Westport Fuel Systems Inc 40-F for FY2020
Westport Fuel Systems Inc. (WPRT)
40-F
2021-03-15
For: 2020-12-31
View Original
Added on
April 06, 2026
About this 40-F
Westport Fuel Systems Inc filed this 40-F on March 15, 2021, covering the fiscal year ended December 31, 2020 (FY2020).
Headline figures
Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $252.5M
- down 17.3% from $305.34M a year earlier
- Net loss
- $7.36M
- compared with net income of $41K a year earlier
Consolidated Financial Statements
(Expressed in thousands of United States dollars)
WESTPORT FUEL SYSTEMS INC.
For the years ended December 31, 2020 and 2019
KPMG LLP PO Box 10426 777 Dunsmuir Street Vancouver, BC V7Y 1K3 Canada | Telephone:(604) 691-3000 Fax: (604) 691-3031 Internet: www.kpmg.ca | |||||||
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors Westport Fuel Systems Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Westport Fuel Systems Inc. (and subsidiaries) (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indicators of impairment for property, plant and equipment related to HPDI
As discussed in Notes 3(k) and 8 to the consolidated financial statements, the carrying value of property, plant and equipment reported on the consolidated balance sheet as at December 31, 2020 is $57.507 million, which includes the property, plant and equipment used in the Company’s heavy-duty Original Equipment Manufacturer (OEM) business, which includes the Company’s High Pressure Direct Injection (HPDI) business, which is in the early stages of commercialization and has generated losses to date. The Company assesses its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company’s determination of whether an indicator of impairment exists includes the preparation of a forecast of future cash flows of the HPDI business. The
significant assumptions used in the Company’s forecast of future cash flows include, amongst others, estimates of component sales in the future.
We identified the assessment of indicators of impairment for property, plant and equipment related to HPDI as a critical audit matter. A higher degree of subjective auditor judgment was required to assess the Company’s evaluation of indicators of impairment due to the uncertainty in the estimates of component sales in the future.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for the identification and evaluation of indicators of impairment. This included a control related to the determination of the estimates of component sales in the future. We evaluated the reasonableness of the estimates of component sales in the future by comparing them to the Company’s internal documentation and external communications and comparing their consistency with relevant industry data and regulatory factors. We compared the Company’s historical sales forecasts to actual results to assess the accuracy of the Company’s forecasts of future sales.
Liquidity and going concern assessment
As discussed in Note 2(b) to the consolidated financial statements, the consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. In making this assessment, the Company has evaluated whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. The Company incurred a loss of $7.359 million and negative cash flows from operations of $35.149 million in the year ended December 31, 2020.
We identified the assessment of the existence of conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements as a critical audit matter. The evaluation of the Company’s cash flows used in its forecasted model of liquidity and its determination of the existence of conditions or events that may raise substantial doubt involved a high degree of auditor judgment due to the uncertainty in the estimate of future cash flows.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s assessment of its ability to continue as a going concern. This included a control over the determination of significant assumptions used in the forecasted model of liquidity, including forecast sales, forecast increases in sales of the heavy-duty OEM business, forecast costs and capital expenditures. We assessed the reasonableness of the significant assumptions underlying the Company’s forecasted model of liquidity by comparing the forecasted cash flows to actual results of the Company and to approved budgets. We compared the Company’s historical forecasted cash flows to actual results to assess the Company’s ability to accurately forecast. We compared the forecasted sales for a key customer in the heavy-duty OEM business to the demand forecast provided to the Company by this customer. We performed sensitivity analyses to assess the impact of changes in the significant assumptions included in the Company’s forecasted model of liquidity. We assessed the Company’s forecasted model of liquidity in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by the Company.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2015.
March 15, 2021
Vancouver, Canada
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors Westport Fuel Systems Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Westport Fuel Systems Inc.’s (and subsidiaries’) (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 15, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 Annual Report on 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Chartered Professional Accountants
March 15, 2021
Vancouver, Canada
| WESTPORT FUEL SYSTEMS INC. | ||
| Consolidated Balance Sheets | ||
| (Expressed in thousands of United States dollars, except share amounts) | ||
| December 31, 2020 and 2019 | ||
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents (including restricted cash, note 3(c)) | $ | $ | ||||||||||||
| Accounts receivable (note 5) | ||||||||||||||
| Inventories (note 6) | ||||||||||||||
| Prepaid expenses | ||||||||||||||
| Total current assets | ||||||||||||||
| Long-term investments (note 7) | ||||||||||||||
| Property, plant and equipment (note 8) | ||||||||||||||
| Operating lease right-of-use assets (note 12) | ||||||||||||||
| Intangible assets (note 9) | ||||||||||||||
| Deferred income tax assets (note 18(b)) | ||||||||||||||
| Goodwill (note 10) | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities (note 11) | $ | $ | ||||||||||||
| Current portion of operating lease liabilities (note 12) | ||||||||||||||
| Short-term debt (note 13) | ||||||||||||||
| Current portion of long-term debt (note 14) | ||||||||||||||
| Current portion of long-term royalty payable (note 15) | ||||||||||||||
| Current portion of warranty liability (note 16) | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term operating lease liabilities (note 12) | ||||||||||||||
| Long-term debt (note 14) | ||||||||||||||
| Long-term royalty payable (note 15) | ||||||||||||||
| Warranty liability (note 16) | ||||||||||||||
| Deferred income tax liabilities (note 18(b)) | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total long-term liabilities | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
| Share capital (note 17): | ||||||||||||||
Unlimited common and preferred shares, | ||||||||||||||
| Other equity instruments | ||||||||||||||
| Additional paid-in-capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||||||||
| Commitments and contingencies (note 20) | ||||||||||||||
| Subsequent events (notes 13(b), 14(b), 17 and 23) | ||||||||||||||
See accompanying notes to consolidated financial statements.
| Approved on behalf of the Board | Rita Forst | Director | Brenda J. Eprile | Director | |||||||||||||
1
| WESTPORT FUEL SYSTEMS INC. | |||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) | |||||
| (Expressed in thousands of United States dollars, except share and per share amounts) | |||||
| Years ended December 31, 2020 and 2019 | |||||
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Revenue | $ | $ | ||||||||||||||||||
| Cost of revenue and expenses: | ||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Research and development | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||
| Restructuring costs | ||||||||||||||||||||
| Foreign exchange gain | ( | ( | ||||||||||||||||||
| Depreciation and amortization (notes 8 and 9) | ||||||||||||||||||||
| Impairment on long lived assets, net (notes 8 and 9) | ||||||||||||||||||||
| Loss from continuing operations | ( | ( | ||||||||||||||||||
| Income from investments accounted for by the equity method | ||||||||||||||||||||
| Interest on long-term debt and accretion on royalty payable | ( | ( | ||||||||||||||||||
| Interest and other income | ||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | ( | |||||||||||||||||||
| Income tax expense (recovery) (note 18): | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Deferred | ( | ( | ||||||||||||||||||
| Net income (loss) from continuing operations | ( | |||||||||||||||||||
| Net income (loss) from discontinued operations | ( | |||||||||||||||||||
| Net income (loss) for the year | ( | |||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||
| Cumulative translation adjustment | ( | ( | ||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | ||||||||||||||||
| Income (loss) per share: | ||||||||||||||||||||
| From continuing operations - basic and diluted | $ | ( | $ | |||||||||||||||||
| From discontinued operations - basic and diluted | $ | $ | ||||||||||||||||||
| Net income (loss) per share | $ | ( | $ | |||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | ||||||||||||||||||||
| Diluted | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
2
| WESTPORT FUEL SYSTEMS INC. | ||
| Consolidated Statements of Shareholders’ Equity | ||
| (Expressed in thousands of United States dollars, except share amounts) | ||
| December 31, 2020 and 2019 | ||
| Common | Additional | Accumulated other | Total | |||||||||||||||||||||||||||||||||||||||||
| shares | Other equity | paid-in- | Accumulated | comprehensive | shareholders' | |||||||||||||||||||||||||||||||||||||||
| outstanding | Share capital | instruments | capital | deficit | loss | equity | ||||||||||||||||||||||||||||||||||||||
| January 1, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of common shares on exercise of share units | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income for the year | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| December 31, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of common shares on exercise of share units | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares on conversions of convertible debt | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares on at-the-market public offering, net of costs incurred | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of the embedded conversion feature on convertible debt | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net loss for the year | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
3
| WESTPORT FUEL SYSTEMS INC. | ||
| Consolidated Statements of Cash Flows | ||
| (Expressed in thousands of United States dollars) | ||
| Years ended December 31, 2020 and 2019 | ||
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Cash flows from (used in) operating activities: | ||||||||||||||||||||
| Net income (loss) for the year from continuing operations | $ | ( | $ | |||||||||||||||||
| Items not involving cash: | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Unrealized foreign exchange gain | ( | ( | ||||||||||||||||||
| Deferred income tax | ( | ( | ||||||||||||||||||
| Income from investments accounted for by the equity method | ( | ( | ||||||||||||||||||
| Interest on long-term debt and accretion of royalty payable | ||||||||||||||||||||
| Impairment on long lived assets, net | ||||||||||||||||||||
| Inventory write-downs to net realizable value (note 6) | ||||||||||||||||||||
| Other income | ( | |||||||||||||||||||
| Change in bad debt expense | ||||||||||||||||||||
| Net cash used before working capital changes | ( | ( | ||||||||||||||||||
| Changes in non-cash operating working capital: | ||||||||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||||||||
| Inventories | ( | ( | ||||||||||||||||||
| Prepaid expenses | ( | ( | ||||||||||||||||||
| Accounts payable and accrued liabilities | ( | |||||||||||||||||||
| Warranty liability | ||||||||||||||||||||
| Net cash used in operating activities of continuing operations | ( | ( | ||||||||||||||||||
| Net cash used in operating activities of discontinued operations | ( | |||||||||||||||||||
| Cash flows from (used in) investing activities: | ||||||||||||||||||||
| Purchase of property, plant and equipment | ( | ( | ||||||||||||||||||
| Proceeds on sale of assets | ||||||||||||||||||||
| Dividends received from joint ventures | ||||||||||||||||||||
| Net cash from investing activities | ||||||||||||||||||||
| Cash flows from (used in) financing activities: | ||||||||||||||||||||
| Drawings on operating lines of credit and long-term facilities | ||||||||||||||||||||
| Repayment of operating lines of credit and long-term facilities | ( | ( | ||||||||||||||||||
| Proceeds from share issuance, net | ||||||||||||||||||||
| Repayment of royalty payable | ( | ( | ||||||||||||||||||
| Long-term asset securing debt | ( | |||||||||||||||||||
| Net cash from (used in) financing activities | ( | |||||||||||||||||||
| Effect of foreign exchange on cash and cash equivalents | ( | ( | ||||||||||||||||||
| Increase (decrease) in cash and cash equivalents | ( | |||||||||||||||||||
| Cash and cash equivalents, beginning of year (including restricted cash) | ||||||||||||||||||||
| Cash and cash equivalents, end of year (including restricted cash) | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
| WESTPORT FUEL SYSTEMS INC. | ||
| Consolidated Statements of Cash Flows (continued) | ||
| (Expressed in thousands of United States dollars) | ||
| Years ended December 31, 2020 and 2019 | ||
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Supplementary information: | ||||||||||||||||||||
| Interest paid | $ | $ | ||||||||||||||||||
| Taxes paid, net of refunds | ||||||||||||||||||||
Refer to note 17 for non-cash transactions.
See accompanying notes to consolidated financial statements.
5
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 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 on a global basis. The Company's components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas used in internal combustion engines.
2. Impact of COVID-19 and going concern:
(a) Impact of COVID-19
The COVID-19 pandemic had an adverse impact on the Company's business in 2020. The extent, duration and impact of COVID-19 is uncertain however in the second half of 2020, the Company's sales and customer demand rebounded compared to the first half of the year. The majority of the Company's production is from three facilities located in Northern Italy and one in the Netherlands. Sales from these facilities are primarily to Western and Eastern Europe which were significantly impacted by the COVID-19 pandemic. The Company's Brescia facility was closed from March 16, 2020 through May 4, 2020. This facility produces components in the light-duty Original Equipment Manufacturer ("OEM") business and assembles LNG tank systems 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 initial High Pressure Direct Injection ("Westport HPDI 2.0TM" or "HPDI") launch partner temporarily closed its facilities in mid-March in response to safety concerns and government restrictions arising from the spread of COVID-19. The Company's launch partner reopened its production facilities in late April and has since exceeded pre-COVID-19 sales volume levels for the HPDI product in the second half of 2020.
The Company's light-duty OEM and DOEM businesses are dependent on new vehicle sales with gaseous fuel systems. Sales revenue in these businesses declined significantly during the second quarter of 2020 due to the impact of the COVID-19 pandemic, but revenue increased in the second half of 2020, albeit to levels still below the comparative period in the prior year as the Company continues to recover. While revenue from these businesses recovered during the fourth quarter, the rise in COVID-19 cases and new virus variants may adversely affect customer demand going forward.
The Company's heavy-duty business was less impacted than the IAM and light-duty OEM businesses due to on-going need for freight transportation and the growing demand for more climate-friendly vehicles in markets with favourable fuel price economics. Demand for essential goods remains and consumer delivery of these goods has increased, resulting in stable demand for medium and heavy-duty trucks.
Management is closely monitoring and making efforts to mitigate the impact of COVID-19 on the Company's business. The Company has significant operations in Italy where there has been many cases. The Company also sources components from China. At this time, management does not see a material impact to its business; however, the situation is evolving and could become material if the supply chain disruption is prolonged or end customer demand declines.
6
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
2. COVID-19 impact and going concern (continued):
In response to pandemic, the Company undertook numerous financing actions and implemented multiple austerity measures, including actions to reduce costs, such as salary and other compensation deferrals and reductions, and delaying non-critical projects and capital expenditures to secure liquidity and improve its ability to fund its operations. The Company also worked closely with its key lenders to strengthen its liquidity and has made significant progress to reduce its cost of capital, summarized as follows:
•New loans and principal deferrals of $16,000 with Export Development Canada ("EDC");
•New loans in the amount of €27,000 ($31,590 ) with UniCredit S.p.A ("UniCredit") and Deutsche Bank;
•Restructuring of the convertible notes with Cartesian Capital Group and its affiliates ("Cartesian") to pay down the existing convertible notes from $17,500 to $10,000 ;
•Increasing the maximum draw amount on the revolving financing facility with HSBC Bank Canada ("HSBC") from $10,000 to $20,000 ;
•Conversion of a total of $5,000 convertible debt with Cartesian into common shares as of December 31, 2020; and
•Issuance of $14,376 gross proceeds in common shares from treasury to the public as of December 31, 2020 through the at-the-market equity offering program (the "ATM Program") launched on November 9, 2020.
The Company is also participating in government wage-subsidy and other support programs in the countries where it operates. The Company has received $6,093 in the year ended December 31, 2020 related to these programs. Refer to notes 13, 14(a), 14(b), and 17 in these consolidated financial statements for more details.
(b) Liquidity and Going Concern
In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
Management's evaluation has concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these consolidated financial statements are issued. These consolidated financial statements have therefore been prepared on the basis that the Company will continue as a going concern.
The assessment of the liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This includes judgments about the Company's future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, including forecasted increases in sales of the heavy-duty OEM business, forecasted costs and capital expenditures, amongst others. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.
7
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
2. COVID-19 impact and going concern (continued):
The Company believes it has taken into account all the possible impacts of known events arising from the COVID-19 pandemic in the preparation of the consolidated financial statements. However, changes in circumstances due to COVID-19 could impact management's judgments and estimates associated with the liquidity and going concern assessment, and other critical accounting assessments.
At December 31, 2020, the Company's net working capital was $70,876 (2019 - $53,591 ) including cash and cash equivalents of $64,262 (2019 - $46,012 ). The Company has another $2,177 in restricted cash pledged to the repayment of the debt it holds in its Italian subsidiaries recorded in other long-term assets. The Company's short-term and long-term debt, including the royalty payable, was $101,440 , net of deferred financing fees, of which $39,747 of this debt matures in 2021 and $7,451 of the royalty payable is due in 2021. The Company incurred a loss of $7,359 and negative cash flows from operations of $35,149 in the year ended December 31, 2020.
As part of its on-going monitoring of financial condition, management is evaluating foreseeable future cash flows from the Cummins Westport joint venture investment, as the joint venture term is scheduled to end on December 31, 2021. The joint venture pays significant dividends to the joint venture partners, with the Company receiving $20,758 as dividends in 2020 (2019 - $25,045 ). As per the joint venture agreement, both Cummins Inc. and the Company have equal rights to the joint venture’s intellectual property. However, there is no certainty that the Company will be able to monetize the intellectual property to the level of the current dividends received from the joint venture. See note 7(a) for additional details related to the Cummins Westport joint venture.
Management believes that the cash on hand at December 31, 2020 and the continued recovery in operational performance, coupled with the additional sources of capital mentioned above, will provide the cash flow necessary to fund operations over the next year to March 2022. The ability to continue as a going concern beyond March 2022 will be dependent on the Company's ability to generate sufficient positive cash flows from operations, successful conversion of or refinancing of the convertible debt, effective management of the Cummins Westport joint venture transition and on the Company's ability to finance its long term strategic objectives and operations (specifically the growth of the HPDI business). If, as a result of future events, the Company was to determine it was no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying, consolidated financial statements and the adjustments could be material.
3. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.
These consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
(b) Foreign currency translation:
8
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
3. Significant accounting policies (continued):
Transactions that are denominated in currencies other than the functional currencies of the Company’s or its subsidiaries' operations are translated at the rates in effect on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated to the applicable functional currency at the exchange rates 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.
As at June 30, 2018, the Company concluded that Argentina's economy is highly inflationary. As a result, the Company has remeasured the financial statements of the Argentinian subsidiary in the Company's reporting currency beginning July 1, 2018.
Except as otherwise noted, all amounts in these financial statements are presented in U.S. dollars. For the years presented, the Company used the following exchange rates:
| Year-end exchange rate as at: | Average for the year ended: | |||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||
| Canadian dollar | ||||||||||||||||||||||||||||||||
| Euro | ||||||||||||||||||||||||||||||||
| Argentina Peso | ||||||||||||||||||||||||||||||||
| RMB | ||||||||||||||||||||||||||||||||
| Swedish Krona | ||||||||||||||||||||||||||||||||
| Indian Rupee | ||||||||||||||||||||||||||||||||
(c) Cash and cash equivalents (including restricted cash):
(d) Accounts receivable, net:
9
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
3. Significant accounting policies (continued):
(e) Inventories:
(f) Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation is provided for as follows:
| Assets | Basis | Rate | ||||||||||||
| Buildings | Straight-line | |||||||||||||
| Computer equipment and software | Straight-line | |||||||||||||
| Furniture and fixtures | Straight-line | |||||||||||||
| Machinery and equipment | Straight-line | |||||||||||||
| Leasehold improvements | Straight-line | Lease term | ||||||||||||
Depreciation expense on machinery and equipment used in the production and manufacturing process is included in cost of revenue. All other depreciation is included in depreciation and amortization expense in the statement of operations and comprehensive loss.
(g) Long-term investments:
(h) Financial liabilities:
(i) Research and development costs:
(j) Intangible assets:
10
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
3. Significant accounting policies (continued):
(k) Impairment of long-lived assets:
The Company reviews its long-lived assets for impairment 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.
The Company has significant investments in property, plant and equipment related to its Westport HPDI 2.0™ business. The HPDI business is still in the early stages of commercialization, and, as a result, is currently generating losses. Based on the Company's current projections, meaningful increases in component sales, compared to 2020 levels, are expected, allowing the HPDI business to benefit from economies of scale and become profitable. If these assumptions are not realized, the Company may be required to record an impairment on these assets in future periods.
(l) Goodwill:
(m) Warranty liability:
(n) Revenue recognition:
11
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
3. Significant accounting policies (continued):
(o) Income taxes:
The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the temporary differences between the accounting basis and tax basis of the assets and liabilities and for loss carry-forwards, tax credits and other tax attributes, using the enacted tax rates in effect for the years in which the differences are expected to reverse. The effect of a change in tax rates on the deferred income tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred income tax assets to the extent the assets are more-likely-than-not to be realized. In making such a determination the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that, based on all available evidence, it is more-likely-than-not that some or all of the deferred income tax assets will not be realized, a valuation allowance is provided to reduce the deferred income tax assets.
The Company uses a two-step process to recognize and measure the income tax benefit of uncertain tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized if it is more-likely-than-not that the position will be sustained upon examination by a tax authority based solely on the technical merits of the position. A tax benefit that meets the more-likely-than-not recognition threshold is measured as the largest amount that is greater than 50% likely to be realized upon settlement with the tax authority. To the extent a full benefit is not expected to be realized, an income tax liability is established. Any change in judgment related to the expected resolution of an uncertain tax position is recognized in the year of such a change.
12
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
4. Accounting changes:
New accounting pronouncement adopted in 2020:
In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326)" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaced the former incurred 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 consolidated financial statements.
5. Accounts receivable:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Customer trade receivables | $ | $ | ||||||||||||
| Other receivables | ||||||||||||||
| Income tax receivable | ||||||||||||||
| Due from related parties (note 7(a)) | ||||||||||||||
| Allowance for doubtful accounts | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
6. Inventories:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Purchased parts and materials | $ | $ | ||||||||||||
| Work-in-process | ||||||||||||||
| Finished goods | ||||||||||||||
| $ | $ | |||||||||||||
During the year ended December 31, 2020, the Company recorded write-downs to net realizable value of approximately $507 (year ended December 31, 2019 - $57 ).
13
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
7. Long-term investments:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Cummins Westport Inc. (a) | $ | $ | ||||||||||||
| Weichai Westport Inc. (b) | ||||||||||||||
| Minda Emer Technologies Limited (1) | ||||||||||||||
| Other equity accounted investees | ||||||||||||||
| $ | $ | |||||||||||||
(1) Effective March 4, 2021, Minda Emer Technologies Limited changed its name to Minda Westport Technologies Limited.
(a) Cummins Westport Inc. ("CWI"):
The Company, indirectly through its wholly-owned subsidiary, Westport Power Inc., entered into a joint venture with Cummins Inc. ("Cummins") on March 7, 2001. The joint venture term is scheduled to end on December 31, 2021, 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.
On February 19, 2012, the joint venture agreement ("JVA") was amended and restated to provide for, among other things, clarification concerning the scope of products within CWI. In addition, the parties revised certain economic terms of the JVA. Prior to February 19, 2012, the Company and Cummins shared equally in the profits and losses of CWI. Under the amended 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 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, thus power is shared. Accordingly, neither party is the primary beneficiary. The joint venture term is scheduled to end on December 31, 2021 and, as per the JVA, effective from July 1, 2019, either Cummins or the Company can buy out the other's interest based on contractually defined terms and conditions.
The Company recognized its share of CWI’s income and received dividends as follows:
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Investment income from CWI | $ | $ | ||||||||||||||||||
| Dividends received | ||||||||||||||||||||
14
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
7. Long-term investments (continued):
(a) Cummins Westport Inc. (continued):
The Company has not historically provided and does not intend to provide financial or other support to CWI that the Company is not contractually required to provide. As at December 31, 2020, the Company has a related party accounts receivable balance of $74 (2019 - $272 ) due from CWI. During the year ended December 31, 2020, total expense recoveries from CWI were $1,611 (2019 - $1,903 ).
The carrying amount and maximum exposure to losses relating to CWI were as follows:
| Balance at December 31, 2020 | Balance at December 31, 2019 | |||||||||||||||||||||||||
| Carrying amount | Maximum exposure to loss | Carrying amount | Maximum exposure to loss | |||||||||||||||||||||||
| Equity method investment in CWI | $ | $ | $ | $ | ||||||||||||||||||||||
| Accounts receivable due from CWI | ||||||||||||||||||||||||||
Assets, liabilities, revenue and expenses of CWI, are as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and short-term investments | $ | $ | ||||||||||||
| Accounts receivable | ||||||||||||||
| Long-term assets: | ||||||||||||||
| Property, plant and equipment | ||||||||||||||
| Deferred income tax assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Current liabilities: | ||||||||||||||
| Current portion of warranty liability | $ | $ | ||||||||||||
| Current portion of deferred revenue | ||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Long-term liabilities: | ||||||||||||||
| Warranty liability | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | $ | $ | ||||||||||||
15
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
7. Long-term investments (continued):
(a) Cummins Westport Inc. (continued):
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Product revenue | $ | $ | ||||||||||||||||||
| Parts revenue | ||||||||||||||||||||
| Cost of revenue and expenses: | ||||||||||||||||||||
| Cost of product and parts revenue | ||||||||||||||||||||
| Research and development | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||
| Income from operations | ||||||||||||||||||||
| Interest and investment income | ||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||
| Income tax expense: | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Deferred | ( | |||||||||||||||||||
| Income for the year | $ | $ | ||||||||||||||||||
(b) Weichai Westport Inc. ("WWI"):
The Company, indirectly through its wholly-owned subsidiary, Westport Innovations (Hong Kong) Limited (“Westport HK”), is currently the registered holder of a 23.33 % equity interest in WWI. In April 2016, the Company sold to Cartesian entities a derivative economic interest granting it the right to receive an amount of future income received by Westport HK from WWI equivalent to having an 18.78 % equity interest in WWI and concurrently granted a Cartesian entity an option to acquire all of the equity securities of Westport HK for a nominal amount. The Company retained the right to transfer any equity interest held by Westport HK in WWI that was in excess of an 18.78 % interest in the event that such option was exercised. As a result of such transactions, the Company’s residual 23.33 % equity interest in WWI currently corresponds to an economic interest in WWI equivalent to just 4.55 %.
Cartesian is a global private equity firm based in New York that has investments in the Company. Various Cartesian entities are associated with these investments including Pangaea Two Management, LP; Pangaea Two Acquisition Holdings XIV, LLC, Pangaea Two Acquisition Holdings Parallel XIV, LLC. In addition, Peter Yu, the founder and managing partner of Cartesian, was elected as a Director of the Company in January 2016 and resigned as a Director of the Company in July 2020. See notes 14(b) and 15 for additional details of Cartesian’s investments in the Company.
16
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
8. Property, plant and equipment:
| Accumulated | Net book | |||||||||||||||||||
| December 31, 2020 | Cost | depreciation | value | |||||||||||||||||
| Land and buildings | $ | $ | $ | |||||||||||||||||
| Computer equipment and software | ||||||||||||||||||||
| Furniture and fixtures | ||||||||||||||||||||
| Machinery and equipment | ||||||||||||||||||||
| Leasehold improvements | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Accumulated | Net book | |||||||||||||||||||
| December 31, 2019 | Cost | depreciation | value | |||||||||||||||||
| Land and buildings | $ | $ | $ | |||||||||||||||||
| Computer equipment and software | ||||||||||||||||||||
| Furniture and fixtures | ||||||||||||||||||||
| Machinery and equipment | ||||||||||||||||||||
| Leasehold improvements | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
During the year ended December 31, 2020, an impairment charge of $479 was recorded related to property, plant and equipment (December 31, 2019 - nil ).
Total depreciation expense for the year ended December 31, 2020 was $12,288 (year ended December 31, 2019 - $13,409 ). The amount of depreciation expense included in cost of revenue for the year ended December 31, 2020 was $7,795 (year ended December 31, 2019 - $8,562 ).
17
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
9. Intangible assets:
| Accumulated | Net book | |||||||||||||||||||
| December 31, 2020 | Cost | amortization | value | |||||||||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||||||||||
| Technology | ||||||||||||||||||||
| Customer contracts | ||||||||||||||||||||
| Other intangibles | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Accumulated | Net book | |||||||||||||||||||
| December 31, 2019 | Cost | amortization | value | |||||||||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||||||||||
| Technology | ||||||||||||||||||||
| Customer contracts | ||||||||||||||||||||
| Other intangibles | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
During the year ended December 31, 2020, the Company recorded an impairment charge of nil (year ended December 31, 2019 - $688 ).
10. Goodwill:
A continuity of goodwill is as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||
| Impact of foreign exchange changes | ( | |||||||||||||
| Balance, end of year | $ | $ | ||||||||||||
Goodwill of $3,397 as at December 31, 2020, and $3,110 as at December 31, 2019, relates to the acquisition of Prins Autogassystemen Holding B.V. in 2014. The Company completed its annual assessment of impairment and concluded that the remaining goodwill of $3,397 related to the IAM business segment was not impaired as at December 31, 2020.
11. Accounts payable and accrued liabilities:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Trade accounts payable | $ | $ | ||||||||||||
| Accrued payroll | ||||||||||||||
| Accrued interest | ||||||||||||||
| Due to related parties | ||||||||||||||
| Taxes payable | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Other payables | ||||||||||||||
| $ | $ | |||||||||||||
18
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
12. Operating leases right-of-use assets:
The Company has entered into various non-cancellable operating lease agreements primarily for its manufacturing facilities and offices. The Company's leases have lease terms expiring between 2020 and 2029. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The average remaining lease term is approximately four years and the present value of the outstanding operating lease liability was determined applying a weighted average discount rate of 3.0 % based on incremental borrowing rates applicable in each location.
The components of lease cost are as follows:
| Years ended December 31, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Operating lease cost: | |||||||||||||||||
| Amortization of right-of-use assets | $ | $ | |||||||||||||||
| Interest | |||||||||||||||||
| Total lease cost | $ | $ | |||||||||||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total undiscounted cash flows | ||||||||
| Less: imputed interest | ( | |||||||
| Present value of operating lease liabilities | ||||||||
| Less: current portion | ( | |||||||
| Long term operating lease liabilities | $ | |||||||
19
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
13. Short-term debt:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Revolving financing facility (a) | $ | $ | ||||||||||||
| Credit facility (b) | ||||||||||||||
| Balance, end of year | $ | $ | ||||||||||||
The 2019 comparative figures have been revised to conform with current year presentation.
(a) The Company has a revolving financing facility with HSBC. This facility is secured by certain receivables of the Company and the maximum draw amount is $20,000 , based on the receivables outstanding. As the Company collects these secured receivables, the facility is repaid. The interest rate for this facility is the LIBOR rate plus 2.5 %.
(b) On July 23, 2020, the Company entered into a -year $10,000 non-revolving term credit facility with EDC to provide working capital support in response to short-term liquidity shortfalls as a result of the COVID-19 pandemic. This credit facility's interest rate is the U.S. Prime Rate plus 3.0 % per annum on amounts drawn and has no prepayment penalty or standby charge. As at December 31, 2020, the Company has drawn $6,000 on this facility. On February 16, 2021, the Company and EDC amended the credit facility availability period to February 16, 2021 and the Company will not draw any additional funds from this facility.
14. Long-term debt:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Term loan facilities, net of debt issuance costs (a) | $ | $ | ||||||||||||
| Convertible debt (b) | ||||||||||||||
| Senior financing (c) | ||||||||||||||
| Other bank financing (d) | ||||||||||||||
| Capital lease obligations (e) | ||||||||||||||
| Balance, end of year | ||||||||||||||
| Current portion | ( | ( | ||||||||||||
| Long-term portion | $ | $ | ||||||||||||
(a) On December 20, 2017, the Company entered into a loan agreement with EDC for a $20,000 non-revolving term facility. The Company incurred debt issuance costs of $1,013 related to this loan, which are being amortized over the loan term using the effective interest rate method. The loan bears interest at 6 % (prior to March 1, 2019, 9 % plus monitoring fees), payable quarterly, as well as quarterly principal repayments. On March 23, 2020, the Company and EDC amended the terms of the secured term loan to defer $6,000 in principal payments in 2020, to recommence payment of $2,000 quarterly starting March 15, 2021 and to extend the term of the loan until September 30, 2022. As at December 31, 2020 the amount outstanding for this loan was $13,618 , net of issuance costs, compared to $13,269 , net of issuance costs, as at December 31, 2019. The loan is secured by share pledges over Westport Power, Inc., Fuel Systems Solutions, Inc., Westport Luxembourg S.a.r.l and MTM 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 an annual rate of 2.3 % and interest is paid quarterly. This loan matures on December 31, 2023. As at December 31, 2020, the amount outstanding for this loan was $4,561 compared to $5,569 as at December 31, 2019, and was secured by a cash pledge of $1,356 , 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 bears interest at an annual rate of 1.8 % and interest is paid quarterly. This loan matures on September 30, 2023. As at December 31, 2020, the amount outstanding for this loan was $2,685 compared to $3,369 as at December 31, 2019, and is secured by a cash pledge of $821 , with these restricted funds also being recorded in other long-term assets.
20
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
14. Long-term debt (continued):
On May 20, 2020, the Company entered into a third Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.82 % with a maturity date of May 31, 2025. As at December 31, 2020, the amount outstanding for this loan was $5,558 . There is no security on the loan as it was made as part of the Italian government's COVID-19 Decreto Liquidità.
On July 17, 2020, the Company entered into a fourth Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.75 % with a maturity date of July 31, 2026. As at December 31, 2020, the amount outstanding for this loan was $18,650 . There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.
On August 11, 2020, the Company entered into a Euro denominated loan agreement with Deutsche Bank. The effective interest rate of this loan is 1.7 % with a maturity date of August 31, 2026. As at December 31, 2020, the amount outstanding for this loan was $8,659 . There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.
(b) 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 the twelve month anniversary of the closing at a conversion price of $2.17 per share. Interest is payable annually in arrears on December 31 of each year during the term. On July 24, 2020, Westport restructured the Tranche 2 Financing agreement and entered into a new financing agreement with Cartesian. Under the terms of the agreement, the Company agreed to pay down the principal amount of the existing convertible notes from $17,500 to $10,000 . Concurrent with such repayment, the maturity of the remaining amended notes was extended three years to July 31, 2023, the coupon rate was reduced from 9.0 % annually to 6.5 % annually, and the conversion price was revised from $2.17 per share to $1.42 per share. As of July 30, 2020, Peter Yu, founder and managing partner of Cartesian, resigned his seat on the Board of Directors of the Company.
During the fourth quarter of 2020, Cartesian exercised its option to convert principal amounts of $5,000 , plus accrued but unpaid interest on such principal amounts, into common shares of the Company (note 17).
On January 21, 2021, Cartesian exercised its option to convert a principal amount of $2,500 , plus accrued and unpaid interest on such principal amount, into 1,815,117 common shares of the Company.
(c) The senior financing facility was repaid on September 30, 2020.
(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 the Netherlands and certain accounts receivable.
(e) The Company has capital lease obligations that have terms of to five years at interest rates ranging from 2.3 % to 12.0 %.
Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-financial covenants. As of December 31, 2020, the Company is in compliance with all covenants under the financing arrangements.
21
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
14. Long-term debt (continued):
The principal repayment schedule of long-term debt is as follows as at December 31, 2020:
| Term loan facilities | Convertible debt | Other bank financing | Capital lease obligations | Total | ||||||||||||||||||||||||||||||||||||||||
| 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 and thereafter | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
15. Long-term royalty payable:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||
| Accretion expense | ||||||||||||||
| Repayment | ( | ( | ||||||||||||
| Balance, end of year | ||||||||||||||
| Current portion | ( | ( | ||||||||||||
| Long-term portion | $ | $ | ||||||||||||
On January 11, 2016, the Company entered into a financing agreement with Cartesian to support the Company's global growth initiatives. The financing agreement immediately provided $17,500 in cash (the “Tranche 1 Financing”). In consideration for the funds provided to the Company, Cartesian is entitled to royalty payments based on the greater of (i) a percentage of amounts received by the Company on select HPDI systems and CWI joint venture income through 2025 and (ii) stated fixed amounts per annum subject to adjustment for asset sales. The carrying value is being accreted to the expected redemption value using the effective interest method, which is approximately 23 % per annum. Amounts due to Cartesian are secured by an interest in the Company'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 allows the Company to sell certain assets in exchange for prepayment of the Cartesian royalty. Cartesian is paid 15 % of the net proceeds from these asset sales to a maximum of $15,000 , with these payments being allocated on a non-discounted basis to future years' minimum payments.
As of December 31, 2020, the total royalty prepayments paid to Cartesian as a result of the Consent Agreement was $11,912 .
The estimated repayments including interest are as follows, for the years ending December 31:
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| $ | ||||||||
22
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
16. Warranty liability:
A continuity of the warranty liability is as follows:
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||||||
| Warranty claims | ( | ( | ||||||||||||||||||
| Warranty accruals | ||||||||||||||||||||
| Change in estimate | ( | ( | ||||||||||||||||||
| Impact of foreign exchange changes | ( | |||||||||||||||||||
| Balance, end of year | ||||||||||||||||||||
| Less: Current portion | ( | ( | ||||||||||||||||||
| Long-term portion | $ | $ | ||||||||||||||||||
During the year ended December 31, 2020, the Company recorded a $11,224 warranty accrual related to a field service campaign for the replacement of a pressure release device that the Company manufactures and sells to OEM customers. No safety events or field performance issues have been identified from this product. The Company recorded an insurance recovery of $8,865 related to this issue during the year ended December 31, 2020, including $3,521 in other receivables and $5,344 as an other long-term asset .
17. Share capital, stock options and other stock-based plans:
On November 9, 2020, the Company filed a prospectus supplement to establish an ATM Program which allows the Company to issue up to $50,000 of common shares from treasury to the public from time to time, at the Company's discretion and subject to regulatory requirements. During the year ended December 31, 2020, the Company issued 3,215,970 common shares at a weighted average share price of $4.47 per share for gross proceeds of $14,376 . Transaction costs of $472 , including commission of $288 , were incurred resulting in net proceeds from the ATM Program equity issuance of $13,904 .
Subsequent to the year ended December 31, 2020, the Company issued an additional 1,819,712 common share at weighted average share price of $7.26 per share for gross proceeds of $13,211 , net of total transaction cost of $405 , including commission of $264 resulting in net proceeds of $12,806 .
In November and December 2020, Cartesian converted a total of $5,000 principal, plus accrued interest, of the convertible debt (note 14(b)) into 3,607,468 common shares at $1.42 per share.
During the year ended December 31, 2020, the Company issued 829,553 common shares upon exercises of share units (year ended December 31, 2019 – 3,036,082 common shares). The Company issues shares from treasury to satisfy share 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 or vested and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital.
During the year ended December 31, 2020, the Company recognized $2,368 (year ended December 31, 2019 - $1,474 ) of stock-based compensation associated with the Westport Omnibus Plan.
23
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
17. Share capital, stock options and other stock-based plans (continued):
A continuity of the Units issued under the Westport Omnibus Plan are as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Number of units | Weighted average grant date fair value (CDN $) | Number of units | Weighted average grant date fair value (CDN $) | |||||||||||||||||||||||||||||||||||
| Outstanding, beginning of year | $ | $ | ||||||||||||||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||||||||||||||
| Vested and exercised | ( | ( | ||||||||||||||||||||||||||||||||||||
| Forfeited/expired | ( | ( | ||||||||||||||||||||||||||||||||||||
| Outstanding, end of year | $ | $ | ||||||||||||||||||||||||||||||||||||
| Units outstanding and exercisable, end of year | $ | $ | ||||||||||||||||||||||||||||||||||||
During the year ended December 31, 2020, 525,807 share units were granted to directors, executives and employees (2019 - 1,877,101 ). This included 504,907 Restricted Share Units ("RSUs") (2019 - 971,051 ) and 20,900 Performance Share Units ("PSUs") (2019 - 906,050 ). Values of RSU awards are generally determined based on the fair market value of the underlying common shares on the date of grant. RSUs typically vest over a -year period so the actual value received by the individual depends on the share price on the day such RSUs are settled for common shares, not the date of grant. PSU awards do not have a certain number of common shares that will be issued over time, but are based on future performance and other conditions tied to the payout of the PSU.
(b) Aggregate intrinsic values:
The aggregate intrinsic value of the Company’s share units at December 31, 2020 and 2019 are as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| CDN$ | CDN$ | |||||||||||||
| Share units: | ||||||||||||||
| Outstanding | $ | $ | ||||||||||||
| Exercisable | ||||||||||||||
(c) Stock-based compensation:
Stock-based compensation associated with the Unit plans is included in operating expenses as follows:
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Cost of revenue | $ | $ | ||||||||||||||||||
| Research and development | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||
24
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
18. Income taxes:
(a) The Company’s income tax provision differs from that calculated by applying the combined enacted Canadian federal and provincial statutory income tax rate of 27 % for the year ended December 31, 2020 (year ended December 31, 2019 – 27 %) as follows:
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | $ | ( | $ | |||||||||||||||||
| Expected income tax expense (recovery) | ( | |||||||||||||||||||
| Increase (reduction) in income taxes resulting from: | ||||||||||||||||||||
| Non-deductible stock-based compensation | ||||||||||||||||||||
| Other permanent differences | ||||||||||||||||||||
| Withholding taxes and other foreign taxes | ||||||||||||||||||||
| Change in enacted tax rates | ( | |||||||||||||||||||
| Foreign tax rate differences, foreign exchange and other adjustments | ( | |||||||||||||||||||
| Non-taxable income from equity investment | ( | ( | ||||||||||||||||||
| Change in valuation allowance | ||||||||||||||||||||
| Income tax expense (recovery) | $ | $ | ||||||||||||||||||
25
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
18. Income taxes (continued):
(b) The significant components of the deferred income tax assets and liabilities are as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Deferred income tax assets: | ||||||||||||||
| Net loss carry forwards | $ | $ | ||||||||||||
| Intangible assets | ||||||||||||||
| Property, plant and equipment | ||||||||||||||
| Warranty liability | ||||||||||||||
| Foreign tax credits | ||||||||||||||
| Inventory | ||||||||||||||
| Research and development | ||||||||||||||
| Other | ||||||||||||||
| Total gross deferred income tax assets | ||||||||||||||
| Valuation allowance | ( | ( | ||||||||||||
| Total deferred income tax assets | $ | $ | ||||||||||||
| Deferred income tax liabilities: | ||||||||||||||
| Intangible assets | $ | ( | $ | ( | ||||||||||
| Property, plant and equipment | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Total deferred income tax liabilities | $ | ( | $ | ( | ||||||||||
| Total net deferred income tax liabilities | $ | ( | $ | ( | ||||||||||
The valuation allowance is reviewed on a quarterly basis to determine if, based on all available evidence, it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent on the generation of sufficient taxable income during the future periods in which those temporary differences are expected to reverse. If the evidence does not exist that the deferred income tax assets will be fully realized, a valuation allowance has been provided.
The deferred income tax assets have been reduced by the uncertain tax position presented in note 18(f).
26
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
18. Income taxes (continued):
(c) The components of the Company’s income tax expense (recovery) are as follows:
| Income tax expense (recovery) | ||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||
| before income | ||||||||||||||||||||||||||
| taxes | Current | Deferred | Total | |||||||||||||||||||||||
| Year ended December 31, 2020 | ||||||||||||||||||||||||||
| Italy | $ | $ | $ | ( | $ | |||||||||||||||||||||
| United States | ( | ( | ||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||
| Other | ( | |||||||||||||||||||||||||
| $ | ( | $ | $ | ( | $ | |||||||||||||||||||||
| Year ended December 31, 2019 | ||||||||||||||||||||||||||
| Italy | $ | $ | $ | ( | $ | |||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||
| Other | ( | |||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
27
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
18. Income taxes (continued):
(d) The Company has loss carry-forwards in the various tax jurisdictions available to offset future taxable income as follows:
| Expiring in: | 2021 | 2022 | 2023 | 2024 and later | Total | |||||||||||||||||||||||||||||||||
| Canada | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Italy | ||||||||||||||||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||||||||||||||
| Sweden | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Certain tax attributes are subject to an annual limitation as a result of the acquisition of Fuel Systems which constitutes a change of ownership as defined under Internal Revenue Code Section 382.
(e) The Company has not recognized a deferred income tax liability for certain undistributed earnings of foreign subsidiaries which are essentially investments in those foreign subsidiaries and are permanent in duration.
(f) The Company records uncertain tax positions in accordance with ASC No. 740, Income Taxes. As at December 31, 2020, the total amount of the Company’s uncertain tax benefits was $3,852 (year ended December 31, 2019 - $3,652 ). If recognized in future periods, the uncertain tax benefits would affect our effective tax rate. The Company files income tax returns in Canada, the U.S., Italy, and various other foreign jurisdictions. All taxation years remain open to examination by the Canada Revenue Agency, the 2017 to 2020 taxation years remain open to examination by the Internal Revenue Service and the 2015 to 2020 taxation years remain open to examination by the Italian Revenue Agency, and various years remain open in the other foreign jurisdictions.
19. Related party transactions:
The Company's related parties are CWI, directors, officers and shareholders which own greater than 10% of the Company's shares.
(b) Other transactions with related parties:
Peter Yu, founder and managing partner of Cartesian, was appointed as a Director of the Company in January 2016 in connection with the Investment Agreement entered into with Cartesian in January 2016. As a consequence, the convertible debt (note 14(b)) and royalty payable (note 15), amounts due to Cartesian were considered as related party balances. As of July 30, 2020, Peter Yu resigned and ceased to be a related party to the Company.
28
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
20. 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 a third party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’s product 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 uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred significant costs 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 the information currently available, the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
29
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
21. Segment information:
Effective January 2020, the Company modified the reporting of business segments to allow for increased transparency into the Company's customer channels and the respective products the Company sells to those customers. Accordingly, from that date, all product information and other technology related activities previously reported under the Transportation segment have been disaggregated into two segments, OEM and IAM. All comparative figures presented have been revised to reflect this change. Under this organizational structure, the Company manages and reports 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 business performance 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 method of accounting, an adjustment is reflected in the tables below to reconcile the segment measures to the Company’s consolidated matters.
The 2019 comparative figures have been revised to reflect the change in business segments.
Financial information by business segment as follows:
| Year ended December 31, 2020 | |||||||||||||||||
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income (loss) | ||||||||||||||
| OEM | $ | $ | ( | $ | $ | ||||||||||||
| IAM | |||||||||||||||||
| Corporate | ( | ||||||||||||||||
| CWI - 50% | |||||||||||||||||
| Total segment | |||||||||||||||||
| Less: CWI - 50% | ( | ( | ( | ||||||||||||||
| Total consolidated | $ | $ | ( | $ | $ | ||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||||
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | ||||||||||||||
| OEM | $ | $ | ( | $ | $ | ||||||||||||
| IAM | |||||||||||||||||
| Corporate | ( | ||||||||||||||||
| CWI - 50% | |||||||||||||||||
| Total segment | |||||||||||||||||
| Less: CWI - 50% | ( | ( | ( | ||||||||||||||
| Total consolidated | $ | $ | ( | $ | $ | ||||||||||||
| Discontinued operations | $ | — | $ | ( | $ | — | $ | — | |||||||||
30
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
21. Segment information (continued):
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Total additions to long-lived assets, excluding business combinations: | ||||||||||||||||||||
| OEM | $ | $ | ||||||||||||||||||
| IAM | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| CWI - 50% | ||||||||||||||||||||
| Total Segment | ||||||||||||||||||||
| Less: CWI - 50% | ||||||||||||||||||||
| Total consolidated | $ | $ | ||||||||||||||||||
It is impracticable for the Company to provide geographical revenue information by individual countries; however, it is practicable to provide it by geographical regions. Product and service and other revenues are attributable to geographical regions based on location of the Company’s customers and presented as a percentage of the Company’s product and service revenues are as follows:
| % of total revenue | ||||||||||||||||||||
| Years ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Europe | % | % | ||||||||||||||||||
| Americas | % | % | ||||||||||||||||||
| Asia | % | % | ||||||||||||||||||
| Other | % | % | ||||||||||||||||||
During the year ended December 31, 2020, total revenue of $51,580 (2019 - $33,947 ), or 20 % (2019 - 11 %) of total revenue, was generated from our HPDI OEM launch partner.
As at December 31, 2020, total goodwill of $3,397 (December 31, 2019 - $3,110 ) was allocated to the OEM segment.
As at December 31, 2020, total long-term investments of $12,838 (December 31, 2019 - $9,850 ) were allocated to the Corporate segment and $1,116 (December 31, 2019 - $737 ) to the OEM segment.
31
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
21. Segment information (continued):
Total assets are allocated as follows:
| Total assets by operating segment | ||||||||||||||
| Years ended December 31 | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| OEM | $ | $ | ||||||||||||
| IAM | ||||||||||||||
| Corporate | ||||||||||||||
| CWI - 50% | ||||||||||||||
| Total segment assets | ||||||||||||||
| Less: CWI - 50% | ( | ( | ||||||||||||
| Total consolidated assets | $ | 346,263 | $ | |||||||||||
The Company’s long-lived assets consist of property, plant and equipment (fixed assets), intangible assets and goodwill.
Long-lived assets information by geographic area:
| December 31, 2020 | Property, plant and equipment | Intangible assets and goodwill | Total | |||||||||||||||||
| Italy | $ | $ | $ | |||||||||||||||||
| Canada | ||||||||||||||||||||
| United States | ||||||||||||||||||||
| Rest of Europe | ||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Less: equity investee long-lived assets | ( | ( | ||||||||||||||||||
| Total consolidated long-lived assets | $ | $ | $ | |||||||||||||||||
| December 31, 2019 | Property, plant and equipment | Intangible assets and goodwill | Total | |||||||||||||||||
| Italy | $ | $ | $ | |||||||||||||||||
| Canada | ||||||||||||||||||||
| United States | ||||||||||||||||||||
| Rest of Europe | ||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Less: equity investee long-lived assets | ( | ( | ||||||||||||||||||
| Total consolidated long-lived assets | $ | $ | $ | |||||||||||||||||
32
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
22. Financial Instruments:
Financial risk management
The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk.
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 has a history of losses and negative cash flows from operations since inception. At December 31, 2020, the Company has $64,262 of cash, cash equivalents and short-term investments, including of $75 restricted cash (see note 3(c)).
The following are the contractual maturities of financial obligations as at December 31, 2020:
| Carrying amount | Contractual cash flows | < 1 year | 1-3 years | 4-5 years | >5 years | |||||||||||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Short-term debt (note 13) | ||||||||||||||||||||||||||||||||||||||
| Term loan facilities (note 14(a)) | ||||||||||||||||||||||||||||||||||||||
| Convertible debt (note 14(b)) | ||||||||||||||||||||||||||||||||||||||
| Other bank financing (note 14(d)) | ||||||||||||||||||||||||||||||||||||||
| Capital lease obligations (note 14(e)) | ||||||||||||||||||||||||||||||||||||||
| Long-term royalty payable (note 15) | ||||||||||||||||||||||||||||||||||||||
| Operating lease commitments (note 12) | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Credit risk
Credit risk arises from the potential that a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s cash and cash equivalents, short-term investments and accounts receivable. The Company manages credit risk associated with cash and cash equivalents by regularly investing primarily in liquid short-term paper issued by major banks. The Company monitors its portfolio and its policy is to diversify its investments to manage this potential risk.
The Company is also exposed to credit risk with respect to uncertainties as to timing and amount of collectability of accounts receivable and other receivables. As at December 31, 2020, 84 % (December 31, 2019 - 85 %) of accounts receivable relates to customer receivables, and 16 % (December 31, 2019 - 15 %) relates to amounts due from related parties and income tax authorities for value added taxes and other tax related refunds. In order to minimize the risk of loss for customer receivables, the Company’s extension of credit to customers involves review and approval by senior management as well as progress payments as contracts are executed. Most sales are invoiced with payment terms in the range of 30 days to 90 days. Refer to note 3(d) for the Company's policy with respect to an allowance for doubtful receivables.
33
| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
22. Financial Instruments (continued):
Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in foreign currency exchange rates. The Company conducts a significant portion of its business activities in foreign currencies, primarily the U.S. dollar and the Euro. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our consolidated financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations, financial condition and cash flows.
Cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and long-term debt that are denominated in foreign currencies will be affected by changes in the exchange rate between the Canadian dollar and these foreign currencies. The Company’s functional currency is the Canadian dollar.
The fluctuation in the average U.S. dollar in recent years has resulted in material impacts on our revenues in those years. If the U.S. dollar continues to fluctuate against other currencies, we will experience additional volatility in our financial statements.
A 5% increase/decrease in the relative value of the U.S. dollar against the Canadian dollar and Euro compared to the exchange rates in effect for the year ended December 31, 2020 would have resulted in lower/higher income from operations of approximately $1,001 . This assumes a consistent 5% appreciation in the U.S. dollar against the Canadian dollar and the Euro throughout the fiscal year. The timing of changes in the relative value of the U.S. dollar can affect the magnitude of the impact that fluctuations in foreign exchange rates have on our income from operations.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to interest rate risk on certain short-term and long-term debt with variable rates of interest. The Company limits its exposure to interest rate risk by continually monitoring and adjusting portfolio duration to align to forecasted cash requirements and anticipated changes in interest rates.
If interest rates for the year ended December 31, 2020 had increased or decreased by 50 basis points, with all other variables held constant, net loss for the year ended December 31, 2020 would have increased or decreased by $307 .
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| WESTPORT FUEL SYSTEMS INC. | ||
| Notes to Consolidated Financial Statements | ||
| (Expressed in thousands of United States dollars except share and per share amounts) | ||
| Years ended December 31, 2020 and 2019 | ||
22. Financial Instruments (continued):
Fair value of financial instruments
The carrying amounts reported in the balance sheets 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 our interest in CWI, WWI, Minda Emer Technologies Limited, and other investments. CWI is the most significant of the long-term investments and is accounted for using the equity method. WWI and other investments are accounted for at fair value.
The carrying values reported in the consolidated balance sheet for obligations under capital and operating leases, which are based upon discounted cash flows, approximate their fair values.
The carrying value of the term loan facilities, convertible debt, and other bank financing included in the long-term debt (note 14) do not materially differ from their fair value as at December 31, 2020, as the majority of the term loan facilities, convertible debt, and other bank financing were raised or amended recently.
The Company categorizes its fair value measurements for items measured at fair value on a recurring basis into three categories as 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 observable market 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–derived valuations with inputs that are observable in active markets. Level 3 valuations are undertaken in the absence of reliable Level 1 or Level 2 information.
As at December 31, 2020, cash and cash equivalents and short-term investments are measured at fair value on a recurring basis and are included in Level 1.
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