EX-99.2 3 a13-4360_1ex99d2.htm EX-99.2

Exhibit 99.2

 

Consolidated Financial Statements

(Expressed in thousands of United States dollars)

 

WESTPORT  INNOVATIONS  INC.

 

For the year ended December 31, 2012, nine months

ended December 31, 2011 and year ended March 31, 2011

 



 

 

 

KPMG LLP

Telephone

(604) 691-3000

 

Chartered Accountants

Fax

(604) 691-3031

 

PO Box 10426 777 Dunsmuir Street

Internet

www.kpmg.ca

 

Vancouver BC V7Y 1K3

 

 

 

Canada

 

 

 

INDEPENDENT AUDITORS’ REPORT OF
REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders of Westport Innovations Inc.

 

We have audited the accompanying consolidated financial statements of Westport Innovations Inc., which comprise the consolidated balance sheets as at December 31, 2012 and December 31, 2011, the consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the year ended December 31, 2012, nine-month period ended December 31, 2011 and year ended March 31, 2011, and notes, comprising a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with US generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.  The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as, evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

 

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.

 



 

 

Westport Innovations Inc.

 

Opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Westport Innovations Inc. as at December 31, 2012 and December 31, 2011 and its consolidated results of operations and its consolidated cash flows for the year ended December 31, 2012, nine-month period ended December 31, 2011 and year ended March 31, 2011 in accordance with US generally accepted accounting principles.

 

Other Matter

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Westport Innovation Inc.’s internal control over financial reporting as of December 31, 2012 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 6, 2013 expressed an unmodified (unqualified) opinion on the effectiveness of Westport Innovation Inc.’s internal control over financial reporting.

 

Restatement of Consolidated Financial Statements

 

Without modifying our opinion, we draw attention to note 2(a) to the consolidated financial statements which indicates the consolidated financial statements as at December 31, 2011 and for the nine month period ended December 31, 2011 and the year ended March 31, 2011 have been restated from those on which we originally reported on February 28, 2012 and more extensively describes the reason for the restatement.

 

 

//s// KPMG LLP

 

Chartered Accountants

 

March 6, 2013

Vancouver, Canada

 

2



 

 

 

KPMG LLP

Telephone

(604) 691-3000

 

Chartered Accountants

Fax

(604) 691-3031

 

PO Box 10426 777 Dunsmuir Street

Internet

www.kpmg.ca

 

Vancouver BC V7Y 1K3

 

 

 

Canada

 

 

 

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of Westport Innovations Inc.

 

We have audited Westport Innovations Inc.’s, (the “Company”) internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Financial Statements and Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG

 

network of independent member firms affiliated with KPMG International Cooperative

 

(“KPMG International”), a Swiss entity.

 

KPMG Canada provides services to KPMG LLP.

 

3



 

 

Westport Innovations Inc.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

We also have conducted our audit on the consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  Our report dated March 6, 2013 expressed an unmodified (unqualified) opinion on those consolidated financial statements.

 

 

//s// KPMG LLP

 

 

Chartered Accountants

 

March 6, 2013

Vancouver, Canada

 

4



 

WESTPORT INNOVATIONS INC.

Consolidated Balance Sheets

(Expressed in thousands of United States dollars, except share amounts)

 

December 31, 2012, with comparative information for 2011

 

 

 

2012

 

2011

 

 

 

 

 

(Restated –
note 2(a))

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

188,958

 

$

63,285

 

Short-term investments

 

26,902

 

4,274

 

Accounts receivable (note 5)

 

44,189

 

50,922

 

Inventories (note 6)

 

44,946

 

37,026

 

Prepaid expenses

 

6,641

 

6,462

 

Current portion of deferred income tax assets (note 20(b))

 

7,183

 

15

 

Other current assets (note 8)

 

 

2,034

 

 

 

318,819

 

164,018

 

Long-term investments (note 7)

 

19,118

 

26,307

 

Other assets (note 8)

 

1,852

 

1,994

 

Property, plant and equipment (note 9)

 

58,194

 

35,408

 

Intangible assets (note 10)

 

35,215

 

36,582

 

Deferred income tax assets (note 20(b))

 

 

933

 

Goodwill (note 11)

 

56,879

 

55,814

 

 

 

$

490,077

 

$

321,056

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities (note 12)

 

$

48,509

 

$

49,251

 

Deferred revenue

 

1,254

 

478

 

Current portion of deferred income tax liabilities (note 20(b))

 

65

 

 

Loan payable (note 21)

 

 

19,409

 

Current portion of long-term debt (note 13)

 

28,566

 

20,568

 

Current portion of warranty liability (note 14)

 

2,072

 

1,187

 

 

 

80,466

 

90,893

 

Warranty liability (note 14)

 

4,308

 

3,214

 

Long-term debt (note 13)

 

52,156

 

65,577

 

Deferred revenue

 

5,215

 

2,876

 

Deferred income tax liabilities (note 20(b))

 

9,245

 

3,446

 

Other long-term liabilities (note 15)

 

2,606

 

2,460

 

 

 

153,996

 

168,466

 

Shareholders’ equity:

 

 

 

 

 

Share capital (note 17):

 

 

 

 

 

Authorized:

 

 

 

 

 

Unlimited common shares, no par value

 

 

 

 

 

Unlimited preferred shares in series, no par value

 

 

 

 

 

Issued:

 

 

 

 

 

55,294,091 (2011 - 48,455,601) common shares

 

733,385

 

459,866

 

Other equity instruments

 

9,228

 

6,112

 

Additional paid in capital

 

6,384

 

4,499

 

Accumulated deficit

 

(429,932

)

(331,158

)

Accumulated other comprehensive income

 

17,016

 

13,271

 

 

 

336,081

 

152,590

 

Commitments and contingencies (notes 16 and 23)

 

 

 

 

 

 

 

$

490,077

 

$

321,056

 

 

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

 

/s/ Douglas R. King

Director

/s/ John A. Beaulieu

Director

 

1



 

WESTPORT INNOVATIONS INC.

Consolidated Statements of Operations

(Expressed in thousands of United States dollars, except share and per share amounts)

 

 

 

Year ended
December 31,

 

Nine months
ended
December 31,

 

Year ended
March 31,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

(Restated –
note 2(a))

 

(Restated –
note 2(a))

 

 

 

 

 

 

 

 

 

Product revenue

 

$

128,914

 

$

75,164

 

$

25,863

 

Parts revenue

 

3,468

 

2,351

 

2,784

 

Service and other revenue (note 22)

 

23,244

 

10,181

 

8,128

 

 

 

155,626

 

87,696

 

36,775

 

 

 

 

 

 

 

 

 

Cost of revenue and expenses:

 

 

 

 

 

 

 

Cost of product and parts revenue

 

102,486

 

67,093

 

23,993

 

Research and development (notes 18(d) and 19)

 

73,198

 

36,574

 

24,620

 

General and administrative (note 18(d))

 

44,811

 

22,738

 

15,030

 

Sales and marketing (note 18(d))

 

30,112

 

15,302

 

13,985

 

Foreign exchange loss (gain)

 

1,185

 

(13

)

2,247

 

Depreciation and amortization

 

11,395

 

6,200

 

3,375

 

Bank charges, interest and other

 

737

 

917

 

446

 

 

 

263,924

 

148,811

 

83,696

 

 

 

 

 

 

 

 

 

Loss before undernoted

 

(108,298

)

(61,115

)

(46,921

)

 

 

 

 

 

 

 

 

Income from investment accounted for by the equity method (note 7)

 

16,190

 

16,498

 

7,585

 

Interest on long-term debt and amortization of discount

 

(5,354

)

(2,998

)

(3,323

)

Interest and other income

 

426

 

661

 

938

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(97,036

)

(46,954

)

(41,721

)

 

 

 

 

 

 

 

 

Income tax recovery (expense) (note 20):

 

 

 

 

 

 

 

Current

 

(2,147

)

(1,028

)

68

 

Deferred

 

409

 

2,188

 

(489

)

 

 

(1,738

)

1,160

 

(421

)

Net loss for the period

 

$

(98,774

)

$

(45,794

)

$

(42,142

)

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

Basic and diluted

 

$

(1.83

)

$

(0.96

)

$

(1.00

)

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

54,072,513

 

47,933,348

 

42,305,889

 

 

See accompanying notes to consolidated financial statements.

 

2



 

WESTPORT INNOVATIONS INC.

Consolidated Statements of Comprehensive Income (Loss)

(Expressed in thousands of United States dollars)

 

 

 

Year ended
December 31,

 

Nine months
ended
December 31,

 

Year ended
March 31,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

(Restated –
note 2(a))

 

(Restated –
note 2(a))

 

 

 

 

 

 

 

 

 

Loss for the period

 

$

(98,774

)

$

(45,794

)

$

(42,142

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Cumulative translation adjustment

 

3,745

 

(12,370

)

7,414

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(95,029

)

$

(58,164

)

$

(34,728

)

 

See accompanying notes to consolidated financial statements.

 

3



 

WESTPORT INNOVATIONS INC.

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of United States dollars, except share amounts)

 

 

 

Common
shares
outstanding

 

Share
capital

 

Other equity
instruments

 

Additional paid
in capital

 

Accumulated
deficit

 

Accumulated other
comprehensive
income

 

Total
shareholders’
equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2010 (Restated - note 2(a))

 

38,494,475

 

$

293,609

 

$

9,825

 

$

3,998

 

$

(242,367

)

$

18,227

 

$

83,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of common shares on exercise of stock options

 

472,414

 

5,115

 

 

(1,817

)

 

 

3,298

 

Issue of common shares on exercise of performance share units

 

241,825

 

3,239

 

(3,239

)

 

 

 

 

Issue of common shares on exercise of warrants

 

858,221

 

13,853

 

(4,344

)

 

 

 

9,509

 

Cancellation of common shares

 

(52,131

)

(895

)

 

 

 

 

(895

)

Reclassification of fair value of expired warrants

 

 

 

(2,413

)

2,413

 

 

 

 

Stock-based compensation

 

 

 

4,376

 

547

 

 

 

4,923

 

Issue of common shares on public offering

 

6,957,500

 

121,756

 

 

 

 

 

121,756

 

Share issuance costs

 

 

(6,069

)

 

 

 

 

(6,069

)

Net loss for the year

 

 

 

 

 

(42,142

)

 

(42,142

)

Other comprehensive income

 

 

 

 

 

 

7,414

 

7,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2011 (Restated - note 2(a))

 

46,972,304

 

 

430,608

 

 

4,205

 

 

5,141

 

 

(284,509

)

 

25,641

 

 

181,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of common shares on exercise of stock options

 

225,845

 

2,810

 

 

(994

)

 

 

1,816

 

Issue of common shares on exercise of performance share units

 

391,612

 

3,799

 

(3,799

)

 

 

 

 

Issue of common shares in connection with acquisitions

 

915,021

 

23,052

 

 

 

 

 

23,052

 

Cancellation of common shares

 

(49,181

)

(403

)

 

 

(855

)

 

(1,258

)

Stock-based compensation

 

 

 

5,706

 

352

 

 

 

6,058

 

Net loss for the period

 

 

 

 

 

(45,794

)

 

(45,794

)

Other comprehensive loss

 

 

 

 

 

 

(12,370

)

(12,370

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011 (Restated - note 2(a))

 

48,455,601

 

 

459,866

 

 

6,112

 

 

4,499

 

 

(331,158

)

 

13,271

 

 

152,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of common shares on exercise of stock options

 

93,044

 

1,492

 

 

(523

)

 

 

969

 

Issue of common shares on exercise of performance share units

 

420,446

 

6,597

 

(6,597

)

 

 

 

 

Issue of common shares on public offering

 

6,325,000

 

273,556

 

 

 

 

 

273,556

 

Share issue costs

 

 

(8,126

)

 

 

 

 

(8,126

)

Stock-based compensation

 

 

 

9,713

 

2,408

 

 

 

12,121

 

Net loss for the year

 

 

 

 

 

(98,774

)

 

(98,774

)

Other comprehensive income

 

 

 

 

 

 

3,745

 

3,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

 

55,294,091

 

$

733,385

 

$

9,228

 

$

6,384

 

$

(429,932

)

$

17,016

 

$

336,081

 

 

See accompanying notes to consolidated financial statements.

 

4



 

WESTPORT INNOVATIONS INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of United States dollars)

 

 

 

Year ended
December 31,

 

Nine months
ended
December 31,

 

Year ended
March 31,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

(Restated –
note 2(a))

 

(Restated –
note 2(a))

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Loss for the period

 

$

(98,774

)

$

(45,794

)

$

(42,142

)

Items not involving cash:

 

 

 

 

 

 

 

Depreciation and amortization

 

11,395

 

6,200

 

3,375

 

Stock-based compensation expense

 

12,468

 

6,179

 

4,923

 

Deferred income tax expense (recovery)

 

(409

)

(2,188

)

489

 

Change in deferred lease inducements

 

(52

)

(47

)

(58

)

Income from investment accounted for by the equity method

 

(16,190

)

(16,498

)

(7,585

)

Accretion of long-term debt

 

2,094

 

1,016

 

1,992

 

Other

 

392

 

654

 

165

 

Changes in non-cash operating working capital:

 

 

 

 

 

 

 

Accounts receivable

 

6,733

 

(14,598

)

3,919

 

Inventories

 

(7,920

)

(2,051

)

(1,927

)

Prepaid expenses

 

179

 

(4,649

)

(457

)

Accounts payable and accrued liabilities

 

(742

)

(857

)

127

 

Deferred revenue

 

3,115

 

1,561

 

162

 

Warranty liability

 

1,979

 

2,751

 

(384

)

 

 

(85,732

)

(68,321

)

(37,401

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

(30,363

)

(13,123

)

(3,171

)

Purchase of intangible assets

 

(989

)

(123

)

 

(Purchase) sale of short-term investments, net

 

(22,520

)

26,621

 

3,376

 

Repayment of loan receivable

 

2,494

 

 

 

Increase in loan payable

 

2,450

 

29,080

 

18,961

 

Repayment of loan payable

 

(21,840

)

(23,840

)

(21,207

)

Acquisitions, net of acquired cash (note 4)

 

(1,125

)

(9,084

)

(13,016

)

Investment in equity interest (note 7)

 

 

(955

)

(4,316

)

Dividends received from joint venture

 

22,600

 

10,000

 

6,000

 

 

 

(49,293

)

18,576

 

(13,373

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Repayment of demand installment loan

 

 

 

(3,206

)

Increase in operating lines of credit

 

4,245

 

 

 

Repayment on operating lines of credit

 

(3,118

)

(3,240

)

 

Repayment of short-term debt

 

 

(221

)

 

Repayment of long-term debt

 

(6,725

)

(53,057

)

(117

)

Issuance of subordinated debenture notes

 

 

34,345

 

 

Finance costs incurred

 

 

(1,392

)

 

Proceeds from stock options exercised

 

969

 

1,816

 

3,298

 

Shares issued for cash

 

273,556

 

 

131,265

 

Share issuance costs

 

(8,126

)

 

(6,069

)

 

 

260,801

 

(21,749

)

125,171

 

Effect of foreign exchange on cash and cash equivalents

 

(103

)

3,246

 

3,116

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

125,673

 

(68,248

)

77,513

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

63,285

 

131,533

 

54,020

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

188,958

 

$

63,285

 

$

131,533

 

 

5



 

WESTPORT INNOVATIONS INC.

Consolidated Statements of Cash Flows (Continued)

(Expressed in thousands of United States dollars)

 

 

 

Year ended
December 31,

 

Nine months
ended
December 31,

 

Year ended
March 31,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

(Restated –
note 2(a))

 

(Restated –
note 2(a))

 

Supplementary information:

 

 

 

 

 

 

 

Interest paid

 

$

3,532

 

$

1,349

 

$

1,729

 

Taxes paid, net of refunds

 

1,982

 

1,472

 

842

 

Non-cash transactions:

 

 

 

 

 

 

 

Purchase of property, plant and equipment by assumption of capital lease obligation

 

 

34

 

 

Shares issued on exercise of performance share units

 

6,597

 

3,799

 

3,239

 

Cancellation of performance share units

 

 

1,258

 

895

 

Common shares issued in connection with acquisitions (note 4)

 

 

23,052

 

 

Contingent consideration payable in common shares in connection with acquisitions (note 4)

 

 

428

 

 

 

See accompanying notes to consolidated financial statements.

 

6



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

1.              Company organization and operations:

 

Westport Innovations Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20, 1995.

 

The Company is a provider of high-performance, low-emission engine and fuel system technologies utilizing gaseous fuels. Its technology and products enable light (<5.9-litre), medium (5.9- to 8.9-litre), heavy-duty (11- to 16-litre) and high horsepower (>16-litre) petroleum-based fuel engines to use primarily natural gas, giving users a cleaner, more plentiful and generally less expensive alternative fuel.

 

The Company is focused on developing technology to enable more environmentally sustainable engines without compromising the performance, fuel economy, durability and reliability of diesel engines.  The substitution of natural gas for petroleum-based fuel drives a significant reduction in harmful combustion emissions, such as nitrogen oxides, particulate matter and greenhouse gas, in addition to providing an abundant, relatively inexpensive alternative fuel.  The Company’s systems can be used to enable combustion engines to use gaseous fuels, such as natural gas, propane or hydrogen.  The Company’s research and development effort and investment have resulted in a substantial patent portfolio that serves as the foundation for its differentiated technology offerings and competitive advantage.

 

2.              Significant accounting policies:

 

(a)         Basis of presentation:

 

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and variable interest entities (“VIEs”) for which the Company is considered the primary beneficiary. All Intercompany balances and transactions have been eliminated on consolidation.

 

Interests in variable interest entities are consolidated by the Company if the Company is the primary beneficiary thereof.

 

In its’ previously filed annual and the interim financial statements in fiscal 2012 and 2011, the Company had identified Cummins Westport Inc. (“CWI”) as a variable interest entity and the Company’s interest as being that of the primary beneficiary upon adoption of ASU 2009-17 effective April 1, 2010. As a result, the Company consolidated CWI on a line by line basis in its consolidated financial statements reflecting its financial position, results of operations and cash flows.

 

Based on the Company’s ongoing review and adoption of the applicable accounting guidance in ASU 2009-17 and related interpretations, the Company concluded that the presentation of CWI under the equity method is more appropriate as CWI continues to be a VIE but there is no primary beneficiary. Accordingly, commencing with the annual report for the year ended December 31, 2012, the Company is recording the results of CWI using the equity method and has restated its consolidated financial statements for the nine month period ended December 31, 2011 and the year ended March 31, 2011 on a similar basis. This restatement did not affect the reported amounts of net loss, loss per share or shareholders’ equity but has impacted certain amounts disclosed. The Company’s interest in the net assets of CWI is now presented net on a single line in other long term investments on the balance sheet and the Company’s share of net earnings of CWI is reflected in income from investments accounted for by the equity method on statement of operations. The assets, liabilities, revenues and expenses of CWI previously included on the balance sheet and statement of operations on a line by line basis are summarized in note 7(b). There was no cumulative effect from adoption of ASU 2009-17 at April 1, 2010.

 

7



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(a)         Basis of presentation (continued):

 

These consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

(b)         Foreign currency translation:

 

The Company’s reporting currency for its consolidated financial statement presentation is the United States dollar.  The functional currency of the Company’s operations is the Canadian dollar except for OMVL and Emer which use the Euro and AFV which uses the Swedish Krona.  The Company translates financial statements denominated in a foreign currency into the reporting currency using the current rate method. All assets and liabilities are translated using the period end exchange rates.  Shareholders’ equity balances are translated using a weighted average of historical exchange rates.  Revenues and expenses are translated using the monthly average rate for the period. All resulting exchange differences are recognized in other comprehensive income.

 

Transactions that are denominated in currencies other than the functional currency of the Company or its subsidiaries are translated at the rate in effect on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated at the exchange rate in effect on the balance sheet date. Non-monetary assets and liabilities are translated at the historical exchange rate. All foreign exchange gains and losses are recognized in the statement of operations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through other comprehensive income until realized through disposal or impairment.

 

Except as otherwise noted, all amounts in these financial statements are presented in U.S. dollars. The year-end exchange rate of the Canadian dollar as at December 31, 2012 was $0.99 (December 31, 2011 - $1.02), and the average exchange rate for the year ended December 31, 2012 was $1.00 (nine month period ended December 31, 2011 - $1.01; year ended March 31, 2011 - $0.98). The year-end exchange rate of the Euro as at December 31, 2012 was 1.32 (December 31, 2011 - 1.30), and the average exchange rate for the year ended December 31, 2012 was 1.29 (nine month period ended December 31, 2011 – 1.40; July 2, 2010 to March 31, 2011 - 1.34). The year-end exchange rate of the Swedish Krona as at December 31, 2012 was 0.15 (December 31, 2011 - 0.15) and the average exchange rate for the year ended December 31, 2012 was 0.15 (October 12, 2011 to December 31, 2011 – 0.15).

 

8



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(c)          Cash and cash equivalents:

 

Cash and cash equivalents includes cash, term deposits, bankers acceptances and guaranteed investment certificates with maturities of ninety days or less when acquired.  Cash equivalents are considered as held for trading and recorded at fair value with changes in fair value recognized in the consolidated statements of operations.

 

(d)         Short-term investments:

 

Short-term investments, consisting of investment grade commercial paper, banker acceptances, bearer deposit notes, guaranteed investment certificates and other term deposits, are considered available for sale and recorded at fair value with changes in fair value recognized in accumulated other comprehensive income until realized.  A decline in value that is considered other than temporary is recognized in net loss for the period.

 

(e)          Accounts and loans receivable:

 

Accounts receivable and loans receivable are measured at amortized cost.  An allowance for doubtful accounts is recorded based on a review of specific accounts deemed uncollectible.  Account balances are charged against the allowance in the period in which it is considered probable that the receivable will not be recovered.

 

Short-term investments, consisting of investment grade commercial paper, banker acceptances, bearer deposit notes, guaranteed investment certificates and other term deposits, are considered available for sale and recorded at fair value with changes in fair value recognized in accumulated other comprehensive income until realized.  A decline in value that is considered other than temporary is recognized in net loss for the period.

 

9



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(f)           Inventories:

 

The Company’s inventories consist of the Company’s fuel system products (finished goods), work-in-progress, purchased parts and assembled parts. Inventories are recorded at the lower of cost and net realizable value.  Cost is determined based on the lower of weighted average cost and net realizable value.  The cost of fuel system product inventories, assembled parts and work-in-progress includes materials, labour and production overhead including depreciation.  An inventory obsolescence provision is provided to the extent cost of inventory exceeds net realizable value.  In establishing the amount of the inventory obsolescence provision, management estimates the likelihood that inventory carrying values will be affected by changes in market demand and technology, which would make inventory on hand obsolete.

 

(g)          Property, plant and equipment:

 

Property, plant and equipment are stated at cost.  Depreciation is provided as follows:

 

Assets

 

Basis

 

Rate

 

 

 

 

 

Buildings

 

Straight-line

 

10 years

Computer equipment and software

 

Straight-line

 

3 years

Furniture and fixtures

 

Straight-line

 

5 years

Machinery and equipment

 

Straight-line

 

8 – 10 years

Leasehold improvements

 

Straight-line

 

Lease term

 

(h)         Long-term investments:

 

The Company accounts for investments in which it has significant influence, including VIE’s for which the Company is not the primary beneficiary, using the equity basis of accounting. Under the equity method, the Company recognizes its share of income from equity accounted for investees in the statement of operations with a corresponding increase in long-term investments. Any dividends paid or payable are credited against long-term investments.

 

(i)             Financial liabilities:

 

Accounts payable and accrued liabilities, short-term debt and long-term debt are measured at amortized cost.  Transaction costs relating to long-term debt are deferred in other assets on initial recognition and are amortized using the effective interest rate method.

 

10



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(j)            Research and development costs:

 

Research and development costs are expensed as incurred and are recorded net of government funding received or receivable.

 

(k)         Government assistance:

 

The Company periodically applies for financial assistance under available government incentive programs, which is recorded in the period it is received or receivable.  Government assistance relating to the purchase of property, plant and equipment is reflected as a reduction of the cost of such assets.  Government assistance related to research and development activities is recorded as a reduction of the related expenditures.

 

(l)             Intangible assets:

 

Intangible assets consist primarily of the cost of intellectual property, trademarks, technology, customer contracts and non-compete agreements.  Intangible assets are amortized over their estimated useful lives, which range from 5 to 20 years.

 

(m)     Impairment of long-lived assets:

 

The Company reviews its long-lived assets for impairment, including property, plant and equipment and intellectual property, to be held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.  If such conditions exist, assets are considered impaired if the sum of the undiscounted expected future cash flows expected to result from the use and eventual disposition of an asset is less than its carrying amount.  An impairment loss is measured at the amount by which the carrying amount of the asset exceeds its fair value.  When quoted market prices are not available, the Company uses the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset as an estimate of fair value.

 

11



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(n)         Goodwill impairment:

 

Goodwill is not amortized and instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. This impairment test is performed annually at November 30.

 

A two-step test is used to identify a potential impairment and to measure the amount of impairment, if any.  The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill.  If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is measured by performing step two.  Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill.

 

Fair value is determined using widely accepted valuation techniques, including discounted cash flows and market multiple analyses. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. It is the Company’s policy to conduct impairment testing based on its current business strategy in light of present industry and economic conditions, as well as its future expectations.

 

Goodwill is recorded at the time of purchase for the excess of the amount of the purchase price over the fair values of the assets acquired and liabilities assumed. Future adverse changes in market conditions or poor operating results of underlying assets could result in losses or an inability to recover the carrying value of the goodwill, thereby possibly requiring an impairment charge.

 

(o)         Warranty liability:

 

Estimated warranty costs are recognized at the time the Company sells its products and are included in cost of revenue.  The Company provides warranty coverage on products sold for a period of two years from the date the products are put into service by customers.  Warranty liability represents the Company’s best estimate of warranty costs expected to be incurred during the warranty period.  Furthermore, the current portion of warranty liability represents the Company’s best estimate of the costs to be incurred in the next twelve-month period.  The Company uses historical failure rates and cost to repair defective products together with known information to estimate the warranty liability.  New product launches require a greater use of judgment in developing estimates until claims experience becomes available.  Product specific experience is typically available four or five quarters after product launch, with a clear experience trend not evident until eight to twelve quarters after launch.  The Company records warranty expense for new products upon shipment using a factor based upon historical experience from previous engine generations in the first year, a blend of actual product and historical experience in the second year and product specific experience thereafter.  The amount payable by the Company and the timing will depend on actual failure rates and cost to repair failures of its products.  Since a number of the Company’s products are new in the market, historical data may not necessarily reflect actual costs to be incurred and may result in significant fluctuations in the warranty liability.

 

12



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

2.              Significant accounting policies (continued):

 

(p)         Extended warranty:

 

The Company sells extended warranty contracts that provide coverage in addition to the basic two-year coverage.  Proceeds from the sale of these contracts are deferred and amortized over the extended warranty period commencing at the end of the basic warranty period.  On a periodic basis, management reviews the estimated warranty costs expected to be incurred related to these contracts and recognizes a loss to the extent such costs exceed the related deferred revenue.

 

(q)         Revenue recognition:

 

Product and parts revenue is recognized when the products are shipped and title passes to the customer. Revenue also includes fees earned from performing research and development activities for third parties, as well as technology license fees from third parties. Revenue from research and development activities is recognized as the services are performed. Revenue from technology license fees is recognized over the duration of the licensing agreement. Amounts received in advance of the revenue recognition criteria being met are recorded as deferred revenue.

 

The Company also earns service revenue from certain research and development arrangements under which the Company provides contract services relating to developing natural gas engines or biogas engines for use in customer products.  Service revenue is recognized using the milestone method upon completion of project milestones as defined and agreed to by the Company and its customers.  The Company recognizes consideration earned from the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved.  The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of deliverables and the payment terms within the contract.

 

When an arrangement includes multiple deliverables, the Company allocates the consideration to each separate deliverable (unit of accounting) based on relative selling prices.  A separate unit of accounting is identified if the delivered item(s) have standalone value and the delivery or performance of undelivered items is considered probable and within the control of the Company.  Revenue for each unit of account is recognized in accordance with the above revenue recognition principles.

 

(r)            Income taxes:

 

The Company uses the asset and liability method of accounting for income taxes.  Under this method, deferred income tax assets and liabilities are determined based on temporary differences between the accounting and tax basis of the assets and liabilities and for loss carry forwards and are measured using the tax rates expected to apply when these tax assets and liabilities are recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes income tax laws that have been enacted at the balance sheet date.  A valuation allowance is provided to reduce the deferred income tax assets if, based upon available evidence, it is more-likely-than-not that some or all of the deferred income tax assets will not be realized.

 

Tax credits, including investment tax credits and research and development credits, are recognized in income tax expense in the same year in which the related expenditures are charged to earnings or loss, provided there is reasonable assurance the benefits will be realized.

 

13



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

3.              Accounting changes:

 

(a)         Adoption of new accounting standards:

 

Fair value measurements:

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, (“ASU 2011-04”). ASU 2011-04 changes the language used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  This update was effective for the Company on January 1, 2012.  The adoption of this update did not have a material impact on the Company’s consolidated financial statement note disclosures.

 

Comprehensive income:

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, (“ASU 2011-05”).  ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  In December 2011, the FASB issued ASU No. 2011-12 (“ASU 2011-12”), which defers certain requirements within ASU 2011-05.  These amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income in all periods presented.  This new guidance is to be applied retrospectively.  This update was effective for the Company on January 1, 2012.  The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

 

Intangibles – goodwill and other:

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (“ASU 2011-08”), which allows an entity to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.  Otherwise, the two-step goodwill impairment test is not required. This update was effective for the Company on January 1, 2012.  The adoption of this update did not have a material impact on the Company’s goodwill impairment test and the Company’s consolidated financial statement note disclosures.

 

14



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

3.              Accounting changes (continued):

 

(b)         New accounting pronouncements:

 

Balance sheet:

 

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”).  ASU 2011-11 enhances disclosures regarding financial instruments and derivative instruments. Entities are required to provide both net information and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.  This new guidance is to be applied retrospectively and is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods.  The Company anticipates that the adoption of this standard will expand its consolidated financial statement note disclosures.

 

4.              Business combinations:

 

(a)         Acquisition of Emer:

 

On July 1, 2011, the Company acquired, through its wholly owned subsidiary, Juniper Engines Italy S.r.l., 100% of the outstanding shares of Emer from the seller.  The fair value of the consideration for the acquisition was $39,706.  Westport paid cash of $17,607 on closing and issued 881,860 common shares with a value of $22,099 based on the NASDAQ closing price of the Company’s shares on July 1, 2011 of $25.06.  The Company also assumed approximately $77,000 in existing net debt of Emer. Post-closing, Westport repaid approximately $36,300 of the debt, leaving approximately $40,700 in debt on the consolidated balance sheet as of July 1, 2011.

 

The acquisition was accounted for as a business combination using the purchase method.  The results of Emer have been included in the consolidated financial statements of the Company from July 1, 2011.

 

 

15



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

4.              Business combinations (continued):

 

(a)         Acquisition of Emer (continued):

 

The Company obtained an independent third-party valuation of inventories, property and equipment, and intangible assets. The fair value of the assets acquired and liabilities assumed are as follows:

 

Consideration allocated to:

 

 

 

Property, plant and equipment

 

$

17,644

 

Other tangible assets, including cash of $11,073

 

60,532

 

Intangible assets subject to amortization over 5 to 20 years

 

32,954

 

Goodwill

 

50,774

 

 

 

 

 

Total assets acquired

 

161,904

 

Less:

 

 

 

Long-term debt

 

(83,272

)

Other liabilities

 

(38,926

)

 

 

 

 

Total net assets acquired

 

$

39,706

 

 

 

 

 

Consideration:

 

 

 

Cash

 

$

17,607

 

Common shares

 

22,099

 

 

 

 

 

 

 

$

39,706

 

 

The foreign exchange rate used to translate Euro denominated net assets acquired, liabilities assumed and purchase consideration into U.S. dollars was 1.45 based on the July 1, 2011 closing rate.

 

The Company recognized goodwill associated with the transaction of $50,774. Goodwill includes the value of the assembled work force and expected synergies including access to markets and supply chain integration. Goodwill is not deductible for tax purposes.

 

The consolidated financial statements reflect consolidated revenue and net loss for Emer of $31,831 and $1,924, respectively, from July 1, 2011 to December 31, 2011.  Had the Company acquired Emer on April 1, 2011, consolidated pro forma revenue and net loss for the nine-month period ended December 31, 2011 would have been $247,216 (year ended March 31, 2011 - $219,609) and $54,927 (year ended March 31, 2011 - $31,322), respectively, not including the financial results of AFV (note 4(b)).

 

The Company incurred acquisition related expenses of $1,683 during the nine months ended December 31, 2011, which have been recorded in general and administrative expenses in the consolidated statements of operations.

 

16



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

4.              Business combinations (continued):

 

(b)         Acquisition of AFV:

 

On October 11, 2011, the Company acquired, through its wholly owned subsidiary Westport Light Duty Canada Inc., 100% of the outstanding shares of AFV.  The fair value of the consideration for the acquisition was $3,939.  Westport paid cash of $2,558 on closing and issued 33,161 common shares with a value of $953 based on the TSX closing price of the Company’s shares on October 11, 2011 of $28.74 (CDN$29.56).  There is also a contingent earn-out, which will be settled in Westport shares if AFV achieves certain performance targets by December 31, 2014.

 

The Company also assumed approximately $1,087 in existing debt of AFV.  Upon closing, Westport settled $420 of the debt, leaving approximately $667 in debt on the consolidated balance sheet as of October 11, 2011.

 

The acquisition was accounted for as a business combination using the purchase method. The results of AFV have been included in the consolidated financial statements of the Company from October 11, 2011.

 

The fair value of the assets acquired and liabilities assumed are as follows:

 

Consideration allocated to:

 

 

 

Total tangible assets, including cash of $8

 

$

2,161

 

Intangible assets subject to amortization over 8 years

 

2,638

 

Goodwill

 

2,701

 

 

 

 

 

Total assets acquired

 

7,500

 

Less: total liabilities

 

(3,561

)

 

 

 

 

Total net assets acquired

 

$

3,939

 

 

 

 

 

Consideration:

 

 

 

Cash

 

$

2,558

 

Common shares

 

953

 

Contingent consideration payable

 

428

 

 

 

 

 

 

 

$

3,939

 

 

The foreign exchange rate used to translate net assets acquired, liabilities assumed and purchase consideration from Swedish Krona into U.S. dollars was 6.6712 based on the October 11, 2011 closing rate.

 

The Company recognized goodwill associated with the transaction of $2,701. Goodwill includes the value of the assembled work force and expected synergies including access to markets and product know-how. Goodwill is not deductible for tax purposes.

 

The consolidated financial statements reflect consolidated revenue and net loss for AFV of $2,566 and $191, respectively, from October 11, 2011 to December 31, 2011.  Had the Company acquired AFV on April 1, 2011, consolidated pro forma revenue and net loss for the nine months ended December 31, 2011 would have been $201,707 (year ended March 31, 2011 - $148,062) and $43,064 (year ended March 31, 2011 - $42,724), respectively, not including the financial results of Emer (note 4(a)).

 

The Company incurred acquisition related expenses of $93 during the nine months ended December 31, 2011, which have been recorded in general and administrative expenses in the consolidated statements of operations.

 

17



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

4.              Business combinations (continued):

 

(c)          Acquisition of AEC:

 

On March 20, 2012, the Company acquired, through its wholly owned subsidiary, Westport Innovations (Australia) Pty Ltd., certain assets of AEC. Based in Perth, Australia, AEC specializes in research, development and production of patented electronic fuel injection and engine management technologies that enable vehicle engines to operate on natural gas.

 

The fair value of the assets acquired and liabilities assumed are as follows:

 

Consideration allocated to:

 

 

 

Total tangible assets

 

$

685

 

Intangible assets subject to amortization over 8 years

 

832

 

 

 

 

 

Total assets acquired

 

1,517

 

Less: total liabilities

 

(392

)

 

 

 

 

Total net assets acquired

 

$

1,125

 

 

The Company paid cash totaling $1,125 (AUD$1,082) for the acquisition. The Company also assumed AEC’s Australian leased facility and approximately ten of AEC’s employees.  The acquisition was accounted for as a business combination using the purchase method.

 

The foreign exchange rate used to translate Australian dollar denominated assets acquired, liabilities assumed and purchase consideration into U.S. dollars was 1.04 based on the March 20, 2012 closing rate.

 

The Company incurred acquisition related expenses of $280 during the year ended December 31, 2012, which have been recorded in general and administrative expenses in the consolidated statement of operations.

 

The Company has determined that the acquisition of AEC was a non-material business combination. As such, pro forma disclosures are not required.

 

5.              Accounts receivable:

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Customer trade receivable

 

$

39,754

 

$

43,181

 

Government funding receivable

 

541

 

582

 

Due from joint venture (note 21)

 

2,127

 

416

 

Other receivables

 

1,916

 

7,528

 

Income taxes receivable

 

172

 

 

Allowance for doubtful accounts

 

(321

)

(785

)

 

 

 

 

 

 

 

 

$

44,189

 

$

50,922

 

 

18



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

6.              Inventories:

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Purchased parts

 

$

25,454

 

$

19,989

 

Assembled parts

 

4,870

 

4,198

 

Work-in-process

 

7,516

 

6,994

 

Finished goods

 

7,385

 

6,360

 

Obsolescence provision

 

(279

)

(515

)

 

 

 

 

 

 

 

 

$

44,946

 

$

37,026

 

 

During the year ended December 31, 2012, the Company recorded a write-down to net realizable value of approximately $233 (nine months ended December 31, 2011 - $430; year ended March 31, 2011 - nil) for obsolescence and scrap. Cost of revenue related to product and parts revenue for the year ended December 31, 2012 was $102,486 (nine months ended December 31, 2011 - $67,093; year ended March 31, 2011 - $23,993).

 

7.              Long-term investments:

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Weichai Westport Inc. (a)

 

$

11,275

 

$

7,732

 

Cummins Westport Inc. (b)

 

7,138

 

17,792

 

Other equity accounted for investees

 

705

 

783

 

 

 

 

 

 

 

 

 

$

19,118

 

$

26,307

 

 

19


 


 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

7.              Long-term investments (continued):

 

(a)         Weichai Westport Inc.:

 

On July 3, 2010, the Company invested $4,316 under an agreement with Weichai Power Co. Ltd. and Hong Kong Peterson (CNG) Equipment Ltd. to form Weichai Westport Inc. (“WWI”).  On October 11, 2011, the Company invested an additional $955 in WWI.  The Company has a 35% equity interest in WWI.

 

For the year ended December 31, 2012, the Company recognized its share of WWI’s income of $2,881 (nine months ended December 31, 2011 - $1,438; year ended March 31, 2011 - $997), as income from investment accounted for by the equity method.

 

Assets, liabilities, revenue and expenses of WWI as of and for the periods presented are as follows:

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and short-term investments

 

$

1,145

 

$

3,073

 

Accounts receivable

 

21,512

 

10,005

 

Inventory

 

55,109

 

23,903

 

Other current assets

 

1,053

 

751

 

Long-term assets

 

8,178

 

4,179

 

 

 

 

 

 

 

 

 

$

86,997

 

$

41,911

 

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

49,125

 

$

20,567

 

Other current liabilities

 

12,055

 

4,248

 

 

 

 

 

 

 

Total liabilities

 

$

61,180

 

$

24,815

 

 

 

 

Year
ended
December 31,
2012

 

Nine months
ended
December 31,
2011

 

Year
ended
March 31,
2011

 

 

 

 

 

 

 

 

 

Product revenue

 

$

272,086

 

$

84,917

 

$

53,127

 

 

 

 

 

 

 

 

 

Cost of revenue and expenses:

 

 

 

 

 

 

 

Cost of product revenue

 

234,266

 

70,345

 

43,130

 

Operating expenses

 

28,055

 

9,693

 

6,624

 

 

 

262,321

 

80,038

 

49,754

 

 

 

 

 

 

 

 

 

Income before income taxes

 

9,765

 

4,879

 

3,373

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

Current

 

1,536

 

1,364

 

528

 

 

 

 

 

 

 

 

 

Income for the period

 

$

8,229

 

$

3,515

 

$

2,845

 

 

20



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

7.              Long-term investments (continued):

 

(b)         Cummins Westport Inc.:

 

The Company entered into a joint venture with Cummins on March 7, 2001.  On December 16, 2003, the Company and Cummins amended the joint venture agreement (“JVA”) focusing CWI on developing markets for alternative fuel engines.  In addition, the two companies signed a Technology Partnership Agreement that creates a flexible arrangement for future technology development between Cummins and the Company.

 

The Company has determined that CWI is a variable interest entity. Cummins and Westport each own 50% of the common shares of CWI and have equal representation on the Board of Directors. No one shareholder has the unilateral power to govern CWI. The Board of Directors has power over the operating decisions and to direct other activities of CWI that most significantly impact CWI’s economic performance as set forth in the governing documents. As decision-making at the Board of Directors’ level requires unanimous approval, this power is shared. Accordingly neither party is the primary beneficiary.

 

On February 20, 2012, the JVA was amended and restated to provide for, among other things, clarification concerning the scope of products within CWI. In addition, the parties have revised certain economic terms of the JVA.

 

Under the prior JVA, CWI had a global exclusive right to design, engineer, and market mid-range on-road spark-ignited natural gas engines based on Cummins diesel engines manufactured in Cummins facilities. The Company and Cummins have agreed in the amended and restated JVA to focus CWI’s future product development on North American markets including engines for on-road applications between the displacement range of 5.9 litres through 12 litres and to have these engines manufactured in Cummins North American plants.

 

21



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

7.              Long-term investments (continued):

 

(b)         Cummins Westport Inc. (continued):

 

The joint venture will now have a term of ten years and can be terminated under certain circumstances before the end of the term, including in the event of a material breach of the agreement by, or in the event of a change of control of, one of the parties.

 

Prior to February 20, 2012, the Company and Cummins shared equally in the profits and losses of CWI. Under the new JVA, profits and losses are shared equally up to an established revenue baseline, then any excess profit will be allocated 75% to the Company and 25% to Cummins.

 

The Company has not historically provided and does not intend to provide financial or other support to CWI that the Company is not previously contractually required to provide.

 

For the year ended December 31, 2012, the Company recognized its share of CWI’s income of $13,232 (nine months ended December 31, 2011 - $12,958; year ended March 31, 2011 - $7,785), as income from investment accounted for by the equity method.

 

Assets, liabilities, revenue and expenses of CWI as of and for the periods presented are as follows (amounts as at December 31, 2011 and for the nine months ended December 31, 2011 and the year ended March 31, 2011 had previously been consolidated and in 2012 have been retrospectively deconsolidated as described in note 2(a)):

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and short-term investments

 

$

44,371

 

$

17,403

 

Accounts receivable

 

6,995

 

4,717

 

Loan receivable

 

 

38,818

 

Current portion of deferred income tax assets

 

7,304

 

6,432

 

Other current assets

 

225

 

89

 

Long-term assets

 

 

 

 

 

Property, plant and equipment

 

896

 

835

 

Deferred income tax assets

 

9,786

 

4,142

 

 

 

 

 

 

 

Total assets

 

$

69,577

 

$

72,436

 

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of warranty liability

 

$

13,317

 

$

11,791

 

Current portion of deferred revenue

 

3,862

 

2,668

 

Accounts payable and accrued liabilities

 

7,274

 

5,878

 

 

 

24,453

 

20,337

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Warranty liability

 

17,501

 

8,039

 

Deferred revenue

 

9,968

 

7,451

 

Other long-term liabilities

 

1,312

 

644

 

 

 

28,781

 

16,134

 

 

 

 

 

 

 

Total liabilities

 

$

53,234

 

$

36,471

 

 

22



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

7.              Long-term investments (continued):

 

(b)         Cummins Westport Inc. (continued):

 

 

 

Year ended
December
31, 2012

 

Nine months
ended
December 31,
2011

 

Year ended
March 31,
2011

 

 

 

 

 

 

 

 

 

Product revenue

 

$

161,741

 

$

114,518

 

$

84,612

 

Parts revenue

 

36,274

 

24,326

 

26,675

 

 

 

198,015

 

138,844

 

111,287

 

 

 

 

 

 

 

 

 

Cost of revenue and expenses:

 

 

 

 

 

 

 

Cost of product and parts revenue

 

136,575

 

78,837

 

66,989

 

Research and development

 

12,114

 

6,720

 

10,043

 

General and administrative

 

1,417

 

796

 

1,181

 

Sales and marketing

 

12,541

 

9,659

 

7,675

 

Foreign exchange loss (gain)

 

(18

)

(2,023

)

160

 

Bank charges, interest and other

 

472

 

369

 

299

 

 

 

163,101

 

94,358

 

86,347

 

 

 

 

 

 

 

 

 

Income before undernoted

 

34,914

 

44,486

 

24,940

 

 

 

 

 

 

 

 

 

Interest and investment income

 

530

 

297

 

284

 

 

 

 

 

 

 

 

 

Income before income taxes

 

35,444

 

44,783

 

25,224

 

 

 

 

 

 

 

 

 

Income tax recovery (expense):

 

 

 

 

 

 

 

Current

 

(16,362

)

(18,602

)

(8,954

)

Deferred

 

6,517

 

1,775

 

(272

)

 

 

(9,845

)

(16,827

)

(9,226

)

 

 

 

 

 

 

 

 

Income for the period

 

25,599

 

27,956

 

15,998

 

 

 

 

 

 

 

 

 

Income attributable to Joint Venture Partner

 

(12,367

)

(13,978

)

(7,999

)

 

 

 

 

 

 

 

 

Income attributable to the Company

 

$

13,232

 

$

13,978

 

$

7,999

 

 

23



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

8.              Other assets:

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Note receivable (a)

 

$

 

$

2,446

 

Deferred financing charges (b)

 

902

 

1,323

 

Other

 

950

 

259

 

 

 

1,852

 

4,028

 

Current portion

 

 

(2,034

)

 

 

$

 1,852

 

$

1,994

 

 

(a)         On October 15, 2010, the Company entered into a Note and Warrant Purchase Agreement (the “Agreement”) with a private energy company based in the United States to fund operating and capital expenditures related to infrastructure development activities.

 

Under the Agreement, the Company loaned $2,200 and received 1,427,179 warrants representing 20% of the current outstanding shares to purchase common shares at $0.10 per share for a period of five years.  The loan bore interest at 12.5%, and was payable on maturity dates ranging from October 15, 2012 to October 20, 2013.  The value of the warrants was nominal at the time of issue.

 

On February 29, 2012, the total loan principal and accrued interest of $2,494 was repaid in full by the counterparty, and the warrants were terminated.

 

(b)         Financing charges incurred on the issuance of subordinated debentures (note 13(a)) have been deferred and are being amortized into income over the term of the debentures using the effective interest rate method.

 

9.              Property, plant and equipment:

 

December 31, 2012

 

Cost

 

Accumulated
amortization

 

Net book
value

 

 

 

 

 

 

 

 

 

Land and buildings

 

$

575

 

$

64

 

$

511

 

Computer equipment and software

 

11,529

 

8,140

 

3,389

 

Furniture and fixtures

 

4,032

 

1,913

 

2,119

 

Machinery and equipment

 

80,667

 

34,219

 

46,448

 

Leasehold improvements

 

15,602

 

9,875

 

5,727

 

 

 

 

 

 

 

 

 

 

 

$

112,405

 

$

54,211

 

$

58,194

 

 

24



 

WESTPORT INNOVATIONS INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of United States dollars except share and per share amounts)

 

Year ended December 31, 2012, nine months ended December 31, 2011

and year ended March 31, 2011

 

9.              Property, plant and equipment (continued):

 

December 31, 2011

 

Cost

 

Accumulated
amortization

 

Net book
value

 

 

 

 

 

 

 

 

 

Land and buildings

 

$

668

 

$

124

 

$

544

 

Computer equipment and software

 

8,903

 

7,246

 

1,657

 

Furniture and fixtures

 

2,072

 

1,602

 

470

 

Machinery and equipment

 

54,156

 

27,288

 

26,868

 

Leasehold improvements

 

14,930

 

9,061

 

5,869

 

 

 

 

 

 

 

 

 

 

 

$

80,729

 

$

45,321

 

$

35,408

 

 

As at December 31, 2012, equipment with a cost of $16,532 (December 31, 2011 - $15,448) and a net book value of $2,587 (December 31, 2011 - $3,662) is held under capital lease.

 

Depreciation expense for the year ended December 31, 2012 was $8,131 (nine months ended December 31, 2011 - $4,394; year ended March 31, 2011 - $2,783).

 

10.         Intangible assets:

 

December 31, 2012

 

Cost

 

Accumulated
amortization

 

Net book
value

 

 

 

 

 

 

 

 

 

Patents and trademarks

 

$

20,192

 

$

1,758

 

$

18,434

 

Technology

 

6,961

 

1,901

 

5,060

 

Customer contracts

 

14,404

 

2,709

 

11,695

 

Non-compete agreement

 

44

 

18

 

26

 

 

 

 

 

 

 

 

 

 

 

$

41,601

 

$

6,386

 

$

35,215

 

 

December 31, 2011

 

Cost

 

Accumulated
amortization

 

Net book
value

 

 

 

 

 

 

 

 

 

Patents and trademarks

 

$

19,508

 

$

727

 

$

18,781

 

Technology

 

6,380

 

1,122

 

5,258

 

Customer contracts

 

13,334

 

815

 

12,519

 

Non-compete agreement

 

37

 

13

 

24