Westport Fuel Systems Annual Report 2013

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CHANGING THE WAY
THE WORLD MOVES

2013 ANNUAL REPORT

TABLE OF CONTENTS

LETTER TO SHAREHOLDERS

SUSTAINABILITY REPORT

MANAGEMENT’S DISCUSSION & ANALYSIS

REPORTS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION FOR SHAREHOLDERS

PLEASE NOTE,

Interim and Annual Financial Statements and Management's
Discussion are always available, when released, on the Westport
website, WESTPORT.COM.

Westport encourages you to make this environmentally
responsible choice.

ii » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

LETTER TO SHAREHOLDERS

LETTER TO ShAREhOLdERS

TO OUR
ShAREhOLdERS,

At the end of a fiscal year, we believe it is important for
us to review the year and mark our progress against our
strategic plans. 2013 was a transition year for Westport.
We went through a considerable change as we reconfigured
our business from our market creation, demonstration
project culture, to a focused product business in a
strong growth market. We will start reviewing the year
by reiterating the foundations for our strategic plan.

First, transportation and energy, what we all know as the
world’s two largest industries, are going through once-a-
century disruption where fundamental economic forces
are driving change. For transport, it is the high price
of oil, from which virtually 100% of our transportation
fuels are derived. As a result, this has opened up an
opportunity for a new energy source. It is important to
understand that this is an economic issue, and the driving
force for change is the quest for a lower cost fuel.

Second, energy is going through a technology-driven
disruption in both oil and gas extraction and distribution.
Here we need to focus on the fact that the oil boom is about
extracting oil from previously impossible or uneconomic
resources, and high prices are driving innovations. With
natural gas, it is the opposite. We have created a breakthrough
that has opened up staggering quantities of low cost natural
gas. There is a tremendous amount of global investment
underway to bring natural gas to market and make it a truly
global energy source, like oil. When you put the two industries
together, you have our fundamental thesis where we will see
natural gas as a primary fuel for transportation applications.

Westport is focused on where the market is going to be,
not where it has been or where it is today. The market
ahead of us is coming quickly and breakthrough products
are coming fast, from passenger cars in Russia or China to
locomotives in the U.S. We believe the real advantage is the
emerging market for fully developed, original equipment
manufacturer (“OEM”)-built products, with the same
high quality standards as current products and using the
traditional automotive industry channels and supply chain.

We have concluded that the first priority should be
markets where customers spend a great deal on fuel;
regulation or policy are encouraging a change; and
there is a full ecosystem of product distribution, service,
fuelling infrastructure, and customer awareness. At
Westport, we spent over a decade educating, encouraging,
demonstrating, and proving out the necessary components
of that ecosystem in different markets around the world.

At the end of 2013, we believe the ecosystem was in place.
We were able to survey around the world and were pleased
with the proof that we are on the right track. For example,
revenues from our joint ventures (“JVs”) in North America
and China, combined with revenue from Westport’s direct
sales were over $900 million last year. Furthermore,
natural gas fuelling infrastructure is emerging globally,
and a small but highly capable and scalable supply chain
is developing. Growth is apparent all over the world.

We spent the last year reviewing our current product portfolio,
all of our market opportunities, and making the appropriate
shifts in the business in order to prioritize the most important
strategic decisions and optimize our position in the emerging
global market for fully integrated OEM-built natural gas
vehicles. We are entering 2014 with clear objectives:

iNCREASE hEAVY-dUTY
NATURAL GAS TRUCKS
MARKET PENETRATiON
iN NORTh AMERiCA

We look at 2014 as the critical breakthrough year in heavy-
duty trucks in North America. We expect to see 3% to 5%
market penetration in Class 8 trucks for natural gas this
year, which is up from virtually zero in 2011. At that rate,
we would have a total population on the road of about
12,000 trucks over the next couple of years, which would
consume on average about 18,000 gallons of fuel per year
per truck. This is becoming a material amount of energy
that is being allocated to the Class 8 truck market.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 1

LETTER TO ShAREhOLdERS

If we are successful in getting that 3% to 5% market
penetration, we believe the growth trajectory is clear. That
is growth from approximately 1.7% in 2013, and we do
not think there is anything to stop it from going much
higher. Westport has 100% content in those natural gas
trucks sold in North America this year, with Cummins
Westport engines supplemented by sales of the Westport
iCE PACK™ liquefied natural gas (“LNG”) Tank System.

CONTiNUE SiGNiFiCANT
GROWTh iN ChiNA

We believe 2014 is also going to be a breakthrough year
for us in China. Our Weichai Westport JV shipped over
38,000 engines last year and we expect it to grow again in
2014. Approximately 70% of those sales went into trucking
applications. Westport will begin supplying components and
high pressure direct injection (“HPDI”) kits to the Weichai
Westport JV in 2014 as we shift our strategy from market
creation to product sales through the JV. This is a significant
opportunity and we are excited to continue to work with
Weichai to lead this energy transition in China. The JV has also
announced a capacity expansion that will position us to ship up
to 100,000 natural gas engines annually by the end of 2014.

GENERATE PROFiTABLE
GROWTh iN ThE
AUTOMOTiVE MARKET

On the automotive side, we have two paths to market:

»» The Applied Technologies business is well positioned

for growth as our OEM customers expand their
product offerings globally and as sales develop. We
manufacture various specialized natural gas components,
such as tank valves, regulators, and fuel lines.

»» Through our complete vehicle systems, including our

work with Volvo Car and Ford, we have taken big steps to
position ourselves for profitable growth. For example,
last year we acquired BAF Technologies, Inc. and
combined it with our Westport WiNG™ Power System
division to create the single largest Ford Qualified Vehicle
Modifier business. Similarly, with the launch of the
new Volvo V60 model in Europe and the improvements
we have made to that business, we expect to be in a
position for profitable growth in 2014 and beyond.

2 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

dEVELOP WESTPORT OFF-
ROAd SYSTEMS BUSiNESS

We are seeing quick enthusiasm in the rail industry, and
we are well positioned to sell Westport™ LNG Tenders and
engine systems in this market over the next few years. The
Westport™ LNG Tender is a brand new product and is
emerging as a very interesting business for Westport. We
believe you will see the evidence of this develop in 2014.

At the end of 2013, we discontinued the production of
the first generation of Westport™ HPDI. Our investment
was essential in establishing the opportunity for natural
gas heavy-duty trucks around the world. However, its
mission in market creation and development has been
accomplished. We will continue to support our existing
customers, and we have allowed for that going forward with
a substantial provision on our balance sheet. The next
generation of Westport™ HPDI products will be emerging,
and the business model we have developed with our OEM
partners will be more scalable and profitable for Westport.

PATh TO PROFiTABiLiTY
MiLESTONES

All of the products mentioned above are in the market
today and are going to form the basis for our stated goal
of reaching Adjusted EBITDA positive in our combined
operating business units by the end of 2014. This is a
very important goal for us. The swing from a $97 million
Adjusted EBITDA loss for the year ended 2013 to Adjusted
EBITDA positive on a consolidated basis by the end of 2015
is a real challenge, but we have the roadmap in front of us.

The end game is not a breakeven business. We are
continuing to invest heavily in technology and product
development with our partners, and we believe we are
developing a sustainable, competitive position. As the
market for natural gas vehicles emerges over the next few
years, Westport will be the leading partner for OEMs
as they launch new products. We are confident that we
have a strong lead on competition and we can foresee
considerable flexibility in our plans as the markets mature.

In conclusion, our goals for 2014 are:

1 To reach Adjusted»EBITDA»positive»from»our»combined»
operating»business»units»by»Q4 and continued profitable
growth in our JVs.

2 To carefully»and»prudently»manage»our»investment»
programs to ensure that operational cash flow from
Westport direct sales, plus our JVs’ dividends, will cover
our investments and allow Westport to achieve overall
consolidated Adjusted EBITDA positive by the end of
2015; while maintaining the right investment and the
right priorities to ensure our continued leadership of the
industry.

3 To deliver»on»contractual»commitments to our strategic
partners and key OEMs, and develop attractive new
customer relationships. We will continue to help removing
barriers to the rapid adoption of natural gas vehicles around
the world.

We have defined the trajectory and identified a meaningful
scorecard that tracks our path to profitability. The industry
is growing beyond many expectations and we firmly believe
that Westport and our shareholders are in the right place
to benefit from the opportunities in front of us. We
believe 2014 is going to be a spectacular year for us.

On behalf of our Board of Directors and management
team, and our employees around the world, we
thank you for your continued support.

Sincerely,

David R. Demers
Chief Executive Officer

Bill E. Larkin
Chief Financial Officer

LETTER TO ShAREhOLdERS

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 3

SUSTAiNABiLiTY REPORT

SUSTAINABILITY REPORT

We are pleased to present our 2013 Sustainability Report: our
annual update to Westport’s ongoing effort to support the
transition to a sustainable energy future. Westport has grown
from an innovative research experiment to a global operating
company. Our strength is the result of our willingness
to challenge the limits of what is possible and transform
transportation systems to address sustainability concerns such
as air quality, energy security and greenhouse gas emissions. In
2013 we have been challenged to adapt to our recent growth as
we continue to support new markets for cleaner gaseous vehicles
and change the way the world moves.

Sustainability underlies everything we do

We believe that business success isn’t solely measured “company
to customer” but through our relationships with a range of
stakeholders. As a clean technology leader, we recognize
the responsibility we have to our employees, customers,
partners, shareholders, suppliers, governments, the natural
environment, academic institutions, non-government
organizations (“NGOs”) and the neighbourhoods in which
we live and work. We seek to engage partners on every level
to collaboratively shift far-reaching global energy systems to
respond together to the issues that concern us all.

The decarbonisation of the transport sector requires vision,
leadership and boldness. Governments around the world are
recognizing the economic, energy security, environmental and
job creation benefits of natural gas vehicles. Environmental
NGOs want to learn more about how reducing the carbon
intensity of fuels has the potential to meaningfully reduce
emissions from heavy-duty vehicles. Our partners see a
tremendous opportunity to revolutionize how we, as global
citizens, move freight and people. Westport’s ongoing
technological innovation and drive to catalyze real change will
continue to address the demands of all of our stakeholders in
the coming year.

Natural Gas in 2013: Cementing
the Foundation of our
Sustainable Energy Future

Natural gas is positioned as the cornerstone of the world’s
transition to sustainable energy systems. Energy analysts and
major producers continue to project natural gas to be the
fastest growing traditional energy source for the foreseeable
future. Governments anticipate the key role natural gas
will play in their economies and are devoting funding to
infrastructure projects that will smooth this key transition, with
prominent commitments in the United States, Europe, and

4 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

China.[1] President Barack Obama has recognized natural gas
as “the bridge fuel that can power the U.S. economy”.[2] And
forward-thinking fleets are investing in natural gas vehicles and
fueling infrastructure today in anticipation of its long-term
contribution towards the resilience and diversification of their
vehicle fleets.

UPS is one of the most prominent nationwide alternative fuel
fleets. UPS’s Package Operations consists of a delivery fleet of
almost 95,000 vehicles, which currently include over 2,500
alternative-fuelled vehicles and has ambitious long-term targets
for shifting away from gasoline and diesel.[3] UPS has made
natural gas, particularly liquefied natural gas (“LNG”) with its
benefits for long-haul heavy-duty hauling, one of its cornerstone
efforts to protect itself against volatile fuel pricing. They hail
LNG as “one of the most promising alternatives to conventional
diesel fuel for trucks” due to their “strong pulling power and long
range […] while offering a lower emission profile.”[4]

COLLABORATiON iN 2013

Business for Social Responsibility

Business for Social Responsibility (“BSR”) is a global network
of more than 250 companies working to create a just and
sustainable world. Westport joined BSR in 2012 and is a
founding member of the Future of Fuels working group.[5]
The sustainability of energy and transportation has become
increasingly important for business and it presents a range of
challenges and opportunities for companies across the entire
fuel value chain. This leadership initiative brings together
experts from the private, non-profit, public and academic
sectors to help companies understand the greatest sustainability
challenges of their transportation fuel system and how to
mitigate those impacts.

While greenhouse gas or criteria air pollutant emission
reductions have traditionally been the driver of cleaner, low-
carbon fuels and advanced vehicles, other sustainability impacts
such as human rights, affordability, energy security, community
health, water quality, occupational health and safety and land
use must also be carefully considered.

reuters.com/article/2012/10/31/china-gas-policy-idUSL3E8LV5dN20121031
bluecorridor.org

2. ngvjournal.com/en/home/item/14620

3. responsibility.ups.com/community/Static%20Files/sustainability/

UPS_CSR2012_highlights-News_072213.pdf

4. ibid

5. Other Future of Fuels founding members include Coca-Cola, GE Foundation, Nike,
Shell, Suncor Energy, U.S. department of defense, UPS, Volvo Group and Walmart.

Carbon Disclosure Project

The Carbon Disclosure Project (“CDP”) is an international,
not-for-profit organization providing the only global system
for companies to measure, disclose, manage and share
environmental performance information. It represents
722 investors with $87 trillion in assets and holds the largest
collection of self-reported corporate climate data.[6]

Westport prepared its first CDP report in 2012 and received
a score of 60 within performance band E. In 2013, we
improved our score through the disclosure of additional
performance metrics to 71 within performance band D. As a
clean technology leader, we recognize that we must account for
and responsibly reduce the environmental impact of natural gas
engines and vehicles. Our work with the CDP is a major step
in expanding the reach and rigour of Westport’s sustainability
transparency.[7]

TABLE 1

CARBON DISCLOSURE PROJECT

YEAR

2014

2013

2012

PROGRAM

STATUS

DISCLOSURE
SCORE

PERFORMANCE
BAND

Climate Change 2014

Unknown Not Scored Not Scored

Climate Change
(Investor CDP)

Submitted

Investor CDP

Submitted

Carbon Price Communiqué

The Carbon Price Communiqué is a historic call for action
coordinated by the Prince of Wales’ Corporate Leaders Network
for Climate Action in association with the World Business
Council on Sustainable Development (“WBCSD”) and
the International Emission Trading Association (“IETA”).
Bringing together a broad coalition of stakeholders, the Carbon
Price Communiqué signals the readiness of leading companies
to tackle one of the most urgent challenges of the 21st century.
It also underscores the importance of regulatory certainty for
reducing greenhouse gas emissions while encouraging growth in
energy, transport and the built environment.

Westport joined more than 150 corporations to call on
governments around the world to put a price on carbon. The
Corporate Leaders Group will be reconvening in 2014 to
launch the next Communiqué and Westport looks forward to
working through this process to continue to advocate for a fair

6. cdp.net/en-us/news/cdp%20news%20article%20pages/a-third-of-worlds-

invested-capital-calls-for-corporate-environmental-data.aspx

7. A disclosure score of E indicates “little evidence of initiatives on carbon

management potentially due to companies just beginning to take action on climate
change,” appropriate for Westport’s first year of participation. The score of d in
2014 indicates “limited evidence of mitigation or adaptation initiatives and no/
limited strategy on climate change,” indicative of increasing performance.

SUSTAiNABiLiTY REPORT

price on carbon and a stable regulatory framework to bring
about truly sustainable transport.

UC Davis NextSTEPS

The NextSTEPS program is a four-year multidisciplinary
research consortium working to advance alternative
transportation that operates within the Institute of
Transportation Studies at the University of California (Davis).
The goal of NextSTEPS is to generate new insights about the
transition to a sustainable transportation energy future and
to disseminate that knowledge effectively to decision-makers
in the public and private sectors. NextSTEPS encompasses
interdisciplinary research on electric vehicles, biofuels,
hydrogen fuel cells and efficiency improvements to gasoline and
diesel engines. Natural gas was added as a dedicated research
stream in 2012.

The NextSTEPS members include 23 other government
and corporate partners, including the U.S. Department of
Transportation and major automotive original equipment
manufacturers (“OEMs”) such as Ford, GM, Volkswagen and
Toyota.

Environmental Defence Fund Pump
to Wheels Methane Leakage Study

The Environmental Defense Fund (“EDF”) has a history of
cross-sector collaboration and balanced environmental analysis.
In 2012, the EDF initiated a series of studies with academic and
industry partners to better understand the source and quantity
of methane emissions along the natural gas supply chain.[8]

Westport joined the EDF in 2012 as a partner in its Pump
to Wheels Methane Leakage Study for natural gas vehicles,
refuelling stations and maintenance facilities. Natural gas
in medium and heavy-duty transport applications is gaining
market share, and industry is working to develop and bring
new products to market that improve performance, reliability
and quality from early systems deployed as long as a decade
ago. Westport’s support of scientific studies such as this is an
integral part of our commitment to take a leadership role in the
transition towards sustainable mobility.

8. The five study modules are production, gathering lines and processing facilities, pipelines
and storage, local distribution, and commercial trucks and refueling stations. The first
peer-reviewed study has now been published in the journal Proceedings of the National
Academy of Science and is available online at pnas.org/content/110/44/17768.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 5

SUSTAiNABiLiTY REPORT

REPORT SCOPE

Sustainability Indicator Index

LEGEND [indicator description] » (report location)

AA1 (report on this indicator)

BB2 (partially report on this indicator)

ECONOMIC PERFORMANCE
EC1 Direct economic value generated and distributed

» (2013 Audited Financial Statements)

EC2 Financial implications and risks and opportunities of climate change

» (Climate Change Risks and Opportunities)

SOCIAL PERFORMANCE
HR3 Employee training on human rights » (Human Rights)
LA1 Total workforce by employment type, employment contract, and region »

(Employee)

LA3 Benefits provided to full-time, part-time and temporary employees

» (Employee)

LA6 Workforce represented in Occupational Health and Safety Committees »

(Health and Safety)

LA7 Rates of injury, occupational disease, lost days, and work-related fatalities »

(Health and Safety)

SO1 Nature, scope and effectiveness of programs to manage impact on

communities » (Community Impacts)

SO2 Percentage and total number of business units analyzed for risks related to

corruption » (Anti-Corruption Efforts)

SO3 Percentage of employees trained on anti-corruption policies and procedures

» (Anti-Corruption Efforts)

PR1 Life cycle stages: health and safety impacts of products–assessed for

improvements » (Product Responsibility)

PR2 Total number of incidents of non-compliance with regulations and voluntary

codes concerning health and safety impacts of products
» (Health and Safety)

ENVIRONMENTAL PERFORMANCE
EN3 Direct energy consumption by primary energy source » (Energy)
EN4
Indirect energy consumption by primary source » (Energy)
EN5 Energy saved due to conservation and efficiency efforts » (Energy)
EN6

Initiatives to provide energy-efficient or renewable based products and
reductions » (Energy)
Initiatives to reduce indirect energy consumption and reductions achieved »
(Energy)

EN7

EN8 Total water withdrawal by source » (Water)
EN16 Total direct and indirect greenhouse gas emissions

» (Greenhouse Gas Emissions)

EN18 Initiatives to reduce GHG emissions and reductions achieved

» (Greenhouse Gas Emissions)

EN22 Total amount of waste by type and disposal method

» (Waste Generation and Diversion)

EN23 Total number and volume of significant spills

» (Waste Generation and Diversion)

EN28 Value of fines and non-monetary sanctions for environmental non-

compliance » (Environmental Compliance)

At this time, we only report on our operations in British
Columbia, Canada. We began collecting energy consumption
data from our global facilities in 2013 and are currently
auditing those internal data collection systems before publicly
reporting our complete operational footprint. While the
majority of our engine testing and development occurs in
Vancouver, we recognize that we must tell a more complete story
about our activities, success and challenges.

ThE iMPORTANCE OF ThE
GLOBAL REPORTiNG iNiTiATiVE

The Global Reporting Initiative (“GRI”) provides a consistent
means for companies to voluntarily report on the economic,
social and environmental impacts of their business. The GRI’s
79 indicators and associated methodologies enable companies
to facilitate decision-making and improve sustainability
performance based on globally recognized indicators.

Perhaps one of the most significant advantages of the GRI is the
ability to compare the performance of Westport to our OEM
partners and competitors. This report, prepared in accordance
with the GRI Third Generation Guidelines (“G3”), discloses
data from January to December 2013. Historical data from
the past four fiscal years have been included for comparative
purposes, where appropriate.

Westport has self-declared this report to correspond to
application level B in the six-level grid of the GRI G3
guidelines. Application Level B requires us to disclose our
performance on at least twenty core economic, social and
environmental indicators. The GRI has not verified the
contents of this report, nor does it take a position on the
reliability of information reported herein. For further
information about the GRI, visit GLOBALREPORTING.ORG.

6 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

SOCiAL PERFORMANCE
iNdiCATORS

Human Rights

Westport is dedicated to preserving all fundamental and
universally recognized human rights as outlined by the United
Nations and the International Labour Organization. Our
commitment is stated and reinforced by our Code of Conduct
which is reviewed and signed annually by each of our employees.

Total Workforce

Westport is committed to providing a healthy work
environment, defined by respectful relationships, professional
development and advancement potential and an execution-
focused culture to capitalize on business opportunities. We
are dedicated to ensuring that Westport remains a desirable
employer in all our locations. A similar benefits package is
offered to both full-time and part-time employees.[9]

TABLE 2

TOTAL WORKFORCE

as of Dec 31, 2013

FULL TIME

PART TIME*

CONTRACTOR

Argentina

Australia

Canada

China

France

Korea

Sweden

India

Italy

United States

409

266

108

Total
*Part time includes Co-ops and Interns

907

TOTAL

453

294

147

1,030

As the demand for sustainable transportation grows worldwide,
Westport has continued to maintain its global presence. Our
products have reached customers in more than 19 countries and
being able to support these markets is essential to our future
success.

Health and Safety

The health and safety of our employees, facilities, and
communities is an integral part of Westport’s operations. When
gauging world-class safety performance, recordable injury rates
and lost-time injury rates are statistical, comparative industry
measures. Our results are indicative of our ongoing and

9. Part-time employees must work at least three days per week to be

eligible for the same benefits package as full-time employees. Casual
employees or contractors are not eligible for benefits.

SUSTAiNABiLiTY REPORT

significant commitment to injury prevention, risk mitigation,
regulatory compliance and continuous safety improvement.

Our Health and Safety Committee members are champions
for workplace safety. Westport maintains two Health and
Safety Committees in British Columbia or approximately
one Committee for every 214 employees. Our Committees
are made up of cross-functional management and employee
representatives who advise and recommend action on any
unresolved workplace health and safety issues brought to them.

TABLE 3

SAFETY INCIDENTS

(unaudited)

2013-12

2012-12

2011-12

2010-03

2009-03

Recordable injury
frequency

Recordable injury rate[10]

Lost time injury frequency

1.22

0.46

0.31

0.82

0.41

Lost time injury rate[11]

0.49

0.23

0.31

The number of recordable and lost time injuries has doubled in
2013. While this is an area of concern, it should be noted that
the number of test cells (where there is a greater risk for injury)
has doubled over the same time period, leaving our injury rates
in line with previous years.

Community Impacts

The liveability of specific locales or areas may be significantly
impacted by an organization’s activities. Westport’s geographic
location, with our technical facilities adjacent to homes,
schools and other businesses requires us to monitor and
manage the potentially adverse impacts our operations might
have on our immediate neighbors. Our Facilities Engineering
Group maintains a preventative maintenance schedule for key
equipment to minimize the likelihood of environment releases
and noise levels in excess of municipal by-laws. Westport
responds to community concerns regarding our facilities,
infrastructure, noise levels and environmental impacts in a
timely manner. We received one noise complaint in 2013
associated with the refuelling of our liquid nitrogen tank and
have taken the necessary steps to rectify the situation.

Anti-Corruption Efforts

Our expectations for individual integrity and ethical, moral and
legal conduct are outlined in our Code of Conduct. The Code
of Conduct has mandated compliance with all applicable laws in

10. The recordable injury incident rate is the annualized rate of occupational injuries
and illness per 100 employees. it is a calculation of the number of injuries x
200,000/employee hours worked. First aid classified injuries are not included.

11. The lost time injury rate is a calculation of the total number of lost time injuries x
200,000/employee hours worked. Lost days refer to scheduled work days and
the count begins on the next scheduled work day immediately after the injury.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 7

SUSTAiNABiLiTY REPORT

the jurisdictions where we operate and has always prohibited the
giving or receiving of improper payments to influence business
decisions. In addition, Westport maintains a confidential ethics
hotline to provide an avenue for employees to raise concerns
about corporate conduct. The policy includes the reassurance
that they will be protected from reprisals or victimization for
“whistle blowing” in good faith.

Product Responsibility

Quality and safety are imperatives across the product life
cycle. Our Quality Management System (QMS) is certified
to ISO 9001:2008 standards for the design, assembly and
commercialization of its LNG fuel systems. Westport QMS
comprises the organization’s policies and procedures that aim
to ensure that customer requirements are met with consistency,
resulting in enhanced customer confidence and satisfaction. The
QMS, other internal requirements and engineering systems have
contributed to no incidents of non-compliance with regulations
and voluntary codes concerning the health and safety impacts
of our products. Internal systems and processes have been
established to ensure that the health and safety impacts of our
products are assessed in each of the following life-cycle stages:

TABLE 4

HEALTH AND SAFETY IMPACTS ASSESSED AT LIFE-CYCLE STAGE

Development of product concept

Research and development

Certification

Manufacturing and production

Marketing and promotion

Storage, distribution, and supply

Use and service

Disposal, reuse or recycling

STATUS

YES

PARTIAL

COMMUNiTY ENGAGEMENT

Being active in the community has always been central to
Westport’s values and we support employee volunteer efforts.
Since 2002, Westport has been a strong supporter of the
United Way of the Lower Mainland. From modest beginnings
our annual workplace campaign has grown steadily and in 2013
our cumulative fundraising total surpassed $1 million CDN.

Westport’s contributions to the community go beyond financial
donations. Our employee led IMPACT team provides various
outlets for Westporters to engage in the community. The role
of IMPACT is to bring the various activities and initiatives that
Westport employees can participate in into one coordinated
effort. This also provides employees an outlet to exercise their 16

8 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

hours of paid volunteer time. IMPACT initiatives generally touch
on their three pillars; Environment, Education, and Community.

“Bridging the Science Gap”: Our
Partnership with Science World

Science World is dedicated to inspiring science and technology
leadership in British Columbia. Westport is a contributor
to Science World’s “Bridging the Science Gap” campaign
through its sponsorship of the transportation exhibit in the
Ken Spencer Science Park. This interactive outdoor science
park is designed to educate children about the future of new,
clean, low-carbon technologies. The Westport-sponsored
exhibit conveys a “Clean Transportation Story” with interactive
elements to demonstrate how everyday choices can impact our
carbon footprint.

United Way of the Lower Mainland
Community Schools

Westport is a proud partner of the United Way and Vancouver
School Board’s Community Schools Program. Community
schools provide safe and structured after-school activities to
students aged 6-12. After-school programs play a critical role in
providing structured, supervised time for children to be active,
to develop positive social skills and to build overall capabilities.
Studies have linked participation in these programs with greater
academic success, increased self-confidence and self-esteem and
better relationships with peers and adults.

Through this partnership, Westport employees lead classes over
seven weeks in comic book art, yarn crafts, guitar lessons and
sports at Lloyd George Elementary School. We are honoured to
partner with the United Way and the Vancouver School Board
on this critical community initiative.

Canadian Blood Services

Westport has been a member of the Canadian Blood Services’
Partners for Life Program since 2001. This nationwide
program is designed to encourage group donations from
business and community organizations. Each year, we set a
target, coordinate group donations and allow employees to take
time from work to donate.

The Canadian Blood Services’ Bloodmobile visited our offices
for the first time in 2012 and we were able to collect more than
40 donations that day. In 2013, we made 114 donations. Since
2006, Westport employees have donated nearly 500 pints of
blood or enough to impact 108 lives.[12]

12. According to Canadian Blood Services an average of 4.6 pints are required per patient.

ENViRONMENTAL
PERFORMANCE iNdiCATORS

Environmental Compliance

Compliance with applicable federal, provincial, and municipal
regulations is a baseline environmental performance standard
and we believe that leading organizations must go beyond
minimum environmental requirements. Since its inception
in 1996, Westport has not received any fines or non-monetary
sanctions for environmental non-compliance.

Water

It is expected that climate change will impact global water
resources. Water use is an increasingly critical component of
each organization’s sustainability performance. Despite this,
only the largest industries in British Columbia have water
meters with data logging capability and the city of Vancouver
does not currently provide meters to light industrial or
commercial customers such as Westport.

Our calculations indicate that Westport facilities cumulatively
have an average daily rate of water use of approximately
13.5 m³ per day. Engine and fuel system component testing
activities use process water that flows in a closed-loop thereby
minimizing total water withdrawals. Water conserving domestic
appliances and fixtures has been installed at all locations
in an effort to further reduce our impact. We recognize
that providing only an estimate and not actual water use is a
limitation of our current sustainability report.

Energy Consumption

TABLE 5

ENERGY CONSUMPTION

SUSTAiNABiLiTY REPORT

number of test cells with transient dynamometers to seven.
Increasing capacity at state-of-the art testing facilities is
an essential component of the research and development
required for the expansion of Westport’s product and
service offerings. Continued growth in the new HTC
streamlines the testing process required of all new products
by allowing us to perform development and certification
testing in-house. We equip each test cell with transient
dynamometers to generate electricity from operations that
is returned to the grid for local consumption.

2 Due to the increase in employee headcount, our office space
square footage increased by 13% during the reporting period.

3 The increase in diesel is due to the fluctuation in testing
schedules. There are times when we are evaluating several
engines which run on diesel only. Moreover, we have increased
our on road testing which means more trucks are running.

4 The drop in re-injected natural gas can be attributed to the
fact that we have increased our use of liquid nitrogen for
development and component durability testing as a substitute
for LNG. Previously, this LNG was captured at the end of
our testing and re-injected into the grid. Liquid nitrogen is
an inert, non-toxic gas that has no impact on air quality.

Greenhouse Gas Emissions

The Greenhouse Gas Protocol[13] developed by the World
Business Council on Sustainable Development (WBSCD) is the
globally accepted standard for greenhouse gas (GHG) emissions
accounting. The organizational boundary of this inventory
includes all of Westport’s British Columbia-based facilities and
includes both scope one and scope two emissions.[14] We have
not measured scope three emissions to date.

FOR THE 12 MONTHS ENDING

TABLE 6

GREENHOUSE GAS INVENTORY

(gigajoules)

DEC 2013

DEC 2012

DEC 2011 MAR 2010 MAR 2009

TONNES CO2 EQUIVALENT FOR THE 12 MONTHS ENDED

(unaudited)

DEC 2013

DEC 2012

DEC 2011 MAR 2010 MAR 2009

Direct

Diesel

LPG

LNG

CNG

2,722

2,250

8,559

8,466

1,250

11,193

38,148

28,802

19,352

Natural gas returned

(1,024)

(1,860)

(3,663)

1,146

120

13,395

13,363

(7,102)

2,050

353

12,551

19,708

(7,167)

Total Scope 1

Direct Emissions

2,576.1

2,224.2

1,805.5

2,005.4

1,383.2

Total Scope 2

Indirect Emissions

387

288.0

237.0

245.0

Total GHG impact

2,963.1

2,512.2

2,042.5

2,250.4

244.0

1,627.2

Net direct consumption

48,405

37,693

28,232

20,922

27,495

Overall energy consumption increased in the reporting year.
This result can be attributed to a number of factors:

1 As in the previous year, in 2013 we have continued to
grow the number of test cells in operation at our High
Technology Centre (HTC) in Vancouver, bringing the total

13. The GhG Protocol methodology used at this time only includes emissions

associated with fuel consumption and not energy and emissions
associated with fuel production, distribution and transport.

14. Scope One direct Emissions encompass both liquefied and compressed natural
gas, diesel, propane, and fuel used in company vehicles. Scope Two indirect
Emissions include emissions associated with the purchase and use of electricity.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 9

SUSTAiNABiLiTY REPORT

Finding comparable organizations against which to benchmark
our GHG emissions remains a challenge, as the research and
development of new engine technologies is necessarily an energy-
intensive process. There are currently no regulatory requirements
for a company of our size to disclose its emissions.[15] The process
of compiling a GHG inventory provides an important foundation
for understanding reduction opportunities and measuring
progress. Westport works through the internationally-recognized
Carbon Disclosure Project to inventory and make public our
GHG emissions. We have identified future opportunities to
reduce the impacts of our operations, as well as opportunities
to integrate climate change risk into our risk management
procedures and overall business strategy.

Waste Generation and Diversion

Waste reduction, reuse and recycling programs are well
established and well-maintained. Using formulas based
on bin size and frequency of collection, Westport generates
approximately 200 tonnes of waste annually. Reducing the
amount of waste sent to landfill remains a priority and we
have launched employee education and awareness efforts to
communicate the importance of minimizing the amount of
waste generated.

We extend the opportunity for employees to recycle electronics,
batteries, confidential paper, and some hazardous waste like
paint through our waste minimization program.

Our Facilities Engineering Group tracks the amount of waste
recycled via our hazardous waste program, scrap materials
collection and office waste initiatives.

TABLE 7

TYPES OF HAZARDOUS AND SOLID WASTE RECYCLED

Aluminum

Batteries

Diesel

Hard and soft plastic

Viscor

E-waste

Paper

Wastewater

Beverage containers

Filters/rags

Plastic oil pails

Wood

Cardboard

Light bulbs

Coolant

Lube oil

Solvents

Steel

15. in Canada, Large Final Emitters (LFEs), those facilities that emit the

equivalent of 100,000 tonnes (100 kT) or more of carbon dioxide (CO2)
equivalents per year are required to disclose their emissions.

10 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

MANAGEMENT’S DISCUSSION & ANALYSIS

MANAGEMENT’S diSCUSSiON & ANALYSiS

BASiS OF
PRESENTATiON

This Management’s Discussion and Analysis (“MD&A”) for
Westport Innovations Inc. (“Westport”, the “Company”,
“we”, “us”, “our”) is intended to assist readers in analyzing
our financial results and should be read in conjunction with
the audited consolidated financial statements, including the
accompanying notes, for the fiscal year ended December
31, 2013. Our consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States (“U.S.»GAAP”). The
Company’s reporting currency is the U.S. dollar. This MD&A
is dated February 25, 2014.

On May 30, 2011, the Board of Directors approved a fiscal
year-end change from March 31 to December 31 to align
the year ends of all consolidated operating companies to the
calendar year. As a result of changing our year end, the April 1,
2011 to December 31, 2011 reporting period is a “stub” period
of only nine months. Due to the difference in period lengths,
the consolidated statements of operations and statements of
cash flows are not directly comparable.

Additional information relating to Westport, including our
Annual Information Form (“AIF”) and Form 40-F, is available
on SEDAR at SEDAR.COM and on EDGAR at SEC.GOV. All financial
information is reported in U.S. dollars unless otherwise noted.

FORWARd LOOKiNG
STATEMENTS

This MD&A contains forward-looking statements that are
based on the beliefs of management and reflects our current
expectations as contemplated under the safe harbor provisions
of Section 21E of the United States Securities Act of 1934,
as amended. Such statements include but are not limited to
statements regarding the orders or demand for our products,
our investments, cash and capital requirements, the intentions
of partners and potential customers, the performance of
our products, our future market opportunities, availability
of funding and funding requirements, our estimates and
assumptions used in our accounting policies, our accruals,
including warranty accruals, our financial condition, availability
of funding and funding requirements, timing of when we will
adopt or meet certain accounting and regulatory standards and
the alignment of our business segments. These statements

are neither promises nor guarantees but involve known and
unknown risks and uncertainties that may cause our actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity,
performance or achievements expressed in or implied by
these forward looking statements. These risks include risks
related to revenue growth, operating results, industry and
products, general economy, conditions of the capital and debt
markets, government or accounting policies and regulations,
technology innovations, as well as other factors discussed
below and elsewhere in this report, including the risk factors
contained in the Company’s most recent AIF filed on SEDAR
at SEDAR.COM. The forward-looking statements contained
in this MD&A are based upon a number of material factors
and assumptions which include, without limitation, market
acceptance of our products, product development delays in
contractual commitments, the ability to attract and retain
business partners, competition from other technologies, price
differential between natural gas and liquefied petroleum gas,
unforeseen claims, exposure to factors beyond our control as
well as the additional factors referenced in our AIF. Readers
should not place undue reliance on any such forward-looking
statements, which speak only as of the date they were made.
We disclaim any obligation to publicly update or revise such
statements to reflect any change in our expectations or in
events, conditions or circumstances on which any such
statements may be based or that may affect the likelihood that
actual results will differ from those set forth in the forward
looking statements except as required by applicable legislation.

The forward looking statements contained in this document
speak only as of the date of this MD&A. Except as required
by applicable legislation, Westport does not undertake any
obligation to release publicly any revisions to these forward
looking statements to reflect events or circumstances after this
MD&A, including the occurrence of unanticipated events.
The forward-looking statements contained in this MD&A are
expressly qualified by this cautionary statement.

BUSiNESS OVERViEW

We are a leading provider of high-performance, low-emission
engine and fuel system technologies utilizing gaseous fuels.
Our technology and products enable light- (less than 5.9 litre),
medium- (5.9 to 10 litre), heavy-duty- (10 to 16 litre) and
high-horsepower- (greater than 16 litre) petroleum-based fuel
engines and vehicles to use primarily natural gas, giving users
a cleaner and generally less expensive alternative fuel based on

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 11

MANAGEMENT’S diSCUSSiON & ANALYSiS » BUSiNESS OVERViEW

a more abundant natural resource. Through our partnerships
and direct sales efforts, we sell natural gas and propane engines,
fuel systems, and components to customers in more than 79
countries. We currently have strategic relationships with three of
the world’s top four engine producers and supply or have strategic
relationships with six of the world’s top ten truck producers, as
well as seven of the world’s top ten automotive manufacturers.
Our strategic relationships with OEMs provide us with access to
their manufacturing capacity, supply chain and global distribution
networks without incurring the considerable investment associated
with these assets. We commercialize our technology in markets
where demand for clean, low emission engines is prevalent.

Since our founding in 1995, we have invested over
$600 million towards the research, development and
commercialization of our proprietary technologies and related
products. Conversely, our research and development efforts
and investments have resulted in a substantial patent portfolio
that serves as the foundation for our differentiated technology
offerings and competitive advantage. Our technologies and
related products enable combustion engines to use gaseous
fuels, such as natural gas, propane, renewable natural gas
(“RNG”) or hydrogen. The substitution of natural gas for
petroleum-based fuel drives a reduction in harmful combustion
emissions, such as particulate matter and greenhouse gases, in
addition to providing a relatively inexpensive alternative fuel
from a more plentiful natural resource.

The principle focus and responsibilities of the new reporting
alignments are summarized below:

OPERATiNG BUSiNESS UNiTS

Westport Applied Technologies
Business Unit

Westport Applied Technologies (“Applied»Technologies”)
designs, produces, and sells compressed natural gas (“CNG”) and
liquefied petroleum gas (“LPG”) components and subsystems to
over 20 global OEMs, including Fiat, Volkswagen, Tata Motors
(“Tata”), the GAZ Group, Chrysler, and General Motors
(“GM”), and to aftermarket customers in over 60 countries.
Sales from Westport’s wholly-owned Italian subsidiaries, OMVL
S.p.A. (“OMVL”) and Emer S.p.A (“Emer”), including its
wholly owned subsidiary Valtek S.p.A., and Westport’s Australian
operations are reported under the Applied Technologies
business unit and are made either directly to OEMs or through
one of their many distributors. The Applied Technologies
business unit designs and manufactures a range of components
including pressure regulators, injectors, electronic control units,

12 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

valves and filters; sells monofuel and bi-fuel conversion kits;
and also offers engine management systems and solutions that
can be launched quickly at a competitive price. The Applied
Technologies business unit provides Westport with high volume,
scalable manufacturing and assembly. The business unit has a
strong customer base in Europe and is targeting growing markets
in Asia, and North and South America.

Westport On-Road Systems Business Unit

Westport On-Road Systems (“On-Road»Systems”) engineers,
designs, assembles and sells natural gas engine and vehicle
systems for automotive, light commercial, and trucking.
Westport’s existing On-Road Systems, OEM customers and
partners include Ford Motor Company (“Ford”), GM,
PACCAR Inc. (“PACCAR”) (Kenworth Truck Company
“Kenworth” and Peterbilt, a PACCAR company), and Volvo
Car Group (“Volvo»Car”). Current products include the
Westport WiNG™ Power System (the “WiNG»System”) for
the Ford F-250/F-350 bi-fuel (CNG and gasoline) vehicle
models; Volvo Car bi-fuel systems (CNG and gasoline) for
the V60 and V70 bi-fuel wagon; Westport™ JumpStart mobile
fuel services; and Westport iCE PACK™ LNG Tank System
(“Westport»iCE»PACK”) for spark-ignited (“SI”) engines.

Through Westport’s acquisition of BAF Technologies, Inc.
(“BAF”), Westport further supports customers with vehicle
conversions through the Ford Qualified Vehicle Modifier
(“QVM”) program and increases Westport’s product range with
the Ford line to include transit, cargo shuttle and taxi vehicles.
Sold under the Westport WiNG™ Power System product brand,
BAF product offerings include dedicated natural gas fuel
systems for the Ford F-150, F-250/F-350, F-450/F-550,
F-650, F-59, E-250/E-350, and E-450 vehicle models. BAF
also provides aftermarket conversion products, alternative fuel
systems and application engineering.

Westport Off-Road Systems Business Unit

Westport Off-Road Systems (“Off-Road»Systems”) has been
exploring product development opportunities for using
liquefied natural gas (“LNG”) fuel in large, off-road engine
applications including rail, mining, marine, and oil & gas.
According to industry statistics and our analysis, the global
annual fuel usage in these applications is over 24 billion
gallons of diesel fuel annually, presenting a highly attractive
opportunity for significant fuel cost savings and reduced
emissions through the use of LNG as an alternative fuel.
Current products include an LNG tender product for the rail
market, and Westport™ 2.4L industrial engines sold to Clark

MANAGEMENT’S diSCUSSiON & ANALYSiS » GENERAL dEVELOPMENTS

Material Handling (“Clark”) and Cummins Western Canada
for forklift and oilfield applications, respectively.

Corporate and Technology
Investments Business Unit

The Corporate and Technology Investments business unit
(“Corporate»and»Technology»Investments”) is responsible for
investments in new research and development programs and
revenues and expenses related to development programs with
OEMs, corporate oversight and general administrative duties.
Corporate and Technology Investments focuses on long-term
product development and future return on investments. Once
a product is launched, the revenue will be recognized under one
of the operating business units: Applied Technologies; On-
Road Systems; or Off-Road Systems.

WESTPORT JOiNT VENTURES

Cummins Westport Inc.

Cummins Westport Inc. (“CWI”), our 50:50 joint venture with
Cummins, Inc., (“Cummins”), serves the medium- to heavy-
duty engine markets. CWI engines are offered by many OEMs
for use in transit, school and shuttle buses, conventional trucks
and tractors, and refuse collection trucks, as well as specialty
vehicles such as short-haul port drayage trucks and street
sweepers. The fuel for CWI engines is typically carried on the
vehicles as CNG or LNG. CWI engines are produced at certain
of Cummins’ plants, allowing CWI to leverage Cummins’
manufacturing footprint without incurring additional capital
costs. CWI also utilizes Cummins’ supply chain, back office
systems and distribution and sales networks. CWI is the
leading supplier of natural gas engines to the North American
medium- and heavy-duty truck and transit bus industries.

Weichai Westport Inc.

Weichai Westport Inc. (“WWI”) is a joint venture between
Westport (35% interest), Weichai Holding Group Co. Ltd.
(40% interest) (“Weichai”) and Hong Kong Peterson (CNG)
Equipment Ltd. (“Hong»Kong»Peterson”) (25% interest)
focusing on the Chinese market. WWI develops, manufactures,
and sells advanced, alternative fuel engines and parts that
are widely used in city bus, coach, and heavy-duty truck
applications in China or exported to other regions globally.
WWI’s dedicated facility in China has an annual production
capacity of 50,000 engines.

GENERAL
dEVELOPMENTS

On February 5, 2013, CWI announced award for over 900
natural gas buses powered by its 8.9 litre ISL G engine (the
“ISL»G”). CWI is expected to be supplying engines for two of
the largest natural gas transit fleet orders in North America
to date. In January 2013, LA Metro announced its plans to
order 550 New Flyer Xcelsior natural gas buses, powered with
the ISL G, to be deployed in 2014 and 2015, with an option
to purchase an additional 350 buses in 2016 for both its own
fleet and contract operators. In December 2012, the San Diego
Metropolitan Transit System announced its decision to purchase
up to 350 Gillig 40-foot low floor buses and 118 New Flyer 60-
foot low floor articulated buses, all powered with the ISL G.

On February 28, 2013, Westport announced an agreement
with leading global clean energy provider ENN Group
(“ENN”) aimed at the proliferation of natural gas and LNG
transportation solutions and fuel for on-road, off-road, rail
and marine applications.

On March 19, 2013, Westport and Clean Energy announced a
joint marketing agreement to encourage the use of natural gas
vehicles (“NGVs”) and the establishment of the growing fueling
infrastructure across North America. The companies will
bundle the Westport iCE PACK and a long-term fuel contract
with Clean Energy into a package for qualified customers.

On March 21, 2013, CWI announced that it had received
certification for its Cummins Westport ISX12 G engine from
the U.S. Environmental Protection Agency (“EPA”), meeting
both the EPA 2013 regulations and the new greenhouse gas
(“GHG”) and fuel-efficiency rules that will take effect in 2014.
The engine subsequently commenced production in April 2013.

On May 30, 2013, Westport announced an agreement with
GAZ Group, the leader of the Russian commercial vehicles
market, to design and develop SI natural gas systems for a new
range of GAZ Group CNG commercial vehicles. Westport’s
new WP580 Engine Management System will be applied to
GAZ Group’s YaMZ-530 4.4L and 6.6L diesel engines and will
incorporate Westport proprietary components and technology
in the multi-year development and supply agreement.

On June 5, 2013, Westport announced the launch of an LNG
tender product solution, designed to supply fuel to an adjacent
natural gas-powered locomotive, with an order for four tenders
from Canadian National Railway Company (“CN”).

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 13

MANAGEMENT’S diSCUSSiON & ANALYSiS » SELECTEd ANNUAL FiNANCiAL iNFORMATiON

On June 28, 2013, Westport acquired BAF and its subsidiary,
ServoTech Engineering, Inc. (“ServoTech”) from Clean Energy
Fuels Corp (“Clean»Energy”) for $25 million in common shares
of Westport (“Common»Shares”) based on the volume weighted
average price of such Common Shares ($27.4 million based
on the closing price on the day of grant). Westport and Clean
Energy also announced the $5 million co-marketing program.

On August 1, 2013, Westport announced that it will offer
natural gas fueled systems for the Ford F-150. Westport expects
to begin deliveries in the first quarter of 2014.

On September 25, 2013 and September 26, 2013, Westport
announced that it was offering 6,000,000 Common Shares
in the United States and Canada at a price of $25.39 per share.
The offering was completed on October 1, 2013 for gross
proceeds of $152.3 million.

On October 30, 2013, Westport announced that Universal
LNG Solutions Inc.SM had placed a blanket purchase order for
900 Westport LNG Tank Systems to be delivered over the next
two years.

On December 10, 2013, Westport unveiled the next generation
of its HPDI technology platform, Westport™ HPDI 2.0. This
new generation of natural gas technology will provide global
vehicle and engine OEMs with a vertically integrated natural gas
solution with attractive price, performance, and fuel economy.
Developed to OEM quality standards, Westport™ HPDI 2.0
system components will be manufactured in high-quality facilities,
offer ready integration into OEM operations globally, and provide
an attractive way to reach scalable volume deliveries as natural
gas markets mature and grow. Westport is now working with
seven OEM applications with engine sizes ranging from trucks
to locomotives at various stages of development with the goal of
vertically integrated Westport™ HPDI 2.0 OEM product lines.

On February 12, 2014, Westport and Tata launched a new SI
natural gas 3.8L turbocharged engine featuring the WP580
EMS. Designed to support many engine configurations,
WP580 EMS is also scheduled to be applied to Tata’s 5.7L
engine targeting medium-duty applications in late 2014.
Westport also unveiled its newest proprietary technology,
Westport GEMDi™, which enables engine OEMs to offer a fully
integrated, high performance engine optimized for dual fuel
operation. Westport GEMDi technology has been co-developed
with Tata on their next generation 5L engine that is targeted
for medium-duty trucks and buses in India. Upon successful
completion of the development phase, commercialization with
Tata is expected to follow, with Westport supplying key natural
gas engine components.

14 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

SELECTEd ANNUAL
FiNANCiAL
iNFORMATiON

The following table sets forth a summary of our financial results
for the years ended December 31, 2013, December 31, 2012
and the nine months ended December 31, 2011:

TABLE 8

SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

(expressed in millions of USD,
except for per share amounts and shares outstanding)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Total revenue

Gross margin(1)

GM %

Net loss

Net loss per share
—basic and diluted(2)

Weighted average shares
outstanding

164.0 $

155.6 $

15.3

9.3%

(185.4)

53.2

34.2%

(98.8)

87.7

20.6

23.5%

(45.8)

(3.22)

(1.83)

(0.96)

57,633,190

54,072,513 47,933,348

Cash used in operations before
changes in non-cash working
capital(3)
(1) Gross margin is calculated as revenue less cost of product and parts revenue. The Company’s gross margin may not be
comparable to those of other entities because some entities include depreciation and amortization related to products
sold in cost of sales. Gross margin as defined above applies to the discussion of gross margin throughout the MD&A.
(For the years ended December 31, 2013 and 2012 and the nine months ended December 31, 2011, $4.3 million,
$4.1 million and $3.2 million in depreciation and amortization is excluded from the calculation of gross margin,
respectively).

(135.9)

(87.9)

(50.5)

(2) Fully diluted loss per share is the same as basic loss per share as the effect of conversion of stock options, restricted share

units and performance share units would be anti-dilutive.

(3) See non-GAAP financial measures.

The following table sets forth a summary of our financial
position as at December 31, 2013 and December 31, 2012:

TABLE 9

SELECTED BALANCE SHEET DATA

DEC. 31, 2013

DEC. 31, 2012

Cash and short-term investments

Total assets

210.6 $

491.7

Long-term financial liabilities(1)
(1) Excluding warranty liability, deferred revenue, deferred income tax liabilities and other long-term liabilities.

13.0

215.9

490.1

52.2

The following table sets forth a summary of the financial
results of our joint ventures for the years ended Dec. 31, 2013,
Dec. 31, 2012 and the nine months ended Dec. 31, 2011:

TABLE 10 SELECTED CUMMINS WESTPORT STATEMENTS OF OPERATIONS DATA

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Total revenue

Gross margin

GM %

Income before income taxes

Income attributable to the Company

310.7 $

198.0 $

64.2

20.7%

23.1

9.4

61.4

31.0%

35.4

13.2

138.8

60.0

43.2%

42.7

13.0

MANAGEMENT’S diSCUSSiON & ANALYSiS » OVERViEW OF RESULTS—YEAR ENdEd dECEMBER 31, 2013

37.6

3.1

17.5

0.2

47%

CAPiTAL MANAGEMENT

TABLE 11

SELECTED WEICHAI WESTPORT STATEMENTS OF OPERATIONS DATA

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Total revenue

Gross margin

GM %

Income before income taxes

Income attributable to the Company

466.6 $

272.1 $

37.3

8.0%

14.5

4.3

24.8

9.1%

9.8

2.9

84.9

9.3

11.0%

4.9

1.4

OVERViEW
OF RESULTS—
YEAR ENdEd
dECEMBER 31, 2013

TABLE 12 TOTAL CONSOLIDATED REVENUES

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

CHANGE

Applied Technologies

93.2 $

91.7 $

1.5

On-Road Systems

Off-Road Systems

Corporate and
Technology Investments

55.1

3.3

12.4

23.2

(10.8)

-47%

Total consolidated revenues

164.0 $

155.6 $ 8.4

OPERATiNG RESULTS

For the year ended December 31, 2013, consolidated revenue
increased $8.4 million, or 5%, to $164.0 million from $155.6
million for the year ended December 31, 2012. Increase
in Applied Technologies revenue is primarily due to service
revenue earned under development agreements. On-Road
Systems generated higher revenue due to launch of Westport
iCE PACK in the fourth quarter of 2013, increased sales
of the WiNG System as the product launch occurred in the
second quarter of the prior year and revenue generated from
BAF, offset by decreased shipments of the first generation
Westport™ HPDI system and the bi-fuel systems for the V70
bi-fuel wagon. The increase in revenue was offset by a decrease
in Corporate and Technology Investments revenue due to the
one-time license revenue and higher service revenue under our
development agreements received in the prior year period.

Consolidated net loss attributable to the Company for the
year ended December 31, 2013 was $185.4 million, or $3.22
loss per diluted share, compared to a $98.8 million net loss,
or $1.83 loss per diluted share, for the year ended December
31, 2012. The $86.6 million increase in net loss was driven

by increase in segment operating loss in Corporate and
Technology Investments of $33.3 million, On-Road Systems
of $18.9 million, Applied Technologies of $3.2 million, Off-
Road Systems of $0.6 million, net decrease in our share of
equity income of $2.7 million from joint ventures, increase in
depreciation and amortization of $4.9 million and impairment
charges totaling $41.5 million, offset by a decrease in net
interest expense of $1.3 million and net foreign exchange gains
of $16.4 million.

Included in our net loss for the year ended December 31,
2013 are charges of $35.0 million in goodwill impairment,
$21.4 million in warranty provision charges related to first
generation Westport™ HPDI system, $4.9 million in inventory
obsolescence, $4.8 million on loss on disposal of assets, $1.7
million in intangible impairment offset by $15.2 million net
foreign exchange gains attributed mainly to the movement
in the Canadian dollar relative to the U.S. dollar, which is
unrealized. Excluding the impact of the charges and net foreign
exchange gain, our net loss and net loss per share was $132.8
million and $2.30, respectively.

On October 1, 2013, we announced the closing of an offering
of 6,000,000 Common Shares for gross proceeds of
$152.3 million.

CASh, CASh EQUiVALENTS
ANd iNVESTMENTS

As of December 31, 2013, our cash, cash equivalents and
short-term investments balance was $210.6 million compared
to $215.9 million at December 31, 2012. For the year ended
December 31, 2013, cash used in operations was $116.8 million
with $135.9 million used for operating purposes and $19.1
million provided from working capital. We purchased $26.5
million of property and equipment and repaid a portion of our
long-term debt within Emer totaling $3.7 million and repaid
the amount payable to sellers of OMVL of $9.9 million. We
issued shares through a public share offering resulting in cash
inflow of $147.3 million (net of share issuance costs) and issued
shares through the exercise of stock options, which resulted in
an additional $0.7 million in cash, received dividends from
our joint ventures of $8.3 million, and $1.2 million in cash
acquired as a result of the BAF acquisition.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 15

MANAGEMENT’S diSCUSSiON & ANALYSiS » CRiTiCAL ACCOUNTiNG POLiCiES ANd ESTiMATES

CRiTiCAL
ACCOUNTiNG POLiCiES
ANd ESTiMATES

Our consolidated financial statements are prepared in
accordance with U.S. GAAP, which requires us to make
estimates and assumptions that affect the amounts reported
in our consolidated financial statements. We have identified
several policies as critical to our business operations and in
understanding our results of operations. These policies, which
require the use of judgment, estimates and assumptions in
determining their reported amounts, include our accounting
of CWI as variable interest entity, warranty liability, revenue
recognition, inventories, property, equipment, furniture and
leasehold improvements, stock-based compensation, goodwill
and intangible assets. The application of these and other
accounting policies are described in [NOTE 2] of our calendar
year 2013 annual consolidated financial statements. Actual
amounts may vary significantly from estimates used.

VARiABLE iNTEREST ENTiTiES

A variable interest entity (“VIE”) is any type of legal structure
not controlled by voting equity but rather by contractual
and/or other financial arrangements. Interests in VIEs are
consolidated by the company that is the primary beneficiary.
The Company’s interest in CWI is a VIE but it is determined
that there is no primary beneficiary.

WARRANTY LiABiLiTY

Estimated warranty costs are recognized at the time we sell our
products and included in cost of revenue. We use historical
failure rates and costs to repair product defects during the
warranty period, together with information on known products
to estimate the warranty liability. The ultimate amount
payable and the timing will depend on actual failure rates and
the actual cost to repair. We review our warranty provision
quarterly and record adjustments to our assumptions based on
the latest information available at that time. Since a number
of our products are new in the market, historical data may
not necessarily reflect actual costs to be incurred, and this
exposes the Company to potentially significant fluctuations
in liabilities and our statement of operations. New product
launches require a greater use of judgment in developing
estimates until claims experience becomes available. Product
specific experience is typically available four or five quarters
after product launch, with a clear experience trend not evident
until eight to twelve quarters after launch. We generally record

16 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

warranty expense for new products upon shipment using a
factor based upon historical experience from previous engine
generations in the first year, a blend of actual product and
historical experience in the second year and product specific
experience thereafter. Adjustments to and estimated future
direct warranty costs are accrued and charged to cost of revenue
in the period when the related revenues are recognized while
indirect warranty overhead salaries and related costs are charged
to cost of revenue in the period incurred.

During the fourth quarter of 2013, a study of the historical data
indicated that the cost to repair product defects continued to
increase significantly primarily associated with our extended
warranty contracts. As a result, the Company recognized a
change in estimate in our base warranty liability and a loss on
our extended warranty contracts representing the excess of the
estimated cost to service these contracts over the amount of the
deferred revenue recognized associated with the contracts.

REVENUE RECOGNiTiON
Product Revenue
Our primary source of revenue is from the sale of kits, Westport
LNG systems and parts, and Westport CNG and LPG fuel
systems for OEMs in the light-duty automotive and industrial
markets. Product and parts revenue is recognized when the
products are shipped and title passes to the customer.

Revenue from Research and Development
The Company also earns service revenue from research
and development arrangements under which the Company
provides contract services relating to developing natural gas
engines or biogas engines for use in products and providing
ongoing development services to assist with the development
and commercialization of products. These contracts provide
for the payment for services based on our achieving defined
milestones or on the performance of work under our product
development programs. Revenues are recognized using the
milestone method based on assessment of progress achieved
against the defined milestones. Revenue may also be recognized
using the proportionate performance method of accounting
based on the performance of work under the research and
development arrangement. There is a risk that a customer may
ultimately disagree with our assessment of the progress achieved
against milestones or that our estimates of the percentage
of work completed could change. Should this occur, the
revenues recognized in the period might require adjustment
in a subsequent period. All costs incurred related to revenue
earned from research and development arrangements are
recorded as research and development expense.

MANAGEMENT’S diSCUSSiON & ANALYSiS » CRiTiCAL ACCOUNTiNG POLiCiES ANd ESTiMATES

Revenue from Contracts

The Company earns revenue under certain contracts to provide
engineering development services. These contracts provide
for the payment for services based on the performance of work
under our product development programs. Revenues are
recognized under these contracts based on the percentage of
completion method of accounting. The components to measure
of percentage of completion are complex and subject to many
variables. Components may include estimated costs to complete
a contract, estimated hours to completion or management’s
assessment of work to be performed. When estimates of total
costs to be incurred on a contract exceed total estimates of
revenue to be earned, a provision for the entire loss on contract
is recorded in the period the loss is determined. There is a
risk that the estimated percentage of completion of a contract
may change, which may result in an adjustment to previously
recognized revenues. All costs incurred related to revenue
earned from contracts are recorded in cost of products sold.

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

License Revenue

Revenue from technology license fees is recognized over the
duration of the licensing agreement. Amounts received in
advance of the revenue recognition criteria being met are
recorded as deferred revenue.

iNVENTORiES

Inventories consist of fuel systems, component parts, work-
in-progress and finished goods associated with our Westport
systems. We carry inventory at the lower of weighted average
cost and net realizable value. In establishing whether or not a
provision is required for inventory obsolescence, we estimate
the likelihood that inventory carrying values will be affected by
changes in market demand for our products and by changes
in technology, which could make inventory on hand obsolete.
We perform regular reviews to assess the impact of changes
in technology, sales trends and other changes on the carrying
value of inventory. When we determine that such changes have
occurred and would have a negative impact on the carrying
value of inventory on hand, adequate provisions are recorded.

Unforeseen changes in these factors could result in the
recognition of additional inventory provisions.

PROPERTY, PLANT
ANd EQUiPMENT ANd
iNTANGiBLE ASSETS

We consider whether or not there has been an impairment
in our long-lived assets, such as equipment, furniture and
leasehold improvements and intangible assets, whenever events
or changes in circumstances indicate that the carrying value
of the assets may not be recoverable. If such assets are not
recoverable, we are required to write down the assets to fair
value. When quoted market values are not available, we use 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 to determine whether or not a write down
is required.

Due to significant declining revenues from our customer
contracts, driven by lower than expected adoption rate of
natural gas vehicles, we performed an impairment analysis of
our intangible assets as of November 30, 2013. We determined
that the sum of the estimated future undiscounted net cash
flows for one of the reporting units in the On-Road Systems
segment related to customer contracts was less than the carrying
amount at November 30, 2013. Based on the negative value of
the undiscounted net cash flows, an impairment charge of $1.7
million was recorded to reduce the carrying value of customer
contracts in our intangible assets.

STOCK-BASEd COMPENSATiON

We account for stock-based compensation related to stock
options, Performance Share Units (“PSUs”) and Restricted
Share Units (“RSUs”) granted to employees and directors using
the fair value method. The resulting compensation expense for
stock options is calculated using the Black-Scholes valuation
method net of estimated forfeitures and is recognized in results
from operations over the period in which the related employee
services are rendered. We account for performance shares by
calculating the fair value using a Monte-Carlo simulation and
RSUs by calculating the fair value based on the market price
of the Company’s common shares on the date of grant. The
compensation expense is recorded in the period it is earned,
which generally is the period over which the units vest.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 17

MANAGEMENT’S diSCUSSiON & ANALYSiS » NEW ACCOUNTiNG PRONOUNCEMENTS ANd dEVELOPMENTS

GOOdWiLL

We do not amortize goodwill but instead test it annually for
impairment, or more frequently when events or changes in
circumstances indicate that goodwill might be impaired. This
impairment test is performed annually at November 30. We
use a two-step test to identify the potential impairment and
to measure the amount of impairment, if any. The first step
is to compare the fair value of the reporting unit with its
carrying amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill is not
considered impaired; otherwise, goodwill is impaired and the
loss is measured by performing step two. Under step two, the
impairment loss is measured by comparing the implied fair
value of the reporting unit goodwill with the carrying amount
of goodwill. We determine fair value using widely accepted
valuation techniques, including discounted cash flows and market
multiple analyses. These types of analyses contain uncertainties
because they require management to make assumptions and to
apply judgment to estimate industry economic factors and the
profitability of future business strategies.

We tested our goodwill for impairment as at November 30,
2013 and determined that the carrying values of a reporting
unit in the Applied Technology segment and a reporting unit
in the On-Road Systems segment exceeded the fair values.
Consequently, in the fourth quarter of December 31, 2013,
we recorded a non-cash goodwill impairment charge of $30.1
million and $4.9 million in the Applied Technology segment
and the On-Road Systems segment respectively. The goodwill
impairment charges are driven by declining revenues due to the
adverse economic climate in Europe and lower than expected
adoption rate of natural gas vehicles in selected markets. Both
of these factors resulted in a decline of our projected cash flows
of the reporting units, leading to a goodwill impairment charge
for both reporting units.

During the year, we acquired BAF and its subsidiary, ServoTech
which generated $18.5 million of goodwill. We allocated the
goodwill to one of the reporting units within the On-Road
Systems segment. We tested this goodwill balance for impairment
as at November 30, 2013 and determined the goodwill balance
was not impaired. Step 1 testing results show that the fair value of
the reporting unit exceeded the carrying value.

18 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

NEW ACCOUNTiNG
PRONOUNCEMENTS
ANd dEVELOPMENTS
BALANCE ShEET

In December 2011, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Updated (“ASU”) No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities (“ASU»2011-11”). ASU 2011-11 enhances disclosures
regarding financial instruments and derivative instruments.
Entities are required to provide both net information and gross
information for these assets and liabilities in order to enhance
comparability between those entities that prepare their financial
statements on the basis of U.S. GAAP and those entities that
prepare their financial statements on the basis of International
Financial Reporting Standards (“IFRS”). In January 2013, the
FASB issued ASU No. 2013-01 (“ASU»2013-01”), to clarify
the scope of the new offsetting disclosures in ASU 2011-11.
The ASU clarifies that the scope includes bifurcated embedded
derivatives, repurchase agreements and reverse repurchase
agreements, and securities borrowing and lending agreements
subject to a master netting arrangement or similar agreements.
These updates were effective for the Company on January 1,
2013. The adoption of the updates did not have a material
impact on the Company’s consolidated financial statements.

COMPREhENSiVE iNCOME

In February 2013, the FASB issued ASU No. 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income (“ASU»2013-02”). ASU
2013-02 improves the reporting of reclassifications out
of accumulated other comprehensive income. Entities are
required to report the effect of significant reclassifications out
of accumulated other comprehensive income on the respective
line items in net income if the amount being reclassified is
required under U.S. GAAP to be reclassified in its entirety to
net income. For other amounts that are not required under
U.S. GAAP to be reclassified in their entirety to net income
in the same reporting period, an entity is required to cross-
reference other disclosures required under U.S. GAAP that
provide additional detail about those amounts. This update was
effective for the Company on January 1, 2013. The adoption
of this update did not have a material impact on the Company’s
consolidated financial statements.

iNCOME TAXES

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes
(Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating
Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
(“ASU»2013-11”). ASU 2013-11 purpose is to eliminate the
diversity in the presentation of unrecognized tax benefits.
Entities are required to present any unrecognized tax benefit
as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward. In
circumstances where a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the
reporting date under the tax law of the applicable jurisdiction
to settle any additional income taxes that would result from
the disallowance of a tax position, the unrecognized tax benefit
should be presented in the financial statements as a liability
and should not be combined with deferred tax assets. This new
guidance is to be applied prospectively effective on January 1,
2014. The adoption of this standard will not have a material
impact on the Company’s consolidated financial statements.

diSCLOSURE CONTROLS
ANd PROCEdURES
ANd iNTERNAL
CONTROLS OVER
FiNANCiAL REPORTiNG
EVALUATiON OF diSCLOSURE
CONTROLS ANd PROCEdURES

Our disclosure controls and procedures are designed to provide
reasonable assurance that relevant information is gathered and
reported to senior management, including the Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”),
on a timely basis such that appropriate decisions can be made
regarding public disclosures. As of the end of the period covered
by this report, we evaluated, under the supervision and with the
participation of management, including the CEO and CFO,
the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a–15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended
(“Exchange»Act”). The CEO and CFO have concluded that as
of December 31, 2013, our disclosure controls and procedures
were effective to ensure that information required to be disclosed
in reports we file or submit under the Exchange Act is recorded,

MANAGEMENT’S diSCUSSiON & ANALYSiS

processed, summarized and reported within the time periods
specified therein and accumulated and reported to management
to allow timely discussions regarding required disclosure.

MANAGEMENT’S REPORT ON
iNTERNAL CONTROL OVER
FiNANCiAL REPORTiNG

The Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) promulgated under the
Exchange Act. Our internal control over financial reporting is
designed under our supervision, and affected by the Company’s
board of directors, management, and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company’s
consolidated financial statements for external reporting purposes
in accordance with U.S. GAAP and the requirements of the
Securities and Exchange Commission (the “SEC”), as applicable.
There are inherent limitations in the effectiveness of internal
control over financial reporting, including the possibility that
misstatements may not be prevented or detected. Accordingly,
even effective internal controls over financial reporting can
provide only reasonable assurance with respect to financial
statement preparation. Furthermore, the effectiveness of
internal controls can change with circumstances.

All internal control systems, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
have been detected. The design of any system of controls is based
in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed
in achieving its stated goals under potential future conditions,
regardless of how remote. Therefore, even those systems
determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.

REMEdiATiON PLAN

As previously reported in the Company’s Annual Report for the
year ended December 31, 2012, we had identified a material
weakness in the Company’s internal control over financial
reporting related to our equity method investment in CWI,
specifically resulting in the Company changing its determination
of the primary beneficiary in connection with the application
of Accounting Standards Update 2009-17, Consolidation (Topic

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 19

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

810): Improvements to Financial Reporting by Enterprises with Variable Interest
Entities, (“ASU»2009-17”). To remediate the material weakness
in the Company’s internal control over financial reporting, the
Company implemented the following procedures:

1 We have implemented the procedure of consulting third
party advisors with appropriate expertise on complex
accounting issues.

2 We have increased U.S. GAAP training for accounting person-
nel involved in financial reporting through the attendance of
technical accounting workshops and training courses.

As of December 31, 2013, management believes this material
weakness has been remediated.

Management, including the CEO and CFO, has evaluated the
effectiveness of internal control over financial reporting, as
defined in Rules 13a–15(f) and 15d–15(f) of the Exchange Act,
in relation to criteria described in Internal Control–Integrated
Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). As
allowed by National Instrument 52-109 - Certification of
Disclosure in Issuers’ Annual and Interim Filings and SEC
guidance, management excluded from its assessment the
2013 acquisition of BAF, which accounted for 7% of total
assets and 10% of total revenues as of and for the year ended
December 31, 2013. Based on this evaluation, Management has
determined that internal control over financial reporting was
effective as of December 31, 2013.

KPMG LLP, our independent registered public accounting
firm, has audited our consolidated financial statements and
expressed an unqualified opinion thereon. KPMG has also
expressed an unmodified opinion on the effective operation of
our internal control over financial reporting as of December
31, 2013.

ChANGES iN iNTERNAL
CONTROL OVER
FiNANCiAL REPORTiNG

Other than the changes described above, there were no changes
in our internal control over financial reporting that occurred
during the year ended December 31, 2013 that have materially
affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.

20 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

FiNANCiAL
OVERViEW—RESULTS
FROM OPERATiONS
REVENUE

The following table summarizes revenues by segment for the
year»ended»December»31,»2013 compared to the year»ended»
December»31,»2012:

TABLE 13 REVENUES » 2013 COMPARED TO 2012

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

Applied Technologies

93.2 $

91.7 $

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

CWI

WWI

55.1

3.3

12.4

310.7

466.6

37.6

3.1

23.2

198.0

272.1

CHANGE

1.5

17.5

0.2

47%

(10.8)

-47%

112.7

194.5

57%

71%

50%

Total segment revenues

941.3 $

625.7 $ 315.6

Less:

Equity investees' revenues

777.3

470.1

307.2

65%

Total consolidated revenues

164.0 $

155.6 $

8.4

Applied»Technologies revenue for the year ended December
31, 2013 increased $1.5 million, or 2%, to $93.2 million
from $91.7 million for the year ended December 31, 2012.
The increase in revenue was driven by stronger sales in Russia
and China and service revenue earned under development
agreements, offset by lower sales in Europe, South America and
South Asia.

On-Road»Systems revenue for the year ended December 31,
2013 increased $17.5 million, or 47% from $37.6 million to
$55.1 million. The increase in revenue is primarily due to
launch of Westport iCE PACK in the fourth quarter of 2013,
increased sales of the WiNG System as the product launch
occurred in the second quarter of the prior year and revenue
generated from BAF offset by decreased shipments of the first
generation Westport™ HPDI system and the bi-fuel systems for
the V70 bi-fuel wagon. On-Road Systems parts revenue for
the year ended December 31, 2013 increased $10.2 million to
$13.6 million compared with $3.4 million for the year ended
December 31, 2012 primarily due to parts revenue generated
from BAF.

Off-Road»Systems revenue for the year ended December 31,
2013 increased $0.2 million, or 6%, from $3.1 million to
$3.3 million due to increased shipments of Westport™ 2.4L
industrial engines to forklift and oilfield customers.

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

Corporate»and»Technology»Investments revenue for the
year ended December 31, 2013 decreased $10.8 million, or
47% from $23.2 million to $12.4 million. The decrease is
primarily driven by one-time license revenue of $8.0 million
recognized in the prior year for the transfer of the proprietary
know-how related to the HPDI technology. All costs associated
with our development agreements were recorded as research
and development expenses in the period incurred in the
consolidated statement of operations.

CWI revenue for the year ended December 31, 2013 increased
$112.7 million, or 57% from $198.0 million to $310.7 million.
CWI product revenue for the year ended December 31, 2013
increased $99.3 million, or 61%, to $261.0 million on sales
of 10,314 units compared to $161.7 million and 6,804 units
for the year ended December 31, 2012, which was primarily
attributed to the launch of the ISX12 G heavy duty truck engine
in April contributing to the increased volumes in North
America. CWI parts revenue for the year ended December 31,
2013 was $49.6 million compared with $36.3 million for the
year ended December 31, 2012.

WWI revenue for the year ended December 31, 2013 increased
$194.5 million, or 71%, from $272.1 million to $466.6
million. WWI shipped 38,138 units in 2013 compared with
22,025 units for the year ended December 31, 2012.

The following table summarizes total revenue by segment for
the twelve»months»ended»December»31,»2012 compared to
nine»months»ended»December»31,»2011:

TABLE 14 REVENUES » 2012 COMPARED TO 2011

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

CHANGE

Applied Technologies

91.7 $

55.1 $

36.6

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

CWI

WWI

37.6

3.1

23.2

198.0

272.1

20.8

1.6

10.2

138.8

84.9

66%

81%

94%

127%

43%

16.8

1.5

13.0

59.2

187.2

220%

Total segment revenues

625.7 $

311.4 $ 314.3

101%

Less:

Equity investees' revenues

470.1

223.7

246.4

110%

Total consolidated revenues

155.6 $

87.7 $

67.9

77%

Applied»Technologies revenue for the year ended December 31,
2012 increased $36.6 million, or 66%, to $91.7 million from
$55.1 million for the nine months ended December 31, 2011.
The increase in revenue was driven by six additional months
of contributions from Emer as we began consolidating Emer
on July 1, 2011 and contributions from AFV since we began
consolidating AFV in the fourth quarter of the prior year period.

On-Road»Systems revenue for the year ended December 31,
2012 increased $16.8 million, or 81% from $20.8 million
to $37.6 million. The increase in revenues was driven by
increased shipments of first generation Westport™ HPDI system
for the year ended December 31, 2012 compared to the nine
months ended December 31, 2011, from the launch of the
F-250/F-350 bi-fuel Super Duty truck in the United States
and increased revenue generated from the Volvo V-70 bi-fuel
CNG Wagon. On-Road Systems parts revenue for the twelve
months ended December 31, 2012 increased $1.1 million to
$3.4 million compared with $2.3 million for the nine months
ended December 31, 2011.

Off-Road»Systems revenue for the year ended December 31, 2012
increase $1.5 million or 94% from $1.6 million to $3.1 million.
The increase is driven by increased shipments of Westport™ 2.4L
industrial engines to forklift and oilfield customers.

Corporate»and»Technology»Investments revenue for the year
ended December 31, 2012 increased $13.0 million, or 127%
from $10.2 million to $23.2 million. Included in the year
ended December 31, 2012 was one-time license revenue of
$8.0 million for the transfer of the proprietary know-how
related to the HPDI technology and other fee payments of $1.4
million. We recognized $13.9 million under our development
agreements for the twelve months ended December 31,
2012 compared with $10.2 million for the nine months
ended December 31, 2011 due to the timing of delivering
certain milestones during the periods. All costs associated
with our development agreements were recorded as research
and development expenses in the period incurred in the
consolidated statement of operations.

CWI revenue for the year ended December 31, 2012 increased
$59.2 million, or 43% from $138.8 million to $198.0 million.
CWI product revenue for the twelve months ended December
31, 2012 increased $47.2 million, or 41%, to $161.7 million
on sales of 6,804 units compared to $114.5 million and 4,692
units for the nine months ended December 31, 2011, which was
primarily attributed to higher sales volume of ISL G engines in
the Americas and sales of engines in Asia and Latin America.
CWI parts revenue for the twelve months ended December
31, 2012 was $36.3 million compared with $24.3 million for
the nine months ended December 31, 2011. The number of
engines in the field, their age and their reliability impact parts
revenue each period.

WWI revenue for the year ended December 31, 2012 increased
$187.2 million, or 220% from $84.9 million to $272.1
million. WWI shipped 22,025 units in 2012 compared with
6,680 units for the nine months ended December 31, 2011.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 21

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

GROSS MARGiN

The following table presents gross margin by segment for the
year»ended»December»31,»2013 compared to the year»ended»
December»31,»2012:

TABLE 15 GROSS MARGIN » 2013 COMPARED TO 2012

12 MO.
ENDED DEC.
31, 2013

% OF
REVENUE

12 MO.
ENDED DEC.
31, 2012

% OF
REVENUE

CHANGE

(expressed in millions of USD)

Applied Technologies

$ 26.5 28.4% $ 25.3

27.6% $

1.2

On-Road Systems

Off-Road Systems

Corporate & Tech.
Investments

CWI

WWI

Total segment gross
margin

Less:

Equity investees’
gross margin

Total consolidated
gross margin

(23.9)

-43.4%

4.1

10.9% (28.0)

-683%

0.4

12.1%

0.6

19.4%

(0.2)

-33%

12.3 99.2%

23.2 100.0%

(10.9)

-47%

64.2

20.7%

61.4

31.0%

2.8

37.3

8.0%

24.8

9.1%

12.5

50%

116.8

12.4% $ 139.4 22.3% $ (22.6)

-16%

101.5

13.1%

86.2

18.3%

15.3

18%

15.3

9.3% $ 53.2 34.2% $ (37.9)

-71%

Applied»Technologies gross margin increased $1.2 million
to $26.5 million, or 28.4% of revenue, for the year ended
December 31, 2013 compared to $25.3 million, or 27.6% of
revenue for the year ended December 31, 2012. The increase in
gross margin percentage is due to a change in product mix during
the period and service revenue recorded at 100% gross margin.

On-Road»Systems gross margin decreased $28.0 million to
negative $23.9 million, or negative 43.4% of revenue from
$4.1 million, or 10.9% of revenue for the year ended December
31, 2012. Gross margin for the year ended December 31,
2013 includes $26.3 million of warranty adjustment and
inventory obsolescence provision. The incremental decrease
in gross margin percentage was due to lower absorption of fixed
overhead costs, product mix and negative warranty adjustments
and inventory obsolescence provisions on the first generation
Westport™ HPDI system during the period. Excluding this
warranty adjustment and inventory provision, gross margin and
gross margin percentage would have been $2.4 million, or 4.4%.

Corporate»and»Technology»Investments gross margin
decreased $10.9 million from $23.2 million to $12.3 million.
The decrease is primarily driven by one-time license revenue
of $8.0 million recognized in the prior year period. The gross
margin percentage was 100% in both periods as Corporate
and Technology Investments gross margin relates entirely to
service revenue and revenue earned under our development
agreements and other fee payments.

22 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

CWI gross margin increased $2.8 million to $64.2 million, or
20.7% of revenue from $61.4 million or 31.0% of revenue.
CWI product margin and product gross margin percentage
for the year ended December 31, 2013 were $42.7 million and
16.4%, respectively, compared to $46.5 million and 28.8%,
respectively, for the year ended December 31, 2012. This
decrease in CWI gross margin percentage was due primarily to
an increase of $20.5 million in net warranty adjustments and
net extended coverage claims and mix of sales compared to the
year ended December 31, 2012. Warranty adjustments and net
extended coverage claims totaling $36.8 million were recorded
in the year ended December 31, 2013. Excluding the warranty
related impact, CWI gross margin percentage would have been
32.5%. CWI parts gross margin percentage was 43.5% for the
year ended December 31, 2013 compared to 41.3% for the year
ended December 31, 2012.

WWI gross margin increased $12.5 million to $37.3 million,
or 8.0% of revenue from $24.8 million or 9.1% of revenue.
The decrease in gross margin percentage related primarily to
product mix and product pricing which remains discounted as
WWI penetrates new markets and builds market share.

The following table presents gross margin by segment for the
twelve»months»ended»December»31,»2012 compared to nine»
months»ended»December»31,»2011:

TABLE 16 GROSS MARGIN » 2012 COMPARED TO 2011

12 MO.
ENDED DEC.
31, 2012

% OF
REVENUE

9 MO.
ENDED DEC.
31, 2011

% OF
REVENUE

CHANGE

(expressed in millions of USD)

Applied Technologies

$ 25.3

27.6% $

11.1

20.1% $

14.2

128%

On-Road Systems

Off-Road Systems

Corporate & Tech.
Investments

CWI

WWI

Total segment gross
margin

Less:

Equity investees’
gross margin

Total consolidated
gross margin

4.1

10.9%

(0.7)

-3.4%

4.8 -686%

0.6

19.4%

0.0%

0.6

n/a

23.2 100.0%

10.2 100.0%

13.0

127%

61.4

31.0%

60.0 43.2%

1.4

24.8

9.1%

9.3

11.0%

15.5

167%

$ 139.4 22.3% $ 89.9 28.9% $ 49.5

55%

86.2

18.3%

69.3

31.0%

16.9

24%

$ 53.2 34.2% $ 20.6 23.5% $ 32.6

158%

Applied»Technologies gross margin increased $14.2 million
to $25.3 million, or 27.6% of revenue, for the year ended
December 31, 2012 compared to $11.1 million, or 20.1% of
revenue for the nine months ended December 31, 2011. The
increase in gross margin percentage is due to contributions
from Emer representing a higher proportion of the revenue,
and we consolidated Emer for twelve months in 2012 versus six

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

months in the comparative period. Emer has a higher gross
margin percentage relative to OMVL due to customer mix and
economies of scale.

On-Road»Systems gross margin increased $4.8 million to $4.1
million, or 10.9% of revenue, from negative $0.7 million,
or negative 3.4% of revenue, for the nine months ended
December 31, 2011. The increase in gross margin percentage
was due primarily to business mix with the launch of the
WING System as well as launch customer pricing on the first
generation Westport™ HPDI system, and materials variance
on certain shipments during the nine month period ended
December 31, 2011.

Corporate»and»Technology»Investments gross margin
increased $13.0 million from $10.2 million to $23.2 million.
The increase is primarily driven by one-time license revenue of
$8.0 million and other fee payments of $1.4 million recognized
for the twelve months ended December 31, 2012. The gross
margin percentage was 100% in both periods as Corporate
gross margin relates entirely to license revenue and revenue
earned under our development agreements.

CWI gross margin increased $1.4 million to $61.4 million,
or 31.0% of revenue, from $60.0 million or 43.2% of
revenue. CWI product margin and product gross margin
percentage for the twelve months ended December 31, 2012
were $46.5 million and 28.8%, respectively, compared to $51.0
million and 44.5%, respectively, for the nine months ended
December 31, 2011. This decrease in gross margin percentage
was due primarily to warranty adjustments and net extended
coverage claims totaling $16.3 million recorded in the year
ended December 31, 2012. Excluding these warranty related
adjustments, CWI’s gross margin percentage would have been
39.2%. CWI parts gross margin percentage was 41.3% for the
twelve months ended December 31, 2012 compared to 37.0%
for the nine months ended December 31, 2011.

WWI gross margin increased $15.5 million to $24.8 million,
or 9.1% of revenue, from $9.3 million, or 11.0% of revenue.
The decrease in gross margin percentage related primarily to
business mix with a high proportion of engine sales at a lower
range of engine displacement.

RESEARCh ANd
dEVELOPMENT EXPENSES

The following table presents details of research and development
(“R&D”) expense by segment for the year»ended»December»31,»
2013 compared to year»ended December»31,»2012:

TABLE 17 RESEARCH AND DEVELOPMENT » 2013 COMPARED TO 2012

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

CHANGE

Applied Technologies

5.6 $

3.1 $

2.5

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Total research and
development

15.2

2.2

68.1

24.6

3.5

42.0

(9.4)

(1.3)

26.1

81%

-38%

-37%

62%

91.1 $

73.2 $

17.9

24%

Applied»Technologies R&D expenses increased $2.5 million
primarily related to new product development programs.

On-Road»Systems R&D expenses decreased $9.4 million
primarily due to costs incurred in the prior year for the launch of
the WiNG System on the F-250/F-350 bi-fuel Super Duty trucks
offset by increased costs from recording expenses relating to BAF
and ServoTech since the acquisition occurred on June 28, 2013.

Off-Road»Systems R&D expenses decreased $1.3 million
from $3.5 million in the prior year to $2.2 million for the
year ended December 31, 2013. In the current year period,
expenses relate to costs to support and manage the development
of the business and the Off-Road programs.

Corporate»and»Technology»Investments research and
development expenses increased $26.1 million from $42.0
million to $68.1 million primarily driven by increases in our
investment in new and existing development programs.

The following table presents details of R&D expense by segment
for the twelve»months»ended»December»31,»2012 compared to
nine»months»ended»December»31,»2011:

TABLE 18 RESEARCH AND DEVELOPMENT » 2012 COMPARED TO 2011

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Applied Technologies

3.1 $

2.5 $

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Total research and
development

24.6

3.5

42.0

16.0

2.1

16.0

CHANGE

0.6

8.6

1.4

24%

54%

67%

26.0

163%

73.2 $

36.6 $

36.6

100%

Applied»Technologies R&D expenses increased $0.6 million
primarily due to the consolidation of Emer for twelve months
compared with six months in the comparative period.

On-Road»Systems R&D expenses increased $8.6 million
primarily due to efforts to expand product offerings to OEMs
to include the launch of the F-250/F-350 bi-fuel Super Duty
truck and from recording expenses relating to our operation

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 23

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

in Sweden relating to Volvo bi-fuel cars for twelve months
compared with two months in 2011.

Off-Road»Systems R&D expenses increased $1.4 million
from $2.1 million in 2011 to $3.5 million in the year ended
December 31, 2012 due to the additional three months in
comparing the twelve month period to the nine month period.

Corporate»and»Technology»Investments R&D expenses increased
$26.0 million from $16.0 million to $42.0 million driven by
increases in investment under our development agreements and
new investment programs and by the additional three months in
comparing the twelve month period to the nine month period.

SELLiNG, GENERAL ANd
AdMiNiSTRATiVE EXPENSES

The following table presents details of Selling, General
and Administrative (“SG&A”) expense by segment for the
year»ended»December»31,»2013 compared to year»ended»
December»31,»2012:

TABLE 19 SELLING, GENERAL AND ADMINISTRATIVE » 2013 COMPARED TO 2012

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

Applied Technologies

14.3 $

12.4 $

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Total selling, general and
administrative

20.8

12.4

27.7

20.3

10.7

31.5

CHANGE

1.9

0.5

1.7

15%

16%

(3.8)

-12%

75.2 $

74.9 $

0.3

Applied»Technologies SG&A expenses increased $1.9 million
due to increase in salaries and benefits, costs related to our
Australian facility and sales and marketing activities.

On-Road»Systems SG&A expenses increased $0.5 million due
to higher facilities and office expenses related to our Detroit
and Kentucky facilities, sales and marketing associated with the
F-250/F-350 bi-fuel Super Duty trucks and increased costs
from recording expenses relating to BAF and ServoTech since
the acquisition occurred on June 28, 2013.

Off-Road»Systems SG&A expenses increased $1.7 million
related to increased business development activities and
management of the Off-Road programs.

Corporate»and»Technology»Investments SG&A expenses
decreased $3.8 million primarily due to reduction in
headcount and related expenses and professional service fees
incurred in the prior year period.

24 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

The following table presents details of SG&A expense by
segment for the twelve»months»ended»December»31,»2012
compared to nine»months»ended»December»31,»2011:

TABLE 20 SELLING, GENERAL AND ADMINISTRATIVE » 2012 COMPARED TO 2011

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Applied Technologies

12.4 $

7.7 $

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Total selling, general and
administrative

20.3

10.7

31.5

10.7

2.3

17.3

CHANGE

4.7

9.6

8.4

61%

90%

365%

14.2

82%

74.9 $

38.0 $

36.9

97%

Applied»Technologies SG&A expenses increased $4.7 million
due to the comparison of a twelve month period against a
nine month prior period and the acquisition of Emer, which
resulted in a year’s of expenses recognized in 2012 compared
with six months of expenses in the comparative period, since
the acquisition occurred on July 1, 2011.

On-Road»Systems SG&A expenses increased $9.6 million
due to the comparison of a twelve month period against a nine
month prior period and increased expenses due to the launch
of the F-Series Super Duty products, increased field support
expenses related to the first generation Westport™ HPDI system
due to higher volumes, more units in the field and the costs
related to running our Sweden operations for a full year versus
two months in the comparative period.

Off-Road»Systems SG&A expenses increased $8.4 million due
to market development initiatives for Off-Road applications
and OEM activities in China.

Corporate»and»Technology»Investments SG&A expenses
increased $14.2 million primarily due to an increase in
salaries and benefits related to higher headcount to support
new programs and global market development efforts, higher
professional services and facilities costs and by the additional
three months in comparing the twelve month period to the nine
month period.

UNCONSOLidATEd
JOiNT VENTURE
OPERATiNG EXPENSES

The following table presents details of the operating expense
of our joint ventures for the year»ended»December»31,»2013
compared to year»ended»December»31,»2012:

MANAGEMENT’S diSCUSSiON & ANALYSiS » FiNANCiAL OVERViEW—RESULTS FROM OPERATiONS

TABLE 21 UNCONSOLIDATED JV OPERATING EXPENSES » 2013 COMPARED TO 2012

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

CHANGE

Cummins Westport

Weichai Westport

Total JV operating expenses

40.7 $

26.1 $

14.6

22.8

63.5 $

15.0

41.1

7.8

22.4

56%

52%

55%

CWI operating expenses were $40.7 million for the year ended
December 31, 2013 compared with $26.1 million for the
year ended December 31, 2012. The $14.6 million increase
was primarily driven by research and development expenses
related to ISX12 G and ISB6.7 G programs, as well as reliability
improvements for current products.

WWI operating expenses were $22.8 million for the year ended
December 31, 2013 compared with $15.0 million for the year
ended December 31, 2011. The increase relates primarily to higher
product development costs and increased salary, facilities and
support costs associated with rapid growth in the prior year period.

The following table presents details of the operating expense of
our joint ventures for the twelve»months»ended»December»31,»
2012 compared to nine»months»ended»December»31,»2011:

TABLE 22 UNCONSOLIDATED JV OPERATING EXPENSES » 2012 COMPARED TO 2011

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

CHANGE

Cummins Westport

Weichai Westport

Total JV operating expenses

26.1 $

17.2 $

8.9

52%

15.0

41.1 $

4.5

21.7

10.5

19.4

233%

89%

CWI operating expenses were $26.1 million for the twelve
months ended December 31, 2012 compared with $17.2
million for the nine months ended December 31, 2011. The
$8.9 million increase was primarily due to the additional
three months in comparing the twelve month period to the
nine month period, higher material and salary related costs
associated with product development and an increase in policy
expense, market development support and travel expenditures.

WWI operating expenses were $15.0 million for the twelve months
ended December 31, 2012 compared with $4.5 million for the
nine months ended December 31, 2011. The increase relates
primarily to higher product development costs and increased
salary, facilities and support costs associated with rapid growth.

FOREiGN EXChANGE
GAiNS ANd LOSSES

Foreign exchange gains and losses reflected net realized gains and
losses on foreign currency transactions and the net unrealized
gains and losses on our net U.S. dollar denominated monetary
assets and liabilities in our Canadian operations that were mainly
composed of cash and cash equivalents, short-term investments,
accounts receivable and accounts payable. In addition, the
Company has foreign exchange exposure on Euro denominated
monetary assets and liabilities where the functional currency of
the subsidiary is not the Euro. For the year ended December 31,
2013, we recognized a net foreign exchange gain of $15.2 million
with the movement in the Canadian dollar relative to the U.S.
dollar. A majority of the foreign exchange loss for the year ended
December 31, 2013 is unrealized.

For the year ended December 31, 2012, we recognized a net
foreign exchange loss of $1.2 million with the movement in the
Canadian dollar relative to the U.S. dollar. This compares to a
net foreign exchange gain of $2.1 million for the nine months
ended December 31, 2011.

dEPRECiATiON ANd
AMORTiZATiON

Depreciation and amortization for the year ended December 31,
2013 was $16.3 million compared to $11.4 million for the year
ended December 31, 2012 and $6.2 million for the nine months
ended December 31, 2011. The increases primarily related to
depreciation of property and equipment purchases and the in-
tangible assets acquired in the BAF, Emer and AFV acquisitions.

iNCOME FROM iNVESTMENT
ACCOUNTEd FOR BY
ThE EQUiTY METhOd

Income from investment accounted for by the equity method
primarily relates to our 50% interest in CWI and our 35%
interest in WWI.

TABLE 23

INCOME FROM INVESTMENT ACCOUNTED FOR BY THE EQUITY METHOD

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Cummins Westport—50% interest

9.4 $

13.2 $

Weichai Westport—35% interest

Other

4.3

(0.3)

2.9

0.1

13.0

1.4

0.1

Income from investment accounted
for by the equity method

13.4 $

16.2 $

14.5

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 25

MANAGEMENT’S diSCUSSiON & ANALYSiS » CAPiTAL REQUiREMENTS, RESOURCES ANd LiQUidiTY

iNTEREST ON LONG-TERM
dEBT ANd AMORTiZATiON
OF diSCOUNT EXPENSE

Interest on long-term debt and amortization of discount
expense primarily relates to our CDN$ debentures,
amortization of deferred financing charges and interest on our
senior financing facilities.

TABLE 24

INTEREST ON LONG-TERM DEBT AND AMORTIZATION OF DISCOUNT

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

CDN debentures—9% per annum

3.1 $

3.3 $

Senior financing facilities

Amortization of discount and non
cash interest expense

1.0

0.7

1.3

0.8

Total interest on long-term debt

4.8 $

5.4 $

1.9

0.8

0.3

3.0

Interest on long-term debt for the year ended December 31,
2013 of $4.8 million is lower compared to the year ended
December 31, 2012 due to lower amortization of discount and
non cash interest expense.

Interest on long-term debt for the twelve months ended
December 31, 2012 of $5.4 million is higher compared to the
nine months ended December 31, 2011 due to the additional
three months interest expense and amortization of deferred
financing costs on the CDN $36.0 million debentures issued
on September 30, 2011 in comparing the twelve month period
to the nine month period.

iNCOME TAX EXPENSE

Income tax expense for the year ended December 31, 2013
was $0.9 million compared to an income tax expense of
$1.7 million for the year ended December 31, 2012 and an
income tax recovery of $1.2 million for the nine months ended
December 31, 2011.

The decrease for the year ended December 31, 2013 primarily
relates to lower distributable earnings from our investment in
CWI and a recovery of deferred income tax liability relating to the
goodwill impairment charge. The increase in income tax expense
for the twelve months ended December 31, 2012 compared to
the nine months ended December 31, 2011 primarily relates to
higher distributable earnings from our investment in CWI and
higher taxable income in Emer and OMVL.

26 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

CAPiTAL
REQUiREMENTS,
RESOURCES
ANd LiQUidiTY

As at December 31, 2013, our cash, cash equivalents and
short-term investment position was $210.6 million, a decrease
of $5.3 million from $215.9 million at December 31, 2012.
Cash and cash equivalents consist of guaranteed investment
certificates, term deposits and bankers acceptances with
maturities of 90 days or less when acquired. Short-term
investments consist of investment grade bankers’ acceptances,
term deposits and commercial paper. We invest primarily in
short-term paper issued by Schedule 1 Canadian banks, R1 high
rated corporations and governments.

For the year ended December 31, 2013, our cash used in
operations was $116.8 million. Cash used in operations before
changes in non-cash working capital, a non-GAAP measure, was
$135.9 million. Changes in non-cash working capital resulted
in an increase of $19.1 million. The $19.1 million change in
working capital was impacted by increases in accounts receivable
of $12.3 million, warranty liability of $22.6 million and
deferred revenue of $5.2 million, offset by decreases in accounts
payable and accrued liabilities of $2.1 million, inventory of
$5.2 million and prepaid expenses of $0.5 million. Cash
used in investing activities included purchase of fixed assets of
$26.5 million, net purchase of short-term investments of $5.8
million, offset by $8.3 million in dividends received from joint
ventures and $1.2 million in cash acquired as result of the BAF
acquisition. Cash provided by financing activities included
$147.3 million, net of share issuance costs, raised in a public
share offering and $0.7 million in shares issued for stock option
exercises, offset by repayment of a portion of the long-term debt
within Emer of $3.7 million and repayment of amount payable
to the sellers of OMVL of $9.9 million.

Our plan is to use our current cash, cash equivalents and
short-term investments, our share of CWI dividends (typically
declared and paid quarterly) and borrowings under our credit
facility to fund our committed milestones and obligations for
our current programs. We will also continue to seek third
party and government funding on commercially acceptable
terms to offset costs of our investments; however, there are no
guarantees that we will be successful in obtaining third party
funding on acceptable terms or at all.

MANAGEMENT’S diSCUSSiON & ANALYSiS » CAPiTAL REQUiREMENTS, RESOURCES ANd LiQUidiTY

On February 27, 2012, the Company issued a total of
6,325,000 Common Shares at a price of $43.25 per share
for gross proceeds of $273.6 million. The net proceeds of
$265.4 million (net of share issuance costs of $8.1 million)
will be used by us to further our business objectives of
developing technology and relationships in new and adjacent
market opportunities with OEMs focused on industrial and
automotive, and On-Road and Off-Road applications and
capital expenditures including new test facilities.

Our cash position at December 31, 2013 includes cash
generated from several other sources, including product
revenue, parts revenue and service and other revenue.
Therefore, our cash position is net of expenditures related to
the use of proceeds disclosed in the public offering. To date,
we have made gross expenditures related to the use of proceeds
disclosed in the public offering as follows:

TABLE 25 USE OF PROCEEDS » FEB 2012 OFFERING

ESTIMATED USE OF
PROCEEDS AT TIME
OF PUBLIC OFFERING

ESTIMATE OF PROCEEDS USED DURING THE

YEAR ENDED
DEC. 31, 2013

YEAR ENDED
DEC. 31, 2012

INCEPTION
TO DATE

(expressed in millions of USD)

Off-Road Applications
(formerly HHP
Applications)

$ 50.0 – 100.0 $

12.8 $

6.5 $

19.3

21.4

Capital Expenditures

30.0 – 50.0

7.2

14.2

Geographic Expansion
(formerly HD business
units)

Geographic Expansion
(formerly LD business
units)

General Corporate
Purposes

20.0 – 40.0

36.6

37.0

73.6

20.0 – 40.0

27.4

29.5

56.9

36.3 – 146.3

55.5

28.1

83.6

266.3 $

139.5 $

115.3 $ 254.8

On October 1, 2013, the Company issued 6,000,000
Common Shares at a price of $25.39 USD per share for gross
proceeds of $152.3 million. The net proceeds of $147.3
million (net of share issuance costs of $5.1 million) will be used
for the development of a direct injection natural gas system for
multiple automotive OEMs, an off-road and marine engine
development program, the development of natural gas products
with truck and engine OEMs, the establishment of dedicated
Westport production within leading heavy duty commercial
vehicle suppliers for the development and production of
proprietary natural gas engine fuel injection equipment and
vehicle fuel storage components, and for general corporate
purposes, including working capital requirements. We expect
to use the offering as follows:

TABLE 26 USE OF PROCEEDS » OCT 2013 OFFERING

(expressed in millions of U.S. dollars)

Corporate and technology development of a direct
injection natural gas system

Off-Road and marine engine development program

Corporate and technology development of natural gas
products (HPDI, spark ignited tech)

Off-Road HD commercial applications

General corporate purposes

ESTIMATED USE OF
PROCEEDS AT TIME
OF PUBLIC OFFERING

20.0 – 40.0

30.0 – 70.0

40.0 – 50.0

0 – 38.2

148.2

To date, we have not made any material expenditure related to
the use of proceeds disclosed in the public offering.

Westport’s capital requirements will vary depending on a
number of factors, including the timing and size of orders
for our LNG systems, our ability to successfully launch
products on time, our supply chain and manufacturing
requirements, our success in executing our business plan,
relationships with current and potential strategic partners,
commercial sales and margins, product reliability, progress
on research and development activities, capital expenditures
and working capital requirements. We also continue to review
investment and acquisition opportunities on a regular basis for
technologies, businesses and markets that would complement
our own products or assist us in our commercialization
plans. Significant new orders, expanded engine programs,
acquisitions or investments could require additional funding.
If such additional funding is not available to us, if expected
orders do not materialize or are delayed, or if we have
significant overspending in our programs, we may be required
to delay, reduce or eliminate certain research and development
activities, reduce or cancel inventory orders, and possibly
forego new program, acquisition or investment opportunities.
Any of those circumstances could potentially result in a delay
of the commercialization of our products in development
and could have an adverse effect on our business, results of
operations, liquidity and financial condition.

This “Capital Requirements, Resources and Liquidity” section
contains certain forward looking statements. By their nature,
forward-looking statements require us to make assumptions
and are subject to inherent risks and uncertainties. Readers
are encouraged to read the “Forward Looking Statements” and
“Basis of Presentation” sections of this MD&A, which discusses
forward-looking statements and the “Business Risks and
Uncertainties” section of this MD&A and of our AIF.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 27

MANAGEMENT’S diSCUSSiON & ANALYSiS

ShARES OUTSTANdiNG

For the years ended December 31, 2013, December 31, 2012
and nine months ended December 31, 2011, the weighted
average number of shares used in calculating the loss per share
was 57,633,190, 54,072,513 and 47,933,348, respectively.
During the year ended December 31, 2013, we granted 742,140
RSUs and PSUs (together the “Share»Units”), including
61,424 Phantom Share Units relating to our long-term
incentive programs. The Common Shares, share options and
Share Units outstanding and exercisable as at the following
dates are shown below:

TABLE 27 SHARES OUTSTANDING

DECEMBER 31, 2013
WAEP*

FEBRUARY 25, 2014
WAEP*

Shares outstanding

62,733,762

62,792,288

Share options(1)

Outstanding(2)

Exercisable

Share units(1)

Outstanding(3)

Exercisable

738,743 $

283,505 $

29.81

23.40

728,465 $

504,469 $

29.76

28.48

1,149,139

224,638

n/a

1,815,314

223,538

n/a

* weighted average exercise price (CDN$)
(1) As at December 31, 2013, excludes 77,707 and 51,452 (February 25, 2014 – 77,707 and 93,149) of phantom
stock options and Phantom Share Units, respectively, which when vested, are exercisable in exchange for a cash payment
and do not result in the issuance of Common Shares.

(2) As at December 31, 2013 and February 25, 2014, includes 143,991 performance stock options with payout levels of

0% or 100% upon achieving the required performance criteria over the measurement period.

(3) As at December 31, 2013, includes 564,496 (February 25, 2014 – 895,288) PSUs with payout levels ranging
between 0% to 200% upon achieving the required performance criteria over the measurement period. Of these
564,496 and 895,288 PSUs a total of 56,341 are currently known to be issuable based on the prior achievement of
the required 200% conversion ratio as at the date hereof, however such awards have not yet become vested.

28 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

SUMMARY OF QUARTERLY
RESULTS ANd diSCUSSiON
OF ThE QUARTER
ENdEd dEC. 31, 2013
Our revenues and operating results can vary significantly
from quarter to quarter depending on the timing of product
deliveries, product mix, product launch dates, research and
development project cycles, timing of related government
funding, impairment charges, stock-based compensation
awards and foreign exchange impacts. Net loss has and can
vary significantly from one quarter to another depending on
operating results, gains and losses from investing activities,
recognition of tax benefits and other similar events.

Table 28 provides summary unaudited consolidated financial
data for our last eight quarters.

ThREE MONThS ENdEd
dECEMBER 31, 2013 ANd 2012

Our consolidated revenue for the three months ended
December 31, 2013 was $52.6 million, an increase of $12.7
million, or 31.8%, from $39.9 million for the three months
ended December 31, 2012. On-Road Systems generated higher
revenue due to launch of Westport iCE PACK in the fourth
quarter of 2013, increased sales of the WiNG System and of
the first generation Westport™ HPDI system, and revenue
generated from BAF. This increase in revenue was offset by
a decrease in Corporate and Technology Investments revenue
due to higher service revenue earned under our development
agreements in the prior year period.

Our consolidated net loss for the three months ended
December 31, 2013 was $89.5 million, or a loss of $1.42 per
diluted share, compared to a net loss of $37.6 million, or a
loss of $0.68 per diluted share, for the three months ended
December 31, 2012.

Included in our net loss for the three months ended December 31,
2013 are charges of $35.0 million in goodwill impairment, $21.4
million in warranty provision charges related to first generation
Westport™ HPDI system, $4.9 million in inventory obsolescence,
$4.8 million on loss on disposal of assets, $1.7 million in
intangible impairment offset by $10.1 million net foreign exchange
gains attributed mainly to the movement in the Canadian dollar
relative to the U.S. dollar, which is unrealized. Excluding the
impact of the charges and net foreign exchange gain, our net loss
and net loss per share was $31.8 million and $0.51, respectively.

MANAGEMENT’S diSCUSSiON & ANALYSiS » CONTRACTUAL OBLiGATiONS ANd COMMiTMENTS

TABLE 28 SELECTED CONSOLIDATED QUARTERLY OPERATIONS DATA (UNAUDITED)

THREE MONTHS ENDED:

MAR. 31

JUN. 30

SEP. 30

DEC. 31

MAR. 31

JUN. 30

SEP. 30

DEC. 31

2012

2013

(expressed in millions of USD
except for per share amounts)

Product revenue

Parts revenue

Service and other revenue

Total revenue

Cost of products and parts revenue

Gross margin

Gross margin percentage

Net loss for the period

Loss per share

Basic and diluted(1)

Income from unconsolidated joint ventures

CWI net income attributable to the Company

WWI net income attributable to the Company

35.3 $

34.3 $

28.3 $

31.0 $

27.3 $

32.5 $

33.0 $

0.7

36.0

27.1

8.9

0.7

14.1

49.1

26.0

23.1

1.0

1.4

30.7

22.9

7.8

1.1

7.8

39.9

26.5

13.3

1.3

1.4

30.0

22.0

8.0

1.1

1.3

34.9

26.6

8.3

3.7

9.8

46.5

30.5

16.0

24.7%

47.0%

25.4%

33.3%

26.7%

23.8%

34.4%

41.4

7.7

3.5

52.6

69.6

(17.0)

-32.3%

(22.6) $

(6.1) $

(32.5) $

(37.6) $

(31.8) $

(33.9) $

(30.2) $

(89.5)

(0.44) $

(0.11) $

(0.59) $

(0.68) $

(0.57) $

(0.61) $

(0.53) $

(1.42)

4.8

0.6

3.6

1.1

3.6

0.7

1.2

0.5

0.8

1.0

3.3

1.3

2.5

1.3

2.8

0.7

(1) Fully diluted loss per share is not materially different as the effect of stock options, restricted share units and performance share units would be anti-dilutive.

CONTRACTUAL
OBLiGATiONS ANd
COMMiTMENTS

TABLE 29 CONTRACTUAL OBLIGATIONS AND COMMITMENTS

CARRYING
AMOUNT

CONTRACTUAL
CASH FLOWS

< 1
YEAR

1–3
YEARS

4–5
YEARS

> 5
YEARS

Accounts payable and
accrued liabilities

Unsecured subordinated
debentures(1)

Senior financing(2)

Senior revolving
financing(3)

Other bank financing

Other long-term debt

Operating lease
commitments

Royalty payments(4)

53.5

33.8

15.9

13.8

0.4

2.1

1.3

53.5

36.9

17.2

4.7

10.0

2.5

14.2

0.4

2.1

84.1

20.1

14.2

0.4

0.7

4.6

1.3

0.9

0.5

10.7

2.5

11.5

2.5

57.3

13.8

$ 120.8 $

228.5 $ 116.3 $ 24.1 $ 17.0 $ 71.1

(1) includes interest at 9%
(2) includes interest at 2.8%, the rate in effect at December 31, 2013
(3) includes interest at 2.8%, the rate in effect at December 31, 2013
(4) From fiscal 2011 to 2015, inclusive, the Company is obligated to pay annual royalties equal to the greater of $1,269
(CDN$1,350) or 0.33% of the Company’s gross annual revenue from all sources, provided that gross revenue
exceeds CDN$13,500 in any aforementioned fiscal year, up to a maximum of $26,514 (CDN$28,189). The
Company has assumed the minimum required payments.

CONTRACTUAL COMMiTMENTS

Capital lease obligations related primarily to office equipment
and machinery, have initial terms of three to five years and have
interest rates ranging from 3.07% to 7.32%. Operating lease
commitments represent our future minimum lease payments
under leases related primarily to our operating premises and
office equipment.

ShORT-TERM dEBT

The senior financing agreement of $15.9 million bears interest
at the 6-month Euribor plus 2.5% with semi-annual principal
and interest payments. The senior revolving facility of $13.8
million bears interest at the 6-month Euribor plus 2.5% and
will be repaid through two principal repayments of $6.9 million
on March 31, 2016 and October 2, 2017.

On July 2, 2010, we acquired OMVL and portion of the
purchase price amounting to $9.9 million (€7.6 million)
was payable on the third anniversary of the closing date. The
amount was fully repaid on July 1, 2013.

SUBORdiNATEd
dEBENTURE NOTES

On September 23, 2011, we raised CDN $36.0 million through
the issuance of debentures. The debentures are unsecured and
subordinated to senior indebtedness, mature on September 22,
2014 and bear interest at 9% per annum, payable in cash semi-
annually in arrears on March 15 and September 15 of each year
during the term, which commenced on March 15, 2012. We
paid to Macquarie Private Wealth Inc. a cash commission equal
to 3.85% of the gross proceeds of the offering.

ROYALTY PAYMENTS

Royalty payments include annual royalties payable to Industry
Canada’s Industrial Technologies Office (“ITO”) as outlined in
“Government Funding” below.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 29

MANAGEMENT’S diSCUSSiON & ANALYSiS » BUSiNESS RiSKS ANd UNCERTAiNTiES

CONTiNGENT OFF-
BALANCE ShEET
ARRANGEMENTS
GOVERNMENT FUNdiNG

We are continually exploring strategic opportunities to work
with governments to provide them with alternative fuel
solutions. As a result of our government partnerships, we
recognized $0.6 million in government funding during the
year ended December 31, 2013 compared with $0.8 million for
the year ended December 31, 2012 and $0.6 million for the
nine months ended December 31, 2011.

Under certain repayment terms, we are obligated to repay
royalties as follows:

TABLE 30 ROYALTY REPAYMENTS

INDUSTRIAL TECHNOLOGIES OFFICE
(FORMERLY TECHNOLOGY PARTNERSHIPS CANADA)

DEPARTMENT OF
NATURAL RESOURCES CANADA

Fund 30% of the eligible costs of,
among other research projects,
the adaptation of Westport
technology to diesel engines, up to
CDN$18.9 million.
Annual royalties equal to the greater
of CDN$1.35 million or 0.33%
of annual gross revenues from all
sources, provided that gross revenues
exceed CDN$13.5 million.
Fiscal 2010 to fiscal 2015, inclusive;
royalty period may be extended
until the earlier of March 31, 2018
or until cumulative royalties total
CDN$28.2 million.

n
o
i
t
p
i
r
c
s
e
D

s
e
i
t
l
a
y
o
R

m
r
e
T

Funded CDN$1.0 million
for demonstration of
low emissions natural
gas power generator in
Grande Prairie, Alberta.
1% of revenues from
future sales of natural
gas engines for power
generators.

Earlier of 10 years from
project completion date
(August 30, 2004), or
when cumulative royalties
total CDN$1.0 million.

For the year ended December 31, 2013, royalties of $1.3
million (CDN $1.4 million) relating to ITO were paid and
an additional $1.3 million (CDN $1.4 million) was accrued
during the year. Cumulative royalties paid relating to ITO as at
December 31, 2013 total CDN $6.8 million.

30 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

RELATEd PARTY
TRANSACTiONS

As part of our joint venture agreement, we engage in
transactions with CWI.

As at December 31, 2013, net amounts due from CWI total
$3,621 (2012 - $2,127). Amounts receivable relate to costs
incurred by the Company on behalf of CWI. The amounts are
generally reimbursed by CWI to the Company in the month
following the month in which the payable is incurred. Cost
reimbursements from CWI consisted of the following:

TABLE 31 RELATED PARTY TRANSACTIONS

(expressed in millions of USD)

Research and development

General and administrative

Sales and marketing

12 MO. ENDED
DEC. 31, 2013
$

12 MO. ENDED
DEC. 31, 2012

178 $

160 $

9 MO. ENDED
DEC. 31, 2011
148

1,351

4,725

2,621

3,683

6,254 $

6,464 $

338

2,598

3,084

During the year ended December 31, 2013, interest of $nil
(year ended December 31, 2012 - $114; nine months ended
December 31, 2011 - $116) was paid to CWI.

All material transactions between the Company and CWI have
been eliminated on application of equity accounting.

BUSiNESS RiSKS ANd
UNCERTAiNTiES

An investment in our business involves risk and readers should
carefully consider the risks described in our AIF and other
filings on SEDAR.COM and SEC.GOV. Our ability to generate
revenue and profit from our technologies is dependent on a
number of factors, and the risks discussed in our AIF, if they
were to occur, could have a material impact on our business,
financial condition, liquidity, results of operation or prospects.
While we have attempted to identify the primary known risks
that are material to our business, the risks and uncertainties
discussed in our AIF may not be the only ones we face.
Additional risks and uncertainties, including those that we do
not know about now or that we currently believe are immaterial
may also adversely affect our business, financial condition,
liquidity, results of operation or prospects. A full discussion
of the risks impacting our business is contained in the AIF for
the year ended December 31, 2013 under the heading “Risk
Factors” and is available on SEDAR at SEDAR.COM.

NON-GAAP MEASURES

We use certain non-GAAP measures to assist in assessing our
financial performance and liquidity. Non-GAAP measures do
not have any standardized meaning prescribed by GAAP and
are therefore unlikely to be comparable to similar measures
presented by other companies. Non-GAAP measures and
reconciliations to financial statement line items for the periods
indicated are as follows:

TABLE 32 CASH FLOWS FROM OPERATIONS BEFORE CHANGES

IN NON-CASH WORKING CAPITAL

(expressed in millions of USD)

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Cash flow from operations

Net loss for the year

(185.4) $

(98.8) $

(45.8)

Items not involving cash

Depreciation and amortization

Stock-based compensation
expense

Unrealized foreign exchange
(gain) loss

Deferred income tax recovery

Income from investment
accounted for by the equity
method

Accretion of long-term debt

Loss of disposal of assets

Inventory obsolescence

Intangible impairment

Goodwill impairment

Other

Cash flows from operations before
changes in non-cash operating
working capital

16.3

14.3

(15.2)

(0.5)

(13.4)

1.6

4.8

4.9

1.7

35.0

11.4

12.5

1.2

(0.4)

6.2

(2.1)

(2.2)

(16.2)

2.1

(14.5)

1.0

0.3

0.7

(135.9) $

(87.9) $

(50.5)

REPORTS

MANAGEMENT’S
REPORT TO
ShAREhOLdERS

The consolidated financial statements presented here have
been prepared by management in accordance with generally
accepted accounting principles in the United States. The
integrity and objectivity of the data in these consolidated
financial statements are management’s responsibility.

The company has implemented a system of internal
accounting and administrative controls in order to provide
reasonable assurance that transactions are appropriately
authorized, assets are safeguarded, and financial records
are properly maintained to provide accurate and reliable
financial statements.

The Board of Directors, through its Audit Committee,
oversees management’s responsibility for financial
reporting and internal control. The Audit Committee is
comprised of six directors who are not involved in the daily
operations of the Company.

The duties of the Audit Committee include the review
of the system of internal controls and of any relevant
accounting, auditing and financial matters. The Audit
Committee meets on a regular basis with management
and the Company’s independent auditors to ensure itself
that its duties have been properly discharged. The Audit
Committee reports its findings to the Board of Directors
for consideration in approving the consolidated financial
statements for issuance to the shareholders.

David R. Demers,

Chief Executive Officer

February 25, 2014

Bill E. Larkin,

Chief Financial Officer

February 25, 2014

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 31

reasonableness of accounting estimates made by management,
as well as, evaluating the overall presentation of the consolidated
financial statements.

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

Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Westport Innovations Inc. as at December 31,
2013 and December 31, 2012 and its consolidated results of
operations and its consolidated cash flows for the years ended
December 31, 2013 and December 31, 2012 and for the nine-
month period ended December 31, 2011, in accordance with
U.S. generally accepted accounting principles.

Other»Matter
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Westport Innovations Inc.’s internal control over financial
reporting as of December 31, 2013 based on the criteria
established in Internal Control-Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”), and our report dated
February 25, 2014 expressed an unmodified (unqualified)
opinion on the effectiveness of Westport Innovations Inc.’s
internal control over financial reporting.

Chartered Accountants

Vancouver, Canada

February 25, 2014

REPORTS

iNdEPENdENT
AUdiTORS’ REPORT OF
REGiSTEREd PUBLiC
ACCOUNTiNG FiRM

To the Shareholders of Westport Innovations Inc.

We have audited the accompanying consolidated financial
statements of Westport Innovations Inc., which comprise
the consolidated balance sheets as at December 31, 2013 and
December 31, 2012, the consolidated statements of operations
and comprehensive income (loss), shareholders’ equity and cash
flows for the years ended December 31, 2013 and December 31,
2012 and the nine-month period ended December 31, 2011,
and notes, comprising a summary of significant accounting
policies and other explanatory information.

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

Auditors’»Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free
from material misstatement.

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

32 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

REPORT OF
iNdEPENdENT
REGiSTEREd PUBLiC
ACCOUNTiNG FiRM

To the Shareholders of Westport Innovations Inc.

We have audited Westport Innovations Inc.’s (“the»Company”)
internal control over financial reporting as of December 31,
2013, based on the criteria established in Internal Control-
Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(“COSO”). The Company’s management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Financial Statements
and Assessment of Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.

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

A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and
procedures that: (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made

REPORTS

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.

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting
as of December 31, 2013, based on the criteria established
in Internal Control-Integrated Framework (1992) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

The Company acquired BAF Technologies Inc. during the year
ended December 31, 2013, and management excluded from
its assessment of the effectiveness of the Company’s internal
controls over financial reporting as of December 31, 2013 BAF
Technologies Inc.’s internal controls over financial reporting
associated with assets representing 7% of consolidated total
assets and revenues representing 10% of consolidated total
revenues included in the consolidated financial statements of
the Company as of and for the year ended December 31, 2013.
Our audit of internal control over financial reporting of the
Company also excludes an evaluation of internal controls over
financial reporting of BAF Technologies Inc.

We also have conducted our audits on the consolidated financial
statements in accordance with Canadian generally accepted
auditing standards and the standards of Public Company
Accounting Oversight Board (United States). Our report dated
February 25, 2014 expressed an unmodified (unqualified)
opinion on those consolidated financial statements.

Chartered Accountants

Vancouver, Canada

February 25, 2014

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 33

CONSOLidATEd BALANCE ShEETS
expressed in thousands of United States dollars, except share amounts » See accompanying notes to consolidated financial statements.

ASSETS
Current assets

Cash and cash equivalents

Short-term investments

Accounts receivable [NOTE 5]

Inventories [NOTE 6]

Prepaid expenses

Current portion of deferred income tax assets [NOTE 20(B)]

Long-term investments [NOTE 7]

Other assets

Property, plant and equipment [NOTE 9]

Intangible assets [NOTE 10]

Deferred income tax assets [NOTE 20(B)]

Goodwill [NOTE 11]

DEC. 31, 2013

DEC. 31, 2012

178,513

32,091

59,315

40,626

6,072

3,109

319,726

22,128

2,245

67,349

38,344

379

41,500

188,958

26,902

44,189

44,946

6,641

7,183

318,819

19,118

1,852

58,194

35,215

56,879

LiABiLiTiES ANd ShAREhOLdERS’ EQUiTY
Current liabilities

Accounts payable and accrued liabilities [NOTE 12]

54,792

48,509

491,671

490,077

Current portion of deferred revenue

Current portion of deferred income tax liabilities [NOTE 20(B)]

Current portion of long-term debt [NOTE 13]

Current portion of warranty liability [NOTE 14]

Warranty liability [NOTE 14]

Long-term debt [NOTE 13]

Deferred revenue

Deferred income tax liabilities [NOTE 20(B)]

Other long-term liabilities [NOTE 15]

Shareholders’ Equity
Share capital [NOTE 17]:

Authorized:

Unlimited common shares, no par value

Unlimited preferred shares in series, no par value

Issued:

62,733,762 (2012 - 55,294,091) common shares

Other equity instruments

Additional paid in capital

Accumulated deficit

Accumulated other comprehensive income

Commitments and contingencies [NOTE 16] [NOTE 23]

6,727

468

53,025

9,955

124,967

18,890

12,988

4,580

4,903

2,441

168,769

1,254

28,566

2,072

80,466

4,308

52,156

5,215

9,245

2,606

153,996

916,497

13,834

8,205

(615,342)

(292)

322,902

733,385

9,228

6,384

(429,932)

17,016

336,081

$491,671

$490,077

Approved on behalf of the Board:

Douglas»R.»King, Director

John»A.»Beaulieu, Director

34 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

CONSOLidATEd STATEMENTS OF OPERATiONS ANd COMPREhENSiVE iNCOME (LOSS)
expressed in thousands of United States dollars, except share and per share amounts » See accompanying notes to consolidated financial statements.

Product revenue

Parts revenue

Service and other revenue [NOTE 22]

Cost of revenue and expenses
Cost of product and parts revenue

Research and development [NOTE 18(D)] [NOTE 19]

General and administrative [NOTE 18(D)]

Sales and marketing [NOTE 18(D)]

Foreign exchange (gain) loss

Depreciation and amortization

Bank charges, interest and other

Loss on disposal of assets

Intangible impairment [NOTE 10]

Goodwill impairment [NOTE 11]

Loss before undernoted

Income from investment accounted for by the equity method

Interest on long-term debt and amortization of discount

Interest and other income

Loss before income taxes

Income tax recovery (expense) [NOTE 20]

Current

Deferred

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

134,171

128,914

13,830

16,031

164,032

148,690

91,132

46,475

28,707

(15,168)

16,288

595

4,838

1,721

34,964

358,242

3,468

23,244

155,626

102,486

73,198

44,811

30,112

1,185

11,395

737

263,924

(194,210)

(108,298)

13,444

(4,789)

1,018

16,190

(5,354)

426

75,164

2,351

10,181

87,696

67,093

36,574

22,738

15,302

(2,053)

6,200

917

146,771

(59,075)

14,458

(2,998)

661

(184,537)

(97,036)

(46,954)

1,414

(541)

873

2,147

(409)

1,738

1,028

(2,188)

(1,160)

Net loss for the period

(185,410)

(98,774)

(45,794)

Other comprehensive income (loss)

Cumulative translation adjustment

Comprehensive loss

Loss per share
Basic and diluted

(17,308)

3,745

(12,370)

(202,718)

(95,029)

(58,164)

(3.22)

(1.83)

(0.96)

Weighted average common shares outstanding

Basic and diluted

57,633,190

54,072,513

47,933,348

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 35

CONSOLidATEd STATEMENTS OF ShAREhOLdERS’ EQUiTY
expressed in thousands of United States dollars, except share amounts » See accompanying notes to consolidated financial statements.

Issue of common shares on public offering

6,325,000

273,556

Balance, March 31, 2011

Issue of common shares on exercise of stock
options

Issue of common shares on exercise of
performance share units

Issue of common shares in connection with
acquisitions

Cancellation of common shares

Stock-based compensation

Net loss for the period

Other comprehensive loss

Balance, December 31, 2011

Issue of common shares on exercise of stock
options

Issue of common shares on exercise of
performance share units

Share issue costs

Stock-based compensation

Net loss for the year

Other comprehensive income

Balance, December 31, 2012

Issue of common shares on exercise of stock
options

Issue of common shares on exercise of
performance share units

Issue of common shares in connection with
acquisition

Acquisition to be settled by issuance of
common shares

COMMON
SHARES
OUTSTANDING

SHARE CAPITAL

OTHER EQUITY
INSTRUMENTS

ADDITIONAL
PAID IN CAPITAL

ACCUMULATED
DEFICIT

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME

TOTAL
SHAREHOLDERS’
EQUITY

46,972,304 $ 430,608 $

4,205 $

5,141 $ (284,509) $

25,641

181,086

225,845

2,810

(994)

391,612

3,799

(3,799)

915,021

23,052

(49,181)

(403)

5,706

352

(855)

(45,794)

1,816

23,052

(1,258)

6,058

(45,794)

(12,370)

48,455,601 $ 459,866 $

6,112 $

4,499 $ (331,158) $

13,271 $

152,590

55,294,091 $ 733,385 $

9,228 $

6,384 $ (429,932) $

17,016 $ 336,081

93,044

1,492

(523)

420,446

6,597

(6,597)

(8,126)

9,713

2,408

111,986

1,147

(406)

609,200

10,599

(10,599)

718,485

24,091

3,285

(98,774)

969

273,556

(8,126)

12,121

(98,774)

3,745

(185,410)

741

24,091

3,285

152,340

(5,065)

14,147

(185,410)

(17,308)

Issue of common shares on public offering

6,000,000

152,340

Share issue costs

Stock-based compensation

Net loss for the year

Other comprehensive loss

(5,065)

11,920

2,227

Balance, December 31, 2013

62,733,762 $ 916,497 $

13,834 $

8,205 $ (615,342) $

(292) $ 322,902

36 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

CONSOLidATEd STATEMENTS OF CASh FLOWS
expressed in thousands of United States dollars » See accompanying notes to consolidated financial statements.

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

(185,410)

(98,774)

(45,794)

Cash Flows from operating activities

Loss for the period

Items not involving cash:

Depreciation and amortization

Stock-based compensation expense

Unrealized foreign exchange gain

Deferred income tax expense (recovery)

Income from investments accounted for by the equity method

Accretion of long-term debt

Loss on disposal of assets

Inventory obsolescence and write-downs

Intangible impairment

Goodwill impairment

Other

Changes in non-cash operating working capital

Accounts receivable

Inventories

Prepaid expenses

Accounts payable and accrued liabilities

Deferred revenue

Warranty liability

Cash flows from investing activities
Purchase of property, plant and equipment

Purchase of intangible assets

(Purchase) sale of short-term investments, net

Repayment on loan receivable

Increase in loan payable

Repayment of loan payable

Acquisitions, net of acquired cash [NOTE 4]

Investment in equity interest [NOTE 7(A)]

Dividends received from joint venture

Cash flows from financing activities

Increase in operating lines of credit

Repayment on operating lines of credit

Repayment of long-term debt

Issuance of subordinated debenture notes

Finance costs incurred

Proceeds from stock options exercised

Shares issued for cash

Share issuance costs

Effect of foreign exchange on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

16,288

14,283

(15,168)

(541)

(13,444)

1,643

4,838

4,925

1,721

34,964

(37)

(12,289)

5,179

513

(2,064)

5,208

22,602

(116,789)

(26,450)

(5,771)

1,178

8,287

(22,756)

(3,731)

(9,947)

741

152,340

(5,065)

134,338

(5,238)

(10,445)

188,958

11,395

12,468

1,185

(409)

(16,190)

2,094

6,200

6,179

(2,053)

(2,188)

(14,458)

1,016

340

607

6,733

(7,920)

179

(742)

3,115

1,979

(14,598)

(2,051)

(4,649)

(857)

1,561

2,751

(84,547)

(68,334)

(30,363)

(989)

(22,520)

2,494

2,450

(21,840)

(1,125)

22,600

(49,293)

4,245

(3,118)

(6,725)

969

273,556

(8,126)

260,801

(1,288)

125,673

63,285

(13,123)

(123)

26,621

29,080

(23,840)

(9,084)

(955)

10,000

18,576

(3,240)

(53,278)

34,345

(1,392)

1,816

(21,749)

3,259

(68,248)

131,533

63,285

Cash and cash equivalents, end of period

178,513

188,958

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 37

CONSOLidATEd STATEMENTS OF CASh FLOWS (CONTiNUEd)
expressed in thousands of United States dollars » See accompanying notes to consolidated financial statements.

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Supplementary information

Interest paid

Taxes paid, net of refunds

Non-cash transactions:

3,911 $

1,321

Shares issued on exercise of performance share units

Cancellation of performance share units

Common shares issued in connection with acquisitions [NOTE 4]

Acquisition to be settled by issuance of common shares [NOTE 4(A)]

Contingent consideration payable in common shares in connection with
acquisitions [NOTE 4(C)]

10,599

24,091

3,285

3,532 $

1,982

6,597

1,349

1,472

3,799

1,258

23,052

428

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expressed in thousands of United States dollars, except share and per share amounts » years ended dec. 31, 2013 and 2012 and the 9 months ended dec. 31, 2011

1 COMPANY ORGANiZATiON

ANd OPERATiONS

2 SiGNiFiCANT

ACCOUNTiNG POLiCiES

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

The Company is a provider of high-performance, low-
emission engine and fuel system technologies utilizing gaseous
fuels. Its technology and products enable light (<5.9 litre),
medium (5.9 to 10 litre), heavy-duty (11 to 16 litre) and high
horsepower (>16 litre) petroleum-based fuel engines to use
primarily natural gas, giving users a cleaner, more plentiful and
generally less expensive alternative fuel.

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

38 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

a Basis of presentation

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

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

b Foreign currency translation

The Company’s reporting currency for its consolidated financial
statement presentation is the United States dollar. The functional
currencies of the Company’s operations and subsidiaries include
the following: United States, Canadian and Australian dollar,
Euro, Chinese Renminbi (“RMB”), and Swedish Krona. The
Company translates assets and liabilities of non-US dollar
functional currency operations using the period end exchange
rates, shareholders’ equity balances using the weighted average of
historical exchange rates, and revenues and expenses using the
monthly average rate for the period with the resulting exchange
differences recognized in other comprehensive income.

NOTES TO CONSOLidATEd FiNANCiAL STATEMENTS
expressed in thousands of United States dollars, except share and per share amounts » years ended dec. 31, 2013 and 2012 and the 9 months ended dec. 31, 2011

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

Except as otherwise noted, all amounts in these financial
statements are presented in U.S. dollars. For the periods
presented, the Company used the following exchange rates:

PERIOD END EXCHANGE RATE AS AT
DEC. 31, 2012
DEC. 31, 2013

AVERAGE FOR THE YEAR ENDED
DEC. 31, 2012
DEC. 31, 2013

Canadian dollar

Australian dollar

Euro

RMB

Swedish Krona

0.94

0.89

1.38

0.17

0.16

1.01

1.04

1.32

0.16

0.15

0.97

1.33

0.16

0.15

1.00

1.04

1.29

0.16

0.15

c Cash and cash equivalents

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

d Short-term investments

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

e Accounts receivable

Accounts receivable are measured at amortized cost. An
allowance for doubtful accounts is recorded based on a review

of specific accounts deemed uncollectible. Account balances
are charged against the allowance in the period in which it is
considered probable that the receivable will not be recovered.

inventories

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

g Property, plant and equipment

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

ASSETS

Buildings

Computer equipment and software

Furniture and fixtures

Machinery and equipment

Leasehold improvements

BASIS

Straight-line

RATE

10 years

3 years

5 years

Straight-line

8–10 years

Straight-line

Lease term

h Long-term investments

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

i Financial liabilities

Accounts payable and accrued liabilities, short-term debt and
long-term debt are measured at amortized cost. Transaction
costs relating to long-term debt are deferred in other assets on

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 39

initial recognition and are amortized using the effective interest
rate method.

j Research and development costs

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

k Government assistance

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

intangible assets

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

m impairment of long-lived assets

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

n Goodwill impairment

Goodwill is recorded at the time of purchase for the excess of
the amount of the purchase price over the fair values of the
identifiable assets acquired and liabilities assumed. Goodwill
is not amortized and instead is tested at least annually for
impairment, or more frequently when events or changes in
circumstances indicate that goodwill might be impaired. This

40 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

impairment test is performed annually at November 30.
Future adverse changes in market conditions or poor operating
results of underlying assets could result in an inability to
recover the carrying value of the goodwill, thereby possibly
requiring an impairment charge.

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

Fair value is determined using widely accepted valuation
techniques, including discounted cash flows and market
multiple analyses. These types of analyses contain uncertainties
because they require management to make assumptions and to
apply judgment to estimate industry economic factors and the
profitability of future business strategies.

o Warranty liability

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

market, historical data may not necessarily reflect actual costs
to be incurred and may result in significant fluctuations in the
warranty liability.

p Extended warranty

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

q Revenue recognition

Product revenue

The Company’s primary source of revenue is from the sale of
kits, Westport LNG systems and parts, and Westport CNG and
LPG fuel systems for OEMs in the light-duty automotive and
industrial markets. Product and parts revenue is recognized
when the products are shipped and title passes to the customer.

Revenue from research and development

The Company also earns service revenue from research
and development arrangements under which the Company
provides contract services relating to developing natural gas
engines or biogas engines for use in products and providing
ongoing development services to assist with the development
and commercialization of products. These contracts provide
for the payment for services based on our achieving defined
milestones or on the performance of work under product
development programs. Revenues are recognized using the
milestone method based on assessment of progress achieved
against the defined milestones. Revenue may also be recognized
using the proportionate performance method of accounting
based on the performance of work under the research and
development arrangement. There is a risk that a customer may
ultimately disagree with our assessment of the progress achieved
against milestones or that our estimates of the percentage
of work completed could change. Should this occur, the
revenues recognized in the period might require adjustment
in a subsequent period. All costs incurred related to revenue
earned from research and development arrangements are
recorded as research and development expense.

Revenue from contracts

The Company earns revenue under certain contracts to provide
engineering development services. These contracts provide
for the payment for services based on the performance of
work under product development programs. Revenues are
recognized under these contracts based on the percentage
of completion method of accounting. The components to
measure of percentage of completion are complex and subject
to many variables. Components may include estimated costs
to complete a contract, estimated hours to completion or
management’s assessment of work to be performed. When
estimates of total costs to be incurred on a contract exceed total
estimates of revenue to be earned, a provision for the entire loss
on contract is recorded in the period the loss is determined.
There is a risk that the estimated percentage of completion of
a contract may change, which may result in an adjustment to
previously recognized revenues. All costs incurred related to
revenue earned from contracts are recorded in cost of products
sold.

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

License revenue

income taxes:

The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred income tax
assets and liabilities are determined based on temporary
differences between the accounting and tax basis of the assets
and liabilities and for loss carry forwards and are measured
using the tax rates expected to apply when these tax assets and
liabilities are recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in
income in the period that includes income tax laws that have
been enacted at the balance sheet date. A valuation allowance

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 41

is provided to reduce the deferred income tax assets if, based
upon available evidence, it is more-likely-than-not that some
or all of the deferred income tax assets will not be realized.

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

net income. For other amounts that are not required under
U.S. GAAP to be reclassified in their entirety to net income
in the same reporting period, an entity is required to cross-
reference other disclosures required under U.S. GAAP that
provide additional detail about those amounts. This update was
effective for the Company on January 1, 2013. The adoption
of this update did not have a material impact on the Company’s
consolidated financial statements.

b New accounting pronouncements

3 ACCOUNTiNG ChANGES

Income taxes

a Adoption of new

accounting standards

Balance sheet

Comprehensive income

42 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes
(Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating
Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
(“ASU»2013-11”). ASU 2013-11 purpose is to eliminate the
diversity in the presentation of unrecognized tax benefits.
Entities are required to present any unrecognized tax benefit
as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward. In
circumstances where a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the
reporting date under the tax law of the applicable jurisdiction
to settle any additional income taxes that would result from
the disallowance of a tax position, the unrecognized tax benefit
should be presented in the financial statements as a liability
and should not be combined with deferred tax assets. This
new guidance is to be applied prospectively effective on January
1, 2014. The Company anticipates that the adoption of this
standard will not have a material impact on the Company’s
consolidated financial statements.

4 BUSiNESS COMBiNATiONS

a Acquisition of BAF

Technologies, inc. (“BAF”)

On June 28, 2013 (“the»acquisition»date”), the Company
acquired 100% of the outstanding common shares of BAF and
its subsidiary, ServoTech Engineering, Inc. (“ServoTech”) from
Clean Energy Fuels Corp. (“Clean»Energy”). The results of
BAF’s consolidated operations have been included since July 1,
2013 in these consolidated financial statements in the On-Road
Systems segment. The revenue and expenses of BAF for the
three days, June 28 – June 30, 2013, of the reporting period
during which BAF was a part of the Company are immaterial.
BAF is a natural gas vehicle business that supports customers

with vehicle conversions under Ford’s Qualified Vehicle
Modifier (“QVM”) program. ServoTech is an engineering
company that provides a total engineering solution from initial
concept phase to prototype hardware and validation.

Pursuant to the Stock Purchase Agreement, the acquisition
was settled with 816,460 of the Company’s common shares.
The number of shares transferred was determined using the
10-day volume weighted average price (VWAP) per share prior
to and including the acquisition date ($30.62 per share). Of
the 816,460 common shares, 718,485 shares, with a fair value
of $24,091, were issued on the acquisition date and 97,975
shares (“Holdback»shares”), with a fair value of $3,285, will be
issuable to Clean Energy 12 months after the acquisition date.
The fair value of the shares transferred or to be transferred was
determined by the closing share price on the acquisition date
($33.53 per share). The Holdback shares have been recognized
in “Other equity instruments”.

As part of the business acquisition, the Company entered into
a marketing agreement (“Marketing»Agreement”) with Clean
Energy, effective on the acquisition date for a period of two
years. The Company is required to make a cash payment of
$5,000 to Clean Energy in March 2014. Under the terms of
the Marketing Agreement, Clean Energy will provide products
and services to the Company.

The products and services received pursuant to the Marketing
Agreement have been accounted for as a separate transaction
from the business combination and the Company has
determined the fair value of these products and services to be
$2,678. The fair value has been allocated to the products and
services and will be recognized when the goods are received and
services performed. The fair value of the products and services
of the Marketing Agreement was determined using Level 1 and
Level 2 inputs.

The excess consideration of the consideration payable of
$5,000 and the fair value of the goods and services to be
recognized separate from the business combination of $2,322
has been included as purchase consideration for the acquisition
of BAF.

The following table summarizes management’s final fair market
valuation of the assets acquired and liabilities assumed at the
acquisition date based on the results of a valuation report issued
by a third-party valuation firm.

Consideration allocated to

Other tangible assets, including cash of $1,178

Property, plant and equipment

Intangible assets subject to amortization over 3–10 years

Goodwill

Total assets acquired

Less: Total liabilities

Total net assets acquired

Consideration

Payable to Clean Energy

Common shares issued

Common shares to be issued

9,116

905

7,729

18,542

36,292

(6,594)

29,698

2,322

24,091

3,285

29,698

The Company recognized $493 of acquisition related costs
in General and Administrative expense under the Corporate
and Technology Investments segment during the year ended
December 31, 2013.

Intangible Assets

The fair values for specifically identifiable intangible assets by
major asset class are as set forth below.

ASSIGNED
FAIR VALUE

6,350

160

1,219

7,729

WEIGHTED AVERAGE
AMORTIZATION PERIOD
8 years

10 years

3 years

7 years

Customer relationships

Core technology

Other intangibles

Total

Inventory

The fair value of $5,792 assigned to inventory was based on
assumptions about the selling prices and selling costs associated
with the inventory.

Deferred Income taxes

The Company recognized a deferred income tax liability
of $296 relating to the difference in book and tax bases of
acquired assets.

Goodwill

Of the total consideration paid, $18,542 has been allocated to
goodwill. The entire goodwill amount recognized is assigned
to the On-Road Systems segment. The goodwill recognized
is attributable primarily realizing expected synergies that
are specific to the Company’s business. The goodwill is not
deductible for tax purposes. The difference between the
provisional allocation reported in the Company’s interim

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 43

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

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

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

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

c Acquisition of Alternative Fuel
Vehicle Sweden AB (“AFV”)

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

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

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

financial statements subsequent to the acquisition date and
the final allocation of goodwill is primarily due to finalizing
the valuation of intangible assets and the amount allocated to
deferred income tax liabilities.

Pro forma results

The consolidated financial statements reflect consolidated
revenue and net loss for BAF of $17,097 and $3,512,
respectively, from June 28, 2013 to December 31, 2013.

The following unaudited supplemental pro forma information
presents the consolidated financial results as if the acquisition
of BAF had occurred on January 1, 2012. This supplemental
pro forma information has been prepared for comparative
purposes and does not purport to be indicative of what would
have occurred had the acquisition been made on January 1,
2012, nor are they indicative of any future results.

Revenue

Net loss

YEARS ENDED DECEMBER 31

2013

171,281 $

2012
181,972

$ (189,448) $ (100,946)

These amounts have been calculated after applying the
Company’s accounting policies and adjusting the results of BAF
to reflect the additional depreciation and amortization that
would have been charged assuming the fair value adjustments to
property, plant and equipment and intangible assets had been
applied on January 1, 2012, together with the consequential tax
effects.

b Acquisition of Advanced Engine
Components Limited (“AEC”)

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

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

Consideration allocated to

Total tangible assets

Intangible assets subject to amortization over 8 years

Total assets acquired

Less: Total liabilities

Total net assets acquired

685

832

1,517

(392)

1,125

44 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

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

Consideration allocated to

Total tangible assets, including cash of $8

Intangible assets subject to amortization over 8 years

Goodwill

Total assets acquired

Less: Total liabilities

Total net assets acquired

Consideration

Cash

Common shares

Contingent consideration payable

debt of Emer. Post-closing, Westport repaid approximately
$36,300 of the debt, leaving approximately $40,700 in debt
on the consolidated balance sheet as of July 1, 2011.

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

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

2,161

2,638

2,701

7,500

(3,561)

3,939

2,558

953

428

3,939

Consideration allocated to

Property, plant and equipment

17,644

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

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

The consolidated financial statements reflect consolidated
revenue and net loss for AFV of $2,566 and $191, respectively,
from October 11, 2011 to December 31, 2011. Had the
Company acquired AFV on April 1, 2011, consolidated
pro forma revenue and net loss for the nine months ended
December 31, 2011 would have been $62,863 and $43,064,
respectively, not including the financial results of Emer S.p.A.
(“Emer”) [NOTE 4(D)].

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

d Acquisition of Emer

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

Other tangible assets, including cash of $11,073

Intangible assets subject to amortization over 5–20 years

Goodwill

Total assets acquired

Less: Long-term debt

Other liabilities

Total net assets acquired

Consideration

Cash

Common shares

60,532

32,954

50,774

161,904

(83,272)

(38,926)

39,706

17,607

22,099

39,706

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

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

The consolidated financial statements reflect consolidated revenue
and net loss for Emer of $31,831 and $1,924, respectively, from
July 1, 2011 to December 31, 2011. Had the Company acquired
Emer on April 1, 2011, consolidated pro forma revenue and net
loss for the nine-month period ended December 31, 2011 would
have been $108,372 and $54,927, respectively, not including the
financial results of AFV [NOTE 4(C)].

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

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 45

5 ACCOUNTS RECEiVABLE

Customer trade receivable

Government funding receivable

Due from joint venture [NOTE 21]

Other receivables

Income taxes receivable

Allowance for doubtful accounts

6 iNVENTORiES

Purchased parts

Assembled parts

Work-in-process

Finished goods

Obsolescence provision

DEC. 31, 2013

DEC. 31, 2012

54,017 $

39,754

483

3,621

2,689

(1,572)

541

2,127

1,916

172

(321)

59,315 $

44,189

DEC. 31, 2013

DEC. 31, 2012

25,616 $

25,454

881

9,889

6,628

(2,388)

4,870

7,516

7,385

(279)

40,626 $

44,946

During the year ended December 31, 2013, the Company
recorded a write-down to net realizable value of approximately
$2,720 and an obsolescence charge of $2,205 (year ended
December 31, 2012 - $233; nine months ended December 31,
2011 - $430). Cost of revenue related to product and parts
revenue for the year ended December 31, 2013 was $148,690
(year ended December 31, 2013 - $102,486; nine months
ended December 31, 2011 - $67,093).

7 LONG-TERM iNVESTMENTS

Weichai Westport Inc. (a)

Cummins Westport Inc. (b)

Other equity accounted for investees

DEC. 31, 2013
$

14,534 $
7,191

403
22,128 $

DEC. 31, 2012

11,275

7,126

717

19,118

a Weichai Westport inc.

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

46 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

For the year ended December 31, 2013, the Company
recognized its share of WWI’s income of $4,264 (year ended
December 31, 2012 - $2,881; nine months ended December
31, 2011 - $1,438), as income from investment accounted for
by the equity method.

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

Current assets

Cash and short-term investments

Accounts receivable

Inventory

Other current assets

Long-term assets

Property, plant and equipment

Deferred income tax assets

Total assets

Current liabilities

Accounts payable and accrued liabilities

Other current liabilities

Total liabilities

DEC. 31, 2013

DEC. 31, 2012

4,696 $
31,967

80,412

176

1,145

21,512

55,109

1,053

7,021

6,874
131,146 $

4,930

3,248

86,997

71,345 $
21,671
93,016 $

49,125

12,055

61,180

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Product revenue

$ 466,580 $ 272,086 $

84,917

Cost of revenue and expenses

Cost of product revenue

Operating expenses

Income before income taxes

Income tax expense

Income for the period

429,238

22,846

452,084

14,496

2,315

247,299

15,022

262,321

9,765

1,536

12,181 $

8,229 $

75,581

4,457

80,038

4,879

1,364

3,515

b Cummins Westport inc.

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

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

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

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

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

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

For the year ended December 31, 2013, the Company
recognized its share of CWI’s income of $9,433 (year ended
December 31, 2012 - $13,232; nine months ended December
31, 2011 - $12,958), as income from investment accounted for
by the equity method.

Assets, liabilities, revenue and expenses of CWI are as follows:

DEC. 31, 2013

DEC. 31, 2012

Current liabilities

Current portion of warranty liability

18,395 $

Current portion of deferred revenue

Accounts payable and accrued liabilities

Long-term liabilities

Warranty liability

Deferred revenue

Other long-term liabilities

5,478

7,772

31,645

49,174

17,815

2,400

69,389

Total liabilities

101,034 $

13,317

3,862

9,401

26,580

17,501

9,968

1,312

28,781

55,361

Product revenue

Parts revenue

Cost of revenue and expenses

Cost of product and parts
revenue

Research and development

General and administrative

Sales and marketing

Foreign exchange loss (gain)

Bank charges, interest and other

Income before undernoted

Interest and investment income

Income before income taxes

Income tax expense (recovery)

Current

Deferred

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

261,012 $

161,741 $

114,518

49,639

310,651

36,274

198,015

24,326

138,844

246,403

136,575

21,522

1,348

17,839

(7)

607

12,114

1,417

12,541

(18)

472

78,837

6,720

796

9,659

369

287,712

163,101

96,398

22,939

117

23,056

24,600

(18,566)

6,034

34,914

530

35,444

16,362

(6,517)

9,845

42,446

297

42,743

18,602

(1,775)

16,827

DEC. 31, 2013

DEC. 31, 2012

Income for the period

17,022 $

25,599 $

25,916

Current assets

Cash and short-term investments

73,736 $

44,371

Accounts receivable

Current portion of deferred income tax assets

Other current assets

Long-term assets

Property, plant and equipment

Deferred income tax assets

4,645

13,958

210

1,096

21,698

6,995

7,304

225

896

9,786

Total assets

115,343 $

69,577

8 VARiABLE iNTEREST

ENTiTiES:

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

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 47

Prior to February 20, 2012, the Company and Cummins
shared equally in the profits and losses of CWI. Under the
new Joint Venture Agreement, profits and losses are shared
equally up to an established revenue baseline, and then any
excess profits will be allocated 75% to the Company and 25%
to Cummins. The Company has not historically provided and
does not intend to provide financial or other support to CWI
that the Company is not contractually required to provide.

The carrying amount and maximum exposure to losses relating
to VIEs in which the Company holds a significant variable
interest but is not the primary beneficiary, and which have not
been consolidated, were as follows:

AS AT DECEMBER 31, 2013
MAXIMUM
EXPOSURE TO
LOSS

CARRYING
AMOUNT

AS AT DECEMBER 31, 2012
MAXIMUM
EXPOSURE TO
LOSS

CARRYING
AMOUNT

Equity method
investment

7,191 $

7,126 $

Accounts receivable

3,621

2,127

7,126

2,127

9 PROPERTY, PLANT
ANd EQUiPMENT

December 31, 2013

Land and buildings

Computer equipment & software

Furniture and fixtures

Machinery and equipment

Leasehold improvements

December 31, 2012

Land and buildings

Computer equipment & software

Furniture and fixtures

Machinery and equipment

Leasehold improvements

ACCUMULATED
AMORTIZATION

NET
BOOK VALUE

COST

532 $

70 $

462

12,794

6,414

96,656

16,422

9,152

2,408

42,439

11,400

3,642

4,006

54,217

5,022

132,818 $

65,469 $

67,349

575 $

64 $

11,529

4,032

80,667

15,602

8,140

1,913

34,219

9,875

511

3,389

2,119

46,448

5,727

112,405 $

54,211 $

58,194

As at December 31, 2013, equipment with a cost of $18,788
(2012 - $16,532) and a net book value of $5,465 (2012 -
$2,587) is held under capital lease.

Depreciation expense for the year ended December 31, 2013
was $12,246 (year ended December 31, 2012 - $8,131; nine
months ended December 31, 2011 - $4,394).

48 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

10 iNTANGiBLE ASSETS

ACCUMULATED
AMORTIZATION

NET
BOOK VALUE

COST

December 31, 2013

Patents and trademarks

20,974 $

2,900 $

18,074

Technology

Customer contracts

Other intangibles

Total

December 31, 2012

7,468

18,447

1,262

2,796

3,886

225

4,672

14,561

1,037

48,151 $

9,807 $

38,344

Patents and trademarks

20,192 $

1,758 $

18,434

Technology

Customer contracts

Other intangibles

Total

6,961

14,404

1,901

2,709

5,060

11,695

41,601 $

6,386 $

35,215

During the year ended December 31, 2013, amortization of
$4,042 (December 31, 2012 - $3,264; nine months ended
December 31, 2011 - $1,806) was recognized in the statement
of operations.

During the year ended December 31, 2013, there was a
significant decline in revenue from the lower than expected
adoption rate of natural gas vehicles in our customer contracts.
An impairment analysis of the intangibles balance indicated
that the carrying value exceeded the fair value of customer
contracts. Accordingly, an intangible impairment charge of
$1,721 related to customer contracts in AFV was recognized
in the On-Road Systems segment. The fair value of customer
contracts was determined using the present value of expected
cash flows discounted at a rate equivalent to a market
participant’s weighted-average cost of capital.

The expected amortization of intangible assets for fiscal 2014 to
2018 is $3,773 per year.

11 GOOdWiLL

A continuity of goodwill is as follows:

DEC. 31, 2013

DEC. 31, 2012

Balance, beginning of period

56,879 $

55,814

Acquisition of BAF [NOTE 4(A)]

Impairment losses

18,542

(34,964)

Impact of foreign exchange changes

1,043

1,065

Balance, end of period

41,500 $

56,879

An assessment of the carrying value of goodwill was conducted
as of November 30, 2013. Based on the Company’s assessment,

it was determined that the carrying amount of goodwill
exceeded the implied fair value of goodwill by $34,964.

A goodwill impairment loss of $30,067 and $4,897 was
recorded in the Applied Technologies segment and the
On-Road Systems segment, respectively, for the year ended
December 31, 2013. The fair value of the reporting units
was determined using the present value of expected future
cash flows discounted at a rate equivalent to a market
participant’s weighted-average cost of capital. The estimates
and assumptions regarding expected future cash flows and the
appropriate discount rates are in part based upon historical
experience, financial forecasts and industry trends and
conditions.

In the Applied Technologies segment, the goodwill impairment
charge was driven by the adverse economic climate in Europe
and other geographic markets and lower than anticipated
revenues. In the On-Road Systems segment, the goodwill
impairment charge was driven by a significant loss of revenue
from lower than expected adoption rate of natural gas vehicles.

a Subordinated debenture notes

On September 23, 2011, the Company raised $33,847
(CDN$36,000) through the issuance of debentures to
Macquarie Private Wealth Inc. (“Macquarie”) on a private
placement basis.

The debentures are unsecured and subordinated to senior
indebtedness, mature on September 22, 2014, and bear
interest at 9% per annum, payable in cash semi-annually in
arrears on March 15 and September 15 of each year during the
term, which commenced on March 15, 2012.

The debentures are redeemable at the option of the Company
at a price equal to $1,150 per $1,000 principal amount of the
debentures on or before March 22, 2013. After March 22,
2013 and before maturity, the debentures can be redeemed at a
price equal to $1,100 per $1,000 principal amount.

The Company paid to Macquarie a cash commission equal to
3.85% of the gross proceeds of the offering totaling $1,460,
which is included in other assets and amortized over the term of
the debentures.

12 ACCOUNTS PAYABLE ANd
ACCRUEd LiABiLiTiES

b Long-Term payable

Trade accounts payable

Accrued payroll

Accrued interest

Income taxes payable

Other payables

DEC. 31, 2013

DEC. 31, 2012

42,872 $

37,956

7,937

893

709

2,381

8,539

961

876

177

54,792 $

48,509

13 LONG-TERM dEBT

Subordinated debenture notes (a)

$33,847

$36,185

DEC. 31, 2013

DEC. 31, 2012

Long-term payable (b)

Senior financing (c)

Senior revolving financing (c)

Other bank financing (d)

Capital lease obligations (e)

Current portion

15,941

13,779

403

2,043

66,013

9,836

18,812

13,185

1,171

1,533

80,722

(53,025)

(28,566)

$12,988

$52,156

On July 2, 2010, the Company acquired OMVL and a portion
of the purchase price was payable on the third anniversary of the
closing date. The amount was fully repaid on July 1, 2013.

c Senior financing / Senior

revolving financing

The senior financing agreement bears interest at the 6-month
Euribor plus 2.5% or a rate of 2.8% as at December 31, 2013
and its carrying value is recorded at amortized cost using
the effective interest rate method. The principal repayment
schedule of the remaining senior financing is as follows for the
years ended December 31:

2014

2015

2016

2017

2018

TOTAL

4,274 $

4,662 $

4,856 $

2,428 $

- $

16,220

The senior revolving financing facility bears interest at the
6-month Euribor plus 2.5% or a rate of 2.8% as at December
31, 2013 and will be repaid through two principal payments of
$6,889 (€5,000) on March 31, 2016 and October 2, 2017.

The Company has pledged its interest in Emer as a general
guarantee for its senior financing and senior revolving
financing.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 49

Throughout the entire term of these financing arrangements,
the Company is required to meet certain financial and non-
financial covenants. As of December 31, 2013, the Company
is in compliance with all covenants under the financing
arrangements.

d Other bank financing

Other bank financing consists of various unsecured bank
financing arrangements that carry rates of interest ranging from
1.01% to 8.00% (2012 - 1.01% to 8.00%) and are payable on
maturity dates ranging from June 23, 2014 to June 23, 2017.

e Capital lease obligations

The Company has capital lease obligations that have initial
terms of three to five years at interest rates ranging from
3.07% to 7.32% (2012 - 3.07% to 7.32%). The capital lease
obligations require the following minimum annual payments
during the respective fiscal years:

2014

2015

2016

2017

2018

Amount representing interest

f Credit facility

696

548

327

319

167

2,057

(14)

2,043

The Company has a credit facility for maximum borrowings
of CDN$30,000. The credit facility is governed by a
margin requirement limiting such borrowings to a calculated
amount based on cash and investments held with the creditor.
Borrowings may be drawn in the form of direct borrowings,
letters of credit, foreign exchange forward contracts and overdraft
loans. Outstanding amounts on direct borrowings and overdraft
loans drawn under this credit facility bear interest at the prime
rate, and letters of credit bear interest at 0.75% (2012 - 0.75%)
per annum. As at December 31, 2013 and 2012, no amounts of
this credit facility were drawn.

50 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

14 WARRANTY LiABiLiTY

A continuity of the warranty liability is as follows:

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Balance, beginning of period

6,380 $

4,401 $

1,314

Warranty assumed on acquisition

Warranty claims

Warranty accruals

Change in estimate

Impact of foreign exchange changes

582

(5,397)

4,153

22,837

290

(3,099)

5,303

(225)

Balance, end of period

28,845 $

6,380 $

(1,395)

4,530

(48)

4,401

Less: Current portion

(9,955)

(2,072)

(1,187)

Long-term portion

18,890 $

4,308 $

3,214

15 OThER LONG-TERM

LiABiLiTiES

Severance indemnity (a)

Contingent consideration payable related to
AFV acquisition (b)

Deferred lease inducements

DEC. 31, 2013

DEC. 31, 2012

1,547 $

1,681

878

856

2,441 $

2,606

a Severance indemnity

Italian law requires companies to make a mandatory
termination payment to employees. It is paid, as a lump
sum, when the employment ends for any reason such as
retirement, resignation or layoff. The severance indemnity
liability is calculated in accordance with local civil and labour
laws based on each employee’s length of service, employment
category and remuneration. There is no vesting period or
funding requirement associated with the liability. The liability
recorded in the consolidated balance sheet is the amount that
the employee would be entitled to if the employee terminates
immediately. This liability for severance indemnities relates
primarily to the Company’s employees in Italy.

b Contingent consideration payable

related to AFV acquisition

The total purchase price to acquire AFV also includes earn-
out payments payable in the Company’s shares and tied to
revenue and production milestones to be achieved no later
than December 31, 2014. This contingent consideration is
estimated to have a fair value of $427 as at December 31, 2013
(December 31, 2012 - $442).

The Company also records compensation expense relating
to two employees of AFV who receive earn-out payments in
the Company’s shares that are tied to revenue and production
milestones to be achieved no later than December 31, 2014 and
contingent upon continuing employments. This contingent
consideration is estimated to have a fair value of $451 as at
December 31, 2013 (December 31, 2012 - $414)

16 GOVERNMENT ASSiSTANCE

From time to time, the Company enters into agreements for
financial assistance with government agencies. During the
years ended December 31, 2013 and 2012 and the nine months
ended December 31, 2011, government assistance of $640,
$842 and $604 was received or receivable by the Company,
respectively, which has been recorded as a reduction of the
related research and development expenditures [NOTE 19].

Under the terms of an agreement with the Industry Canada’s
Industrial Technologies Office (“ITO”), from April 1, 2008
to March 31, 2015, inclusively, the Company is obligated
to pay annual royalties equal to the greater of $1,269
(CDN$1,350) or 0.33% of the Company’s annual revenue
provided that gross revenue exceeds $12,693 (CDN$13,500)
in any of the aforementioned fiscal years. The royalty payment
period may be extended until the earlier of March 31, 2018 or
until cumulative royalties total $26,514 (CDN$28,200). For
the year ended December 31, 2013, $1,350 (December 31,
2012 - $1,350) in royalties have been paid or are payable of
which $1,269 (December 31, 2012 - $1,350) remains accrued
in accounts payable and accrued liabilities as at December
31, 2013. As at December 31, 2013, cumulative royalties of
CDN$6,750 have been paid.

The Company is also obligated to pay royalties to the
Government of Canada’s Department of Natural Resources
equal to 1% of future revenue from engines for power
generators until the earlier of ten years from the project
completion date (August 30, 2004) or when cumulative

royalties total CDN$1,000. As at December 31, 2013, there
has been no revenue from the sales of engines for power
generators; therefore, no royalty payments have been paid or
are payable.

17 ShARE CAPiTAL

During the year ended December 31, 2013, the Company issued
721,186 common shares, net of cancellations, upon exercises of
stock options and share units (year ended December 31, 2012
– 513,490 common shares; nine months ended December 31,
2011 – 568,276 common shares). The Company issues shares
from treasury to satisfy stock option and share unit exercises.

On October 1, 2013, the Company issued 6,000,000 common
shares at a price of $25.39 per share. Gross proceeds totaled
$152,340, and the Company incurred share issuance costs of
$5,065.

On June 28, 2013, the Company issued 718,485 common shares
at a price of $33.53 per share as part of the consideration paid to
acquire BAF [NOTE 4(A)].

On February 27, 2012, the Company issued 6,325,000
common shares at a price of $43.25 per share. Gross proceeds
totaled $273,556, and the Company incurred share issuance
costs of $8,126.

On October 11, 2011, the Company issued 33,161 common
shares at a price of $28.74 per share as part of the consideration
paid to acquire AFV [NOTE 4(C)].

On July 1, 2011, the Company issued 881,860 common shares at
a price of $25.06 per share as part of the consideration paid to
acquire Emer [NOTE 4(D)].

18 STOCK OPTiONS

ANd OThER STOCK-
BASEd PLANS

At the Company’s 2012 annual general meeting, the Company’s
shareholders ratified and approved the Westport Omnibus
Plan and reserved 8,000,000 common shares under this plan.
Under the Westport Omnibus Plan, stock options, Restricted
Share Units (“RSUs”) and Performance Share Units (“PSUs”)
may be granted and are exercisable into common shares of the
Company for no additional consideration. Any employee,
contractor, director or executive officer of the Company is
eligible to participate in the Westport Omnibus Plan.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 51

No stock options were granted during the year ended December
31, 2013 or nine month period ended December 31, 2011.

The fair value of the options granted during the year ended
December 31, 2012 was determined using the Black-Scholes
option pricing formula simulation with the following weighted
average assumptions: expected dividend yield - nil%, expected
stock price volatility – 47.79%, risk free interest rate – 0.38%;
expected life of options – 3 years. The weighted average grant
date fair value was $10.97 for options granted for the fiscal year
ended December 31, 2012.

As at December 31, 2013, $2,409 of compensation cost related
to stock option awards has yet to be recognized in results from
operations and will be recognized over a weighted average
period of 1.02 years.

EXERCISE PRICE
RANGE (CDN$)

OUTSTANDING,
DEC. 31, 2013

WARCL*

WAEP**

EXERCISABLE,
DEC. 31, 2013

WAEP**

0.5 $

3.29

5,504 $

3.29

0.7

1.0

1.9

3.0

4.27

10.79

15.69

33.8

21,900

79,237

16,903

181,962

4.27

10.79

15.69

33.78

2.7 $ 30.20

305,506 $

24.15

$ 3.22 » 3.47

4.24 » 4.27

9.10 »

11.11

14.90 » 16.50

5,504

21,900

79,237

16,903

29.76 » 33.83

692,906

$ 3.22 » 33.83
* weighted average remaining contractual life (years)
** weighted average exercise price (CDN$)

816,450

b Share Units

The value assigned to issued Units and the amounts accrued are
recorded as other equity instruments. As Units are exercised or
vest and the underlying shares are issued from treasury of the
Company, the value is reclassified to share capital.

During the year ended December 31, 2013, the Company
recognized $12,189 (year ended December 31, 2012 - $9,763;
nine months ended December 31, 2011 – $5,827) of stock-
based compensation associated with the Westport Omnibus Plan
and the former Amended and Restated Unit Plan.

The Executive and Senior Management Compensation
Program sets out provisions where the RSUs and PSUs
(together the “Units”) will be granted to the Company’s
executive management if performance milestones are achieved
as determined at the discretion of the Human Resources
and Compensation Committee of the Company’s Board of
Directors. These performance milestones are focused on
achievement of key cash management, profitability and revenue
growth objectives. Vesting periods and conditions for each
Unit granted pursuant to the Westport Omnibus Plan are at
the discretion of the Board of Directors and may include time
based, share price or other performance targets.

a Stock Options

The Company grants incentive stock options to employees,
directors, officers and consultants. Stock options are granted
with an exercise price of not less than the market price of the
Company’s common shares on the date immediately prior to
the date of grant. The exercise period of the options may not
exceed eight years from the date of grant. Vesting periods of the
options are at the discretion of the Board of Directors and may
be based on fixed terms, achieving performance milestones or
reaching specified share price targets.

A summary of the status of the Company’s stock option plan as
of December 31, 2013, December 31, 2012 and December 31,
2011 and changes during the periods then ended are presented
as follows:

DEC. 31, 2013

DEC. 31, 2012

DEC. 31, 2011

WAEP*

Outstanding,
beginning of
period

Granted

Exercised

Forfeited /
expired

Outstanding,
end of period

996,047 $ 27.78

328,027 $ 8.96

562,014 $ 8.46

770,727

33.77

(111,986)

6.80 (93,044)

10.49 (225,845)

7.87

(67,611)

33.72

(9,663)

33.36

(8,142)

4.84

816,450 $ 30.20 996,047 $ 27.78

328,027 $ 8.96

Options
exercisable,
end of period
* weighted average exercise price (CDN$)

305,506 $ 24.15

226,487 $ 8.06

311,360 $ 8.55

During the year ended December 31, 2013, the Company
recognized $2,094 (year ended December 31, 2012 - $2,705;
nine months ended December 31, 2011 - $352) in stock-based
compensation related to stock options.

52 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

A continuity of the Units issued under the Westport Omnibus
Plan and the former Amended and Restated Unit Plan as of
December 31, 2013, December 31, 2012 and December 31,
2011 are as follows:

DEC. 31, 2013
UNITS

WFV*

DEC. 31, 2012
UNITS

WFV*

DEC. 31, 2011
UNITS

WFV*

1,095,094 $ 20.68

1,250,917 $ 18.04

1,377,237 $ 12.19

742,140

30.21

185,705

35.99

269,292

35.70

(448,526)

24.44 (337,228)

19.34

(391,612)

9.61

(188,117)

29.80

(4,300)

19.67

(4,000)

18.61

1,200,591 $ 23.68 1,095,094 $ 20.68

1,250,917 $ 18.04

224,638 $ 11.20

262,615 $ 8.86

276,931 $ 7.97

Outstanding,
beginning of
period

Granted

Exercised /
vested

Forfeited /
expired

Outstanding,
end of period

Units
outstanding and
exercisable, end
of period

* weighted average grant date fair value (CDN$)

12 MO. ENDED
DEC. 31, 2013
UNITS

WFV*

12 MO. ENDED
DEC. 31, 2012
UNITS

WFV*

9 MO. ENDED
DEC. 31, 2011
UNITS

WFV*

Unvested,
beginning of
period

Granted

Vested

Forfeited

832,479 $ 24.41

973,986 $ 20.90

835,703 $ 15.62

742,140

30.16

185,705

35.99

269,292

35.70

(410,549)

27.34 (322,912)

21.64 (127,009)

(188,117)

29.80

(4,300)

18.61

(4,000)

17.55

18.61

Unvested,
end of period
* weighted average grant date fair value (CDN$)

975,953 $ 26.55

832,479 $ 24.41

973,986 $ 20.90

As at December 31, 2013, $16,590 of compensation cost
related to Units awards has yet to be recognized in results from
operations and will be recognized over a weighted average
period of 1.86 years.

Of the Units granted during the year ended December 31,
2013, 389,685 Units (December 31, 2012 – 66,428) were
subject to market and service conditions. The fair value of
these Units was determined using a Monte-Carlo simulation
using the following weighted average assumptions: expected
dividend yield - nil%; expected stock price volatility – 56.16%;
and risk free interest rate – 1.17%. The valuation model
determined the grant date fair value based on assumptions
about the likelihood of the Company achieving different payout
factors as driven by the market conditions. The weighted
average grant date fair value was $30.72 for Units granted for
the year ended December 31, 2013 (December 31, 2012 -
$35.99). For the Units granted after January 1, 2013, Units

are based on two-year revenue growth, with a three-year total
shareholder return (“TSR”) gate that caps payouts as 100%
unless Westport TSR relative to the Ardour Global Alternative
Energy Index North America (“AGINA”) equals or exceeds
median. Payouts may occur at 0% to 200% of the level awarded
based on the fulfillment of the applicable performance. 100%
of these Units vest after three years from the date of the grant.
For the Units granted during the year ended December 31,
2012, payout factors are determined based upon the absolute
stock price at the end of two years, equal to the closing price on
the last trading day of December 31, 2013. One-half of these
Units vest after two years and the remainder after three years
from the date of the grant. The impact of market conditions, if
any, on compensation expense for these units is determined at
the time of the grant with no adjustment to the compensation
expense for the actual results of the market condition. The fair
value of all other Units was determined based on the market
price of the underlying shares on the date of grant. For the
Units granted prior to January 1, 2012, payout factors are
determined based upon the absolute stock price at the end of
two years and the stock price relative to a Synthetic Clean Tech
index of comparative companies two years after the grant date.
One-half of these Units vest after two years and the remainder
after three years from the date of the grant. The impact of
market conditions, if any, on compensation expense for these
units is determined at the time of the grant with no adjustment
to the compensation expense for the actual results of the
market condition. During the year ended December 31, 2013,
160,674 PSUs (2012 – 83,218) vested with a payout factor of
200% (2012 – 200%) and 54,876 PSUs vested with a payout
factor of 0% and were forfeited.

c Aggregate intrinsic values

The aggregate intrinsic value of the Company’s stock option
awards and share units at December 31, 2013 and 2012 are as
follows:

(expressed in thousands of CDN) DEC. 31, 2013

DEC. 31, 2012

Stock options

Outstanding

Exercisable

Exercised

Share units

Outstanding

Exercisable

Exercised

1,337 $

1,337

2,667

4,219

4,137

2,398

24,960 $

28,823

4,670

18,041

6,912

15,135

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 53

d Stock-based compensation

Stock-based compensation associated with the Unit plans and the
stock option plan is included in operating expenses as follows:

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Research and development

2,195 $

2,251 $

General and administrative

Sales and marketing

10,201

1,887

6,752

3,465

14,283 $

12,468 $

825

3,302

2,052

6,179

19 RESEARCh ANd

dEVELOPMENT EXPENSES

Research and development expenses are recorded net of
program funding received or receivable. The research and
development expenses had been incurred and program funding
had been received or are receivable as follows:

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Loss before income taxes

$ (184,537) $

(97,036) $

(46,954)

Expected income tax recovery

(47,979)

(24,259)

(12,443)

Increase (reduction) in income taxes resulting from

Non-deductible stock-based
compensation

Other permanent differences

Withholding taxes

Change in enacted rates

Foreign tax rate differences,
foreign exchange and other
adjustments

Non-taxable income from equity
investment

Change in valuation allowance

Goodwill impairment

3,619

(2,562)

590

3,019

(2,158)

1,187

1,642

500

189

3,858

(382)

(552)

(2,851)

37,391

8,807

(3,308)

27,577

(3,974)

13,391

Income tax expense (recovery)

873 $

1,738 $

(1,160)

b The significant components of the deferred
income tax assets and liabilities are as follows:

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Research and development
expenses

Program funding [NOTE 16]

91,772 $

74,040 $

(640)

(842)

37,178

(604)

Deferred income tax assets

Net loss carry forwards

Intangible assets

Property, plant and equipment

Research and development

91,132 $

73,198 $

36,574

Financing and share issuance costs

DEC. 31, 2013

DEC. 31, 2012

108,083 $

76,496

4,276

5,446

2,696

5,726

1,191

2,017

2,341

6,410

1,557

5,703

3,248

2,013

1,601

2,300

595

2,132

3,917

Warranty liability

Deferred revenue

Inventory

Unrealized foreign exchange

Research and development

Other

Total gross deferred income tax assets

Valuation allowance

Total deferred income tax assets

138,207

99,562

(126,424)

(89,033)

11,783

10,529

Deferred income tax liabilities

Intangible assets

Property, plant and equipment

Other

Total deferred income tax liabilities

9,884

3,132

650

13,666

8,784

3,297

575

12,656

Total net deferred income tax liabilities

1,883 $

2,127

Allocated as follows

Current deferred income tax assets

Current deferred income tax liabilities

Long-term deferred income tax assets

3,109

(468)

379

7,183

(65)

Long-term deferred income tax liabilities

(4,903)

(9,245)

Total net deferred income tax liabilities

(1,883) $

(2,127)

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

20 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 26% for the year ended December 31, 2013
(year ended December 31, 2012 – 25%; nine months
ended December 31, 2011 – 26.5%) as follows:

54 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

not be realized. The ultimate realization of deferred income
tax assets is dependent on the generation of income during
the future periods in which those temporary differences are
expected to reverse. If the evidence does not exist that all the
deferred income tax assets will be fully realized, a valuation
allowance has been recorded.

The following is a summary of the changes in the deferred
income tax asset valuation allowance:

Beginning balance

Additions

Reductions

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

89,033 $

61,456

37,391

27,639

(62)

Ending valuation allowance

126,424 $

89,033

c The components of the Company’s income

tax recovery (expense) are as follows:

NET INCOME
(LOSS) BEFORE
INCOME TAXES

INCOME TAX EXPENSE (RECOVERY)
TOTAL
DEFERRED
CURRENT

As at December 31, 2013, there were no uncertain tax
positions that require recognition in the consolidated
financial statements. 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 2009 to 2013 taxation years remain
open to examination by the Internal Revenue Service
and the Italian Revenue Agency, and various years
remain open in the other foreign jurisdictions.

The Company has loss carry forwards in
the various jurisdictions available to offset
future taxable income as follows:

EXPIRING IN:

2014

2015

2016

2017

2018

2026+

TOTAL

Canada

Italy

United States

Sweden

Other

Total

$ 2,018 $ 2,358 $

- $

- $ 341,701 $ 346,077

1,018

7,017

4,585

31,573

9,678

3,204

4,585

31,573

9,678

11,239

$ 2,018 $ 2,358 $

- $ 1,018 $ 7,017 $ 390,741 $ 403,152

12 mo. ended Dec. 31, 2013

Canada

United States

Italy

Other

(99,188)

(31,019)

(27,247)

(27,083)

444

836

89 $

533

(295)

(239)

(311)

(24)

525

873

$ (184,537) $

1,414 $

(541) $

12 mo. ended Dec. 31, 2012

Canada

United States

Italy

Other

9 mo. ended Dec. 31, 2011

Canada

United States

Italy

Other

$ (93,688) $

1,339 $

53 $

1,392

(1,589)

(318)

(1,441)

(62)

775

(62)

800

(487)

(392)

$ (97,036) $

2,147 $

(409) $

1,738

$ (45,899) $

500 $

- $

500

(1,862)

(1,342)

2,149

388

(2,205)

(1,817)

$ (46,954) $

1,028 $ (2,188) $ (1,160)

21 RELATEd PARTY
TRANSACTiONS

Pursuant to the amended and restated JVA, Westport engages in
transactions with CWI.

As at December 31, 2013, net amounts due from CWI total
$3,621 (2012 - $2,127). Amounts receivable relate to costs
incurred by Westport on behalf of CWI. The amounts are
generally reimbursed by CWI to Westport in the month
following the month in which the payable is incurred. Cost
reimbursements from CWI consisted of the following:

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Research and development

178 $

160 $

General and administrative

Sales and marketing

1,351

4,725

2,621

3,683

6,254 $

6,464 $

148

338

2,598

3,084

During the year ended December 31, 2013, interest of $nil
(year ended December 31, 2012 - $114; nine months ended
December 31, 2011 - $116) was paid to CWI.

All material transactions between the Company and CWI have
been eliminated on application of equity accounting.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 55

22 SERViCE ANd OThER

REVENUE

Service and other revenue for the year ended December 31,
2013 consisted of a one-time license revenue of $nil (year
ended December 31, 2012 - $7,923; nine months ended
December 31, 2011 - $nil) for the transfer of proprietary know-
how, other fee payments of $1,484 (year ended December 31,
2012 - $1,414; nine months ended December 31, 2011 - $nil),
and service revenue of $14,547 (year ended December 31, 2012
- $13,907; nine months ended December 31, 2011 - $10,181)
under existing development agreements was recognized as the
Company achieved and delivered certain milestones. All costs
associated with the development agreements were recorded as
research and development expenses in the period incurred.

During the year ended December 31, 2012, the Company
entered into an agreement with an original equipment
manufacturer (“OEM”) to co-develop natural gas technology
for off-road equipment, including mining trucks and
locomotives. Under the agreement, the Company provided
its proprietary know-how related to the high pressure direct
injection (“HPDI”) technology by granting a non-exclusive
license to the OEM. The Company will also provide ongoing
development services to the OEM to assist with the development
and commercialization of products. These are considered to
be multiple deliverables arrangements and the Company has
determined that the license and the development services are
separate units of accounting.

23 COMMiTMENTS ANd
CONTiNGENCiES

The Company has obligations under operating lease
arrangements that require the following minimum annual
payments during the respective fiscal years:

2014

2015

2016

2017

2018

Thereafter

4,613

4,339

6,331

6,471

5,080

57,322

84,156

For the year ended December 31, 2013, the Company incurred
operating lease expense of $5,675 (year ended December 31, 2012
- $4,492; nine months ended December 31, 2011 - $2,070).

56 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

As at December 31, 2013, the Company’s wholly owned subsidiary
Emer has provided a total amount of guarantees to third parties
of $342 (€248), which include guarantees to its customers for the
completion of specific supplies.

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.

The Company is engaged in certain legal actions in the ordinary
course or business and believes that the ultimate outcome of these
actions will not have a material adverse effect on our operating
results, liquidity or financial position

24 SEGMENTEd iNFORMATiON

In December 2012, the Company realigned its business units
to focus on product commercialization and global partnerships
development. To accommodate the variety in product, system
and service solutions, Westport created three new reportable
operating segments. The financial information for the
Company’s business segments evaluated by the Company’s chief
operating decision maker (“CODM”) includes the results of the
CWI and WWI as if it were consolidated, which is consistent with
the way Westport manages its business segments. As CWI and
WWI 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 measures.

The Company’s business operates in six reportable operating
segments:

»» Applied Technologies, designs, produces, and sells

compressed natural gas (CNG) and liquefied petroleum gas
(LPG) components and subsystems for natural gas vehicles
of all types;

»» On-Road Systems, engineers, designs, assembles and sells
natural gas engine and vehicle systems for automotive, light
commercial, and trucking;

»» Off-Road Systems, engineers, designs, and markets

Westport proprietary natural gas technologies, including
the Westport™ high pressure direct injection (HPDI)
technology, Westport™ 2.4L industrial engines and fuel
systems for the off-road, large-engine applications such
as mine trucks, locomotives, workboats, and petroleum
exploration equipment;

»» Corporate and Technology Investments, which includes

corporate costs such as research and development, general
and administrative, marketing, interest and other charges,
foreign exchange and depreciation that cannot be attributed
to a particular segment and are incurred by all segments;

»» CWI which serves the medium- to heavy-duty engine

markets with spark ignited natural gas engines. The fuel for
CWI engines is typically carried on vehicles as compressed
natural gas or liquefied natural gas; and

»» WWI develops, manufactures, and sells advanced,

alternative fuel engines and parts that are widely used in city
bus, coach, and heavy-duty truck applications in China or
exported to other regions globally.

These reporting segments offer different products and services
and are managed separately as each business requires different
technology and marketing strategies.

The accounting policies for the reportable segments are
consistent with those described in [NOTE 2]. The CODM evaluates
segment performance based on the net operating income (loss),
which is before income taxes and does not include depreciation
and amortization, impairment charges, foreign exchange gains
and losses, bank charges, interest and other expenses, interest
and other income, and gain on sale of long-term investments.
The Company did not record any intersegment sales or transfers
for the year ended December 31, 2013 and December 31, 2012.

12 MO. ENDED
DEC. 31, 2013

12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

Revenue

Applied Technologies

93,216 $

91,675 $

55,064

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Cummins Westport

Weichai Westport

Total segment revenues

55,090

3,309

12,417

310,651

466,580

941,263

37,558

3,149

23,244

198,015

272,086

625,727

20,816

1,635

10,181

138,844

84,917

311,457

Less: equity investees’ revenues

(777,231)

(470,101)

(223,761)

Total consolidated revenues

164,032 $

155,626 $

87,696

Net consolidated operating income (loss) excluding depreciation
and amortization, losses on impairments, write-downs and
disposals, foreign exchange loss (gain), bank charges and other

Applied Technologies

6,635 $

9,820 $

974

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

Cummins Westport

Weichai Westport

(59,843)

(40,937)

(14,218)

(83,546)

23,539

14,496

(13,653)

(50,211)

35,368

9,765

(27,431)

(4,401)

(23,153)

42,832

4,879

Total segment operating loss

(112,937)

(49,848)

(6,300)

Less: equity investees’ operating
income

Net consolidated operating
loss excluding depreciation
and amortization, losses on
impairments, write-downs and
disposals, foreign exchange (gain)
loss, bank charges and other

Depreciation and amortization

Applied Technologies

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

(38,035)

(45,133)

(47,711)

(150,972)

(94,981)

(54,011)

7,838

3,186

450

4,814

7,905

1,028

2,379

5,013

1,093

11,395

6,200

Losses on impairments, write-downs and disposals

Applied Technologies

On-Road Systems

31,564

9,959

57,811

Net consolidated operating loss
before foreign exchange (gain)
loss, bank charges and other

Foreign exchange (gain) loss, bank
charges and other

(208,783)

(106,376)

(60,211)

(14,573)

1,922

(1,136)

Loss before undernoted

(194,210)

(108,298)

(59,075)

Interest on long debt and other
income (expenses), net

Income from investment accounted
for by the equity method

(3,771)

(4,928)

(2,337)

13,444

16,190

14,458

Loss before income taxes

$ (184,537) $

(97,036) $

(46,954)

Total additions to long-lived assets excluding business
combinations:

Applied Technologies

4,408 $

3,000 $

On-Road Systems

Off-Road Systems

Corporate & Tech. Investments

15,555

908

5,579

10,306

1,481

16,565

2,201

645

10,400

26,450 $

31,352 $

13,246

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 57

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:

Italy

Canada

United States

Sweden

China

Australia

DEC. 31, 2013

DEC. 31, 2012

66,918 $

99,099

30,713

47,322

322

8,675

1,360

29,707

12,463

7,720

6,524

601

155,310 $

156,114

% OF TOTAL PRODUCT REVENUE AND
SERVICE AND OTHER REVENUE
12 MO. ENDED
DEC. 31, 2012

9 MO. ENDED
DEC. 31, 2011

12 MO. ENDED
DEC. 31, 2013

Americas (including United States)

Asia (including China)

Other (including Italy)

The Company’s revenue earned from Canadian customers is
not significant and has been included in revenue from sales in
the Americas.

As at December 31, 2013, total goodwill of $22,958 (December
31, 2012 - $51,711) was allocated to Applied Technologies and
$18,542 (December 31, 2012 - $5,168) On-Road Systems
segments.

As at December 31, 2013, total long-term investments of $21,872
(December 31, 2012 - $18,544) was allocated to the Corporate
segment and $256 (December 31, 2012 - $574) was allocated to
the On-Road Systems. Total assets are allocated as follows:

Applied Technologies

On-Road Systems

Off-Road Systems

Corporate & Technology Investments and
unallocated assets

Cummins Westport

Weichai Westport

Less: equity investees total assets

DEC. 31, 2013

DEC. 31, 2012

144,803 $

161,206

111,323

6,564

228,981

115,343

131,146

738,160

246,489

85,401

6,556

236,914

69,577

86,997

646,651

156,574

Total consolidated assets

491,671 $ 490,077

The Company’s long-lived assets consist of property, plant and
equipment, intangible assets and goodwill.

Long-lived assets information by geographic area:

58 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

Less: equity investees’ long-lived assets

8,117

5,826

Total consolidated long-lived assets

147,193 $

150,288

25 FiNANCiAL iNSTRUMENTS
a Financial risk management

The Company has exposure to liquidity risk, credit risk, foreign
currency risk, and interest rate risk.

b Liquidity risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they are due. The Company has
sustained losses and negative cash flows from operations since
inception. At December 31, 2013, the Company has $210,604
of cash, cash equivalents and short-term investments.

The following are the contractual maturities of financial
obligations as at December 31, 2013:

CARRYING
AMOUNT

CONTRACTUAL
CASH FLOWS

< 1
YEAR

1–3
YEARS

4–5
YEARS

> 5
YEARS

$ 53,523 $ 53,523 $ 53,523 $

- $

33,847

36,902

15,941

17,167

4,705

9,999

2,463

13,779

14,171

403

2,043

2,057

696

875

486

84,154

4,613

10,670

11,549 57,322

1,269

20,149

1,269

2,538

2,529

13,813

$ 120,805 $ 228,526 $ 116,332 $ 24,082 $ 17,027 $ 71,135

Accounts payable
and accrued
liabilities

Unsecured
subordinated
debentures (a)

Senior financing
(b)

Senior revolving
financing (c)

Other bank
financing

Other long-term
debt

Operating lease
commitments

Royalty payments
(d)

a) Includes interest at 9%.

b) Includes interest at 2.8% the rate in effect at December 31, 2013

c) Includes interest at 2.8%, the rate in effect at December 31, 2013

d) From fiscal 2011 to 2015 inclusive, the Company is obligated to pay annual royalties equal to the greater of $1,269

(CDN$1,350) or 0.33% of the Company’s gross annual revenue from all sources, provided that gross revenue exceeds
$12,693 (CDN$13,500) in any aforementioned fiscal year, up to a maximum of $26,514 (CDN$28,189). The
Company has assumed the minimum required payments.

The Company expects to be able to meet its future financial
obligations with its current source of funds. However, there
are uncertainties related to the timing of the Company’s cash
inflows and outflows, specifically around the sale of inventories
and amounts required for market and product development
costs. These uncertainties include the volume of commercial
sales related to its natural gas engines and fuel system products
and the development of markets for, and customer acceptance
of, these products. As a result, the Company may need to
seek additional equity or arrange debt financing, which could
include additional lines of credit, in order to meet its financial
obligations.

c 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 and short-term investments by regularly consulting
with its current bank and investment advisors and investing
primarily in liquid short-term paper issued by Schedule 1
Canadian banks, R1 rated companies and governments. 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 loans receivable. As at December 31,
2013, 88% (December 31, 2012 - 89%) of accounts receivable
relates to customer receivables, 1% (December 31, 2012 - 1%)
relates to government grants receivable and 11% (December
31, 2012 - 10%) relates to amounts due from joint venture
and indirect, income tax and value added taxes receivable. 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. The Company reviews
its customer receivable accounts and regularly recognizes an
allowance for doubtful receivables as soon as the account is
determined not to be fully collectible. Estimates for allowance
for doubtful debts are determined by a customer-by-customer
evaluation of collectability at each balance sheet reporting date,
taking into consideration past due amounts and any available
relevant information on the customers’ liquidity and financial
position.

The carrying amount of cash and cash equivalents, short-term
investments and accounts receivable as at December 31, 2013
of $269,919 (December 31, 2012 - $260,049) represents the
Company’s maximum credit exposure.

d 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 United States dollar (“U.S.”)
and the Euro (“Euro”). 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 U.S. dollar and the Euro carrying amount of financial
instruments subject to exposure to foreign currency risk in the
consolidated balance sheet at December 31, 2013 is as follows:

Cash and cash equivalents

Short-term investments

Accounts receivable

Accounts payable

Cash and cash equivalents

U.S. DOLLARS

150,595

31,820

16,607

8,732

EUROS

€

387

If foreign exchange rates on December 31, 2013 had changed by
25 basis points, with all other variables held constant, net loss
for the year ended December 31, 2013 would have changed by
$528 and $1 for US dollar denominated and Euro denominated
financial instruments, respectively. The Company’s exposure to
currencies other than U.S. dollars and Euros is not material.

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 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.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 59

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, 2013, cash and cash equivalents and short-
term investments are measured at fair value on a recurring basis
and are included in Level 1.

If interest rates for the year ended December 31, 2013 had
increased or decreased by 50 basis points, with all other
variables held constant, net loss for the year ended December
31, 2013 would have increased or decreased by $52.

f 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 and loan payable approximate their fair values
due to the short-term period to maturity of these instruments.

The Company’s short-term investments are recorded at fair
value. The long-term investment represents our interests in
the CWI, WWI and other equity accounted for investees, which
are accounted for using the equity method.

The carrying value reported in the balance sheets for
obligations under capital lease, which is based upon discounted
cash flows, approximates its fair value.

The carrying value reported in the balance sheet for the
unsecured subordinated debenture notes [NOTE 13(A)]
approximates its fair value, based on market rates of interest
for similar indebtedness. Additionally, the interest rate on the
notes approximates the interest rate being demanded in the
market for debt with similar terms and conditions.

The carrying value reported in the balance sheet for senior
financing agreements [NOTE 13(C)] approximates its fair value as
at December 31, 2013, as the interest rate on the debt is floating
and therefore approximates the market rate of interest. The
Company’s credit spread also has not substantially changed
from the 2.5% premium currently paid.

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).

60 » WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT

INFORMATION FOR SHAREHOLDERS

iNFORMATiON FOR ShAREhOLdERS

diRECTORS ANd
EXECUTiVE OFFiCERS

STOCK LiSTiNGS
NASDAQ WPRT

Toronto Stock Exchange WPT

NAME / POSITION

RESIDENCE

Warren J. Baker
Director

John A. Beaulieu
Chairman and Director

M.A. (Jill) Bodkin
Director

David R. Demers
CEO and Director

Brenda J. Eprile
Director

Nancy S. Gougarty
President & COO

Philip B. Hodge
Director

Dezsö J. Horváth
Director

Douglas R. King
Director

William (Bill) E. Larkin
CFO

Avila Beach,
California

Vancouver,
Washington

Vancouver,
British Columbia

North York,
Ontario

Vancouver,
British Columbia

Calgary,
Alberta

Toronto,
Ontario

Hillsborough,
California

Blaine,
Washington

Gottfried (Guff) Muench
Director

West Vancouver,
British Columbia

Thomas G. Rippon
Executive Vice President

Elaine A. Wong
Executive Vice President

White Rock,
British Columbia

Vancouver,

British Columbia

START

Sept.

2002

COMMITTEES

√ √ √

Sept.

1997 √ √ √ √

July

2008 √ √

Mar.

1995

Oct.

2013 √

Jul.

2013

June

2012 √

√

Sept.

2001 √

√

Jan.

2012 √

√

Feb.

2010

July

2010

Sept.

2013

Sept.

2001

CORPORATE iNFORMATiON

ANNUAL & SPECiAL MEETiNG
OF ShAREhOLdERS

Thursday, April 24, 2014 at 2:00 PM (Pacific) at the Pan
Pacific Hotel, 999 Canada Place, Vancouver, British Columbia.

WESTPORT ON ThE iNTERNET

Topics featured in this document can be found on our websites:

Westport

WESTPORT.COM

Fuel for Thought blog

BLOG.WESTPORT.COM

YouTube Channel

YOUTUBE.COM/WESTPORTDOTCOM

Facebook

FACEBOOK.COM/WESTPORTDOTCOM

Cummins Westport

CUMMINSWESTPORT.COM

Weichai Westport

WEICHAI-WESTPORT.COM

The information on these websites is not incorporated by
reference into this Annual Report. Financial results, Annual
Information Form, news, services, and other activities
can also be found on the Westport website, on SEDAR at
SEDAR.COM, or at the SEC at SEC.GOV. Shareholders and other
interested parties can also sign up to receive news updates in
a variety of formats including email, Twitter, and RSS feeds:

WESTPORT.COM/CONTACT/SUBSCRIPTIONS

Westport Shareholder Services

CONTACT iNFORMATiON

Shareholders with questions about their account—including
change of address, lost stock certificates, or receipt of multiple
mail-outs and other related inquiries—should contact our
Transfer Agent and Registrar:

COMPUTERSHARE TRUST COMPANY OF CANADA
510 Burrard Street, 3rd Floor
Vancouver, British Columbia, Canada V6C 3B9
T 604-661-9400 » F 604-661-9401

Legal Counsel

Bennett Jones LLP, Calgary, Alberta, Canada

Auditors

KPMG LLP Chartered Accountants, Vancouver, British
Columbia, Canada

1750 West 75th Avenue, Suite 101
Vancouver, British Columbia, Canada V6P 6G2
T 604-718-2000 » F 604-718-2001 » INVEST@WESTPORT.COM

Forward Looking Statements

This document contains forward-looking statements about Westport’s business, operations,
technology development, products, the performance of our products, sources of revenue, our
future market opportunities and/or about the environment in which it operates, which are based
on Westport’s estimates, forecasts, and projections. These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to predict, or are beyond
Westport’s control and may cause actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements
expressed in or implied by these forward looking statements. These risks include risks relating to the
timing and demand for our products, future success of our business strategies and other risk factors
described in our most recent Annual Information Form and other filings with securities regulators.
Consequently, readers should not place any undue reliance on such forward-looking statements.
In addition, these forward-looking statements relate to the date on which they are made. Westport
disclaims any intention or obligation to update or revise any forward-looking statements, whether as
a result of new information, future events, or otherwise except as required by applicable legislation.

WESTPORT iNNOVATiONS iNC. 2013 ANNUAL REPORT » 61

AuditHR & CompensationNominating & GovernanceStrategy

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