorded in Contributed Surplus.
On March 26, 2013, we closed on an underwritten offering (“March Offering”) of 7.275
million units at a price of $1.10 per unit for gross March Offering proceeds of $8.0 million.
Each unit in the March Offering was comprised of one common share and one warrant to
purchase one common share. Each warrant is exercisable immediately upon issuance,
having a five-year term and an exercise price of $1.50 per share. Net proceeds from the
March Offering were approximately $6.8 million, after deducting underwriting discounts,
commissions and other offering expenses, legal and accounting fees, and previously
incurred costs related to the 2012 base shelf prospectus under which the units were issued.
On March 6, 2013, we completed an agreement with Volkswagen Group (“Volkswagen”)
for an engineering services contract to advance development of fuel cells for use in
powering demonstration cars in Volkswagen’s fuel cell automotive research program. The
contract term is 4 years commencing in March 2013, with an option for a 2 year extension.
The expected contract value is in the range of approximately $60 - $100 million Canadian.
Amounts earned from this agreement (approximately $3 million in the fourth quarter of
2013 and $13 million in 2013) are recorded primarily as Engineering Services revenues.
On January 31, 2013, we completed an agreement to sell substantially all of the assets in
our Lowell, Massachusetts based Material Products division for gross cash proceeds of
$10.5 million (on the delivery of net working capital of $3.7 million) and additional potential
proceeds of up to $1.5 million. The additional potential proceeds of up to $1.5 million are
payable in 2014 and 2015 through a product credit for fuel cell gas diffusion layers
(“GDLs”) if the former Material Products division attains certain financial results in 2013. As
the additional potential proceeds are currently unknown and contingent in nature, they are
not recorded in our financial statements until actually realized. Excluding any potential
contingent gain from the additional proceeds, net proceeds from the sale were
approximately $9.1 million after deducting for working capital adjustments, broker
commissions and expenses, and legal and other expenses. The Material Products segment
was classified as a discontinued operation in our 2012 and 2013 year end consolidated
financial statements.
Page 3 of 38
On January 15, 2013, we reached an agreement with Technology Partnerships Canada
(“TPC”) to terminate all existing and future potential royalties payable in respect of future
sales of fuel cell based stationary power products under the Utilities Development Program
(Phase 2) in exchange for a final repayment to TPC of $1.9 million Canadian. Under the
terms of the Utilities Development Program (Phase 2) with TPC, total royalties were
payable annually at 4% of revenue of such products and limited to a total maximum
repayment of $38.3 million Canadian. On settlement with TPC on January 15, 2013, we
recorded a charge of ($1.2) million to Finance income (loss) representing the excess of the
settlement amount of $1.9 million over royalty amounts accrued as of the date of
settlement of $0.7 million. The $1.9 million settlement was paid in four equal quarterly
installments of $0.48 million starting on January 31, 2013.
On August 1, 2012, we completed an agreement to acquire key assets and product lines
from IdaTech LLC (“Idatech”), a former customer of Ballard. In exchange for $7.5 million of
Ballard common shares issued from treasury (7.1 million Ballard shares valued at $1.05 per
share based on our share price as of the acquisition date), we acquired Idatech’s key
assets including fuel cell systems inventory, prepaid rights to inventory, product lines for
backup power applications, distributor and customer relationships, a license to intellectual
property, the right to assume control of a contract manufacturing facility in Tijuana,
Mexico, and certain property, plant and equipment. Acquired fuel cell systems inventory,
prepaid rights to inventory, product lines and intellectual property consist of both direct
hydrogen units as well as methanol fuelled units and are designed for deployment as
emergency backup power in the networks of wireless telecom service providers. The
methanol systems incorporate a fuel reformer to extract hydrogen to be used as feedstock
for the fuel cells from a mixture of methanol and water. In January 2013, Ballard exercised
its right to assume control of Idatech’s contract manufacturing facility in Tijuana, Mexico.
In July 2012, we completed a 7% workforce reduction and an overall curtailment of
discretionary spending designed to have a minimal impact on key product development
initiatives and our manufacturing capabilities. Total restructuring and related costs of $1.6
million has been recorded in general and administration expense in our third quarter of
2012 financial results.
In June 2011, we obtained a $7.0 million Canadian (revised to $7.3 million Canadian in
December 2012) award agreement from Sustainable Development Technology Canada
(“SDTC”) for the period from 2011 to 2013 (extended to December 2014) for extending 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 (revised to $6.9 million Canadian in June 2012) award agreement from
SDTC announced in 2010 for the period from 2010 to 2012 (extended to November 2013)
for helping to develop the FCvelocity®-HD7, Ballard’s next-generation of fuel cell power
module designed specifically for integration into bus applications and reflecting improved
durability and reliability as well as a significant reduction in cost. These awards are
recorded primarily as a cost offset against our research and product development expenses
as the expenses are incurred on these programs.
OPERATING SEGMENTS
We report our results in the single operating segment of Fuel Cell Products and Services.
Our Fuel Cell Products and Services segment consists of the sale, service and license of fuel
cell products for our “commercial stage” markets of Telecom Backup Power and Material
Handling and for our “development stage” markets of Bus and Distributed Generation, as
well as the provision of Engineering Services for a variety of fuel cell applications.
Page 4 of 38
As a result of the disposition of our Materials Products segment on January 31, 2013, the
former Material Products segment has been classified as a discontinued operation in our
2013 and 2012 consolidated financial statements. As such, the operating results of the
former Material Products segment for January 2013 and for 2012 have been removed from
our results from continuing operations and are instead presented separately in the
statement of comprehensive income as income from discontinued operations. The former
Materials Product segment sold carbon
for automotive
transmissions, and GDL’s for fuel cells.
fiber products primarily
SELECTED ANNUAL FINANCIAL INFORMATION
Results of Operations
Year ended,
2013
2012
2011
(Expressed in thousands of U.S. dollars, except per share
amounts and gross margin %)
From continuing operations
Revenues
Gross margin
Gross margin %
Cash Operating Costs (1)
Adjusted EBITDA (1)
Normalized Net Loss (1)
Normalized Net Loss per share
Net loss from continuing operations attributable to Ballard
Net loss per share attributable to Ballard, basic and diluted
From discontinued operations
Net earnings (loss) from discontinued operations
Net earnings (loss) per share from discontinued operations
Financial Position
(expressed in thousands of U.S. dollars)
Assets from continuing operations
Assets from discontinued operations
Total assets
Cash and cash equivalents
Short-term investments
Bank operating line
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
61,251
16,759
27%
28,306
(8,188)
(18,278)
(0.18)
(19,988)
(0.20)
24
-
$
$
$
$
$
$
$
$
$
$
43,690
7,369
17%
$
$
55,773
7,279
13%
30,301
$
36,969
(22,076) $ (27,913)
(31,750) $ (35,448)
(0.36)
$
(0.42)
(42,320) $ (37,175)
(0.48)
$
(0.44)
(65)
$
3,755
-
$
0.04
At December 31,
2013
2012
2011
120,214
-
120,214
30,301
-
-
$
$
$
$
$
$
116,749
$ 165,290
10,798
$
-
127,547
$ 165,290
9,770
12,068
(9,358)
$
$
$
20,316
25,878
(4,587)
Net cash reserves
$
1 Cash Operating Costs, Adjusted EBITDA, Normalized Net Loss and Normalized Net Loss per share 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.
30,301
12,480
41,607
$
$
Page 5 of 38
2013 Performance compared to 2013 Business Outlook
During 2013, we achieved both of our guidance targets:
(cid:120) Revenues in 2013 of $61.3 million were 40% higher than revenues in 2012, exceeding
our 2013 outlook of revenue growth in excess of 30% over 2012 (or at least $56.8
million from $43.7 million in 2012); and
(cid:120) Adjusted EBITDA in 2013 of ($8.2) million improved 63% over 2012, exceeding our
2013 outlook of Adjusted EBITDA improvement in excess of 50% from 2012 (or lower
than ($11.1) million from ($22.1) million in 2012).
RESULTS OF OPERATIONS (from continuing operations) – Fourth Quarter of 2013
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Fuel Cell Products and
Services
Telecom Backup Power
$
Material Handling
Engineering Services
Development Stage
Revenues
Cost of goods sold
2013
5,904
1,968
6,215
3,229
17,316
11,422
$
2012
5,793
1,491
7,070
2,122
16,476
12,789
$ Change
% Change
$
111
477
(855)
1,107
840
2%
32%
(12%)
52%
5%
(1,367)
(11%)
Gross Margin
$
5,894
$
3,687
$
2,207
60%
Gross Margin %
34%
22%
n/a
12 pts
Fuel Cell Products and Services Revenues of $17.3 million for the fourth quarter of 2013
increased 5%, or $0.8 million, compared to the fourth quarter of 2012. The 5% increase
was driven by higher Development Stage, Material Handling, and Telecom Backup Power
revenues, partially offset by a decline in Engineering Services revenues.
Development stage revenues of $3.2 million increased $1.1 million, or 52%, due to
significantly higher Bus revenues as a result of the Azure Bus Licensing Agreement which
more than offset lower shipments in the fourth quarter of 2013 of heavy-duty fuel cell bus
modules primarily to Van Hool NV. Material Handling revenues of $2.0 million increased
$0.5 million, or 32%, as a result of significantly higher shipments in support of Plug Power
Inc.’s GenDrive™ systems. Telecom Backup Power revenues of $5.9 million increased $0.1
million, or 2%, as increased shipments of hydrogen-based backup power stacks and
increased shipments of methanol-based backup power systems more than offset the impact
of a significant decline in shipments of hydrogen-based backup power systems (total
methanol-based and hydrogen-based system shipments were 177 in the fourth quarter of
2013 as compared to 204 systems in the fourth quarter of 2012). Engineering Services
revenues of $6.2 million declined ($0.9) million, or (12%), as services performed in the
fourth quarter of 2013 on the Volkswagen and Azure agreements and other contracts were
lower than amounts performed in the fourth quarter of 2012 on the Anglo American
Platinum Limited project and certain other automotive contracts.
Fuel Cell Products and Services gross margins increased to $5.9 million, or 34% of
revenues, for the fourth quarter of 2013, compared to $3.7 million, or 22% of revenues,
for the fourth quarter of 2012. The overall increase and improvement in gross margin was
driven by the 5% increase in overall revenues, the significant increase in higher margin Bus
revenues which benefited from the Azure Bus Licensing Agreement, and by our ongoing
Page 6 of 38
product cost reduction efforts across all of our platforms. Gross margins in the fourth
quarter of 2013 also benefited from a net downward adjustment to cost of product and
service revenues of $0.5 million as a result of a reduction in accrued warranty obligations
of $1.0 million, net of inventory obsolescence charges of ($0.5) million, both related
primarily to contractual service expirations in the Bus market.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2013
2012
$ Change
% Change
Research and Product
Development (operating cost)
$
2,327
$
3,705
$
(1,378)
General and Administrative
(operating cost)
Sales and Marketing (operating
cost)
Cash Operating Costs
2,223
1,912
1,736
1,892
487
20
$
6,462
$
7,333
$
(871)
(37%)
28%
1%
(12%)
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, acquisition costs and financing charges.
Cash Operating Costs (see Supplemental Non-GAAP Measures) for the fourth quarter of
2013 were $6.5 million, a decline of ($0.9) million, or (12%), compared to the fourth
quarter of 2012. The 12% reduction in the fourth quarter of 2013 was driven primarily by a
decline in research and product development costs as a result of the redirection of
engineering resources to revenue generating engineering service projects, which more than
offset an increased investment in sales and marketing capacity primarily in the Telecom
Backup Power market largely related to the increase in sales personnel associated with the
acquisition of the Idatech assets in August 2012. Labour and material costs incurred on
revenue producing engineering services projects are reallocated from research and product
development expenses to cost of goods sold. After adjusting for an increase in allowance
for doubtful accounts of $0.3 million recorded in the fourth quarter of 2013, general and
administrative costs were effectively flat quarter over quarter.
As a significant amount of our net operating costs (primarily labour) are denominated in
Canadian dollars, operating expenses and Adjusted EBITDA are impacted by changes in the
Canadian dollar relative to the U.S. dollar. As the Canadian dollar relative to the U.S. dollar
was approximately 6% lower for the fourth quarter of 2013 as compared to the fourth
quarter of 2012, positive foreign exchange impacts on our Canadian operating cost base
and Adjusted EBITDA were approximately $0.4 million. A $0.01 decrease in the Canadian
dollar, relative to the U.S. dollar, positively impacts annual Cash Operating Costs and
Adjusted EBITDA by approximately $0.2 million to $0.3 million.
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Adjusted EBITDA
2013
2012
$
171
$
(3,222)
$
$
Change
% Change
3,393
105%
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 2013
was $0.2 million, an improvement of $3.4 million, or 105%, compared to the fourth quarter
of 2012. The $3.4 million reduction in Adjusted EBITDA loss in the fourth quarter of 2013
was driven by gross margin improvements of $2.2 million as a result of the 5% increase in
total revenues and the overall improvement as a percentage of revenue from 22% to 34%,
Page 7 of 38
combined with a reduction in Cash Operating Costs of $0.9 million.
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Net loss attributable to Ballard from
$
(2,274)
$
(17,059)
continuing operations
2013
2012
$
$
Change
% Change
14,785
87%
Net loss attributable to Ballard from continuing operations for the fourth quarter of 2013
was ($2.3) million, or ($0.02) per share, compared to a net loss of ($17.1) million, or
($0.19) per share, in the fourth quarter of 2012. The $14.8 million reduction in net loss for
the fourth quarter of 2013 was driven by the improvement in Adjusted EBITDA of $3.4
million, and by a Fuel Cell Products and Services goodwill impairment charge of ($10.0)
million and an impairment charge of ($0.6) million related to a write-down of
manufacturing equipment both recorded in the fourth quarter of 2012.
Excluding the impact of these impairment charges of ($10.6) million in the fourth quarter of
2012, Normalized Net Loss (see Supplemental Non-GAAP Measures) in the fourth quarter of
2013 improved by $4.4 million, or $0.05 per share, compared to the fourth quarter of
2012.
Net loss attributable to Ballard from continuing operations excludes the net loss attributed
to the non-controlling interests in the losses of Dantherm Power. During the fourth quarters
of 2013 and 2012, we held a 52% equity interest in Dantherm Power. Net loss attributed to
the non-controlling 38% equity interest held by Dantherm Power A/S and the non-
controlling 10% equity interest held by Azure for the fourth quarter of 2013 was ($0.2)
million, as compared to a net loss attributed to non-controlling interests of ($0.5) million
for the fourth quarter of 2012.
Net loss attributable to Ballard from continuing operations also excludes the net loss from
discontinued operations of ($1.3) million for the fourth quarter of 2012. As a result of the
disposition of our Materials Products segment on January 31, 2013, the former Material
Products segment has been classified as a discontinued operation in our 2013 consolidated
financial statements. Net loss from discontinued operations in the fourth quarter of 2012
was negatively impacted by a goodwill impairment charge of ($1.8) million and a write-
down of property, plant and equipment of ($0.5) million.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2013
2012
$
Change
% Change
Cash (used in) provided by operating
$
(872)
$
(535) $
(337)
(63%)
activities
Cash used in operating activities in the fourth quarter of 2013 was ($0.9) million,
consisting of cash operating losses of ($0.3) million and net working capital outflows of
($0.5) million. Cash used in operating activities in the fourth quarter of 2012 was ($0.5)
million, consisting of cash operating losses of ($2.4) million and net working capital inflows
of $1.9 million. The ($0.3) million increase in cash used by operating activities in the fourth
quarter of 2013, as compared to the fourth quarter of 2012, was driven by higher relative
working capital requirements of ($2.4) million which more than offset the relative
improvement in cash operating losses of $2.1 million. The $2.1 million improvement in
cash operating losses was due primarily to the $3.4 million improvement in Adjusted
EBITDA, partially offset by fourth quarter of 2012 cash operating income from discontinued
Page 8 of 38
operations of ($1.2) million.
The total change in working capital of ($0.5) million in the fourth quarter of 2013 was due
primarily to lower accounts payable and accrued liabilities of ($6.9) million as a result of
increased supplier payments made for higher inventory purchases in the first three
quarters of 2013, partially offset by lower accounts receivable of $4.8 million due to
significant customer collections in the quarter, and by lower inventory levels of $1.5
million. This compares to a total change in working capital of $1.9 million in the fourth
quarter of 2012 which was driven by lower inventory of $5.4 million as we consumed
previously built-up or acquired inventory in order to fulfill the higher product shipments in
the fourth quarter of 2012, combined with higher deferred revenue and cost recovery of
$0.9 million. These fourth quarter of 2012 working capital inflows were partially offset by
higher accounts receivable of ($2.5) million due primarily to the timing of shipment versus
collection of our fuel cell product and service revenues, and by lower accounts payable and
accrued liabilities of ($2.6) million due to increased supplier payments made for higher
inventory purchases in the first three quarters of 2012.
RESULTS OF OPERATIONS (from continuing operations) – Year ended December
31, 2013
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Fuel Cell Products and
Services
2013
2012
$ Change
% Change
Telecom Backup Power
$
20,464
$
11,764
$
Material Handling
Engineering Services
Development Stage
Revenues
Cost of goods sold
6,456
21,132
13,199
61,251
44,492
6,161
16,987
8,778
43,690
36,321
Gross Margin
$
16,759
$
7,369
$
8,700
295
4,145
4,421
17,561
8,171
9,390
74%
5%
24%
50%
40%
22%
127%
Gross Margin %
27%
17%
n/a
10 pts
Fuel Cell Products and Services Revenues of $61.3 million for 2013 increased 40%, or
$17.6 million, compared to 2012. The 40% increase was driven by significantly higher
Telecom Backup Power, Development Stage and Engineering Services revenues combined
with a slight increase in Material Handling revenues.
Telecom Backup Power revenues of $20.5 million increased $8.7 million, or 74%, as a
result of higher shipments (796 systems in 2013 as compared to 399 systems in 2012) of
methanol-based and hydrogen-based backup power systems enabled primarily by our
August 2012 acquisition of Idatech’s key assets, combined with a modest increase in
shipments of hydrogen-based backup power stacks. Engineering Services revenues of
$21.1 million increased $4.1 million, or 24%, as services performed in 2013 on the new
Volkswagen and Azure agreements and other contracts were significantly higher than
amounts performed in 2012 on the Anglo American Platinum Limited project and certain
other automotive contracts. Development stage revenues of $13.2 million increased $4.4
million, or 50%, due to significantly higher Bus revenues as a result of the Azure Bus
Licensing Agreement and consistent shipments of heavy-duty fuel cell bus modules
primarily to Van Hool NV, Azure, Sunline Transit Agency and CTTransit. This increase in Bus
revenues in 2013 more than offset a decline in Distributed Generation revenues due
Page 9 of 38
primarily to the completion of the Toyota distributed power CLEARgen™ fuel cell system
project in 2012. Material Handling revenues of $6.5 million increased $0.3 million, or 5%,
as a result of slightly higher shipments in support of Plug Power Inc.’s GenDrive™ systems.
Fuel Cell Products and Services gross margins increased to $16.8 million, or 27% of
revenues for 2013, compared to $7.4 million, or 17% of revenues for 2012. The overall
increase and improvement in gross margin was driven by the 40% increase in overall
revenues, the significant increase in higher margin Engineering Services and higher margin
Bus revenues which benefited from the Azure Bus Licensing Agreement, combined with our
ongoing product cost reduction efforts across all of our platforms. Gross margins in 2013
also benefited from a net downward adjustment to cost of product and service revenues of
$0.7 million as a result of a reduction in accrued warranty obligations of $1.5 million, net of
inventory obsolescence charges of ($0.8) million, both related primarily to contractual
service expirations in the Bus market.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2013
2012
$ Change
% Change
Research and Product
Development (operating cost)
$ 12,592
$
15,719
$
(3,127)
General and Administrative
(operating cost)
Sales and Marketing (operating
cost)
Cash Operating Costs
8,485
7,229
8,106
6,476
379
753
$ 28,306
$
30,301
$
(1,995)
(20%)
5%
12%
(7%)
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, acquisition costs and financing charges.
Cash Operating Costs (see Supplemental Non-GAAP Measures) for 2013 were $28.3 million,
a decline of ($2.0) million, or (7%), compared to 2012. The 7% reduction in 2013 was
driven primarily by lower research and product development costs as a result of the
redirection of engineering resources to revenue generating engineering service projects
combined with lower operating costs across the business as a result of our continued cost
reduction efforts including a 7% workforce reduction initiated in July 2012. Labour and
material costs incurred on revenue producing engineering services projects are reallocated
from research and product development expenses to cost of goods sold. These
improvements more than offset the increased investment in sales and marketing capacity
primarily in the Telecom Backup Power market largely related to the increase in sales
personnel associated with the acquisition of the Idatech assets in August 2012.
As a significant amount of our net operating costs (primarily labour) are denominated in
Canadian dollars, operating expenses and Adjusted EBITDA are impacted by changes in the
Canadian dollar relative to the U.S. dollar. As the Canadian dollar relative to the U.S. dollar
was approximately 3% lower for 2013 as compared 2012, positive foreign exchange
impacts on our Canadian operating cost base and Adjusted EBITDA were approximately
$0.7 million. A $0.01 decrease in the Canadian dollar, relative to the U.S. dollar, positively
impacts annual Cash Operating Costs and Adjusted EBITDA by approximately $0.2 million
to $0.3 million.
Page 10 of 38
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Adjusted EBITDA
2013
2012
$
(8,188)
$
(22,076)
$
$
Change
% Change
13,888
63%
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 2013 was ($8.2) million, an
improvement of $13.9 million, or 63%, compared to 2012. The $13.9 million reduction in
Adjusted EBITDA loss in 2013 was driven by gross margin improvements of $9.4 million as
a result of the 40% increase in total revenues and the overall improvement as a
percentage of revenue from 17% to 27%, combined with the reduction in Cash Operating
Costs of $2.0 million. Adjusted EBITDA in 2012 was also negatively impacted by
restructuring charges of ($1.9) million related to a 7% workforce adjustment initiated in
July 2012 and a minor restructuring focused on manufacturing overhead cost reduction
initiated in April 2012.
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Net loss attributable to Ballard from
$
(19,988)
$
(42,320)
continuing operations
2013
2012
$
$
Change
% Change
22,332
53%
Net loss attributable to Ballard from continuing operations for 2013 was ($20.0) million, or
($0.20) per share, compared to a net loss of ($42.3) million, or ($0.48) per share, in 2012.
The $22.3 million reduction in net loss in 2013 was driven by the improvement in Adjusted
EBITDA of $13.8 million, partially offset by higher stock-based compensation of ($1.2)
million as a result of a downward adjustment to accrued stock-based compensation in
2012, and by a ($1.2) million charge to Finance income (loss) as a result of the settlement
of the TPC obligation. On settlement with TPC on January 15, 2013, we recorded a charge
of ($1.2) million to Finance income (loss) representing the excess of the settlement amount
of $1.9 million over royalty amounts accrued as of the date of settlement of $0.7 million.
Net loss in 2013 was also negatively impacted by impairment charges of ($0.5) million as
we wrote-down our non-core investment in Chrysalix Energy Limited Partnership from $0.7
million to its estimated net realizable value of $0.2 million. Net loss in 2012 was also
negatively impacted by a Fuel Cells Products and Services goodwill impairment charge of
($10.0) million and an impairment charge of ($0.6) million related to a write-down of
manufacturing equipment.
Excluding the impact of the TPC settlement charge of ($1.2) million and the Chrysalix
impairment charge of ($0.5) million in 2013, and the impairment charges of ($10.6) million
in 2012, Normalized Net Loss (see Supplemental Non-GAAP Measures) in 2013 improved
$13.5 million, or $0.18 per share, as compared to 2012.
Net loss attributable to Ballard from continuing operations excludes the net loss attributed
to the non-controlling interests in the losses of Dantherm Power. During the first quarter of
2013, we held a 57% equity interest in Dantherm Power as compared to a 52% equity
interest held in the last three quarters of 2013 and throughout 2012. As a result of the
Azure investment in Dantherm Power on March 31, 2013, we now hold a 52% equity
interest in Dantherm Power as compared to the non-controlling 38% equity interest held by
Dantherm Power A/S and the non-controlling 10% equity interest held by Azure. Net loss
attributed to non-controlling interests for 2013 was ($1.7) million, as compared to ($1.3)
Page 11 of 38
million for 2012. The increased loss at Dantherm Power in 2013 is primarily a result of a
decline in higher margin engineering services revenues in 2013.
Net loss attributable to Ballard from continuing operations also excludes the net loss from
discontinued operations of ($0.1) million for 2012. As a result of the disposition of our
Materials Products segment on January 31, 2013, the former Material Products segment
has been classified as a discontinued operation in our 2013 consolidated financial
statements. Net loss from discontinued operations in 2012 includes a goodwill impairment
charge of ($1.8) million and a write-down of property, plant and equipment of ($0.5)
million.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2013
2012
$
Change
% Change
Cash (used in) provided by operating
$
(17,416)
$
(28,146) $
10,730
38%
activities
Cash used by operating activities in 2013 was ($17.4) million, consisting of cash operating
losses of ($12.1) million and net working capital outflows of ($5.3) million. Cash used in
operating activities in 2012 was ($28.1) million, consisting of cash operating losses of
($22.2) million and net working capital outflows of ($5.9) million. The $10.7 million
reduction in cash used by operating activities in 2013, as compared to 2012, was driven by
the relative improvement in cash operating losses of $10.1 million combined with the
reduction in working capital requirements of $0.6 million. The $10.1 million improvement in
cash operating losses was due primarily to the $13.8 million improvement in Adjusted
EBITDA, partially offset by 2012 cash operating income from discontinued operations of
($3.2) million.
The total change in working capital of ($5.3) million in 2013 was driven by lower accounts
payable and accrued liabilities of ($4.9) million as a result of increased supplier payments
made for higher inventory purchases in the fourth quarter of 2012 and in 2013, and by
higher inventory of ($2.8) million due to the build of inventory to support expected higher
product shipments in 2014. These 2013 working capital outflows were partially offset by
lower accounts receivable of $1.3 million primarily as a result of the timing of Bus and
Telecom Backup Power revenues and the related customer collections, and by higher
deferred revenue of $2.5 million as we received Engineering Services and SDTC
government grant receipts in advance of incurring the related contract work. This compares
to a total change in working capital of ($5.9) million in 2012 which was driven primarily by
lower accounts payable and accrued liabilities of ($10.5) million due to increased supplier
payments made for higher inventory purchases in the fourth quarter of 2011 and in the
first three quarters of 2012 combined with the payment of accrued 2011 annual employee
bonuses, partially offset by lower inventory of $4.4 million as we consumed previously
built-up or acquired inventory in order to fulfill the higher product shipments in the fourth
quarter of 2012.
Page 12 of 38
RESULTS OF DISCONTINUED OPERATIONS – 2013 and 2012
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Revenues
$
Cost of goods sold
Gross margin
Operating expenses
Impairment (charge)
recovery on property,
plant and equipment
Impairment (charge) on
goodwill
Income taxes
Net earnings (loss)
from discontinued
operations
Net earnings (loss)
from discontinued
operations excluding
impairment charges
$
$
2013
-
-
-
-
-
-
-
-
-
$
$
$
$ Change
% Change
2012
4,783
3,265
1,518
(495)
(500)
(1,815)
(7)
$
(4,783)
(3,265)
(1,518)
495
500
1,815
7
(1,299)
$
1,299
(100%)
(100%)
(100%)
100%
100%
100%
100%
100%
1,016
$
(1,016)
(100%)
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Revenues
$
Cost of goods sold
Gross margin
Operating expenses
Impairment (charge)
recovery on property,
plant and equipment
Impairment (charge) on
goodwill
Income taxes
Net earnings (loss)
from discontinued
operations
Net earnings (loss)
from discontinued
operations excluding
impairment charges
$
$
2013
867
627
240
(252)
45
-
(9)
24
2012
$ Change
% Change
$
15,540
$
(14,673)
11,159
4,381
(2,053)
(500)
(1,815)
(78)
$
(65)
$
(10,532)
(4,141)
1,801
545
1,815
69
89
(94%)
(94%)
(95%)
88%
109%
100%
88%
137%
(21)
$
2,250
$
(2,271)
(101%)
As a result of the disposition of our Materials Products segment on January 31, 2013, the
former Material Products segment has been classified as a discontinued operation in our
2013 and 2012 consolidated financial statements. As such, the operating results of the
former Material Products segment for the month of January 2013 and for 2012 have been
removed from our results from continuing operations and are instead presented separately
in the statement of comprehensive income as income from discontinued operations. The
former Materials Product segment sold carbon fiber products primarily for automotive
transmissions, and GDL’s for fuel cells.
Impairment charges in 2012 were determined based on a fair value less costs to sell
assessment which compared the segment’s carrying value at December 31, 2012 to the
actual net proceeds received on disposition on January 31, 2013. As a result of this
assessment, we recorded charges against income from discontinued operations in the
fourth quarter of 2012 of ($1.8) million related to a write-off of Material Products goodwill
and ($0.5) million related to a write-down of property, plant and equipment.
Page 13 of 38
OPERATING EXPENSES AND OTHER ITEMS FROM CONTINUING OPERATIONS
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
Less: Stock-based compensation expense
Research and product development (operating
cost)
(Expressed in thousands of U.S. dollars)
Research and product development
Research and product development expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
Research and product development (operating
cost)
Three months ended December 31,
2013
3,589
(967)
(295)
2,327
2013
17,117
(3,286)
(1,239)
12,592
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
4,677
(449)
(523)
3,705
$
$
$
$
$
Change
% Change
(1088)
(518)
228
(1,378)
(23%)
(115%)
44%
(37%)
Year ended December 31,
2012
19,273
(2,593)
(961)
15,719
$
$
$
$
$
Change
% Change
(2,156)
(693)
(278)
(3,127)
(11%)
(27%)
(29%)
(20%)
Research and product development expenses for the three months ended December
31, 2013 were $3.6 million, a decrease of ($1.1) million, or (23%), compared to the
corresponding period of 2012. Excluding depreciation and amortization expense of ($1.0)
million and ($0.4) million, respectively, and excluding stock-based compensation expense
of ($0.3) million and ($0.5) million, respectively, in each of the periods, research and
product development costs were $2.3 million, a decline of ($1.4) million, or (37%),
compared to the fourth quarter of 2012.
Research and product development expenses for the year ended December 31, 2013 were
$17.1 million, a decrease of ($2.2) million, or (11%), compared to 2012. Excluding
depreciation and amortization expense of ($3.3) million and ($2.6) million, respectively,
and excluding stock-based compensation expense of ($1.2) million and ($1.0) million,
respectively, in each of the periods, research and product development costs were $12.6
million, a decline of ($3.1) million, or (20%), compared to 2012.
The respective 37% and 20% reductions in the fourth quarter of 2013 and the year ended
December 31, 2013 were primarily as a result of the redirection of engineering labour
resources to revenue generating engineering service projects, by the receipt of government
funding for certain of our research and product development efforts, by lower operating
costs across the business due to our continued cost reduction efforts including a 7%
workforce reduction initiated in July 2012, and by lower labour costs in 2013 as a result of
a slightly lower Canadian dollar relative to the U.S. dollar and the resulting positive impact
on our Canadian operating cost base. These cost reductions in 2013 more than offset the
impact of a downward adjustment to accrued cash-based compensation expense recorded
in 2012 as a result of under performing against our 2012 corporate performance targets.
Government research funding is reflected as a cost offset to research and product
development expenses, whereas labour and material costs incurred on revenue producing
engineering services projects are reallocated from research and product development
expenses to cost of goods sold.
Page 14 of 38
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 charges
Less: Acquisition and integration costs
Less: Financing charges
Less: Stock-based compensation expense
General and administrative (operating cost)
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Restructuring charges
Less: Acquisition and integration costs
Less: Financing charges
Less: Stock-based compensation expense
General and administrative (operating cost)
2013
2,993
(42)
(43)
-
-
(685)
2,223
2013
11,413
(177)
(568)
(78)
-
(2,105)
8,485
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended December 31,
2012
3,236
(55)
-
(91)
(564)
(790)
$
$
$
$
$
$
$
1,736
$
Change
% Change
(243)
13
(43)
91
564
105
487
(8%)
24%
(100%)
100%
100%
13%
28%
Year ended December 31,
2012
12,306
(235)
(1,931)
(274)
(564)
(1,196)
$
$
$
$
$
$
$
8,106
$
Change
% Change
(893)
58
1,363
196
564
(909)
379
(7%)
25%
71%
72%
100%
(76%)
5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
General and administrative expenses for the three months ended December 31, 2013
were $3.0 million, a decrease of ($0.2) million, or (8%), compared to the corresponding
period of 2012. Excluding relatively insignificant depreciation and amortization expense,
restructuring charges and acquisition costs, and excluding stock-based compensation
expense of ($0.7) million and ($0.8) million, respectively, in each of the periods, and
financing charges of ($0.6) million in the fourth quarter of 2012 related to withdrawn
financing efforts, general and administrative costs were $2.2 million, an increase of $0.5
million, or 28%, compared to the fourth quarter of 2012.
General and administrative expenses for the year ended December 31, 2013 were $11.4
million, a decrease of ($0.9) million, or (7%), compared to the corresponding period of
2012. Excluding relatively insignificant depreciation and amortization expense and
acquisition and integration costs, and excluding restructuring charges of ($0.6) million and
($1.9) million, respectively, in each of the periods, stock-based compensation expense of
($2.1) million and ($1.2) million, respectively, in each of the periods, and financing charges
of ($0.6) million in the fourth quarter of 2012 related to withdrawn financing efforts,
general and administrative costs were $8.5 million, an increase of $0.4 million, or 5%,
compared to 2012.
The respective 28% and 5% increases in the fourth quarter of 2013 and the year ended
December 31, 2013 were primarily as a result of a downward adjustment to accrued cash-
based compensation expense recorded in 2012 and higher one-time legal expenses
(approximately $0.3 million) incurred in the first quarter of 2013 related to the Volkswagen
contract and the TPC settlement. These cost pressures in 2013 more than offset the benefit
of our continued cost reduction efforts across the business including a 7% workforce
reduction initiated in July 2012 and lower labour costs in 2013 as a result of a slightly lower
Canadian dollar relative to the U.S. dollar and the resulting positive impact on our Canadian
operating cost base. General and administrative costs also include impairment losses on
trade receivables of ($0.3) million and ($0.2) million, respectively, in 2013 and 2012.
The increase in stock-based compensation expense in 2013 was due primarily to a
downward adjustment to accrued stock-based compensation in 2012 as certain outstanding
Page 15 of 38
restricted share units ultimately failed to meet the vesting criteria in 2012 and were
eventually cancelled in 2012.
Restructuring charges of ($0.6) million in 2013 relate primarily to minor restructurings
focused on overhead cost reduction. Restructuring charges of ($1.9) million in 2012 relate
primarily to the 7% workforce reduction initiated in July 2012 and a minor restructuring
focused on manufacturing overhead cost reduction initiated in April 2012. Acquisition and
integration costs of ($0.3) million in 2012 relate to the Idatech acquisition.
Sales and marketing expenses
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: Stock-based compensation expense
Sales and marketing (operating cost)
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: Stock-based compensation expense
Sales and marketing (operating cost)
Three months ended December 31,
2013
1,934
(22)
1,912
2013
7,661
(431)
7,230
$
$
$
$
$
$
$
$
$
$
$
$
2012
2,134
(242)
1,892
$
$
$
$
Change
% Change
(200)
220
20
(9%)
91%
1%
Year ended December 31,
2012
6,901
(425)
6,476
$
$
$
$
Change
% Change
759
(6)
753
11%
(1%)
12%
Sales and marketing expenses for the three months ended December 31, 2013 were
$1.9 million, a decrease of ($0.2) million, or (9%), compared to the corresponding period
of 2012. Excluding stock-based compensation expense of nil and ($0.2) million in each of
the periods, sales and marketing costs were $1.9 million, an increase of nil million, or 1%,
compared to the fourth quarter of 2012.
Sales and marketing expenses for the year ended December 31, 2013 were $7.7 million, an
increase of $0.8 million, or 11%, compared to the corresponding period of 2012. Excluding
stock-based compensation expense of ($0.4) million in each of the periods, sales and
marketing costs were $7.2 million, an increase of $0.8 million, or 12%, compared to 2012.
The respective 1% and 12% increases in the fourth quarter of 2013 and the year ended
December 31, 2013 were primarily as a result of increased investment in sales and
marketing capacity primarily in the Telecom Backup Power market largely related to the
increase in sales personnel associated with the acquisition of the Idatech assets in August
2012.
Finance income (loss) and other for the three months and year ended December 31,
2013 was $0.5 million and $0.2 million, respectively, compared to ($0.1) million and ($0.2)
million, respectively, for the corresponding periods of 2012. The following tables provide a
breakdown of our finance and other income (loss) for the reported periods:
Page 16 of 38
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2013
2012
$ Change
% Change
Employee future benefit plan expense
$
(92)
$
(279)
$
187
Investment and other income
Foreign exchange gain (loss)
Finance income (loss) and other
$
54
584
546
48
148
$
(83)
$
6
436
629
67%
13%
294%
758%
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2013
2012
$ Change
% Change
Employee future benefit plan expense
$
(282)
$
(279)
$
(3)
(1%)
Settlement of TPC funding obligation
Investment and other income
Foreign exchange gain (loss)
(1,197)
141
1,553
-
238
(178)
(1,197)
(97)
1,731
Finance income (loss) and other
$
215
$
(219)
$
434
(100%)
(41%)
972%
198%
Employee future benefit plan expense for the three months and year ended December 31,
2013 were ($0.1) million and ($0.3) million, respectively, compared to ($0.3) million for
each of the corresponding periods of 2012. Employee future benefit plan expense primarily
represents the excess of expected interest cost on plan obligations in excess of the
expected return on plan assets related to a curtailed defined benefit pension plan for our
current and former United States employees.
Settlement expense related to the TPC funding obligation of ($1.2) million recorded in 2013
represents the excess of the settlement amount of $1.9 million over royalty amounts
accrued as of the date of settlement of $0.7 million. On January 15, 2013, we reached an
agreement with Technology Partnerships Canada (“TPC”) to terminate all existing and
future potential royalties payable in respect of future sales of fuel cell based stationary
power products under the Utilities Development Program (Phase 2) in exchange for a final
repayment to TPC of $1.9 million Canadian.
Foreign exchange gains for the three months and year ended December 31, 2013 were
$0.6 million and $1.6 million, respectively, compared to nominal amounts for the
corresponding periods of 2012. Foreign exchange gains and losses are attributable
primarily 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. Foreign exchange
gains and losses are also impacted by the conversion of Dantherm Power’s assets and
liabilities from the Danish Kroner to the U.S. dollar at exchange rates in effect at each
reporting date. Foreign exchange gains in 2013 arose primarily as a result of the
approximate 6% decline in the Canadian dollar, relative to the U.S. dollar, and its impact
on our net Canadian dollar-denominated net liability position. Foreign exchange gains
(losses) in 2012 were nominal as the Canadian dollar, relative to the U.S. dollar, was
relatively stable over 2012.
Investment and other income for the three nine months and years ended December 31,
2013 and 2012 were nominal and were earned primarily on our cash, cash equivalents and
short-term investments.
Finance expense for the three months and year ended December 31, 2013 was ($0.3)
million and ($1.5) million, respectively, compared to ($0.5) million and ($1.7) million,
respectively, for the corresponding periods of 2012. Finance expense relates primarily to
the sale and leaseback of our head office building in Burnaby, British Columbia which was
completed on March 9, 2010. Due to the long term nature of the lease, the leaseback of
Page 17 of 38
the building qualifies as a finance (or capital) lease.
Impairment loss on property, plant and equipment for the three months and year
ended December 31, 2012 was ($0.6) million and relate to a write-down of manufacturing
equipment never put into use.
Impairment loss on goodwill for the three months and year ended December 31, 2012
was ($10.0) million and consists of an impairment charge related to our Fuel Cell Products
segment.
Impairment loss on investment for the three months and year ended December 31,
2013 was ($0.2) million and ($0.5) million, respectively, and consists of an impairment
charge related to our non-core investment in Chrysalix Energy Limited Partnership which
was written down from $0.7 million over the year to its estimated net realizable value of
$0.2 million.
Net loss attributed to Dantherm Power non-controlling interests for the three
months and year ended December 31, 2013 was ($0.2) million and ($1.7) million,
respectively, compared to ($0.5) million and ($1.3) million, respectively, for the
corresponding periods of 2012. Amounts primarily represent the non-controlling interest of
Dantherm A/S and Azure in the losses of Dantherm Power as a result of their 43% total
equity interest in the first quarter of 2013 and their 48% total equity interest in the last
three quarters of 2013 and throughout 2012. The decline in performance at Dantherm
Power in 2013 as compared to 2012 is primarily a result of a decline in higher margin
engineering services revenues in 2013.
SUMMARY OF QUARTERLY RESULTS FROM CONTINUING OPERATIONS
The following table provides summary financial data for our last eight quarters from
continuing operations:
(Expressed in thousands of U.S. dollars, except per share amounts
and weighted average shares outstanding which are expressed in
thousands)
Quarter ended,
Revenues from continuing operations
Net income (loss) attributable to Ballard from
continuing operations
Net income (loss) per share attributable to
Ballard from continuing operations, basic and
diluted
Dec 31,
2013
17,316
(2,274)
(0.02)
$
$
$
$
$
$
Sep 30,
2013
17,003
(4,574)
(0.05)
$
$
$
Jun 30,
2013
14,597
(5,203)
(0.05)
$
$
$
Mar 31,
2013
12,335
(7,936)
(0.09)
Weighted average common shares outstanding
109,113
99,364
99,233
92,233
Revenues
Net income (loss) attributable to Ballard
Net income (loss) per share attributable to
Ballard from continuing operations, basic and
diluted
Dec 31,
2012
16,476
(16,809)
(0.18)
$
$
$
$
$
$
Sep 30,
2012
10,311
(9,185)
(0.10)
$
$
$
Jun 30,
2012
6,824
(7,416)
(0.09)
$
$
$
Mar 31,
2012
10,078
(8,660)
(0.10)
Weighted average common shares outstanding
91,801
89,269
84,621
84,566
Summary of Quarterly Results: There were no significant seasonal variations in our
quarterly results from continuing operations. Variations in our net loss for the above
periods were affected primarily by the following factors:
(cid:120) Revenues: Variations in fuel cell revenues reflect the demand and timing of our
customers’ fuel cell vehicle, bus and fuel cell product deployments as well as the
demand and timing of their engineering services projects. Variations in fuel cell
Page 18 of 38
revenues also reflect the timing of work performed and the achievements of milestones
under long-term fixed price contracts including our contract with Volkswagen which
commenced in the first quarter of 2013 and our Azure Bus Licensing Agreement which
commenced in the third quarter of 2013. Revenues were also positively impacted in
2013 and in the third and fourth quarters of 2012 as a result of our acquisition of
Idatech’s key assets and product lines as of August 1, 2012.
(cid:120) Operating expenditures: Operating expenses were negatively
impacted by
restructuring charges of ($1.6) million in the third quarter of 2012 as a result of a 7%
workforce reduction. Restructuring charges are recognized in general and administrative
expense. 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.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Finance income (loss): The net loss for the first quarter of 2013 was negatively
impacted by a charge of ($1.2) million related to the settlement of a TPC funding
obligation.
Impairment loss on property, plant and equipment: The net loss for the fourth
quarter of 2012 was negatively impacted by an impairment charge of ($0.6) million
related to the write-down of manufacturing equipment never put into use.
Impairment loss on investment: The net loss for the second quarter of 2013 was
negatively impacted by an impairment charge of ($0.4) million related to a write-down
of our non-core investment in Chrysalix Energy Limited Partnership.
Impairment loss on goodwill: The net loss for the fourth quarter of 2012 was
negatively impacted by an impairment charge of ($10.0) million related to a write-down
of goodwill in our Fuel Cell Products segment.
CASH FLOWS
Cash, cash equivalents and short-term investments were $30.3 million (or $30.3 million net
of Operating Facility draws of nil) at December 31, 2013, compared to $21.8 million (or
$12.5 million net of Operating Facility draws of $9.4 million) at December 31, 2012. The
$8.5 million increase in cash, cash equivalents and short-term investments in 2013 was
driven by March and October Offering net proceeds of $20.0 million, net proceeds on sale
of the Material Products segment of $9.1 million, Anglo Note financing of $4.0 million, and
the Azure investment in Dantherm Power of $2.0 million. These inflows were partially offset
by a net loss (excluding non-cash items) of ($12.0) million, by net working capital
requirements of ($5.4) million, and by net repayments against the Operating Facility of
($8.8) million.
For the three months ended December 31, 2013, cash used by operating activities was
($0.9) million, consisting of cash operating losses of ($0.3) million and net working capital
outflows of ($0.5) million. For the three months ended December 31, 2012, cash used by
operating activities was ($0.5) million, consisting of cash operating losses of ($2.4) million
and net working capital inflows of $1.9 million. The ($0.3) million increase in cash used by
operating activities in the fourth quarter of 2013, as compared to the fourth quarter of
2012, was driven primarily by higher relative working capital requirements of ($2.4) million
which more than offset lower cash operating losses of $2.1 million. The $2.1 million
improvement in cash operating losses was due primarily to the $3.4 million improvement in
Adjusted EBITDA, partially offset by fourth quarter of 2012 cash operating income from
discontinued operations of ($1.2) million. In the fourth quarter of 2013, net working capital
cash outflows of ($0.5) million was due primarily to lower accounts payable and accrued
Page 19 of 38
liabilities of ($6.9) million as a result of increased supplier payments made for higher
inventory purchases in the first three quarter of 2013, partially offset by lower accounts
receivable of $4.8 million due to significant customer collections in the quarter, and by
lower inventory levels of $1.5 million. Working capital inflows of $1.9 million in the fourth
quarter of 2012 were driven by lower inventory of $5.4 million as we consumed previously
built-up or acquired inventory in order to fulfill the higher product shipments in the fourth
quarter of 2012, combined with higher deferred revenue and cost recovery of $0.9 million.
These fourth quarter of 2012 working capital inflows were partially offset by higher
accounts receivable of ($2.5) million due primarily to the timing of shipment versus
collection of our fuel cell product and service revenues, and by lower accounts payable and
accrued liabilities of ($2.6) million due to increased supplier payments made for higher
inventory purchases in the first three quarters of 2012.
For the year ended December 31, 2013, cash used by operating activities was ($17.4)
million, consisting of cash operating losses of ($12.0) million and net working capital
outflows of ($5.4) million. For the year ended December 31, 2012, cash used by operating
activities was ($28.1) million, consisting of cash operating losses of ($22.2) million and net
working capital outflows of ($5.9) million. The $10.7 million reduction in cash used by
operating activities in 2013, as compared to 2012, was driven by the relative improvement
in cash operating losses of $10.1 million combined with the reduction in working capital
requirements of $0.6 million. The $10.1 million improvement in cash operating losses was
due primarily to the $13.9 million improvement in Adjusted EBITDA, partially offset by
2012 cash operating income from discontinued operations of ($3.2) million. In 2013, net
working capital outflows of ($5.4) million in 2013 was driven by lower accounts payable
and accrued liabilities of ($5.0) million as a result of increased supplier payments made for
higher inventory purchases in the fourth quarter of 2012 and in 2013, and by higher
inventory of ($2.9) million due to the buildup of inventory to support expected higher
product shipments in 2014. These 2013 working capital outflows were partially offset by
lower accounts receivable of $1.9 million primarily as a result of the timing of Bus and
Telecom Backup Power revenues and the related customer collections, and by higher
deferred revenue of $2.4 million as we received Engineering Services and SDTC
government grant receipts in advance of incurring the related contract work. Working
capital outflows of ($5.9) million in 2012 was driven primarily by lower accounts payable
and accrued liabilities of ($10.5) million due to increased supplier payments made for
higher inventory purchases in the fourth quarter of 2011 and in the first three quarters of
2012 combined with the payment of accrued 2011 annual employee bonuses, partially
offset by lower inventory of $4.4 million as we consumed previously built-up or acquired
inventory in order to fulfill the higher product shipments in the fourth quarter of 2012.
Investing activities resulted in cash outflows of ($0.1) million and inflows of $20.9 million,
respectively, for the three and twelve months ended December 31, 2013, compared to cash
inflows of $0.4 million and $13.0 million for the corresponding periods of 2012. Changes in
short-term investments resulted in cash inflows of nil and $12.1 million, respectively, for
the three and twelve month periods ended December 31, 2013, compared to cash inflows
of $0.6 million and $13.8 million, respectively, for the corresponding periods of 2012.
Balances change 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 2013 consist primarily of net proceeds of $9.1 million received
from the disposition of the former Material Products segment. Other investing activities in
Page 20 of 38
2012 consist primarily of proceeds on sale of $0.4 million for previously impaired
manufacturing equipment, less capital expenditures of ($1.2) million.
Financing activities resulted in cash inflows of $10.5 million and $16.9 million, respectively,
for the three and twelve months ended December 31, 2013, compared to cash outflows of
($0.4) million and inflows of $4.6 million, respectively, for the corresponding periods of
2012. Financing activities in 2013 include net October Offering proceeds of $13.1 million,
net March Offering proceeds of $6.8 million, Anglo Note financing of $4.0 million, and
proceeds related to the Azure investment in Dantherm Power of $2.0 million. These
financing cash inflows in 2013 were partially offset by the full repayment of ($9.1) million
against our Operating Facility which was used to assist with the financing of our working
capital requirements and by finance lease payments of ($1.0) million. Financing activities in
2012 primarily represent advances, net of repayments, of $4.8 million on our Operating
Facility. Financing activities in 2012 also include proceeds on convertible debenture
financing from the Dantherm Power non-controlling interests to Dantherm Power of $0.9
million, partially offset by finance lease payments of ($1.0) million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2013, we had total Liquidity of $30.3 million. We measure Liquidity as our
net cash position, consisting of the sum of our cash, cash equivalents and short-term
investments of $30.3 million, net of amounts drawn on our $10 million Canadian demand
revolving facility (“Operating Facility”) of nil. The Operating Facility is occasionally 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 $2.3 million Canadian capital leasing facility (“Leasing Facility”) which is
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,
2013, $1.8 million was outstanding on the Leasing Facility.
Our Liquidity objective is to maintain cash balances sufficient to fund at least six quarters
of forecasted cash used by operating activities at all times. Our strategy to attain this
objective is to continue our drive to attain profitable operations that are sustainable by
executing a business plan that continues to focus on Fuel Cell Products and Services
revenue growth, improving overall gross margins, minimizing Cash Operating Costs,
managing working capital requirements, and securing additional financing to fund our
operations as needed until we do achieve profitable operations that are sustainable. As a
result of our recent actions to bolster our cash balances including the disposition of the
Material Products division, the March and October equity Offerings, and the issuance of the
Anglo Note, we believe that we have adequate liquidity in cash and working capital to meet
this Liquidity objective and to finance our operations.
Failure to achieve or maintain this Liquidity objective will have a material adverse effect on
our financial condition and results of operations including our ability to continue as a going
concern. There are also various risks and uncertainties affecting our ability to achieve this
Liquidity objective including, but not limited to, the market acceptance and rate of
commercialization of our products, the ability to successfully execute our business plan,
and general global economic conditions, certain of which are beyond our control. While we
continue to make significant investments in product development and market development
activities necessary to commercialize our products, and make increased investments in
working capital as we grow our business, our actual liquidity requirements will also vary
and will be impacted by our relationships with our lead customers and strategic partners,
Page 21 of 38
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 operating expense and working capital requirements, foreign exchange
fluctuations, and the progress and results of our research, development and demonstration
programs.
In addition to our existing cash reserves of $30.3 million at December 31, 2013, there are
7.275 million warrants outstanding (expire March 27, 2018) from the March Offering each
of which enables the holder to purchase one common share at a fixed price of $1.50 per
common share, and 2.588 million warrants outstanding (expire October 9, 2018) from the
October Offering each of which enable the holder to purchase one common share at a fixed
price of $2.00 per common share. If any of these warrants are exercised, our liquidity
position would be further augmented. We may also choose to pursue additional liquidity
through the issuance of debt or equity in private or public market financings. To enable
such an action and to allow the exercise of warrants, we filed a short form base shelf
prospectus (“Prospectus”) in April 2012 in each of the provinces and territories of Canada,
except Quebec, and a corresponding shelf registration statement on Form F-10
(“Registration Statement”) with the United States Securities and Exchange Commission.
These filings enable offerings of equity securities during the effective period (to May 2014)
of the Prospectus and Registration Statements. However, no assurance can be given that
any such additional liquidity will be available or that, if available, it can be obtained on
terms favorable to the Company.
2014 BUSINESS OUTLOOK
We expect the positive growth trends in 2012 and 2013 to continue in 2014 with a similar
trajectory as we continue to pursue our growth strategy for fuel cell product sales,
engineering services and intellectual property licensing. For 2014, we expect:
(cid:120) Revenue growth of approximately 30% (over 2013 revenue of $61.3 million); and
(cid:120) Approximately break-even Adjusted EBITDA (from ($8.2) million in 2013).
Consistent with the past couple of years, we expect a majority of our 2014 revenue to be
realized in the second half of the year. Our revenue outlook for 2014 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 2014, sales orders received for
units and services to be delivered in 2014, and an estimate with respect to the generation
of new sales in each of our markets for the balance of 2014. Our 2014 business revenue
outlook is also supported by our 12-month order book of $43.5 million at December 31,
2013 ($36.8 million at December 31, 2012). The primary risk factors that could cause us to
miss our revenue guidance for 2014 are Azure not fulfilling its obligations under the Azure
Bus Licensing Agreement and other purchase commitments, delays from forecast in terms
of closing and delivering expected sales primarily in our Telecom Backup Power market,
and potential disruptions in the Material Handling market as a result of our reliance on a
single customer in this market.
The key drivers for the expected improvement in Adjusted EBITDA for 2014 are expected
increases in gross margins driven primarily by the above noted 30% increase in expected
overall revenues combined with a continued shift to higher-margin Engineering Services
and intellectual property licensing revenues, supported by continued operating expense
optimization and a resulting reduction in Cash Operating Costs to the low to mid-$20
million range in 2014 from $28.3 million in 2013. Consistent with the expectation that a
majority of our 2014 revenue will fall in the last half of the year, Adjusted EBITDA is
Page 22 of 38
expected to be improved in the last half of 2014, as compared to the first half of 2014.
Our Adjusted EBITDA outlook for 2014 is based on our internal Adjusted EBITDA forecast
and takes into account our actual results for the first two months of 2014, 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 in the low 90’s in
relation to the Canadian dollar for 2014. The primary risk factors that could cause us to
miss our target Adjusted EBITDA outlook for 2014 is lower than expected gross margins
due to (i) Azure not fulfilling its obligations under the Azure Bus Licensing Agreement and
other purchase commitments, unexpected delays in terms of closing and delivering
expected sales orders primarily in our Telecom Backup Power market, or lower revenues
from forecast due to potential disruptions in the Material Handling market as a result of our
reliance on a single customer in this market; (ii) shifts in product and service 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) lower
than anticipated labour-based engineering services revenues or government cost
recoveries, or increased product development costs due to unexpected cost overruns; or
(ii) negative foreign exchange impacts due to a higher than expected Canadian dollar which
impacts the cost of our Canadian dollar denominated operating expense base (primarily
labour). A $0.01 decrease in the Canadian dollar, relative to the U.S. dollar, positively
impacts annual Cash Operating Costs and Adjusted EBITDA by approximately $0.2 million
to $0.3 million.
Similar to prior years and consistent with our revenue, Cash Operating Cost and Adjusted
EBITDA performance expectations for 2014 and the resulting expected impacts on gross
margin and working capital, we expect cash use in 2014 to be higher in the first half of
2014, as compared to the second half of 2014. Cash use in the first half of 2014 is
expected to be negatively impacted by the payout of annual 2013 employee bonuses, the
buildup of inventory to support higher product shipments in the last half of the year, and by
the timing of revenues and the related customer collections which are also expected to be
skewed towards the last half of the year. Our cash usage expectations for 2014 is based on
our internal net cash forecast and takes into account our actual results for the first two
months of 2014 and our forecasted net cash requirements for the balance of the year as a
result of the above noted Adjusted EBITDA forecast and our expectations for working
capital requirements, capital expenditures, and other investing, and financing activities for
the year. The primary risk factors that could cause us to miss our cash flow from
operations expectations for 2014 are lower than expected Adjusted EBITDA performance as
a result of the occurrence of any or all of the above noted risk factors, and increased
working capital requirements primarily as a result of (i) higher than anticipated accounts
receivable due to delays in the timing of revenues and the related customer collections, (ii)
unexpected changes in the timing and amount of expected government grants and the
related contract payments; (iii) unexpected changes in the timing and mix of supplier
purchases and payments; and (iv) increased inventory levels due to unexpected changes in
the timing and mix of expected product shipments.
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
Page 23 of 38
if formally designated and qualified under hedge accounting criteria; or (ii) recorded in our
statement of operations if either not designated, or not qualified, under hedge accounting
criteria. At December 31, 2013, we did not have any outstanding foreign exchange
currency contracts or outstanding platinum forward purchase contracts.
At December 31, 2013, 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.
At December 31, 2013, we had the following contractual obligations and commercial
commitments:
(Expressed in thousands of U.S. dollars)
Contractual Obligations
Total
Payments due by period,
1-3 years
3-5 years
Less than
one year
After 5
years
Operating leases
Capital leases
Asset retirement obligations
$
18,114 $
2,566 $
5,262 $
5,161 $
5,125
17,318
5,955
2,179
3,413
2,621
-
-
-
9,105
5,955
Total contractual obligations
$
41,387 $
4,745 $
8,675 $
7,782 $
20,185
In addition, we have outstanding commitments of nil related primarily to purchases of
capital assets at December 31, 2013. Capital expenditures pertain to our regular operations
and are expected to be funded through cash on hand. Furthermore, we have issued
irrevocable bank guarantees totaling $0.6 million at December 31, 2013 related to
equipment prepayments received that expire in June 2014.
Prior to January 15, 2013, we also had previous funding obligations that were repayable
through potential royalties in respect of sales of certain fuel cell-based stationary power
products under a development program with the Canadian government agency, Technology
Partnerships Canada (“TPC”). Under the terms of the Utilities Development Program with
TPC, total royalties were payable annually at 4% of revenue of such products and limited to
a total maximum repayment of CDN $38.3 million. As at January 15, 2013, a cumulative
total of CDN $5.3 million in royalty repayments has been made to TPC. On January 15,
2013, we reached an agreement with TPC to terminate the Company’s obligation for all
existing and future potential royalties payable in respect of future sales of fuel cell based
stationary power products under the Utilities Development Program in exchange for a final
repayment to TPC of CDN $1.9 million. The CDN $1.9 million settlement was paid in four
equal quarterly installments of CDN $0.48 million in 2013.
As of December 31, 2013, we retain a previous funding obligation to pay royalties of 2% of
revenues (to a maximum of CDN $5.4 million) on sales of certain fuel cell products for
commercial distributed utility applications. No royalties have been incurred to date as a
result of this agreement.
As of December 31, 2013, we retain a previous funding obligation to pay royalties of 2% of
revenues (to a maximum of CDN $2.2 million) on sales on certain fuel cell products for
commercial transit applications. No royalties have been incurred to date as a result of this
agreement.
In the ordinary course of business or as required by certain acquisition or disposition
agreements, we are periodically required to provide certain indemnities to other parties.
Our 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
Page 24 of 38
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 CDN $7.4 million with a
threshold amount of CDN $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, 2013, we have not
accrued any amount owing, or receivable, as a result of the Indemnity Agreement or any
other indemnity agreements undertaken in the ordinary course of business.
RELATED PARTY TRANSACTIONS
Related parties include shareholders with a significant ownership interest in either us or
Dantherm Power, together with their subsidiaries and affiliates. 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. For 2013 and 2012, related party transactions and balances are limited to
transactions between Dantherm Power and its non-controlling interests and are as follows:
(Expressed in thousands of U.S. dollars)
Three months ended
December 31,
Year ended
December 31,
Transactions with related parties
2013
2012
2013
Purchases
Finance expense on Dantherm Power
debt to Dantherm Power non-
controlling interests
$ 97
$ 64
$
$
-
$
185
$
86
$
322 $
2012
309
289
(Expressed in thousands of U.S. dollars)
Balances with related parties(cid:3)
Trade accounts payable
Interest payable
Dantherm Power debt to Dantherm Power non-controlling interests
As at December 31,
2013
139
16
550
2012
100
417
2,507
$
$
$
$
$
$
On November 27, 2013, all of the convertible debt issued by our subsidiary Dantherm
Power to the non-controlling interests in Dantherm Power was exercised and converted into
shares of Dantherm Power. The conversion did not impact the respective ownership of
Dantherm Power with Ballard retaining a 52% ownership interest as compared to a 38%
interest held by Dantherm A/S and a 10% interest held by Azure. On conversion, the
convertible debt (including interest payable) held by the non-controlling interests,
Dantherm A/S and Azure, totaling $3.5 million, was reclassified on Ballard’s statement of
financial position from debt to equity. As of December 31, 2013, the outstanding Dantherm
Power debt (including interest) to Dantherm Power non-controlling interests totals $0.6
million, bears interest at 6.0% per annum, is non-convertible, and is repayable by
December 31, 2014 (extended to December 31, 2014 in February 2014).
Page 25 of 38
OUTSTANDING SHARE DATA
As at February 25, 2014(cid:3)
Common share outstanding
Warrants outstanding
Options outstanding
110,136,401
9,862,500
6,659,383
CRITICAL ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Our consolidated financial statements are prepared in accordance with IFRS, which require
us to make estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may 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.
Critical Judgments in Applying Accounting Policies:
Critical judgments that we have made in the process of applying our accounting policies
and that have the most significant effect on the amounts recognized in the consolidated
financial statements is limited to our assessment of the Corporation’s ability to continue as
a going concern (See Note 2 (e) to our condensed consolidated interim financial
statements).
Our significant accounting policies are detailed in note 4 to our annual consolidated
financial statements for the year ended December 31, 2013.
Key Sources of Estimation Uncertainty:
The following are key assumptions concerning the future and other key sources of
estimation uncertainty that have a significant risk of resulting in a material adjustment to
the reported amount of assets, liabilities, income and expenses within the next financial
year.
REVENUE RECOGNITION
Revenues are generated primarily from product sales, services and licenses in our Fuel Cell
Products and Services segment. Product revenues are derived primarily from standard
equipment and material sales contracts and from long-term fixed price contracts. Service
and license revenues are derived primarily from cost-plus reimbursable contracts and 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.
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
Page 26 of 38
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.
(cid:120)
(cid:120)
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 estimation 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, 2013 and 2012, there was 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 at
least 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. A
cash-generating unit to which goodwill has been 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
Page 27 of 38
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, 2013, our consolidated goodwill balance of $36.3 million relates
solely to our Fuel Cell Products and Services segment. Based on the impairment test
performed as at December 31, 2013, we have concluded that no goodwill impairment
charge is required for the year ending December 31, 2013. Details of our 2013 goodwill
impairment tests are as follows:
(cid:120) One of the methods used to assess the recoverable amount of the goodwill 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
and Services segment by first calculating the value of the Company at December 31,
2013 based on the average closing share price in the month of December, add a
reasonable estimated control premium of 25% to determine the Company’s enterprise
value on a controlling basis after adjusting for excess cash balances, and then
deducting the estimated costs to sell 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 exceeds its carrying
value by a significant amount as of December 31, 2013 indicating that no impairment
charge is required for 2013.
(cid:120)
In addition to this fair value test, we also performed a value in use test on our Fuel Cell
Products and Services 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 significant
estimation are the projected results of operations, the discount rate based on the
weighted average cost of capital (“WACC”), and terminal value assumptions. Our value
in use test was based on a WACC of 15%; an average estimated compound annual
growth rate of approximately 30% from 2013 to 2018; and a terminal year EBITDA
multiplied by a terminal value multiplier of 5.0. Our value in use assessment resulted in
Page 28 of 38
an estimated fair value for the Fuel Cell Products and Services segment that is
consistent with that as determined under the above fair value, less costs to sell,
assessment. As a result of this assessment, we have determined that the fair value of
the Fuel Cell Products segment exceeds its carrying value by a significant amount as of
December 31, 2013 indicating that no impairment charge is required for 2013.
In addition to the above goodwill impairment test, we perform a quarterly assessment of
the carrying amounts of our non-financial assets (other than inventories) to determine
whether there is any indication of impairment. As a result of this review, we recorded an
impairment charge of ($0.6) million for the three months and year ended December 31,
2012 related to a write-down of manufacturing equipment that was never put into use.
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, 2013, we recorded provisions to accrued
warranty liabilities of $0.1 million and $1.3 million, respectively, for new product sales,
compared to $0.4 million and $1.5 million, respectively, for the three months and year
ended December 31, 2012.
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, 2013
were adjusted downwards by a net amount of $1.0 million and $1.5 million, respectively,
compared to a net adjustment (upwards) downwards of ($0.2) million and $0.4 million,
respectively, for the three months and year ended December 31, 2012. The adjustments to
the accrued warranty liability provisions were primarily due to contractual expirations,
changes in estimated and actual 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 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, 2013, inventory provisions of $0.5
million and $0.8 million, respectively, were recorded as a charge to cost of product and
Page 29 of 38
service revenues, compared to $0.2 million and $0.7 million, respectively, for the three
months and year ended December 31, 2012.
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.
INCOME TAXES
We use 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
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, 2013 and 2012, we have not recorded any
deferred income tax assets on our consolidated statement of financial position.
NEW AND FUTURE IFRS ACCOUNTING POLICIES
Recently Adopted Accounting Policy Changes:
As required by IFRS, we adopted the following accounting standard changes effective
January 1, 2013.
IFRS 10 – CONSOLIDATED FINANCIAL STATEMENTS
In May 2011, the IASB published IFRS 10 “Consolidated Financial Statements” which is a
replacement of SIC-12 “Consolidation – Special Purpose Entities”, and certain parts of IAS
27 “Consolidated and Separate Financial Statements”. IFRS 10 uses control as the single
basis for consolidation, irrespective of the nature of the investee, employing the following
factors to identify control:
a) Power over the investee;
b) Exposure or rights to variable returns from involvement with the investee;
c) The ability to use power over the investee to affect the amount of the investor’s returns.
The adoption of IFRS 10 did not change our conclusions around control of our investees,
and therefore no adjustment to previous accounting for investees was required in our
consolidated financial statements.
IFRS 11 – JOINT ARRANGEMENTS
In May 2011, the IASB published IFRS 11 “Joint Arrangements” which supersedes IAS 31
Page 30 of 38
“Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities – Non-Monetary
Contributions by Venturers”. IFRS 11 requires that joint ventures be accounted for using
the equity method of accounting and eliminates the need for proportionate consolidation.
We were not impacted by the adoption of IFRS 11.
IFRS 12 – DISCLOSURE OF INTERESTS IN OTHER ENTITIES
In May 2011, the IASB published IFRS 12 “Disclosure of Interests in Other Entities” which
requires that an entity disclose information on the nature of and risks associated with its
interests
joint arrangements, associates or
unconsolidated structured entities) and the effects of those interests on its financial
statements.
in other entities (i.e. subsidiaries,
The adoption of IFRS 12 did not have a material impact on our consolidated financial
statements.
IFRS 13 – FAIR VALUE MEASUREMENT
In May 2011, the IASB published IFRS 13 “Fair Value Measurement” to establish a single
framework for fair value measurement of financial and non-financial items. IFRS 13 defines
fair value as 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
requires disclosure of certain information on fair value measurements.
The adoption of IFRS 13 did not have a material impact on our consolidated financial
statements. In accordance with IFRS 13, we have included additional fair value disclosures
in our consolidated financial statements for the year ended December 31, 2013.
AMENDMENTS TO IAS 19 – EMPLOYEE BENEFITS
In June 2011, the IASB issued amendments to IAS 19 “Employee Benefits”. Changes in
defined benefit obligations and plan assets are to be recognized in other comprehensive
income when they occur, thus eliminating the corridor approach and accelerating
recognition of past service cost. Net interest is to be recognized in net earnings and
calculated using the discount rate by reference to market yields at the end of the reporting
period on high quality corporate bonds. The actual return on plan assets minus net interest
is to be recognized in other comprehensive income.
The adoption of IFRS 19 did not have a material impact on our financial statements as our
accounting policy for employee benefits for the presentation of pension expense and the
immediate recognition of actuarial gains and losses in other comprehensive income is
consistent with the requirements of the amended IAS 19 standard. In accordance with the
amended IAS 19 standard, we have included the required additional disclosures our
consolidated financial statements for the year ended December 31, 2013. Furthermore, the
computation of annual expense for 2013 has been based on the application of the discount
rate used for the calculation of the defined benefit obligation to the expected return on plan
assets, the impact of which was not material.
AMENDMENTS TO IAS 1 – FINANCIAL STATEMENT PRESENTATION
In June 2011, the IASB issued amendments to IAS 1 “Presentation of Financial
Statements”. Items of other comprehensive income and the corresponding tax expense are
required to be grouped into those that will and will not subsequently be reclassified through
net earnings.
The adoption of the amendments to IAS 1 did not have a material impact on our financial
Page 31 of 38
statements. In accordance with the amendments to IAS 1, we have modified our statement
of profit or loss and other comprehensive income in our consolidated financial statements
for the year ended December 31, 2013.
Future Accounting Policy Changes:
The following is an overview of accounting standard changes that we will be required to
adopt in future years. We do not expect to adopt any of these standards before their
effective dates and we continue to evaluate the impact of these standards on our
consolidated financial statements.
IFRS 9 – FINANCIAL INSTRUMENTS
IFRS 9 “Financial Instruments” 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
measured at amortized cost or fair value in subsequent accounting periods following initial
recognition. 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 classification and measurement of financial liabilities were added in
October 2010 and they largely carried forward requirements in IAS 39, 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 was amended in November 2013, to (i) include guidance on hedge accounting, (ii)
allow entities to early adopt the requirement to recognize changes in fair value attributable
to changes in an entity’s own credit risk, from financial liabilities designated under the fair
value option, in other comprehensive income, without having to adopt the remainder of
IFRS 9, and to (iii) remove the previous mandatory effective date for adoption of January
1, 2015, although the standard is available for early adoption.
AMENDMENTS TO OTHER IFRS STANDARDS
IAS 32 Financial Instruments: Presentation addresses inconsistencies when applying the
offsetting requirements, and is effective for annual periods beginning on or after January 1,
2014. We do not expect these amendments to have a material impact on our financial
statements.
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
Page 32 of 38
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, acquisition
costs and financing charges. The following tables show a reconciliation of operating
expenses to Cash Operating Costs from continuing operations for the three months and
year ended December 31, 2013 and 2012:
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Total Operating Expenses
$
Stock-based compensation expense
Acquisition and integration costs
Restructuring charges
Financing charges
Depreciation and amortization
2013
8,516
(1,002)
-
(43)
-
(1,009)
(1,555)
(91)
-
(564)
(504)
Three months ended December 31,
2012
$
10,047
$
$
Change
(1,531)
Cash Operating Costs
$
6,462
$
7,333
$
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Year ended December 31,
2013
2012
Total Operating Expenses
$
36,191
$
38,480
$
$
Stock-based compensation expense
Acquisition and integration costs
Restructuring charges
Financing charges
Depreciation and amortization
(3,775)
(78)
(568)
-
(3,464)
(2,582)
(274)
(1,931)
(564)
(2,828)
553
91
(43)
564
(505)
(871)
Change
(2,289)
(1,193)
196
1,363
564
(636)
Cash Operating Costs
$
28,306
$
30,301
$
(1,995)
EBITDA and 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 loss attributable to Ballard from continuing
operations, primarily because it does not include finance expense, income taxes,
depreciation of property, plant and equipment, amortization of intangible assets, and
goodwill
for stock-based
compensation expense, transactional gains and losses, asset impairment charges, finance
and other income, and acquisition costs. The following tables show a reconciliation of net
income attributable to Ballard to EBITDA and Adjusted EBITDA from continuing operations
for the three months and year ended December 31, 2013 and 2012:
impairment charges. Adjusted EBITDA adjusts EBITDA
Page 33 of 38
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Net loss from continuing operations
Three months ended December 31,
2013
2012
attributable to Ballard
$
(2,274)
$
(17,059)
Depreciation and amortization
Finance expense
Income taxes
1,557
268
167
1,016
458
-
$
$
Change
14,785
541
(190)
167
EBITDA attributable to Ballard
$
(282)
$
(15,585)
$
15,303
Stock-based compensation expense
Acquisition and integration costs
Finance and other (income) loss
Impairment of goodwill
Impairment of property, plant and
equipment
Impairment of equity investment
Loss (gain) on sale of property, plant and
equipment
1,002
-
(546)
-
-
150
(153)
1,555
91
83
10,000
570
-
64
(553)
(91)
(629)
(10,000)
(570)
150
(217)
Adjusted EBITDA
$
171
$
(3,222)
$
3,393
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Net loss from continuing operations
Year ended December 31,
2013
2012
attributable to Ballard
$
(19,988)
$
(42,320)
Depreciation and amortization
Finance expense
Income taxes
5,655
1,486
485
$
$
Change
22,332
815
(204)
4,840
1,690
-
485
EBITDA attributable to Ballard
$
(12,362)
$
(35,790)
$
23,428
Stock-based compensation expense
Acquisition and integration costs
Finance and other (income) loss
Impairment of goodwill
Impairment of property, plant and
equipment
Impairment of equity investment
Loss (gain) on sale of property, plant and
equipment
3,775
78
(215)
-
-
513
23
2,582
274
219
10,000
570
-
69
1,193
(196)
(434)
(10,000)
(570)
513
(46)
Adjusted EBITDA
$
(8,188)
$
(22,076)
$
13,888
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 results from continuing operations for one-time transactional
gains and losses and impairment losses. Normalized Net Loss differs from the most
comparable GAAP measure, net loss attributable to Ballard from continuing operations,
primarily because it does not include transactional gains and losses and asset impairment
charges. The following table shows a reconciliation of net loss attributable to Ballard from
continuing operations to Normalized Net Loss for the three months and year ended
December 31, 2013 and 2012.
Page 34 of 38
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net loss attributable to Ballard from
Three months ended December 31,
2013
2012
continuing operations
$
(2,274)
$
(17,059)
Impairment of equity investment
Impairment of goodwill
Impairment of property, plant and
equipment
Normalized Net Loss
Normalized Net Loss per share
150
-
-
-
10,000
570
$
$
(2,124)
$
(6,489)
(0.02)
$
(0.07)
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net loss attributable to Ballard from
Year ended December 31,
2013
2012
continuing operations
$
(19,988)
$
(42,320)
Settlement of TPC funding obligation
Impairment of equity investment
Impairment of goodwill
Impairment of property, plant and
equipment
Normalized Net Loss
Normalized Net Loss per share
1,197
513
-
-
-
-
10,000
570
$
$
(18,278)
$
(31,750)
(0.18)
$
(0.36)
$
$
$
$
$
$
$
$
Change
14,785
150
(10,000)
(570)
4,365
0.05
Change
22,332
1,197
513
(10,000)
(570)
13,472
0.18
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, 2013, 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 provide only
Page 35 of 38
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 (1992) 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, 2013.
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, 2013.
Changes in internal control over financial reporting
During the year ended December 31, 2013, 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).
A summary of our identified risks and uncertainties are as follows:
(cid:120) We may not be able to achieve commercialization of our products on the timetable
we anticipate, or at all;
(cid:120) 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
necessary;
(cid:120) A mass market for our products may never develop or may take longer to develop
than we anticipate;
(cid:120) We may not be able to successfully execute our business plan;
(cid:120)
(cid:120)
In our Engineering Services market, we depend on a single customer for the
majority of our revenues;
In our material handling market, we depend on a single customer for the majority of
our revenues;
(cid:120) We have limited experience manufacturing fuel cell products on a commercial basis;
Page 36 of 38
(cid:120) Global economic conditions are beyond our control and may have an adverse impact
on our business or on our key suppliers and / or customers;
(cid:120)
Potential fluctuations in our financial and business results make forecasting difficult
and may restrict our access to funding for our commercialization plan;
(cid:120) We could be adversely affected by risks associated with acquisitions;
(cid:120) We are subject to risks inherent in international operations;
(cid:120)
Exchange rate fluctuations are beyond our control and may have a material adverse
effect on our business, operating results, financial condition and profitability;
(cid:120) Commodity price fluctuations are beyond our control and may have a material
adverse effect on our business, operating results, financial condition and
profitability;
(cid:120) We are dependent upon Original Equipment Manufacturers and Systems Integrators
to purchase certain of our products;
(cid:120) We are dependent on third party suppliers for the supply of key materials and
components for our products and services;
(cid:120) We currently face and will continue to face significant competition;
(cid:120) We could lose or fail to attract the personnel necessary to run our business;
(cid:120)
Public Policy and regulatory changes could hurt the market for our products;
(cid:120) We depend on our intellectual property, and our failure to protect that intellectual
property could adversely affect our future growth and success;
(cid:120) We could be liable for environmental damages resulting from our research,
development or manufacturing operations; and
(cid:120) Our products use flammable fuels and some generate high voltages, 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, liquidity, sources of capital and our 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 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 and service volumes at the expected prices, and controlling our costs.
Page 37 of 38
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 and service 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 or service 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.
Page 38 of 38
Consolidated Financial Statements
(Expressed in U.S. dollars)
BALLARD POWER SYSTEMS INC.
Years ended December 31, 2013 and 2012
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 (1992) 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, 2013. 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.
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, 2013. 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 25, 2014
TONY GUGLIELMIN
Vice President and
Chief Financial Officer
February 25, 2014
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
w w w .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. (the “Company”) as of December 31, 2013 and December 31, 2012 and the related
consolidated statements of comprehensive loss, changes in equity and cash flows for the years then
ended. 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 of December 31, 2013 and December 31,
2012, and its consolidated financial performance and its consolidated cash flows for the years then ended
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, 2013,
based on the criteria established in Internal Control – Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 25, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 25, 2014
KPM G LLP is a Canadian limited liability partnership and a member firm of the KPM G
netw ork of independent member firms affiliated w ith KPM G International Cooperative
((cid:838)KPM G International(cid:839)), a Sw iss entity.
KPM G Canada provides services to KPM G LLP.
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
w w w .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, 2013, based on the criteria established in Internal Control – Integrated Framework
(1992) 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, 2013, based on the criteria established in Internal Control – Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
KPM G LLP is a Canadian limited liability partnership and a member firm of the KPM G
netw ork of independent member firms affiliated w ith KPM G International Cooperative
((cid:838)KPM G International(cid:839)), a Sw iss entity.
KPM G Canada provides services to KPM G LLP.
We also have audited, in accordance with 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, 2013 and December 31, 2012, and
the related consolidated statements of comprehensive loss, changes in equity and cash flows for the
years then ended, and our report dated February 25, 2014 expressed an unqualified opinion on those
consolidated financial statements.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 25, 2014
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
Assets classified as held for sale
Total current assets
Non-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:
Bank operating line
Trade and other payables
Deferred revenue
Provisions
Finance lease liability
Debt to Dantherm Power A/S non-controlling interests
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities:
Finance lease liability
Deferred gain
Provisions
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
Subsequent event (note 30)
See accompanying notes to consolidated financial statements
Approved on behalf of the Board:
“Ed Kilroy”
Director
“Ian Bourne”
Director
Note
December 31,
2013
December 31,
2012
9
10
7
11
12
13
29
9
14
15
16
14 & 17
18
7
14 & 17
16
19
20
20
20
$
$
$
30,301
-
15,471
14,087
852
60,711
-
60,711
19,945
2,716
36,291
157
219
175
120,214
-
11,484
6,160
6,819
1,399
566
26,428
-
26,428
10,772
4,734
4,857
3,169
49,960
$
$
$
9,770
12,068
16,374
11,277
1,011
50,500
10,798
61,298
24,316
4,194
36,291
667
594
187
127,547
9,358
12,215
3,705
9,423
1,043
2,924
38,668
1,423
40,091
13,011
5,193
5,089
6,161
69,545
866,574
(118)
296,368
(1,091,187)
9
71,646
(1,392)
70,254
120,214
$
845,630
(313)
291,184
(1,074,181)
92
62,412
(4,410)
58,002
127,547
$
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
Loss on sale of property, plant and equipment
Impairment loss on property, plant and equipment
Impairment loss on goodwill
Impairment loss on investment
Loss before income taxes
Income tax expense
Net loss from continuing operations
Net earnings (loss) from discontinued operations
Net loss
Other comprehensive income (loss):
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences
Net loss on hedge of forward contracts
Other comprehensive income (loss), net of tax
Note
2013
2012
(restated – note 3(e))
$
$
61,251
44,492
16,759
24
24
11
11
13
29
25
7
19
17,117
11,413
7,661
36,191
(19,432)
215
(1,486)
(1,271)
(23)
-
-
(513)
(21,239)
(485)
(21,724)
24
(21,700)
2,852
2,852
(192)
-
(192)
2,660
43,690
36,321
7,369
19,273
12,306
6,901
38,480
(31,111)
(219)
(1,690)
(1,909)
(69)
(570)
(10,000)
-
(43,659)
-
(43,659)
(65)
(43,724)
(557)
(557)
(186)
(20)
(206)
(763)
Total comprehensive loss
$
(19,040) $
(44,487)
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Comprehensive Loss (cont’d)
For the year ended December 31
(Expressed in thousands of U.S. dollars, except per share amounts and number of shares)
2013
2012
(restated – note 3(e))
Net income (loss) attributable to:
Ballard Power Systems Inc. from continuing operations
$
(19,988) $
(42,320)
Ballard Power Systems Inc. from discontinued operations
Dantherm Power A/S non-controlling interest
Net loss
24
(1,736)
(65)
(1,339)
$
(21,700) $
(43,724)
Total comprehensive loss attributable to:
Ballard Power Systems Inc.
Dantherm Power A/S non-controlling interest
Total comprehensive loss
Basic and diluted loss per share attributable to Ballard Power Systems Inc.
Continuing operations
Discontinued operations
Net loss
$
$
$
$
(17,195) $
(43,059)
(1,845)
(1,428)
(19,040) $
(44,487)
(0.20) $
0.00
(0.20) $
(0.48)
(0.00)
(0.48)
Weighted average number of common shares outstanding
100,030,457
87,591,501
See accompanying notes to consolidated financial statements
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, December 31, 2011
84,550,524 $
837,686
$
(515) $
289,219
$ (1,031,279)
$
209
$
(2,975) $
92,345
Net loss
-
-
Acquisition (note 8)
7,136,237
7,493
Additional investment in Dantherm Power A/S
Purchase of treasury shares
DSUs redeemed
RSUs redeemed
Options exercised
Share distribution plan
Other comprehensive loss:
Defined benefit plan actuarial loss
Foreign currency translation for foreign
operations
Net loss on hedge of forward contracts
-
-
52,120
49,095
13,501
-
-
-
-
-
-
314
113
24
-
-
-
-
-
-
-
(6)
-
208
-
-
-
-
-
-
-
-
-
(358)
(415)
(7)
2,745
-
-
-
(42,385)
-
-
-
-
40
-
-
(557)
-
-
Balance, December 31, 2012
91,801,477
845,630
(313)
291,184
(1,074,181)
Net loss
Additional investment in Dantherm
Power A/S
Redemption of convertible debenture
by non-controlling interest (note 18)
-
-
-
-
-
-
Net Offering proceeds (note 20)
17,625,000
19,977
Proceeds on issuance of convertible
promissory note (note 20)
Purchase of treasury shares
DSUs redeemed
RSUs redeemed
Options exercised
Share distribution plan
Other comprehensive income (loss):
Defined benefit plan actuarial gain
Foreign currency translation for
foreign operations
-
-
26,652
540,239
140,533
-
-
-
-
-
22
718
227
-
-
-
-
-
-
-
-
(6)
-
-
-
-
-
4,000
-
(53)
(19,964)
-
-
-
-
-
-
201
(1,727)
106
-
-
-
-
(74)
3,038
-
-
-
-
2,852
-
-
-
-
-
-
-
-
-
(97)
(20)
92
-
-
-
-
-
-
-
-
-
-
-
(1,339)
(43,724)
-
(7)
-
-
-
-
-
-
(89)
-
7,493
(7)
(6)
(44)
(54)
17
2,745
(557)
(186)
(20)
(4,410)
58,002
(1,736)
(21,700)
1,319
1,319
3,544
3,544
-
-
-
-
-
-
-
-
19,977
4,000
(6)
(31)
(702)
153
3,038
2,852
Balance, December 31, 2013
110,133,901 $
866,574
$
(118) $
296,368
$ (1,091,187) $
9
$ (1,392) $ 70,254
See accompanying notes to consolidated financial statements
-
(83)
(109)
(192)
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 recovery
Depreciation and amortization
Loss (gain) on decommissioning liabilities
Loss on sale of property, plant and equipment
Impairment loss (reversal) on property, plant and equipment
Impairment loss on goodwill
Impairment loss on investment
Unrealized 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
Warranty provision
Cash used by operating activities
Investing activities:
Net decrease in short-term investments
Additions to property, plant and equipment
Net proceeds on sale of property, plant and equipment and other
Net proceeds from disposition of Material Products division
Net investments in associated company
Other investment activities
Financing activities:
Purchase of treasury shares
Payment of finance lease liabilities
Net proceeds (repayment) of bank operating line
Net proceeds on issuance of share capital
Net Offering proceeds
Proceeds on issuance of convertible promissory note
Proceeds on issuance of share capital to Dantherm Power A/S non-controlling
interests
Proceeds on issuance of debt to Dantherm Power A/S non-controlling interests
Note
2013
2012
(restated – note 3(e))
$
(21,700)
$
(43,724)
20
11
11
13
29
7
29
14
20
20
18
3,775
(140)
5,731
(194)
23
(45)
-
513
-
(12,037)
1,877
(2,904)
192
(5,048)
2,430
(1,926)
(5,379)
(17,416)
12,068
(485)
227
9,085
(4)
-
20,891
(6)
(976)
(8,753)
153
19,977
4,000
1,360
1,165
16,920
2,746
(81)
5,928
256
69
1,070
11,815
-
(285)
(22,206)
65
4,434
(151)
(10,459)
166
5
(5,940)
(28,146)
13,810
(1,168)
424
-
(32)
(9)
13,025
(6)
(999)
4,771
17
-
-
-
862
4,645
Effect of exchange rate fluctuations on cash and cash equivalents held
136
(70)
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
20,531
9,770
(10,546)
20,316
$
30,301 $
9,770
Supplemental disclosure of cash flow information (note 27)
Cash flows of discontinued operations (note 7)
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(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, service, and license of fuel cell products for a variety of
applications, focusing on “commercial stage” markets of Telecom Backup Power and Material
Handling, and “development stage” markets of Bus and Distributed Generation, as well as the
provision of 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, 2013 comprise the
Corporation and its subsidiaries (note 4(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”).
The consolidated financial statements were authorized for issue by the Board of Directors on
February 25, 2014.
(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:
(cid:120)
Financial instruments classified as fair value through profit or loss and available-for-
sale are measured at fair value;
(cid:120) Derivative financial instruments are measured at fair value; and
(cid:120)
Employee future benefits liability is recognized as the net total of the present value
of the defined benefit obligation, less the fair value of plan assets.
(c) Functional and presentation currency:
These consolidated financial statements are presented in U.S. dollars, which is the
Corporation’s functional currency.
12
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
2. Basis of preparation (cont’d):
(d) Use of estimates:
The preparation of the consolidated financial statements in conformity with IFRS requires the
Corporation’s management to make estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these 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 having estimation uncertainty include revenue recognition, asset impairment,
warranty provision, inventory provision, employee future benefits, and income taxes. These
estimates and assumptions are discussed further in note 5.
(e) Future operations:
The Corporation is required to assess its ability to continue as a going concern or whether
substantial doubt exists as to the Corporation’s ability to continue as a going concern into the
foreseeable future. The Corporation has forecasted its cash flows for the foreseeable future
and despite the ongoing volatility and uncertainties inherent in the business, the Corporation
believes it has adequate liquidity in cash and working capital to finance its operations. The
Corporation’s ability to continue as a going concern and realize its assets and discharge its
liabilities and commitments in the normal course of business is dependent upon the
Corporation having adequate liquidity and achieving profitable operations that are sustainable.
There are various risks and uncertainties affecting the Corporation including, but not limited
to, the market acceptance and rate of commercialization of the Corporation’s products, the
ability of the Corporation to successfully execute its business plan, and general global
economic conditions, certain of which are beyond the Corporation’s control.
The Corporation’s strategy to mitigate these risks and uncertainties is to execute a business
plan aimed at continued focus on revenue growth, improving overall gross margins, and
managing operating expenses and working capital requirements. Failure to implement this
plan could have a material adverse effect on the Corporation’s financial condition and or
results of operations.
3. Changes in accounting policies:
The Corporation has consistently applied the accounting policies set out in note 4 to all periods
presented in these consolidated financial statements, with the exception of the following new
accounting standards that were issued by the IASB and adopted by the Corporation, effective
January 1, 2013. Certain comparative figures have been reclassified to conform to the basis
of presentation adopted in the current period.
13
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Changes in accounting policies (cont’d):
(a) IFRS 10 – Consolidated Financial Statements:
IFRS 10 Consolidated Financial Statements replaces SIC-12 Consolidation – Special Purpose
Entities, and certain parts of IAS 27 Consolidated and Separate Financial Statements. IFRS 10
uses control as the single basis for consolidation, irrespective of the nature of the investee,
employing the following factors to identify control:
a) power over the investee;
b) exposure or rights to variable returns from involvement with the investee;
c)
the ability to use power over the investee to affect the amount of the investor’s
returns.
The adoption of IFRS 10 did not change the Corporation’s conclusions around control of its
investees, and therefore no adjustments to previous accounting for investees were required.
(b) IFRS 11 – Joint Arrangements:
IFRS 11 Joint Arrangements supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly
Controlled Entities – Non-Monetary Contributions by Venturers. IFRS 11 requires that joint
ventures be accounted for using the equity method of accounting and eliminates the need for
proportionate consolidation.
The Corporation is not impacted by the adoption of IFRS 11.
(c) IFRS 12 – Disclosure of Interests in Other Entities:
IFRS 12 Disclosure of Interests in Other Entities introduces additional disclosure requirements
relating to the nature of and risks associated with its interests in other entities (i.e.
subsidiaries, joint arrangements, associates, or unconsolidated structured entities) and the
effects of those interests on its financial statements.
The adoption of IFRS 12 does not have a material impact on the consolidated financial
statements.
(d) IFRS 13 – Fair Value Measurements:
IFRS 13 Fair Value Measurement establishes a single framework for fair value measurement of
financial and non-financial items. IFRS 13 defines fair value as 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 requires disclosure of certain information on fair
value measurements.
In accordance with IFRS 13, the Corporation has included additional fair value disclosures in
its consolidated financial statements.
14
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Changes in accounting policies (cont’d):
(e) Amendments to IAS 19 – Employee Benefits:
The amendments to IAS 19 change the recognition and measurement of defined benefit
pension expense and termination benefits, and enhance the disclosures for all employee
benefits. Actuarial gains and losses are renamed “remeasurements” and are recognized
immediately in other comprehensive income (“OCI”). Remeasurements recognized in OCI are
not 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 is computed based on the
application of the discount rate to the net defined benefit asset or liability. The amendments
to IAS 19 also impacts the presentation of pension expense as benefit cost is 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.
The Corporation’s previous accounting policy for employee benefits relating to the presentation
of pension expense and the immediate recognition of actuarial gains and losses in OCI was
predominantly consistent with the requirements in the new standard, and accordingly the
retrospective adoption of the amendments to IAS 19 did not have a material impact on the
consolidated financial statements.
As the Corporation adopted these amendments retrospectively, the comparative figures have
been adjusted to reflect the accounting change for the defined benefit plan. The adjustments
to the comparable period include a decrease to finance income (loss) and other of $250,000,
and an increase to OCI of $250,000. The adjustments arise primarily from the interest on
plan assets, which is calculated using the discount rate used to value the benefit obligation.
Since the discount rate is lower than the expected rate of return on plan assets, the interest
attributable to plan assets also declines resulting in the decrease to finance income (loss) and
other. The difference between the actual rate of return on plan assets and the discount rate is
included in OCI as a remeasurement. Also under these amendments, the interest cost on
additional minimum funding liability is recorded in net income, whereas it was reported in OCI
under the previous standard. The impact of this change is that the restated net income for
2012 decreases and OCI increases by the same amount, with no net impact on total
comprehensive loss. The amendments to IAS 19 did not have a net impact on the statement
of financial position.
(f) Amendments to IAS 1 – Presentation of Financial Statements:
The amendments to IAS 1 Presentation of Financial Statements require items of other
comprehensive income and the corresponding tax expense to be grouped based on whether
they will or will not be classified to the statement of earnings in the future.
In accordance with the amendments to IAS 1, the Corporation has modified its statement of
profit or loss and other comprehensive income.
15
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
3. Changes in accounting policies (cont’d):
(g) Amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets:
The amendments to IAS 36 reverse the unintended requirement in IFRS 13 Fair Value
Measurement to disclose the recoverable amount of every cash-generating unit to which
significant goodwill or indefinite-lived intangible assets have been allocated. Under the
amendments, recoverable amount is required to be disclosed only when an impairment loss
has been recognized or reversed.
The adoption of the amendments to IAS 36 does not have a material impact on the
consolidated financial statements.
4. Significant accounting policies:
Except for the changes explained in note 3, the accounting policies set out below have been
applied consistently to all periods presented in these consolidated financial statements.
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Corporation and its principal
subsidiaries as follows:
Ballard Fuel Cell Systems Inc.
Ballard Material Products Inc.
Ballard Power Corporation
Ballard Services Inc.
Dantherm Power A/S
Percentage ownership
2013
100%
n/a
100%
100%
2012
100%
100%
100%
n/a
57% - 51.3%
52% - 57%
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.
16
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(a) Basis of consolidation (cont’d):
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 and
a further 5% interest in December 2012. On March 31, 2013, Azure Hydrogen Energy Science
and Technology Corporation (“Azure”) acquired a 10% ownership interest in Dantherm Power
A/S, which reduced the Corporation’s interest from 57% to 51.3%. The remaining 38.7%
interest is held by Dantherm A/S. As the Corporation obtained control over Dantherm Power
A/S as of the date of acquisition of the initial 45% interest, Dantherm Power A/S has been
consolidated since acquisition on 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.
On June 14, 2013, the wholly owned subsidiary Ballard Services Inc. was incorporated. Its
principal business is the provision of Engineering Services for a variety of fuel cell applications.
On December 31, 2013, the wholly owned subsidiary Ballard Material Products Inc. merged
with the wholly owned subsidiary Ballard Power Corporation.
(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.
17
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. 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 4
(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.
18
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. 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 original maturities of three months or less and are initially
measured at fair value, and subsequently measured at amortized cost, which
approximates fair value due to the short-term and liquid nature of these assets.
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.
19
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. 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 periodically 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.
20
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. 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.
(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.
21
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(d) Inventories (cont’d):
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
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.
22
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(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. Costs incurred in
establishing and maintaining patents and license agreements are expensed in the period
incurred.
23
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(g) Goodwill and intangible assets (cont’d):
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 over their estimated useful
lives of 5 years
using the straight-line method. Amortization methods, useful lives and residual values are
reviewed annually and adjusted if appropriate.
(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.
(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.
24
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(h) Impairment (cont’d):
(ii) Non-financial assets (cont’d)
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.
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.
25
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(i) Provisions (cont’d):
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, services and licenses.
Product revenues are derived primarily from standard equipment and material sales contracts
and from long-term fixed price contracts. Service and license revenues are derived primarily
from cost-plus reimbursable contracts and 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)
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.
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.
26
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(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.
(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.
27
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(m) Employee benefits (cont’d):
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.
The Corporation recognizes all actuarial gains and losses arising from defined benefit plans
immediately in other comprehensive income, and reports them in retained earnings.
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.
28
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(m) Employee benefits (cont’d):
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.
(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 20. 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.
29
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(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.
(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.
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty:
The preparation of the consolidated financial statements in conformity with IFRS requires the
Corporation’s management to make estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these 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.
30
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
Critical judgments in applying accounting policies:
Critical judgments that management has made in the process of applying the Corporation’s
accounting policies and that have the most significant effect on the amounts recognized in the
consolidated
financial statements are
limited to management’s assessment of the
Corporation’s ability to continue as a going concern (note 2(e)).
Key sources of estimation uncertainty:
The following are key assumptions concerning the future and other key sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment to the reported
amount of assets, liabilities, income and expenses within the next fiscal year.
(a) Revenue recognition:
Revenues under certain contracts for product, licensing 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, as appropriate. Changes in management’s
estimated costs to complete a contract may result in an adjustment to previously recognized
revenues.
(b) Asset impairment:
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.
The Corporation’s most significant estimates and assumptions involve values associated with
goodwill and intangible assets. These estimates and assumptions include those with respect
to future cash inflows and outflows, discount rates, asset lives, and the determination of cash
generating units. At least annually, the carrying value of goodwill and intangible assets 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. This review
involves significant estimation uncertainty, which could affect the Corporation’s future results
if the current estimates of future performance and fair values change.
31
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
(c) 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.
(d) Inventory provision:
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.
(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.
32
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
(f) Income taxes:
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. Management reviews the deferred income tax assets at each reporting
period and records adjustments to the extent that it is no longer probable that the related tax
benefit will be realized.
6. 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, the standards
are effective for the annual periods beginning on or after January 1, 2014, with earlier
application permitted. The Corporation does not expect to adopt any of these standards
before their effective dates.
(a) IFRS 9 – Financial Instruments:
In November 2009, the IASB published IFRS 9 Financial Instruments, which 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 measured at amortized cost or fair value in subsequent
accounting periods following initial recognition. 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 classification and measurement of financial liabilities were added in October
2010 and they largely carried forward requirements in IAS 39, except that fair value changes
due to credit risk for liabilities designated at fair value through profit and loss would generally
be recorded in OCI.
IFRS 9 was amended in November 2013, to (i) include guidance on hedge accounting, (ii)
allow entities to early adopt the requirements to recognize changes in fair value attributable to
changes in an entity’s own credit risk, from financial liabilities designated under the fair value
option, in OCI, without having to adopt the remainder of IFRS 9, and to (iii) remove the
previous mandatory effective date for adoption of January 1, 2015, although the standard is
available for early adoption.
33
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements (cont’d):
(a) IFRS 9 – Financial Instruments (cont’d):
The Corporation intends to adopt IFRS 9 in its financial statements for the fiscal year
beginning on January 1, 2015. The extent of the impact of adoption has not yet been
determined.
(b) Amendments to IAS 32 – Offsetting Financial Assets and Liabilities:
In December 2011, the IASB published amendments to IAS 32 Offsetting Financial Assets and
Financial Liabilities, which clarifies that an entity currently has a legally enforceable right to
set-off if that right is:
a) not contingent on a future event; and
b) enforceable both in the normal course of business and in the event of default,
insolvency or bankruptcy of the entity and all counterparties.
The amendments to IAS 32 also clarify when a settlement mechanism provides for net
settlement or gross settlement that is equivalent to net settlement.
The amendments are to be applied retrospectively to fiscal years beginning on or after January
1, 2014. The Corporation does not expect the amendments to have a material impact on its
financial statements.
(c) Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting:
In June 2013, the IASB published amendments to IAS 39 Novation of Derivatives and
Continuation of Hedge Accounting, which add a limited exception to provide relief from
discontinuing an existing hedging relationship when a novation that was not contemplated in
the original hedging documentation meets specific criteria.
The amendments shall be applied to fiscal years beginning on or after January 1, 2014.
The Corporation intends to adopt the amendments for the fiscal year beginning on January 1,
2014. The Corporation does not expect the amendments to have a material impact on its
financial statements.
7. Discontinued operations – Disposition of Material Products division:
On January 31, 2013, the Corporation completed an agreement to sell substantially all of the
assets of its Material Products division for gross cash proceeds of $10,500,000 (on the delivery
of net working capital of $3,700,000) and additional potential proceeds of up to $1,500,000.
The additional proceeds of up to $1,500,000 are payable in 2014 and 2015, through a product
credit, if the former Material Products division attains certain financial results in 2013. As the
additional potential proceeds are contingent in nature, they are not recorded in the
consolidated financial statements until actually realized.
34
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
7. Discontinued operations – Disposition of Material Products division (cont’d):
Excluding any potential contingent gain from the additional proceeds, net proceeds from the
sale were approximately $9,085,000 after deducting for working capital adjustments, broker
commissions and expenses, and legal and other expenses. The Material Products division has
been classified and accounted for as a discontinued operation.
In 2012, impairment losses of $1,815,000 and $500,000 relating to goodwill and property,
plant and equipment, respectively, were recognized based on a fair value less costs to sell
assessment, which compared the segment’s carrying value as of December 31, 2012 to the
actual net proceeds received on disposition on January 31, 2013. In 2013, a previously
recorded impairment loss of $45,000 was reversed and recorded in net loss from discontinued
operations based on the final analysis of the disposition.
Gross proceeds from disposition
Less: Purchase price adjustment
Net proceeds from disposition
Disposition costs
Net disposed assets
January 31,
2013
$
10,500
(401)
10,099
(1,014)
(9,040)
Reversal of impairment loss on property, plant and equipment
$
45
The following is a final calculation of the disposed assets and liabilities:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Trade and other payables
Net disposed assets
Net earnings (loss) from discontinued operations are comprised of the following:
$
January 31,
2013
1,811
2,692
40
5,739
(1,242)
$
9,040
Product and service revenues
Cost of product and service revenues
Gross margin
Total operating expenses
Reversal of (impairment loss) on property, plant and equipment
Impairment loss on goodwill
Earnings before income taxes
Income tax expense
Net earnings (loss) from discontinued operations
$
2013
2012
$
867
$
15,540
627
240
(252)
45
-
33
(9)
24
$
11,159
4,381
(2,053)
(500)
(1,815)
13
(78)
(65)
35
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
7. Discontinued operations – Disposition of Material Products division (cont’d):
The 2012 comparative figures in the consolidated statement of profit or loss and other
comprehensive income have been reclassified in accordance with the classification and
accounting of the Material Products division as discontinued operations.
Net cash flows from discontinued operations are as follows:
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
2013
2012
$
315
$
2,303
-
-
(476)
-
Cash and cash equivalents provided by discontinued operations
$
315
$
1,827
8. Acquisition:
On August 1, 2012 (“acquisition date”), the Corporation completed an agreement to acquire
key assets and product lines from IdaTech, LLC (“IdaTech”). In exchange for 7,136,237 of the
Corporation’s common shares valued at $7,493,000 based on the Corporation’s share price at
the acquisition date, the Corporation acquired IdaTech’s key assets including fuel cell systems
inventory, prepaid right to inventory, and product lines for backup power applications,
distributor and customer relationships, a license to intellectual property, the right to assume
control of a contract manufacturing facility, and certain property, plant and equipment.
The prepaid right to inventory and other current assets of approximately $2,728,000 relates to
a supply commitment whereby IdaTech provided additional units of finished goods inventory
to the Corporation prior to January 1, 2013. An additional payment of approximately
$500,000 for the additional units was made to IdaTech when the Corporation received
payment from its customers as the units were sold.
The acquisition has been accounted for using the acquisition method of accounting and,
accordingly, the acquired assets and liabilities have been included in the consolidated financial
statements since the date of acquisition, and revenues since the acquisition date totaling
$5,087,000 are reported in the Fuel Cell Products and Services segment. The intangible
assets arising from this acquisition are amortized over their estimated useful life of 5 years.
Pro forma revenue and net loss attributable to the Corporation as if the assets were acquired
on January 1, 2012 cannot be determined, as reliable information is not available.
In 2013, acquisition costs of $78,000 (2012 – $274,000) were incurred as a result of the
transaction, and are recognized in general and administrative expenses.
36
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
8. Acquisition (cont’d):
The following is the fair value of the identified assets acquired, and liabilities assumed at the
date of acquisition:
Net assets acquired:
Inventories
Prepaid right to inventory and other current assets
Property, plant and equipment
Intangible assets
Trade and other payables
Warranty provision
Total purchase consideration
9. Trade and other receivables:
Trade receivables
Other
Less: Non-current trade receivables
10. Inventories:
Raw materials and consumables
Work-in-progress
Finished goods
$
1,895
2,728
861
2,886
(431)
(446)
$
7,493
December 31,
2013
December 31,
2012
$
$
13,248
2,442
15,690
(219)
16,709
259
16,968
(594)
$
15,471
$
16,374
December 31,
2013
December 31,
2012
$
$
9,157
3,120
1,810
14,087
$
$
4,702
1,646
4,929
11,277
In 2013, changes in raw materials and consumables, finished goods and work-in-progress
recognized as cost of product and service revenues amounted to $18,754,000 (2012 -
$19,218,000).
In 2013, the write-down of inventories to net realizable value amounted to $1,192,000 (2012
- $717,000). There were no reversals of previously recorded write-downs in 2013 or 2012.
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.
37
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
11. Property, plant and equipment:
Cost
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
December 31,
December 31,
2012
Additions
Disposals
2013
$
12,180
$
-
$
-
$
12,180
5,944
755
317
9,179
32,107
3,667
21
37
-
283
219
-
(1,384)
(104)
-
(419)
(2,936)
-
4,581
688
317
9,043
29,390
3,667
Total
$
64,149
$
560
$
(4,843) $
59,866
Accumulated depreciation and impairment loss
2012 Depreciation
Disposals
2013
December 31,
December 31,
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
$
2,301
$
5,370
720
100
4,890
25,552
900
812
176
24
64
668
2,294
643
$
-
$
(1,339)
(92)
-
(342)
(2,820)
-
3,113
4,207
652
164
5,216
25,026
1,543
Total
$
39,833
$
4,681
$
(4,593) $
39,921
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
December 31,
Reclassified as
December 31,
2011
Additions
Disposals
held for sale
2012
$
1,220
$
3,666
12,180
6,423
834
317
10,086
45,091
-
-
-
276
1
-
125
1,670
$
-
-
-
(54)
(23)
-
-
(1,493)
$
(1,220)
$
(3,666)
-
(701)
(57)
-
(1,032)
(13,161)
-
-
12,180
5,944
755
317
9,179
32,107
finance lease
Total
3,667
-
-
-
3,667
$
83,484
$
2,072
$
(1,570)
$
(19,837)
$
64,149
38
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
11. Property, plant and equipment (cont’d):
Accumulated depreciation and
impairment loss
December 31,
2011
Depreciation
Impairment loss
Disposals
Reclassified as
held for sale
December 31,
2012
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
$
-
$
-
$
2,199
1,488
5,676
788
37
154
813
241
12
63
4,963
32,806
694
3,003
$
-
-
-
$
-
$
(2,353)
-
(493)
(57)
-
(54)
(23)
-
-
-
-
-
-
-
-
-
(767)
1,070
(975)
(10,352)
-
-
2,301
5,370
720
100
4,890
25,552
under finance lease
442
458
-
-
-
900
Total
$
48,399
$
5,438
$
1,070
$
(1,052) $ (14,022)
$
39,833
Carrying amounts
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
Leased assets
December 31,
December 31,
2013
2012
$
9,067
$
9,879
374
36
153
3,827
4,364
2,124
574
35
217
4,289
6,555
2,767
$
19,945
$
24,316
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.
Impairment loss
In 2013, there were no impairment losses or reversals of previously recorded impairment
losses recognized against property, plant and equipment used for continuing operations.
However, there was a net $45,000 reversal of previously recognized impairment losses
recorded against property, plant and equipment used for discontinued operations based on the
final analysis of the disposition of the Material Products division (note 7).
In 2012, impairment losses of $1,070,000 were recognized, of which $570,000 related to the
obsolescence of production and test equipment. The remaining $500,000 related to the
impairment of assets held for sale (note 7). No impairment losses were reversed in 2012.
39
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. Intangible assets:
Fuel cell technology
Balance
At January 1, 2012
Acquisition through business combination
Amortization
At December 31, 2012
Amortization
At December 31, 2013
Cost
43,443
2,886
-
46,329
-
46,329
$
$
Accumulated
amortization
Net carrying
amount
$
$
41,194
-
941
42,135
1,478
43,613
$
2,249
2,886
(941)
4,194
(1,478)
$
2,716
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 2013 and 2012.
13. 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 28).
Fuel Cell Products and Services
As of December 31, 2013 and 2012, the aggregate carrying amount of the Corporation’s
goodwill of $36,291,000 relates solely to the Fuel Cell Products and Services segment.
The impairment testing 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 and Services segment is calculated by first
calculating the value of the Corporation at December 31, 2013 based on the average closing
share price in the month of December, adding a reasonable estimated control premium of
25% to determine the Corporation’s enterprise value on a controlling basis after adjusting for
excess cash balances, and deducting the estimated costs to sell from this enterprise value,
arriving at the fair value of the Fuel Cell Products and Services segment. Based on the fair
value test, the Corporation has determined that the fair value of the Fuel Cell Products and
Services segment exceeds its carrying value by a significant amount as of December 31, 2013.
In 2012, the Corporation had determined that the fair value of the Fuel Cell Products and
Services segment was deficient compared to its carrying value, resulting in a $10,000,000
impairment loss recognized against goodwill and the previous value of goodwill of $46,291,000
was written down to $36,291,000 as of December 31, 2012.
40
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
13. Goodwill (cont’d):
Fuel Cell Products and Services (cont’d)
In addition to the fair value test, the Corporation also performed a value in use test on the
Fuel Cell Products and Services 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 significant estimation are the
projected results of operations, the discount rate based on the weighted average cost of
capital (“WACC”), and terminal value assumptions. The Corporation’s value in use test was
based on a WACC of 15%; an average estimated compound annual growth rate of
approximately 30% from 2013 to 2018; and a terminal year earnings before interest, taxes,
depreciation and amortization (“EBITDA”) multiplied by a terminal value multiplier of 5.0. The
value in use assessment resulted in an estimated fair value for the Fuel Cell Products and
Services segment that is consistent with that determined under the fair value, less costs to
sell, assessment.
As the recoverable amount of the Fuel Cell Products and Services segment was determined to
be greater than its carrying amount, no impairment loss was recorded in 2013.
Material Products
The Material Products segment was disposed of on January 31, 2013 (note 7). Accordingly,
the fair value of the Material Products segment, determined based on a fair value less costs to
sell assessment, compared the segment’s carrying value as of December 31, 2012 against the
actual net proceeds received on disposition on January 31, 2013. As a result of the
assessment, the Corporation determined that the fair value of the Material Products segment
was deficient to its carrying value, resulting in a $1,815,000 write-off of goodwill and
$500,000 write-down of property, plant and equipment associated with the Material Products
segment as of December 31, 2012. In 2013, a $45,000 reversal of previously recorded
impairment losses was recognized against the Material Products segment’s property, plant and
equipment once the disposition analysis was finalized. The impairment losses and reversal
relating to the Material Products segment are included in net loss from discontinued operations
(note 7).
41
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
14. Bank facilities:
The Corporation has a demand revolving facility (“Bank Operating Line”) in which an operating
line of credit of up to CDN $10,000,000 is 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 2013, the Corporation was advanced $334,000 (2012 - $17,331,000) under the bank
operating line and repayments of $9,087,000 (2012 - $12,560,000) were made during the
year. The Corporation also benefited from foreign exchange gains of $605,000 as the Bank
Operating Line was denominated in Canadian dollars in 2013. At December 31, 2013, there
were no outstanding amounts payable on the Bank Operating Line (2012 - $9,358,000).
The Corporation also has a CDN $2,320,000 capital leasing facility (“Leasing Facility”) which
can be utilized to finance the acquisition and lease of operating equipment (notes 11 & 17).
Interest is charged on outstanding amounts at the bank’s prime rate per annum and is
repayable on demand by the bank in the event of certain conditions. At December 31, 2013,
$1,772,000 (2012 - $2,546,000) was outstanding on the Leasing Facility which is included in
the finance lease liability. The remaining $10,399,000 (2012 - $11,508,000) finance lease
liability relates to the lease of the Corporation’s head office building.
Both the Bank Operating Line and Leasing Facility are secured by a hypothecation of the
Corporation’s cash, cash equivalents and short-term investments.
15. Trade and other payables:
Trade accounts payable
Compensation payable
Other liabilities
Taxes payable
December 31,
2013
December 31,
2012
$
$
5,698
5,133
275
378
5,256
2,046
4,669
244
$
11,484
$
12,215
42
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Provisions:
Balance
Legal
Restructuring
Warranty
provision
Decommissioning
liabilities
Total
At January 1, 2012
$
520
$
1,004
$
8,049
$
4,733
$
14,306
Assumed through business combination
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in exchange rates
At December 31, 2012
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in exchange rates
At December 31, 2013
Current
Non-current
Restructuring
-
-
(528)
-
8
-
-
-
-
-
-
-
-
-
-
1,937
(2,060)
-
41
922
596
(1,213)
(41)
(27)
237
237
-
237
447
1,514
(1,309)
(373)
173
8,501
1,219
(1,076)
(1,563)
(499)
6,582
6,582
-
6,582
$
$
$
$
$
$
$
$
$
-
250
-
-
106
5,089
97
-
-
(329)
4,857
-
4,857
4,857
447
3,701
(3,897)
(373)
328
14,512
1,912
(2,289)
(1,604)
(855)
11,676
6,819
4,857
11,676
$
$
$
$
$
$
During 2013, the Corporation incurred $568,000 of restructuring charges relating to minor
restructurings focused on overhead cost reductions. During 2012, $1,931,000 of restructuring
charges due primarily to a 7% workforce reduction and a minor restructuring focused on
overhead cost reduction was incurred. The estimated restructuring costs relate primarily to
employee termination benefits. Restructuring charges are recognized in general and
administrative expenses.
Warranty provision
During 2013, the Corporation recorded $1,219,000 of warranty provisions for new product
sales, which was offset by warranty expenditures of $1,076,000. A downward warranty
adjustment of $1,563,000 was also recorded in 2013, due primarily to contractual expirations,
changes in estimated and actual costs to repair, and improved lifetimes and reliability of the
Corporation’s fuel cell products. The remaining $499,000 reduction to the warranty provision
related to the effect of movements in exchange rates.
During 2012, the warranty provision increased by $452,000, due in part to the assumption of
warranty provisions as part of the acquisition of key assets and product lines from IdaTech
(note 8).
43
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Provisions (cont’d):
Decommissioning liabilities
Provisions for decommissioning liabilities have been recorded for the Corporation’s two leased
locations in Burnaby, British Columbia, comprising the Corporation’s head office building and
manufacturing facilities, and are related to site restoration obligations at the end of their
respective lease terms. The Corporation has made certain modifications to the leased
buildings to facilitate the manufacturing and testing of its fuel cell products. Consequently,
the site restoration obligations relate primarily to dismantling and removing various
manufacturing and test equipment and restoring the infrastructures of the leased buildings to
their original states of when the respective leases were entered.
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 head office building and manufacturing
facility. In determining the fair value of the decommissioning liabilities, the estimated future
cash flows have been discounted at 3% per annum.
The Corporation performed an assessment of the estimated cash flows required to settle the
obligations for the two buildings as of December 31, 2013. Based on the assessment, the
changes in the estimated cash flows were determined to be nominal and as a result, no
adjustment was recorded. The increase in the provision during 2013 was due to accretion
costs. The total undiscounted amount of the estimated cash flows required to settle the
obligation for one of the buildings is $2,219,000, which is expected to be settled at the end of
the lease term in 2025. The total undiscounted amount of the estimated cash flows required
to settle the obligation for the second building is $3,736,000, which is expected to be settled
at the end of the operating lease term of 2019.
17. Finance lease liability:
The Corporation leases certain assets under finance lease agreements (note 11). The finance
leases have imputed interest rates ranging from 2.25% to 7.35% per annum and expire
between December 2014 and February 2025.
44
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Finance lease liability (cont’d):
The future minimum lease payments for the Corporation’s finance leases are as follows:
Year ending December 31
2014
2015
2016
2017
2018
Thereafter
Total minimum lease payments
Less: Imputed interest
Total finance lease liability
Less: Current portion of finance lease liability
Non-current portion of finance lease liability
$
$
2,179
1,622
1,790
1,311
1,311
9,105
17,318
(5,147)
12,171
(1,399)
10,772
At December 31, 2013, $1,772,000 was outstanding on the Leasing Facility which is included
in the finance lease liability. The remaining $10,399,000 finance lease liability relates to the
lease of the Corporation’s head office building.
18. Debt to Dantherm Power A/S non-controlling interests:
Dantherm Power has received financing from the non-controlling partners in the form of
convertible debentures and a revolving credit facility.
Convertible debentures
The convertible debenture is redeemable at the option of Dantherm Power subject to approval
by all convertible debenture holders on or after January 1, 2013 including interest which is
accrued at 12%. Prior to the maturity date, the convertible debenture holders may elect to
convert all or part of the debenture into shares of Dantherm Power. During the first quarter of
2013, an extension of the maturity date from December 31, 2013 to December 31, 2014 was
approved by the subscribers in accordance with the terms of the convertible debenture. The
convertible debentures were issued with a conversion price of either DKK 3.40 or DKK 0.14.
This conversion feature was determined to have a nominal value.
On March 31, 2013, an additional $640,000 of convertible debt financing was advanced to
Dantherm Power by Azure, a new non-controlling partner (note 4(a)). The issued convertible
debenture notes totaling approximately DKK 3,733,000 ($689,000) were comprised of a note
for DKK 2,400,000 ($443,000) with a conversion price of DKK 3.40 ($0.63) and a note for
DKK 1,333,000 ($246,000) with a conversion price of DKK 0.14 ($0.03) and have a maturity
date of December 31, 2014.
45
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Debt to Dantherm Power A/S non-controlling interests (cont’d):
Convertible debentures (cont’d)
In November 2013, the convertible debenture holders elected to convert the entire
outstanding convertible debt including interest into shares of Dantherm Power. The non-
controlling interests in Dantherm Power held DKK 19,464,000 ($3,544,000) of convertible
debt including interest, which was converted into 48 shares in Dantherm Power. Upon
conversion, the convertible debt amount was reclassified to non-controlling interests in equity.
Ballard continues to hold a 51.3% interest in Dantherm Power, as the conversion did not
impact the respective ownership interests.
No convertible debt is outstanding as of December 31, 2013.
Revolving credit facility
The revolving credit facility makes available a revolving facility to Dantherm Power of a
maximum aggregate amount of DKK 2,977,975 ($550,000) from the non-controlling partner,
Dantherm A/S. Interest is accrued at 6% and the facility matures on December 31, 2014. In
February 2014, the subscribers of the facility approved the extension of the maturity date to
December 31, 2015 (note 30).
At December 31, 2013, the revolving credit facility outstanding was $566,000, which includes
$16,000 of interest payable.
19. Employee future benefits:
Net defined benefit pension plan liability
Net other post-retirement benefit plan liability
Employee future benefits
December 31,
2013
December 31,
2012
$
$
3,036
133
3,169
$
$
5,308
853
6,161
The Corporation maintains a defined benefit pension plan covering existing and former
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.
46
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
The Corporation accrues the present value of its obligations under employee future benefit
plans and 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, 2013. The next
actuarial valuation of the employee future benefit plans for funding purposes is expected to be
performed as of January 1, 2014.
The Corporation expects contributions of approximately $307,000 to be paid to its defined
benefit plans in 2014.
The following tables reconcile the opening balances to the closing balances for the net defined
benefit liability and its components for the two plans. The expense recognized in net income is
recorded in Finance expense.
Defined benefit pension plan
2013
2012
2013
2012
2013
2012
Balance at January 1
$ 14,652
$
13,329
$ (9,344)
$ (8,223)
$
5,308
$
5,106
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Included in profit or loss
Current service cost
Interest cost (income)
Benefits payable
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Demographic assumptions
Financial assumptions
Experience adjustment
Return on plan assets excluding
interest income
Plan expenses
Other
Contributions paid by the employer
Benefits paid
50
558
25
633
704
(2,027)
256
-
28
565
47
640
-
933
116
-
(355)
-
(355)
-
-
-
-
(353)
-
(353)
50
203
25
278
-
-
-
704
(2,027)
256
28
212
47
287
-
933
116
-
(1,088)
(774)
(1,088)
(774)
(36)
(48)
36
(1,103)
1,001
(1,052)
-
(479)
(479)
-
(318)
(318)
(395)
479
84
48
(726)
(360)
318
(42)
-
(2,155)
(395)
-
(395)
-
275
(360)
-
(360)
Balance at December 31
$ 13,703
$
14,652
$ (10,667)
$ (9,344)
$
3,036
$
5,308
47
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
Other post-retirement benefit plan
2013
2012
2013
2012
2013
2012
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Balance at January 1
$
853
$
580
$
Included in profit or loss
Current service cost
Interest cost (income)
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Demographic assumptions
Financial assumptions
Experience adjustment
Curtailment
Other
Contributions paid by the employer
Benefits paid
-
4
4
-
3
(1)
(699)
(697)
-
(27)
(27)
20
31
51
90
175
17
-
282
-
(60)
(60)
Balance at December 31
$
133
$
853
$
Pension plan assets comprise:
-
-
-
-
-
-
-
-
-
(27)
27
-
-
$
$
-
-
-
-
-
-
-
-
-
(60)
60
-
-
Cash and cash equivalents
Equity securities
Debt securities
Total
$
853
$
580
-
4
4
-
3
(1)
(699)
(697)
(27)
-
(27)
$
133
$
2013
5%
20%
75%
100%
20
31
51
90
175
17
-
282
(60)
-
(60)
853
2012
3%
70%
27%
100%
The significant actuarial assumptions adopted in measuring the fair value of benefit obligations
at December 31 were as follows:
Discount rate
Rate of compensation increase
2013
2012
Pension plan
Other benefit plan
Pension plan Other benefit plan
4.87%
n/a
2.03%
n/a
3.87%
n/a
3.02%
n/a
The significant actuarial assumptions adopted in determining net expense for the years ended
December 31 were as follows:
Discount rate
Rate of compensation increase
2013
2012
Pension plan
Other benefit plan
Pension plan Other benefit plan
3.87%
n/a
3.02%
n/a
4.30%
n/a
4.30%
n/a
48
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
The assumed health care cost trend rates applicable to the other benefit plans at December 31
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
2013
7.5%
5.0%
5.0%
2018
2013
2012
8.0%
5.0%
5.0%
2018
2012
A one-percentage-point change in assumed health care cost trend rates would not have a
material impact on the Corporation’s financial statements.
20. Equity:
(a) Share capital:
Authorized and issued:
Unlimited number of common shares, voting, without par value.
Unlimited number of preferred shares, issuable in series.
Offerings:
On March 26, 2013, the Corporation closed an underwritten offering (“March Offering”) of
7,275,000 units at a price of $1.10 per unit for gross March Offering proceeds of $8,003,000.
Each unit in the March Offering was comprised of one common share and one warrant to
purchase one common share. Each warrant is exercisable immediately upon issuance having
a 5 year term and an exercise price of $1.50 per share. Net proceeds from the March Offering
were $6,839,000 after deducting underwriting discounts, commissions, and other offering
expenses, legal and accounting fees, and previously incurred costs related to the 2012 base
shelf prospectus under which the units were issued.
Gross March Offering proceeds (7,275,000 shares at $1.10 per share)
Less: Underwriting expenses
Less: Other financing expenses
Net March Offering proceeds
$
$
8,003
(642)
(522)
6,839
49
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(a) Share capital (cont’d):
Offerings (cont’d):
On October 9, 2013, the Corporation closed another underwritten offering (“October
Offering”), which was comprised of 10,350,000 units at a price of $1.40 per unit for gross
October Offering proceeds of $14,490,000. Each unit in the October Offering was comprised
of one common share and 0.25 of a warrant to purchase one common share. Each whole
warrant is exercisable immediately upon issuance, having a 5 year term and an exercise price
of $2.00 per share. Net proceeds from the October Offering were $13,138,000, after
deducting underwriting discounts, commissions, and other estimated offering expenses.
Gross October Offering proceeds (10,350,000 shares at $1.40 per share)
$
14,490
Less: Underwriting expenses
Less: Other financing expenses
Net October Offering proceeds
(1,017)
(335)
$
13,138
At December 31, 2013, 110,133,901 common shares and 9,862,500 warrants were issued and
outstanding (2012 – 91,801,477 common shares and nil warrants).
(b) Convertible promissory note:
On March 28, 2013, the Corporation completed an agreement with Anglo American Platinum
Limited (“Anglo”), under which Anglo invested $4,000,000 in the Corporation through its
Platinum Group Metals Development Fund, to support continued commercial advancement of
the Corporation’s fuel cell products in target market applications. The investment takes the
form of a 5 year non-interest bearing convertible promissory note (“Note”). The Note may be
repaid in the form of the Corporation’s common shares at Anglo’s option on or before the loan
maturity date of April 1, 2018. Anglo does not have a right to demand settlement of the Note
in cash. Any common shares issued on conversion or repayment will be priced at a 20%
discount to the market price of the shares on the closing date of the transaction, which
equates to approximately $0.84 per share, or 4,761,904 common shares. On the maturity
date, the Corporation may elect, at its sole and entire discretion, to repay the Note in cash,
however, the Corporation intends to settle the Note by issuing the Corporation’s common
shares based on the $0.84 per share conversion price. As the convertible price and share
settlement amount are fixed, and the Corporation has no intention to settle the Note in cash,
the $4,000,000 proceeds and conversion right has been accounted for as a single equity
instrument and recorded in contributed surplus
50
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(c) Share options:
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.
As at December 31, 2013, options outstanding from the consolidated share option plan was as
follows:
Balance
At January 1, 2012
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2012
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2013
Options for
common shares
Weighted average
exercise price
7,615,969
1,009,640
(13,501)
(1,271,663)
(435,394)
6,905,051
1,081,250
(140,533)
(702,866)
(170,800)
6,972,102
$
$
5.54
1.51
1.22
5.33
35.75
3.22
1.15
1.06
2.97
13.43
2.54
The following table summarizes information about the Corporation’s share options outstanding
as at December 31, 2013:
Range of exercise price
$0.76 – $1.33
$1.59 – $1.97
$2.18 – $2.91
$3.63 – $6.68
$7.12 – $12.94
Options outstanding
Options exercisable
Weighted average
remaining
contractual life
(years)
Weighted
average
exercise
price
4.8
4.2
3.3
1.5
0.4
3.7
$
$
1.17
1.83
2.27
5.43
7.90
2.54
Number
outstanding
1,910,118
2,580,925
1,204,211
828,703
448,145
6,972,102
Number
exercisable
Weighted
average
exercise price
711,368
$
1,673,865
1,150,544
828,703
448,145
4,812,625
$
1.23
1.86
2.27
5.43
7.90
3.04
51
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(c) Share options (cont’d):
During 2013, compensation expense of $874,000 (2012 - $1,274,000) 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 $0.63 (2012 - $0.80) and
vesting periods of three years.
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
(d) Share distribution plan:
2013
5 years
Nil
63%
1%
2012
5 years
Nil
62%
2%
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,
2013, there were 2,322,539 (2012 – 873,441) shares available to be issued under this plan.
No compensation expense was recorded against income during the years ended December 31,
2013 and 2012 for shares distributed, and to be distributed, under the plan.
(e) 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, 2012
DSUs granted
DSUs exercised
At December 31, 2012
DSUs granted
DSUs exercised
At December 31, 2013
DSUs for common shares
290,797
249,785
(90,337)
450,245
208,972
(42,953)
616,264
52
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(e) Deferred share units (cont’d):
During 2013, $1,040,000 of compensation expense was recorded in net income, of which
$303,000 relates to DSUs granted during the year. The remaining $737,000 relates to
compensation expense expected to be earned for DSUs not yet issued. In 2012,
compensation expense of $176,000 was recorded in net income, of which the entire amount
related to DSUs granted during the year.
(f) 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.
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 20(d)) 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. No common shares were repurchased in
2013 and 2012. As at December 31, 2013 the Corporation held 65,441 (2012 – 183,629)
shares as treasury shares.
Balance
At January 1, 2012
RSUs granted
RSUs exercised
RSUs forfeited
RSUs transferred
At December 31, 2012
RSUs granted
RSUs exercised
RSUs forfeited
RSUs transferred
At December 31, 2013
RSUs for common shares
Share
Distribution Plan
Market
Purchase Plan
186,473
1,352,784
(84,530)
(122,044)
652,625
1,985,308
-
(920,789)
(277,227)
1,612,430
2,399,722
1,986,904
245,897
(124,884)
(602,893)
(652,625)
852,399
1,327,266
(208,698)
(334,731)
(1,612,430)
23,806
Total RSUs
2,173,377
1,598,681
(209,414)
(724,937)
-
2,837,707
1,327,266
(1,129,487)
(611,958)
-
2,423,528
In September 2013, 1,612,430 unvested RSUs previously granted under the Market Purchase
Plan were cancelled and new RSUs were reissued from the Share Distribution Plan with
identical terms (December 2012 – 652,625).
53
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(f) Restricted share units (cont’d):
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 2013, compensation expense of $1,861,000 (2012 -
$1,296,000) was recorded against income.
21. 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. Lease payments of $2,434,000 were expensed in 2013 (2012 - $2,434,000).
At December 31, 2013, 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
22. Commitments and contingencies:
$
2,566
5,262
5,161
5,125
$
18,114
Prior to January 15, 2013, the Corporation had previous funding obligations that were
repayable through potential royalties in respect of sales of certain fuel cell-based stationary
power products under a development program with the Canadian government agency,
Technology Partnerships Canada (“TPC”). Under the terms of the Utilities Development
Program, total royalties were payable annually at 4% of revenue of such products and limited
to a total maximum repayment of CDN $38,329,000. On January 15, 2013, the Corporation
reached an agreement with TPC to terminate the Corporation’s obligation for all existing and
future potential royalties payable in respect of future sales of fuel cell based stationary power
products under the Utilities Development Program in exchange for a final repayment to TPC of
CDN $1,930,000; the settlement was paid in full in 2013. Prior to the settlement, the
Corporation had made cumulative royalty repayments totalling CDN$5,320,000 under the
Utilities Development Program.
The Corporation retains a previous funding obligation to pay royalties of 2% of revenues, to a
maximum of $5,031,000 (CDN $5,351,000), on sales of certain fuel cell products for
commercial distributed utility applications. As of December 31, 2013, no royalties have been
incurred to date for this agreement.
54
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
22. Commitments and contingencies (cont’d):
The Corporation also retains a previous funding obligation to pay royalties of 2% of revenues,
to a maximum of $2,068,000 (CDN $2,200,000), on sales of certain fuel cell products for
commercial transit applications. As of December 31, 2013, no royalties have been incurred to
date for this agreement.
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 $6,910,000 (CDN $7,350,000) with a threshold
amount of $470,000 (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, 2013, no amount payable or receivable has
been accrued as a result of the Indemnity Agreement.
At December 31, 2013, the Corporation has outstanding commitments aggregating up to a
maximum of $3,000 (2012 - $12,000) relating primarily to purchases of property, plant and
equipment.
The Corporation has issued an irrevocable bank guarantee totaling $579,000, which expires in
June 2014.
23. 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 20)
December 31,
2013
December 31,
2012
$
$
47,061
3,775
50,836
$
$
45,836
2,582
48,418
In addition, $164,000 of share-based compensation was included in net loss from discontinued
operations in 2012.
55
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
24. Finance income and expense:
Investment income
Settlement of TPC funding obligation (note 22)
Other income
Pension costs (note 19)
Foreign exchange gain (loss)
Finance income (loss) and other
Finance expense
$
2013
141
(1,197)
-
(282)
1,553
215
$
2012
249
-
(11)
(279)
(178)
(219)
(1,486) $
(1,690)
$
$
$
On January 15, 2013, the Corporation reached an agreement with Technology Partnerships
Canada (“TPC”) to terminate all existing and future potential royalties payable in respect of
future sales of fuel cell based stationary power products under the Utilities Development
Program (Phase 2) in exchange for a final repayment to TPC of CDN $1,930,000, payable in
four quarterly installments in 2013. On settlement with TPC, the Corporation recorded a
charge of $1,197,000 (CDN $1,209,000) to finance income (loss) and other, representing the
excess of the settlement amount of CDN $1,930,000 over royalty amounts previously accrued
as of the date of settlement of CDN $721,000. As of December 31, 2013, the settlement was
fully paid and no liability remained outstanding.
25. Income taxes:
(a) Current tax expense:
The components of income tax benefit / (expense) included in the determination of the profit
(loss) from continuing operations comprise of:
Current tax expense
Current period income tax
Withholding tax
Adjustment for prior periods
Total current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior periods
Change in unrecognized deductible temporary differences
Total deferred tax expense
Total income tax expense
2013
2012
-
508
(23)
485
1,348
(416)
(932)
-
485
$
$
$
$
$
-
-
-
-
14,967
2,146
(17,113)
-
-
$
$
$
$
$
56
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
25. Income taxes (cont’d):
(a) Current tax expense (cont’d):
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 25.75% (2012 – 25.00%)
Increase (reduction) in income taxes resulting from:
Non-deductible portion of capital loss
Non-deductible expenses (non-taxable income)
Expiry of losses and investment tax credits
Investment tax credits earned
Foreign tax rate differences
Change in unrecognized deductible temporary differences
2013
(21,239)
(5,469)
$
$
2012
$
$
(43,659)
(10,915)
1,106
(3,692)
8,236
(2,640)
77
2,867
-
3,575
27,539
(3,848)
(6)
(16,345)
Income taxes
$
485
$
-
(b) Unrecognized deferred tax liabilities:
At December 31, 2013, the Corporation did not recognize any deferred tax liabilities resulting
from taxable temporary differences for financial statement and income tax purposes.
(c) Unrecognized deferred tax asset:
At December 31, 2013, the Corporation did not have any deferred tax assets resulting from
the following deductible temporary differences for financial statement and income tax
purposes.
Scientific research expenditures
Investment in associated companies
Accrued warranty liabilities
Share issuance costs
Losses from operations carried forward
Capital losses carried forward
U.S. investment tax credits
Investment tax credits
Property, plant and equipment and intangible assets
2013
$
58,347 $
-
25,899
2,276
91,136
-
-
23,596
200,015
2012
57,285
18,364
29,912
-
75,261
9,423
626
22,451
206,572
$
401,269 $
419,894
Deferred tax assets have not been recognized in respect of these deductible temporary
differences because it is not probable that future taxable profit will be available against which
the Corporation can utilize the benefits.
57
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
25. Income taxes (cont’d):
(c) Unrecognized deferred tax asset (cont’d):
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
2013
$
58,347 $
41,685
23,595
303
13,140
1,702
-
-
34,306
2012
57,285
29,710
22,451
241
13,514
1,702
626
9,423
30,094
The Canadian scientific research expenditures may be carried forward indefinitely. The
Canadian losses from operations may be used to offset future Canadian taxable income and
expire over the period from 2029 to 2033.
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 2018 to 2033. 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 Canadian investment tax credits may be used to offset future Canadian income taxes
otherwise payable and expire as follows:
2014
2016
2017
2019
2020
2021
2022
2023
2029
2030
2031
2032
2033
$
100
89
99
2,472
1,800
1,697
1,361
1,136
4,455
3,051
2,836
2,467
2,033
$
23,596
58
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Related party transactions:
Related parties include shareholders with a significant ownership interest in either the
Corporation or Dantherm Power, together with their 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 payables
Interest payable (note 18)
Convertible debenture payable (note 18)
Revolving credit facility (note 18)
Transactions during the year with related parties:
Purchases
Finance expense
$
$
2013
139
16
-
550
2013
185
322
$
$
2012
100
417
2,507
-
2012
309
289
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 20).
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 20)
2013
2,441
46
-
2,543
5,030
$
$
$
$
2012
2,412
63
-
1,396
3,871
59
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Supplemental disclosure of cash flow information:
Non-cash financing and investing activities:
Compensatory shares
Shares issued for acquisition (note 8)
2013
738
-
$
$
2012
427
7,493
$
$
28. Operating segments:
The Corporation operates in a single segment, Fuel Cell Products and Services, which consists
of the sale, service, and licensing of fuel cell products for “commercial stage” markets of
Telecom Backup Power and Material Handling and for “development stage” markets of Bus and
Distributed Generation, as well as the provision of Engineering Services for a variety of fuel
cell applications.
As a result of the disposition of the Material Products division on January 31, 2013, the former
Material Products segment has been classified as discontinued operations and therefore has
been removed from the continuing operating results (note 7). The former Material Products
segment sold carbon fiber products primarily for automotive transmissions and gas diffusion
layers (“GDL”) for fuel cells.
In 2013, revenues from the Fuel Cell Products and Services segment included sales to four
individual customers of $14,274,000, $13,038,000, $6,369,000, and $6,354,000, respectively,
which exceeded 10% of total revenue.
In 2012, revenues from the Fuel Cell Products and Services segment included sales to two
individual customers of $6,152,000 and $5,500,000, respectively, which exceeded 10% of
total revenue.
Revenues from continuing operations 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.
Belgium
China
Denmark
Germany
Japan
South Africa
Other countries
$
$
2013
4,580
8,816
3,848
15,123
799
14,407
6,801
1,356
5,521
$
61,251
$
2012
9,669
11,346
4,119
631
1,716
2,664
1,002
6,887
5,656
43,690
60
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
28. Operating segments (cont’d):
Non-current assets by geographic area are as follows:
Non-current assets
Canada
U.S.
Denmark
Germany
Mexico
29. Financial instruments:
(a) Fair value:
December 31,
2013
December 31,
2012
$
$
57,857
391
688
-
567
$
59,503
$
63,935
251
1,318
59
686
66,249
The Corporation’s financial instruments consist of cash and cash equivalents, short-term
investments, trade and other receivables, investments, trade and other payables, and finance
lease liability. The fair values of cash and cash equivalents, trade and other receivables, trade
and other payables approximate their carrying values because of the short-term nature of
these instruments. The Corporation’s investments (note 29(c)) 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 finance lease liability are not considered to
be materially different from market rates, thus the carrying value of the finance lease liability
approximates fair value. The carrying value of short-term investments equal their fair values
as they are classified as held for trading.
Fair value measurements recognized in the statement of financial position 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 is not based on observable market data
(unobservable inputs).
The Corporation categorized the fair value measurement of its short-term investments in Level
1 as they are primarily derived directly from reference to quoted (unadjusted) prices in active
markets.
61
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(b) Carrying value:
As of December 31, 2013, the carrying values of the Corporation’s financial instruments
approximate their fair values. For the Corporation’s non-financial assets and liabilities
measured at fair value on a non-recurring basis, no fair value measurements were made as at
December 31, 2013 with the exception of the investment in Chrysalix, which was written down
to its estimated net realizable value (note 29(c)).
(c) Investments:
Investments are comprised of the following:
Chrysalix Energy Limited Partnership
Other
December 31, 2013
December 31, 2012
Percentage
Percentage
Amount
ownership
Amount
ownership
$
$
150
7
157
15.0%
$
$
659
8
667
15.0%
The Corporation’s 15% ownership share in Chrysalix is accounted for as an available-for-sale
financial asset and recorded at fair value.
In 2013, the Corporation made additional capital contributions in Chrysalix of $4,000. In
2012, the Corporation made additional capital contributions in Chrysalix of $44,000, which
was offset by cash distributions received from Chrysalix of $12,000.
In 2013, the Corporation recorded an impairment loss of $513,000 to adjust the carrying
value of Chrysalix to its estimated net realizable value of $150,000. No impairment loss was
recorded in 2012.
(d) 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 Canadian dollar
denominated cash and cash equivalents and short-term investments.
At December 31, 2013
Canadian dollar
portfolio(1)
U.S. dollar
portfolio
Other (1)
Total
Cash and cash equivalents
$
11,044
$
19,137
$
120 $
30,301
Short-term investments
-
-
-
-
Total
$
11,044
$
19,137
$
120 $
30,301
62
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(d) Financial risk management (cont’d):
At December 31, 2012
Canadian dollar
portfolio(1)
U.S. dollar
portfolio
Other (1)
Total
Cash and cash equivalents
$
5,419
$
3,591
$
760 $
9,770
Short-term investments
12,068
-
-
12,068
Total
$
17,487
$
3,591
$
760 $
21,838
(1) U.S. dollar equivalent
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 (note 24).
The Corporation did not realize any material gains or losses on its trade and other receivables
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, 2013, the Corporation held Canadian dollar denominated cash,
cash equivalents and short-term investments of CDN $11,746,000 and had no outstanding
forward foreign exchange contracts.
The following exchange rates applied during the year ended December 31, 2013:
January 1, 2013 Opening rate
December 31, 2013 Closing rate
Fiscal 2013 Average rate
$U.S. to $1.00 CDN
$CDN to $1.00 U.S.
$ 1.005
$ 0.940
$ 0.971
$ 0.995
$ 1.064
$ 1.030
63
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(d) 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, 2013, 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 $1,104,000
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.
Commodity risk
Commodity risk is the risk of financial loss due to fluctuations in commodity prices, in
particular, for the price of platinum and palladium, which are key components of the
Corporation’s fuel cell products. Platinum and palladium are scarce natural resources and
therefore the Corporation is dependent upon a sufficient supply of these commodities. To
manage its exposure to commodity price fluctuations, the Corporation may include platinum
and or palladium pricing adjustments directly into certain significant customer contracts, and
may also periodically enter into platinum and or palladium forward contracts. At December
31, 2013, there were no platinum or palladium forward contracts outstanding.
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, 2013, a 0.25%
decline in interest rates, with all other variables held constant, would result in a decrease in
investment income $76,000, 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.
64
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2013, and 2012
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(d) Financial risk management (cont’d):
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.
30. Subsequent event:
In February 2014, the maturity date of the revolving credit facility made available to
Dantherm Power by a non-controlling partner (note 18) was extended from December 31,
2014 to December 31, 2015.
65
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CONTENTS
Notice of Annual Meeting .................................................................................................................................................. 1
Management Proxy Circular .............................................................................................................................................. 8
Matters to be Voted Upon ................................................................................................................................................. 8
Voting Information ............................................................................................................................................................ 8
Corporate Governance ..................................................................................................................................................... 14
Executive Compensation ................................................................................................................................................. 20
Additional Information .................................................................................................................................................... 40
Defined Terms .................................................................................................................................................................. 42
Appendix "A" Board Mandate ......................................................................................................................................... A1
Appendix "B" Description of Option Plan ....................................................................................................................... B1
Appendix"C" Description of SDP ..................................................................................................................................... C1
Financial Information ....................................................................................................................................................... D1
ABOUT BALLARD POWER SYSTEMS
Ballard Power Systems (NASDAQ: BLDP)(TSX: BLD) is a global leader in clean energy fuel cell products and
services. We have extensive expertise in proton exchange membrane (PEM) fuel cell technology, built on years
of experience in product design, testing, system integration and commercialization. Our 350 dedicated
employees – most of whom are located at our headquarters facility in Vancouver, Canada – sell to and support
customers in such international locations as Southeast Asia, China, India, U.S., Canada, Mexico, the Caribbean,
Europe and Africa. Our business model is focused on fuel cell product sales, engineering services and licensing
activities. Learn more in this document and at www.ballard.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
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.
PUTTING FUEL CELLS TO WORK
CORPORATE INFORMATION
CORPORATE(cid:3)OFFICES(cid:3)
Ballard(cid:3)Power(cid:3)Systems(cid:3)Inc.(cid:3)
Corporate(cid:3)Headquarters(cid:3)
9000(cid:3)Glenlyon(cid:3)Parkway(cid:3)
Burnaby,(cid:3)BC(cid:3)Canada(cid:3)V5J(cid:3)5J8(cid:3)
T:(cid:3)604.454.0900(cid:3)
F:(cid:3)604.412.4700(cid:3)
(cid:3)
(cid:3)
TRANSFER(cid:3)AGENT(cid:3)
Computershare(cid:3)Trust(cid:3)(cid:3)
Company(cid:3)of(cid:3)Canada(cid:3)
Shareholder(cid:3)Services(cid:3)Department(cid:3)
510(cid:3)Burrard(cid:3)Street(cid:3)
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T:(cid:3)1.800.564.6253(cid:3)
F:(cid:3)1.866.249.7775(cid:3)
(cid:3)
(cid:3)
STOCK(cid:3)LISTING(cid:3)
Ballard’s(cid:3)common(cid:3)shares(cid:3)are(cid:3)(cid:3)
listed(cid:3)on(cid:3)the(cid:3)Toronto(cid:3)Stock(cid:3)(cid:3)
Exchange(cid:3)under(cid:3)the(cid:3)trading(cid:3)(cid:3)
symbol(cid:3)BLD(cid:3)and(cid:3)on(cid:3)the(cid:3)
NASDAQ(cid:3)Global(cid:3)Market(cid:3)(cid:3)
under(cid:3)the(cid:3)trading(cid:3)symbol(cid:3)BLDP.(cid:3)
(cid:3)
INVESTOR(cid:3)RELATIONS(cid:3)
To(cid:3)obtain(cid:3)additional(cid:3)information,(cid:3)
please(cid:3)contact:(cid:3)
(cid:3)
Ballard(cid:3)Power(cid:3)Systems(cid:3)
Investor(cid:3)Relations(cid:3)
9000(cid:3)Glenlyon(cid:3)Parkway(cid:3)
Burnaby,(cid:3)BC(cid:3)Canada(cid:3)V5J(cid:3)5J8(cid:3)
T:(cid:3)604.412.3195(cid:3)
F:(cid:3)604.412.3100(cid:3)
E:(cid:3)investors@ballard.com(cid:3)
W:(cid:3)www.ballard.com(cid:3)
EXECUTIVE(cid:3)MANAGEMENT(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
John(cid:3)W.(cid:3)Sheridan(cid:3)
President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Executive(cid:3)Officer(cid:3)
(cid:3)
Tony(cid:3)Guglielmin(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Financial(cid:3)Officer(cid:3)(cid:3)
(cid:3)
Paul(cid:3)Cass(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Operations(cid:3)Officer(cid:3)
(cid:3)
Christopher(cid:3)J.(cid:3)Guzy(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Technical(cid:3)Officer(cid:3)
(cid:3)
Steven(cid:3)Karaffa(cid:3)
Vice(cid:3)President(cid:3)&(cid:3)Chief(cid:3)(cid:3)
Commercial(cid:3)Officer(cid:3)
(cid:3)
INDEPENDENT(cid:3)AUDITORS(cid:3)
(cid:3)
KPMG(cid:3)LLP(cid:3)
Vancouver,(cid:3)BC(cid:3)Canada(cid:3)
(cid:3)
LEGAL(cid:3)COUNSEL(cid:3)
(cid:3)
Canada:(cid:3)
Stikeman(cid:3)Elliott,(cid:3)LLP(cid:3)
Vancouver,(cid:3)BC(cid:3)Canada(cid:3)
(cid:3)
United(cid:3)States:(cid:3)
Dorsey(cid:3)&(cid:3)Whitney(cid:3)LLP(cid:3)
Seattle,(cid:3)WA(cid:3)USA(cid:3)
(cid:3)
Intellectual(cid:3)Property:(cid:3)
Seed(cid:3)Intellectual(cid:3)Property(cid:3)(cid:3)
Law(cid:3)Group,(cid:3)LLC(cid:3)
Seattle,(cid:3)WA(cid:3)USA(cid:3)
BOARD(cid:3)OF(cid:3)DIRECTORS(cid:3)
(cid:3)
Ian(cid:3)A.(cid:3)Bourne(cid:3)
Corporate(cid:3)Director(cid:3)
Alberta,(cid:3)Canada(cid:3)
(cid:3)
Douglas(cid:3)P.(cid:3)Hayhurst(cid:3)
Corporate(cid:3)Director(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Edwin(cid:3)J.(cid:3)Kilroy(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
John(cid:3)W.(cid:3)Sheridan(cid:3)
President(cid:3)&(cid:3)Chief(cid:3)Executive(cid:3)
Officer(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Carol(cid:3)M.(cid:3)Stephenson(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
David(cid:3)B.(cid:3)Sutcliffe(cid:3)
Corporate(cid:3)Director(cid:3)
British(cid:3)Columbia,(cid:3)Canada(cid:3)
(cid:3)
Ian(cid:3)Sutcliffe(cid:3)
Corporate(cid:3)Director(cid:3)
Ontario,(cid:3)Canada(cid:3)
(cid:3)
(cid:3)
(cid:3)
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