EX-99.1 2 ex99_1.htm BALLARD POWER SYSTEMS THIRD QUARTER 2012 FINANCIAL STATEMENTS ex99_1.htm
EXHIBIT 99.1
 
 





 
Condensed Consolidated Interim Financial Statements
(Expressed in U.S. dollars)
 
 
BALLARD POWER SYSTEMS INC.
 
 
Three and nine months ended September 30, 2012, and 2011
 
 

 
 
 
 
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Financial Position
Unaudited (Expressed in thousands of U.S. dollars)
 
 
   
Note
    
September 30,
 2012
    
December 31,
 2011
  
Assets
                  
                   
Current assets:
                  
Cash and cash equivalents
     10     $ 10,374     $ 20,316  
Short-term investments
     10       12,684       25,878  
Trade and other receivables
             15,816       17,164  
Inventories
  
5 & 6
       16,446       13,614  
Prepaid expenses and other current assets
     5       4,244       934  
Total current assets
             59,564       77,906  
Property, plant and equipment
  
5 & 7
       32,405       35,085  
Intangible assets
  
5 & 8
       5,013       2,249  
Goodwill
             48,106       48,106  
Investments
     9       667       635  
Long-term trade receivables
             970       1,126  
Other long-term assets
             211       183  
Total assets
           $ 146,936     $ 165,290  
                         
Liabilities
                        
                         
Current liabilities:
                        
Bank operating line
     10     $ 9,321     $ 4,587  
Trade and other payables
  
5 & 11
       15,593       22,693  
Deferred revenue
             2,806       3,560  
Provisions
  
5 & 12
       10,171       9,573  
Finance lease liability
     10       1,044       978  
Total current liabilities
             38,935       41,391  
Finance lease liability
     10       13,434       13,749  
Deferred gain
             5,308       5,653  
Provisions
     12       5,015       4,733  
Convertible debenture
     13       2,787       1,733  
Employee future benefits
             5,366       5,686  
Total liabilities
             70,845       72,945  
                         
Equity:
                        
Share capital
     5       845,630       837,686  
Treasury shares
             (309 )     (515 )
Contributed surplus
             289,602       289,219  
Accumulated deficit
             (1,055,265 )     (1,031,279 )
Foreign currency reserve
             261       209  
Total equity attributable to equity holders
             79,919       95,320  
Dantherm Power A/S non-controlling interests
             (3,828 )     (2,975 )
Total equity
             76,091       92,345  
Total liabilities and equity
           $ 146,936     $ 165,290  

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:
 
“Ed Kilroy”    “Ian Bourne”
Director Director

2
 
 
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Comprehensive Loss
Unaudited (Expressed in thousands of U.S. dollars, except per share amounts and number of shares)

 
Three months ended September 30,
    
Nine months ended September 30,
  
Note
  
2012
    
2011
    
2012
    
2011
  
Revenues:
                        
Product and service revenues
   $ 14,154     $ 20,602     $ 37,971     $ 55,013  
Cost of product and service revenues
     12,141       16,667       31,426       45,270  
Gross margin
     2,013       3,935       6,545       9,743  
                                 
Operating expenses:
                                
Research and product development
     4,744       6,243       14,986       20,355  
General and administrative
     4,062       2,884       9,498       10,036  
Sales and marketing
     1,657       2,518       5,508       7,596  
Total operating expenses
     10,463       11,645       29,992       37,987  
                                 
Results from operating activities
     (8,450 )     (7,710 )     (23,447 )     (28,244 )
  Finance income (loss) and other
     (436 )     257       (136 )     117  
  Finance expense
     (469 )     (345 )     (1,232 )     (937 )
Net finance expense
     (905 )     (88 )     (1,368 )     (820 )
Gain (loss) on sale of property, plant and equipment
     24       333       (5 )     757  
Loss before income taxes
     (9,331 )     (7,465 )     (24,820 )     (28,307 )
Income tax expense
     (1 )     (64 )     (71 )     (219 )
Net loss for period
     (9,332 )     (7,529 )     (24,891 )     (28,526 )
                                 
Foreign currency translation differences
     (111 )     350       22       225  
Net gain on hedge of forward contracts
     48       -       41       -  
Comprehensive loss for period
   $ (9,395 )   $ (7,179 )   $ (24,828 )   $ (28,301 )
Net loss attributable to:
                                
  Ballard Power Systems Inc.
   $ (8,950 )   $ (6,991 )   $ (24,027 )   $ (26,131 )
  Dantherm Power A/S non-controlling interest
     (382 )     (538 )     (864 )     (2,395 )
Net loss for period
   $ (9,332 )   $ (7,529 )   $ (24,891 )   $ (28,526 )
Comprehensive loss attributable to:
                                
  Ballard Power Systems Inc.
   $ (8,960 )   $ (6,809 )   $ (23,975 )   $ (26,014 )
  Dantherm Power A/S non-controlling interest
     (435 )     (370 )     (853 )     (2,287 )
Comprehensive loss for period
   $ (9,395 )   $ (7,179 )   $ (24,828 )   $ (28,301 )
                                 
Basic and diluted loss per share attributable to
   $ (0.10 )   $ (0.08 )   $ (0.28 )   $ (0.31 )
   Ballard Power Systems Inc.
                                
Weighted average number of common shares outstanding
     89,268,778       84,547,709       86,177,932       84,404,474  

See accompanying notes to consolidated financial statements.


3
 
 
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Changes in Equity
Unaudited (Expressed in thousands of U.S. dollars except number of shares)


   
Ballard Power Systems Inc. Equity
    
Dantherm
Power A/S
        
   
Number of 
shares
    
Share
 capital
    
Treasury
shares
    
Contributed
surplus
    
Accumulated 
deficit
    
Foreign
currency
reserve
    
Non-
controlling
interests
    
Total
equity
  
Balance December 31, 2011
     84,550,524     $ 837,686     $ (515 )   $ 289,219     $ (1,031,279 )   $ 209     $ (2,975 )   $ 92,345  
Net loss
     -       -       -       -       (24,027 )     -       (864 )     (24,891 )
Acquisition (note 5)
     7,136,237       7,493       -       -       -       -       -       7,493  
Foreign currency translation for
    foreign operations
     -       -       -       -       -       11       11       22  
Net loss on hedge of forward contracts
     -       -       -       -       -       41       -       41  
Purchase of treasury shares
     -       -       (6 )     -       -       -       -       (6 )
DSUs redeemed
     52,120       314       -       (358 )     -       -       -       (44 )
RSUs redeemed
     49,095       113       212       (415 )     41       -       -       (49 )
Options exercised
     13,501       24       -       (7 )     -       -       -       17  
Share distribution plan
     -       -       -       1,163       -       -       -       1,163  
Balance, September 30, 2012
     91,801,477     $ 845,630     $ (309 )   $ 289,602     $ (1,055,265 )   $ 261     $ (3,828 )   $ 76,091  
 
 
 
   
Ballard Power Systems Inc. Equity
    
Dantherm
Power A/S
        
   
Number of 
shares
    
Share
 capital
    
Treasury
shares
    
Contributed
surplus
    
Accumulated
deficit
    
Foreign
currency
reserve
    
Non-
controlling
interests
    
Total
equity
  
Balance, December 31, 2010
     84,148,465     $ 836,245     $ (670 )   $ 289,444     $ (995,023 )   $ -     $ (413 )   $ 129,583  
Net loss
     -       -       -       -       (26,131 )     -       (2,395 )     (28,526 )
Foreign currency translation for
  foreign operations
     -       -       -       -       -       117       108       225  
Non-dilutive financing
     -       -       -       (60 )     -       -       -       (60 )
Purchase of treasury shares
     -       -       (234 )     -       -       -       -       (234 )
RSUs redeemed
     373,410       2,037       484       (3,409 )     69       -       -       (819 )
Options exercised
     25,834       48       -       (8 )     -       -       -       40  
Share distribution plan
     -       -       -       2,866       -       -       -       2,866  
Balance, September 30, 2011
     84,547,709     $ 838,330     $ (420 )   $ 288,833     $ (1,021,085 )   $ 117     $ (2,700 )   $ 103,075  
 

See accompanying notes to consolidated financial statements.

4
 
 
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Cash Flows
Unaudited (Expressed in thousands of U.S. dollars)

         
Nine months ended September 30,
  
   
Note
    
2012
    
2011
  
Cash provided by (used for):
                  
                   
Operating activities:
                  
Net loss for the period
         $ (24,891 )   $ (28,526 )
Adjustments for:
                      
Compensatory shares
           1,166       2,903  
Employee future benefits
           (320 )     (150 )
Depreciation and amortization
           4,598       4,416  
Loss (gain) on sale of property, plant and equipment
           (3 )     (757 )
Unrealized loss (gain) on forward contracts
           (357 )     439  
            (19,807 )     (21,675 )
Changes in non-cash working capital:
                      
Trade and other receivables
           2,601       (7,628 )
Inventories
           (954 )     (3,210 )
Prepaid expenses and other current assets
           (924 )     90  
Trade and other payables
           (7,849 )     (2,610 )
Deferred revenue
           (754 )     (916 )
Warranty provision
           73       (1,148 )
            (7,807 )     (15,422 )
Cash used by operating activities
           (27,614 )     (37,097 )
                       
Investing activities:
                      
Net decrease in short-term investments
           13,194       12,266  
Additions to property, plant and equipment
           (933 )     (3,838 )
Net proceeds on sale of property, plant and equipment and other
           397       3,597  
Net investments in associated companies
     9       (32 )     (97 )
Other investment activities
             (23 )     (224 )
              12,603       11,704  
Financing activities:
                        
Non-dilutive financing
             -       (60 )
Purchase of treasury shares
             (6 )     (234 )
Payment of finance lease liabilities
             (754 )     (574 )
Net proceeds from bank operating line
     10       4,734       7,319  
Net proceeds on issuance of share capital
             17       40  
Proceeds on issuance of convertible debenture from
  Dantherm Power A/S non-controlling interests
             1,075       1,719  
              5,066       8,210  
                         
Effect of exchange rate fluctuations on cash and cash equivalents held
             3       156  
                         
Increase (decrease) in cash and cash equivalents
             (9,942 )     (17,027 )
Cash and cash equivalents, beginning of period
             20,316       51,937  
Cash and cash equivalents, end of period
           $ 10,374     $ 34,910  
 
Supplemental disclosure of cash flow information (note 16).
See accompanying notes to consolidated financial statements.
 

5
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
1.
Reporting entity:
 
The principal business of Ballard Power Systems Inc. (the “Corporation”) is the design, development, manufacture, sale and service of fuel cell products for a variety of applications, focusing on motive power (material handling and buses) and stationary power (back-up power and distributed generation) markets; and engineering services for a variety of fuel cell applications.  A fuel cell is an environmentally clean electrochemical device that combines hydrogen fuel with oxygen (from the air) to produce electricity.  The Corporation’s technology is based on proton exchange membrane (“PEM”) fuel cells.
 
The Corporation is a company domiciled in Canada and its registered office is located at 9000 Glenlyon Parkway, Burnaby, British Columbia, Canada, V5J 5J8.  The condensed consolidated interim financial statements of the Corporation as at and for the three and nine months ended September 30, 2012 comprise the Corporation and its subsidiaries.
 
2. 
Basis of preparation:
 
(a) 
Statement of compliance:
 
These condensed consolidated interim financial statements of the Corporation have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).  The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.
 
(b)
Basis of measurement:
 
The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
 
  ●
Financial instruments classified as fair value through profit or loss and available-for-sale are measured at fair value;
     
  ●
Derivative financial instruments are measured at fair value; and
     
  ●
Employee future benefit plan assets are measured at fair value, determined directly by reference to quoted market prices.
 
(c)
Functional and presentation currency:
 
These condensed consolidated interim financial statements are presented in U.S. dollars, which is the Corporation’s functional currency.
 

6
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

2. 
Basis of preparation (cont’d):
 
(d)
Use of estimates and judgments:
 
The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (“IFRS”) requires the Corporation’s management to apply judgment when making estimates and assumptions that affect the amounts reported in these condensed consolidated interim financial statements and notes.  Actual results could differ from those estimates.
 
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
 
Significant areas requiring management to make judgments include revenue recognition, asset impairment, warranty provision, inventory provision, employee future benefits, and income taxes.  These estimates and judgments are discussed further in note 4.
 
(e)
Going concern:
 
These condensed consolidated interim financial statements have been prepared assuming the Corporation will continue as a going concern.  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.  While the Corporation believes that it has adequate liquidity in cash, working capital and non-core asset monetization opportunities to finance its operations, there are material risks and uncertainties that cause substantial doubt as to the Corporation’s ability to continue as a going concern. 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 Fuel Cell Products revenue growth, improving overall gross margins, managing operating expenses and working capital requirements, and securing additional financing to fund its operations as needed including the potential sale of non-core assets.  Failure to implement this plan could have a material adverse effect on the Corporation’s financial condition and or results of operations. These condensed consolidated interim financial statements do not include any adjustments or disclosures that would be required if assets are not realized and liabilities and commitments are not settled in the normal course of operations.
 
7
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
3.
Significant accounting policies:
 
The accompanying financial information reflects the same accounting policies and methods of application as the Corporation’s consolidated financial statements for the year ended December 31, 2011.  Certain comparative figures have been reclassified to conform with the basis of presentation adopted in the current period.
 
4.
Critical accounting estimates and judgments:
 
The preparation of the condensed consolidated interim financial statements requires the Corporation’s management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated interim financial statements and the accompanying notes.  Actual results may differ from those estimates.
 
Estimates and judgments are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. The Corporation’s most significant critical judgments are all related to estimation uncertainty.  At this time, the Corporation does not have any significant critical judgments related to the application of the Corporation’s accounting policies that do not involve estimation uncertainty.  The significant critical judgments related to estimation uncertainty are those judgments that require management’s most challenging, subjective and complex judgments, requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.  These significant critical judgments are discussed below:
 
(a)
Revenue recognition:
 
Revenues under certain contracts for product and engineering development services provide for receipt of payment based on achieving defined milestones or on the performance of work under product development programs.  Revenues are recognized under these contracts based on management’s estimate of progress achieved against these milestones or on the proportionate performance method of accounting.  Changes in management’s estimated costs to complete a contract may result in an adjustment to previously recognized revenues.
 
(b)
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.
 

8
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
4.
Critical accounting estimates and judgments (cont’d):
 
(b)
Asset impairment (cont’d):
 
The Corporation’s most significant estimates and assumptions involve values associated with goodwill and intangible assets.  These estimates and assumptions include those with respect to future cash inflows and outflows, discount rates, asset lives, and the determination of cash generating units.  At least annually, the carrying value of goodwill and intangible assets is reviewed for potential impairment.  Among other things, this review considers the fair value of the cash-generating units based on discounted estimated future cash flows. These significant estimates require considerable judgment, which could affect the Corporation’s future results if the current estimates of future performance and fair values change.
 
(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.
 

9
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
4.
Critical accounting estimates and judgments (cont’d):
 
(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.
 
(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.
 
5.
Acquisition:
 
On August 1, 2012 (“acquisition date”), the Corporation completed an agreement to acquire key assets and product lines from IdaTech, LLC (“IdaTech”).  In exchange for 7,136,237 of the Corporation’s common shares valued at $7,493,000, the Corporation acquired IdaTech’s key assets including fuel cell systems inventory and product lines for backup power applications, distributor and customer relationships, a license to intellectual property, the right to assume control of a manufacturing facility, and certain property, plant and equipment.
 
The prepaid right to inventory and other current assets of approximately $2,252,000 relates to a contract manufacturing agreement including a supply commitment whereby IdaTech will provide additional units of finished goods inventory to the Corporation prior to January 31, 2013.  Payment of approximately $700,000 for the additional units will be made to IdaTech when the Corporation receives payment for the inventory units, as the units are sold.
 
The acquisition has been accounted for using the purchase method of accounting and, accordingly, the acquired assets and liabilities have been included in the consolidated financial statements since the date of acquisition, and revenues since the acquisition date totaling $2,071,000 are reported in the Fuel Cell Products segment.  The intangible assets arising from this acquisition are amortized over their estimated useful life of 5 years.
 

10
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

5.
Acquisition (cont’d):
 
The following is the preliminary purchase price allocation to the fair value of the identified assets acquired, and liabilities assumed at the date of acquisition:
 
Net assets acquired:
      
Inventories
   $ 1,873  
Prepaid right to inventory and other current assets
     2,252  
Property, plant and equipment
     860  
Intangible assets
     3,389  
Current liabilities
     (881 )
Total purchase consideration
   $ 7,493  
 
Management is currently carrying out a more specific analysis of the purchase price allocation and changes may be made to the determination of the fair value, the assets acquired, and liabilities assumed as further information becomes available.  As a result, the actual amounts allocated to the identifiable assets acquired and liabilities assumed may vary from the amounts initially recorded.
 
6.
Inventories:
 
During the three and nine months ended September 30, 2012, the write-down of inventories to net realizable value amounted to $220,000 and $552,000 (2011 - $109,000 and $349,000), respectively.  There were no reversals of previously recorded write-downs during the three and nine months ended September 30, 2012 and 2011.  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.
 
7.
Property, plant and equipment:
 
Leased assets
 
The Corporation leases certain assets under finance lease agreements including the Corporation’s head office building in Burnaby, British Columbia and certain production and test equipment.
 
At September 30, 2012, the net carrying value for the Corporation’s leased assets is $13,210,000 (December 31, 2011 - $14,197,000)
 
8.
Intangible assets:
 
Amortization and impairment losses of fuel cell technology and development costs are allocated to research and product development expense.  For the three and nine months ended September 30, 2012, amortization of $276,000 and $626,000 (2011 - $182,000 and $545,000) respectively, was recorded.  There were no impairment losses recorded during the three and nine months ended September 30, 2012 and 2011.
 
 
11
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
9.
Investments:
 
Investments are comprised of the following:
 
   
September 30, 2012
    
December 31, 2011
  
   
Amount
    
Percentage
ownership
    
Amountt 
    
Percentage
ownership   
 
Chrysalix Energy Limited Partnership
   $ 659       15.0%     $ 627       15.0%  
Other
     8               8          
    $ 667             $ 635          
 
Chrysalix Energy Limited Partnership (“Chrysalix”) is accounted for as an available-for-sale financial asset and recorded at fair value.  During the three and nine months ended September 30, 2012, the Corporation made additional capital contributions of $nil and $44,000 (2011 – $nil and $102,000) in Chrysalix respectively.  The investment was offset by cash distributions from Chrysalix of $nil and $12,000 during the three and nine months ended September 30, 2012 respectively (2011 - $3,000 and $5,000).
 
10.
Bank facilities:
 
The Corporation has a demand revolving facility (“Bank Operating Line”) in which an operating line of credit of up to CDN $10,000,000 is made available to be drawn upon by the Corporation.  The Bank Operating Line is utilized to assist in financing the day-to-day operating activities and short-term working capital requirements of the business.  Outstanding amounts are charged interest at the bank’s prime rate minus 0.50% per annum and are repayable on demand by the bank.  During the nine months ended September 30, 2012, the Corporation was advanced $6,780,000 (2011 - $7,579,000) under the bank operating line of which $2,046,000 (2011 - $260,000) was repaid. At September 30, 2012, $9,321,000 was outstanding on the Bank Operating Line.
 
The Corporation also has a CDN $3,323,000 capital leasing facility (“Leasing Facility”) which can be utilized to finance the acquisition and lease of operating equipment (note 7).  Interest is charged on outstanding amounts at the bank’s prime rate per annum and is repayable at the option of the bank, if there has been, in the opinion of the bank, a material adverse change in the financial condition of the Corporation.  At September 30, 2012, $2,739,000 was outstanding on the Leasing Facility which is included in the finance lease liability.  The remaining $11,739,000 finance lease liability relates to the lease of the Corporation’s head office building.
 
Both the Bank Operating Line and Leasing Facility are secured by a hypothecation of the Corporation’s cash, cash equivalents and short-term investments.
 

12
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)
 
11.
Trade and other payables:
 
   
September 30, 20122
    
December 31, 2011
  
Trade accounts payable
   $ 6,906     $ 10,195  
Compensation payable
     3,450       6,615  
Other liabilities
     4,747       5,427  
Taxes payable
     490       456  
    $ 15,593     $ 22,693  
 
12.
Provisions:
`
   
September 30, 2012
    
December 31, 20111
  
Legal
   $ -     $ 520  
Restructuring charges
     1,619       1,004  
Warranty
     8,552       8,049  
Current
   $ 10,171     $ 9,573  
                 
Decommissioning liabilities
   $ 5,015     $ 4,733  
Non-current
   $ 5,015     $ 4,733  
 
In July 2012, the Corporation completed a 7% workforce reduction and an overall curtailment of discretionary spending enacted to have a minimal impact on key product development initiatives and manufacturing capabilities.
 
13.
Convertible debenture:
 
The convertible debenture relates to financing to Dantherm Power A/S by the non-controlling partners and is redeemable at the option of Dantherm Power A/S subject to approval by all convertible debenture holders on or after January 1, 2013 including interest which is accrued at 12%.  Prior to December 31, 2013 (the “Maturity Date”), the convertible debenture holders may elect to convert all or part of the debenture into shares of Dantherm Power A/S.  The conversion price for convertible debenture notes entered into prior to January 1, 2012, of approximately DKK 9,120,000, have a conversion price of DKK 3.40 per share.  Convertible debenture notes of approximately DKK 5,066,000 entered into since January 1, 2012 have a conversion price of DKK 0.14 per share.  This conversion feature was determined to have a nominal value.  The Maturity Date may be extended to December 31, 2014 with approval of the subscribers.
 
During the three and nine months ended September 30, 2012, an additional $566,000 and $1,075,000, respectively, of convertible debt financing was advanced to Dantherm Power A/S by a non-controlling partner.
 

13
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

14.
Equity:
 
(a)
Share options:
 
As at September 30, 2012 and 2011, options to purchase 7,192,445 and 7,619,219 common shares, respectively, were outstanding.  During the three and nine months ended September 30, 2012, compensation expense of $314,000 and $1,072,000 was recorded in net income, respectively, based on the grant date fair value of the awards recognized over the vesting period (2011 – $474,000 and $1,395,000).
 
During the three and nine months ended September 30, 2012, options to purchase 212,136 and 1,009,640 (2011 – 15,000 and 1,684,369) common shares were granted with a weighted average fair value of $0.44 and $0.80 (2011 – $0.76 and $1.19).  The granted options vest annually over three years.
 
The fair values of the options granted during the period were determined using the Black-Scholes valuation model under the following weighted average assumptions:
 
 
Three months ended September 30,
Nine months ended September 30,
 
2012
2011
2012
2011
Expected life
5 years
5 years
5 years
5 years
Expected dividends
Nil
Nil
Nil
Nil
Expected volatility
63%
62%
62%
64%
Risk-free interest rate
2%
2%
2%
3%
 
(b)
Deferred share units:
 
As at September 30, 2012 and 2011, 327,294 and 290,797 deferred share units (“DSUs”), respectively, were outstanding.  During the three and nine months ended September 30, 2012, 102,543 and 126,835 DSUs were issued respectively and compensation expense of $73,000 and $101,000 was recorded in net income for the respective periods.  During the three and nine months ended September 30, 2011, no DSUs were issued and no compensation expense was recorded in net income.
 
(c)
Restricted share units:
 
 
As at September 30, 2012 and 2011, 2,912,710 and 2,178,377 restricted share units (“RSUs”), respectively, were outstanding.  During the three and nine months ended September 30, 2012, 430,834 and 1,598,681 (2011 – 722,660 and 1,351,516) RSUs were issued.  Each RSU is convertible into one common share.  The RSU’s vest after a specific number of years from date of issuance and, under certain circumstances, are contingent on achieving specific performance criteria.
 

14
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

14.
Equity (cont’d):
 
(c)
Restricted share units (cont’d):
 
 
In the previous quarter, certain outstanding restricted share units were assessed as expected to fail to meet the vesting criteria, and as a result, a downward adjustment to accrued share-based compensation expense for other restricted share units with vesting criteria expected to be met was recorded against net income.  The downward adjustment resulted in a net reduction to compensation expense of $10,000 in the nine months ended September 30, 2012.  During the three months ended September 30, 2012, $300,000 of compensation expense for other restricted share units with vesting criteria expected to be met was recorded in net income.  During the three and nine months ended September 30, 2011, $409,000 and $1,472,000 of compensation expense was recorded in net income respectively.
 
 
The Corporation did not repurchase any common shares during the three and nine months ended September 30, 2012.  During the three and nine months ended September 30, 2011, the Corporation repurchased 75,000 and 155,211 common shares for cash consideration of $100,000 and $235,000 respectively through the trust established for the purpose of funding RSU grants under the Corporation’s market purchase RSU plan.  During the three and nine months ended September 30, 2012, 25,225 and 124,884 (2011 – nil and 371,626) RSUs vested under the market purchase RSU plan and 25,224 and 125,460 (2011 – nil and 239,737) common shares were issued from the trust respectively.  As at September 30, 2012, the Corporation held 183,629 shares as treasury shares.
 
15.
Related party transactions:
 
Related parties include shareholders with a significant ownership interest in the Corporation, together with its subsidiaries and affiliates and the Corporation’s key management personnel.  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:
  
September 30, 2012
    
December 31, 2011
  
Trade payables
   $ 378     $ 260  
Interest payable
   $ 341     $ 141  
Convertible debenture payable
   $ 2,446     $ 1,592  
 

   
Three months ended September 30,
    
Nine months ended September 30,
  
Transactions during the period with related parties:
  
2012
    
2011
    
2012
    
2011
  
Purchases
   $ 165     $ 111     $ 309     $ 456  
Finance expense
   $ 96     $ 51     $ 203     $ 98  
 

 
15
 
 
BALLARD POWER SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements
Three and nine months ended September 30, 2012 and 2011
Unaudited
(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

16.
Supplemental disclosure of cash flow information:
 
 
   
Nine months ended September 30,
  
Non-cash financing and investing activities:
  
2012
    
2011     
  
Compensatory shares
   $ 427     $ 2,039  
Shares issued for acquisition (note 5)
   $ 7,493     $ -  
 
 
17.
Operating segments:
 
 
   
Three months ended
September 30,
    
Nine months ended
September 30,
  
   
2012
    
2011
    
2012
    
2011
  
Total revenues
                        
Fuel Cell Products
   $ 10,312     $ 13,321     $ 27,217     $ 29,596  
Material Products
     3,842       5,531       10,754       16,212  
Contract Automotive
     -       1,750       -       9,205  
    $ 14,154     $ 20,602     $ 37,971     $ 55,013  
Segment income (loss) for the period (1)
                                
Fuel Cell Products
   $ (270 )   $ 657     $ (1,238 )   $ (2,295 )
Material Products
     646       1,592       2,568       4,780  
Contract Automotive
     -       361       -       1,762  
Total
     376       2,610       1,330       4,247  
Corporate amounts
                                
  Research and product development
     (3,107 )     (4,918 )     (9,771 )     (14,859 )
  General and administrative
     (4,062 )     (2,884 )     (9,498 )     (10,036 )
  Sales and marketing
     (1,657 )     (2,518 )     (5,508 )     (7,596 )
Net finance expense
     (905 )     (88 )     (1,368 )     (820 )
Gain (loss) on sale of property,
  plant and equipment
     24       333       (5 )     757  
Loss before income tax
   $ (9,331 )   $ (7,465 )   $ (24,820 )   $ (28,307 )
(1)  
Research and product development costs directly related to segments are included in segment income (loss) for the period.
 
 
16