| | WESTPORT FUEL SYSTEMS INC.Condensed Consolidated Interim Balance Sheets (unaudited) |
| | (Expressed in thousands of United States dollars, except share amounts) |
| | March 31, 2020 and December 31, 2019 |
| March 31, 2020 | December 31, 2019 |
| | Assets |
| | Current assets: |
| | Cash and cash equivalents (including restricted cash, note 3(d)) | $ | 39,092 | $ | | | | 46,012 |
| | Accounts receivable (note 5) | | 66,266 | 66,950 |
| | Inventories (note 6) | | 50,440 | 47,806 |
| | Prepaid expenses | | 7,931 | 7,417 |
| | Total current assets | | 163,729 | 168,185 |
| | Long-term investments (note 7) | | 10,083 | 10,587 |
| | Property, plant and equipment (note 8) | | 54,942 | 58,856 |
| | Operating lease right-of-use assets (note 11) | | 16,213 | 17,524 |
| | Intangible assets (note 9) | | 12,307 | 13,075 |
| | Deferred income tax assets | | 4,255 | 1,929 |
| | Goodwill | | 3,043 | 3,110 |
| | Other long-term assets | | 6,503 | 6,660 |
| | Total assets | $ | 271,075 | $ | | | | 279,926 |
| | Liabilities and Shareholders’ Equity |
| | Current liabilities: |
| | Accounts payable and accrued liabilities (note 10) | $ | 80,777 | $ | | | | 86,180 |
| | Current portion of operating lease liabilities (note 11) | | 4,059 | 4,406 |
| | Current portion of long-term debt (note 12) | | 12,522 | 13,567 |
| | Current portion of long-term royalty payable (note 13) | | 5,948 | 5,936 |
| | Current portion of warranty liability (note 14) | | 13,402 | 4,505 |
| | Total current liabilities | | 116,708 | 114,594 |
| | Long-term operating lease liabilities (note 11) | | 12,154 | 13,118 |
| | Long-term debt (note 12) | | 37,851 | 35,312 |
| | Long-term royalty payable (note 13) | | 13,007 | 12,322 |
| | Warranty liability (note 14) | | 5,983 | 4,396 |
| | Deferred income tax liabilities | | 4,383 | 4,445 |
| | Other long-term liabilities | | 6,159 | 6,380 |
| | Total liabilities | | 196,245 | 190,567 |
| | Shareholders’ equity: |
| | Share capital (note 15): |
| | Unlimited common and preferred shares, no par value |
| | 136,465,872 (2019 - 136,416,981) common shares | | 1,094,720 | 1,094,633 |
| | Other equity instruments | | 7,361 | 6,857 |
| | Additional paid in capital | | 10,079 | 10,079 |
| | Accumulated deficit | | (1,013,609) | (998,320) |
| | Accumulated other comprehensive loss | | (23,721) | (23,890) |
| | Total shareholders' equity | | 74,830 | 89,359 |
| | Total liabilities and shareholders' equity | $ | 271,075 | $ | | | | 279,926 |
| | Commitments and contingencies (note 17) |
| | Subsequent events (note 12(a)) |
| | See accompanying notes to condensed consolidated interim financial statements. |
| | Approved on behalf of the Board: | | | | Daniel M. Hancock | Director | Brenda J. Eprile | | | | | Director |
| | | | | | | 1 |
| | | WESTPORT FUEL SYSTEMS INC.Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (unaudited) |
| | | (Expressed in thousands of United States dollars, except share and per share amounts) |
| | | Three months ended March 31, 2020 and 2019 |
| Three months ended March 31, |
| 2020 | 2019 |
| | | Revenue | $ | 67,223 | | | $ | 73,191 |
| | | Cost of revenue and expenses: |
| | | Cost of revenue | 62,948 | 56,036 |
| | | Research and development | 5,800 | 6,798 |
| | | General and administrative | 6,632 | 11,965 |
| | | Sales and marketing | 3,325 | 3,817 |
| | | Restructuring costs | — | 825 |
| | | Foreign exchange loss | 6,895 | 59 |
| | | Depreciation and amortization | 1,496 | 2,454 |
| 87,096 | 81,954 |
| | | Loss from operations | (19,873) | (8,763) |
| | | Income from investments accounted for by the equity method | 5,367 | 8,655 |
| | | Interest on long-term debt and accretion on royalty payable | (1,552) | (1,917) |
| | | Interest and other income, net of bank charges | 85 | 121 |
| | | Loss before income taxes | (15,973) | (1,904) |
| | | Income tax expense (recovery) | (684) | 1,135 |
| | | Net loss for the period | (15,289) | (3,039) |
| | | Other comprehensive loss: |
| | | Cumulative translation adjustment | 169 | (526) |
| | | Comprehensive loss | $ | (15,120) $ | (3,565) |
| | | Loss per share: |
| | | Net loss per share - basic and diluted | $ | (0.11) $ | (0.02) |
| | | Weighted average common shares outstanding: |
| | | Basic and diluted | 136,429,224 | | | | 133,449,211 |
| | | See accompanying notes to condensed consolidated interim financial statements. |
| | | | | 2 |
| | | | | | | | | | | WESTPORT FUEL SYSTEMS INC.Condensed Consolidated Interim Statements of Shareholders’ Equity (unaudited) |
| | | | | | | | | | | (Expressed in thousands of United States dollars, except share amounts) |
| | | | | | | | | | | Three months ended March 31, 2020 and 2019 |
| | | | | | | Accumulated |
| CommonotherTotal |
| SharesOther equityAdditional paidAccumulatedcomprehensive | | | shareholders' |
| OutstandingShare capitalinstrumentsin capitaldeficitlossequity |
| | | | | | | | | | | January 1, 2019 | 133,380,899 | $ | 1,087,068 | $ | 12,948 | $ | 10,079 | $ | (998,361) $ | | (21,058) | | | $ | 90,676 |
| | | | | | | | | | | Issue of common shares on exercise of shareunits |
| 137,025 | | | | | | | | | | | | 352 | (352) | — | — | | — | — |
| | | | | | | | | | | Stock-based compensation | | | | — | — | 396 | — | — | | — | 396 |
| | | | | | | | | | | Net loss for the period | | | | — | — | — | | | | | | | | | | | — | (3,039) | | — | (3,039) |
| | | | | | | | | | | Other comprehensive loss | | | | — | — | — | | | | | | | | | | | — | — | | (526) | (526) |
| | | | | | | | | | | March 31, 2019 | 133,517,924 | $ | 1,087,420 | $ | 12,992 | $ | 10,079 | $ | (1,001,400) $ | | (21,584) | | | $ | 87,507 |
| | | | | | | | | | | January 1, 2020 | 136,416,981 | $ | 1,094,633 | $ | | | | | | | | | | | 6,857 | $ | 10,079 | $ | (998,320) $ | | (23,890) | | | $ | 89,359 |
| | | | | | | | | | | Issue of common shares on exercise of shareunits |
| 48,891 | | | | | | | | | | | | 87 | (87) | | | | | | | | | | | — | — | | — | — |
| | | | | | | | | | | Stock-based compensation | | | | — | — | 591 | — | — | | — | 591 |
| | | | | | | | | | | Net loss for the period | | | | — | — | — | | | | | | | | | | | — | (15,289) | | | — | (15,289) |
| | | | | | | | | | | Other comprehensive income | | | | — | — | — | | | | | | | | | | | — | — | | 169 | 169 |
| | | | | | | | | | | March 31, 2020 | 136,465,872 | $ | 1,094,720 | $ | | | | | | | | | | | 7,361 | $ | 10,079 | $ | (1,013,609) $ | | (23,721) | | | $ | 74,830 |
| | | | | | | | | | | See accompanying notes to condensed consolidated interim financial statements. |
| | 3 |
| | | WESTPORT FUEL SYSTEMS INC.Condensed Consolidated Interim Statements of Cash Flows (unaudited) |
| | | (Expressed in thousands of United States dollars) |
| | | Three months ended March 31, 2020 and 2019 |
| Three months ended March 31, |
| 2020 | 2019 |
| | | Cash flows from (used in) operating activities: |
| | | Net loss for the period | $ | (15,289) $ | | (3,039) |
| | | Items not involving cash: |
| | | Depreciation and amortization | 3,369 | 4,330 |
| | | Stock-based compensation expense | 624 | 396 |
| | | Unrealized foreign exchange loss | 6,895 | 59 |
| | | Deferred income tax | (2,141) | — |
| | | Income from investments accounted for by the equity method | (5,367) | (8,655) |
| | | Interest on long-term debt and accretion of royalty payable | 1,552 | 1,917 |
| | | Change in inventory write-downs to net realizable value | (317) | 148 |
| | | Change in bad debts expense | 38 | 387 |
| | | Restructuring obligations | — | 224 |
| | | Net cash used before working capital changes | (10,636) | | (4,233) |
| | | Changes in non-cash operating working capital: |
| | | Accounts receivable | 576 | (12,009) |
| | | Inventories | (3,727) | (2,182) |
| | | Prepaid and other assets | (640) | (1,495) |
| | | Accounts payable and accrued liabilities | (7,197) | 2,737 |
| | | Deferred revenue | 1,501 | 2,335 |
| | | Warranty liability | 10,315 | | (400) |
| | | Net cash used in operating activities | (9,808) | (15,247) |
| | | Cash flows from (used in) investing activities: |
| | | Purchase of property, plant and equipment and other assets | (1,624) | (2,013) |
| | | Dividends received from joint ventures | 5,823 | 5,990 |
| | | Net cash from investing activities | 4,199 | 3,977 |
| | | Cash flows from (used in) financing activities: | | |
| | | Repayment of operating lines of credit and long term facilities | (11,717) | | (5,608) |
| | | Drawings on operating lines of credit | 11,070 | | 2,039 |
| | | Net cash used in financing activities | (647) | (3,569) |
| | | Effect of foreign exchange on cash and cash equivalents | (664) | (318) |
| | | Decrease in cash and cash equivalents | (6,920) | (15,157) |
| | | Cash and cash equivalents, beginning of period (including restricted cash) | 46,012 | | 61,119 |
| | | Cash and cash equivalents, end of period (including restricted cash) | $ | 39,092 | | | | $ | 45,962 |
| | | | | 4 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 1. Company organization and operations: |
| Westport Fuel Systems Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20, 1995.The Company engineers, manufactures and supplies alternative fuel systems and components for use in transportation markets ona global basis. The Company's components and systems control the pressure and flow of gaseous alternative fuels, such as propaneand natural gas used in internal combustion engines. 2. COVID-19 impact and going concern: |
| (a) | Impact of COVID-19 |
| The emergence of COVID-19 has had and continues to have an adverse impact on the Company's business, including the disruptionof production and end customer demand. The extent, duration and impact of COVID-19 and governmental and societal responsesis uncertain. A significant portion of the Company's production is from three facilities in Northern Italy, and sales from thesefacilities are primarily in western and eastern Europe. The Company's Brescia facility was closed from March 16, 2020 throughMay 4, 2020. This facility produces components in the light-duty Original Equipment Manufacturer ("OEM") business and providesassembly services for the heavy-duty OEM business. The Company's Cherasco and Albinea facilities were closed from March 22,2020 through May 4, 2020. These facilities produce components and kits in the Independent Aftermarket ("IAM"), Delayed OEM("DOEM"), electronics, and OEM businesses. |
| In addition to the Company's production facilities, its European High Pressure Direct Injection ("Westport HPDI 2.0 | | TM" or "HPDI") |
| launch partner temporarily closed its facilities in mid-March in response to safety concerns and government restrictions arisingfrom the spread COVID-19. Although the Company's launch partner reopened its production facilities in late April, it is anticipatedthat end customer demand will be lower than pre-COVID-19 levels for the remainder of 2020. |
| At this time, customer demand for the Company's products for the full year 2020 is difficult to estimate and will be highly dependenton the duration and severity of the COVID-19 pandemic and the post-pandemic market weakness. The Company's consolidatedsales in the first quarter of 2020 declined as a result of COVID-19 and the Company expects that the pandemic will materiallyimpact its results of operations during the remainder of 2020, with the most significant impact to be realized in the second quarterof 2020. |
| The Company's light-duty OEM and DOEM businesses are dependent on new vehicle sales with gaseous fuel systems. Consumerconfidence levels have deteriorated and are likely to remain at low levels despite the resumption of economic activity in manymajor vehicle markets. |
| The Company believes that its heavy-duty business and its Cummins Westport Inc. ("CWI") business will be less impacted thanthe IAM and light-duty OEM businesses. Demand for essential goods remains and consumer delivery of these goods has increased,resulting in more stable demand for medium and heavy-duty trucks. |
| The certification of the Weichai Westport Inc. ("WWI") HPDI engine through a multi-step, multi-party activity was delayed in thefirst quarter given the early impact of COVID-19 in China. The Company anticipates certification within 2020. |
| In response to COVID-19, the Company has implemented a number of austerity measures, including actions to reduce costs, suchas salary and other compensation deferrals and reductions, and delaying non-critical projects and capital expenditures. The Companyis working with its key lenders and previously announced $6,000 in principal deferrals on its term loan with Export DevelopmentCanada ("EDC") and a Euro 5,000 government backed loan in our Emer subsidiary. The Company expects to secure additionalfinancing through government backed liquidity programs and is also participating in government wage-subsidy and other supportprograms in the countries where it operates. The Company's liquidity is discussed below. |
| | | 6 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 2. COVID-19 and going concern (continued): |
| (b)Liquidity and Going Concern |
| In connection with preparing financial statements for each annual and interim reporting period, management is required to evaluatewhether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continueas a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditionsand events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they becomedue within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take intoconsideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of thedate that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effectof its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigatingeffect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implementedwithin one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, willmitigate the relevant conditions or events that raise substantial doubt about the company’s ability to continue as a going concernwithin one year after the date that the financial statements are issued. Generally, to be considered probable of being effectivelyimplemented, the plans must have been approved before the date that the financial statements are issued. |
| The condensed consolidated interim financial statements have been prepared on the basis that the Company will continue as agoing concern. At March 31, 2020, the Company's net working capital was $47,021 including cash and cash equivalents of $39,092.The Company's long-term debt, including the royalty payable, was $69,328, of which $15,560 matures in 2020 and $46,148 maturesby June 30, 2021. The Company has another $2,463 in cash pledged to the repayment of the debt it holds in its Italian subsidiariesrecorded in other long-term assets. The Company incurred a loss of $15,289 for the three months ended March 31, 2020 (incomefrom continuing operations of $188 for fiscal 2019) and negative cash flows from operating activities of $9,808 for the threemonths ended March 31, 2020 (net cash used in operating activities of continuing operations of $15,685 for fiscal 2019) and hasaccumulated a deficit of $1,013,609 since inception. |
| Principal conditions or events that require management's consideration |
| The factors which raise substantial doubt as to the Company’s ability to continue as a going concern are as follows: |
| (a) | The Company has three significant debt and royalty obligations combining to approximately $28,768 coming due in thenext twelve months, as follows: |
| (i) | Royalty payable payment of $7,268 to Cartesian Capital Group ("Cartesian") in April 2021; |
| (ii) | EDC principal payments totaling $4,000 to EDC in March 2021 and June 2021; and |
| (iii) Convertible debt of $17,500 maturing in June 2021. This debt is convertible into common shares of Westport Fuel Systems |
| ("Common Shares") at the option of the holder at a conversion price of $2.17 per Common Share. If the Company's sharesremain below this price, the Company expects such debt to remain unconverted and would have to repay the principalamount in cash. |
| (b)Forecast operating results |
| The Company recorded positive net income in 2019 and had expected to improve upon these achievements in 2020.However, as previously described, the impact of COVID-19 has had a significant impact on the Company’s 2020 outlook.The Company expects that this impact will be most acute in the second and third quarter of this year, with improvedrevenue and earnings levels in late 2020 and into 2021. |
| | 7 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 2. COVID-19 and going concern (continued): |
| Management's plans |
| The Company plans to alleviate or mitigate the substantial doubt of operating as a going concern through the following actions: |
| (a)Debt financing |
| The Company is in discussions with current lenders to re-finance existing debt and to obtain additional financing. Some positivedevelopments have already resulted from these discussions. In March 2020, EDC allowed the Company to defer $6,000 in principalpayments due in 2020 to 2021 and 2022. The Canadian and Italian governments have both introduced new lending programs forcorporations to draw upon to improve liquidity and spur capital investment as a response to the economic downturn caused byCOVID-19. The Company is eligible for these loan facilities and is pursuing loans in both jurisdictions. On May 28, 2020 theCompany announced that it has obtained a Euro 5,000 loan from UniCredit under the Italian Government program named DecretoLiquidita (see note 12(a) in these condensed consolidated interim financial statements). In addition, the Company is in advanceddiscussions with EDC for a $10,000 bridge facility. (b) Operating results and government wage subsidies |
| As discussed, the Company's operating results for 2020 will be significantly impacted by COVID-19. In response to COVID-19,the Company has implemented a number of austerity measures, including actions to reduce costs, such as salary and othercompensation deferrals and reductions, and delaying non-critical projects and capital expenditures. The Company is alsoparticipating in government wage-subsidy and other support programs in the countries where it operates that will benefit the secondquarter of 2020. |
| The Company is also evaluating future cash flows from the CWI joint venture with the termination of the joint venture termscheduled to end on December 31, 2021. The joint venture pays significant dividends to the joint venture partners, with Westportreceiving $25,045 as dividends in 2019 (2018 - $23,191). As per the joint venture agreement, both Cummins and Westport FuelSystems have equal rights to the joint venture’s intellectual property. However, there is no certainty that the Company will be ableto monetize the intellectual property to the level of the current dividends received from the joint venture. See note 7(a) in ourcondensed consolidated interim financial statements for additional details related to the CWI joint venture. |
| Management's conclusion and assessment |
| Although the Company believes that the cash on hand at March 31, 2020, the initiatives underway to facilitate repayment of debtand royalty obligations, and measures to mitigate the impact of COVID-19 will provide the cash flow necessary to fund operationsover the next year to June 30, 2021, there remains substantial doubt about the Company’s ability to continue as a going concernwithin one year after the date that these condensed consolidated interim financial statements are issued. The Company cautionsreaders of its financial statements and its Management's Discussion and Analysis ("MD&A") that there is no absolute assurancethat the Company will be able to raise the financing necessary, or mitigate the impact of COVID-19, under satisfactory terms andconditions, to continue as a going concern. If, as a result of future events, the Company was to determine that it was no longerable to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in theaccompanying condensed consolidated financial statements and the adjustments could be material. |
| | 8 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 3. Basis of preparation: |
| (a) | Basis of presentation: |
| These interim financial statements have been prepared in accordance with accounting principles generally accepted in the UnitedStates ("U.S. GAAP"). |
| These condensed consolidated interim financial statements do not include all note disclosures required on an annual basis, andtherefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31,2019, filed with the appropriate securities regulatory authorities. The Company followed the same policies and procedures as inthe annual audited consolidated financial statements for the year ended December 31, 2019. |
| In the opinion of management, all adjustments, which include reclassifications and normal recurring adjustments necessary topresent fairly the condensed consolidated balance sheets, condensed consolidated results of operations and comprehensive loss,condensed consolidated statements of shareholders' equity and condensed consolidated cash flows as at March 31, 2020 and forall periods presented, have been recorded. The results of operations for the three months ended March 31, 2020 are not necessarilyindicative of the results for the Company's full year. |
| (b) | Foreign currency translation: |
| The Company’s functional currency is the Canadian dollar and its reporting currency for its consolidated financial statementpresentation is the United States dollar. The functional currencies for the Company's subsidiaries include the following: UnitedStates dollar ("U.S. dollar"), Canadian dollar, Euro, Argentina Peso, Chinese Renminbi (“RMB”), Swedish Krona and IndianRupee. The Company translates assets and liabilities of non-U.S. dollar functional currency operations using the period endexchange rates, shareholders’ equity balances using the weighted average of historical exchange rates, and revenues and expensesusing the monthly average rate for the period, with the resulting exchange differences recognized in other comprehensive income. |
| Transactions that are denominated in currencies other than the functional currencies of the Company’s or its subsidiaries' operationsare translated at the rates in effect on the date of the transaction. Foreign currency denominated monetary assets and liabilities aretranslated to the applicable functional currency at the exchange rates in effect on the balance sheet date. Non-monetary assets andliabilities are translated at the historical exchange rate. All foreign exchange gains and losses are recognized in the statement ofoperations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through othercomprehensive income until realized through disposal or impairment. |
| Except as otherwise noted, all amounts in these interim financial statements are presented in U.S. dollars. For the periods presented,the Company used the following exchange rates: |
| | Period ended | Average for the three months ended |
| | | | March 31, 2020 | December 31, 2019 | March 31, 2020 | | | March 31, 2019 |
| Canadian dollar | | 0.70 | | | | | 0.77 | 0.74 | 0.75 |
| Euro | | 1.10 | | | | | 1.12 | 1.10 | 1.14 |
| Argentina Peso | | 0.02 | | | | | 0.02 | 0.02 | 0.03 |
| RMB | | 0.14 | | | | | 0.14 | 0.14 | 0.15 |
| Swedish Krona | | 0.10 | | | | | 0.11 | 0.10 | 0.11 |
| Indian Rupee | | 0.0133 | | | | | 0.0140 | 0.0138 | 0.0142 |
| | | | | 9 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 3. Basis of preparation (continued): |
| (c) | Cartesian: |
| Cartesian is a global private equity firm based in New York that has investments in the Company. Various Cartesian entities areassociated with these investments including Pangaea Two Management, LP; Pangaea Two Acquisition Holdings XIV, LLC; PangaeaTwo Acquisition Holdings Parallel XIV, LLC. Collectively, these entities will be referred to as “Cartesian”. In addition, Peter Yu,the founder and managing partner of Cartesian, was elected as a Director of the Company in January 2016. See notes 7(b), 12(c)and 13 for additional details of Cartesian’s investments in the Company. |
| (d) | Cash and cash equivalents (including restricted cash): |
| Cash and cash equivalents include cash on hand, term deposits, banker acceptances and guaranteed investment certificates withmaturities of ninety days or less when acquired. Cash equivalents are considered as held for trading and recorded at fair value withchanges in fair value recognized in the consolidated statements of operations. Cash and cash equivalents at March 31, 2020 includerestricted cash of $2,104 (December 31, 2019 - $2,279). Restricted cash at March 31, 2020 and at December 31, 2019 is relatedto cash used to secure a letter of credit. |
| 4. Accounting changes: |
| New accounting pronouncements adopted in 2020: |
| In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326)" which requires themeasurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaced the formerincurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019.The adoption of this guidance in the first quarter of 2020 did not result in any material impact to the Company's consolidatedfinancial statements. |
| 5. Accounts Receivable: |
| | | March 31, 2020 | December 31, 2019 |
| Customer trade receivables | | | $ | | 62,165 | $ | | 62,974 |
| Other receivables | | | | | 9,511 | 9,092 |
| Income tax receivable | | | | | 37 | 475 |
| Due from related parties (note 7(a)) | | | | | 339 | 272 |
| Allowance for doubtful accounts | | | | | (5,786) | (5,863) |
| | | $ | | 66,266 | $ | | 66,950 |
| 6. Inventories: |
| | | March 31, 2020 | December 31, 2019 |
| Purchased parts | | | $ | | 34,875 | $ | | 32,814 |
| Work-in-process | | | | | 2,930 | 2,854 |
| Finished goods | | | | | 12,635 | 12,134 |
| Inventory on consignment— | | 4 |
| | | $ | | 50,440 | $ | | 47,806 |
| During the three months ended March 31, 2020, the net change in inventory provision to net realizable value is a recovery of $317(three months ended March 31, 2019 - write-down of $148). |
| | 10 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 7. Long-term investments: |
| March 31, 2020 | December 31, 2019 |
| Cummins Westport Inc. (a) | $ | | 7,332 | $ | | 7,850 |
| Weichai Westport Inc. (b) | | | 1,824 | 1,824 |
| Other equity-accounted investees | | | 927 | 913 |
| $ | | 10,083 | $ | | 10,587 |
| (a) | | | | | | Cummins Westport Inc. ("CWI"): |
| The Company and Cummins Inc. (“Cummins”) each own 50% of the common shares of CWI. For the three months endedMarch 31, 2020, the Company recognized its share of CWI’s income of $5,304 (three months ended March 31, 2019 - $8,602) inincome from investments accounted for by the equity method. |
| As at March 31, 2020, the Company has a related party accounts receivable balance of $339 due from CWI. |
| Assets, liabilities, revenue and expenses of CWI are as follows: |
| March 31, 2020 | December 31, 2019 |
| Current assets: |
| Cash and short-term investments | $ | | 94,909 | $ | | 90,296 |
| Accounts receivable | | | 859 | 1,363 |
| Long-term assets: |
| Property, plant and equipment | | | 783 | 844 |
| Deferred income tax assets | | | 21,130 | 21,322 |
| Total assets | $ | | 117,681 | $ | | 113,825 |
| Current liabilities: |
| Current portion of warranty liability | $ | | 19,885 | $ | | 19,816 |
| Current portion of deferred revenue | | | 15,757 | 16,678 |
| Accounts payable and accrued liabilities | | | 9,006 | 3,858 |
| | | 44,648 | 40,352 |
| Long-term liabilities: |
| Warranty liability | | | 29,404 | 30,463 |
| Deferred revenue | | | 25,165 | 23,667 |
| Other long-term liabilities | | | 3,788 | 3,631 |
| | | 58,357 | 57,761 |
| Total liabilities | $ | | 103,005 | $ | | 98,113 |
| | | | | 11 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 7. Long-term investments (continued): |
| (a) | Cummins Westport Inc. (continued): |
| | Three months ended March 31, |
| | | 2020 | 2019 |
| Product revenue | | | | | $ | 47,546 | | | | $ | 61,949 |
| Parts revenue | | 29,122 | | 30,309 |
| | 76,668 | | 92,258 |
| Cost of revenue and expenses: |
| Cost of product and parts revenue | | 55,027 | | 64,414 |
| Research and development | | | 4,465 | 3,671 |
| General and administrative | | | 428 | 572 |
| Sales and marketing | | | 3,387 | 3,897 |
| Foreign exchange (gain) loss | | | (79) | 3 |
| | 63,228 | | 72,557 |
| Income from operations | | 13,440 | | 19,701 |
| Interest and investment income | | | 498 | 768 |
| Income before income taxes | | 13,938 | | 20,469 |
| Income tax expense | | | 3,330 | 3,265 |
| Net income | | | | | $ | 10,608 | | | | $ | 17,204 |
| (b) | Weichai Westport Inc.: |
| The Company, indirectly through its wholly-owned subsidiary, Westport Innovations (Hong Kong) Limited (“Westport HK”), iscurrently the registered holder of a 23.33% equity interest in WWI. In April 2016, the Company sold to Cartesian entities a derivativeeconomic interest granting it the right to receive an amount of future income received by Westport HK from WWI equivalent tohaving an 18.78% equity interest in WWI and concurrently granted a Cartesian entity an option to acquire all of the equity securitiesof Westport HK for a nominal amount. The Company retained the right to transfer any equity interest held by Westport HK inWWI that was in excess of an 18.78% interest in the event that such option was exercised. As a result of such transactions, theCompany’s residual 23.33% equity interest in WWI currently corresponds to an economic interest in WWI equivalent to just4.55%. |
| | | | | | | 12 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 10. Accounts payable and accrued liabilities: |
| March 31, 2020 | December 31, 2019 |
| Trade accounts payable | | | $ | 55,830 | $ | | | 60,170 |
| Accrued payroll | | | | 15,591 | 15,906 |
| Taxes payable | | | | 4,397 | 3,497 |
| Deferred revenue | | | | 2,347 | 2,717 |
| Accrued interest | | | | 519 | 1,568 |
| Due to related parties | | | | 576 | 794 |
| Other payables | | | | 1,517 | 1,528 |
| | | $ | 80,777 | $ | | | 86,180 |
| 11. Operating lease right-of-use assets and lease liabilities: |
| The Company has entered into various non-cancellable operating lease agreements primarily for its manufacturing facilities andoffices. The Company's leases have lease terms expiring between 2020 and 2029. Many leases include one or more options torenew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to bereasonably assured at lease commencement. The average remaining lease term is approximately five years and the present valueof the outstanding operating lease liability was determined applying a weighted average discount rate of 5.0% based on incrementalborrowing rates applicable in each location. |
| The components of lease cost are as follows: |
| Three months ended March 31, |
| | | | 2020 | 2019 |
| Operating lease cost: |
| Amortization of right-of-use assets | $ | | | 687 | $ | | | 885 |
| Interest | | | | 154 | 245 |
| Total lease cost | $ | | | 841 | $ | | | 1,130 |
| The maturities of lease liabilities as at March 31, 2020 are as follows: |
| The remainder of 2020 | | $ | | | 3,150 |
| 2021 | | | | | 3,638 |
| 2022 | | | | | 3,562 |
| 2023 | | | | | 2,584 |
| 2024 | | | | | 2,008 |
| Thereafter | | | | | 3,764 |
| Total undiscounted cash flows | | | | | 18,706 |
| Less imputed interest | | | | | (2,493) |
| Present value of operating lease liabilities | | | | | 16,213 |
| Less: current portion | | | | | (4,059) |
| Long term operating lease liabilities | | $ | | | 12,154 |
| | | | | | 14 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 12. Long-term debt: |
| March 31, 2020 | December 31, 2019 |
| Term loan facilities, net of debt issuance costs (a) | | | $ | 21,586 | $ | | | 22,207 |
| Senior financing (b) | | | | 2,457 | 2,504 |
| Convertible debt (c) | | | | 17,444 | 17,431 |
| Other bank financing (d) | | | | 7,435 | 5,105 |
| Capital lease obligations (e) | | | | 1,451 | 1,632 |
| Balance, end of period | | | | 50,373 | 48,879 |
| Current portion | | | | (12,522) | (13,567) |
| Long-term portion | | | $ | 37,851 | $ | | | 35,312 |
| (a) | | | | | | The Company has three separate term loans: one with EDC and two with UniCredit S.p.A. ("UniCredit"). On December |
| 20, 2017, the Company entered into a loan agreement with EDC for a $20,000 non-revolving term facility. The Company incurreddebt issuance costs of $1,013 related to the loan which are being amortized over the loan term using the effective interest ratemethod. The loan bears interest at 6% (prior to March 1, 2019, at 9% plus monitoring fees), payable quarterly, as well as quarterlyprincipal repayments. On March 23, 2020, the Company and EDC amended the terms of the secured term loan to defer $6,000in principal payments in 2020 to recommence payment quarterly starting March 15, 2021 and to extend the term of the loan untilSeptember 30, 2022. As at March 31, 2020, the amount outstanding for this loan was $13,360, net of issuance costs. The loan issecured by share pledges over Westport Power, Inc., Fuel Systems Solutions, Inc., Westport Luxembourg S.a.r.l and MTM S.r.L.and by certain of the Company's property, plant and equipment. |
| On October 9, 2018, the Company entered into a Euro denominated loan agreement with UniCredit. This loan bears interest at anannual rate of 2.3% and interest is paid quarterly. This loan matures on December 31, 2023. As at March 31, 2020, the amountoutstanding for this loan was $5,150 compared to $5,569 as at December 31, 2019, and was secured by a cash pledge of $1,540,with these restricted funds being recorded in other long-term assets. |
| On November 28, 2019, the Company entered into a second Euro denominated loan agreement with UniCredit. This loan bearsinterest at an annual rate of 1.8% and interest is paid quarterly. This loan matures on September 30, 2023. As at March 31, 2020,the amount outstanding for this loan was $3,076 compared to $3,369 as at December 31, 2019, and was secured by a cash pledgeof $923, with these restricted funds also being recorded in other long-term assets. |
| On May 20, 2020, the Company entered into a Euro denominated loan agreement with UniCredit for the amount of €5,000. Theeffective interest rate of this loan is 1.82% with a maturity date of May 31, 2025. There is no security on the loan as it was madeas part of the Italian government's COVID-19 Decreto Liquidita. |
| (b) | | | | | | The senior financing facility was renewed on March 24, 2017. This Euro denominated loan bears interest at an annual |
| rate equal to the 6-month Euribor plus 3.3% and can increase or decrease by 30 basis points based on an annual leverage ratiocalculation. Interest is paid semi-annually. This loan matures on December 31, 2022. The Company has pledged its interest inEmer S.p.A. as a general guarantee for its senior revolving financing. |
| (c) | | | | | | On January 11, 2016, the Company entered into a financing agreement ("Tranche 2 Financing") with Cartesian. As part |
| of the agreement, on June 1, 2016, convertible debt was issued in exchange for 9.0% convertible unsecured notes due June 1, 2021,which are convertible into common shares of the Company in whole or in part, at Cartesian's option, at any time following thetwelve month anniversary of the closing at a conversion price of $2.17 per share. Interest is payable annually in arrears on December31 of each year during the term. The convertible debt is held by a related party as Peter Yu, founder and managing partner ofCartesian, became a member of the Board of Directors of the Company in January 2016. |
| | | | | | | 15 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 12. Long-term debt (continued): |
| (d) | Other bank financing consists of various secured and unsecured bank financing arrangements that carry rates of interest |
| ranging from 0.75% to 3.8% and have various maturities out to 2022. Security includes a building owned by the Company in theNetherlands and certain accounts receivable. |
| (e) | The Company has capital lease obligations with terms of three to five years at interest rates ranging from 1.3% to 12.0%. |
| The principal repayment schedule of the senior financings and convertible debt are as follows as at March 31, 2020: |
| | | Term loan | Senior | Convertible | | | Other bank | Capital lease |
| | | facilities | financing | Debt | | | financing | obligations | Total |
| Remainder of 2020 | | | $ | | | | | 1,708 | $ | | | | | 727 | $ | | | | | | | | — | $ | | | | | | 6,694 | $ | | | | | | 483 | $ | 9,612 |
| | | | | | | | | | | | | 2021 | 9,926 | 816 | 17,444 | | | | | | | | | 247 | 521 | 28,954 |
| | | | | | | | | | | | | 2022 | 7,915 | 914 | — | 247 | 261 | 9,337 |
| | | | | | | | | | | | | 2023 | 2,037 | — | — | 247 | 148 | 2,432 |
| 2024 and thereafter | | | | | | | | — | — | — | — | 38 | | 38 |
| | | $ | | | | | 21,586 | $ | | | | | 2,457 | $ | 17,444 | | | $ | | | | | | 7,435 | $ | | | | | | 1,451 | $ | 50,373 |
| 13. Long-term royalty payable: |
| On January 11, 2016, the Company entered into a financing agreement with Cartesian to support the Company's global growthinitiatives. The financing agreement immediately provided $17,500 in cash (the “Tranche 1 Financing”). In consideration for thefunds provided to the Company, Cartesian is entitled to royalty payments based on the greater of (i) a percentage of amountsreceived by the Company on select HPDI systems and CWI joint venture income through 2025 and (ii) stated fixed amounts perannum (subject to adjustment for asset sales). The carrying value is being accreted to the expected redemption value using theeffective interest method, which is approximately 23% per annum. Amounts due to Cartesian are secured by an interest in theCompany's HPDI intellectual property and a priority interest in the Company's CWI joint venture interest. |
| In January 2017, the Company and Cartesian signed a Consent Agreement which allowed the Company to sell certain assets inexchange for prepayment of the Cartesian royalty. Pursuant to the terms of such agreement, Cartesian was paid 15% of the netproceeds from those asset sales which were completed and consented to in the agreement, with this payment being allocated on anon-discounted basis to future years' minimum payments. |
| As at March 31, 2020, the total royalty prepayments paid to Cartesian as a result of the Consent Agreement was $12,137. |
| A continuity schedule of the long-term royalty payable is as follows: |
| | | | | | | | | | | March 31, 2020 | December 31, 2019 |
| Balance, beginning of period | | | | | $ | 18,258 | | | | | | $ | 20,935 |
| Accretion expense | | | | | | 697 | 3,357 |
| Repayment— | (6,034) |
| Balance, end of period | | | | | | 18,955 | 18,258 |
| Current portion | | | | | | (5,948) | (5,936) |
| Long-term portion | | | | | $ | 13,007 | | | | | | $ | 12,322 |
| |
| | 16 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 13. Long-term royalty payable (continued): The minimum repayments including interest are as follows, for the twelve months ending March 31: |
| 2021 | $ | 5,948 |
| 2022 | | 7,268 |
| 2023 | | 5,103 |
| 2024 | | 1,162 |
| 2025 | | 1,637 |
| 2026 | | 5,122 |
| $ | 26,240 |
| 14. Warranty liability: |
| A continuity of the warranty liability is as follows: |
| | | | March 31, 2020 | December 31, 2019 |
| Balance, beginning of period | | | | $ | 8,901 | $ | 4,941 |
| Warranty claims | | | | | (247) | (1,863) |
| Warranty accruals | | | | | 10,932 | 6,794 |
| Change in estimate | | | | | (29) | (481) |
| Impact of foreign exchange changes | | | | | (172) | (490) |
| Balance, end of period | | | | | 19,385 | 8,901 |
| Less: current portion | | | | | (13,402) | (4,505) |
| Long-term portion | | | | $ | 5,983 | $ | 4,396 |
| During the first quarter of 2020, the Company recorded $9,962 warranty accrual related to a field service campaign for thereplacement of the pressure release device the Company manufactures and sells to OEM customers. No safety events or fieldperformance issues have been identified from this product. The Company expects to recover 70% of the expense from insurancerecovery during the fourth quarter of the year. The estimated insurance recovery has not been recorded in these condensedconsolidated financial statements due to the early stage of the insurance claim review. |
| | | 17 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 15. Share capital and other stock-based plans: During the three months ended March 31, 2020, the Company issued 48,891 common shares, net of cancellations, upon exercisesof share units (three months ended March 31, 2019 – 137,025 common shares). The Company issues shares from treasury to satisfyshare unit exercises. |
| (a) | | Share Units ("Units"): |
| The value assigned to issued Units and the amounts accrued are recorded as other equity instruments. As Units are exercised orvest and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital. During the three months ended March 31, 2020, the Company recognized $624 (three months ended March 31, 2019 - $396) ofstock-based compensation associated with the Westport Omnibus Plan. |
| |
| A continuity of the Units issued under the Westport Omnibus Plan as of March 31, 2020 and March 31, 2019 are as follows: |
| | | Three months ended March 31, 2020 | Three months ended March 31, 2019 |
| | | | | Weighted | | Weighted |
| | | | | average | | average |
| | | | | grant | | grant |
| | | | | date fair | | date fair |
| | | Number of | | value | Number of | | | value |
| units | | | | (CDN $) | units | (CDN $) |
| Outstanding, beginning of period | | | | | | | | 1,777,941 | $ | | | | | | | | 3.19 | 2,667,403 | $ | 6.00 |
| Granted | | | | | | | | 56,951 | 1.40 | 27,013 | | | | | | 3.83 |
| Exercised | | | | | | | | (48,891) | 2.41 | (137,025) | | | | | | 3.40 |
| Forfeited/expired | | | | | | | | (10,117) | 3.35 | — | | | | | | — |
| Outstanding, end of period | | | | | | | | 1,775,884 | $ | | | | | | | | 3.16 | 2,557,391 | $ | 4.47 |
| Units outstanding and exercisable, endof period |
| | | | | | | | 9,123 | $ | | | | | | | | 2.41 | 2,104,696 | $ | 4.68 |
| During the three months ended March 31, 2020, 56,951 (2019 - 27,013) share units were granted to directors and employees. Thisincluded 36,051 restricted share units ("RSUs") (2019 - 27,013) and 20,900 performance share units ("PSUs") (2019 - nil). Valuesof RSU awards are generally determined based on the fair market value of the underlying common share on the date of grant.RSUs typically vest over a three year period so the actual value received by the individual depends on the share price on the daysuch RSUs are settled for common shares, not the date of grant. PSU awards do not have a certain number of common shares thatwill issue over time - it depends on future performance and other conditions tied to the payout of the PSU. |
| As at March 31, 2020, $2,140 of compensation cost related to Units awarded has yet to be recognized in results from operationsand will be recognized over the remainder of the vesting period. |
| 18 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 15. Share capital and other stock-based plans (continued): |
| (b) | Aggregate intrinsic values: |
| The aggregate intrinsic value of the Company’s share units at March 31, 2020 was as follows: |
| | March 31, 2020 |
| | | (CDN $) |
| Share units: |
| Outstanding | | | | $ | 2,317 |
| Exercisable | | | | | 12 |
| | | | | |
| (c) | Stock-based compensation: |
| Stock-based compensation associated with the Westport Omnibus Plan is included in operating expenses as follows: |
| | | | | | | Three months ended March 31, |
| | | | 2020 | 2019 |
| Cost of revenue | | | | | | | | $ | 12 | $ | | | — |
| Research and development | | | | 48 | 74 |
| General and administrative | | | | 507 | 292 |
| Sales and marketing | | | | 57 | 30 |
| | | | | | | | $ | 624 | $ | 396 |
| 16. Related party transactions: |
| The Company enters into related party transactions with the CWI joint venture and Cartesian on convertible debt and the royaltypayable. Refer to note 7(a) for the related party transactions with CWI, and notes 12(c) and 13 for transactions with Cartesian. |
| 17. Commitments and contingencies: |
| (a)Contractual commitments |
| The Company is a party to a variety of agreements in the ordinary course of business under which it is obligated to indemnify athird party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’sproduct to customers where the Company provides indemnification against losses arising from matters such as product liabilities.The potential impact on the Company’s financial results is not subject to reasonable estimation because considerable uncertaintyexists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred significantcosts related to these types of indemnifications. |
| (b) | Contingencies |
| The Company is engaged in certain legal actions and tax audits in the ordinary course of business and believes that, based on theinformation currently available, the ultimate outcome of these actions will not have a material adverse effect on our operatingresults, liquidity or financial position. |
| | | | | | 19 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 18. Segment information: |
| Effective January 2020, the Company modified the reporting of business segments to allow for increased transparency into theCompany's customer channels and the respective products the Company sold to those customers. Accordingly, from that date, allproduct information and other technology related activities previously reported under the Transportation segment have beendisaggregated into two segments, OEM and IAM. All comparative figures presented have been revised to reflect this change. |
| Under the new organization structure, the Company manages and report the results of its business through four segments: OEM,IAM, the CWI Joint Venture, and Corporate. This reflects the manner in which operating decisions and assessing businessperformance is currently managed by the Chief Operating Decision Maker ("CODM"). The financial information for the business segments evaluated by the CODM includes the results of CWI as if they were consolidated,which is consistent with the way the Company manages its business segments. As CWI is accounted for under the equity methodof accounting, an adjustment is reflected in the tables below to reconcile the segment measures to the Company’s consolidatedmatters. |
| Financial information by business segment as follows: |
| Three months ended March 31, 2020 |
| Operating Income | | | Depreciation & |
| | Revenue | (Loss) | Amortization | Equity Income |
| OEM | | | | | | $ | 34,272 $ | (14,473) $ | | | | 1,847 $ | 63 |
| IAM | | 32,951 | 4,759 | | | | 1,461 | — |
| Corporate— | | (10,159) | | | | 61 | 5,304 |
| CWI - 50% | | 38,334 | 6,720 | | | | 31 | — |
| Total Segment | | 105,557 | (13,153) | | | | 3,400 | 5,367 |
| Less: CWI - 50% | | (38,334) | (6,720) | | | | (31) | — |
| Total Consolidated | | | | | | $ | 67,223 $ | (19,873) $ | | | | 3,369 $ | 5,367 |
| Three months ended March 31, 2019 |
| Operating Income | | | Depreciation & |
| | Revenue | (Loss) | Amortization | Equity Income |
| OEM | | | | | | $ | 39,011 $ | (2,741) $ | | | | 2,812 $ | 53 |
| IAM | | 34,180 | 2,242 | | | | 1,439 | — |
| Corporate— | | (8,264) | | | | 79 | 8,602 |
| CWI - 50% | | 46,129 | 9,850 | | | | 76 | — |
| Total Segment | | 119,320 | 1,087 | | | | 4,406 | 8,655 |
| Less: CWI - 50% | | (46,129) | (9,850) | | | | (76) | — |
| Total Consolidated | | | | | | $ | 73,191 $ | (8,763) $ | | | | 4,330 $ | 8,655 |
| 20 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 18. Segment information (continued): |
| It is impracticable for the Company to provide geographical revenue information by individual countries; however, it is practicableto provide it by geographical regions. Revenues are attributable to geographical regions based on location of the Company’scustomers and presented as a percentage of the Company's product and service revenues as follows: |
| % of total revenue |
| | Three months ended March 31, |
| 2020 | | 2019 |
| Europe | 66% | | 63% |
| Americas | 17% | | 18% |
| Asia | 8% | | 10% |
| Others | 9% | | 9% |
| As at March 31, 2020, total long-term investments of $9,156 (December 31, 2019 - $9,850) was allocated to the Corporate segmentand $927 (December 31, 2019 - $737) was allocated to the OEM segment. |
| Total assets are allocated as follows: |
| | | | March 31, 2020 | December 31, 2019 |
| OEM | | | | $ | 122,376 | $ | | 132,179 |
| IAM | | 120,107 | 119,769 |
| Corporate | | 28,592 | 27,978 |
| CWI - 50% | | 58,841 | 56,913 |
| | | | $ | 329,916 | $ | | 336,839 |
| Less: CWI - 50% | | (58,841) | (56,913) |
| Total consolidated assets | | | | $ | 271,075 | $ | | 279,926 |
| | | | | 21 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 19. Financial instruments: |
| (a)Financial management risk |
| The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk. |
| (b) | Liquidity risk |
| Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company hassustained losses and negative cash flows from operations since inception. At March 31, 2020, the Company has $39,092 of cash,cash equivalents and short-term investments, including restricted cash of $2,104. |
| |
| The following are the contractual maturities of financial obligations as at March 31, 2020: |
| | Carrying | Contractual |
| | amount | cash flows | < 1 year | 1-3 years | 4-5 years | >5 years |
| Accounts payable and accrued liabilities | | $ | 80,777 | $ | 80,777 | $ | 80,777 | $ | | | — | $ | | | — | $ | | | — |
| Term loan facilities (note 12 (a)) | | 21,586 | 25,399 | 5,460 | 17,888 | 2,051 | | | | — |
| Senior financing (note 12 (b)) | | 2,457 | | | | | | | | | 2,802 | 798 | 1,904 | | | | 100 | — |
| Convertible debt (note 12 (c)) | | 17,444 | 19,335 | 1,572 | 17,763 | | | | — — | — |
| Other bank financing (note 12 (d)) | | 7,435 | | | | | | | | | 7,444 | 6,698 | | | | 499 | 247 | — |
| Long-term royalty payable (note 13) | | 18,955 | 26,238 | 5,948 | 12,370 | 2,798 — | 5,122 |
| Capital lease obligations (note 12 (e)) | | 1,451 | | | | | | | | | 1,556 | 492 | | | | 840 | 224 | — |
| Operating lease obligations | | 16,213 | 18,706 | 3,150 | 7,200 | 4,592 | 3,764 |
| | $ 166,318 | $ | 182,257 | $ 104,895 | $ | 58,464 | $ | 10,012 | $ | 8,886 |
| | | 22 |
| WESTPORT FUEL SYSTEMS INC.Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2020 and 2019 |
| 19. Financial Instruments (continued): |
| (c) | Fair value of financial instruments: |
| The carrying amounts reported in the condensed consolidated balance sheet for cash and cash equivalents, accounts receivable,accounts payable and accrued liabilities approximate their fair values due to the short-term period to maturity of these instruments. |
| |
| The long-term investments represent the Company's interest in CWI, WWI and other investments. CWI is accounted for usingthe equity method. WWI and other investments is accounted for at fair value. The carrying values reported in the condensed consolidated balance sheet for obligations under capital and operating leases, whichare based upon discounted cash flows, approximate their fair values. |
| |
| The carrying value of the term loan facilities included in the long-term debt (note 12(a)) does not materially differ from its fairvalue as at March 31, 2020. The carrying value reported in the condensed consolidated balance sheet for senior financing (note 12(b)) approximates their fair value as at March 31, 2020, as the interest rates on the debt are floating and therefore approximate themarket rates of interest. |
| |
| The Company categorizes its fair value measurements for items measured at fair value on a recurring basis into three categoriesas follows: |
| Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. |
| Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted |
| | prices in markets that are not active; or other inputs that are observable or can be corroborated by observablemarket data for substantially the full term of the assets or liabilities. |
| Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
| When available, the Company uses quoted market prices to determine fair value and classify such items in Level 1. When necessary,Level 2 valuations are performed based on quoted market prices for similar instruments in active markets and/or model–derivedvaluations with inputs that are observable in active markets. Level 3 valuations are undertaken in the absence of reliable Level 1or Level 2 information. |
| |
| As at March 31, 2020, cash and cash equivalents and short-term investments are measured at fair value on a recurring basis andare included in Level 1. |
| | | 23 |
