www.ballard.com
NOTICE OF ANNUAL MEETING,
MANAGEMENT PROXY CIRCULAR
AND 2014 ANNUAL REPORT
BALLARD POWER
SYSTEMS
PUTTING FUEL CELLS TO WORK
The Power of Fuel Cells, Simply Delivered
WWW.BALLARD.COM
CONTENTS
Notice of Annual Meeting ............................................................................................................................ 1
Management Proxy Circular ......................................................................................................................... 8
Matters to be Voted Upon ........................................................................................................................... 8
Voting Information ...................................................................................................................................... 8
Corporate Governance ............................................................................................................................... 15
Executive Compensation ............................................................................................................................ 22
Additional Information............................................................................................................................... 43
Defined Terms ........................................................................................................................................... 45
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) provides clean energy products that reduce customer costs
and risks, and helps customers solve difficult technical and business challenges in their fuel cell programs. Our
400 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 is based on two key platforms: Power Products and
Technology Solutions. To learn more about Ballard, please visit 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 OFFICES
Ballard Power Systems Inc.
Corporate Headquarters
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.454.0900
F: 604.412.4700
TRANSFER AGENT
Computershare Trust
Company of Canada
Shareholder Services Department
510 Burrard Street
Vancouver, BC Canada V6C 3B9
T: 1.800.564.6253
F: 1.866.249.7775
STOCK LISTING
Ballard’s common shares are
listed on the Toronto Stock
Exchange under the trading
symbol BLD and on the
NASDAQ Global Market
under the trading symbol BLDP.
INVESTOR RELATIONS
To obtain additional information,
please contact:
Ballard Power Systems
Investor Relations
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.412.3195
F: 604.412.3100
E: investors@ballard.com
W: www.ballard.com
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
Ian A. Bourne
Corporate Director
Alberta, Canada
Douglas P. Hayhurst
Corporate Director
British Columbia, Canada
Edwin J. Kilroy
Corporate Director
Ontario, Canada
Randy MacEwen
President & Chief Executive
Officer
British Columbia, Canada
Jim Roche
Corporate Director
Ontario, Canada
Carol M. Stephenson
Corporate Director
Ontario, Canada
David B. Sutcliffe
Corporate Director
British Columbia, Canada
Ian Sutcliffe
Corporate Director
Ontario, Canada
Randy MacEwen
President & Chief
Executive Officer
Tony Guglielmin
Vice President & Chief
Financial Officer
Paul Cass
Vice President & Chief
Operations Officer
Christopher J. Guzy
Vice President & Chief
Technical Officer
Steven Karaffa
Vice President & Chief
Commercial Officer
INDEPENDENT AUDITORS
KPMG LLP
Vancouver, BC Canada
LEGAL COUNSEL
Canada:
Stikeman Elliott, LLP
Vancouver, BC Canada
United States:
Dorsey & Whitney LLP
Seattle, WA USA
Intellectual Property:
Seed Intellectual Property
Law Group, LLC
Seattle, WA USA
BALLARD POWER SYSTEMS INC.
9000 Glenlyon Parkway
Burnaby, British Columbia, Canada V5J 5J8
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
Our 2015 Annual Meeting (the "Meeting") will be held at the Corporation’s facilities at 9000 Glenlyon
Parkway, Burnaby, British Columbia, on Tuesday, June 2, 2015 at 1:00 p.m. (Pacific Daylight Time) for the
following purposes:
1.
2.
3.
4.
5.
6.
To receive our audited financial statements for the financial year ended December 31, 2014
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 consider and, if thought appropriate, to approve resolutions to re-confirm and approve the
Corporation’s Equity-based Compensation Plans; 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 2014 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 29, 2015.
If you plan to attend the Meeting you must follow the instructions set out in the form of proxy and in the
Management Proxy Circular to ensure that your shares will be voted at the Meeting.
DATED at Burnaby, British Columbia, April 10, 2015.
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems Inc.
1
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2
Letter from R.RANDALL MACEWEN
President and Chief Executive Officer
Dear Shareholders,
2014 was a mixed year for your company, marked by clear progress and some disappointment. It was also a
year of planned leadership transition at Ballard.
2014 Highlights
In 2014, your company grew revenue by 12% to $68.7 million. We had a particularly strong year of growth
in our Engineering Services business, with full year revenue up 43%, anchored by our long-term contract
with Volkswagen. We also experienced 124% growth in our Material Handling business, anchored by strong
demand under our long-term contract with Plug Power. The robust growth from these two businesses was
partially offset by an expected decrease in Development Stage revenue – particularly in relation to sales of
Bus modules – together with an unexpected and disappointing decrease in revenue from Telecom Backup
Power systems.
The impressive growth of our Material Handling business in 2014 was notable. This growth reflected the
market validation that owners of high-throughput distribution centers see a productivity value proposition
with fuel cell powered forklift trucks. It is highly gratifying to see early growth in a commercial market
where fuel cell powered forklifts are able to cost-effectively address real customer pain points experienced
with legacy battery technology. In my opinion, these are the kind of case studies that will help drive growth
in our budding industry.
A key strategic initiative in 2014 was the acquisition of a portfolio of PEM fuel cell intellectual property (IP)
from United Technologies Corporation (UTC). Ballard acquired the portfolio for $2 million in cash and 5.1
million common shares in April. We believed strongly that we would have the opportunity to realize a return
on this investment given our ability to bundle a world-class PEM fuel cell IP portfolio with our world-class
PEM fuel cell Engineering Services. This thesis proved correct. In February 2015, we transferred most of this
IP portfolio to Volkswagen Group for $50 million in cash.
In November, Volkswagen and Audi introduced fuel-cell concept cars at the LA Auto Show, including the
Golf SportWagen HyMotion, Passat HyMotion and Audi A7 Sportback h-tron Quattro. These cars are a
testament to the progress made in our Engineering Services program with Volkswagen.
3
2014 Financial Results
Our 2014 financial results were clearly disappointing, having been adversely impacted by non-recurring
charges and reserves, including a setback in China where we terminated IP licensing contracts in Q4 due to
non-payment by a customer. At the same time, it is also clear that we have opportunity in 2015 to continue
our longer-term trend of improving the underlying fundamentals and financial performance of our business.
Leadership Transition
In 2014, after 8½ years at the helm, John Sheridan retired. John was a courageous and impactful leader at
Ballard during a very challenging period in the industry. He left the company with a strong foundation for
future growth. I would like to express my appreciation to John for his support during a seamless CEO
transition process.
2015 Outlook and Milestones
2015 will be an important year for Ballard as we continue to position the business for sustained growth and a
path to profitability. Here is what you can expect from Ballard in 2015:
(cid:120)
(cid:120)
Financial Outlook
o Improve financial performance, driven by revenue growth and gross margin expansion
o Consistent with prior years, our business will be heavily weighted towards the second half
o Continue to maintain a strong balance sheet to support growth (now achieved with
Volkswagen Group IP transaction)
Power Products
o Secure orders from at least two new key accounts in Telecom Backup Power
o Continue to grow our business in Material Handling
o Grow our Bus module shipments in Europe, the U.S. and China
o Secure at least one new megawatt-scale Distributed Generation project
o Grow our sales backlog and opportunity pipeline entering 2016
(cid:120) Technology Solutions
o Continue to grow our Technology Solutions business, including securing follow-on business
from existing customers and originating business from new customers
o Secure at least one new automotive OEM customer (now achieved)
(cid:120)
(cid:120)
Product Development
o Launch our next-generation FCgenTM-1020 air-cooled stack
o Launch our next generation ElectraGenTM-ME methanol-fuelled Backup Power system
o Launch our next generation FCvelocityTM-HD7 module
Surface Value on the UTC Patent Portfolio
o Receive $40 million in February (now achieved with Volkswagen Group IP transaction)
o Receive $10 million by Q1 2016
(cid:120) Continue Investment in the Business to Position for 2016 and Beyond
o Build-out our Commercial sales team (now achieved)
o Invest in go-to-market strategy and marketing
(cid:120) Continue Legacy as an Industry Thought Leader
(cid:120) Continue Transparency with Shareholder Communications
o Host an Investor & Analyst Day later this year
4
As we enter 2015, we believe strongly in the underlying merits of our business, including the resiliency and
diversification embedded in our customer-centric business model, the quality of our team, the strength of our
brand, the competitiveness of our technology and a growing sales pipeline with a foundation built on repeat
customer business and complemented by attractive new customers. Our balance sheet is strong and we enjoy
significant leverage in our cost structure.
My thanks go to the commitment, innovation and hard work of the entire Ballard team in 2014. We have a
collective passion for the Ballard mission and for keeping the customer at the heart of our decisions. As we
advance into 2015, we are excited by positive industry developments, the attractiveness of our target markets
and our ability to deliver value to customers.
Our objective is to grow your investment in Ballard through improved performance and execution over the
long-term. We are focused on strategic market positioning, continued strong organic growth, gross margin
expansion and the effective management of our costs and capital. In addition to organic growth, we are also
actively reviewing strategic acquisition opportunities to help build scale and accelerate our drive toward a
sustainable business based on profitability. The Ballard team is excited by this challenge.
We appreciate your continued support and look forward to reporting our progress over the next year.
"R. Randall MacEwen"
R. RANDALL MACEWEN
President & CEO
Ballard Power Systems Inc.
5
Sustainability Report
2014
COMMERCIALIZATION OF OUR CLEAN ENERGY FUEL CELL PRODUCTS is where Ballard can
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 have dedicated their careers to providing customers with the positive
economic and environmental benefits of the unique products and services that we provide.
Ballard’s GREEN INITIATIVE is focused on three pillars:
2014 ACHIEVEMENTS
Ballard’s
ElectraGen™-ME
backup power
systems
OUR OPERATIONS
Reduce, reuse, recycle.
We will
improve the
way we
operate our
business to
minimize
environmental
impact.
OUR PRODUCTS
We will maximize the
of our 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.
Virtualized a number of physical servers,
resulting in a smaller overall footprint,
lower electricity requirements and less
packaging use
Continued an active recycling program for
paper, cardboard, wood, metal, glass, drink
containers, computers and electronics
Began an organics recycling program
Continued coordinating with our suppliers
to minimize packaging materials
Sourced local suppliers where possible in
order to reduce the impact of extended
transportation distances
OUR PRODUCTS IN ACTION
Prime power trial system at Kroonstad community in South Africa
Access to electricity is a major concern in many
developing countries, especially in remote areas
where the cost of extending the grid is simply
uneconomical.
In South Africa there is estimated to be close to 600,000
homes that are off-grid … and as many as 10 million in the
entire African continent. The South African government
is supporting development of sustainable solutions to
provide power to these off-grid communities and improve
the quality of life for residents.
In August 2014 Anglo American Platinum launched a
12-month ‘continuous power’ trial, in which Ballard fuel
cell systems are helping provide prime power for 34
homes in Kroonstad, a remote off-grid community in South
Africa.
The trial utilizes Ballard’s commercially proven 5 kilowatt
(kW) ElectraGen™-ME fuel cell system, integrated by Anglo
American Platinum into a complete prototype off-grid
solution, including a battery bank and inverter operating
within a microgrid. The system is designed to provide a
total of 15 kW’s of fuel cell-generated electric power and
can generate peak power of 70 kW’s. Monthly delivery of
liquid methanol fuel to an external storage tank enables
uninterrupted primary power to these homes.
The community now has access to reliable power for lights (enabling students
to read and study at night), cooking (eliminating the safety hazards associated
with burning wood and paraffin), refrigeration (eliminating food wastage and
allowing for bulk, cheaper purchases), radio, television and charging of electronic
devices.
Benefits accrued by the Naledi Trust community of Kroonstad include:
· Reliable electricity for 12 months, sufficient for lighting, TV, radio, cell phone
charging, laptops, refrigeration and cooking.
· Long term electricity provision being developed in conjunction with the
municipality.
· 50 KWh per month of Free Basic Electricity.
EMPLOYEE(cid:3)AWARDS(cid:3)OF(cid:3)EXCELLENCE(cid:3)FOR(cid:3)
“Above(cid:3)and(cid:3)Beyond”(cid:3)Winners(cid:3)
2014
(cid:3)
CUSTOMER(cid:3)EXCELLENCE(cid:3)AWARD:(cid:3)
VW/HYMOTION(cid:3)CORE(cid:3)TEAM(cid:3)(cid:3)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
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Joel(cid:3)Orum(cid:3)
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Neil(cid:3)Blackadar(cid:3)
TECHNOLOGY(cid:3)&(cid:3)PRODUCT(cid:3)INNOVATION(cid:3)AWARD:(cid:3)
MICRO(cid:3)AIR(cid:3)COOLED(cid:3)STACK(cid:3)DEVELOPMENT(cid:3)
George(cid:3)Skinner(cid:3)(cid:3)
(cid:131)
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(cid:131)
(cid:131) Matthew(cid:3)Gray(cid:3)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
Radu(cid:3)Bradean(cid:3)
(cid:131)
Eric(cid:3)Wang(cid:3)
(cid:131)
QUALITY(cid:3)AWARD:(cid:3)
BASELINING(cid:3) THE(cid:3) TOTAL(cid:3) COST(cid:3) OF(cid:3) POOR(cid:3) QUALITY
(cid:3)
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(cid:131)
BALLARD(cid:3)SPIRIT(cid:3)AWARD:(cid:3)
HD7(cid:3)Q4(cid:3)BUILD,(cid:3)TEST(cid:3)AND(cid:3)SHIP(cid:3)TEAM(cid:3)
Tim(cid:3)Naylor(cid:3)(cid:3)
(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
Garth(cid:3)Currier(cid:3)(cid:3)
(cid:131)
Don(cid:3)Lines
Steve(cid:3)Gabrys(cid:3)(cid:3)
Alan(cid:3)Loke(cid:3)
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(cid:131)
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(cid:131)
(cid:131)
(cid:131) Matt(cid:3)Kusy(cid:3)
Edith(cid:3)Hicks(cid:3)(cid:3)
(cid:131)
(cid:131) Mike(cid:3)Padmore(cid:3)(cid:3)
Doug(cid:3)Bell(cid:3)(cid:3)
(cid:131)
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(cid:131)
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(cid:131)
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(cid:131)
MANAGEMENT PROXY CIRCULAR
dated as of April 10, 2015
MATTERS TO BE VOTED UPON
Registered Shareholders or their duly appointed proxyholders will be voting on:
(cid:120) the election of directors to our Board;
(cid:120) the re-appointment of our auditors and authorization for our Audit Committee to fix the
remuneration of the auditors;
(cid:120) on an advisory basis, the Corporation’s approach to executive compensation;
(cid:120) the re-confirmation and approval of the Corporation’s Equity-based Compensation Plans; and
(cid:120) 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 2, 2015 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 27, 2015.
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;
8
outside North America: 1-416-263-9524), not less than 48 hours (excluding Saturdays and holidays) before
the time of the Meeting. The individuals named as proxyholders in the accompanying form of proxy are
directors and officers of Ballard. A Registered Shareholder desiring to appoint a person or company
(who need not be a shareholder) to represent him or her at the Meeting, other than the persons or
companies named in the enclosed proxy, may do so by inserting the name of such other person or
company in the blank space provided in the proxy.
A proxy may be revoked by written notice executed by the Registered Shareholder or by his or her
attorney authorized in writing or, where the Registered Shareholder is a company, by a duly authorized
officer or attorney of that company, and delivered to:
(cid:120) 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;
(cid:120) the registered office of the Corporation at any time up to and including the last business day
preceding the day of the Meeting; or
(cid:120) the chair of the Meeting on the day of the Meeting and before any vote in respect of which the
proxy is to be used is taken.
A proxy may also be revoked in any other manner provided by law. Any revocation of a proxy will
not affect a matter on which a vote is taken before such revocation.
VOTING OF SHARES AND EXERCISE OF DISCRETION BY PROXIES
If you complete and deposit your proxy properly, then the proxyholder named in the accompanying
form of proxy will vote or withhold from voting the Shares represented by the proxy in accordance with your
instructions. If you do not specify a choice on any given matter to be voted upon, your Shares will be
voted in favour of such matter. The proxy grants the proxyholder the discretion to vote on
amendments to or variations of matters identified in the Notice of Annual Meeting and with respect to
other matters that may properly come before the Meeting.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
As of the Record Date of April 10, 2015, we had 132,589,429 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, 2014, 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
ELECTIO
ON OF DIRE
CTORS
At
of the Boar
(or if no d
removed fr
serve as a d
discretion.
the Meeting y
rd. Each elec
director is the
om office ear
director, the p
you will be as
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en elected, un
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persons name
sked to elect e
will hold off
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nominee for e
ed in the enc
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fice until the
sor is elected
election as a d
losed proxy w
rs. All of our
end of our ne
d) unless the
director advi
will vote to e
r nominees ar
ext annual sh
director resi
ses us that he
elect a substi
e currently m
hareholders’ m
igns or is oth
e or she is un
tute director
members
meeting
herwise
nable to
at their
The
April 10, 2
beneficially
been provid
e following i
2015. The n
y owned, or co
ded to us by th
nformation p
number of S
ontrolled or d
hat nominee.
pertains to ou
Shares shown
directed, direc
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n as being he
ctly or indirec
for election a
eld by each
ctly, by that n
as directors a
nominee con
nominee and s
t the Meeting
nstitute the n
such informat
g, as of
number
tion has
Mr. Bour
Bourne w
in 2012.
(electricit
Education
a Fellow
rne’s principal occ
was also our lead d
Previously, Mr.
ty generation and
n Program of the I
of the ICD in 201
cupation is corpora
director from Octob
Bourne was the E
marketing) from
Institute of Corpor
1.
ate director, and h
ber 2005 to Febru
Executive Vice Pr
1998 to 2006 and
rate Directors and h
he has been the Ch
uary 2006.Mr. Bou
resident and the C
d from 1998 to 200
has received his IC
hair of the Board o
urne was interim C
Chief Financial Of
05, respectively.
CD.D designation.
of Ballard since M
CEO of SNC-Lava
fficer of TransAlt
He has completed
. Mr. Bourne was
May 2006. Mr.
alin Group Inc.
ta Corporation
d the Directors
recognized as
mittee
Board and Comm
B
1)
Membership(1
Attendance
Board M
Memberships
I
an A. Bourne
Age: 67
A
Alberta, Canada
A
Director since: 200
D
03
Independent
In
hair)
Board (C
Audit
Corporate
Compens
e Governance &
sation
10
6
4
100
100
100
0%
0%
0%
Current:
Accounta
Pension
Limited
Previous
Glenbow
Calgary
: SNC-Lavalin Gro
ability Board; Waj
Plan Investment B
oup Inc.; Canadian
ajax Corporation; C
Board; Canadian O
n Public
Canada
Oil Sands
s: TransAlta Powe
w Museum; Calgar
Foundation
er LP; TransAltaCo
ry Philharmonic O
oGen LP;
Orchestra; The
Securi
ities Held(2)
Year
2015
2014
Shares
DSUs
26,824
209,215
2
26,824
186,374
To
otal of Shares and
d DSUs
236,039
213,198
Total Value of Sh
DSUs (CDN
hares and
N$)(3)
2
$679,792
3
$918,883
Mr. Hayh
Consultin
services).
Deputy M
Fellowsh
Directors
hurst’s principal oc
ng Services(consu
Prior to that, Mr
Managing Partner
ip (FCA) from th
Education Progra
ccupation is corpo
ulting services)an
r. Hayhurst held v
r (Toronto) and M
he Institutes of Ch
am of the Institute
orate director. Pre
d a partner with
various senior exe
Managing Partner
hartered Accounta
of Corporate Dire
eviously, Mr. Hayh
h Pricewaterhouse
ecutive manageme
r for British Col
ants of British Co
ectors and has rece
hurstwas an execu
eCoopers Manage
ent roles with Pric
lumbia (Vancouve
olumbia and of O
eived his ICD.D de
utive with IBM Ca
ement Consultant
ewaterhouse inclu
er). Mr. Hayhur
Ontario. He has c
esignation.
anada Business
ts (consulting
uding National
rst received a
completed the
Board and Comm
B
Membership
mittee
Board
Audit
Corporate
Compens
e Governance &
sation
Douglas P. Hayhu
D
urst
Age: 68
A
B.C., Canada
B
Director since: 201
D
2
Independent
In
Attendance
Board M
Memberships
9
6
4
90
100
100
0%
0%
0%
Current:
Corporat
Accend Capital C
tion;
Corporation; Canex
xus
Previous
Minerals
Canadian
Oversigh
s: Catalyst Paper C
Corporation; Natu
n Institute of Chart
ht and Governance
Corporation(6); Nor
ure Conservancy o
tered Accountants
e Board
rthgate
of Canada;
Risk
Securi
ities Held(2)
To
otal of Shares and
d DSUs
98,026
76,816
Total Value of Sh
DSUs (CDN
hares and
N$) (3)
5
$282,315
7
$331,077
Year
2015
2014
Shares
5,000
5,000
DSUs
93,026
71,816
10
Mr. Kilroy is the Chief Executive Officer of MedAvail Technologies Inc. (medication dispensing equipment and services) a
position he has held since 2012. Previously, Mr. Kilroy was the Chief Executive Officer of Symcor Inc. (business process
outsourcing services), from 2005 to 2010. Prior to that, Mr. Kilroy was the Chief Executive Officer of IBM Canada Ltd.
(information technology) from 2001 to 2005.
Board and Committee
Membership
Board
Audit (Chair)
Corporate Governance &
Compensation
Attendance
Board Memberships
10
6
4
100%
100%
100%
Current::MedAvail Technologies Inc.; Cirba Inc.
Previous: Symcor Inc.; The Conference Board of Canada
Securities Held(2)
Year
2015
2014
Shares
2,752
2,752
DSUs
136,779
120,464
Total of Shares and DSUs
139,531
123,216
Total Value of Shares and
DSUs (CDN$) (3)
$401,849
$531,061
Mr. MacEwen is President and Chief Executive Officer of Ballard, a position he has held since October 2014. Previously, Mr.
MacEwen was the founder and Managing Partner at NextCleanTech LLC (consulting services) from [2010 to 2014; and President
& CEO and Executive Vice President, Corporate Development at Solar Integrated Technologies, Inc. (solar) from 2006 to 2009
and 2005 to 2006, respectively. Prior to that, Mr. MacEwen was Executive Vice President, Corporate Development at Stuart
Energy Systems Corporation (onsite hydrogen generation systems) from 2001 to 2005; and an associate at Torys LLP (law firm)
from 1997 to 2001.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance(4)
Board Memberships
1
2
1
100%
100%
100%
Current: none
Previous: Solar Integrated Technologies Inc., Sparq
Systems Inc.
Securities Held(2)
Year
2015
2014
Shares
0
-
DSUs
0
-
Total of Shares and DSUs
0
-
Total Value of Shares and
DSUs (CDN$) (3)
$0
-
Mr. Roche is President and Chief Executive Officer of Stratford Managers Corporation (management consulting services), a
position he has held since 2008. Prior to that, Mr. Roche was President and Chief Executive Officer of CMC Microsystems
(microsystem research and commercialization) from 2006 to 2007; and President and Chief Executive Officer of Tundra
Semiconductor Corporation (semiconductors) from 1995 to 2006.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance(5)
Board Memberships
-
-
-
n/a
n/a
n/a
Current: Wi-LAN Inc.; Ocean Networks Canada Society;
Children’s Hospital of Eastern Ontario; Stratford
Managers Corporation; NRC-IRAP Advisory Board
Previous: Tundra Semiconductor Corporation;, Aztech
Innovations Inc.;, DNA Genotek Inc.; Queensway
Carleton Hospital; Youth Services Bureau of Ottawa
Securities Held(2)
Year
2015
2014
Shares
DSUs
Total of Shares and DSUs
Total Value of Shares and
DSUs (CDN$) (3)
0
-
0
-
0
-
$0
-
Edwin J. Kilroy
Age: 55
Ontario, Canada
Director since: 2002
Independent
R. Randall MacEwen
Age: 46
B.C., Canada
Director since: 2014
Non-Independent
James Roche
Age: 52
Ontario, Canada
Director since: 2015
Independent
11
Ms. Stephenson’s principal occupation is corporate director. Previously, she was the Dean of the Richard Ivey School of
Business at the University of Western Ontario from 2003 until 2013. Prior to that, she served as President and Chief Executive
Officer of Lucent Technologies Canada from 1999 to 2003. Ms. Stephenson was invested as an Officer into the Order of Canada
in 2010.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation (Chair)
Carol M. Stephenson
Age: 64
Ontario, Canada
Director since: 2012
Independent
Attendance
Board Memberships
10
5
4
100%
83%
100%
Current: General Motors Company; Intact Financial
Services Corporation (formerly ING Canada); Manitoba
Telecom Services Inc.; Catalyst Advisory Board
Previous: Union Energy Waterheater Income Fund;
London Economic Development Corporation; Ontario
Research Fund Advisory Board; Vancouver Olympic
Games Organizing Committee (VANOC); Women on
Boards;
Securities Held(2)
Year
2015
2014
Shares
3,550
3,550
DSUs
108,166
83,693
Total of Shares and DSUs
111,716
87,243
Total Value of Shares and
DSUs (CDN$) (3)
$321,743
$376,017
Mr. Sutcliffe’s principal occupation is corporate director. Previously, Mr. Sutcliffe was the Chief Executive Officer of Sierra
Wireless, Inc. (electrical and electronic industrial products) from May 1995 to October 2005. From May 2001 to April 2005, he
was also the Chair of the Board of Sierra Wireless, Inc. He has completed the Directors Education Program of the Institute of
Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance
Board Memberships
9
6
4
90%
100%
100%
Current:BC Social Ventures Partners
Previous: Sierra Wireless, Inc.; E-Comm 911; SMART
Technologies Inc.
Securities Held(2)
Year
2015
2014
Shares
3,600
3,600
DSUs
112,750
99,698
Total of Shares and DSUs
116,350
103,298
Total Value of Shares and
DSUs (CDN$) (3)
$335,087
$445,214
Mr. Sutcliffe’s principal occupation is corporate director. Mr. Sutcliffe has been a partner at Sutcliffe & Associates Management
Consultants (management consulting services) since June 1985. Previously, Mr. Sutcliffe was co-CEO of PHeMI, Inc. (medical
software and IT infrastructure) form July 2010 to November 2012; CEO, Chairman and independent director of BluePoint Data
(IT services) from Sept 2001 to June 2011; and Vice Chair and CEO of BCS Global (video conferencing services) from January
2003 to March 2004. Mr. Sutcliffe was President of Mediconsult.com (public internet health services) from June 1995 to June
1999 and President and CEO from 1999 to 2001. Prior to that, Mr. Sutcliffe was with Coopers & Lybrand (chartered accounting
and consultancy firm) in Vancouver and London, England from June 1979 to June 1985.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance
Board Memberships
10
6
4
100%
100%
100%
Current: Vita Nova Foundation; Restore Canada Method
of Care; Purefacts Financial Solutions Inc.
Previous: BluePoint Data Inc.(6)
Securities Held(2)
Year
2015
2014
Shares
DSUs
Total of Shares and DSUs
10,000
26,848
10,000
13,797
36,848
23,797
Total Value of Shares and
DSUs (CDN$) (3)
$106,123
$102,565
David B. Sutcliffe
Age: 55
B.C., Canada
Director since: 2005
Independent
Ian Sutcliffe
Age: 62
Ontario, Canada
Director since: 2013
Independent
(1) Mr. Bourne is an ex officio member of each of the committees.
(2) As of April 10, 2015 and April 11, 2014, respectively.
(3) Based on a CDN$2.88 and CDN$4.31 closing Share price on the TSX as of April 10, 2015 and April 11, 2014, respectively.
12
(4) Mr. MacEwen was appointed to the board as of October 6, 2014 and has attended all board and committee meetings from that date.
(5) Mr. Roche was appointed to the board as of April 1, 2015.
(6) 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. 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.
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 2014 and
2013 are set forth in the table below. We comply with the requirement regarding the rotation of our audit
engagement partner every five years. The current audit engagement partner at KPMG LLP may continue in
his role until the end of 2016.
The following table shows the fees we incurred with KPMG LLP in 2014 and 2013:
Type of Audit Fees
Audit Fees
Audit-Related Fees
Tax Fees(1)
All Other Fees
2014
(CDN$)
$438,362
$7,350
$3,467
Nil
2013
(CDN$)
$447,170
Nil
Nil
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 (www.ballard.com), see the section entitled "Audit Committee
Matters" in our Annual Information Form dated February 26, 2015, 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
13
disclosed in the Corporation’s management proxy circular delivered in advance of the Corporation’s
2015 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 Proxy 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, principles,
objectives, policies and programs.
EQUITY-BASED COMPENSATION PLANS
The Corporation adopted two equity-based compensation plans approved by our Shareholders at the
2009 Annual Meeting and re-approved at the 2012 Annual Meeting(1):
(a)
(b)
a consolidated share option plan (the "Option Plan"; and
a consolidated share distribution plan (the "SDP").
For a detailed description of the principal terms of our equity-based compensation plans, see
Appendix "A" and "B" of this Management Proxy Circular.
The following table sets out, as of December 31, 2014, 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)
5,875,485
Nil
5,875,485
2.26
N/A
2.26
7,334,927
N/A
7,334,927
Plan Category
Equity-based compensation plans
approved by security holders
Equity-based compensation plans
not approved by security holders
Total
The TSX requires that equity-based compensation plans of a listed issuer be re-approved by a
majority of the issuer’s directors and by its shareholders every three years if such plan does not have a fixed
maximum number of securities that can be issued under them. The Option Plan and SDP provide that the
maximum number of the Corporation’s Shares available for issuance under them, in aggregate, cannot
exceed 10% of the issued and outstanding Shares at the time of grant.
Shareholders will be asked at the Meeting to consider and, if deemed appropriate, to approve, by a
simple majority of votes cast at the Meeting, a resolution, in the form below, to re-confirm and approve the
Option Plan and SDP. If this resolution is not passed at the Meeting, no further awards will be made under
(1) The Corporation also adopted a plan, administered by an independent trustee, for the purchase of Ballard Shares on
the open market for the redemption of RSU awards (the "Market Purchase RSU Plan"). The independent trustee
makes these open market purchases through the facilities of the TSX, and holds the purchased Shares in escrow
until the restriction period is complete and any performance criteria have been satisfied. Shares purchased under
this plan do not count against the 10% rolling cap under the Option Plan or SDP.
14
the Equity-based Compensation Plans, however, the plans will continue on the same terms as they were the
day before the Meeting in respect of equity-based compensation previously granted.
"BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1.
2.
3.
The consolidated option plan (“Option Plan”), in the form approved by the Board, and its
adoption by the Corporation, is hereby re-confirmed and approved.
The consolidated share distribution plan (“SDP”), in the form approved by the Board, and its
adoption by the Corporation, is hereby re-confirmed and approved.
Any one officer or director of the Corporation is authorized on behalf and in the name of the
Corporation to execute all such documents and to take all such actions as may be necessary
or desirable to implement and give effect to this resolution or any part thereof."
In order for this ordinary resolution to be passed, it requires the positive approval of a simple majority
(greater than 50%) of the votes cast thereon at the Meeting.
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 Policy, which provide
for board composition and director qualification standards, tenure and term limits, 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 Policy
can be found on our website (www.ballard.com). 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 Randall MacEwen, 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
15
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).
The Board believes that its membership should be composed of highly qualified directors from
diverse backgrounds who demonstrate integrity and suitability for overseeing management. The CGCC and
the Board have determined that the criteria to be considered when selecting directors and recommending
their election by the Shareholders include the following:
a) Direct experience in leading a business as a CEO or other senior executive
b) Strategy development experience
c) Sales/Marketing experience
d) Finance/Accounting experience & education
e) Product development experience
f) Corporate governance experience & education
g) Early-Stage business commercialization experience
h) CleanTech sector knowledge
i) Asian market experience
Our CGCC 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. To this end, the CGCC will, when identifying candidates to recommend for
appointment or election to the Board:
a) consider only candidates who are highly qualified based on their experience, expertise,
perspectives, and personal skills and qualities;
b) consider diversity criteria including gender, age, ethnicity and geographic background; and
c)
in addition to its own search, as and when appropriate from time to time, engage qualified
independent external advisors to conduct a search for candidates who meet the Board’s expertise,
skills and diversity criteria.
Currently, we have one woman serving on our board, a representation of 14%. As part of its
approach to Board diversity, the Board has not established targets for any diversity criteria at this time. The
CGCC will assess the effectiveness of this policy annually and recommend amendments to the Board,
including adoption measurable objectives for achieving Board diversity, as appropriate.
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.
16
Ian A.
Bourne
Douglas P.
Hayhurst
Edwin J.
Kilroy
R. Randall
MacEwen
James
Roche
Carol M.
Stephenson
David B.
Sutcliffe
Ian Sutcliffe
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
President/CEO
Experience
Strategy
Sales/ Marketing
Finance/ Accounting
Product
Development
Corporate
Governance
Early Stage Business
Commercialization
Clean Technology
Asian Markets
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
MAJORITY VOTING POLICY
At any meeting of Ballard’s Shareholders where directors are to be elected, Shareholders will be able
to either: (a) vote in favor; or (b) withhold their Shares from being voted in respect of each nominee
separately. If, with respect to any nominee, the total number of Shares withheld exceeds the total number of
Shares voted in favor, then the nominee will immediately submit his or her resignation to the Board 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.
TENURE AND TERM LIMITS
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.
A director is expected to serve on at least one Committee of the Board. The CGCC and Audit
Committee are tasked with ensuring a rotation of Committee members and Chairs to broaden the experience
and skills of each member of the Board, and ensure an appropriate mix of experience and expertise in respect
of the various roles of the Board and its committees. Currently, each independent director serves as a
member of the Audit Committee and the CGCC. A director may only serve on the Board for a maximum of
15 consecutive years. These provisions do not apply to the President & Chief Executive Officer in his/her
role as a Board member.
17
In addition to the majority voting policy, the Board has established additional guidelines that set out
the circumstances under which a director would be compelled to submit a resignation or be asked to resign.
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 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.
Directors have five years from the date that they are first elected to the Board to comply. The Chair
of the Board has five years to satisfy the minimum share ownership requirements. 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
2014, 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: www.ballard.com), 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
(www.ballard.com). 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
18
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
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, government
regulation, corporate governance and risk management, and internal management 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.
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 (www.ballard.com). 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: (1) the Audit Committee; and (2) the Corporate
Governance & Compensation Committee (“CGCC”).
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.
The following chart sets out current members of our standing committees:
19
Ian A. Bourne
Douglas P. Hayhurst
Edwin J. Kilroy
R. Randall MacEwen
John W. Sheridan
James Roche
Carol M. Stephenson
David B. Sutcliffe
Ian Sutcliffe
Audit Committee
Corporate Governance &
Compensation
Committee
(cid:57)1
(cid:57)
(cid:57) (Chair)
(cid:57)3
(cid:57)3
(cid:57)
(cid:57)4
(cid:57)
(cid:57)
(cid:57)1
(cid:57)2
(cid:57)2
(cid:57)3
(cid:57)3
(cid:57)
(cid:57) (Chair)
(cid:57)
(cid:57)
1 Chair of the Board and designated financial expert. Mr. Bourne is an ex officio member of each of the committees.
2 Mr. Hayhurst and Mr. Kilroy joined the CGCC on June 3, 2014.
3 Non-independent directors. Mr. MacEwen joined the board as of October 6, 2014; Mr. Sheridan resigned from the board effective
December 31, 2014. Mr. MacEwen and Mr. Sheridan attended the meetings but were not voting members of the committees.
4. Ms. Stephenson joined the Audit Committee on June 3, 2014.
After the Meeting, we will reconstitute all of the standing committees to reflect the newly elected
Board.
In addition to the standing committees of the Board, two ad hoc committees, the CEO Search
Committee and the Director Search Committee, were established in 2014.
Audit Committee
The Audit Committee met 6 times during 2014. 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 in accordance with the applicable Canadian and United
States securities laws and exchange requirements 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
20
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.
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 met 4 times during 2014. 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.
The CGCC is responsible for the following:
(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;
(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 for:
(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 CEO and senior management succession planning, recruitment, development,
training and evaluation; and
(cid:120) annually reviewing the performance objectives of our CEO and conducting his annual
performance evaluation.
Any compensation consultants engaged by us, at the direction of the CGCC, report directly to the
CGCC, which has the authority to appoint such consultants, determine their level of remuneration, and
oversee and terminate their services.
The CGCC does not have a written policy regarding succession planning or recruitment of executive
officers. However, the CGCC takes the same approach when identifying candidates for executive officers
that it takes in respect of director candidates. The CGCC will, when identifying executive officer candidates:
21
a) consider only candidates who are highly qualified based on their experience, expertise,
perspectives, and personal skills and qualities; and
b) consider diversity criteria including gender, age, ethnicity and geographic background.
The CGCC has not established targets for any diversity criteria for executive officers at this time.
The CGCC and Board annually review executive succession plans and emerging leadership candidates,
including a review of demographic information to ensure the correct focus on diversity. Individual
development plans are established by management, including those for female leaders, and the Corporation
has sponsored and supported participation in activities including the Minerva “Women in” annual luncheon
series and Board-led career discussions. As of the Record Date, there are no women executive officers of the
Corporation.
A copy of the CGCC’s mandate is posted on our website (www.ballard.com). The mandate is
reviewed annually and the CGCC’s performance is assessed annually through a process overseen by the
Board.
CEO Search Committee
The CEO Search Committee was a temporary committee of the Board established in 2014 for the
purpose of interviewing and recommending suitable CEO candidates for consideration by the Board.
The CEO Search Committee met 3 times during 2014. The members were Carol M. Stephenson
(Chair), Ian A. Bourne and Ian Sutcliffe. The committee engaged Spencer Stuart to provide services in
support of the CEO candidate selection and interview process. Following the appointment of Mr. MacEwen
in October, the committee was dissolved.
Director Search Committee
The Director Search Committee is a temporary sub-committee of the CGCC established in 2014 for
the purpose of establishing and leading a search and selection process of potential director nominees for
consideration by the Board.
The Director Search Committee met once during 2014. The members are Carol M. Stephenson
(Chair), Ian A. Bourne and David B. Sutcliffe. The committee engaged Spencer Stuart to provide services in
support of the director nominee candidate selection and interview process.
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: Randall MacEwen (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 and Chief Operations Officer) and Steven Karaffa (Vice President and Chief Commercial
Officer).
John W. Sheridan was President and Chief Executive Officer from January 1, 2014 until October 6,
2014, upon which date Mr. MacEwen was appointed as President and Chief Executive Officer. Mr. Sheridan
continued to serve as an employee in an advisory capacity until his retirement on December 31, 2014.
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
22
Shares are traded on the TSX or NASDAQ appreciates. In 2014, these performance goals, and resulting
compensation awards, were largely focused on the Corporation’s key business drivers including growing
revenue, Adjusted EBITDA(2) performance, gross margin performance, cash opex management, on-time
product deliveries and the delivery of key strategic business enablers to position the Corporation for long
term success. This compensation philosophy puts a strong emphasis on pay for performance, and uses equity
awards as a significant component in order to correlate the long-term growth of shareholder value with
management’s most significant compensation opportunities. The strategic goals of the Corporation are
reflected in the incentive-based executive compensation programs so that executives’ interests are aligned
with Shareholders’ interests.
Philosophy and Objectives
Our philosophy and objectives regarding compensation are to:
(c)
(d)
(e)
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 CGCC 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 CGCC and Board continue to monitor regularly.
The CGCC and Board currently consider the risks associated with the Corporation’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 CGCC and Board mandates reflect the correct accountabilities, oversight and controls
on the Corporation’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 CGCC and Board consider that these mitigation approaches results in the Corporation’s risk profile
associated with its compensation practices being low.
(2)
For a discussion of EBITDA and Adjusted EBITDA, please refer to Ballard’s 2014 Management’s Discussion & Analysis.
23
How Executive Compensation is Determined
The CGCC is charged 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 CGCC approves and recommends to the Board the appointment of our executive
officers. The CGCC also reviews and approves the amount and form of their compensation, their
development and succession plans, and any significant organizational or management changes. When
appropriate, the CGCC retains independent compensation consultants for professional advice and as a source
of competitive market information. In 2014, the CGCC continued to retain Towers Watson on an as-needed
basis, to provide independent advice related to Ballard executive compensation items. The CGCC also seeks
the advice and recommendations of our President and CEO with respect to the compensation of our other
executive officers. The President and CEO does not participate in the portions of the CGCC 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 2014, an average of 56% 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). Due to the timing of Mr. MacEwen’s appointment and issuance of his new hire award, Mr.
MacEwen did not receive “at risk” compensation in 2014, and therefore was not included in this calculation.
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 CGCC, 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 CGCC, 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 2014. This comparator group comprises the primary
source of compensation data for review of the Corporation’s market competitiveness. The CGCC reviews the
composition of the comparator company list on an annual basis.
The Corporation’s current comparator group is:
Canadian Companies
EXFO Inc
Hydrogenics Corp.
New Flyer Industries Inc
Sierra Wireless Inc
Westport Innovations Inc
United States Companies
AeroVironment Inc
Allied Motion Technologies Inc
American Superconductor Corporation
Fuel Cell Energy Inc
GrafTech International Ltd
Plug Power Inc
The CGCC 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 CGCC’s practice is to target annual total
direct compensation for each executive at approximately the 50th percentile among the comparator group
companies.
24
Towers Watson has been retained by the CGCC since 2008 to provide executive compensation
benchmarking and general executive compensation, equity plan and Board compensation advisory services.
In 2014, Towers Watson provided their opinion of the new CEO compensation and proposed re-design of the
2015 Corporate Bonus Plan.
The following table sets out the fees paid to Towers Watson during each of the two most recently
completed financial years:
Executive Compensation-
Related Fees
All Other Fees
2014
2013
$10,194
Nil
Nil
Nil
Current Executive Compensation Elements
Our compensation program for our executive officers has three primary components:
(a)
(f)
(g)
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 2015
A new bonus scorecard approach has been adopted starting in 2015. The new scorecard approach
retains many of the key elements of the prior program (including a suitable mix of quantitative and
qualitative metrics to drive the annual performance of the business), integrating the concept of reward for
stretch performance into one singular scorecard.
As part of the CEO transition in late 2014, a clawback provision was included to Mr. MacEwen’s
employment contract to allow the Corporation to claw back certain financial benefits in the event of the
Corporation’s financial statements being materially restated as a result of wilful misconduct or fraud.
In addition, Mr. MacEwen’s base salary ($500,000) and annual target LTI amount ($625,000) were
set at levels below that of the previous CEO ($530,000 and $800,000, respectively).
We will now refer to restricted share units subject to time and performance vesting as “PSUs” to
distinguish them from restricted share units subject to time vesting only (“RSUs”). A new PSU vesting
criteria based on corporate performance metrics is being formulated for implementation in 2015.
Annual Salary
The CGCC approves the annual salary of our executive officers. Salary guidelines and salary
adjustments for our executive officers are considered with reference to:
(a)
(h)
(i)
(j)
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.
25
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 2014, there was no annual salary increase for the President and CEO, with the other Named
Executive Officers receiving merit based increases as detailed in the Summary Compensation Table.
Annual Bonus for Executive Officers
The CGCC reviews and approves the annual bonus for each executive officer based on the
recommendations of our President and CEO in accordance with the factors described in the foregoing
section.
The annual target bonus for each of Mr. Guglielmin, Mr. Guzy, Mr. Cass and Mr. Karaffa was set at
60% of base salary in 2014. This target was initially established in 2012 in response to the Towers Watson
benchmarking study conducted in Fall 2011.
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 2014, this stretch performance metric was over-achievement of a target total cash usage.
Therefore, 50% of each executive officer’s actual 2014 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 total cash usage 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 CEO, see the section
entitled "CEO Compensation". The section below entitled "Methodology for Determining Annual
Incentives" applies equally to the President and CEO 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 CGCC and approved by the Board with
reference to achievement against the corporate goals set out in a Corporate Performance Scorecard approved
by the CGCC and the Board at 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 2014, the Corporate
Performance Scorecard reflected a balance of Quantitative annual goals focussed on delivery of the 2014
operating plan (60% of the scorecard) and Qualitative goals focussed on key strategic outcomes during 2014
to position the Corporation for longer term success (40% of the scorecard). The Quantitative portion of the
scorecard had 4 financial elements (Revenue, Gross Margin, Cash Opex and Adjusted EBITDA) and 1
operational elements (on-time product delivery). The Qualitative portion of the scorecard had 4 elements
26
(Demonstrating progress in the Telecoms Back-Up Power systems market, Building a sustainable
Engineering Services business, Customer Satisfaction and Health & Safety).
The goal related to Engineering Services was achieved above the 100% level. Goals related to on-
time delivery and managing Cash Opex were achieved at or close to the 100% level. The goals related to
Customer Satisfaction and Health & Safety were only partially achieved, while the financial goals related to
Revenue, Gross Margin and Adjusted EBITDA were not achieved and received a zero score.
In aggregate the Corporate Scorecard Multiplier achievement equalled 37%, which as previously
described, affected 50% of the annual bonus target for each of the Named Executive Officers.
Stretch Performance Goal Multiplier
The stretch performance goal related to over-achievement of the annual Total Cash Usage target was
not achieved. As a result, the stretch performance goal multiplier for 2014 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%
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 CEO 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 80% to 125%. A summary of their individual
performance is as follows:
Mr. Guglielmin met or exceeded all of his 2014 functional and personal goals related to cost
management targets, strengthening liquidity and key IR objectives.
Mr. Guzy met or exceeded his key goals in 2014 related to key deliverables for the VW Engineering
program, and other Technology Solutions contracts. New product programs were not delivered on schedule.
Mr. Cass met key goals in 2014 related to production delivery and establishing a new long term
commercial agreement with Plug Power. Good progress was also made on new safety initiatives; however,
goals related to enhancing the Quality organization were not fully met.
Mr. Karaffa met key goals in 2014 related to building a new Commercial organization structure,
processes and adding key talent, however, revenue performance, particularly in the Back-Up Power segment
was not achieved.
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 equity- based long-term incentives typically take the form
of Stock Options, RSUs (time-based vesting) or PSUs (time and performance-based vesting). 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 2014 awards, the President and CEO 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 2013 awards. For 2014, an incremental PSU value of $30,000
was granted to each of Mr. Guglielmin, Mr. Guzy and Mr. Cass to recognize the additional responsibilities
and workload expected during the CEO transition period. This value amount was then converted to PSUs 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
27
options were then priced at the closing Share price on the day prior to the award date. Mr. Karaffa received a
new hire grant of RSUs (time vested only) and Stock Options as detailed below. Additionally, Mr. Karaffa
received a $30,000 grant of RSUs (time vested only) in September to assist with one-time cost differentials
associated with his transition from U.S. to Canada. Mr. Karaffa was subject to a trading blackout at the time
of this award and therefore the RSUs were not issued until February 26, 2015. Mr. MacEwen was awarded a
new hire grant upon his appointment in October 2014 equal to 200,000 stock options and $500,000 of RSUs
(time vested only). Mr. MacEwen was also subject to a trading blackout at the time of this award and
therefore the RSUs were not issued until February 26, 2015.
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 10-25% 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.
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 PSU and 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 CGCC.
Redemption of these share units 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,
PSUs and RSUs, and the vesting during the year of Share options, PSUs and RSUs are reported in the tables
under the heading "Incentive Plan Awards".
In 2014, the performance criteria for PSUs were based on a tiered approach to vesting related to the
annual performance of the Corporation (as prescribed by the Corporate Performance Scorecard).
28
Corporate Scorecard
PSU Vesting
< 50%
(cid:149)50% and <75%
(cid:149)75%
0%
50%
100%
New Issuances
On February 26, 2014, 339,811 PSUs were issued to the Named Executive Officers, including the
President and CEO. For all our executive officers who received an award on that date, the PSU 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 2015, the Board determined, after
setting the corporate multiplier to 37% for the purpose of determining annual bonus, that 0% of this year’s
PSUs vested, per the terms of the PSU awards.
On February 26, 2014, Mr. Karaffa received a new hire grant of 41,791 RSUs, which are subject to
time vesting annually over 3 years.
As described above, Mr. Karaffa and Mr. MacEwen received RSU awards in 2014 at a time when
they were subject to trading blackouts. These awards ($30,000 and $500,000 respectively) were subsequently
issued on February 26, 2015. Both awards are subject to time vesting only.
Redemptions
A redemption of PSUs to Shares for the Named Executive Officers, based on partial vesting of
annual awards granted in 2011, 2012 and 2013 was approved by the Board on February 25, 2014.
On February 26, 2014, 228,992 PSUs vested and after statutory withholdings, 128,919 PSUs were
redeemed into Shares, representing one-third of the 2012 annual PSU long-term incentive award granted to
Messrs. Sheridan, Gugllielmin, Guzy and Cass.
On March 7, 2014, 136,506 PSUs vested and after statutory withholdings, 76,851 PSUs were
redeemed into Shares, representing one-third of the 2011 annual PSU long-term incentive award granted to
Messrs. Sheridan, Guglielmin, Guzy and Cass.
On March 7, 2014, 342,213 PSUs vested and after statutory withholdings, 192,663 PSUs were
redeemed into Shares, representing one-third of the 2013 annual PSU long-term incentive award granted to
Messrs. Sheridan, Guglielmin, Guzy and Cass.
CEO Compensation
Mr. Sheridan served as President and CEO from February 22, 2006 until his resignation on October
6, 2014. Mr. MacEwen was appointed President and CEO as of the same date. Mr. Sheridan continued to
serve as an employee in an advisory capacity until his retirement on December 31, 2014.
Mr. Sheridan’s base salary was fixed at CDN$530,000 per year, from his initial appointment in
2006, and remained so for 2014. Upon his appointment, Mr. MacEwen’s base salary was set at
CDN$500,000 per year.
The President & CEO is entitled to receive an RRSP contribution that is subject to an equivalent
matching contribution from the President & CEO. Mr. MacEwen received a pro-rated RRSP benefit amount
of CDN$5,354 for 2014; Mr. Sheridan received CDN$12,135. The President & CEO is also entitled to
receive company-paid insurance premiums. Mr. MacEwen received CDN$198 and Mr. Sheridan received
29
CDN$1,857 in 2014. In addition, the Board approved an additional one-time payment to Mr. Sheridan of
CDN$60,235 for expenses related to an initial period of post-retirement US healthcare coverage.
Mr. Sheridan’s bonus for 2014 was determined by the CGCC 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 2014, as approved by the Board. Mr. Sheridan’s target bonus for 2014 was
equal to 80% of his annual base salary. Mr. MacEwen was not eligible for the annual incentive program in
2014, given his start date late in the year. Instead, Mr. MacEwen received a CDN$100,000 payment,
effective his start date in lieu of bonus.
The CGCC determined that Mr. Sheridan had performed well in 2014, meeting individual goals
related to Corporate Strategy development, CEO succession planning and creating a smooth CEO transition
event, and senior leadership talent management, while exceeding goals related to Investor Relations and
Shareholder value, and employee retention and engagement. Commensurate with this evaluation, the CGCC
determined that the appropriate Individual Bonus Multiplier for Mr. Sheridan was 120%.
As noted earlier, the stretch performance goal related to over-achievement of the Total Cash Usage
target was not achieved. As a result, the stretch performance goal multiplier for 2014 was 0%. This zero
payout affected 50% of the Mr. Sheridan’s annual bonus target.
On February 25, 2014, the Board approved the recommendation by the CGCC and Mr. Sheridan was
granted a long-term incentive award, equivalent at the time of grant to a total value of CDN$800,000; with
CDN$200,000 converted to options in respect of 104,166 Shares (at an exercise price of CDN$3.73 per
Share) and a PSU award of CDN$600,000 (160,858 PSUs at a price of CDN$3.73 per Share). These awards
formed Mr. Sheridan’s 2014 long-term incentive package, and the overall value and equity mix was
approved by the CGCC and the Board. Consistent with other Named Executive Officers, the PSU award has
performance criteria and time vesting as described above, 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.
Mr. MacEwen received a new hire long term incentive award, equivalent to 200,000 stock options
and $500,000 RSU value (time vesting only). Due to being under a Corporate blackout as of his start date,
the award was granted on February 26, 2015, upon the lifting of the trading blackout.
The cash portion of Mr. Sheridan’s total compensation in 2014 was CDN$721,200 (for base salary,
bonus and benefits). The non-cash compensation portion related to the theoretical value of Options and
RSUs at grant received in 2014, but to vest in later years, was CDN$800,000. The total value of Mr.
Sheridan’s nominal compensation in 2014, the sum of the cash and non-cash components, was CDN$1,
521,200.
The cash portion of Mr. MacEwen’s total compensation in 2014 was CDN$226,766 (for base salary
and benefits). The non-cash compensation portion related to the theoretical value of Options and RSUs at
grant received in 2014, but to vest in later years, was CDN$0. The total value of Mr. MacEwen’s nominal
compensation in 2014, the sum of the cash and non-cash components, was CDN$226,766.
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.
30
Retirement Benefits
In 2010, the Corporation made changes to its overall RRSP program each executive 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).
In 2014, 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),
as each of them made an equivalent personal matching contribution. In 2014, Mr. Karaffa participated in the
Company 401k matching program from February 24, 2014 to September 1, 2014 while he was employed by
the US subsidiary, and then received a pro-rated RRSP contribution based on the formula above for the
remainder of the year. Mr. MacEwen also received a pro-rated amount of this benefit, based on his start date.
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 CEO together with all of the other Named Executive
Officers (as defined below in the section entitled "Executive Compensation") was CDN$4,558,087.
Minimum Share Ownership Guidelines
Our executive officer minimum share ownership guidelines obligate each executive officer to own a
minimum number of our Shares.
For the President and CEO the minimum share ownership guideline is equal to the lesser of:
(a)
(b)
the number of Shares that have a fair market value of three times the President and
CEO’s base salary; or
the number of Shares equal to three times the President and CEO’s base salary
divided by the closing share price of Shares on the TSX or Nasdaq on the trading
day of the date of hire.
For executive officers other than the President and CEO, the minimum share ownership guideline is
equal to the lesser of:
(a)
(c)
the number of Shares with a fair market value equal to the executive officer’s annual
base salary; or
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. (3)
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. (4)
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.
(3)
(4)
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.
31
PERFORMANCE GRAPH
The following graph compares the total cumulative return to a Shareholder who invested $100 in our
Shares on December 31, 2009, assuming reinvestment of dividends, with the total cumulative return of $100
on the NASDAQ Composite Index for the last five years.
2009 (Dec 31)
($)
2010 (Dec 31)
($)
2011 (Dec 31)
($)
2012 (Dec 31)
($)
2013 (Dec 31)
($)
2014 (Dec 31)
($)
100
100
79
117
57
115
32
133
80
184
105
209
Ballard
NASDAQ
Composite
Index
Cummulative Value of a $100 Investement
$250
$200
$150
$100
$50
$0
2009
2010
2011
2012
2013
2014
Ballard (BLDP)
NASDAQ Composite
The trend shown by this graph does not reflect the trend in the Corporation’s compensation to its
Named Executive Officers.
EXECUTIVE COMPENSATION TABLES
The following table summarizes the compensation paid for the fiscal years ended on December 31,
2012, December 31, 2013 and December 31, 2014 to our Named Executive Officers.
32
Name and Principal
Position
R. Randall MacEwen(1)
President and Chief Executive
Officer
John W. Sheridan(2)
President and Chief Executive
Officer
Tony Guglielmin
Vice President and Chief
Financial Officer
Paul Cass
Vice President and Chief
Operations Officer
Christopher J. Guzy
Vice President and Chief
Technical Officer
Steven Karaffa
Vice President and Chief
Commercial Officer
Year
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
Summary Compensation Table
Long-Tern Incentives
Bonus(4)(5)
(CDN$)
Share-Based
Awards(6)
(CDN$)
Option-Based
Awards(7)
(CDN$)
0
0
0
94,128
359,340
0
43,909
157,635
0
25,469
89,835
0
35,127
136,617
0
0
0
0
600,000
750,000
675,000
222,500
167,500
162,000
222,500
167,500
162,000
222,500
167,500
162,000
0
0
0
200,000
81,250
225,000
57,500
48,750
54,000
57,500
48,750
54,000
57,500
48,750
54,000
Salary(3)
(CDN$)
117,808
0
0
530,000
530,000
530,000
316,663
310,000
310,000
287,488
265,000
265,000
316,663
310,000
310,000
All Other
Compensation(8)
(CDN$)
108,958
0
0
97,072
36,829
29,910
36,010
31,533
29,596
29,625
29,959
28,318
39,344
43,443
43,154
Total
Compensation
(CDN$)
226,766
0
0
1,521,200
1,757,419
1,459,910
676,582
715,418
555,596
622,582
601,044
509,318
671,134
706,310
569,154
291,639
23,532
162,414
336,000
26,238
839,823
0
0
0
0
0
0
0
0
0
0
0
0
(1) Mr. MacEwen was appointed President and Chief Executive Officer as of October 6, 2014. He is also a director, but receives no compensation
for his service as a director.
(2) Mr. Sheridan was also a director, but received no compensation for his service as a director. Mr. Sheridan resigned as President & Chief
Executive Officer as of October 6, 2014. He continued to serve as an employee in an advisory capacity and a director until his retirement on
December 31, 2014.
(3) Salary of each of the Named Executive Officers was paid in Canadian dollars, with the exception of Mr. Karaffa whose compensation was paid
in part in United States dollars, which was converted into Canadian dollars using the Bank of Canada noon rate of exchange on December 31,
2014. The United States dollar amounts for 2014 were US$101,550, US$456,857, US$272,962, US$247,813, US$272,962, and US$251,391 for
Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2013 were US$0,
US$456,857, US$267,218, US$228,429, US$267,218, and US$0 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa,
respectively. The United States dollar amounts for 2012 were US$0, US$456,857, US$267,218, US$228,429, US$267,218, and US$0 for
Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy and Karaffa, 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, 2014.
(4)
(5)
In 2014 and 2012, the bonus of each of the Named Executive Officers was paid in Canadian dollars. The corresponding United States dollar
amounts for 2014 were US$0, US$81,138, US$37,849, US$21,954, US$30,279, and US$20,284 for Messrs. MacEwen, Sheridan, Guglielmin,
Cass, Guzy and Karaffa, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure
using the Bank of Canada noon rate of exchange on December 31, 2014.
In 2013, the bonus for Messrs. Sheridan, Guglielmin, Cass, and Guzy was issued as DSUs and this amount is based on the grant date fair market
value of the award, which equals the closing price of the Shares on the TSX on the date of issuance of the award. The number of DSUs awarded
is equal to the dollar amount of the award divided by the fair market value of the Shares at the time of issuance (based on the closing price of the
Shares on the TSX on the date of issuance). The number of DSUs issued to Messrs. Sheridan, Guglielmin, Cass, and Guzy in respect of the
fiscal year ended December 31, 2013 is as follows:
Named Executive
Officer
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Year
2013
2013
2013
2013
DSUs
(#)
96,338
42,261
24,084
36,627
Bonus
Fair Market Value
of a Share
(CDN$)(A)
3.73
3.73
3.73
3.73
33
Total
(CDN$)(B)
359,340
157,635
89,835
136,617
(A) 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.
(B) The United States dollar amounts for 2013 were US$309,749, US$135,881, US$77,437, and US$117,763 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, 2014.
(6) Represents the total fair market value of RSUs issued to each Named Executive Officer during the 2014, 2013, and 2012 fiscal years. This
amount is based on the grant date fair market value of the award, which equals the closing price of the Shares on the TSX and NASDAQ on the
date of issuance of the award. Fair value is determined in accordance with IFRS 2 of the International Financial Reporting Standards
(accounting fair value) is recorded as compensation expense in the statement of operations over vesting periods of one to three years. There is
no difference in Canadian dollars between the grant date fair market value of the award and the accounting fair value.
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 50-80% of this amount is
awarded in the form of RSUs with the remaining 20-50% being awarded in the form of share options in 2014. In 2013, 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 was awarded in the form of RSUs with the remaining 25% 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, 2014, December 31, 2013 and December 31, 2012 is as follows:
Share-Based Awards
Named Executive
Officer
R. Randall MacEwen
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Year
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
RSUs
(#)
0
0
0
160,858
614,754
399,408
59,651
137,295
95,858
59,651
137,295
95,858
59,651
137,295
95,858
41,791
0
0
Fair Market Value
of a Share
(CDN$)(A)
0
0
0
3.73
1.22
1.69
3.73
1.22
1.69
3.73
1.22
1.69
3.73
1.22
1.69
3.89
0
0
Total
(CDN$)(B)
0
0
0
600,000
750,000
675,000
222,500
167,500
162,000
222,500
167,500
162,000
222,500
167,500
162,000
162,414
0
0
(A) The fair market value of a Share has been calculated using the Canadian dollar closing price of the Shares underlying the RSUs
on the TSX or NASDAQ on the date of issuance.
(B) The United States dollar amounts for 2014 were US$0, US$517,197, US$191,794, US$191,794, US$191,794, and US$140,000
for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy and Karaffa, respectively. The United States dollar amounts for 2013
were US$0, US$646,496, US$144,384, US$144,384, US$144,384, and US$0 for Messrs. MacEwen, Sheridan, Guglielmin,
Cass, Guzy and Karaffa, respectively. The United States dollar amounts for 2012 were US$0, US$581,846, US$139,643,
US$139,643, US$139,643, and US$0 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy and Karaffa, 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, 2014.
(7) 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 4 years, expected volatility of 68% and risk free interest rate of 1% for
2014; expected life of 5 years, expected volatility of 63% and risk free interest rate of 1% for 2013; and expected life of 5 years, expected
volatility of 62% and risk free interest rate of 2% for 2012. Accounting fair value is recorded as compensation expense in the statement of
operations over the vesting period. There is no difference in Canadian dollars between the grant date fair market value of the award determined
using the Black-Scholes valuation model and accounting fair value determined in accordance with IFRS 2 of the International Financial
Reporting Standards (accounting fair value).
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 50-80% of this amount is
awarded in the form of RSUs with the remaining 20-50% being awarded in the form of Share options in 2014. In 2013, 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. 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
34
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, 2014, December 31, 2013 and December 31, 2012 is as follows:
Named Executive
Officer
R. Randall MacEwen
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Year
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
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)
0
0
0
104,166
125,000
252,808
29,947
75,000
60,674
29,947
75,000
60,674
29,947
75,000
60,674
175,000
0
0
0
0
0
1.92
0.65
0.89
1.92
0.65
0.89
1.92
0.65
0.89
1.92
0.65
0.89
1.92
0
0
0
0
0
200,000
81,250
225,000
57,500
48,750
54,000
57,500
48,750
54,000
57,500
48,750
54,000
336,000
0
0
(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 2014 were US$0, US$172,400, US$49,565, US$49,565, US$49,565, and US$289,630 for
Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2013 were
US$0, US$70,037, US$42,022, US$42,022, US$42,022, and US$0 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and
Karaffa, respectively. The United States dollar amounts for 2012 were US$0, US$193,948, US$46,548, US$46,548, US$46,548, and
US$0 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa, 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, 2014.
(8) All Other Compensation was paid in Canadian dollars. The United States dollar amounts for 2014 were US$93,922, US$83,675, US$31,040,
US$25,536, US$33,914, and US$22,617 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States
dollar amounts for 2013 were U$0, US$31,747, US$27,181, US$25,825, US$37,447, and US$0 for Messrs. MacEwen, Sheridan, Guglielmin,
Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2012 were US$0, US$25,782, US$25,511, US$24,410, US$37,198,
and US$0 for Messrs. MacEwen, Sheridan, Guglielmin, Cass, Guzy, and Karaffa, respectively. The Canadian dollar amounts were converted
into United States dollars for the purpose of the table above using the Bank of Canada noon rate of exchange on December 31, 2014.
The value of the items included in this amount was based on the aggregate incremental cash cost to the Corporation. All Other Compensation,
including the type and amount of each perquisite, the value of which exceeds 25% of the total value of perquisites reported for a Named
Executive Officer, includes:
35
Named Executive
Officer
R. Randall MacEwen
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Year
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
All Other Compensation
Retirement Benefits
(RRSP / 401k /
Defined Benefits)
(CDN$)
Insurance Premiums
(CDN$)
5,354
0
0
12,135
11,910
11,485
12,135
11,910
11,485
12,135
11,910
11,485
12,135
11,910
11,485
12,372
0
0
198
0
0
1,857
2,198
2,128
1,059
1,075
1,041
1,023
1,075
1,041
914
1,075
1,041
326
0
0
Other(A)
(CDN$)
103,406
0
0
83,080
22,721
16,297
22,816
18,548
17,070
16,467
16,974
15,792
26,295
30,458
30,628
13,540
0
0
Total
(CDN$)
108,958
0
0
97,072
36,829
29,910
36,010
31,533
29,596
29,625
29,959
28,318
39,344
43,443
43,154
26,238
0
0
(A)
Includes automobile allowances, temporary living and travel allowances, financial planning services and medical and health
benefits. For Mr. MacEwen, other compensation also includes a $100,000 payment in lieu of bonus.
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our Named Executive
Officers that are outstanding as of December 31, 2014.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2014)
Option-Based Awards
Share-Based Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Option
Exercise
Price(1)
(CDN$)
0
0
123,762
84,270(4)
83,334(4)
104,166(4)
103,448
60,674(5)
75,000(6)
29,947(4)
14,000
103,448
60,674(5)
75,000(6)
29,947(4)
42,553
20,225(4)
50,000(4)
29,947(4)
175,000(4)
4.17
1.69
1.22
3.73
2.10
1.69
1.22
3.73
5.08
2.10
1.69
1.22
3.73
5.08
1. 69
1.22
3.73
3.89
Option
Expiration
Date
N/A
May 13, 2015
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb 22, 2015
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb. 22, 2015
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb. 27, 2021
Value of
Unexercised
In-The-
Money
Options(2)
(CDN$)
0
0
0
0
0
27,931
27,505
28,750
0
0
27,931
27,505
28,750
0
0
0
0
0
0
Named Executive
Officer
R. Randall
MacEwen
John W. Sheridan
Tony Guglielmin
Paul Cass
Christopher J.
Guzy
Steven Karaffa
Number of
PSUs/RSUs That
Have Not Vested
(#)
Market or Payout
Value of PSUs/RSUs
That Have Not
Vested(3)
(CDN$)
0
0
703,830
1, 668,077
183,134
434,026
183,134
434,026
183,134
434,026
41,791
95,994
(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 or NASDAQ as at December
31, 2014, and the exercise price of the option. Where the difference is a negative number, the value is deemed to be 0.
36
(3)
This amount is calculated by multiplying the number of PSUs/RSUs that have not vested by the closing price of the Shares underlying the
PSUs/RSUs on the TSX or NASDAQ as at December 31, 2014.
Such amounts may not represent the actual value of the PSUs/RSUs which ultimately vest, as the value of the Shares underlying the PSUs/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) Unvested options.
(5) Comprising 40,449 vested and 20,225 unvested options.
The following table sets forth the value of the incentive plan awards vested or earned during the year
ended December 31, 2014 by our Named Executive Officers.
Incentive Plan Awards – Value Vested or Earned During the Year
(2014)
Named Executive Officer
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$)
R. Randall MacEwen
John Sheridan
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
0
743,612
273,781
273,781
273,781
0
0
2,159,653
498,331
498,331
498,331
0
0
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 480,002.
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, 2014,
there were 1,295,023 PSUs/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
R. Randall MacEwen
John W. Sheridan
Tony Guglielmin
Paul Cass
0
133,136
53,619
204,918
53,619
204,918
53,620
31,952
19,884
45,765
19,884
45,765
19,884
31,952
19,884
45,765
19,884
45,765
19,884
37
N/A
February 22, 2015
February 26, 2015
March 7, 2015
February 26, 2016
March 6, 2016
February 25, 2017
February 22, 2015
February 26, 2015
March 7, 2015
February 26, 2016
March 6, 2016
February 25, 2017
February 22, 2015
February 26, 2015
March 7, 2015
February 26, 2016
March 6, 2016
February 25, 2017
Named Executive Officer
Number of RSUs That Have Not Vested
Vesting Date
Christopher J. Guzy
Steven Karaffa
31,952
19,884
45,765
19,884
45,765
19,884
13,930
13,930
13,931
February 22, 2015
February 26, 2015
March 7, 2015
February 26, 2016
March 6, 2016
February 25, 2017
February 26, 2015
February 26, 2016
February 25, 2017
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 2014 was as follows: Mr. MacEwen received CDN$117,808 (Pro-rated based on his CDN$500,000 base
salary and his service date); Mr. Guglielmin received CDN$316,663; Mr. Cass received CDN$287,488; Mr.
Guzy received CDN$316,663; and Mr. Karaffa received CDN$291,639 (Pro-rated based on his service date).
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. MacEwen, Mr. Guglielmin, Dr. Guzy, Mr. Cass and Mr. Karaffa, 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. 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, Mr. MacEwen’s contract includes a clawback provision in the event of the Corporation’s
financial statements being materially restated as a result of wilful misconduct or fraud.
38
Equity-Based Compensation Plans
The Option Plan provides that, if a participant ceases to be an employee of Ballard or its subsidiaries
(other than by reason of death/disability or being retired), he or she will have up to 90 days, in the event of
termination other than for just cause, or 30 days, in the event of voluntary resignation, in which to exercise
his or her vested options (in each case subject to extension if the option would otherwise expire during, or
within 9 business days after the end of, a blackout period). In the event of termination other than for just
cause, the CEO has the discretion to extend the exercise period to up to one year after the optionee ceases to
work for Ballard and to accelerate the vesting of unvested options that would have otherwise vested during
that period in the next year (in effect, enabling the continuance of the options during a notice period).
All Ballard PSUs/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)
(e)
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
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 PSUs/RSUs such that holders will become immediately entitled to receive
Shares in respect of their PSUs/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, 2014: 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.
39
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, 2014)
R. Randall MacEwen
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
Steven Karaffa
Severance
Other benefits
Accelerated vesting
Total
$900,000
$37,085
$0
$937,085
$678,400
$59,316
$0
$737,716
$890,400
$104,829
$0
$995,229
$622,933
$105,723
$0
$728,656
$508,800
$47,085
$0
$555,885
$0
$0
$0
$0
$0
$0
$589,464
$589,464
$0
$0
$491,525
$491,525
$0
$0
$589,464
$589,464
$0
$0
$99,045
$99,045
$1,800,000
$99,170
$0
$1,899,170
$1,017,600
$113,974
$0
$1,131,574
$1,017,600
$144,804
$0
$1,136,804
$934,400
$183,584
$0
$1,117,984
$1,017,600
$94,170
$0
$1,111,770
(1) All values are in Canadian dollars.
(2) Based on accrued service to December 31, 2014.
(3) All options and PSUs/RSUs vest immediately upon a change of control. Value shown equals, in the case of PSUs/RSUs, the price of the
underlying Shares on December 31, 2014 multiplied by the number of PSUs/RSUs. Value shown in the case of Options is the difference
between the market price on December 31, 2014 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 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
40
compensation consultants for professional advice and as a source of competitive market information. In
2011, the committee retained Towers Watson to provide independent compensation analysis and advice
related to director compensation. 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 2014.
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)
CDN$(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
CDN$2,250 in the case of a non-United States resident), in recognition of the additional time required to
travel to and from the meeting or meetings.
In 2014, compensation was earned by the directors as follows(1):
Compensation
Board Retainer
(CDN$)
Committee
Retainer
(CDN$)
Board and
Committee
Attendance Fees
(CDN$)
Total
Compensation
(CDN$)
140,000
65,000
65,000
65,000
65,000
65,000
N/A
0
10,000
10,000
0
0
N/A
25,500
27,000
33,000
28,500
37,500
140,000
90,500
102,000
108,000
93,500
102,500
Director
Ian A. Bourne
Douglas P. Hayhurst
Edwin J. Kilroy
Carol M. Stephenson
David B. Sutcliffe
Ian Sutcliffe
(1) All figures are in Canadian dollars.
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).
41
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, 2014.
Outstanding Share-Based Awards and Option-Based Awards (as of December 31, 2014)
Name
Ian A. Bourne
Doug Hayhurst
Edwin J. Kilroy
Carol Stephenson
David B. Sutcliffe
Ian Sutcliffe
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$)
0
0
0
0
0
0
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(cid:326)
(1) All figures are in Canadian dollars.
(2)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX as at December 31, 2014, and
the exercise price of the option. Where the difference is a negative number the value is deemed to be 0.
No incentive plan awards vested for, or were earned by, our Directors during the year ended
December 31, 2014.
Directors are not permitted to hedge the market value of the Corporation securities they hold.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of December 31, 2014, the number of securities we are authorized to
issue under our equity-based compensation plans and the relevant exercise prices at which such securities
may be issued.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (#)
(a)
Weighted -Average Exercise
Price of Outstanding
Options, Warrants and
Rights (CDN$)
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans excluding securities
reflected in column (a)
(c)
5,875,485(1)
Nil
5,875,485
2.26
N/A
2.26
7,334,927
N/A
7,334,927
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.
42
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 10, 2015, 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$226,000 for 2014 and US$245,000 for 2013. 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, 2015;
(cid:120) Audited Annual Financial Statements for the year ended December 31, 2014 together with the
auditors’ report thereon; and
(cid:120) Management's Discussion and Analysis for the year ended December 31, 2014.
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.
43
PROPOSALS
Any Shareholder who intends to present a proposal at our 2016 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 11, 2016; 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 2016 annual
Shareholders’ meeting if the proposal is received after the January 11, 2016 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 10, 2015
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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.
"CDN$" 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.
"$" or "dollars" refer to United States currency unless specifically stated otherwise.
"Meeting" means the 2015 annual meeting of our Registered Shareholders and includes any adjournment
thereof, unless otherwise indicated.
"NASDAQ" means the NASDAQ Global Market.
"Option Plan" means the Corporation’s consolidated share option plan, the principal terms of which are set
out in Appendix "B".
"PSU" means restricted share unit subject to time and performance vesting criteria.
"Record Date" means 5:00 p.m. Pacific Daylight Time on April 10, 2015.
"Registered Shareholders" means registered holders of our Shares on the Record Date.
"RSU" means restricted share unit subject to time vesting only.
"SDP" means the Corporation’s consolidated share distribution plan, the principal terms of which are set out
in Appendix "C".
"SEC" means the U.S. Securities and Exchange Commission
"Shares" means common shares without par value in the capital of Ballard.
"TSX" means the Toronto Stock Exchange.
"US$" refers to United States currency.
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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 10, 2015, the total number of Shares issued and reserved and authorized for issue under
the Option Plan was 5,676,265 Shares, representing 4.3% 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 CDN$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
(a)
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
CDN$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 10, 2015, the total number of Shares issued and reserved and authorized for issue under
the SDP was 1,399,527 Shares, representing 1.1% of the issued and outstanding Shares as of April 10, 2015.
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 CDN$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:
(f)
(c)
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
CDN$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;
(d)
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;
(e)
(f)
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
D-1
(cid:3)
(cid:3)
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,
2015 and should be read in conjunction with our audited consolidated financial statements
and accompanying notes for the year ended December 31, 2014. 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 and service 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 and the
license and sale of our extensive intellectual property portfolio and fundamental knowledge
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 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 two-pronged approach to build shareholder value through the
sale and service of power products and the delivery of technology solutions. In product
sales, our focus is on meeting the power needs of our customers by delivering high value,
high reliability, high quality and clean energy power products that reduce customer costs
and risks. Through technology solutions, our focus is on enabling our customers to solve
their technical and business challenges and accelerate their fuel cell programs by delivering
customized, high value, bundled technology solutions, including specialized engineering
services, access to our deep intellectual property portfolio and know-how through licensing
(cid:3)
(cid:3)
Page 1 of 44
(cid:3)
(cid:3)
(cid:3)
or sale, and providing technology component supply. 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 of government funding for our research and product development efforts, and
the redirection of engineering resources to revenue generating technology solutions and
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 11, 2015, we entered
into a transaction with Volkswagen Group
(“Volkswagen”) to transfer certain automotive-related fuel cell intellectual property for an
aggregate amount of approximately $80 million including the benefits of a two-year
extension of our existing technology development and engineering services agreement with
Volkswagen previously announced on March 6, 2013. Under the transfer agreement
(“Volkswagen IP Agreement”), Ballard transferred the automotive-related portion of the fuel
cell intellectual property assets previously acquired from United Technologies Corporation
(“UTC”) on April 24, 2014 to Volkswagen, in exchange for $50 million payable in two
tranches; $40 million of which was received at the closing of the transaction on February
23, 2015 with the remaining $10 million payable on or before February 16, 2016. Ballard
also received a royalty-free license to all the intellectual property transferred to Volkswagen
to utilize in our bus and non-automotive applications and in certain limited pre-commercial
purposes for automotive applications. Pursuant to initial acquisition of intellectual property
assets from UTC in April 2014, we are required to pay UTC a 25% license fee, or $10
million, on the initial $40 million received from Volkswagen. Ballard will also remit a 9%
payment, or $0.9 million, to UTC on the receipt of the final $10 million from Volkswagen
when collected in 2016. In connection with the transaction, Volkswagen extended the
existing long-term technology development and engineering services agreement signed by
Ballard and Volkswagen in 2013 for 2-years to February 2019. This extension has an
incremental value estimated at Canadian $30-50 million. Over the full 6-years, the
technology development and engineering services contract has an estimated value of
Canadian $100-$140 million and contemplates the design and manufacture of next-
generation fuel cell stacks for use in Volkswagen’s fuel cell demonstration car program.
Volkswagen also retains an option to extend this agreement for a further 2-year term.
On January 2, 2015, we announced that we have given termination notice on two licensing
agreements in the China market as a result of material breaches of these agreements by
Azure Hydrogen Energy Science and Technology Corporation (“Azure”). The first license
agreement, originally announced on September 26, 2013, related to the assembly of
Ballard’s FCvelocity®-HD7 Bus power modules for the Chinese market. The second license
agreement, announced on June 19, 2014 is related to the assembly of Ballard’s
ElectraGen® Telecom Backup Power systems in China for the Chinese market. As a result of
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Azure’s breaches under both contracts, and notwithstanding Ballard’s good faith efforts to
reach a settlement, we provided notice of termination of both contracts as we consider our
legal remedies. In the fourth quarter of 2014, we did not recognize any revenue on these
contracts and recorded an impairment loss on trade receivables of $4.4 million related to
the outstanding amounts owed by Azure.
On October 8, 2014, we completed a long term supply agreement with Plug Power Inc
(“Plug Power”) to provide fuel cell stacks for use in Plug Power’s GenDrive™ systems
deployed in forklift trucks. The new supply agreement replaces an existing agreement and
runs to the end of 2017, with the provision for two 1-year extensions.
On September 1, 2014, we announced the appointment of Randall MacEwen as President
and Chief Executive Officer, effective October 6, 2014. Mr. MacEwen replaced John
Sheridan, who retired after serving as the Company’s President and Chief Executive Officer
since 2006.
On June 29, 2014, we completed a definitive agreement for the sub-license of intellectual
property to M-Field Energy Corporation (“M-Field”) for material handling systems to be
deployed in Europe (“M-Field Licensing Agreement”). Ballard will also provide M-Field with
engineering services support into early-2015 to assist in optimizing system integration
activities utilizing Ballard fuel cell stacks. The agreement has an initial value of
approximately $1 million. Also under the agreement, Ballard will be the exclusive supplier of
fuel cell stacks, including the FCgen®-1020ACS air-cooled and FCvelocity®-9SSL liquid-
cooled stack products, for all material handling systems deployed by M-Field in Europe.
Amounts earned from the M-Field Licensing Agreement (approximately $0.1 million in the
fourth quarter of 2014 and $0.8 million in 2014) are recorded as either Material Handling or
Engineering Services revenues depending on the nature of the work performed. Prior to the
completion of the M-Field Licensing Agreement, we acquired the material handling
intellectual property portfolio of H2 Logic A/S, a leading European manufacturer of hydrogen
refueling stations and fuel cell systems for applications such as forklift trucks and tow
tractors when H2 Logic A/S made a strategic decision to narrow its business focus to
hydrogen refueling stations. Ballard is sub-licensing this intellectual property to M-Field.
On June 19, 2014, we completed a definitive agreement with Azure Hydrogen Energy
Science and Technology Corporation (“Azure”) in relation to an assembly license for
Telecom Backup Power systems for the China market (“Azure Telecom Backup Power
Licensing Agreement”). The agreement had an estimated value of $7.2 million over 2014
and 2015. In addition to the payment for the assembly license, Ballard was to be the
exclusive supplier of subsystems to Azure including FCgen®-1020ACS air-cooled fuel cell
stacks and fuel processors and was to receive a royalty payment for each Telecom Backup
Power system sold in China should Azure successfully execute its Business Plan and achieve
volume commitments. On January 2, 2015, we announced that we have given termination
notice on this agreement as a result of material breaches by Azure. Amounts earned from
the Azure Telecom Backup Power Licensing Agreement (nil in the fourth quarter of 2014 and
$3.8 million in 2014) prior to the contract termination are recorded as either Backup Power
or Engineering Services revenues depending on the nature of the work performed.
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On April 24, 2014, we acquired the transportation and stationary related fuel cell intellectual
property assets of United Technologies Corporation (“UTC”) for total consideration of $22.3
million. The acquired assets consist of approximately 800 patents and patent applications,
as well as patent licenses, invention disclosures and know-how primarily related to PEM fuel
cell technology. In addition to incremental intellectual property licensing revenue
opportunities, the acquired intellectual property assets will support other key elements of
Ballard’s corporate strategy: engineering service capabilities will be expanded in both
automotive and non-automotive markets; and fuel cell product sales will be accelerated
through product development initiatives in areas such as durability and balance of plant
simplification. As consideration for the acquired intellectual property assets, UTC received
5.1 million Ballard common shares valued at $20.3 million, $2 million in cash, a grant back
license to use the patent portfolio in UTC’s existing businesses, and a portion (typically
25%) of Ballard’s future intellectual property sale and licensing income generated from the
combined intellectual property portfolio for a period of 15-years expiring in April 2029. On
February 11, 2015, we entered into an agreement with Volkswagen to transfer the
automotive-related portion of the acquired UTC intellectual property assets to Volkswagen in
exchange for total net payments of approximately $39 million while retaining a royalty-free
license to utilize the entire UTC portfolio in our bus and non-automotive applications as well
as for certain limited pre-commercial purposes in automotive applications. We retain a
royalty obligation to pay UTC a portion (typically 25%) of any additional future intellectual
property sale and licensing income generated from our intellectual property portfolio until
April 2029.
During 2014, a total of 7.9 million share purchase warrants were exercised for Ballard
common shares generating net proceeds of $12.3 million. The share purchase warrants
were issued as part of two underwritten offerings which closed in March 2013 and October
2013 (see below for additional details). As of December 31, 2014, 0.25 million share
purchase warrants from the March 2013 Offering and 1.7 million share purchase warrants
from the October 2013 Offering remain outstanding.
During 2014, a total of 3.6 million employee share purchase options were exercised for
Ballard common shares generating proceeds of $6.8 million. As of December 31, 2014, 4.4
million share purchase options at a variety of prices and vesting dates remain outstanding.
During March 2014, Anglo American Platinum Limited (“Anglo”) converted its $4.0 million
non-interest bearing promissory note into 4.76 million Ballard common shares as per the
terms of an agreement announced on March 3, 2013 (see below for additional details). On
conversion, the entire $4.0 million Note (which was classified as an equity instrument on
initial issuance in 2013) was reclassified from Contributed Surplus to Share Capital.
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. 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.
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On October 9, 2013, we closed an underwritten offering (“October 2013 Offering”) of 10.35
million units at a price of $1.40 per unit for gross proceeds of $14.5 million. Each unit in the
October 2013 Offering was comprised of one common share and 0.25 of a warrant to
purchase one common share. Each whole warrant was exercisable immediately upon
issuance, having a five-year term and an exercise price of $2.00 per share. Net proceeds
from the October 2013 Offering were $13.1 million, after deducting underwriting discounts,
commissions and other offering expenses. During 2014, 0.9 million share purchase warrants
from the October 2013 Offering were exercised for Ballard common shares generating
proceeds of $1.8 million. As of December 31, 2014, 1.7 million share purchase warrants
from the October 2013 Offering remain outstanding.
On September 26, 2013, we completed multi-year definitive agreements with Azure to
support Azure’s zero emission fuel cell bus program for the China market. Azure planned 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
(“Azure Bus Licensing Agreement”). For the first phase of the program, Ballard had 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 was established, Azure would 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 was approximately $11 million, related to the license for
module assembly together with associated equipment and engineering services. On January
2, 2015, we announced that we have given termination notice on this agreement as a result
of material breaches by Azure. Amounts earned from the Azure Bus Licensing Agreement
($nil in the fourth quarter of 2014 and $4.9 million in 2014, and $3.0 million in the fourth
quarter of 2013 and $5.0 million in 2013) prior to the contract termination are recorded as
either Bus or Engineering Services revenues depending on the nature of the 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 under which Anglo invested
$4.0 million in Ballard through its PGM Development Fund to support continued
development and commercial advancement of our fuel cell production. 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 was repayable through the issuance of Ballard common
shares at Anglo’s option on or before the loan maturity date of April 1, 2018. The conversion
price was set at a fixed price of $0.84 per share (or 4.76 million Ballard common shares on
conversion of the entire $4.0 million Note) which was equal to a 20% discount to the
market price of the Ballard common shares on the closing date of the transaction. In March
2014, the entire $4.0 million Note was converted into 4.76 million Ballard common shares.
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On March 26, 2013, we closed on an underwritten offering (“March 2013 Offering”) of 7.275
million units at a price of $1.10 per unit for gross proceeds of $8.0 million. Each unit in the
March 2013 Offering was comprised of one common share and one warrant to purchase one
common share. Each warrant was exercisable immediately upon issuance, having a five-
year term and an exercise price of $1.50 per share. Net proceeds from the March 2013
Offering were $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. During 2014, 7.0 million
share purchase warrants from the March 2013 Offering were exercised for Ballard common
shares generating proceeds of $10.5 million. As of December 31, 2014, 0.25 million share
purchase warrants from the March 2013 Offering remain outstanding.
On March 6, 2013, we entered into a technology development and engineering services
agreement with Volkswagen Group (“Volkswagen”) 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 ($4.0 million in the fourth quarter of 2014,
$18.5 million in 2014, and $13.5 million in 2013) are recorded primarily as Engineering
Services revenues. On closing of the Volkswagen IP Agreement in February 2015, this
technology development and engineering services was extended 2-years to February 2019.
Over the full 6-years, this technology development and engineering services contract now
has an estimated value of Canadian $100-140 million and consists of the design and
manufacture of next-generation fuel cell stacks for use in Volkswagen’s fuel cell
demonstration car program. This agreement includes a further optional 2-year extension.
On January 31, 2013, we completed an agreement to sell substantially all of the assets in
our Lowell, Massachusetts based Material Products division for net cash proceeds of $9.0
million after deducting for working capital adjustments, broker commissions and expenses,
and legal and other expenses. In March 2014, we received additional proceeds of $0.3
million payable through a product credit in 2014 and 2015 for fuel cell gas diffusion layers
(“GDLs”) based on the 2013 financial results of the former Material Products division. The
Material Products segment is classified as a discontinued operation in our consolidated
financial statements.
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 during 2013.
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
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(“SDTC”) for the period from 2011 to 2015 for extending the operating life and lowering 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
and successfully completed in 2014 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 and service 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 and the license and sale of our extensive
intellectual property portfolio and fundamental knowledge for a variety of fuel cell
applications.
SELECTED ANNUAL FINANCIAL INFORMATION
Results of Operations
Year ended,
2014
2013
2012
(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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
68,721
10,246
15%
26,367
(18,635)
(21,833)
(0.17)
(28,188)
(0.22)
320
-
2014
127,905
-
127,905
23,671
-
-
$
$
$
$
$
$
$
$
$
$
61,251
16,759
27%
28,084
(8,188)
(18,056)
(0.18)
(19,988)
(0.20)
24
-
At December 31,
2013
$
$
$
$
$
$
120,214
-
120,214
30,301
-
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
43,690
7,369
17%
30,301
(22,076)
(31,750)
(0.36)
(42,320)
(0.48)
(65)
-
2012
116,749
10,798
127,547
9,770
12,068
(9,358)
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.
$
23,671
$
30,301
$
12,480
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2014 Performance compared to our 2014 Revised Business Outlook
On January 2, 2015, we announced that we had given termination notices on the Azure
Telecom Backup Power Licensing Agreement and the Azure Bus Licensing Agreement as a
result of contract breaches by Azure. As a result of these contract breaches, we noted that
we would not recognize expected revenue of over $3 million and would incur an impairment
loss on Azure trade receivables of $4.4 million in the fourth quarter of 2014. As a result of
these contract breaches by Azure, we announced that we would not achieve our revised
2014 revenue and Adjusted EBITDA outlook on January 2, 2015.
Our actual results compared to our revised business outlook for 2014 are as follows:
(cid:120) Our revised 2014 revenue guidance was for revenue growth of approximately 20% over
2013 revenue of $61.3 million, or approximately $73.5 million in 2014. Actual revenues
of $68.7 million in 2014 were only 12% higher than revenues in 2013, representing a
shortfall of approximately ($5) million against our revised revenue guidance. This
shortfall is due to (i) the lost Azure revenue of approximately ($3) million; and (ii)
approximately ($2) million due to delays from forecast in terms of closing and shipping
expected sales orders primarily in our Telecom Backup Power market as expected
customer purchase orders were not received due to the relatively long, protracted sales
cycle that includes additional time required for qualification, onsite testing, field trialing
and certification.
(cid:120) Our revised 2014 Adjusted EBITDA guidance was for improvement of approximately
65% over 2013, or approximately ($3) million in 2014. Actual Adjusted EBITDA in 2014
was ($18.6) million, representing a shortfall of approximately ($15.6) million against our
revised Adjusted EBITDA guidance. This shortfall is attributable to (i) the impact of lost
Azure gross margin of approximately ($3) million; (ii) the ($4.4) million Azure
impairment charge; (iii) unexpected increases in warranty, inventory and service related
expenses of approximately ($5) million related primarily to our Telecom Backup Power
market in Asia; (iv) unexpected additional impairment of trade receivables of
approximately ($1.8) million related to non-collection of certain of our customers
primarily in Asia; (v) lower than anticipated government recoveries of approximately
($0.6) million related primarily to Dantherm Power; and (vi) lower than anticipated
absolute revenue growth and the related impact of higher manufacturing overhead and
related costs of approximately ($0.6) million.
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RESULTS OF OPERATIONS – Fourth Quarter of 2014
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
Gross Margin
Gross Margin %
2014
2013
$ Change
% Change
3,136
4,316
6,075
2,120
15,647
18,680
$
5,904
1,968
6,215
3,229
17,316
11,422
$
(2,768)
2,347
(140)
(1,108)
(1,669)
(47%)
119%
(2%)
(34%)
(10%)
7,258
64%
$
(3,033)
$
5,894
$
(8,927)
(151%)
(19%)
34%
n/a
(53 pts)
Fuel Cell Products and Services Revenues of $15.6 million for the fourth quarter of 2014
declined (10%), or ($1.7) million, compared to the fourth quarter of 2013. The (10%)
decline was driven by lower Telecom Backup Power and Development Stage revenues,
which more than offset the significant increase in Material Handling revenues and relatively
flat Engineering Services revenues. As a result of contract breaches by Azure, we did not
record any engineering services, bus or Telecom Backup power revenue in the fourth
quarter of 2014 from the Azure Bus and Azure Telecom Backup Power Agreements as
compared to a total of $3.0 million recognized in the fourth quarter of 2013.
Engineering Services revenues of $6.1 million decreased ($0.1) million, or (2%), as
increases in services performed on the Volkswagen Agreement and several other smaller-
scale, multi-customer programs were more than offset by lower amounts earned on the
Azure Bus Licensing Agreement revenue ($nil in the fourth quarter of 2014 as compared to
$0.7 million in the fourth quarter of 2013).
Material Handling revenues of $4.3 million increased $2.3 million, or 119%, as a result of
significantly higher shipments in support of Plug Power Inc.’s GenDrive™ systems.
Telecom Backup Power revenues of $3.1 million declined ($2.8) million, or (47%), due to a
significant decline in shipments of hydrogen-based backup power stacks, combined with a
moderate decline in shipments of methanol-based and hydrogen-based systems (total
methanol-based and hydrogen-based system shipments were 132 in the fourth quarter of
2014 as compared to 177 systems in the fourth quarter of 2013). New customer
deployments of Telecom Backup Power system solutions were impacted by the relatively
long, protracted sales cycle that includes additional time required for qualification, onsite
testing, field trialing and certification.
Development stage revenues of $2.1 million decreased ($1.1) million, or (34%), as
increased shipments of heavy-duty fuel cell bus modules to our customers primarily in China
and North America were more than offset by lower amounts earned on the Azure Bus
Licensing Agreement (nil in the fourth quarter of 2014 as compared to $2.3 million in the
fourth quarter of 2013). (cid:3)
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Fuel Cell Products and Services gross margins declined to ($3.0) million, or (19%) of
revenues, for the fourth quarter of 2014, compared to $5.9 million, or 34% of revenues, for
the fourth quarter of 2013. The significant decline in gross margin was driven by (i)
negative net warranty adjustments in the fourth quarter of 2014 of ($3.7) million related
primarily to an increase in customer service related expenses in our Telecom Backup Power
market as a result of fuel processor issues in a select Asian deployment, compared to
positive net warranty adjustments of $1.3 million in the fourth quarter of 2013 related
primarily to warranty expirations in the Bus market; (ii) a lack of high margin revenue
earned in the fourth quarter of 2014 on the contract breached Azure Agreements, compared
to revenue recognized on the Azure Bus Agreement of $3.0 million in the fourth quarter of
2013; (iii) negative inventory impairments in the fourth quarter of 2014 of ($0.7) million
related primarily to excess distributed generation and other excess and obsolete inventory,
compared to negative inventory impairments of ($0.5) million in the fourth quarter of 2013
related primarily to excess bus service inventory; and (iv) higher manufacturing overhead
and related costs as a result of lower Telecom Backup Power stack and system shipments,
combined with higher material usage and direct labour costs primarily as a result of product
mix and an increase in service related expenses.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2014
2013
$ Change
% Change
Research and Product
Development (operating cost)
General and Administrative
(operating cost)
Sales and Marketing (operating cost)
Cash Operating Costs
$
$
3,700
$
2,374
$
1,326
2,473
1,658
7,831
1,945
1,912
528
(254)
$
6,231
$
1,600
56%
27%
(13%)
26%
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, impairment losses on trade receivables, restructuring charges, acquisition costs and
financing charges.
Cash Operating Costs (see Supplemental Non-GAAP Measures) for the fourth quarter of
2014 were $7.8 million, an increase of $1.6 million, or 26%, compared to the fourth quarter
of 2013. The 26% increase in the fourth quarter of 2014 was driven by significantly higher
research and product development costs as increased general and administrative costs were
primarily offset by minor reductions in sales and marketing costs.
Research and product development costs for the fourth quarter of 2014 were $3.7 million,
an increase of $1.3 million, or 56%, compared to the fourth quarter of 2013. The 56%
increase was driven primarily by lower government funding as recoveries in Denmark by
Dantherm Power were down significantly, combined with lower government recoveries in
Canada as we successfully concluded the multi-year SDTC Bus award in 2014 with the
introduction of the FCvelocity®-HD7, Ballard’s next-generation of fuel cell bus power
module. Government research funding is reflected as a cost offset to research and product
development expenses.
General and administrative costs for the fourth quarter of 2014 were $2.5 million, an
increase of $0.5 million, or 27%, compared to the fourth quarter of 2013. The 27% increase
was driven by higher legal and transaction related expenses incurred as a result of the
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Azure contract breaches and the subsequent Volkswagen IP Agreement, by higher patent
renewal costs incurred related to the acquired UTC intellectual property portfolio, and by
higher human resources expenses related primarily to CEO transition expenses.
Sales and marketing costs for the fourth quarter of 2014 were $1.7 million, a decline of
($0.3) million, or (13%), compared to the fourth quarter of 2013. The (13%) decrease was
driven by lower labour costs as a result of a 8% lower Canadian dollar, relative to the U.S.
dollar, and the resulting positive impact on our Canadian operating cost base combined with
lower accrued sales compensation as a result of under-performance against our 2014
revenue performance targets.
Operating expenses in the fourth quarter of 2014 benefited from the positive impact of a
weaker Canadian dollar, relative to the U.S. dollar. 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 8% lower in the
fourth quarter of 2014 as compared to the fourth quarter of 2013, positive foreign exchange
impacts on our Canadian operating cost base and Adjusted EBITDA were approximately
$0.5 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,
2014
2013
$ Change
% Change
Adjusted EBITDA
$
(16,057)
$
171
$
(16,228)
(9504%)
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 2014
was ($16.1) million, compared to $0.2 million for the fourth quarter of 2013. The ($16.2)
million increase in Adjusted EBITDA loss in the fourth quarter of 2014 was driven by the
decline in gross margin of ($8.9) million primarily as a result of higher net negative
warranty adjustments of ($5.0) million combined with the negative impact of the (10%)
overall decline in revenue and the lack of high margin licensing revenue earned in the fourth
quarter of 2014 as a result of the Azure contract breaches, by higher other expenses of
($6.0) million primarily as a result of increased impairment losses on trade receivables, and
by increases in Cash Operating Costs of ($1.6) million primarily as a result of lower
government funding recoveries in Denmark.
Impairment loss on trade receivables for the three months ended December 31, 2014 were
($6.2) million, compared to ($0.2) million for the corresponding period of 2013. Impairment
loss on trade receivables in 2014 consists of a ($4.4) million impairment charge as a result
of material breaches by Azure of the Azure Telecom Backup Power Licensing Agreement and
the Azure Bus Licensing Agreement, and by additional impairment charges of ($1.8) related
to non-collection of certain of our customers primarily in Asia. In the event that we are able
to recover on these accounts in 2015 through legal or other means, the recovered amount
will be recognized in the period of recovery as a reversal of the impairment loss.
(cid:3)
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Page 11 of 44
(cid:3)
(cid:3)
(cid:3)
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2014
2013
$ Change
% Change
Net loss attributable to Ballard from
$
(17,467)
$
(2,274)
$
(15,193)
(668%)
continuing operations
Net loss attributable to Ballard from continuing operations for the fourth quarter of 2014
was ($17.5) million, or ($0.13) per share, compared to a net loss of ($2.3) million, or
($0.02) per share, in the fourth quarter of 2013. The ($15.2) million increase in net loss for
the fourth quarter of 2014 was driven primarily by the increase in Adjusted EBITDA loss of
($16.2) million combined with the decline in Finance and other income of ($1.0) million
primarily as a result of a decrease in foreign exchange gains on our Canadian dollar-
denominated net monetary position, partially offset by lower stock-based compensation
expense of $1.4 million as certain outstanding restricted share units ultimately failed to
meet the vesting criteria due to under-performance against our 2014 corporate performance
targets.
Net loss attributable to Ballard in the fourth quarter of 2013 was also negatively impacted
by impairment charges on investments of ($0.2) million on our non-core investment in
Chrysalix Energy Limited Partnership. Adjusted EBITDA and Net loss attributable to Ballard
in the fourth quarters of 2014 and 2013 were also negatively impacted by impairment loss
on trade receivables of ($6.2) million and ($0.2) million, respectively. Excluding the impact
of the impairment loss on trade receivables and the impact of the Chrysalix impairment
charge, Normalized Net Loss (see Supplemental Non-GAAP Measures) in the fourth quarter
of 2014 was ($11.3) million, or ($0.09) per share, compared to ($1.9) million, or ($0.02)
per share, for the fourth quarter of 2013.
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 2014 and 2013, we held a 52% equity interest in Dantherm Power. Net loss attributed to
non-controlling interests for the fourth quarter of 2014 was ($0.6) million, as compared to
($0.2) million for the fourth quarter of 2013.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2014
2013
$ Change
% Change
Cash (used in) provided by operating
$
(8,195)
$
(872)
$
(7,323)
(840%)
activities
Cash used in operating activities in the fourth quarter of 2014 was ($8.2) million, consisting
of cash operating losses of ($10.8) million, partially offset by net working capital inflows of
$2.6 million. Cash used in operating activities in the fourth quarter of 2013 was ($0.9)
million, consisting of cash operating losses of ($0.1) million and net working capital outflows
of ($0.8) million. The ($7.3) million increase in cash used by operating activities in the
fourth quarter of 2014, as compared to the fourth quarter of 2013, was driven by the
relative increase in cash operating losses of ($10.7) million, partially offset by the relative
improvement in working capital requirements of $3.4 million. The ($10.7) million increase in
cash operating losses in the fourth quarter of 2014 was due primarily to the ($16.2) million
(cid:3)
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(cid:3)
(cid:3)
(cid:3)
increase in Adjusted EBITDA loss, partially offset by the increase in impairment losses on
trade receivables of $6.0 million which while included in the Adjusted EBITDA loss, are
excluded from cash operating losses.
The total change in working capital of $2.6 million in the fourth quarter of 2014 was due to
higher accrued warranty provisions of $3.5 million primarily as a result of an adjustment for
an expected increase in customer service related expenses in our Telecom Backup Power
market in Asia, combined with lower inventory of $2.6 million as we shipped product
purchased and built in prior quarters. These fourth quarter of 2014 working capital inflows
were partially offset by lower accounts payable and accrued liabilities of ($3.7) million as a
result of increased supplier payments made for higher inventory purchases in the first three
quarters of 2014 and by a downward adjustment to accrued cash-based compensation
expense in the fourth quarter of 2014 as a result of under-performing against our 2014
corporate performance targets. This compares to a total change in working capital of ($0.8)
million in the fourth quarter of 2013 which 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 $4.6 million due to significant customer collections in the fourth
quarter of 2013, and by lower inventory levels of $1.5 million.
RESULTS OF OPERATIONS – Year ended December 31, 2014
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Fuel Cell Products and
Services
2014
2013
$ Change
% Change
Telecom Backup Power
$
15,856
$
20,464
$
(4,608)
Material Handling
Engineering Services
Development Stage
Revenues
Cost of goods sold
Gross Margin
Gross Margin %
14,491
30,257
8,117
68,721
58,475
6,456
21,132
13,199
61,251
44,492
8,035
9,125
(5,082)
7,470
13,983
(23%)
124%
43%
(39%)
12%
31%
$
10,246
$
16,759
$
(6,513)
(39%)
15%
27%
n/a
(12 pts)
Fuel Cell Products and Services Revenues of $68.7 million for 2014 increased 12%, or $7.5
million, compared to 2013. The 12% increase was driven by significantly higher Engineering
Services and Material Handling revenues, which more than offset the decline in Telecom
Backup Power and Development Stage revenues. As a result of contract breaches by Azure,
we did not record any engineering services, bus or Telecom Backup power revenue in the
fourth quarter of 2014 from the Azure Bus and Azure Telecom Backup Power Agreements.
Prior to the contract breaches by Azure, we recognized a total of $8.7 million on the two
agreements in 2014 as compared to a total of $5.0 million in 2013.
Engineering Services revenues of $30.3 million increased $9.1 million, or 43%, as services
performed in 2014 on the Volkswagen Agreement and several other smaller-scale, multi-
customer programs were significantly higher than amounts performed in 2013 on similar
(cid:3)
(cid:3)
Page 13 of 44
(cid:3)
(cid:3)
(cid:3)
type contracts, combined with an increase in servicing revenue earned on the Azure Bus
and Telecom Backup Power License Agreements prior to their contract breach by Azure
($3.0 million in 2014 as compared to $1.1 million in 2013).
Telecom Backup Power revenues of $15.9 million decreased ($4.6) million, or (23%) due
primarily to a decline in shipments of methanol-based and hydrogen-based systems (total
methanol-based and hydrogen-based system shipments were 375 in 2014 as compared to
796 systems in 2013). This decline in Telecom Backup system revenues more than offset
the positive impact of an increase in shipments of hydrogen-based backup power stacks and
an increase in licensing revenue earned on the Azure Telecom Backup Power License
Agreement prior to its contract breach by Azure ($2.7 million in 2014 as compared to $nil
million in 2013). New customer deployments of Telecom Backup Power system solutions
were impacted by the relatively long, protracted sales cycle that includes additional time
required for qualification, onsite testing, field trialing and certification.
Material Handling revenues of $14.5 million increased $8.0 million, or 124%, as a result of
significantly higher shipments in support of Plug Power Inc.’s GenDrive™ systems, combined
with increased licensing revenue as a result of the M-Field Licensing Agreement.
Development stage revenues of $8.1 million decreased ($5.1) million, or (39%), due to a
decline in shipments of heavy-duty fuel cell bus modules as our customers in Europe and
North America focused primarily on commissioning and servicing their fuel cell bus fleets in
advance of starting expected new programs in 2015, combined with lower amounts earned
on the Azure Bus Licensing Agreement prior to its contract breach by Azure ($3.0 million in
2014 as compared to $3.9 million in 2013).
Fuel Cell Products and Services gross margins declined to $10.2 million, or 15% of
revenues, for 2014, compared to $16.8 million, or 27% of revenues, for 2013. The
significant decline in gross margin was driven by (i) negative net warranty adjustments in
2014 of ($3.5) million related primarily to an increase in customer service related expenses
in our Telecom Backup Power market as a result of fuel processor issues in a select Asian
deployment, compared to positive net warranty adjustments of $1.8 million in 2013 related
primarily to warranty expirations in the Bus market; (ii) negative inventory impairments in
2014 of ($1.4) million related primarily to excess distributed generation and other excess
and obsolete inventory, compared to negative inventory impairments of ($0.6) million in
2013 related primarily to excess bus service inventory; and (iii) higher manufacturing
overhead and related costs in our Tijuana, Mexico facility as a result of lower Telecom
Backup Power system shipments, combined with higher material usage and direct labour
costs primarily as a result of product mix and an increase in service related expenses.
(cid:3)
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Page 14 of 44
(cid:3)
(cid:3)
(cid:3)
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Research and Product
Development (operating cost)
General and Administrative (operating
cost)
Sales and Marketing (operating cost)
$ 10,436
$
12,592
$
(2,156)
9,127
6,804
8,263
7,229
864
(425)
(17%)
10%
(6%)
Cash Operating Costs
$
Cash Operating Costs is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP measures
do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other
companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating expenses for stock-
based compensation expense, depreciation and amortization, impairment losses on trade receivables, restructuring charges, acquisition costs and
financing charges.
$ 26,367
(1,717)
28,084
(6%)
$
Cash Operating Costs (see Supplemental Non-GAAP Measures) for 2014 were $26.4 million,
a decline of ($1.7) million, or (6%), compared to 2013. The 6% reduction in 2014 was
driven by lower research and product development costs of ($2.2) million as increases in
general and administrative costs were primarily offset by reductions in sales and marketing
costs.
Research and product development costs for 2014 were $10.4 million, a decline of ($2.2)
million, or (17%), compared to 2013. The (17%) reduction was driven by the 43% increase
in engineering services revenues resulting in significantly increased engineering staff
resources being redirected to revenue generating engineering service projects. This benefit
was partially offset by lower government funding due to lower recoveries in Denmark by
Dantherm Power and by lower government recoveries in Canada as we successfully
concluded the multi-year SDTC Bus award in 2014 with the introduction of the FCvelocity®-
HD7, Ballard’s next-generation of fuel cell bus power module. 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.
General and administrative costs for 2014 were $9.1 million, an increase of $0.9 million, or
10%, compared to 2013. The 10% increase was driven by higher legal and transaction
related expenses incurred in 2014 as a result of the Azure Telecom Backup License Power
Agreement and related contract breaches, the UTC and H2 Logic A/S intellectual property
acquisitions and the subsequent Volkswagen IP Agreement, and by higher patent renewal
costs related to the acquired UTC intellectual property portfolio, and by higher human
resources expenses related primarily to CEO search and transition expenses.
Sales and marketing costs for 2014 were $6.8 million, a decline of ($0.4) million, or (6%),
compared to 2013. The (6%) decrease was driven by lower labour costs as a result of a
lower Canadian dollar in 2014 combined with lower accrued sales compensation as a result
of under-performance against our 2014 revenue performance targets.
Operating expenses in 2014 benefited from the positive impact of a weaker Canadian dollar,
relative to the U.S. dollar. 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 7% lower in 2014 as compared to 2013,
(cid:3)
(cid:3)
Page 15 of 44
(cid:3)
(cid:3)
(cid:3)
positive foreign exchange impacts on our Canadian operating cost base and Adjusted
EBITDA were approximately $1.8 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)
Year ended December 31,
2014
2013
$ Change % Change
Adjusted EBITDA
$
(18,635)
$
(8,188)
$
(10,447)
(128%)
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 2014 was ($18.6) million,
compared to ($8.2) million for 2013. The ($10.4) million increase in Adjusted EBITDA loss in
2014 was driven by the decline in gross margin of ($6.5) million primarily as a result of
higher net negative warranty adjustments of ($5.3) million combined with higher net
negative inventory adjustments of ($0.8) million, higher manufacturing overhead and
related costs in our Tijuana, Mexico facility as a result of lower Telecom Backup Power
system shipments and higher material usage and direct labour costs primarily as a result of
product mix and an increase in service related expenses, by higher other expenses of ($5.4)
million primarily as a result of increased impairment losses on trade receivables, partially
offset by the reduction in Cash Operating Costs of $1.7 million primarily as a result of the
43% increase in engineering services revenues resulting in significantly increased
engineering staff resources being redirected to revenue generating engineering service
projects.
Impairment loss on trade receivables in 2014 were ($6.2) million, compared to ($0.2)
million for 2013. Impairment loss on trade receivables in 2014 consists of a ($4.4) million
impairment charge as a result of material breaches by Azure of the Azure Telecom Backup
Power Licensing Agreement and the Azure Bus Licensing Agreement, and by additional
impairment charges of ($1.8) related to non-collection of certain of our customers primarily
in Asia. In the event that we are able to recover on these accounts in 2015 through legal or
other means, the recovered amount will be recognized in the period of recovery as a
reversal of the impairment loss. Other expenses in 2013 include restructuring charges of
($0.6) million related primarily to minor restructurings focused on overhead cost reduction.
Net loss attributable to Ballard
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Net loss attributable to Ballard from continuing
$
(28,188)
$
(19,988)
$
(8,200)
(41%)
operations
Net loss attributable to Ballard from continuing operations for 2014 was ($28.2) million, or
($0.22) per share, compared to a net loss of ($20.0) million, or ($0.20) per share, in 2013.
The ($8.2) million increase in net loss was driven primarily by the increase in Adjusted
EBITDA loss of ($10.4) million, partially offset by lower stock-based compensation expense
of $1.5 million as certain outstanding restricted share units ultimately failed to meet the
vesting criteria due to under-performance against our 2014 corporate performance targets.
(cid:3)
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Page 16 of 44
(cid:3)
(cid:3)
(cid:3)
Finance and other income was relatively flat year over year as a decrease in foreign
exchange gains on our Canadian dollar-denominated net monetary position in 2014 was
offset by a ($1.2) million charge in 2013 as a result of the settlement of the TPC obligation.
Net loss attributable to Ballard in 2014 and 2013 was also negatively impacted by
impairment charges on investments of ($0.1) million and ($0.5) million, respectively, on our
non-core investment in Chrysalix Energy Limited Partnership. Adjusted EBITDA and Net loss
attributable to Ballard in 2014 and 2013 were also negatively impacted by impairment
losses on trade receivables of ($6.2) million and ($0.2) million, respectively. Excluding the
impact of the impairment loss on trade receivables, the Chrysalix impairment charge, and
the impact of the TPC settlement charge, Normalized Net Loss (see Supplemental Non-GAAP
Measures) in 2014 was ($21.8) million, or ($0.17) per share, compared to ($18.1) million,
or ($0.18) per share, for 2013.
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 2014, we held a
52% equity interest in Dantherm Power as compared to a 57% equity interest held in the
first quarter of 2013 and a 52% equity interest in the second, third and fourth quarters of
2013. Net loss attributed to non-controlling interests for 2014 was ($1.6) million, as
compared to ($1.7) million for 2013.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Cash (used in) provided by operating
$
(20,671)
$
(17,416)
$
3,255
19%
activities
Cash used in operating activities in 2014 was ($20.7) million, consisting of cash operating
losses of ($15.7) million and net working capital outflows of ($5.0) million. Cash used in
operating activities in 2013 was ($17.4) million, consisting of cash operating losses of
($11.8) million and net working capital outflows of ($5.6) million. The ($3.3) million
increase in cash used by operating activities in 2014, as compared to 2013, was driven by
the relative increase in cash operating losses of ($3.9) million, partially offset by lower
relative working capital requirements of $0.6 million. The ($3.9) million increase in cash
operating losses was due primarily to the ($10.4) million increase in Adjusted EBITDA loss,
partially offset by the increase in impairment losses on trade receivables of $6.0 million
which while included in the Adjusted EBITDA loss, are excluded from cash operating losses.
The total change in working capital of ($5.0) million in 2014 was driven by lower accounts
receivable of ($4.1) million primarily as a result of impairment losses on trade receivables of
($6.2) million and the timing of Engineering Services, Bus and Telecom Backup Power
revenues and the related customer collections, and by lower deferred revenue of ($4.4)
million as we completed the contract work on Engineering Services and SDTC government
grant contracts for which we received pre-payments in an earlier period. These working
capital outflows in 2014 were partially offset by working capital inflows related to higher
accrued warranty provisions of $2.4 million primarily as a result of an adjustment for an
expected increase in customer service related expenses in our Telecom Backup Power
market in Asia, and by lower inventory of $1.5 million as we shipped product purchased and
(cid:3)
(cid:3)
Page 17 of 44
(cid:3)
(cid:3)
(cid:3)
built in prior quarters. This compares to a total change in working capital of ($5.6) million in
2013 which 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 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 $1.7 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.(cid:3)
RESULTS OF DISCONTINUED OPERATIONS
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Revenues
Cost of goods sold
Gross margin
Operating expenses
Impairment (charge) recovery on
property, plant and equipment
Income taxes
Net earnings (loss) from
discontinued operations
$
$
-
-
-
-
320
-
$
320
$
867
(627)
240
(252)
45
(9)
24
$
$
(867)
627
(240)
252
275
9
296
(100%)
100%
(100%)
100%
611%
100%
1233%
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
consolidated financial statements. As such, the operating results of the former Material
Products segment 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.
Net earnings from discontinued operations of $0.3 million for the year ended December 31,
2014 relate to additional proceeds to be received in 2014 and 2015 in the form of a 12-
month product credit as a result of the disposition of the former Materials Product division.
The $0.3 million product credit is to be utilized through the supply of fuel cell gas diffusion
layers, a component in our fuel cell modules, and represent the additional potential
proceeds that are now payable based on the 2013 financial results of the former Material
Products division. The additional proceeds payable have been recorded as a reversal of
previously recorded impairment losses on property, plant and equipment.
(cid:3)
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(cid:3)
(cid:3)
(cid:3)
OPERATING EXPENSES AND OTHER ITEMS
Research and product development expenses
Three months ended December 31,
(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 recovery
(expense)
2014
4,510
(914)
104
$
$
$
2013
3,636
(967)
(295)
$
$
$
Research and product development (operating
$
3,700
$
2,374
cost)
$ Change
% Change
874
53
399
24%
5%
135%
1,326
56%
$
$
$
$
(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)
Year ended December 31,
2014
14,294
(3,209)
(649)
10,436
$
$
$
$
2013
17,117
(3,286)
(1,239)
12,592
$
$
$
$
$ Change
% Change
$
$
$
$
(2,823)
77
590
(2,156)
(16%)
2%
48%
(17%)
Research and product development expenses for the three months ended December 31,
2014 were $4.5 million, an increase of $0.9 million, or 24%, compared to the corresponding
period of 2013. Excluding depreciation and amortization expense of ($0.9) and ($1.0)
million, respectively, and stock-based compensation (expense) recovery of $0.1 million and
($0.3), respectively, research and product development costs were $3.7 million in the fourth
quarter of 2014, an increase of $1.3 million, or 56%, compared to the fourth quarter of
2013. The 56% increase was driven primarily by lower government funding due to lower
recoveries in Denmark by Dantherm Power, combined with lower government recoveries in
Canada as we successfully concluded the multi-year SDTC Bus award in 2014 with the
introduction of the FCvelocity®-HD7, Ballard’s next-generation of fuel cell bus power
module. In addition, the (2%) decline in engineering services revenues in the fourth quarter
of 2014 resulted in slightly lower engineering staff resources being redirected to revenue
generating engineering service projects.
Research and product development expenses for the year ended December 31, 2014 were
$14.3 million, a decrease of ($2.8) million, or (16%), compared to the corresponding period
of 2013. Excluding depreciation and amortization expense of ($3.2) million and ($3.3)
million, respectively, and stock-based compensation expense of ($0.6) million and ($1.2)
million, respectively, research and product development costs were $10.4 million in 2014, a
decline of ($2.2) million, or (17%), compared to 2013. The (17%) reduction was driven by
the 43% increase in engineering services revenues in 2014 resulting in significantly
increased engineering staff resources being redirected to revenue generating engineering
service projects, combined with lower labour costs in 2014 as a result of a 7% lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact on our
Canadian operating cost base. These benefits were partially offset by lower government
funding due to lower recoveries in Denmark by Dantherm Power and by lower government
recoveries in Canada as we successfully concluded the multi-year SDTC Bus award in 2014
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(cid:3)
(cid:3)
with the introduction of the FCvelocity®-HD7, Ballard’s next-generation of fuel cell bus
power module.
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.
Depreciation and amortization expense included in research and product development
expense relates primarily to depreciation expense on our manufacturing equipment and
amortization expense on our intangible assets and was relatively consistent period over
period.
Stock-based compensation expense included in research and product development expense
(recovery) for the three months and year ended December 31, 2014 was ($0.1) million and
$0.6 million, respectively, compared to $0.3 million and $1.2 million, respectively, for the
corresponding periods of 2013. Stock-based compensation declined in 2014 as a result of a
downward adjustment to accrued stock-based compensation expense made in the fourth
quarter of 2014 as certain outstanding restricted share units ultimately failed to meet the
vesting criteria due to under-performance against our 2014 corporate performance targets.
General and administrative expenses
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Stock-based compensation recovery
(expense)
2014
2,085
(44)
432
2013
2,672
(42)
(685)
$
$
$
$
$
$
General and administrative (operating cost)
$
2,473
$
1,945
$ Change
% Change
(587)
(2)
1,117
(22%)
(5%)
163%
528
27%
$
$
$
$
Three months ended December 31,
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
General and administrative (operating cost)
Year ended December 31,
2014
10,126
(183)
(816)
9,127
$
$
$
$
2013
10,545
(177)
(2,105)
8,263
$
$
$
$
$ Change
% Change
$
$
$
$
(419)
(6)
1,289
864
(4%)
(3%)
61%
10%
General and administrative expenses for the three months ended December 31, 2014
were $2.1 million, a decrease of ($0.6) million, or (22%), compared to the corresponding
period of 2013. Excluding relatively insignificant depreciation and amortization expense in
each of the periods, and stock-based compensation (expense) recovery of $0.4 million and
($0.7) million, respectively, general and administrative costs were $2.5 million in the fourth
quarter of 2014, an increase of $0.5 million, or 27%, compared to the fourth quarter of
2013.
General and administrative expenses for the year ended December 31, 2014 were $10.1
million, a decrease of ($0.4) million, or (4%), compared to the corresponding period of
2013. Excluding relatively insignificant depreciation and amortization expense in each of the
periods, and stock-based compensation expense of ($0.8) million and ($2.1) million,
(cid:3)
(cid:3)
Page 20 of 44
(cid:3)
(cid:3)
(cid:3)
respectively, general and administrative costs in 2014 were $9.1 million, an increase of $0.9
million, or 10%, compared to 2013.
The respective 27% and 10% increases in 2014 were primarily as a result of higher legal
and transaction related expenses incurred in 2014 as a result of the Azure Telecom Backup
License Power Agreement and related contract breaches, the UTC and H2 Logic A/S
intellectual property acquisitions and the subsequent Volkswagen IP Agreement, and by
higher patent renewal costs related to the acquired UTC intellectual property portfolio, and
by higher human resources expenses related primarily to CEO search and transition
expenses. These cost pressures in 2014 more than offset lower labour costs in 2014 as a
result of a 7% lower Canadian dollar, relative to the U.S. dollar, and the resulting positive
impact on our Canadian operating cost base.
Depreciation and amortization expense included in general and administrative expense
relates primarily to depreciation expense on our office equipment and was relatively
consistent period over period.
Stock-based compensation expense (recovery) included in general and administrative
expense for the three months and year ended December 31, 2014 was ($0.4) million and
$0.8 million, respectively, compared to $0.7 million and $2.1 million, respectively, for the
corresponding periods of 2013. Stock-based compensation declined in 2014 as a result of a
downward adjustment to accrued stock-based compensation expense made in the fourth
quarter of 2014 as certain outstanding restricted share units ultimately failed to meet the
vesting criteria due to under-performance against our 2014 corporate performance targets.
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)
2014
1,827
(169)
1,658
2014
7,589
(785)
6,804
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended December 31,
2013
1,934
(22)
1,912
$ Change
% Change
$
$
$
(107)
(147)
(254)
(6%)
(668%)
(13%)
Year ended December 31,
2013
7,661
(432)
7,229
$ Change
% Change
$
$
$
(72)
(353)
(425)
(1%)
(82%)
(6%)
Sales and marketing expenses for the three months ended December 31, 2014 were $1.8
million, a decrease of ($0.1) million, or (6%), compared to the corresponding period of
2013. Excluding stock-based compensation expense of ($0.2) million and nil million,
respectively, sales and marketing costs were $1.7 million in the fourth quarter of 2014, a
decrease of ($0.3) million, or (13%), compared to the fourth quarter of 2013.
Sales and marketing expenses for the year ended December 31, 2014 were $7.6 million, a
decrease of ($0.1) million, or (1%), compared to the corresponding period of 2013.
Excluding stock-based compensation expense of ($0.8) million and ($0.4) million,
(cid:3)
(cid:3)
Page 21 of 44
(cid:3)
(cid:3)
(cid:3)
respectively, sales and marketing costs were $6.8 million in 2014, a decrease of ($0.4)
million, or (6%), compared to 2013.
The respective (13%) and (6%) decreases in 2014 were primarily as a result of lower labour
costs as a result of a 7% lower Canadian dollar, relative to the U.S. dollar, and the resulting
positive impact on our Canadian operating cost base combined with lower accrued sales
compensation as a result of under-performance against our 2014 revenue performance
targets.
Stock-based compensation expense included in sales and marketing expense for the three
months and year ended December 31, 2014 was $0.2 million and $0.8 million, respectively,
compared to nil million and $0.4 million, respectively, for the corresponding periods of
2013. Stock-based compensation increased in 2014 as a result of new long-term awards
granted to recently hired sales leadership positions which more than offset a downward
adjustment to accrued stock-based compensation expense as certain outstanding restricted
share units ultimately failed to meet the vesting criteria due to under-performance against
our 2014 corporate performance targets
Other expense for the three months and year ended December 31, 2014 was $6.2 million
and $6.3 million, respectively, compared to $0.3 million and $0.9 million, respectively, for
the corresponding periods of 2013. The following tables provide a breakdown of other
expense for the reported periods:
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2014
2013
$ Change
% Change
Impairment loss on trade receivables
$
6,159
$
228
$
5,931
2,601%
Restructuring expense
Acquisition charges
Other expenses
78
-
46
-
32
-
70%
-
$
6,237
$
274
$
5,963
2,176%
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Impairment loss on trade receivables
$
6,206
$
$
5,984
2,695%
Restructuring expense
Acquisition charges
Other expenses
85
-
222
568
78
(483)
(78)
$
6,291
$
868
$
5,423
(85%)
(100%)
625%
Impairment loss on trade receivables for the three months and year ended December 31,
2014 was ($6.2) million, compared to ($0.2) million for the corresponding periods of 2013.
Impairment loss on trade receivables in 2014 consists of a ($4.4) million impairment charge
as a result of material breaches by Azure of the Azure Telecom Backup Power Licensing
Agreement and the Azure Bus Licensing Agreement, and by additional impairment charges
of ($1.8) million related to non-collection of certain of our customers primarily in Asia. In
the event that we are able to recover on these accounts in 2015 through legal or other
means, the recovered amount will be recognized in the period of recovery as a reversal of
the impairment loss.
(cid:3)
(cid:3)
Page 22 of 44
(cid:3)
(cid:3)
(cid:3)
Restructuring charges of ($0.6) million in 2013 relate primarily to minor restructurings
focused on overhead cost reduction.
Finance income (loss) and other for the three months and year ended December 31,
2014 was ($0.5) million and ($0.1) million, respectively, compared to $0.5 million and $0.2
million, respectively, for the corresponding periods of 2013. The following tables provide a
breakdown of finance and other income (loss) for the reported periods:
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2014
2013
$ Change
% Change
Employee future benefit plan expense
$
(48)
$
(92)
$
Pension administration expense
Investment and other income
Foreign exchange gain (loss)
(7)
44
(512)
-
54
584
44
(7)
(10)
(1,095)
Finance income (loss) and other
$
(523)
$
546
$
(1,069)
48%
(100%)
(19%)
(188%)
(196%)
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2014
2013
$ Change
% Change
Employee future benefit plan expense
$
(183)
$
(282)
$
Pension administration expense
(100)
(61)
99
(39)
Settlement of TPC funding obligation
Investment and other income
Foreign exchange gain (loss)
-
139
31
(1,197)
1,197
141
1,553
(2)
(1,522)
35%
(64%)
100%
(2%)
(98%)
Finance income (loss) and other
$
(113)
$
154
$
(267)
(173%)
Employee future benefit plan expense for the three months and year ended December 31,
2014 were ($0.1) million and ($0.2) million, respectively, generally consistent with the
corresponding periods of 2013. 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 certain former United
States employees. Pension administration expense of ($0.1) million for the years ended
December 31, 2014 and 2013 represent administrative costs incurred in managing the plan.
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 (losses) for the three months and year ended December 31, 2014
were ($0.5) million and nil, respectively, compared to $0.6 million and $1.6 million,
respectively, for the corresponding periods of 2013. 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
(cid:3)
(cid:3)
Page 23 of 44
(cid:3)
(cid:3)
(cid:3)
Power’s assets and liabilities from the Danish Kroner to the U.S. dollar at exchange rates in
effect at each reporting date.
Finance expense for the three months and year ended December 31, 2014 was ($0.2)
million and ($0.9) million, respectively, compared to ($0.3) million and ($1.5) million,
respectively, for the corresponding periods of 2013. 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 the
building qualifies as a finance (or capital) lease. Finance expense in 2013 also includes
interest expense on convertible debt issued by our subsidiary Dantherm Power. On
November 27, 2013, all of the convertible debt issued by Dantherm Power was exercised
and converted into shares of Dantherm Power.
Impairment loss on investment for the three months and year ended December 31,
2014 was $nil and ($0.2) million, respectively, compared to ($0.2) million and ($0.5)
million, respectively, for the corresponding periods of 2013. The loss consists of impairment
charges related to our now disposed of non-core investment in Chrysalix Energy Limited
Partnership (“Chrysalix”) as it was written down to its net realizable value of $nil.
Net loss attributed to non-controlling interests for the three months and year ended
December 31, 2014 was ($0.6) million and ($1.6) million, respectively, compared to ($0.2)
million and ($1.7) million, respectively, for the corresponding periods of 2013. Amounts
represent the non-controlling interest of Dantherm A/S and Azure in the losses of Dantherm
Power as a result of their 48% total equity interest in 2014 and the second, third and fourth
quarters of 2013 and their 43% total equity interest in the first quarter of 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,
2014
15,647
(18,021)
$
$
Sep 30,
2014
Jun 30,
2014
$
$
20,611
(2,423)
$
$
18,471
(4,457)
$
$
Mar 31,
2014
13,992
(3,841)
$
(0.13)
$
(0.02)
$
(0.03)
$
(0.03)
Weighted average common shares outstanding
132,104
132,049
130,392
114,756
Revenues
Net income (loss) attributable to Ballard
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
(cid:3)
(cid:3)
Page 24 of 44
(cid:3)
(cid:3)
(cid:3)
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 revenues also reflect the timing of work performed and the
achievements of milestones under long-term fixed price contracts including the contract
with Volkswagen which commenced in the first quarter of 2013, the Azure Bus Licensing
Agreement which commenced in the third quarter of 2013 and the Azure Telecom
Backup Power Licensing Agreement which commenced in the second quarter of 2014
prior to contract breaches by Azure of both the Azure Bus Licensing Agreement and the
Azure Telecom Backup Power Licensing Agreement in the fourth quarter of 2014.
(cid:120) Operating expenditures: Operating expenses were negatively
impacted by
impairment losses on trade receivables in the fourth quarter of 2014 of ($6.2) million
consisting of a ($4.4) million impairment charge as a result of material breaches by
Azure of the Azure Telecom Backup Power Licensing Agreement and the Azure Bus
Licensing Agreement, and by additional impairment charges of ($1.8) million related to
non-collection of certain of our customers primarily in Asia. Impairment losses on trade
receivables are recognized in other 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)
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.
CASH FLOWS
Cash, cash equivalents and short-term investments were $23.7 million at December 31,
2014, compared to $30.3 million at December 31, 2013. The ($6.6) million decrease in
cash, cash equivalents and short-term investments in 2014 was driven by a net loss
(excluding non-cash items) of ($15.7) million, by net working capital requirements of ($5.0)
million, and by investing activities of ($4.2) million related primarily to the acquisition and
integration of UTC’s intellectual property assets. These outflows were partially offset by net
proceeds from share purchase warrant exercises of $12.3 million and employee share
purchase option proceeds of $6.8 million.
For the three months ended December 31, 2014, cash used by operating activities was
($8.2) million, consisting of cash operating losses of ($10.8) million, partially offset by net
working capital inflows of $2.6 million. For the three months ended December 31, 2013,
cash used by operating activities was ($0.9) million, consisting of cash operating losses of
($0.1) million and net working capital outflows of ($0.8) million.(cid:3)The ($7.3) million increase
in cash used by operating activities in the fourth quarter of 2014, as compared to the fourth
quarter of 2013, was driven by the relative increase in cash operating losses of ($10.7)
million, partially offset by the improvement in net working capital inflows of $3.4 million.
(cid:3)
(cid:3)
Page 25 of 44
(cid:3)
(cid:3)
(cid:3)
The ($10.7) million increase in cash operating losses was due primarily to the ($16.2)
million increase in Adjusted EBITDA loss, partially offset by the increase in impairment
losses on trade receivables of $6.0 million which while included in the Adjusted EBITDA loss,
are excluded from cash operating losses. In the fourth quarter of 2014, net working capital
cash inflows of $2.6 million was due primarily to higher accrued warranty provisions of $3.5
million primarily related to an adjustment for an expected increase in customer service
related expenses in our Telecom Backup Power market in Asia, combined with lower
inventory of $2.6 million as we shipped product purchased and built in prior quarters. These
fourth quarter of 2014 working capital inflows were partially offset by lower accounts
payable and accrued liabilities of ($3.7) million as a result of increased supplier payments
made for higher inventory purchases in the first three quarter of 2014 and by a downward
adjustment to accrued cash-based compensation expense in the fourth quarter of 2014 as a
result of under-performing against our 2014 corporate performance targets. Working capital
outflows of ($0.8) 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 $4.6 million due to significant customer collections in the fourth
quarter of 2013, and by lower inventory levels of $1.5 million.
For the year ended December 31, 2014, cash used in operating activities was ($20.7)
million, consisting of cash operating losses of ($15.7) million and net working capital
outflows of ($5.0) million. For the year ended December, 2013, cash used by operating
activities was ($17.4) million, consisting of cash operating losses of ($11.8) million and
working capital outflows of ($5.6) million. The ($3.3) million increase in cash used by
operating activities in 2014, as compared to 2013, was driven by the relative increase in
cash operating losses of ($3.9) million, partially offset by lower relative working capital
requirements of $0.6 million. The ($3.9) million increase in cash operating losses was due
primarily to the ($10.4) million increase in Adjusted EBITDA loss, partially offset by the
increase in impairment losses on trade receivables of $6.0 million which while included in
the Adjusted EBITDA loss, are excluded from cash operating losses. In 2014, net working
capital outflows of ($5.0) million was driven by lower accounts receivable of ($4.1) million
primarily as a result of impairment losses on trade receivables of ($6.2) million and the
timing of Engineering Services, Bus and Telecom Backup Power revenues and the related
customer collections, and by lower deferred revenue of ($4.4) million as we completed the
contract work on Engineering Services and SDTC government grant contracts for which we
received pre-payments in an earlier period. These working capital outflows in 2014 were
partially offset by working capital inflows related to higher accrued warranty provisions of
$2.4 million primarily as a result of an adjustment primarily for an expected increase in
customer service related expenses in our Telecom Backup Power market in Asia, and by
lower inventory of $1.5 million as we shipped product purchased and built in prior quarters.
In 2013, net working capital outflows of ($5.6) million were 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 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 $1.7 million primarily as a result of the timing of Bus and Telecom
(cid:3)
(cid:3)
Page 26 of 44
(cid:3)
(cid:3)
(cid:3)
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.(cid:3)
Investing activities resulted in cash outflows of ($0.5) million and ($4.2) million,
respectively, for the three months and year ended December 31, 2014, compared to cash
outflows of ($0.1) million and inflows of $20.9 million for the corresponding periods of 2013.
Changes in short-term investments resulted in cash inflows of nil for the three months and
year ended December 31, 2014, compared to cash inflows of nil and $12.1 million,
respectively, for the corresponding periods of 2013. 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 cash investing activities in
2014 consist primarily of the investment in fuel cell technology of ($3.4) million related
primarily to the acquisition and integration of the UTC intellectual property assets, and
capital expenditures of ($0.8) million. Other cash investing activities in 2013 consist
primarily of net proceeds of $9.1 million received on the disposition of the former Material
Products segment.
Financing activities resulted in cash outflows of ($0.2) million and cash inflows of $18.5
million, respectively, for the three months and year ended December 31, 2014, compared to
cash inflows of $10.5 million and $16.9 million, respectively, for the corresponding periods
of 2013. Financing activities in 2014 include net proceeds from share purchase warrant
exercises of $12.3 million and employee share purchase option proceeds of $6.8 million.
Financing activities in 2013 include net October 2013 Offering proceeds of $13.1 million, net
March 2013 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2014, we had total Liquidity of $23.7 million. We measure Liquidity as our
net cash position, consisting of the sum of our cash, cash equivalents and short-term
investments of $23.7 million, net of amounts drawn on our $7 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. Our Liquidity
position was augmented in February 2015 by initial net proceeds of approximately $30
million received from the subsequent Volkswagen IP Agreement with further net proceeds of
approximately $9 million expected to be received on or before February 2016.
We also have a $1.8 million Canadian capital leasing facility (“Leasing Facility”) which is
occasionally used to finance the acquisition and / or lease of operating equipment and is
secured by a hypothecation of our cash, cash equivalents and short-term investments. At
December 31, 2014, $1.2 million Canadian 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
(cid:3)
(cid:3)
Page 27 of 44
(cid:3)
(cid:3)
(cid:3)
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 subsequent Volkswagen IP Agreement,
the March and October 2013 equity Offerings and the exercise of certain of the related
share purchase warrants in 2014, the disposition of the Material Products division in 2013,
and the issuance and conversion 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 could 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, our
success in developing new channels to market and relationships with customers, our
success in generating revenue growth from near-term product, service and licensing
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 $23.7 million at December 31, 2014 (augmented
in February 2015 by initial net proceeds of approximately $30 million received from the
subsequent Volkswagen IP Agreement), there are 0.25 million warrants outstanding (expire
on March 27, 2018) from the March 2013 Offering each of which enables the holder to
purchase one common share at a fixed price of $1.50 per common share, and 1.7 million
warrants outstanding (expire on October 9, 2018) from the October 2013 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
May 2014 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 June 2016) 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.
(cid:3)
(cid:3)
Page 28 of 44
(cid:3)
(cid:3)
(cid:3)
2015 BUSINESS OUTLOOK
We expect the positive top-line growth trends in 2012 through 2014 to continue in 2015 as
we continue to pursue our growth strategy for fuel cell product sales, engineering services
and intellectual property licensing and sale.
While our strategic focus on multiple fuel cell product markets, engineering services and
intellectual property monetization serves to mitigate risk, the resulting cadence in customer
demand can be uneven through the early stages of market development. As such, our
financial results on a quarterly basis are subject to a high degree of variability. Further,
given this early stage of fuel cell market development and adoption rate, we have decided
not to provide formal guidance for 2015.
Our outlook for 2015 is based on our internal forecast which reflects an assessment of
overall business conditions and takes into account actual sales in the first six weeks of
2015, sales orders received for units and services to be delivered in the remainder of 2015,
an estimate with respect to the generation of new sales and the timing of deliveries in each
of our markets for the balance of 2015, and assumes an average U.S. dollar exchange rate
in low 80’s in relation to the Canadian dollar for the remainder of 2015. The primary risk
factors to our business outlook for 2015 are delays from forecast in terms of closing and
delivering expected sales primarily in our Telecom Backup Power and Bus markets, potential
disruptions in the Material Handling market as a result of our reliance on a single customer
in this market, and fluctuations in the Canadian dollar, relative to the U.S. dollar, as a
significant portion of our Engineering Services revenues (including the technology
development and engineering services agreement with Volkswagen) are priced in Canadian
dollars.
Furthermore, potential fluctuations in our financial results make financial forecasting
difficult. The Company's revenues, cash flows and other operating results can vary
significantly from quarter to quarter. Sales and margins may be lower than anticipated due
to general economic conditions, market-related factors and competitive factors. Cash
receipts may also vary from quarter to quarter due to the timing of cash collections from
customers. As a result, quarter-to-quarter comparisons of revenues, cash flows and other
operating results may not be meaningful. In addition, due to the early stage of development
of the market for hydrogen fuel cell products, it is difficult to accurately predict future
revenues, cash flows or results of operations on a quarterly basis. It is likely that in one or
more future quarters, financial results will fall below the expectations of securities analysts
and investors. If this occurs, the trading price of the Company's shares may be materially
and adversely affected.
OFF-BALANCE SHEET ARRANGEMENTS & CONTRACTUAL OBLIGATIONS
Periodically, we use forward foreign exchange and forward platinum purchase contracts to
manage our exposure to currency rate fluctuations and platinum price fluctuations. We
record these contracts at their fair value as either assets or liabilities on our balance sheet.
Any changes in fair value are either (i) recorded in our statement of comprehensive income
if formally designated and qualified under hedge accounting criteria; or (ii) recorded in our
statement of operations if either not designated, or not qualified, under hedge accounting
criteria. At December 31, 2014, we had no outstanding foreign exchange currency contracts
(cid:3)
(cid:3)
Page 29 of 44
(cid:3)
(cid:3)
(cid:3)
and outstanding platinum forward purchase contracts to purchase $1.0 million of platinum
at an average rate of $1,400 per troy ounce, resulting in an unrealized loss of ($0.1) million
at December 31, 2014.
At December 31, 2014, 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, 2014, we had the following contractual obligations and commercial
commitments:
(Expressed in thousands of U.S. dollars)
Contractual Obligations
Operating leases
Capital leases
Asset retirement obligations
Payments due by period,
Total
Less than
one year
1-3 years
3-5 years
After 5
years
$ 14,340
$
2,358
$
4,895
$
4,291
$
2,796
14,249
5,205
1,680
3,020
-
-
2,403
-
7,146
5,205
Total contractual obligations
$ 33,794
$
4,038
$
7,915
$
6,694
$
15,147
In addition, we have outstanding commitments of $0.2 million related primarily to
purchases of capital assets at December 31, 2014. Capital expenditures pertain to our
regular operations and are expected to be funded through cash on hand.
In connection with the acquisition of intellectual property from UTC on April 24, 2014, we
retain a royalty obligation to pay UTC a portion (typically 25%) of any future intellectual
property sale and licensing income generated from our intellectual property portfolio for a
period of 15-years expiring in April 2029.
As of December 31, 2014, 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. We also 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 each party’s continuing obligations to
the other. The Indemnity Agreement has two basic elements to the final determination date
of December 31, 2015: it provides for the indemnification of each party by 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
(cid:3)
(cid:3)
Page 30 of 44
(cid:3)
(cid:3)
(cid:3)
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, 2014,
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 the three months and year ended December 31, 2014 and 2013, related party
transactions and balances are limited to transactions between Dantherm Power and its non-
controlling interests as follows:
(Expressed in thousands of U.S. dollars)
Transactions with related parties(cid:3)
Purchases
Finance expense on Dantherm Power debt to Dantherm Power non-
controlling interests
(Expressed in thousands of U.S. dollars)
Transactions with related parties(cid:3)
Purchases
Finance expense on Dantherm Power debt to Dantherm Power non-
controlling interests
(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
Three Months Ended December 31,
2014
39
8
2013
97
64
$
$
Year Ended December 31,
2014
175
34
2014
70
45
484
2013
185
322
$
$
As at December 31,
2013
139
16
550
$
$
$
$
$
$
$
$
$
$
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, 2014, the outstanding Dantherm Power debt (including
interest) to Dantherm Power non-controlling interests totals $0.5 million, bears interest at
6.0% per annum, is non-convertible, and is repayable by December 31, 2015 (subsequently
extended to December 31, 2016).
(cid:3)
(cid:3)
Page 31 of 44
(cid:3)
(cid:3)
(cid:3)
OUTSTANDING SHARE DATA
As at February 25, 2015(cid:3)
Common share outstanding
Warrants outstanding
Options outstanding
132,277,232
1,797,563
4,070,038
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 annual consolidated financial statements).
Our significant accounting policies are detailed in note 4 to our annual consolidated financial
statements for the year ended December 31, 2014. (cid:3)
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 and services, the license and sale of
intellectual property, and the provision of engineering services. Product and service
revenues are derived primarily from standard equipment and material sales contracts and
from long-term fixed price contracts. Intellectual property license and sale revenues are
derived primarily from license and sale agreements and from long-term fixed price
contracts. Engineering service 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
(cid:3)
(cid:3)
Page 32 of 44
(cid:3)
(cid:3)
(cid:3)
recognition for standard equipment and material sales contracts does not usually involve
significant estimates.
On standard license and sale agreements, revenues are recognized on the transfer of the
rights to the licensee if (i) the rights to the assets are assigned to the licensee in return for
a fixed fee or a non-refundable guarantee; (ii) the contract is non-cancellable; (iii) the
licensee is able to exploit its rights to the asset freely; and (iv) the licensor has no
remaining obligations to perform. Otherwise, the proceeds are considered to relate to the
right to use the asset over the license period and the revenue is recognized over that
period. Revenue recognition for license and sale agreements 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
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 31, 2014 and 2013, 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.
(cid:3)
(cid:3)
Page 33 of 44
(cid:3)
(cid:3)
(cid:3)
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.
The allocation of goodwill to cash-generating units reflects the lowest level at which goodwill
is monitored for internal reporting purposes. Many of the factors used in assessing fair value
are outside the control of management and it is reasonably likely that assumptions and
estimates will change from period to period. These changes may result in future
impairments. For example, our revenue growth rate could be lower than projected due to
economic, industry or competitive factors, or the discount rate used in our value in use
model could increase due to a change in market interest rates. In addition, future goodwill
impairment charges may be necessary if our market capitalization decreased due to a
decline in the trading price of our common stock, which could negatively impact the fair
value of our operating segments.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating
unit exceeds its estimated recoverable amount. Impairment losses are recognized in net
loss. Impairment losses recognized in respect of the cash-generating units are allocated first
to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the
carrying amounts of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized.
We perform the annual review of goodwill as at December 31 of each year, more often if
events or changes in circumstances indicate that it might be impaired. Under IFRS, the
annual review of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to sell. Value in use is defined as the
present value of future cash flows expected to be derived from the asset in its current state.
As of December 31, 2014, 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, 2014, we have concluded that no goodwill impairment charge is required
for the year ending December 31, 2014. Details of our 2014 goodwill impairment tests are
as follows:
(cid:3)
(cid:3)
Page 34 of 44
(cid:3)
(cid:3)
(cid:3)
(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,
2014 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, 2014 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 27% from 2014 to 2019; and a terminal year EBITDA
multiplied by a terminal value multiplier of 10.0. Our value in use assessment resulted in
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, 2014 indicating that no impairment charge is required for 2014.
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. During the three months and years ended
December, 2014 and 2013, there was no material adjustments to non-financial assets
(other than inventories) relating to these reviews.
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, 2014, we recorded provisions to
accrued warranty liabilities of $0.5 million and $1.0 million, respectively, for new product
sales, compared to $0.1 million and $1.3 million, respectively, for the three months and
year ended December 31, 2013.
We review our warranty assumptions and make adjustments to accrued warranty liabilities
(cid:3)
(cid:3)
Page 35 of 44
(cid:3)
(cid:3)
(cid:3)
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, 2014
were adjusted (upwards) by a net amount of ($3.6) million and ($3.4) million, respectively,
compared to a net adjustment downwards of $1.3 million and $1.8 million, respectively, for
the three months and year ended December 31, 2013. The negative adjustments to the
accrued warranty liability provisions in 2014 were primarily due to an increase in customer
service related expenses in our Telecom Backup Power market in Asia, whereas the positive
adjustments to the accrued warranty liability provision in 2013 were due primarily to
contractual warranty expirations and improved lifetimes and reliability of our fuel cell bus
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, 2014, negative inventory
adjustments of ($0.7) million and ($1.4) million, respectively, were recorded as a charge to
cost of product and service revenues, compared to ($0.5) million and ($0.8) million,
respectively, for the three months and year ended December 31, 2013.
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.
(cid:3)
(cid:3)
Page 36 of 44
(cid:3)
(cid:3)
(cid:3)
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, 2014 and 2013, 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 and
amendments effective January 1, 2014.
AMENDMENTS to IAS 32 – OFFSETTING FINANCIAL ASSETS AND LIABILITIES
Amendments to IAS 32 “Offsetting Financial Assets and Financial Liabilities” 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 adoption of the
amendments to IAS 32 does not have a material impact on our consolidated financial
statements.
AMENDMENTS to IAS 39 – NOVATION OF DERIVATIVES AND CONTINUATION OF HEDGE
ACCOUNTING
Amendments to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” 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 adoption of the amendments to IAS 39 did not have a material impact on our
consolidated financial statements.
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 15 – REVENUE FROM CONTRACTS WITH CUSTOMERS
On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which
replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
(cid:3)
(cid:3)
Page 37 of 44
(cid:3)
(cid:3)
(cid:3)
Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising
Services.
IFRS 15 contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The model features a
contract-based five-step analysis of transactions to determine whether, how much, and
when revenue is recognized. New estimates and judgmental thresholds have been
introduced, which may affect the amount and/or timing of revenue recognized. The new
standard applies to contracts with customers. It does not apply to insurance contracts,
financial instruments or lease contracts, which fall in the scope of other IFRSs.
The new standard is effective for fiscal years ending on or after December 31, 2017 and is
available for early adoption.
The Corporation intends to adopt IFRS 15 in its financial statements for the fiscal year
beginning on January 1, 2017. The extent of the impact of adoption has not yet been
determined.
IFRS 9 – FINANCIAL INSTRUMENTS
In July 2014, the IASB issued IFRS 9 Financial Instruments (“IFRS 9”), which replaces the
current multiple classification and measurement models for financial assets and liabilities
with a single model that has only two classification categories: amortized cost and fair
value. The basis of classification depends on the entity’s business model and the
contractual cash flow characteristics of the financial asset or liability. It also introduces
additional changes relating to financial liabilities and aligns hedge accounting more closely
with risk management.
IFRS 9 is effective for fiscal years beginning on or after January 1, 2018 and is available for
early adoption. The Corporation intends to adopt IFRS 9 in its financial statements for the
fiscal year beginning January 1, 2018. The extent of the impact of adoption has not yet
been determined.
SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with GAAP, we present certain
supplemental non-GAAP measures. These measures are Cash Operating Costs, EBITDA and
Adjusted EBITDA, and Normalized Net Loss. These non-GAAP measures do not have any
standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. We believe these measures are useful in
evaluating the operating performance and liquidity of the Company’s ongoing business.
These measures should be considered in addition to, and not as a substitute for, net
income, cash flows and other measures of financial performance and liquidity reported in
accordance with GAAP.
Cash Operating Costs
This supplemental non-GAAP measure is provided to assist readers in determining our
operating costs on a cash basis. We believe this measure is useful in assessing performance
and highlighting trends on an overall basis.
We also believe Cash Operating Costs is frequently used by securities analysts and investors
when comparing our results with those of other companies. Cash Operating Costs differs
(cid:3)
(cid:3)
Page 38 of 44
(cid:3)
(cid:3)
(cid:3)
from the most comparable GAAP measure, operating expenses, primarily because it does
not include stock-based compensation expense, depreciation and amortization, impairment
losses on trade receivables, 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 and months and year ended December 31, 2014
and 2013:
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
2014
Three months ended December 31,
Total Operating Expenses
$
14,659
$
Stock-based compensation recovery
(expense)
Impairment losses on trade receivables
Acquisition and integration costs
Restructuring charges
Financing charges
Depreciation and amortization
367
(6,159)
-
(78)
-
(958)
2013
8,516
(1,002)
(228)
-
(46)
-
(1,009)
$ Change
$
6,143
1,369
(5,931)
-
(32)
-
51
Cash Operating Costs
$
7,831
$
6,231
$
1,600
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Year ended December 31,
2014
2013
$ Change
Total Operating Expenses
$
38,300
$
36,191
$
Stock-based compensation expense
Impairment losses on trade receivables
Acquisition and integration costs
Restructuring charges
Financing charges
Depreciation and amortization
(2,249)
(6,206)
-
(85)
-
(3,393)
(3,775)
(222)
(78)
(568)
-
(3,464)
2,109
1,526
(5,984)
78
483
-
71
Cash Operating Costs
$
26,367
$
28,084
$
(1,717)
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
for stock-based
goodwill
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, 2014 and 2013:
impairment charges. Adjusted EBITDA adjusts EBITDA
(cid:3)
(cid:3)
Page 39 of 44
(cid:3)
(cid:3)
(cid:3)
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Three months ended December 31,
2014
2013
$ Change
Net loss from continuing operations attributable
to Ballard
$
(17,467)
$
(2,274)
$
(15,193)
Depreciation and amortization
Finance expense
Income taxes (recovery)
1,448
234
(477)
1,557
268
167
(109)
(34)
(644)
EBITDA attributable to Ballard
$
(16,262)
$
(282)
$
(15,980)
Stock-based compensation expense
(recovery)
Acquisition and integration costs
Finance and other (income) loss
Impairment of goodwill
Impairment of equity investment
Loss (gain) on sale of property, plant and
equipment
(367)
-
501
-
-
71
Adjusted EBITDA
$
(16,057)
$
1,002
-
(546)
-
150
(153)
171
(1,369)
-
1,047
-
(150)
224
$
(16,228)
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Year ended December 31,
2014
2013
$ Change
Net loss from continuing operations attributable
to Ballard
$
(28,188)
$
(19,988)
$
(8,200)
Depreciation and amortization
Finance expense
Income taxes
5,610
942
417
5,655
1,486
485
(45)
(544)
(68)
EBITDA attributable to Ballard
$
(21,219)
$
(12,362)
$
(8,857)
Stock-based compensation expense
2,249
Acquisition and integration costs
Finance and other (income) loss
Impairment of goodwill
Impairment of equity investment
Loss (gain) on sale of property, plant and
equipment
-
113
-
149
73
3,775
78
(215)
-
513
23
(1,526)
(78)
328
-
(364)
50
Adjusted EBITDA
$
(18,635)
$
(8,188)
$
(10,447)
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, 2014 and 2013.
(cid:3)
(cid:3)
Page 40 of 44
(cid:3)
(cid:3)
(cid:3)
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net loss attributable to Ballard from continuing
Three months ended December 31,
2014
2013
$ Change
operations
$
(17,467)
$
(2,274)
$
(15,193)
Impairment loss on trade receivables
6,159
Impairment of equity investment
Impairment of goodwill
Impairment of property, plant and equipment
-
-
-
227
150
-
-
5,932
(150)
-
-
Normalized Net Loss
Normalized Net Loss per share
$
$
(11,308)
$
(1,897)
(0.09)
$
(0.02)
$
$
(9,411)
(0.07)
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net loss attributable to Ballard from continuing
Year ended December 31,
2014
2013
$ Change
operations
$
(28,188)
$
(19,988)
$
Settlement of TPC funding obligation
Impairment loss on trade receivables
Impairment of equity investment
Impairment of goodwill
Impairment of property, plant and equipment
-
6,206
149
-
-
1,197
222
513
-
-
(8,200)
(1,197)
5,984
(364)
-
-
Normalized Net Loss
Normalized Net Loss per share
$
$
(21,833)
$
(18,056)
(0.17)
$
(0.18)
$
$
(3,777)
0.01
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, 2014, 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
(cid:3)
(cid:3)
Page 41 of 44
(cid:3)
(cid:3)
(cid:3)
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 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 (2013) 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, 2014.
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, 2014.
Changes in internal control over financial reporting
During the year ended December 31, 2014, there were no 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:3)
(cid:3)
Page 42 of 44
(cid:3)
(cid:3)
(cid:3)
(cid:120) A mass market for our products may never develop or may take longer to develop
than we anticipate;
(cid:120) We have limited experience manufacturing fuel cell products on a commercial basis;
(cid:120) Warranty claims could negatively
impact our gross margins and
financial
performance;
(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) 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
(cid:3)
(cid:3)
Page 43 of 44
(cid:3)
(cid:3)
(cid:3)
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.
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.
(cid:3)
(cid:3)
Page 44 of 44
(cid:3)
Consolidated Financial Statements
(Expressed in U.S. dollars)
BALLARD POWER SYSTEMS INC.
Years ended December 31, 2014 and 2013
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
(2013) 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, 2014. 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 six 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, 2014. 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.
“RANDALL MACEWEN”
“TONY GUGLIELMIN”
RANDALL MACEWEN
President and
Chief Executive Officer
February 25, 2015
TONY GUGLIELMIN
Vice President and
Chief Financial Officer
February 25, 2015
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Ballard Power Systems Inc.
We have audited the accompanying consolidated statements of financial position of Ballard Power Systems
Inc. (“the Company”) as of December 31, 2014 and December 31, 2013 and the related consolidated
statements of loss and other comprehensive income (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, 2014 and December 31, 2013, 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, 2014, based
on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2015
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Chartered Accountants
Vancouver, Canada
February 25, 2015
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG
LLP.
KPMG Confidential
KPMG LLP
Chartered Accountants
(cid:51)(cid:50)(cid:3)(cid:37)(cid:82)(cid:91)(cid:3)(cid:20)(cid:19)(cid:23)(cid:21)(cid:25)(cid:3)(cid:26)(cid:26)(cid:26)(cid:3)(cid:39)(cid:88)(cid:81)(cid:86)(cid:80)(cid:88)(cid:76)(cid:85)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)
(cid:57)(cid:68)(cid:81)(cid:70)(cid:82)(cid:88)(cid:89)(cid:72)(cid:85)(cid:3)(cid:37)(cid:38)(cid:3)(cid:57)(cid:26)(cid:60)(cid:3)(cid:20)(cid:46)(cid:22)(cid:3)
(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)
(cid:55)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:3) (cid:11)(cid:25)(cid:19)(cid:23)(cid:12)(cid:3)(cid:25)(cid:28)(cid:20)(cid:16)(cid:22)(cid:19)(cid:19)(cid:19)(cid:3)
(cid:11)(cid:25)(cid:19)(cid:23)(cid:12)(cid:3)(cid:25)(cid:28)(cid:20)(cid:16)(cid:22)(cid:19)(cid:22)(cid:20)(cid:3)
(cid:41)(cid:68)(cid:91)(cid:3)
(cid:90)(cid:90)(cid:90)(cid:17)(cid:78)(cid:83)(cid:80)(cid:74)(cid:17)(cid:70)(cid:68)
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:72)(cid:87)(cid:3)
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, 2014, based on the criteria established in Internal Control – Integrated Framework
(2013) 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.
(cid:3)
(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:47)(cid:47)(cid:51)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:86)(cid:3)
(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:11)(cid:112)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:113)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:54)(cid:90)(cid:76)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)
(cid:47)(cid:47)(cid:51)(cid:17)(cid:3)
(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:38)(cid:82)(cid:81)(cid:73)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
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, 2014, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States), the consolidated statements
of financial position of the Company as of December 31, 2014 and December 31, 2013, and the related
consolidated statements of loss and other comprehensive income (loss), changes in equity and cash flows
for the years then ended, and our report dated February 25, 2015 expressed an unqualified opinion on those
consolidated financial statements.
Chartered Accountants
Vancouver, Canada
February 25, 2015
2
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Financial Position
(Expressed in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other current assets
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:
Trade and other payables
Deferred revenue and other recoveries
Provisions
Finance lease liability
Debt to Dantherm Power A/S non-controlling interests
Total current liabilities
Non-current liabilities:
Finance lease liability
Deferred gain on finance lease
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 events (note 30)
See accompanying notes to consolidated financial statements
Approved on behalf of the Board:
“Ed Kilroy”
Director
“Ian Bourne”
Director
Note
December 31,
2014
December 31,
2013
8
9
10
11
12
29
8
$
23,671
13,146
12,538
1,294
50,649
16,685
24,151
36,291
6
-
167
$ 127,949
14
$
12,556
1,798
9,010
1,008
529
24,901
9,226
4,274
4,353
5,961
48,715
$
$
$
30,301
15,471
14,087
852
60,711
19,945
2,716
36,291
157
219
175
120,214
11,484
6,160
6,819
1,399
566
26,428
10,772
4,734
4,857
3,169
49,960
914,786
-
288,533
(1,121,671)
280
81,928
(2,694)
79,234
$ 127,949
866,574
(118)
296,368
(1,091,187)
9
71,646
(1,392)
70,254
120,214
$
15
13 & 16
17
13 & 16
16
15
18
19
19
19
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Loss and Other Comprehensive Income (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
Other expense
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 investment
Loss before income taxes
Income tax expense
Net loss from continuing operations
Net earnings 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
Other comprehensive income (loss), net of tax
Note
2014
2013
$
68,721
$
58,475
10,246
14,294
10,126
7,589
6,291
38,300
61,251
44,492
16,759
17,110
10,491
7,661
868
36,130
(28,054)
(19,371)
(113)
(942)
(1,055)
(73)
(149)
(29,331)
(417)
(29,748)
320
154
(1,486)
(1,332)
(23)
(513)
(21,239)
(485)
(21,724)
24
(29,428)
(21,700)
(2,863)
(2,863)
529
529
(2,334)
2,852
2,852
(192)
(192)
2,660
23
24
24
10
29
25
7
18
Total comprehensive loss
$
(31,762)
$
(19,040)
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Loss and Other Comprehensive Income (Loss) (cont’d)
For the year ended December 31
(Expressed in thousands of U.S. dollars, except per share amounts and number of shares)
Net income (loss) attributable to:
Ballard Power Systems Inc. from continuing operations
$
(28,188) $
(19,988)
Ballard Power Systems Inc. from discontinued operations
Dantherm Power A/S non-controlling interest
Net loss
320
(1,560)
24
(1,736)
$
(29,428) $
(21,700)
2014
2013
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
$
(30,460) $
(17,195)
(1,302)
(1,845)
$
(31,762) $
(19,040)
$
$
(0.22) $
0.00
(0.22) $
(0.20)
0.00
(0.20)
Weighted average number of common shares outstanding
127,385,814
100,030,457
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, 2012
91,801,477 $
845,630 $
(313) $
291,184 $ (1,074,181)
$
92
$
(4,410) $
58,002
Net loss
Additional investment in Dantherm Power A/S
Redemption of convertible debenture by
non-controlling interest (note 17)
-
-
-
-
-
-
Net Offering proceeds (note 19)
17,625,000
19,977
Proceeds on issuance of convertible
promissory note (note 19)
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
4,000
-
(6)
-
26,652
22
-
(53)
540,239
718
201
(1,727)
106
140,533
227
(74)
3,038
-
-
DSUs redeemed
RSUs redeemed
Options exercised
Share distribution plan
-
-
Other comprehensive income (loss):
Defined benefit plan actuarial gain
Foreign currency translation for foreign
operations
-
-
-
-
-
-
-
-
(19,964)
-
-
-
-
-
-
Balance, December 31, 2013
110,133,901
866,574
(118)
296,368
(1,091,187)
Net loss
Acquisition of intangible assets
(note 11)
-
-
5,121,507
20,307
Warrants exercised (note 19)
7,939,937
12,299
Exercise of convertible promissory note
(note 19)
4,761,905
4,000
-
-
-
-
-
-
-
(4,000)
(27,868)
-
-
-
Sale of treasury shares (note 19)
-
-
118
-
247
RSUs redeemed
583,084
866
-
(2,829)
Options exercised (note 19)
3,563,782
10,740
Share distribution plan
-
-
Other comprehensive income (loss):
Defined benefit plan actuarial loss
Foreign currency translation for
foreign operations
-
-
-
-
-
-
-
-
(3,946)
2,940
-
-
-
-
(2,863)
-
-
-
-
-
-
-
-
-
-
(1,736)
(21,700)
1,319
3,544
1,319
3,544
-
-
-
-
-
-
-
19,977
4,000
(6)
(31)
(702)
153
3,038
9
-
-
-
-
-
-
-
-
-
(1,392)
70,254
(1,560)
(29,428)
-
20,307
-
-
12,299
-
-
365
-
(1,963)
-
6,794
-
2,940
-
(2,863)
Balance, December 31, 2014
132,104,116 $ 914,786 $
- $ 288,533 $ (1,121,671) $
280
$ (2,694) $ 79,234
See accompanying notes to consolidated financial statements
-
-
271
258
529
-
-
2,852
-
-
(83)
-
2,852
(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 benefits (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 trade receivables
Impairment loss on investment
Unrealized loss 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 and other recoveries
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
Additions to intangible assets
Net proceeds from disposition of Material Products division
Net investments in associated company
Financing activities:
Sale (purchase) of treasury shares
Net payment of finance lease liabilities
Net repayment of bank operating line
Net proceeds on issuance of share capital from stock option exercises
Net proceeds on issuance of share capital from warrant exercises
Net Offering proceeds
Proceeds on issuance of share capital to Dantherm Power A/S non-controlling
interests
Proceeds on issuance of convertible promissory note
Proceeds on issuance of debt to Dantherm Power A/S non-controlling interests
Note
2014
2013
$
(29,428) $
(21,700)
19
10
7 & 10
23
29
7
29
13
19
19
19
19
17
2,249
(71)
5,610
(282)
73
(320)
6,206
149
144
(15,670)
(4,104)
1,464
(434)
69
(4,356)
2,360
(5,001)
3,775
(140)
5,731
(194)
23
(45)
222
513
-
(11,815)
1,655
(2,904)
192
(5,048)
2,430
(1,926)
(5,601)
(20,671)
(17,416)
-
(829)
-
(3,411)
-
-
12,068
(485)
227
-
9,085
(4)
(4,240)
20,891
365
(923)
-
6,794
12,299
-
-
-
-
(6)
(976)
(8,753)
153
-
19,977
1,360
4,000
1,165
18,535
16,920
Effect of exchange rate fluctuations on cash and cash equivalents held
(254)
136
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
(6,630)
20,531
30,301
9,770
$
23,671 $
30,301
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, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
1. Reporting entity:
The principal business of Ballard Power Systems Inc. (the “Corporation”) is the design,
development, manufacture, sale and service of fuel cell products for a variety of applications,
focusing on “commercial stage” markets of Telecom Backup Power and Material Handling, and on
“development stage” markets of Bus and Distributed Generation, as well as the provision of
Engineering Services and the license and sale of the Corporation’s extensive intellectual property
portfolio and fundamental knowledge 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, 2014 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, 2015.
(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.
11
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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 judgments 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 forecast 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, 2014. Certain comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
12
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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) Amendments to IAS 32 – Offsetting Financial Assets and Liabilities:
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 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 adoption of the amendments to IAS 32 does not have a material impact on the consolidated
financial statements.
(b) Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting:
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting 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 adoption of the amendments to IAS 39 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 Power Corporation
Ballard Services Inc.
Dantherm Power A/S
Percentage ownership
2014
100%
100%
100%
2013
100%
100%
100%
51.3%
57% - 51.3%
13
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it
is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns though its power over the entity. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases. Intercompany balances and transactions are
eliminated in the consolidated financial statements.
The Corporation acquired a 45% interest in Dantherm Power A/S on January 18, 2010. In August
2010, the Corporation acquired an additional 7% interest in Dantherm Power A/S 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.
14
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(b) Foreign currency (cont’d):
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to the presentation currency
using exchange rates at the reporting date. The income and expenses of foreign operations
are translated to the presentation currency using exchange rates at the dates of the
transactions. Foreign currency differences are recognized in other comprehensive income.
(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)).
15
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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)
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.
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. 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.
16
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
(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.
(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.
17
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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.
18
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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:
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation
and any accumulated impairment losses. 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. If significant parts of an item of property, plant and equipment have
different useful lives, then they are accounted for as separate items (major components) of
property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit
or loss.
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits
associated with the expenditure will flow to the Corporation.
(iii) Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less
their estimated residual values using the straight-line method over their estimated useful
lives, and is generally recognized in profit or loss. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is reasonably certain that the
Corporation will obtain ownership by the end of the lease term.
The estimated useful lives of property, plant and equipment for current and comparative
periods are 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
19
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(e) Property, plant and equipment (cont’d):
(iii) Depreciation (cont’d)
Depreciation methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(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:
(i) Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less
accumulated impairment losses.
Research and development Expenditure on research activities is recognized in profit or loss as
incurred.
Development expenditure is capitalized only if the expenditure 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 and to
use or sell the asset. Otherwise, it is recognized in profit or loss as
incurred. Subsequent to initial recognition, development expenditure is
measured at cost less accumulated amortization and any accumulated
impairment losses.
Intangible assets
Intangible assets, including patents and trademarks, that are acquired by
the Corporation and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
20
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure, including expenditure
on internally generated goodwill, is recognized in profit or loss as incurred.
(iii) Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual
values using the straight-line method over their estimated useful lives, and is generally
recognized in profit or loss. Goodwill is not amortized.
The estimated useful lives for current and comparative periods are as follows:
Patents and trademarks
Development costs
5 to 15 years
5 years
Amortization methods, useful lives and residual values are reviewed at each reporting date
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.
21
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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
The carrying amounts of the Corporation’s non-financial assets other than inventories are
reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill
and intangible assets that have indefinite useful lives, the recoverable amount is estimated
annually.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Fair value less
costs to sell is defined as the estimated price that would be received on the sale of the asset in
an orderly transaction between market participants at the measurement date. For the
purposes of impairment testing, assets that cannot be tested individually are grouped together
into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other groups of assets. The allocation of goodwill to
cash-generating units 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.
22
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
Warranty provision
A provision for warranty costs is recorded on product sales at the time the sale is recognized. In
establishing the warranty provision, management estimates the likelihood that products sold will
experience warranty claims and the estimated cost to resolve claims received, taking into account
the nature of the contract and past and projected experience with the products.
Decommissioning liabilities
Legal obligations to retire tangible long-lived assets are recorded at fair value at acquisition with a
corresponding increase in asset value. These include assets leased under operating leases. The
liability is accreted over the life of the asset to fair value and the increase in asset value is
depreciated over the remaining useful life of the asset.
(j) Revenue recognition:
The Corporation generates revenues primarily from product sales and services, the license and
sale of intellectual property, and the provision of engineering services. Product and service
revenues are derived primarily from standard equipment and material sales contracts and from
long-term fixed price contracts. Intellectual property license and sale revenues are derived
primarily from license and sale agreements and from long-term fixed price contracts. Engineering
service revenue is 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 standard license and sale agreements, revenues are recognized on the transfer of rights to the
licensee if: (i) the rights to the assets are assigned to the licensee in return for a fixed fee or a
non-refundable guarantee; (ii) the contract is non-cancellable; (iii) the licensee is able to exploit
its rights to the asset freely; and (iv) the licensor has no remaining obligations to perform. In
other cases, the proceeds are considered to relate to the right to use the asset over the license
period and the revenue is recognized over that period.
On cost-plus reimbursable contracts, revenues are recognized as costs are incurred, and include
applicable fees earned as services are provided.
23
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(j) Revenue recognition (cont’d):
On long-term fixed price 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.
(k) Finance income and costs:
Finance income comprises 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.
24
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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:
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts.
Obligations for contributions to defined contribution pension plans are recognized as an employee
benefit expense in profit or loss in the periods during which services are rendered by employees.
Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in
future payments is available. Contributions to a defined contribution plan that are due more than
12 months after the end of the period in which the employees render the service are discounted to
their present value.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Corporation’s net obligation in respect of defined benefit pension plans is calculated separately
for each plan by estimating the amount of future benefit that employees have earned in return for
their service in the current and prior periods; that benefit is discounted to determine its present
value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The
discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates
approximating the terms of the Corporation’s obligations and that are denominated in the same
currency in which the benefits are expected to be paid. The calculation is performed annually by a
qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Corporation, the recognized asset is limited to the
total of any unrecognized past service costs and the present value of economic benefits available
in the form of any future refunds from the plan or reductions in future contributions to the plan. In
order to calculate the present value of economic benefits, consideration is given to any minimum
funding requirements that apply to any plan in the Corporation. An economic benefit is available to
the Corporation if it is realizable during the life of the plan, or on settlement of the plan liabilities.
The Corporation recognizes all remeasurements arising from defined benefit plans, which comprise
actuarial gains and losses, immediately in other comprehensive income. Remeasurements
recognized in other comprehensive income are not recycled through profit or loss in subsequent
periods.
25
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
Other long-term employee benefits
The Corporation’s net obligation in respect of long-term employee benefits other than pension
plans is the amount of future benefit that employees have earned in return for their service in the
current and prior periods; that benefit is discounted to determine its present value, and the fair
value of any related assets is deducted. The discount rate is the yield at the reporting date on AA
credit-rated bonds that have maturity dates approximating the terms of the Corporation’s
obligations. The calculation is performed using the projected unit credit method. Any actuarial
gains and losses are recognized in other comprehensive income or loss in the period in which they
arise.
Termination benefits
Termination benefits are recognized as an expense when the Corporation is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either
terminate employment before the normal retirement date, or to provide termination benefits as a
result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary
redundancies are recognized as an expense if the Corporation has made an offer of voluntary
redundancy, it is probable that the offer will be accepted, and the number of acceptances can be
estimated reliably. If benefits are payable more than 12 months after the reporting period, then
they are discounted to their present value.
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit
sharing plans if the Corporation has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee, and the obligation can be estimated reliably.
(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.
26
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(n) Share-based compensation plans (cont’d):
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 19. Any consideration paid by employees on exercise of share options or
purchase of shares, together with the amount initially recorded in contributed surplus, is credited
to share capital.
(o) Earnings (loss) per share:
Basic earnings (loss) per share is computed using the weighted average number of common
shares outstanding during the period, adjusted for treasury shares. Diluted earnings per share is
calculated using the treasury stock method.
Under the treasury stock method, the dilution is calculated based upon the number of common
shares issued should deferred share units (“DSUs”), restricted share units (“RSUs”), and “in the
money” options, if any, be exercised. When the effects of outstanding stock-based compensation
arrangements would be anti-dilutive, diluted loss per share is not calculated.
(p) Government assistance and investment tax credits:
Government assistance and investment tax credits are recorded as either a reduction of the cost
of the applicable assets, or credited against the related expense incurred in the statement of
comprehensive loss, as determined by the terms and conditions of the agreements under which
the assistance is provided to the Corporation or the nature of the expenditures which gave rise to
the credits. Government assistance and investment tax credit receivables are recorded when their
receipt is reasonably assured.
(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.
27
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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:
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 sales and services, the license and sale of
intellectual property, and the provision of engineering 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 is reviewed for impairment.
Among other things, this review considers the fair value of the cash-generating units based on
discounted estimated future cash flows. Intangible assets are also evaluated at least annually for
indicators of potential impairment. Reviews involve significant estimation uncertainty, which could
affect the Corporation’s future results if the current estimates of future performance and fair
values change.
28
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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.
29
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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.
(a) IFRS 15 – Revenue from Contracts with Customers:
On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which
replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes,
IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from
Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services.
IFRS 15 contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-
step analysis of transactions to determine whether, how much, and when revenue is recognized.
New estimates and judgmental thresholds have been introduced, which may affect the amount
and/or timing of revenue recognized. The new standard applies to contracts with customers. It
does not apply to insurance contracts, financial instruments or lease contracts, which fall in the
scope of other IFRSs.
The new standard is effective for fiscal years ending on or after December 31, 2017 and is
available for early adoption. The Corporation intends to adopt IFRS 15 in its financial statements
for the fiscal year beginning on January 1, 2017. The extent of the impact of adoption has not yet
been determined.
(b) IFRS 9 – Financial Instruments:
In July 2014, the IASB issued IFRS 9 Financial Instruments (“IFRS 9”), which replaces the current
multiple classification and measurement models for financial assets and liabilities with a single
model that has only two classification categories: amortized cost and fair value. The basis of
classification depends on the entity’s business model and the contractual cash flow characteristics
of the financial asset or liability. It also introduces additional changes relating to financial
liabilities and aligns hedge accounting more closely with risk management.
30
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements (cont’d):
(b) IFRS 9 – Financial Instruments (cont’d):
IFRS 9 is effective for fiscal years beginning on or after January 1, 2018 and is available for early
adoption. The Corporation intends to adopt IFRS 9 in its financial statements for the fiscal year
beginning January 1, 2018. The extent of the impact of adoption has not yet been determined.
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 net cash proceeds of $9,085,000 after deducting
working capital adjustments, broker’s commissions and expenses, and legal and other expenses.
In March 2014, the Corporation received additional proceeds of $320,000 payable through a
product credit in 2014 and 2015 for fuel cell gas diffusion layers based on 2013 results of the
former Material Products division. The additional proceeds payable have been recorded as a
reversal of previously recorded impairment losses on property, plant and equipment, and were
recorded in net earnings (loss) from discontinued operations. The Material Products division has
been classified and accounted for as a discontinued operation.
Net cash proceeds is calculated as follows:
Gross proceeds from disposition
Less: Purchase price adjustment
Net proceeds from disposition
Disposition costs
Net cash proceeds / Net disposed assets
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
January 31,
2013
10,500
(401)
10,099
(1,014)
9,085
January 31,
2013
1,811
2,692
40
5,784
(1,242)
9,085
$
$
$
$
31
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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):
Net earnings from discontinued operations are comprised of the following:
Product and service revenues
Cost of product and service revenues
Gross margin
Total operating expenses
Reversal of impairment loss on property, plant and equipment
Earnings before income taxes
Income tax expense
$
$
2014
-
-
-
-
320
320
Net earnings (loss) from discontinued operations
$
320
$
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
2014
$
320
$
-
-
2013
867
627
240
(252)
45
33
(9)
24
2013
315
-
-
Cash and cash equivalents provided by discontinued operations
$
320
$
315
8. Trade and other receivables:
Trade receivables
Other
Less: Non-current trade receivables
9. Inventories:
Raw materials and consumables
Work-in-progress
Finished goods
December 31,
December 31,
2014
2013
$
11,216
$
13,248
1,930
13,146
-
2,442
15,690
(219)
$
13,146
$
15,471
December 31,
December 31,
2014
$
10,672
$
821
1,045
2013
9,157
3,120
1,810
$
12,538
$
14,087
32
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
9. Inventories (cont’d):
In 2014, changes in raw materials and consumables, finished goods and work-in-progress
recognized as cost of product and service revenues amounted to $22,628,000 (2013 -
$18,754,000).
In 2014, the write-down of inventories to net realizable value amounted to $1,469,000 (2013 -
$1,192,000). There were no reversals of previously recorded write-downs in 2014 or 2013.
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.
10. Property, plant and equipment:
Cost
2013
Additions
Disposals
exchange rates
2014
Building under finance lease
$
12,180 $
- $
- $
-
$
12,180
December 31,
movements in
December 31,
Effect of
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
4,581
688
317
9,043
29,390
3,667
227
18
-
11
599
-
(193)
(7)
-
(224)
(669)
-
(15)
(14)
-
(51)
(12)
-
4,600
685
317
8,779
29,308
3,667
$
59,866 $
855 $
(1,093) $
(92)
$
59,536
Effect of
Accumulated depreciation and
December 31,
movements in
December 31,
impairment loss
2013 Depreciation
Disposals
exchange rates
2014
Building under finance lease
$
3,113
$
812
$
-
$
- $
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under
4,207
652
164
5,216
25,026
1,543
157
22
63
612
1,482
633
(193)
(7)
-
-
(572)
-
(14)
(13)
-
(43)
(9)
-
3,925
4,157
654
227
5,785
25,927
2,176
finance lease
Total
$
39,921
$
3,781
$
(772)
$
(79) $
42,851
33
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
10. Property, plant and equipment (cont’d):
Cost
2012
Additions
Disposals
exchange rates
2013
December 31,
movements in
December 31,
Effect of
Building under finance lease
$
12,180 $
- $
- $
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
5,944
755
317
9,179
32,107
3,667
16
32
-
211
213
-
(1,384)
(104)
-
(419)
(2,936)
-
-
5
5
-
72
6
-
$
12,180
4,581
688
317
9,043
29,390
3,667
$
64,149 $
472 $
(4,843) $
88
$
59,866
Effect of
Accumulated depreciation and
December 31,
movements in
December 31,
impairment loss
2012 Depreciation
Disposals
exchange rates
2013
Building under finance lease
$
2,301
$
812
$
-
$
- $
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under
5,370
720
100
4,890
25,552
900
171
20
64
656
2,290
643
(1,339)
(92)
-
(342)
(2,820)
-
5
4
-
12
4
-
3,113
4,207
652
164
5,216
25,026
1,543
finance lease
Total
$
39,833
$
4,656
$
(4,593)
$
25 $
39,921
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,
2014
2013
$
8,255
$
9,067
443
31
90
2,994
3,381
1,491
374
36
153
3,827
4,364
2,124
$
16,685
$
19,945
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 (note
16).
34
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
10. Property, plant and equipment (cont’d):
Impairment loss
There were no impairment losses or reversals of previously recorded impairment losses recognized
against property, plant and equipment used for continuing operations in 2014 and 2013.
However, in 2014, there was a $320,000 reversal of previously recognized impairment losses
recorded against property, plant and equipment used for discontinued operations based on the
additional proceeds received from the disposition of the Material Products division (2013 –
$45,000) (note 7).
11. Intangible assets:
On April 24, 2014, the Corporation acquired the transportation and stationary related fuel cell
intellectual property assets of United Technologies Corporation (“UTC”) for total consideration of
$22,306,775. The acquired assets consist of approximately 800 patents and patent applications,
as well as patent licenses, invention disclosures and know-how primarily related to PEM fuel cell
technology. As consideration for the acquired intellectual property assets, UTC received 5,121,507
of the Corporation’s common shares valued at $20,306,775, $2,000,000 in cash, a grant back
license to use the patent portfolio in UTC’s existing businesses, and a portion of royalties, typically
25%, on the Corporation’s future intellectual property sale or licensing income generated from the
combined intellectual property portfolio for a period of 15 years to April 2029. The acquired
intellectual property is being amortized over its estimated useful life of 15 years. Since the
acquisition, an additional $981,000 has been incurred to prepare the intellectual property for use,
which has been capitalized and is being amortized over the estimated 15 year useful life. On
February 11, 2015, the Corporation entered into a transaction with Volkswagen Group
(“Volkswagen”) to transfer the automotive-related portion of the acquired UTC intellectual
property assets to Volkswagen (note 30).
On June 29, 2014, the Corporation acquired the material handling intellectual property portfolio of
H2 Logic A/S for total cash consideration of $430,000.
Intangible assets
Balance
At January 1, 2013
Amortization expense
At December 31, 2013
Acquisition of intangible assets
Amortization expense
Disposals
At December 31, 2014
Accumulated
Net carrying
Cost
amortization
amount
$
46,329
$
42,135
$
4,194
-
46,329
23,718
-
1,478
43,613
-
2,283
(519)
(519)
(1,478)
2,716
23,718
(2,283)
-
$
69,528
$
45,377
$
24,151
Amortization and impairment losses of fuel cell technology and development costs are allocated to
research and product development expense. In 2014, amortization of $2,283,000 (2013 -
$1,478,000) was recorded. There were no impairment losses recorded in 2014 and 2013.
In 2014, patents that were fully amortized and no longer in use were written-off.
35
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. 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, 2014 and 2013, 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 determined by first calculating the
value of the Corporation at December 31, 2014 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, 2014.
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 27% from 2014 to 2019;
and a terminal year earnings before interest, taxes, depreciation and amortization (“EBITDA”)
multiplied by a terminal value multiplier of 10.0. 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 2014.
36
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
13. Bank facilities:
The Corporation has certain bank facilities available to it, which are secured by a hypothecation of
the Corporation’s cash and cash equivalents.
Bank Operating Line
The Corporation has a demand revolving facility (“Bank Operating Line”) in which an operating line
of credit of up to CDN $7,000,000 is made available to be drawn upon by the Corporation. The
Bank Operating Line can be 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.
There was no activity under the Bank Operating Line in 2014, and there were no outstanding
amounts payable on the Bank Operating Line as of December 31, 2014 and 2013.
During 2013, the Corporation was advanced $334,000 under the Bank Operating Line and
repayments of $9,087,000 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.
Leasing Facility
The Corporation also has a CDN $1,830,770 capital leasing facility (“Leasing Facility”) which can
be utilized to finance the acquisition and lease of operating equipment (notes 10 & 16). 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, 2014, $1,061,000 (2013 - $1,772,000) was outstanding on the Leasing Facility
which is included in the finance lease liability. The remaining $9,173,000 (2013 - $10,399,000)
finance lease liability relates to the lease of the Corporation’s head office building.
Forward Contract Facility
The Corporation also has a CDN $5,000,000 demand revolving line (“Forward Contract Facility”),
which is available for use when the Corporation purchases forward foreign exchange contracts or
forward platinum contracts used to hedge against currency and platinum price fluctuations,
respectively.
At December 31, 2014, CDN $159,000 ($137,000) was outstanding under the Forward Contract
Facility relating to outstanding forward platinum contracts. There were no forward contracts
outstanding as of December 31, 2013.
37
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
14. Trade and other payables:
Trade accounts payable
Compensation payable
Other liabilities
Taxes payable
15. Provisions:
Balance
At January 1, 2013
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
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in exchange rates
December 31,
December 31,
2014
$
6,031
$
2,948
3,260
317
2013
2,154
5,133
3,819
378
$
12,556
$
11,484
Restructuring
provision
liabilities
Total
Warranty
Decommissioning
$
$
922
596
(1,213)
(41)
(27)
237
78
(226)
-
(11)
8,501
1,219
(1,076)
(1,563)
(499)
6,582
6,258
(1,562)
(1,843)
(503)
$
5,089
$
14,512
97
-
-
(329)
4,857
129
-
(222)
(411)
1,912
(2,289)
(1,604)
(855)
11,676
6,465
(1,788)
(2,065)
(925)
$
$
$
4,353
$
13,363
-
$
4,353
9,010
4,353
4,353
$
13,363
At December 31, 2014
$
78
$
8,932
Current
Non-current
Restructuring
$
78
$
8,932
-
-
$
78
$
8,932
Restructuring charges relate to minor restructurings focused on overhead cost reductions and
relate primarily to employee termination benefits. Restructuring charges are recognized in other
expense (note 23).
Warranty provision
During 2014, warranty provisions of $6,258,000 including warranty adjustments were recorded
due to new product sales and an increase in customer service related expenses in the
Corporation’s Telecom Backup Power market in Asia. Warranty provisions of $1,219,000 including
warranty adjustments recorded in 2013 related primarily to new product sales. The warranty
provisions were partially offset by warranty expenditures of $1,562,000 (2013 – $1,076,000) and
a downward warranty adjustment of $1,843,000 (2013 – $1,563,000) due primarily to contractual
warranty expirations and improved lifetimes and reliability of the Corporation’s fuel cell products.
The effect of movements in exchange rates resulted in the remaining $503,000 reduction to the
warranty provision (2013 – $499,000).
38
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
15. 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 reasonably
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 2% 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, 2014. Based on the assessment, a $222,000
reduction of the provision was recorded against decommissioning liabilities, which was offset in
part by accretion costs of $129,000. The total undiscounted amount of the estimated cash flows
required to settle the obligation for one of the buildings is $1,979,000, 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 $3,226,000, which is
expected to be settled at the end of the operating lease term of 2019.
16. Finance lease liability:
The Corporation leases certain assets under finance lease agreements (note 10). In 2014, a
finance lease agreement scheduled to expire in December 2014 was extended to December 2016.
The finance leases have imputed interest rates ranging from 3.00% to 7.35% per annum and
expire between June 2016 and February 2025.
Finance lease liabilities are payable as follows:
At December 31, 2014
Less than one year
Between one and five years
More than five years
Future minimum
lease payments
$
1,680
5,423
7,145
$
$
14,248
$
Present value of
minimum lease
Interest
payments
672
2,144
1,198
4,014
$
1,008
3,279
5,947
$
10,234
39
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Finance lease liability (cont’d):
At December 31, 2013
Less than one year
Between one and five years
More than five years
Future minimum
lease payments
$
2,179
6,034
9,105
$
$
17,318
$
Present value of
minimum lease
Interest
payments
780
2,558
1,809
5,147
$
1,399
3,476
7,296
$
12,171
At December 31, 2014, $1,061,000 was outstanding on the Leasing Facility which is included in
the finance lease liability. The remaining $9,173,000 finance lease liability relates to the lease of
the Corporation’s head office building.
Deferred gains were also recorded on closing of the finance lease agreements and are amortized
over the finance lease term. At December 31, 2014, the outstanding deferred gain was
$4,274,000 (2013 – $4,734,000).
17. Debt to Dantherm Power A/S non-controlling interests:
Dantherm Power has received financing from the non-controlling partners in the form of a
revolving credit facility and convertible debentures.
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 ($484,000) 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. In
February 2015, a further extension to a maturity date of December 31, 2016 was approved by the
subscribers of the facility (note 30).
At December 31, 2014, the revolving credit facility outstanding was $529,000 (2013 – $566,000),
which includes $45,000 (2013 – $16,000) of interest payable.
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. 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.
40
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Debt to Dantherm Power A/S non-controlling interests (cont’d):
Convertible debentures (cont’d)
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 ($607,000) were comprised of a note for
DKK 2,400,000 ($390,000) with a conversion price of DKK 3.40 ($0.55) and a note for DKK
1,333,000 ($217,000) with a conversion price of DKK 0.14 ($0.02) and have a maturity date of
December 31, 2014.
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 was outstanding as of December 31, 2014 and 2013.
18. Employee future benefits:
Net defined benefit pension plan liability
Net other post-retirement benefit plan liability
Employee future benefits
December 31,
December 31,
2014
$
5,701
$
260
$
5,961
$
2013
3,036
133
3,169
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.
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, 2014. The next actuarial valuation
of the employee future benefit plans for funding purposes is expected to be performed as of
January 1, 2015.
The Corporation expects contributions of approximately $325,000 to be paid to its defined benefit
plans in 2015.
41
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Employee future benefits (cont’d):
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 income (loss) and other.
Defined benefit pension plan
2014
2013
2014
2013
2014
2013
Balance at January 1
$ 13,703
$ 14,652
$ (10,667)
$ (9,344)
$
3,036 $
5,308
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
38
654
-
692
830
1,462
108
-
50
558
25
633
-
-
(512)
(355)
-
-
(512)
(355)
38
142
-
180
50
203
25
278
704
(2,027)
256
-
-
-
-
-
-
-
325
(1,088)
830
704
1,462
(2,027)
108
325
256
(1,088)
(57)
(36)
57
36
-
-
2,343
(1,103)
382
(1,052)
2,725
(2,155)
Contributions paid by the employer
-
-
(240)
(395)
(240)
Benefits paid
(571)
(571)
(479)
(479)
571
331
479
84
-
(240)
(395)
-
(395)
Balance at December 31
$ 16,167
$ 13,703
$ (10,466)
$ (10,667)
$
5,701 $
3,036
Other post-retirement benefit plan
2014
2013
2014
2013
2014
2013
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Balance at January 1
$
133
$
853
$
-
$
Included in profit or loss
Interest cost (income)
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Financial assumptions
Experience adjustment
Curtailment
Other
Contributions paid by the employer
Benefits paid
2
2
4
4
144
(6)
-
138
-
(13)
(13)
3
(1)
(699)
(697)
-
(27)
(27)
Balance at December 31
$
260
$
133
$
-
-
-
-
-
-
(13)
13
-
-
$
(27)
27
-
-
-
-
-
-
-
-
-
$
133 $
853
2
2
4
4
144
(6)
-
138
(13)
-
(13)
$
260 $
3
(1)
(699)
(697)
(27)
-
(27)
133
42
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
18. Employee future benefits (cont’d):
Pension plan assets comprise:
Cash and cash equivalents
Equity securities
Debt securities
Total
2014
1%
22%
77%
100%
2013
5%
20%
75%
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
2014
2013
Pension plan Other benefit plan
Pension plan Other benefit plan
4.18%
n/a
3.53%
n/a
4.87%
n/a
2.03%
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
2014
2013
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 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
2014
7.0%
5.0%
5.0%
2018
2013
2013
7.5%
5.0%
5.0%
2018
2013
A one-percentage-point change in assumed health care cost trend rates would not have a material
impact on the Corporation’s financial statements.
19. Equity:
(a) Share capital:
Authorized and issued:
Unlimited number of common shares, voting, without par value.
Unlimited number of preferred shares, issuable in series.
43
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(a) Share capital (cont’d):
Acquisition of intangible assets:
On April 24, 2014, the Corporation issued 5,121,507 of its common shares valued at $20,306,775
to UTC as part of the consideration for acquired intellectual property assets (note 11).
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)
$
8,003
Less: Underwriting expenses
Less: Other financing expenses
Net March Offering proceeds
(642)
(522)
$
6,839
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, 2014, 132,104,116 common shares were issued and outstanding (2013 –
110,133,901).
44
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(b) Share purchase warrants:
Warrants Outstanding
At January 1, 2013
Warrants issued (March Offering)
Warrants issued (October Offering)
At December 31, 2013
Warrants exercised
At December 31, 2014
Exercise price of
Exercise price of
$1.50
-
7,275,000
-
7,275,000
(7,027,437)
$2.00
-
-
2,587,500
2,587,500
Total
Warrants
-
7,275,000
2,587,500
9,862,500
247,563
1,675,000
1,922,563
(912,500)
(7,939,937)
In 2014, 7,939,937 warrants were exercised for net proceeds of $12,299,000.
At December 31, 2014, 1,922,563 share purchase warrants were issued and outstanding (2013 –
9,862,500).
(c) 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 development and commercial advancement
of the Corporation’s fuel cell products in target market applications. The investment took 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. The conversion, or repayment price, was set at a fixed price of $0.84 per
share which was equal to a 20% discount to the market price of the shares on the closing date of
the agreement.
In March 2014, Anglo exercised its option and converted the Note into 4,761,905 common shares.
The conversion right and $4,000,000 proceeds received in 2013 were accounted for as a single
equity instrument and originally recorded in contributed surplus, which has been reclassified to
share capital upon the issuance of the common shares in March 2014.
(d) 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.
45
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(d) Share options (cont’d):
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, 2014, options outstanding from the consolidated share option plan was as
follows:
Balance
At January 1, 2013
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2013
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2014
Options for
common shares
Weighted average
exercise price
6,905,051
1,081,250
(140,533)
(702,866)
(170,800)
6,972,102
1,417,507
(3,563,782)
(153,236)
(356,164)
4,316,427
$
$
3.22
1.15
1.06
2.97
13.43
2.54
3.25
1.83
2.73
7.42
2.65
The following table summarizes information about the Corporation’s share options outstanding as
at December 31, 2014:
Range of exercise price
$0.70 – $1.22
$1.46 – $1.81
$2.07 – $3.45
$3.59 – $5.00
$6.10 – $6.53
g
Options outstanding
Options outstanding
p
Options exercisable
Weighted average
Weighted average
remaining
remaining
contractual life
contractual life
)
(y
(years)
(years)
Weighted
Weighted
average
average
exercise
exercise
p
price
price
Number
exercisable
Weighted
average
exercise price
5 0
5.0
5.0
$
$
$
05
1.05
1.05
308,396
$
1.04
3
3.4
3.4
5 5
5.5
5.5
0 3
0.3
0.3
0.8
0.8
65
1.65
1.65
3 05
3.05
3.05
5
4.15
4.15
6.23
6.23
687,834
316,134
326,284
393,800
1.71
2.20
4.15
6.23
4.1
$
2.65
2,032,448
$
2.95
Number
Number
g
outstanding
outstanding
,0 5, 3
1,025,431
1,025,431
9 5,
925,771
925,771
1,645,141
1,645,141
,6 5,
3 6, 8
326,284
326,284
393,800
393,800
4,316,427
During 2014, 3,563,782 options were exercised for proceeds of $6,794,000 (2013 – 140,533
options and $153,000 of proceeds).
During 2014, options to purchase 1,417,507 common shares were granted with a weighted
average fair value of $1.74 (2013 – 1,081,250 options and $0.63 fair value). The granted options
vest annually over three years.
46
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(d) Share options (cont’d):
The fair values of the options granted were determined using the Black-Scholes valuation model
under the following weighted average assumptions:
Expected life
Expected dividends
Expected volatility
Risk-free interest rate
2014
4 years
Nil
69%
1%
2013
5 years
Nil
63%
1%
As at December 31, 2014, options to purchase 4,316,427 common shares were outstanding (2013
– 6,972,102). During 2014, compensation expense of $1,471,000 (2013 – $874,000) was
recorded in net income based on the grant date fair value of the awards recognized over the
vesting period.
(e) Share distribution plan:
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, 2014,
there were 7,334,927 (2013 – 2,322,539) shares available to be issued under this plan.
No compensation expense was recorded against income during the years ended December 31,
2014 and 2013 for shares distributed, and to be distributed, under the plan.
(f) 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, 2013
DSUs granted
DSUs exercised
At December 31, 2013
DSUs granted
At December 31, 2014
DSUs for common shares
450,245
208,972
(42,953)
616,264
295,579
911,843
47
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(f) Deferred share units (cont’d):
During 2014, 295,579 DSUs were issued and $306,000 of compensation expense was recorded in
net income relating to 96,269 DSUs granted during the year. For the remaining 199,310 DSUs
granted during the year, estimated compensation expense of $737,000 was recorded in net
income in 2013. Upon the issuance of the 199,310 DSUs in 2014, an $18,000 adjustment
increasing net income was recorded.
During 2013, $1,040,000 of compensation expense was recorded in net income, of which
$303,000 related to DSUs granted during the year. The remaining $737,000 related to
compensation expense expected to be earned for DSUs not yet issued.
As at December 31, 2014, 911,843 deferred share units were outstanding (2013 – 616,264).
(g) 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 19(e)) 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 2014 and
2013. The Corporation held 65,441 shares as treasury shares as of December 31, 2013. In
March 2014, the Corporation sold its remaining 65,441 treasury shares as no RSUs remained
outstanding under the market purchase RSU plan. As of December 31, 2014, the Corporation held
no treasury shares.
Balance
At January 1, 2013
RSUs granted
RSUs exercised
RSUs forfeited
RSUs transferred
At December 31, 2013
RSUs granted
RSUs exercised
RSUs forfeited
At December 31, 2014
RSUs for common shares
Share
Distribution Plan
Market
Purchase Plan
1,985,308
-
(920,789)
(277,227)
1,612,430
2,399,722
588,372
(1,022,658)
(41,453)
1,923,983
852,399
1,327,266
(208,698)
(334,731)
(1,612,430)
23,806
-
-
(23,806)
-
Total RSUs
2,837,707
1,327,266
(1,129,487)
(611,958)
-
2,423,528
588,372
(1,022,658)
(65,259)
1,923,983
48
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Equity (cont’d):
(g) Restricted share units (cont’d):
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.
During 2014, 588,372 RSUs were issued (2013 – 1,327,266). 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
2014, compensation expense of $490,000 (2013 - $1,861,000) was recorded against income.
As at December 31, 2014, 1,923,983 RSUs were outstanding (2013 – 2,423,528).
20. 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. During 2014, lease payments of $2,321,000 were expensed (2013 - $2,434,000).
At December 31, 2014, 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
21. Commitments and contingencies:
$
2,358
4,895
4,291
2,796
$
14,340
In connection with the acquisition of intellectual property from UTC in April 2014 (note 11), the
Corporation retains a royalty obligation to pay UTC a portion (typically 25%) of any future
intellectual property sale and licensing income generated from our intellectual property portfolio
for a period of 15 years expiring in April 2029.
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.
49
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
21. Commitments and contingencies (cont’d):
The Corporation retains a previous funding obligation to pay royalties of 2% of revenues, to a
maximum of $4,613,000 (CDN $5,351,000), on sales of certain fuel cell products for commercial
distributed utility applications. As of December 31, 2014, no royalties have been incurred to date
for this agreement.
The Corporation also retains a previous funding obligation to pay royalties of 2% of revenues, to a
maximum of $1,896,000 (CDN $2,200,000), on sales of certain fuel cell products for commercial
transit applications. As of December 31, 2014, 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 each party’s continuing obligations to the other. The Indemnity
Agreement provides for the indemnification of each party by 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 $6,336,000 (CDN $7,350,000) with a threshold amount of $431,000
(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,
2014, no amount payable or receivable has been accrued as a result of the Indemnity Agreement.
At December 31, 2014, the Corporation has outstanding commitments aggregating up to a
maximum of $232,000 (2013 - $3,000) relating primarily to purchases of property, plant and
equipment.
22. Personnel expenses:
Personnel expenses are included in cost of product and service revenues, research and product
development expense, general and administrative expense, sales and marketing expense, and
other expense.
Salaries and employee benefits
Share-based compensation (note 19)
December 31,
December 31,
2014
47,993
$
2,249
50,242
$
2013
47,339
3,775
51,114
$
$
50
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
23. Other expense:
Impairment loss on trade receivables (notes 8 and 29)
Restructuring costs (note 15)
Acquisition costs
December 31,
December 31,
$
$
2014
6,206
$
85
-
6,291
$
2013
222
568
78
868
In 2014, impairment loss on trade receivables consists of a $4,415,000 impairment charge as a
result of material breaches by Azure Hydrogen Energy Science and Technology (“Azure”) relating
to the Azure Telecom Backup Power Licensing Agreement and the Azure Bus Licensing Agreement.
The Corporation also incurred impairment charges of $1,791,000 relating to the non-collection of
certain trade receivables outstanding from certain customers primarily located in Asia. In the
event that the Corporation recovers any amounts previously recorded as impairment losses, the
recovered amount will be recognized as a reversal of the impairment loss in the period of
recovery.
24. Finance income and expense:
Investment income
Settlement of TPC funding obligation (note 21)
Employee future benefit plan expense (note 18)
Employee future benefit plan administration costs
Foreign exchange gain
Finance income (loss) and other
Finance expense
2014
$
139
$
-
(183)
(100)
31
(113) $
2013
141
(1,197)
(282)
(61)
1,553
154
$
$
(942) $
(1,486)
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, 2014, the settlement was fully paid and no liability
remained outstanding.
51
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
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
2014
2013
$
-
$
457
(40)
$
417
$
-
508
(23)
485
Origination and reversal of temporary differences
$
(947)
$
1,348
Adjustments for prior periods
Change in unrecognized deductible temporary differences
Total deferred tax expense
Total income tax expense
(536)
1,483
-
$
(416)
(932)
-
417
$
485
$
$
The Corporation’s effective income tax rate differs from the combined Canadian federal and
provincial statutory income tax rate for companies. The principal factors causing the difference
are as follows:
Net loss before income taxes
Expected tax expense (recovery) at 26.00% (2013 – 25.75%)
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
2014
2013
$
$
(29,331)
(7,626)
$
$
(21,239)
(5,469)
-
813
2,800
(4,084)
113
8,401
1,106
(3,692)
8,236
(2,640)
77
2,867
485
Income taxes
$
417
$
(b) Unrecognized deferred tax liabilities:
At December 31, 2014, the Corporation did not recognize any deferred tax liabilities resulting from
taxable temporary differences for financial statement and income tax purposes.
52
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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:
At December 31, 2014, 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
Accrued warranty provision
Share issuance costs
Losses from operations carried forward
Investment tax credits
2014
$
66,943 $
25,830
1,826
89,176
26,637
2013
58,347
25,899
2,276
91,136
23,596
Property, plant and equipment and intangible assets
189,123
200,015
$
399,535 $
401,269
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.
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
Denmark losses from operations
2014
$
66,943 $
39,758
26,637
303
13,023
-
35,973
2013
58,347
41,685
23,595
303
13,140
1,702
34,306
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 2034.
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 2034. 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.
53
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(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 Canadian investment tax credits may be used to offset future Canadian income taxes
otherwise payable and expire as follows:
2016
2017
2019
2020
2021
2022
2023
2024
2029
2030
2031
2032
2033
2034
$
82
90
2,069
1,651
1,555
1,248
1,177
1,754
4,085
2,797
2,600
2,261
2,120
3,148
$
26,637
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 17)
Revolving credit facility (note 17)
Transactions during the year with related parties:
Purchases
Finance expense
$
$
2014
70
45
484
2014
175
34
$
$
2013
139
16
550
2013
185
322
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 19).
54
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Related party transactions (cont’d):
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 19)
2014
$
2,348
$
60
-
926
$
3,334
$
2013
1,700
46
-
2,543
4,289
27. Supplemental disclosure of cash flow information:
Non-cash financing and investing activities:
Compensatory shares
Shares issued for acquisition of intangible assets (notes 11 and 19)
2014
$
$
866 $
20,307 $
2013
738
-
28. Operating segments:
The Corporation operates in a single segment, Fuel Cell Products and Services, which consists of
the sale and service 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 and the license and sale of the Corporation’s
extensive intellectual property portfolio and fundamental knowledge 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.
55
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
28. Operating segments (cont’d):
In 2014, revenues from the Fuel Cell Products and Services segment included sales to three
individual customers of $22,632,000, $13,918,000, and $9,082,000, respectively, which exceeded
10% of total revenue.
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.
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
Non-current assets by geographic area are as follows:
Non-current assets
Canada
U.S.
Denmark
Mexico
29. Financial instruments:
(a) Fair value:
2014
$
2,869 $
15,989
-
17,484
1,229
23,495
2,797
-
4,858
2013
4,580
8,816
3,848
15,123
799
14,407
6,801
1,356
5,521
$
68,721 $
61,251
December 31,
December 31,
2014
2013
$
76,447 $
57,857
350
50
453
391
688
567
$
77,300 $
59,503
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, and trade
and other payables approximate their carrying values because of the short-term nature of these
instruments. The Corporation’s investments (note 29(b)) 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.
56
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(a) Fair value (cont’d):
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 are not based on observable market data
(unobservable inputs).
(b) Investments:
Investments are comprised of the following:
Chrysalix Energy Limited Partnership
Other
December 31, 2014
December 31, 2013
Percentage
Percentage
Amount
ownership
Amount
ownership
$
$
-
6
6
0%
$
$
150
7
157
15.0%
The Corporation’s 15% ownership share in Chrysalix Energy Limited Partnership (“Chrysalix”) was
accounted for as an available-for-sale financial asset and recorded at fair value.
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.
In March 2014, the Corporation recorded a further impairment loss of $150,000 as it wrote-off the
remaining value of Chrysalix to its estimated net realizable value of $nil. On June 30, 2014, the
operations of Chrysalix were formally terminated and the company was dissolved. A nominal
$1,000 final cash distribution was received upon dissolution, which was recorded against the
previously recognized impairment loss, resulting in a net impairment loss of $149,000 recognized
during 2014.
(c) Financial risk management:
The Corporation primarily has exposure to foreign currency exchange rate risk, commodity risk,
interest rate risk, and credit risk.
57
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(c) Financial risk management (cont’d):
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, 2014, the Corporation held Canadian dollar denominated cash and cash equivalents
of CDN $16,366,000 and had no outstanding forward foreign exchange contracts.
The following exchange rates applied during the year ended December 31, 2014:
January 1, 2014 Opening rate
December 31, 2014 Closing rate
Fiscal 2014 Average rate
$U.S. to $1.00 CDN
$CDN to $1.00 U.S.
$ 0.940
$ 0.862
$ 0.906
$ 1.064
$ 1.160
$ 1.105
Based on cash and cash equivalents held at December 31, 2014, 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 $1,411,000 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, 2014, CDN $159,000 ($137,000) was
outstanding under the Forward Contract Facility relating to outstanding forward platinum contracts
(note 13).
58
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Financial instruments (cont’d):
(c) Financial risk management (cont’d):
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 and cash equivalents at December 31, 2014, a 0.25% decline in interest rates, with
all other variables held constant, would result in a decrease in investment income $59,000, arising
mainly as a result of an increase in the fair value of fixed rate financial assets classified as held-
for-trading. If interest rates had been 0.25% higher, there would be an equal and opposite
impact on net income.
Credit risk
Credit risk is the risk of financial loss to the Corporation if a counterparty to a financial instrument
fails to meet its contractual obligations and arises principally from the Corporation’s cash, cash
equivalents, short-term investments and accounts receivable. The Corporation limits its exposure
to credit risk on cash, cash equivalents and short-term investments by only investing in liquid,
investment grade securities. The Corporation manages its exposure to credit risk on accounts
receivable by assessing the ability of counterparties to fulfill their obligations under the related
contracts prior to entering into such contracts, and continuously monitors these exposures.
30. Subsequent events:
Volkswagen intellectual property agreement
On February 11, 2015, the Corporation entered into a transaction with Volkswagen Group
(“Volkswagen”) to transfer certain automotive-related fuel cell intellectual property. Under the
transfer agreement (“Volkswagen IP Agreement”), the Corporation will transfer to Volkswagen the
automotive-related portion of the fuel cell intellectual property assets previously acquired from
UTC (note 11), in exchange for $50,000,000 payable in two tranches; $40,000,000 of which was
received at the closing of the transaction on February 23, 2015, with the remaining $10,000,000
payable on or before February 16, 2016. The Corporation also received a royalty-free license to
all the intellectual property transferred to Volkswagen to utilize in its bus and non-automotive
applications and in certain limited pre-commercial purposes for automotive applications.
59
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2014, and 2013
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
30. Subsequent events (cont’d):
Volkswagen intellectual property agreement (cont’d)
Pursuant to the initial acquisition of intellectual property assets from UTC in April 2014, the
Corporation is required to pay UTC a 25% license fee, or $10,000,000, on the initial $40,000,000
received from Volkswagen. The Corporation will also remit a 9% payment, or $900,000, to UTC
on the receipt of the final $10,000,000 from Volkswagen when collected in 2016.
In connection with the transaction, Volkswagen extended the existing long-term technology
development and engineering services agreement signed by the Corporation and Volkswagen in
2013 for two years to February 2019. The technology development and engineering services
contract contemplates the design and manufacture of next-generation fuel cell stacks for use in
Volkswagen’s fuel cell demonstration car program. Volkswagen also retains an option to extend
this agreement for a further two-year term.
Revolving credit facility extension
In February 2015, the maturity date of the revolving credit facility made available to Dantherm
Power by a non-controlling partner (note 17) was extended from December 31, 2015 to December
31, 2016.
60
CONTENTS
Notice of Annual Meeting ............................................................................................................................ 1
Management Proxy Circular ......................................................................................................................... 8
Matters to be Voted Upon ........................................................................................................................... 8
Voting Information ...................................................................................................................................... 8
Corporate Governance ............................................................................................................................... 15
Executive Compensation ............................................................................................................................ 22
Additional Information............................................................................................................................... 43
Defined Terms ........................................................................................................................................... 45
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) provides clean energy products that reduce customer costs
and risks, and helps customers solve difficult technical and business challenges in their fuel cell programs. Our
400 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 is based on two key platforms: Power Products and
Technology Solutions. To learn more about Ballard, please visit 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 OFFICES
Ballard Power Systems Inc.
Corporate Headquarters
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.454.0900
F: 604.412.4700
TRANSFER AGENT
Computershare Trust
Company of Canada
Shareholder Services Department
510 Burrard Street
Vancouver, BC Canada V6C 3B9
T: 1.800.564.6253
F: 1.866.249.7775
STOCK LISTING
Ballard’s common shares are
listed on the Toronto Stock
Exchange under the trading
symbol BLD and on the
NASDAQ Global Market
under the trading symbol BLDP.
INVESTOR RELATIONS
To obtain additional information,
please contact:
Ballard Power Systems
Investor Relations
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.412.3195
F: 604.412.3100
E: investors@ballard.com
W: www.ballard.com
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
Ian A. Bourne
Corporate Director
Alberta, Canada
Douglas P. Hayhurst
Corporate Director
British Columbia, Canada
Edwin J. Kilroy
Corporate Director
Ontario, Canada
Randy MacEwen
President & Chief Executive
Officer
British Columbia, Canada
Jim Roche
Corporate Director
Ontario, Canada
Carol M. Stephenson
Corporate Director
Ontario, Canada
David B. Sutcliffe
Corporate Director
British Columbia, Canada
Ian Sutcliffe
Corporate Director
Ontario, Canada
Randy MacEwen
President & Chief
Executive Officer
Tony Guglielmin
Vice President & Chief
Financial Officer
Paul Cass
Vice President & Chief
Operations Officer
Christopher J. Guzy
Vice President & Chief
Technical Officer
Steven Karaffa
Vice President & Chief
Commercial Officer
INDEPENDENT AUDITORS
KPMG LLP
Vancouver, BC Canada
LEGAL COUNSEL
Canada:
Stikeman Elliott, LLP
Vancouver, BC Canada
United States:
Dorsey & Whitney LLP
Seattle, WA USA
Intellectual Property:
Seed Intellectual Property
Law Group, LLC
Seattle, WA USA
www.ballard.com
NOTICE OF ANNUAL MEETING,
MANAGEMENT PROXY CIRCULAR
AND 2014 ANNUAL REPORT
BALLARD POWER
SYSTEMS
PUTTING FUEL CELLS TO WORK
The Power of Fuel Cells, Simply Delivered
WWW.BALLARD.COM