Exhibit 2
 
 WESTPORT INNOVATIONS INC.




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##### 



AUDITORS REPORT TO THE SHAREHOLDERS




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##### 



WESTPORT INNOVATIONS INC.
  2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    39,043
    
    
    $
    7,560Short-term investments
    
    
    43,576
    
    
    
    15,202Accounts receivable
    
    
    6,417
    
    
    
    7,028Loan receivable (note 19(a))
    
    
    11,234
    
    
    
    6,774Inventories (note 4)
    
    
    13,982
    
    
    
    9,020Prepaid expenses
    
    
    1,387
    
    
    
    1,033Current portion of future income tax assets (note 18(b))
    
    
    4,451
    
    
    
    4,944120,090
    
    
    
    51,561Long-term investments (note 5)
    
    
    1,935
    
    
    
    18,754Equipment, furniture and leasehold improvements (note 6)
    
    
    7,712
    
    
    
    3,685Intellectual property (note 7)
    
    
    430
    
    
    
    574Future income tax asset (note 18(b))
    
    
    5,337
    
    
    
    4,366$
    135,504
    
    
    $
    78,940Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    14,359
    
    
    $
    8,470Deferred revenue
    
    
    546
    
    
    
    205Demand installment loan (note 8)
    
    
    4,642
    
    
    
    5,776Short-term debt (note 9)
    
    
    1,614
    
    
    
    5,995Current portion of long-term debt (note 10)
    
    
    17
    
    
    
    54Current portion of warranty liability
    
    
    12,222
    
    
    
    4,899Obligation to issue warrants (note 14)
    
    
    
    
    
    
    4,00033,400
    
    
    
    29,399Warranty liability
    
    
    12,369
    
    
    
    4,258Long-term debt (notes 10 (a) and (b))
    
    
    11,353
    
    
    
    8Other long-term liabilities (note 11)
    
    
    4,821
    
    
    
    1,496Joint Venture Partners share of net assets of joint ventures
(note 19)
    
    
    12,603
    
    
    
    13,98374,546
    
    
    
    49,144Shareholders equity:Share capital:Authorized:Unlimited common shares, no par valueUnlimited preferred shares in series, no par valueIssued:32,040,540 (2008  27,416,993) common shares
    
    
    311,855
    
    
    
    258,202Other equity instruments (note 16)
    
    
    12,319
    
    
    
    3,079Additional paid in capital
    
    
    5,263
    
    
    
    5,097Deficit
    
    
    (271,885
    )
    
    
    (247,460
    )Accumulated other comprehensive income
    
    
    3,406
    
    
    
    10,87860,958
    
    
    
    29,796Commitments and contingencies (notes 12 and 20)$
    135,504
    
    
    $
    78,940
   Henry Bauermeister
    
    Director
    
    John A. Beaulieu
    
    Director
  1




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##### 



WESTPORT INNOVATIONS INC.
  2009
    
    
    2008
    
    
    2007Product revenue
    
    $
    102,755
    
    
    $
    55,238
    
    
    $
    47,195Parts revenue
    
    
    19,082
    
    
    
    16,298
    
    
    
    13,285121,837
    
    
    
    71,536
    
    
    
    60,480Cost of revenue and expenses:Cost of revenue
    
    
    91,020
    
    
    
    49,023
    
    
    
    38,381Research and development (notes 15(c) and 17)
    
    
    30,982
    
    
    
    23,026
    
    
    
    21,891General and administrative (note 15(c))
    
    
    8,575
    
    
    
    6,033
    
    
    
    6,882Sales and marketing (note 15(c))
    
    
    15,071
    
    
    
    10,550
    
    
    
    7,077Foreign exchange loss (gain)
    
    
    682
    
    
    
    1,287
    
    
    
    (102
    )Depreciation and amortization
    
    
    1,978
    
    
    
    1,550
    
    
    
    1,410Bank charges, interest and other
    
    
    469
    
    
    
    280
    
    
    
    408148,777
    
    
    
    91,749
    
    
    
    75,947Loss before undernoted
    
    
    (26,940
    )
    
    
    (20,213
    )
    
    
    (15,467
    )Loss from investment accounted for by the equity method
    
    
    (1,021
    )
    
    
    
    
    
    
    Interest on long-term debt and amortization of discount (notes 10 (b) and
(c))
    
    
    (1,879
    )
    
    
    (986
    )
    
    
    (1,718
    )Interest and other income
    
    
    1,882
    
    
    
    1,316
    
    
    
    764Gain on sale of long-term investments (note 5)
    
    
    14,275
    
    
    
    10,659
    
    
    
    8,120Loss before income taxes and Joint Venture Partners share of income from
joint ventures
    
    
    (13,683
    )
    
    
    (9,224
    )
    
    
    (8,301
    )Income tax recovery (expense) (note 18):Current
    
    
    (3,276
    )
    
    
    (218
    )
    
    
    (404
    )Future
    
    
    (3,245
    )
    
    
    4,691
    
    
    
    3,455(6,521
    )
    
    
    4,473
    
    
    
    3,051Loss before Joint Venture Partners share of income from joint ventures
    
    
    (20,204
    )
    
    
    (4,751
    )
    
    
    (5,250
    )Joint Venture Partners share of net income from joint ventures (note 19)
    
    
    (4,221
    )
    
    
    (5,564
    )
    
    
    (6,057
    )Loss for the year
    
    $
    (24,425
    )
    
    $
    (10,315
    )
    
    $
    (11,307
    )Basic and diluted loss per share
    
    $
    (0.81
    )
    
    $
    (0.41
    )
    
    $
    (0.53
    )Weighted average common shares outstanding 
Basic and diluted
    
    
    30,268,947
    
    
    
    25,167,966
    
    
    
    21,478,521
   2




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##### 



WESTPORT INNOVATIONS INC.
  2009
    
    
    2008
    
    
    2007Loss for the year
    
    $
    (24,425
    )
    
    $
    (10,315
    )
    
    
    (11,307
    )Other comprehensive income (loss)Unrealized gain on available for
sale securities, net of tax of
$323 (2008  $181)
    
    
    1,781
    
    
    
    645
    
    
    
    Reclassification of net realized
gains on available for sale
securities to net loss, net of
tax of $2,454 (2008  $1,345)
    
    
    (12,119
    )
    
    
    (6,799
    )
    
    
    Cumulative translation adjustment
    
    
    3,659
    
    
    
    
    
    
    
    Reclassification of realized
foreign exchange gain on payment
of dividend by joint venture
    
    
    (793
    )
    
    
    
    
    
    
    (7,472
    )
    
    
    (6,154
    )
    
    
    Comprehensive loss
    
    $
    (31,897
    )
    
    $
    (16,469
    )
    
    
    (11,307
    )
   3




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##### 



WESTPORT INNOVATIONS INC.
 
  Accumulated otherCommon
    
    
    Share
    
    
    Other equity
    
    
    Additional paid
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholdersshares
    
    
    capital
    
    
    instruments
    
    
    in capital
    
    
    deficit
    
    
    income
    
    
    equityBalance, March 31, 2006
    
    
    21,254,792
    
    
    $
    231,180
    
    
    $
    2,359
    
    
    $
    4,771
    
    
    $
    (228,558
    )
    
    
    
    
    
    $
    9,752Shares issued for intellectual property
    
    
    174,030
    
    
    
    602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    602Issue of common shares on exercise of performance share units
    
    
    81,052
    
    
    
    555
    
    
    
    (555
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issued for settlement of accrued interest
    
    
    114,720
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498Share issue costs
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Value of warrants issued with long-term debt and conversion options (10(c))
    
    
    
    
    
    
    
    
    
    
    8,989
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,989Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,559
    
    
    
    530
    
    
    
    
    
    
    
    
    
    
    
    2,089Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,307
    )
    
    
    
    
    
    
    (11,307
    )Balance, March 31, 2007
    
    
    21,624,594
    
    
    
    232,830
    
    
    
    12,352
    
    
    
    5,301
    
    
    
    (239,865
    )
    
    
    
    
    
    
    10,618Transitional adjustment on adoption of new accounting standards for
financial instruments, (net of tax of $3,370)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,483
    
    
    
    17,032
    
    
    
    20,515Balance, April 1, 2007
    
    
    21,624,594
    
    
    
    232,830
    
    
    
    12,352
    
    
    
    5,301
    
    
    
    (236,382
    )
    
    
    17,032
    
    
    
    31,133Issue of common shares on exercise of stock options
    
    
    232,024
    
    
    
    1,967
    
    
    
    
    
    
    
    (762
    )
    
    
    
    
    
    
    
    
    
    
    1,205Issue of common shares on exercise of performance share units
    
    
    60,383
    
    
    
    390
    
    
    
    (390
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issue of common shares on conversion of 
subordinated convertible notes and 
settlement of accrued interest (note 10(c))
    
    
    4,831,801
    
    
    
    21,759
    
    
    
    (7,569
    )
    
    
    
    
    
    
    (763
    )
    
    
    
    
    
    
    13,427Issue of common shares on exercise of warrants
    
    
    668,191
    
    
    
    1,420
    
    
    
    (1,420
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share issue costs
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    558
    
    
    
    
    
    
    
    
    
    
    
    664Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,315
    )
    
    
    
    
    
    
    (10,315
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,154
    )
    
    
    (6,154
    )Balance, March 31, 2008
    
    
    27,416,993
    
    
    
    258,202
    
    
    
    3,079
    
    
    
    5,097
    
    
    
    (247,460
    )
    
    
    10,878
    
    
    
    29,796Issue of common shares on exercise of stock options
    
    
    104,669
    
    
    
    939
    
    
    
    
    
    
    
    (357
    )
    
    
    
    
    
    
    
    
    
    
    582Issue of common shares on exercise of performance share units
    
    
    3,947
    
    
    
    23
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issue of common shares on settlement of accrued interest
    
    
    14,931
    
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249Issue of common shares on public offering (note 13)
    
    
    4,500,000
    
    
    
    57,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,348Share issue costs
    
    
    
    
    
    
    (4,906
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,906
    )Value of warrants issued with long-term debt
    
    
    
    
    
    
    
    
    
    
    3,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,847Value of warrants issued to settle obligation to issue warrants
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Financing costs incurred
    
    
    
    
    
    
    
    
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,723
    
    
    
    523
    
    
    
    
    
    
    
    
    
    
    
    2,246Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,425
    )
    
    
    
    
    
    
    (24,425
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,472
    )
    
    
    (7,472
    )Balance, March 31, 2009
    
    
    32,040,540
    
    
    $
    311,855
    
    
    $
    12,319
    
    
    $
    5,263
    
    
    $
    (271,885
    )
    
    $
    3,406
    
    
    $
    60,958
   4




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##### 



WESTPORT INNOVATIONS INC.
  2009
    
    
    2008
    
    
    2007Cash flows from operations:Loss for the year
    
    $
    (24,425
    )
    
    $
    (10,315
    )
    
    $
    (11,307
    )Items not involving cash:Depreciation and amortization
    
    
    1,978
    
    
    
    1,550
    
    
    
    1,410Stock-based compensation expense
    
    
    2,246
    
    
    
    664
    
    
    
    2,089Accretion of TPC warrants
    
    
    
    
    
    
    
    
    
    
    571Future income tax expense (recovery)
    
    
    3,245
    
    
    
    (4,691
    )
    
    
    (3,455
    )Change in deferred lease inducements
    
    
    (321
    )
    
    
    (251
    )
    
    
    (164
    )Gain on sale of long-term investments
    
    
    (14,275
    )
    
    
    (10,659
    )
    
    
    (8,120
    )Joint Venture Partners share of net income
from joint ventures
    
    
    4,221
    
    
    
    5,564
    
    
    
    6,057Loss from investment accounted for by the
equity method
    
    
    1,021
    
    
    
    
    
    
    
    Accretion of long-term debt
    
    
    866
    
    
    
    690
    
    
    
    1,663Other
    
    
    (181
    )
    
    
    (146
    )
    
    
    (69
    )Changes in non-cash operating working capital:Accounts receivable
    
    
    1,004
    
    
    
    3,853
    
    
    
    (4,744
    )Inventories
    
    
    (4,962
    )
    
    
    (6,204
    )
    
    
    (1,963
    )Prepaid expenses
    
    
    (354
    )
    
    
    (250
    )
    
    
    (62
    )Accounts payable and accrued liabilities
    
    
    5,545
    
    
    
    2,343
    
    
    
    2,353Deferred revenue
    
    
    2,948
    
    
    
    (133
    )
    
    
    129Warranty liability
    
    
    12,168
    
    
    
    2,186
    
    
    
    1,201(9,276
    )
    
    
    (15,799
    )
    
    
    (14,411
    )Cash flows from investments:Purchase of equipment, furniture and leasehold improvements
    
    
    (5,904
    )
    
    
    (1,690
    )
    
    
    (1,175
    )Proceeds on disposition of equipment, furniture and leasehold
improvements
    
    
    
    
    
    
    609
    
    
    
    12Sale (purchase) of short-term investments, net
    
    
    (27,024
    )
    
    
    6,725
    
    
    
    (14,593
    )Purchase of long-term investments
    
    
    
    
    
    
    
    
    
    
    (51
    )Disposition of long-term investments
    
    
    19,379
    
    
    
    17,977
    
    
    
    605Advances on loans receivable
    
    
    (18,948
    )
    
    
    (6,774
    )
    
    
    Repayment on loans receivable
    
    
    17,307
    
    
    
    
    
    
    
    Investment in joint venture
    
    
    (1,500
    )
    
    
    
    
    
    
    Sale of interest in subsidiary
    
    
    
    
    
    
    
    
    
    
    4,198Proceeds from joint venture partner
    
    
    
    
    
    
    425
    
    
    
    Deferred transaction costs incurred
    
    
    
    
    
    
    
    
    
    
    (764
    )Leasehold inducement
    
    
    325
    
    
    
    
    
    
    
    (16,365
    )
    
    
    17,272
    
    
    
    (11,768
    )Cash flows from financing:Issue of demand instalment loan
    
    
    500
    
    
    
    5,000
    
    
    
    Repayment of demand instalment loan
    
    
    (1,634
    )
    
    
    (837
    )
    
    
    (894
    )Increase in short-term debt
    
    
    170
    
    
    
    5,995
    
    
    
    Repayment of short-term debt
    
    
    (5,449
    )
    
    
    
    
    
    
    Increase in bank loan
    
    
    
    
    
    
    
    
    
    
    7,346Repayment of bank loan and other long term debt
    
    
    (103
    )
    
    
    (6,814
    )
    
    
    (789
    )Issuance of debenture notes
    
    
    15,000
    
    
    
    
    
    
    
    Issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    22,092Finance costs incurred
    
    
    (1,006
    )
    
    
    
    
    
    
    (915
    )Shares issued for cash
    
    
    57,930
    
    
    
    1,205
    
    
    
    Share issue costs
    
    
    (4,906
    )
    
    
    (164
    )
    
    
    (5
    )Dividends paid to joint venture partner
    
    
    (9,259
    )
    
    
    
    
    
    
    51,243
    
    
    
    4,385
    
    
    
    26,835Effect of foreign exchange on cash and cash equivalents
    
    
    5,881
    
    
    
    
    
    
    
    Increase in cash and cash equivalents
    
    
    31,483
    
    
    
    5,858
    
    
    
    656Cash and cash equivalents, beginning of year
    
    
    7,560
    
    
    
    1,702
    
    
    
    1,046Cash and cash equivalents, end of year
    
    $
    39,043
    
    
    $
    7,560
    
    
    $
    1,702
  5




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##### 



WESTPORT INNOVATIONS INC.
  2009
    
    
    2008
    
    
    2007Supplementary information:Interest paid
    
    $
    956
    
    
    $
    473
    
    
    $
    379Taxes paid
    
    
    1,771
    
    
    
    479
    
    
    
    15Non-cash transactions:Purchase of equipment, furniture and leasehold
improvements by assumption of capital lease
obligation
    
    
    50
    
    
    
    
    
    
    
    Shares issued on exercise of performance share units
    
    
    23
    
    
    
    390
    
    
    
    555Shares issued for acquisition of intellectual
property
    
    
    
    
    
    
    
    
    
    
    602Shares issued on conversion of debt (note 10(c))
    
    
    
    
    
    
    21,115
    
    
    
    Shares issued for settlement of interest on
convertible notes (note 10(c))
    
    
    249
    
    
    
    644
    
    
    
    498Broker warrants issued with subordinated debt (note
10(b))
    
    
    284
    
    
    
    
    
    
    
    Shares issued on cashless exercise of warrants
    
    
    
    
    
    
    1,420
    
    
    
    Warrants issued on obligation to settle warrants
(note 14)
    
    
    4,000
    
    
    
    
    
    
    
    
   6




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##### 



WESTPORT INNOVATIONS INC.
  1.
    
    Nature of operations:Westport Innovations Inc. (the Company) was incorporated under the
Business Corporations Act (Alberta) on March 20, 1995.The Company is involved in the research, development and
commercialization of environmental technologies, including
high-pressure direct injection (HPDI) combustion technology that
allows diesel engines to operate on cleaner burning gaseous fuels such
as natural gas without sacrificing performance or fuel economy. The
Company also has a joint venture interest in Cummins Westport Inc.
(CWI), a joint venture with Cummins Inc. (Cummins), formed in 2001
(note 19(a)). CWI develops, supports and markets a comprehensive
product line of low-emission, high performance engines and ancillary
products using proprietary intellectual property developed by the
Company and Cummins.These consolidated financial statements have been presented on a going
concern basis, which assumes the realization of assets and the
settlement of liabilities in the normal course of operations. To
date, the Company has financed its operations primarily by equity and
debt financing, sale of investments, its share of operating cash flows
from CWI, and margins on the sale of products and parts. If the
Company does not have sufficient funding from internal or external
sources, it may be required to delay, reduce or eliminate certain
research and development programs and forego acquisition of certain
equipment. The future operations of the Company are dependent upon
its ability to produce, distribute and sell an economically viable
product to attain profitable operations.2.
    
    Significant accounting policies:
 (a)
    
    Basis of presentation:The consolidated financial statements include
the accounts of the Company, its wholly owned
subsidiaries and variable interest entities for
which the Company is considered the primary
beneficiary. Intercompany balances and
transactions have been eliminated.Interests in variable interest entities are
consolidated by the Company if the Company is
the primary beneficiary. The Company has
identified CWI and BTIC Westport Inc. (BWI) as
variable interest entities and determined that
the Company is the primary beneficiary.
Accordingly, the Company has consolidated these
entities. The other 50% interest held by the
Companys joint venture partners is reflected as
Joint Venture Partners share of net assets of
joint ventures in these consolidated financial
statements.These consolidated financial statements are
presented in accordance with Canadian generally
accepted accounting principles which conform in
all material respects with accounting principles
generally accepted in the United States, except
as outlined in note 24.Certain comparative amounts have been
reclassified to conform with the presentation
adopted in the current period. Shares, share
options, performance share units, warrants and
per share amounts have been adjusted on a
retroactive basis to reflect the
three-and-one-half-to-one share consolidation
(3.5:1) completed on July 21, 2008.
  7




---



##### 



WESTPORT INNOVATIONS INC.
  2.
    
    Significant accounting policies (continued):
 (b)
    
    Cash and cash equivalents:Cash and cash equivalents includes cash and term deposits 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.(c)
    
    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 that
in value that is considered other than temporary is recognized in net loss for the period.(d)
    
    Accounts and loans receivableAccounts receivable and loans receivable are measured at amortized cost.(e)
    
    Inventories:The Companys inventory consists 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 include 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 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.(f)
    
    Equipment, furniture and leasehold improvements:Equipment, furniture and leasehold improvements are stated at cost. Depreciation is
provided as follows:
 Assets
    
    Basis
    
    
    RateComputer equipment and software
    
    Straight-line
    
    3 yearsFurniture and fixtures
    
    Straight-line
    
    5 yearsMachinery and equipment
    
    Straight-line
    
    8 yearsLeasehold improvements
    
    Straight-line
    
    Lease term
 (g)
    
    Long-term investments:Long-term investments are designated as available for sale and recorded at their fair
value to the extent a reliable fair value is determinable. Changes in fair value are
recognized in accumulated other comprehensive income (loss). A decline in value that is
considered other than temporary is recognized in net loss for the period. The Company
records investments in which it has significant influence using the equity basis of
accounting.
  8




---



##### 



WESTPORT INNOVATIONS INC.
  2.
    
    Significant accounting policies (continued):
 (h)
    
    Financial liabilitiesAccounts payable and accrued liabilities,
demand instalment loan, short-term debt,
and long-term debt are measured at
amortized cost. Transaction costs relating
to long-term debt are netted against the
liability on initial recognition and are
amortized using the effective interest
rate method. For debt instruments
containing a debt and equity component,
the proceeds received are allocated
between the debt and equity components
based on their relative fair values.(i)
    
    Research and development costs:Research costs are expensed as incurred
and are recorded net of government funding
received or receivable. Development costs
are deferred only if they meet certain
stringent criteria generally related to
technical feasibility, market definition
and financing availability for future
development; otherwise they are expensed
as incurred. Related investment tax
credits reduce research and development
expenses 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. As at March 31, 2009 and 2008,
no development costs had been deferred.(j)
    
    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 equipment,
furniture and leasehold improvements 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.(k)
    
    Intellectual property:Intellectual property, consisting
primarily of the cost of acquired patents,
licenses and other intellectual property,
is amortized over their estimated useful
lives, which currently does not exceed
seven years.(l)
    
    Impairment of long-lived assets:The Company reviews for impairment of
long-lived assets, including equipment,
furniture, and leasehold improvements 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.
  9




---



##### 



WESTPORT INNOVATIONS INC.
  2.
    
    Significant accounting policies (continued):
 (m)
    
    Warranty liability:Estimated warranty costs are recognized at
the time the Company sells its products,
and are included in cost of revenue. The
Company provides warranty coverage on
products sold for a period of two years
from the date the products are put into
service by customers. Warranty liability
represents the Companys best estimate of
warranty costs expected to be incurred
during the warranty period. Furthermore,
the current portion of warranty liability
represents the Companys best estimate of
the costs to be incurred in the next
twelve month period. The Company uses
historical failure rates and cost to
repair defective products together with
information on known product issues to
estimate the warranty liability. The
ultimate 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 companies
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.(n)
    
    Extended warranty:The Company sells extended warranty
contracts which provide coverage in
addition to the basic two year coverage.
Proceeds from the sale of these contracts
are deferred and amortized over the
extended warranty period commencing at the
end of the basic warranty period. On a
periodic basis, management reviews the
estimated warranty costs expected to be
incurred related to these contracts and
recognizes a loss to the extent such costs
exceed the related deferred revenue.(o)
    
    Revenue recognition:Product and parts revenue is recognized,
net of estimated costs of returns,
allowances, and sales incentives, when the
products are shipped and title passes to
the customers. Revenue also includes fees
earned from performing research and
development activities for third parties,
as well as technology license fees from
third parties. Revenue from research and
development activities is recognized as
the services are performed. Revenue from
technology license fees is recognized over
the duration of the licensing agreement.
Amounts received in advance of the revenue
recognition criteria being met are
recorded as deferred revenue.(p)
    
    Income taxes:The Company uses the asset and liability
method of accounting for income taxes.
Under this method, future 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 future tax assets and
liabilities of a change in tax rate is
recognized in income in the period that
includes the substantive enactment date.
A valuation allowance is recorded against
any future income tax asset if it is not
more likely than not that the benefit of
these assets will be realized.
  10




---



##### 



WESTPORT INNOVATIONS INC.
  2.
    
    Significant accounting policies (continued):
 (q)
    
    Stock-based compensation plans:The Company has a stock option plan, which
is described in note 15(a). The Company
accounts for stock-based compensation
related to stock options granted to
employees and directors using the fair
value method. The resulting compensation
expense is calculated using the
Black-Scholes valuation method and
estimated forfeitures and is recognized in
results from operations over the vesting
period. The Company has an employee share
purchase plan, which is described in note
15(b). The Company matches the employees
contribution and recognizes this cost as
an expense in the period it is incurred.The Company has a Performance Share Unit
(PSU) Plan as described in note 15(c).
The value of the units is calculated based
on the market price of the Companys
common shares on the date of grant and is
recorded as compensation expense in the
period earned, which generally is the
period over which the PSUs vest.(r)
    
    Post-retirement benefits:The Company has implemented a group
registered retirement savings plan
(RRSP) in which full-time employees of
the Company are eligible to participate.
Eligible employees may make contributions
up to their personal eligible contribution
room under the Canadian Income Tax Act.
The Company contributes up to a maximum
combined total of 5% of the employees
regular base pay to the RRSP and/or the
employee share purchase plan and
recognizes this cost as an expense in the
period it is incurred. During the year
ended March 31, 2009, the Company
recognized $580 (2008  $418; 2007  $356)
of expense associated with the RRSP.(s)
    
    Currency translation:The functional currency of the Company is
the Canadian dollar. Monetary items
denominated in foreign currency are
translated into Canadian dollars at
exchange rates in effect at the balance
sheet date and non-monetary items are
translated at rates of exchange in effect
when the assets were acquired or
obligations incurred. Revenue and
expenses are translated at rates in effect
at the time of the transactions. Foreign
exchange gains and losses are included in
results from operations.Effective April 1, 2008, the Company
determined that CWI is economically,
financially and operationally independent
of the Company and the Companys exposure
to rate changes is now limited to the
Companys net investment. As a result,
the assets and liabilities of CWI are
translated at year-end rates of exchange.
Revenue and expenses are translated at the
average rate of exchange for the year.
The resulting translation gains and losses
are included in accumulated other
comprehensive income within shareholders
equity.
  11




---



##### 



WESTPORT INNOVATIONS INC.
  2.
    
    Significant accounting policies (continued):
 (t)
    
    Use of estimates:The preparation of financial statements
requires management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities,
disclosure of contingent liabilities at
the date of the financial statements, and
the reported amounts of revenue and
expenses during the period. Significant
areas requiring the use of estimates
include amortization of equipment,
furniture and leasehold improvements, the
determination of future cash flows and
discount rates for impairment of
long-lived assets, valuation of long-term
investments, valuation of future income
tax assets and the determination of
warranty liability. Actual results could
differ from estimates used in the
preparation of the consolidated financial
statements.(u)
    
    Loss per share:Basic loss per share is calculated using
the weighted average number of shares
outstanding during the period. Diluted
loss per share is computed similarly to
basic loss per share, except that the
weighted average number of shares
outstanding is increased to include
additional shares from the assumed
exercise of conversion options, stock
options, warrants, and performance share
units, if dilutive. For stock options,
warrants and performance units, the number
of additional shares is calculated by
assuming that outstanding stock options,
warrants, and performance share units were
exercised at the beginning of the year or
when granted and that the proceeds from
such exercises were used to repurchase
 shares of common stock at the average
market price during the period. For
conversion options, the Company uses the
if-converted method which assumes that the
exercise of options occurs at the
beginning of the year or when granted.
For all periods presented, diluted loss
per share does not differ from basic loss
per share as the impact of dilutive
securities is anti-dilutive.
 3.
    
    Accounting changes:
 (a)
    
    Adoption of new accounting standards:On April 1, 2008, the Company adopted the Canadian
Institute of Chartered Accountants (CICA) Handbook
Section 1400, General Standards of Financial Statement
Presentation; Section 1535, Capital Disclosures;
Section 3031, Inventory; Section 3862, Financial
Instruments  Disclosures; and Section 3863, Financial
Instruments  Presentation. In accordance with the
transitional provisions, prior periods have not been
restated. The principal changes resulting from these
new standards are described below:Financial Statement Presentation:Section 1400 amended the guidance related to
managements responsibility to assess the ability of
the entity to continue as a going concern. Management
is required to make an assessment of an entitys
ability to continue as a going concern and should take
into account all available information about the
future, which is at least, but is not limited to, 12
months from the balance sheet date. Disclosure is
required of material uncertainties related to events
or conditions that may cast significant doubt upon the
entitys ability to continue as a going concern. The
Company adopted this new guidance effective April 1,
2008 but adoption had no impact on the consolidated
financial statements.
  12




---



##### 



WESTPORT INNOVATIONS INC.
  3.
    
    Accounting changes (continued):
 (a)
    
    Adoption of new accounting standards (continued):Capital disclosures:Section 1535 establishes standards for
disclosing information about an entitys capital
and how it is managed. The purpose of this
standard is to enable financial statement users
to evaluate the Companys policies and
procedures for managing capital. The Company
adopted this standard on April 1, 2008,
resulting in more extensive disclosures in the
Companys annual and interim financial
statements. The required disclosure is included
in note 23.Inventory:Section 3031 establishes standards for the
determination of inventory cost and its
subsequent recognition as an expense, including
any write-down to net realizable value. In
certain circumstances, the new section also
permits the reversal of previous write-downs.
The Company adopted this standard effective
April 1, 2008. This standard did not have a
material impact on the consolidated financial
statements of the Company.Financial instruments:Section 3862 and Section 3863 establish
standards for the presentation of financial
instruments and non-financial derivatives and
identify the information that should be
disclosed about them. The purpose of these
standards is to place enhanced emphasis about
the nature and extent of risks arising from
financial instruments and how the Company
manages those risks. The Company adopted this
standard on April 1, 2008, resulting in more
extensive disclosures in the Companys annual
and interim financial statements. The required
disclosure is included in note 22 to these
consolidated financial statements.(b)
    
    Future accounting changes:Goodwill and Intangible Assets:Section 3064 replaces Section 3062, Goodwill and
Other Intangible Assetsand Section 3450,
Research and Development Costs. Section 3064
establishes standards for the recognition,
measurement, presentation and disclosure of
goodwill subsequent to its initial recognition
and the recognition, measurement and
presentation of intangible assets. Standards
concerning goodwill are unchanged from the
standards included in the previous Section 3062.
This section is effective for the Company on
April 1, 2009. The Company is currently
evaluating the impact of the adoption of this
new standard on its consolidated financial
statements.International Financial Reporting Standards:Canadas Accounting Standards Board has ratified
a strategic plan that will result in Canadian
GAAP, as used by publicly accountable
enterprises, being fully converged with
International Financial Reporting Standards
(IFRS) as issued by the International
Accounting Standards Board over a transitional
period to be completed by 2011. The Company is
currently considering its options with respect
to the timing for adoption of IFRS.
  13




---



##### 



WESTPORT INNOVATIONS INC.
  4.
    
    Inventories:
 2009
    
    
    2008Purchased parts
    
    $
    9,976
    
    
    $
    3,345Assembled parts
    
    
    2,051
    
    
    
    791Work-in-process
    
    
    638
    
    
    
    477Finished goods
    
    
    1,317
    
    
    
    4,407$
    13,982
    
    
    $
    9,020
 
 5.
    
    Long-term investments:
 2009
    
    
    2008Clean Energy Fuels Corp. (a)
    
    $
    1,416
    
    
    $
    18,693Juniper Engines Inc. (b)
    
    
    479
    
    
    
    Other investments
    
    
    40
    
    
    
    61$
    1,935
    
    
    $
    18,754
 (a)
    
    As at March 31, 2009, the Company owned an approximate 0.4% (2008 -
3%; 2007  6%) interest in Clean Energy Fuels Corp. (CEFC), an
owner and operator of natural gas refueling facilities. During the
year ended March 31, 2009, the Company sold 1,178,760 shares (2008 -
746,275 shares) of CEFC for net proceeds of $19,379 (2008  $11,236;
2007  nil) resulting in a gain on sale of $14,275 (2008  $8,005;
2007  nil). As at March 31, 2009, the Company owned 184,311 shares
of CEFC (2008  1,363,071 shares) which have been valued at a
closing quoted market price of $7.68 per share (US$6.09 per share)
on March 31, 2009.
  14




---



##### 



WESTPORT INNOVATIONS INC.
  5.
    
    Long-term investments (continued):
 (b)
    
    On October 26, 2007, the Company and OMVL SpA (OMVL) entered
into a joint venture agreement, engineering agreements and supply
agreements to design, produce and sell alternative fuel engines
in the sub-5 litre class for global applications. Based in
Pernumia, Italy, OMVL designs, manufactures and markets complete
fueling systems for new vehicles and for the aftermarket
conversion of engines from gasoline (petrol) to compressed
natural gas and liquid petroleum gas. Under the terms of the
joint venture agreement, OMVL and the Company share 51% and 49%,
respectively, of the profits or losses of the venture. The
jointly controlled company, Juniper Engines Inc. is headquartered
in Vancouver, Canada and will continue to exploit the global
engineering, production and distribution strengths of OMVL and
its parent company, SIT Group, to deliver engines worldwide. The
Company supports the new venture through supply of technology,
design, testing and market development services. On April 1,
2008, the Company contributed $1,500 to the formation of the
joint venture.The Company has determined that Juniper is a variable interest
entity. However, the Company is not the primary beneficiary and
has accounted for its interest in Juniper using the equity
method.During the year ended March 31, 2009, the Company recognized a
loss of $1,021 (2008  nil) as loss from investment accounted for
by the equity method.(c)
    
    The Company has a 0.2% (2008  0.2%; 2007  15.86%) interest in
Wild River Resources Ltd. (WRRL), which was formerly a
wholly-owned subsidiary of the Company prior to June 13, 2006.
During the year ended March 31, 2007, the Company recorded a gain
of $8,100 on the sale and subsequent dilution of its interest in
WRRL. During the year ended March 31, 2008, the Company disposed
of substantially all of its remaining shares in WRRL for proceeds
of $6,741, resulting in a gain on disposal of $2,654. Effective
February 8, 2007, the Company no longer controlled WRRL and now
accounts for this investment as an available for sale investment.
 6.
    
    Equipment, furniture and leasehold improvements:
 Accumulated
    
    
    Net book2009
    
    Cost
    
    
    amortization
    
    
    valueComputer equipment and software
    
    $
    6,883
    
    
    $
    5,550
    
    
    $
    1,333Furniture and fixtures
    
    
    1,711
    
    
    
    1,163
    
    
    
    548Machinery and equipment
    
    
    20,555
    
    
    
    16,047
    
    
    
    4,508Leasehold improvements
    
    
    9,551
    
    
    
    8,228
    
    
    
    1,323$
    38,700
    
    
    $
    30,988
    
    
    $
    7,712
 Accumulated
    
    
    Net book2008
    
    Cost
    
    
    amortization
    
    
    valueComputer equipment and software
    
    $
    5,670
    
    
    $
    5,035
    
    
    $
    635Furniture and fixtures
    
    
    1,307
    
    
    
    1,090
    
    
    
    217Machinery and equipment
    
    
    17,434
    
    
    
    14,984
    
    
    
    2,450Leasehold improvements
    
    
    8,329
    
    
    
    7,946
    
    
    
    383$
    32,740
    
    
    $
    29,055
    
    
    $
    3,685
  15




---



##### 



WESTPORT INNOVATIONS INC.
  6.
    
    Equipment, furniture and leasehold improvements (continued):As at March 31, 2009, equipment with a cost of $256 (2008  $224) and a
net book value of $31 (2008  $34) is held under capital lease.7.
    
    Intellectual property:
 2009
    
    
    2008Cost
    
    $
    4,321
    
    
    $
    4,321Accumulated amortization
    
    
    (3,891
    )
    
    
    (3,747
    )$
    430
    
    
    $
    574
  8.
    
    Demand instalment loan:The Company has a credit facility for maximum borrowings of $13,000.
Borrowings may be drawn in the form of demand instalment loans, bankers
acceptances, lease financing, letters of credit, foreign exchange
contracts, corporate credit cards and operating lines of credit.
Outstanding amounts of the demand instalment loans drawn under this
credit facility bear interest at prime plus 0.25% for borrowings up to
$5,000 with further rate reductions for amounts in excess of $5,000.
The principal amount is repayable over a 60-month period. At March 31,
2009, the outstanding amount payable of $4,642 (2008  $5,776) is
included in current liabilities as it is repayable on demand by the
bank.9.
    
    Short-term debt:The Company entered into an agreement with Clean Energy Finance, LLC
(CEF), a wholly owned subsidiary of CEFC, whereby CEF may advance the
Company up to US$6,000 to produce approximately 75 LNG systems. The
loan is non-interest bearing, unsecured and repayable on receipt of
proceeds from the sale of these units. As at March 31, 2009, $1,614
remained outstanding.10.
    
    Long-term debt:
 2009
    
    
    2008Capital lease obligations (a)
    
    $
    52
    
    
    $
    62Subordinated debenture notes (b)
    
    
    11,318
    
    
    
    11,370
    
    
    
    62Current portion
    
    
    17
    
    
    
    54$
    11,353
    
    
    $
    8
  16




---



##### 



WESTPORT INNOVATIONS INC.
  10.
    
    Long-term debt (continued):
 (a)
    
    The Company has capital lease obligations
which have terms of two to five years at
interest rates ranging from 1.15% to 6.17%.
The capital lease obligations require the
following minimum annual payments during
the respective fiscal years:
 2010
    
    $
    172011
    
    
    152012
    
    
    122013
    
    
    122014
    
    
    157Amount representing interest
    
    
    5$
    52
 (b)
    
    On July 3, 2008, the Company completed the
sale and issue of 15,000 debenture units of
the Company for total gross proceeds of
$15,000. Each debenture unit consists of
one unsecured subordinated debenture note
in the principal amount of $1 bearing
interest at 9% per annum and 51 common
share purchase warrants exercisable into
common shares of the Company at any time
for a period of two years from the date of
issue at $18.73. The Company has the
option to redeem the debentures at any time
after 12 months and before 18 months from
the date of issue at 115% of their
principal amount and at 110% of the
principal amount after 18 months. Interest
is payable semi-annually and the debentures
mature on July 3, 2011. A total of 771,428
warrants with an exercise price of $18.73
were issued. The Company also issued 46,118
broker warrants which are exercisable into
common shares of the Company at $16.10 for
a period of two years. Of the $15,000
gross proceeds received, the Company
assigned $11,436 to the subordinated
debenture notes and $3,564 to the warrants
based on each instruments relative fair
value. The fair value of the subordinated
debenture notes was determined using a
discounted cash flow model based on the
total value of the debt using interest
rates effective at the time of issuance on
similar debt, and the fair value of the
warrants was determined using the
Black-Scholes option pricing formula based
on the following assumptions: expected
stock price volatility  68.9%; risk free
rate  2.0%; expected life  2 years;
expected dividend yield  nil%. The amount
assigned to the subordinated debenture
notes is being accreted to the principal
amount using the effective interest rate of
23.3% over the term to maturity and the
warrants are included in other equity
instruments. The broker warrants were
recognized in other equity instruments at
their fair value of $284 determined using
the Black-Scholes option pricing formula
based on the same assumption as for the
warrants above. A corresponding amount
recognized as transaction costs.
Transaction costs totaled $1,289 of which
$982 was allocated to debt and $307 to the
warrants.(c)
    
    On June 12, 2006, the Company agreed to
issue up to $22,092 in five year secured,
subordinated convertible notes with a
coupon rate of 8% to funds managed by
Perseus, L.L.C. (Perseus), a private
equity fund management group. On July 26,
2007, Perseus exercised their conversion
option and converted the full $22,092 of
the principal amount of the subordinated
convertible notes into 4,725,329 common
 shares. During the year ended March 31,
2008, $968 (2007  $553) of interest
relating to the subordinated convertible
notes was paid to Perseus of which $324
(2007  $55) was paid in cash and $644
(2007  $498) paid in common shares.
During the year ended March 31, 2009, the
Company paid $249 of accrued interest
through the issuance of common shares.
  17




---



##### 



WESTPORT INNOVATIONS INC.
  10.
    
    Long-term debt (continued):
 (c)
    
    Continued:In accordance with EIC-96, Accounting
for early extinguishment of convertible
securities through (1) early redemption
or repurchase and (2) induced early
conversion, in the year ended March 31,
2008, the Company also recorded an
inducement fee of $763 to accumulated
deficit and recorded an inducement fee
payable along with $121 in accrued
interest in accounts payable. On
conversion, $13,258 of long-term debt,
representing the carrying value of the
notes on July 26, 2007, and the
carrying value of the conversion option
of $7,569 previously included in other
equity instruments were reclassified to
share capital. As at March 31, 2008,
this note had been fully extinguished.
 11.
    
    Other long-term liabilities:
 2009
    
    
    2008Deferred lease inducements (a)
    
    $
    284
    
    
    $
    280Deferred revenue (b)
    
    
    4,537
    
    
    
    1,216$
    4,821
    
    
    $
    1,496
 (a)
    
    Deferred lease inducements include
leasehold improvements and other costs
funded by the lessor and amounts
related to lease contracts with
escalating lease payments. The amounts
related to leasehold improvements
funded by the lessor are amortized on a
straight-line basis over the term of
the lease as a reduction to rent
expense. For lease contracts with
escalating lease payments, total rent
expense for the lease term is expensed
on a straight line basis over the lease
term. The difference between amounts
expensed and amounts paid is recorded
as an increase or reduction in deferred
lease inducements.(b)
    
    The Company receives cash in advance of
revenue recognition criteria being met,
including for upfront fees, customer
deposits, fees for research and
development activities and extended
warranty contracts. These items are
included in deferred revenue and are
recognized into earnings over the
contract period, as research and
development activities are completed or
over the warranty period as applicable.
 12.
    
    Government assistance:From time to time, the Company enters into agreements
for financial assistance with government agencies.
During the years ended March 31, 2009, 2008 and 2007,
government assistance of $2,021, $3,658 and $5,150,
respectively, was received or receivable by the
Company, which has been recorded as a reduction of
related research and development expenditures (note
17).
  18




---



##### 



WESTPORT INNOVATIONS INC.
  12.
    
    Government assistance (continued):Included in the above amounts is funding of nil (2008  $1,351; 2007 -
$2,205) from Industry Canadas Industrial Technologies Office
(formerly Technology Partnerships Canada) (TPC) and $946 remains
receivable from TPC at March 31, 2009 (2008  $946; 2007  $3,779).
Under the terms of the original TPC funding agreement entered into on
March 27, 2003, TPC funded 30% of the eligible costs of, among other
research projects, the adaptation of the Companys technology to
diesel engines to the original scheduled project completion date of
March 31, 2006. In fiscal 2007, TPC approved an extension of the
completion date to March 31, 2008. The Company has attained the
maximum amount of eligible costs under the agreement. From fiscal
2009 to fiscal 2015, inclusive, the Company is obligated to pay annual
royalties equal to the greater of $1.4 million or 0.33% of the
Companys annual gross revenue from all sources, provided that gross
revenue exceeds $13.5 million 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 $28.2 million.
As at March 31, 2009, $1.4 million in royalties owing to TPC have been
recorded in accounts payable and accrued liabilities. In addition,
the Company was required to provide TPC with common share purchase
warrants having a value of $4,000 as at September 30, 2008 calculated
based on the Black-Scholes option pricing model. These warrants were
issued in October 2008.The Company is also obligated to pay royalties to the Government of
Canadas Department of Natural Resources relating to funding received
in prior years. The royalty to the Department of Natural Resources is
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 $1,000. As at March 31,
2009, there has been no revenue from the sales of engines for power
generators and, therefore, no royalty payments have been paid or are
payable.13.
    
    Share capital:On August 14, 2008, the Company filed a prospectus in Canada and a
registration statement on Form F-10 with the U.S. Securities and
Exchange Commission in connection with its initial public offering of
4,500,000 common shares in the United States at approximately $12.74
(US$12.00) per share. Gross proceeds totaled $57,348 (US$54,000).
The Company also incurred share issue costs of $4,906.Shares, share options, performance share units, warrants and per share
amounts have been adjusted on a retroactive basis to reflect the
three-and-one-half-to-one share consolidation (3.5:1) completed on
July 21, 2008.14.
    
    Obligation to issue warrants:Under the terms of the agreement with TPC, the Company was obligated
to issue warrants as at September 30, 2008 with a fair value of $4,000
based on the Black-Scholes option pricing model. The value of these
warrants was recognized on a straight-line basis from the date of the
original agreement to September 30, 2006, the original issuance date.
In October, 2008, 790,614 warrants with an exercise price of $10.65
were issued to TPC. The fair value of the warrants granted was
calculated based on a Black-Scholes option pricing model using the 5
day weighted stock price as at September 30, 2008.
  19




---



##### 



WESTPORT INNOVATIONS INC.
  15.
    
    Stock options and other stock-based plans:
 (a)
    
    Share options:The Company has an incentive share option plan for employees, directors, officers and consultants. The options are granted with an exercise price 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 share option plan as of March 31, 2009, 2008 and 2007 and changes during the years then ended is presented as follows:
 2009
    
    
    2008
    
    
    2007Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseshares
    
    
    price
    
    
    shares
    
    
    price
    
    
    shares
    
    
    priceOutstanding, beginning of year
    
    
    1,235,799
    
    
    $
    6.96
    
    
    
    1,493,998
    
    
    $
    6.68
    
    
    
    1,419,589
    
    
    $
    7.17Granted
    
    
    39,280
    
    
    
    13.73
    
    
    
    71,428
    
    
    
    9.31
    
    
    
    167,392
    
    
    
    4.13Exercised
    
    
    (104,669
    )
    
    
    5.57
    
    
    
    (232,024
    )
    
    
    5.28
    
    
    
    
    
    
    
    Cancelled/expired
    
    
    (34,247
    )
    
    
    7.66
    
    
    
    (97,603
    )
    
    
    8.22
    
    
    
    (92,983
    )
    
    
    9.87Outstanding, end of year
    
    
    1,136,163
    
    
    $
    7.32
    
    
    
    1,235,799
    
    
    $
    6.96
    
    
    
    1,493,998
    
    
    $
    6.68Options exercisable, end of year
    
    
    786,282
    
    
    $
    7.53
    
    
    
    833,296
    
    
    $
    7.77
    
    
    
    422,704
    
    
    $
    10.43
 Number
    
    
    Weighted
    
    
    
    
    
    
    Numberoutstanding,
    
    
    average
    
    
    Weighted
    
    
    exercisable
    
    
    WeightedMarch 31,
    
    
    remaining
    
    
    average
    
    
    March 31,
    
    
    averageRange of exercise prices
    
    2009
    
    
    contractual life
    
    
    exercise price
    
    
    2009
    
    
    exercise price$3.22 to $3.96
    
    
    52,673
    
    
    
    5.0
    
    
    $
    3.41
    
    
    
    45,531
    
    
    $
    3.324.13 to 4.90
    
    
    128,928
    
    
    
    5.1
    
    
    
    4.41
    
    
    
    85,596
    
    
    
    4.395.22 to 6.27
    
    
    544,164
    
    
    
    4.1
    
    
    
    5.31
    
    
    
    263,804
    
    
    
    5.326.30 to 9.77
    
    
    190,363
    
    
    
    3.5
    
    
    
    7.12
    
    
    
    180,839
    
    
    
    7.0710.33 to 13.83
    
    
    111,591
    
    
    
    3.1
    
    
    
    11.59
    
    
    
    102,068
    
    
    
    11.6814.49 to 20.62
    
    
    80,354
    
    
    
    3.5
    
    
    
    15.79
    
    
    
    80,354
    
    
    
    9.4324.50 to 30.80
    
    
    28,090
    
    
    
    1.2
    
    
    
    27.02
    
    
    
    28,090
    
    
    
    27.02$3.22 to $30.80
    
    
    1,136,163
    
    
    
    3.92
    
    
    $
    7.32
    
    
    
    786,282
    
    
    $
    7.53
   20




---



##### 



WESTPORT INNOVATIONS INC.
  15.
    
    Stock options and other stock-based plans (continued):
 (b)
    
    Employee share purchase plan:The Company has an employee share purchase plan (ESPP) in which full-time
employees of the Company are eligible to participate. Eligible employees
may make contributions to the ESPP of up to 10% of their regular base pay.
The Company contributes up to a maximum combined total of 5% of the
employees regular base pay to the employees RRSP and/or ESPP. Shares
contributed to the ESPP are purchased by the Company on a semi-monthly basis
on the open market. Shares purchased on behalf of the employee with the
employees contribution vest with the employee immediately. Shares
purchased with the Companys contribution vest on December 31st of each
year, so long as the employee is still employed with the Company.(c)
    
    Performance share units:At the Companys 2006 annual general meeting, the shareholders of the
Company ratified and approved the Amended and Restated Unit Plan and
reserved 2,142,857 common shares under this plan. The Amended and Restated
Unit Plan is in addition to the Performance Share Unit Plan approved by the
shareholders on September 10, 2001 (the 2001 PSU Plan). Each performance
share issued pursuant to the Amended and Restated Unit Plan or the 2001 PSU
Plan is exercisable into one common share of the Company for no additional
consideration. Any employee, contractor, director or executive officer of
the Company who is selected by the Board of Directors of the Company is
eligible to participate in the Amended and Restated Unit Plan. The
Executive and Senior Management Total Compensation Program sets out
provisions where 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 in consultation with the Companys management.These performance milestones are focused on achievement of key cash
management, profitability and revenue growth objectives. Vesting periods
for each Unit granted pursuant to the Amended and Restated Unit Plan is at
the discretion of the Board of Directors and may include time based, share
price or other performance targets.The value assigned to issued Units and the amounts accrued are recorded as
other equity instruments. As Units are exercised and the underlying shares
are issued from treasury of the Company, the value is reclassified to share
capital. During the year ended March 31, 2009, the Company recognized
$1,723 (2008  $106; 2007  $1,559) of stock-based compensation associated
with the 2001 PSU Plan and the Amended and Restated Unit Plan.The stock-based compensation associated with the Unit plans and the stock
option plan (note 15(a)) is included in operating expenses as follows:
 2009
    
    
    2008
    
    
    2007Research and development
    
    $
    283
    
    
    $
    87
    
    
    $
    348General and administrative
    
    
    1,457
    
    
    
    465
    
    
    
    1,494Sales and marketing
    
    
    506
    
    
    
    112
    
    
    
    247$
    2,246
    
    
    $
    664
    
    
    $
    2,089
  21




---



##### 



WESTPORT INNOVATIONS INC.
  15.
    
    Stock options and other stock-based plans (continued):
 (c)
    
    Performance share units (continued):
A summary of the status of the PSUs issued under the 2001 PSU Plan and the amended and restated Unit Plan as of
March 31, 2009, 2008 and 2007, and changes during the years then ended is as follows:
 UnitsOutstanding, March 31, 2006
    
    
    408,893Units exercised
    
    
    (81,052
    )Units granted
    
    
    261,633Outstanding, March 31, 2007
    
    
    589,474Units exercised
    
    
    (60,383
    )Units granted
    
    
    553,900Outstanding, March 31, 2008
    
    
    1,082,991Units exercised
    
    
    (3,947
    )Units granted
    
    
    667,815Units cancelled
    
    
    (16,889
    )Outstanding, March 31, 2009
    
    
    1,729,970
  16.
    
    Other equity instruments:
 2009
    
    
    2008Value assigned to Performance Share Units (note 15(c))
    
    $
    4,778
    
    
    $
    3,079Value assigned to warrants (note 10(b) and 14)
    
    
    7,541
    
    
    
    $
    12,319
    
    
    $
    3,079
  17.
    
    Research and development expenses:Research and development expenses are recorded net of program funding received or receivable. For the years ending March 31, 2009, 2008 and
2007, the following research and development expenses had been incurred and program funding received or receivable:
 2009
    
    
    2008
    
    
    2007Research and development expenses
    
    $
    33,003
    
    
    $
    26,684
    
    
    $
    27,041Program funding (note 12)
    
    
    (2,021
    )
    
    
    (3,658
    )
    
    
    (5,150
    )Research and development
    
    $
    30,982
    
    
    $
    23,026
    
    
    $
    21,891
  22




---



##### 



WESTPORT INNOVATIONS INC.
  18.
    
    Income taxes:
 (a)
    
    The Companys income tax recovery differs from that calculated by applying the combined Canadian federal and provincial statutory income tax rates for manufacturing
and processing companies of 30.8% (2008  33.3%; 2007  34.1%) as follows:
 2009
    
    
    2008
    
    
    2007Loss before income taxes and Joint Venture
Partners share of income from joint ventures
    
    $
    13,683
    
    
    $
    9,224
    
    
    $
    8,301Expected income tax recovery
    
    $
    4,207
    
    
    $
    3,075
    
    
    $
    2,831Reduction (increase) in income taxes resulting from:Non-deductible interest on long-term debt and
amortization of discount
    
    
    (273
    )
    
    
    (141
    )
    
    
    (211
    )Non-deductible stock-based compensation
    
    
    (690
    )
    
    
    (221
    )
    
    
    (713
    )Non-deductible expenses
    
    
    (54
    )
    
    
    (45
    )
    
    
    (375
    )Withholding taxes and other adjustments
    
    
    (218
    )
    
    
    
    
    
    
    Change in enacted rates
    
    
    (2,341
    )
    
    
    (1,508
    )
    
    
    (5,692
    )Foreign tax rate differences
    
    
    (1,279
    )
    
    
    (426
    )
    
    
    (527
    )Change in valuation allowance
    
    
    (5,873
    )
    
    
    3,739
    
    
    
    7,738$
    (6,521
    )
    
    $
    4,473
    
    
    $
    3,051
 (b)
    
    The tax effects of the significant temporary differences which comprise tax assets and liabilities, at March 31, 2009 and 2008, are as follows:
 2009
    
    
    2008Future tax assets:Net operating loss carry forwards
    
    $
    16,220
    
    
    $
    19,188Long-term investments
    
    
    163
    
    
    
    626Intellectual property
    
    
    1,685
    
    
    
    2,116Equipment, furniture and leasehold improvements
    
    
    806
    
    
    
    813Financing and share issue costs
    
    
    1,526
    
    
    
    273Warranty liability
    
    
    8,607
    
    
    
    3,205Deferred revenue
    
    
    1,647
    
    
    
    439Capital lease obligations
    
    
    13
    
    
    
    18Total gross future tax assets
    
    
    30,667
    
    
    
    26,678Valuation allowance
    
    
    (20,879
    )
    
    
    (17,368
    )Total future tax asset
    
    $
    9,788
    
    
    $
    9,310Allocated as follows:Current future tax assets
    
    $
    4,451
    
    
    $
    4,944Long-term future tax asset
    
    
    5,337
    
    
    
    4,366Total future tax asset
    
    $
    9,788
    
    
    $
    9,310
  23




---



##### 



WESTPORT INNOVATIONS INC.
  18.
    
    Income taxes (continued):
 (b)
    
    Continued:In determining the valuation allowance, management
considers whether it is more likely than not that
some portion or all of the future tax assets will
not be realized. The ultimate realization of
future tax assets is dependent on the generation of
income during the future periods in which those
temporary differences become deductible. Since
evidence does not exist that the future income tax
assets will be fully realized, a valuation
allowance has been recorded. All of the valuation
allowance related to CWI was reversed in prior
periods as CWI generated taxable income for four
consecutive tax years and the Company expects that
CWI will generate taxable income in the future.
Current tax expense for the year ended March 31,
2009 of $3,276 (2008  $218, 2007  $404) is
payable outside of Canada, primarily in the United
States. Future income tax expense of $1,114 (2008
  recovery of $5,855) relates to temporary
differences in the United States and future tax
expense of $2,131 (2008  $1,164) relates to tax
expense in Canada related to gains on sale of
available for sale investments previously
recognized in AOCI.(c)
    
    The Company has non-capital loss carry forwards in
Canada available to offset future taxable income
which expire as follows:
 2010
    
    $
    2,2352014
    
    
    2,7032015
    
    
    2,5082026
    
    
    2,3542027
    
    
    9,6682028
    
    
    21,5082029
    
    
    17,714$
    58,690
  19.
    
    Investment in Joint Ventures:
 2009
    
    
    2008Cummins Westport Inc. (a)
    
    $
    12,124
    
    
    $
    13,809BTIC Westport Inc. (b)
    
    
    479
    
    
    
    174$
    12,603
    
    
    $
    13,983
 (a)
    
    Cummins Westport Inc.:The Company entered into a joint venture with
Cummins on March 7, 2001. The joint venture, CWI,
was formed to explore a range of product and
technology opportunities using natural gas as the
primary fuel. The Company provided personnel,
financing and key technologies for the venture,
while Cummins provided an existing product line,
manufacturing, product distribution and customer
service functions, as well as key management and
engineering personnel.
  24




---



##### 



WESTPORT INNOVATIONS INC.
  19.
    
    Investment in Joint Ventures (continued):
 (a)
    
    Cummins Westport Inc. (continued):From inception until December 31, 2003, the Company was responsible for all capital contributions to fund
operations. Initially and to December 31, 2003, the Company owned 100% of the common shares and Cummins owned 100%
of the non-participating preferred shares which were convertible into common shares for no consideration at the
option of Cummins.On December 16, 2003, the Company and Cummins amended the joint venture agreement to have CWI focus on and develop
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. Under the terms
of the amended joint venture agreement, Cummins exercised the conversion feature of the preferred shares effective
January 1, 2004. However, the Company remained responsible for funding the profit and loss of CWI through CWIs
fiscal 2004 year which ran from January 1 to December 31, 2004. Based on its economic interest in CWI, the Company
continued to consolidate 100% of the results of operations from CWI until December 31, 2004. Cummins has agreed to
manufacture engines for CWIs business and transfer them to CWI at cost. In consideration for this service, CWI
agreed to pay Cummins a technology royalty access fee equal to 2.75% to a cumulative maximum of US$10.4 million. As
at March 31, 2009, the Company had paid royalties totaling US$5.5 million.Subsequent to December 31, 2004, Cummins shares equally in the profits and losses of CWI. However, the Company has
determined that CWI is a VIE and that the Company is the primary beneficiary. Accordingly, the Company continues to
consolidate CWI with Cummins share of CWIs income and losses included as Joint Venture Partners share of net
income from joint ventures.CWI has provided a loan to Cummins under a demand loan agreement. The loan receivable bears interest monthly at a
rate equal to the Bank of Canada prime corporate paper one-month rate in effect on the last day of each month. As at
March 31, 2009, this rate was 1.05%. All outstanding interest is payable in United States dollars on or before
December 15, 2009. Interest begins accruing on the date in which monies are advanced under the loan agreement. The
loan is uncollateralized and is renewed annually.Assets, liabilities, revenue and expenses of CWI included in the consolidated financial statements of the Company as
at and for the periods presented are as follows:
 2009
    
    
    2008Current assets:Cash and cash equivalents
    
    $
    17,061
    
    
    $
    137Short-term investments
    
    
    
    
    
    
    13,713Accounts receivable
    
    
    2,101
    
    
    
    3,503Loan receivable
    
    
    11,234
    
    
    
    6,774Prepaid expenses
    
    
    162
    
    
    
    108Current portion of future income tax asset
    
    
    4,451
    
    
    
    4,94435,009
    
    
    
    29,179Future income tax asset
    
    
    5,337
    
    
    
    4,366Equipment, furniture and leasehold improvements
    
    
    467
    
    
    
    166$
    40,813
    
    
    $
    33,711
  25




---



##### 



WESTPORT INNOVATIONS INC.
  19.
    
    Investment in Joint Ventures (continued):
 (a)
    
    Cummins Westport Inc. (continued):
 2009
    
    
    2008Current liabilities:Accounts payable and accrued liabilities
    
    $
    2,171
    
    
    $
    2,131Deferred revenue
    
    
    360
    
    
    
    69Current portion of warranty liability
    
    
    11,656
    
    
    
    4,68914,187
    
    
    
    6,889Long-term liabilities:Warranty liability
    
    
    10,976
    
    
    
    3,985Deferred revenue
    
    
    3,141
    
    
    
    38614,117
    
    
    
    4,371$
    28,304
    
    
    $
    11,260
 2009
    
    
    2008
    
    
    2007Product revenue
    
    $
    90,916
    
    
    $
    50,999
    
    
    $
    44,746Parts revenue
    
    
    18,990
    
    
    
    16,298
    
    
    
    13,285109,906
    
    
    
    67,297
    
    
    
    58,031Cost of revenue and expenses:Cost of revenue
    
    
    81,301
    
    
    
    45,490
    
    
    
    36,195Research and development
    
    
    9,841
    
    
    
    7,562
    
    
    
    8,074General and administrative
    
    
    1,983
    
    
    
    1,088
    
    
    
    856Sales and marketing
    
    
    5,679
    
    
    
    6,447
    
    
    
    4,21698,804
    
    
    
    60,587
    
    
    
    49,341Income before undernoted
    
    
    11,102
    
    
    
    6,710
    
    
    
    8,690Interest and investment income
    
    
    903
    
    
    
    793
    
    
    
    112Effect of foreign currency translation
    
    
    
    
    
    
    (1,518
    )
    
    
    61Income before income taxes
    
    
    12,005
    
    
    
    5,985
    
    
    
    8,863Income tax recovery (expense):Current
    
    
    (3,059
    )
    
    
    (208
    )
    
    
    (204
    )Future
    
    
    (1,114
    )
    
    
    5,855
    
    
    
    3,455(4,173
    )
    
    
    5,647
    
    
    
    3,251Income for the year
    
    
    7,832
    
    
    
    11,632
    
    
    
    12,114Joint Venture Partners share of net income from
joint venture
    
    
    (3,916
    )
    
    
    (5,816
    )
    
    
    (6,057
    )Companys share of income
    
    $
    3,916
    
    
    $
    5,816
    
    
    $
    6,057
  26




---



##### 



WESTPORT INNOVATIONS INC.
  19.
    
    Investment in Joint Ventures (continued):
 (b)
    
    BTIC Westport Inc.:On July 21, 2006, the Company and Beijing
Tianhai Industry Co. Ltd. (BTIC) of
Beijing, China formed BWI to market
liquefied natural gas (LNG) fuel tanks
for vehicles. Through the 50:50 joint
venture agreement and related license and
supply agreements, BTIC and Westport share
equally in the profits on products
developed and sold by the joint venture.
Headquartered in Beijing, China, BWI sells
tanks for installation on any vehicle,
regardless of the natural gas engine
manufacturer. During the year ended March
31, 2008, the Company contributed $425
(US$400) to the formation of this joint
venture.The consolidated financial statements
include 100% of the assets, liabilities,
revenue and expenses of BWI since the
Company has determined that BWI is a
variable interest entity and that the
Company is the primary beneficiary.
Accordingly, the Company consolidates BWI
and BTICs share of BWIs income and losses
is included in Joint venture partners
share of income from joint ventures. For
the year ended March 31, 2009, the BTICs
share of net income from BWI was $305. In
2008, BTICs share of the net loss from BWI
was $252.
 20.
    
    Commitments and contingencies:
 (a)
    
    The Company has obligations under operating lease arrangements which
require the following minimum annual payments during the respective
fiscal years:
 2010
    
    $
    1,7342011
    
    
    1,3292012
    
    
    1,2652013
    
    
    8142014
    
    
    588Thereafter
    
    
    65$
    5,795
 For the year ended March 31, 2009, the Company incurred operating
lease expense of $1,295 (2008  $876; 2007  $795).(b)
    
    The Company has an outstanding letter of credit of $600.(c)
    
    On July 16, 2008, the Company announced that it had entered into a
joint venture agreement with Weichai Power Co., Ltd. (Weichai
Power), Chinas largest heavy duty engine manufacturer, and Hong
Kong Peterson (CNG) Equipment Limited (Hong Kong Peterson) to form
a new entity, Weichai Westport Inc. (WWI). WWI will research,
develop, design, manufacture, market, distribute and sell advanced,
alternative fuel engines (and relevant parts and kits) for use in
automobiles, heavy duty trucks, power generation and shipping
applications. Under the terms of the 30-year joint venture
agreement, the Companys initial investment to acquire a 35% share
of the joint venture is expected to be approximately $5,273
(RMB30,000). Weichai Power and Hong Kong Peterson will hold a 40%
and 25% interest, respectively, in WWI. The joint venture is
currently awaiting approval by the Chinese government and the
Companys investment will be made when such approval is received.
  27




---



##### 



WESTPORT INNOVATIONS INC.
  21.
    
    Segmented information:The Company currently operates in one operating segment which involves the research and development and the related
commercialization of engines and fuel systems operating on gaseous fuels. The majority of the Companys equipment,
furniture and leasehold improvements are located in Canada. For the year ended March 31, 2009, 84% (2008  66%; 2007 -
72%) of the Companys revenue was from sales in North America, 4% (2008  18%; 2007  13%) from sales in Asia, and 12%
(2008  16%; 2007  15%) from sales elsewhere.22.
    
    Financial instruments:
 (a)
    
    Financial risk management:The Company has exposure to liquidity risk, credit risk, foreign currency risk, equity price 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
fall due. The Company has sustained losses and negative cash flows from operations since inception. At
March 31, 2009, the Company has $82,619 of cash, cash equivalents and short-term investments.The following are the contractual maturities of financial obligations as at March 31, 2009:
 Carrying
    
    
    Contractual
    
    
    
    
    
    
    1-3
    
    
    4-5amount
    
    
    cash flows
    
    
    < 1 year
    
    
    years
    
    
    years
    
    
    > 5 yearsAccounts payable and accrued
liabilities
    
    $
    14,359
    
    
    $
    14,359
    
    
    $
    14,359
    
    
    $
    
    
    
    $
    
    
    
    $
    Demand instalment loan (1)(2)
    
    
    4,642
    
    
    
    4,950
    
    
    
    1,494
    
    
    
    2,568
    
    
    
    888
    
    
    
    Short-term debt (3)
    
    
    1,614
    
    
    
    1,614
    
    
    
    1,614
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debenture notes (4)
    
    
    11,318
    
    
    
    18,037
    
    
    
    1,350
    
    
    
    16,687
    
    
    
    
    
    
    
    Other long-term debt
    
    
    52
    
    
    
    57
    
    
    
    17
    
    
    
    27
    
    
    
    13
    
    
    
    Operating lease commitments
    
    
    
    
    
    
    5,795
    
    
    
    1,734
    
    
    
    2,594
    
    
    
    1,402
    
    
    
    65Royalty
payments (5)
    
    
    1,350
    
    
    
    28,189
    
    
    
    1,350
    
    
    
    2,700
    
    
    
    2,700
    
    
    
    21,439Investment
in Joint Venture (6)
    
    
    
    
    
    
    5,273
    
    
    
    5,273
    
    
    
    
    
    
    
    
    
    
    
    $
    33,335
    
    
    $
    78,274
    
    
    $
    27,191
    
    
    $
    24,576
    
    
    $
    5,003
    
    
    $
    21,504
 (1)
    
    Includes interest at the interest rate in effect on March 31, 2009.(2)
    
    Demand instalment loan is repayable over five years unless the bank demands early payment.(3)
    
    Short-term debt is repayable only from the sale of certain LNG systems. The Company has
assumed these systems will be sold within a year.(4)
    
    Includes interest at 9%(5)
    
    From fiscal 2009 to 2015, inclusive, the Company is obligated to pay annual royalties
equal to the greater of $1,350 or 0.33% of the Companys gross annual revenue from all sources, provided
that gross revenue exceeds $13,500 in any aforementioned fiscal year, up to a maximum of $28,189. The
Company has assumed the minimum required payments.(6)
    
    See note 20.   28




---



##### 



WESTPORT INNOVATIONS INC.
  22.
    
    Financial instruments (continued):
 (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,
accounts receivable and
loan 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. While the
Company does not hold
asset-backed securities
directly, these parties
may be exposed in varying
degrees to asset-backed
securities and U.S.
sub-prime mortgages. 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
collectibility of
accounts receivable and
loan receivable. As at
March 31, 2009, 31%
(March 31, 2008  14%) of
accounts receivable
relates to customer
receivables, 46% (March
31, 2008  30%) relates
to government grants
receivable and 23% (2008
  56%) relates to amounts
due from partners and
indirect and value added
taxes receivable. The
loan receivable is due
from Cummins Inc., a
large U.S. based engine
manufacturer and the
Companys joint venture
partner. 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 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
collectibility at each
balance sheet reporting
date, taking into account
the amounts that are past
due and any available
relevant information on
the customers liquidity
and going concern
problems.The carrying amount of
cash and cash
equivalents, short-term
investments, accounts
receivable and loan
receivable of $100,270 at
March 31, 2009 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.).
Cash and cash
equivalents, short-term
investments, accounts
receivable, accounts
payables and short-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 objective
in managing its foreign
currency risk is to
minimize its net
exposures to foreign
currency cash flows by
transacting with third
parties in U.S. dollars
and Canadian dollars to
the maximum extent
possible and practical.
The Company attempts to
limits its exposure to
foreign currency risk by
holding a combination of
Canadian and U.S.
denominated cash and cash
equivalents and
short-term investments
based on forecasted
Canadian or U.S. dollar
net expenditures. The
Company currently does
not enter into any
forward foreign currency
contracts to further
limit its exposure.
  29




---



##### 



WESTPORT INNOVATIONS INC.
  22.
    
    Financial instruments (continued):
 (d)
    
    Foreign currency risk (continued):The U.S. dollar carrying amount of assets and
liabilities subject to exposure to foreign currency
risk in the consolidated statement of operations at
March 31, 2009 is as follows:
 U.S. dollarsCash and cash equivalents
    
    $
    14,292Accounts receivable
    
    
    1,898Long-term investments
    
    
    1,122Accounts payable
    
    
    2,148Short-term debt
    
    
    1,280
  (e)
    
    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 its loan receivable and demand instalment loans.
The Company limits its exposure to interest rate
risk by continually monitoring and adjusting
portfolio duration to align to forecasted cash
requirements and anticipated changes in interest
rates.If interest rates for the year ended March 31, 2009
had changed by 50 basis points, with all other
variables held constant, net loss for the year ended
March 31, 2009 would have changed by $4.(f)
    
    Equity price risk:The value of our equity investment in CEFC, a
publicly traded company, is subject to market price
volatility. This investment is classified as
available for sale. As of March 31, 2009, every
dollar change in the stock price of CEFC, would
result in a change in other comprehensive income of
$184.(g)
    
    Fair value of financial instruments:The carrying amounts reported in the balance sheets
for cash and cash equivalents, accounts receivable,
loan receivable and accounts payable and accrued
liabilities approximate their fair values due to the
short terms to maturity of these instruments.The Companys short- and long-term investments are
recorded at fair value except for its interest in
Juniper Engines Inc. which is accounted for using
the equity method and other investments which are
carried at cost (note 5) due to the lack of a
readily available market for these securities.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 fair values of the Companys demand
instalment loan and short-term debt are not
materially different from its carrying value based
on market rates of interest.
  30




---



##### 



WESTPORT INNOVATIONS INC.
  22.
    
    Financial instruments (continued):
 (g)
    
    Fair value of financial instruments (continued):The carrying value reported in the balance
sheets for the subordinated debenture notes
(note 10(b)) is recorded at amortized cost
using the effective interest rate method and
the gross proceeds have been allocated between
debt and equity based on the relative fair
values of the subordinated debenture notes and
the warrants on the issue date. As at March
31, 2009, the fair value of the subordinated
debenture notes is higher than its carrying
value by $2,884 based on market interest rates.
 23.
    
    Management of capital:As at March 31, 2009, the Companys capital is composed of share capital, its $13,000 line of credit with a
Schedule 1 Canadian bank, and $15,000 in debenture units, the
primary terms of which are described in
note 10(b).
The Companys objectives when managing capital are as follows:
 
    
    to safeguard the entitys ability to continue as a going concern, so that it can continue to provide
returns for shareholders and benefits for other stakeholders;
 
    
    to maintain sufficient cash, cash and cash equivalents on hand to service debt payments as they come due
and to meet externally imposed capital requirements (the Company must maintain cash and cash equivalents and short
term investments of at least 1.5 times the amount drawn against its line of credit and outstanding letters of
credit); and
 
    
    to have sufficient cash, cash equivalents, short-term investments and available for sale marketable
securities on hand to fund the Companys business plans.
    31




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards:These consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in Canada (Canadian GAAP) which differ in certain respects with accounting principles generally
accepted in the United States (US GAAP) as follows:
 (a)
    
    Convertible notes:On June 12, 2006, the Company agreed to issue up to
$22,092 in five year secured, subordinated
convertible notes (note 10(c)) with a coupon rate of
8% to funds managed by Perseus, L.L.C. (Perseus), a
private equity fund management group. The notes were
issued in two tranches of $13,807 and $8,285,
respectively. At the time of issuance of the notes,
Perseus also received warrants to acquire, at an
exercise price equal to the conversion price of the
accompanying notes, common shares of the Company
equal to 25% of the number of common shares into
which the notes were convertible. On July 26, 2007
the subordinated convertible notes were converted to
common shares.For Canadian GAAP purposes, on issue of the
convertible notes described above, the Company
allocated certain amounts to the value of the
warrants and conversion options based on their
estimated fair value with the difference between the
gross proceeds and the value of the warrants and
conversion options allocated to the debt. For US
GAAP purposes, the allocation between the debt and
the warrants would be done on a relative fair value
basis. In addition, under US GAAP, an amount is
allocated only to a beneficial conversion option when
the market price of the shares into which the debt is
convertible exceeds the effective exercise price.
For US GAAP purposes, of the two original tranches,
only the second tranche of the debt issued in January
2007 was deemed to have a beneficial conversion
option.Accordingly, for US GAAP purposes, the amount
assigned to the debt and the warrants was increased
by $3,540 and $1,590, respectively as at March 31,
2007 and the amount assigned to the conversion option
was reduced by $5,130.On conversion, the carrying value of the debt, which
is net of any unamortized discount and debt issuance
costs was reclassified to share capital for Canadian
GAAP purposes together with the value assigned to the
conversion options. The related inducement fee of
$763 was charged to deficit. For US GAAP, the
accounting for the first tranche was the same.
However, for the second tranche which had a
beneficial conversion option, the unamortized debt
discount was expensed for US GAAP purposes. The
inducement fee also was expensed for US GAAP
purposes. Accordingly, as at March 31, 2008, share
capital under US GAAP was increased by $3,204 and
interest expense for the year ended March 31, 2008
was increased by $4,424.(b)
    
    Debt issuance costs and the effective interest method:Effective April 1, 2007, the Company began amortizing
debt issuance costs and debt discounts using the
effective interest method under Canadian GAAP and
classified debt issuance costs as reductions of the
carrying value of the debt to which it relates.
Prior to April 1, 2007, debt issuance costs were
classified as deferred charges and debt issuance
costs and debt discounts were amortized on a
straight-line basis.
  32




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (b)
    
    Debt issuance costs and the effective interest method (continued):Under US GAAP, debt issuance costs are presented as deferred
charges and debt issuance costs and debt discounts are amortized
using the effective interest method for all years presented. In
addition, the difference between transaction costs allocated to
the debt and debt discounts for Canadian GAAP purposes compared
to US GAAP as described in note 24(a) resulted in a difference in
interest expense for US GAAP purposes. Accordingly, the
adjustment to opening deficit of $113 made for Canadian GAAP
purposes would not be made under US GAAP and interest expense for
the years ended March 31, 2009, March 31, 2008 and 2007 was
reduced by $Nil, $147 and $423, respectively. In addition,
unamortized financing costs of $764 relating to the issuance of
debenture units which are deducted against the liability and
amortized using the effective interest rate method are
reclassified as deferred charges under US GAAP.(c)
    
    Investments:On April 1, 2007, the Company changed its accounting for
available-for-sale securities under Canadian GAAP to be
consistent with US GAAP. However, prior to April 1, 2007, the
Company carried its investments in debt and equity securities at
cost. For US GAAP purposes, the Companys investments in debt
and equity securities that have quoted market prices would have
been classified as available for sale securities with
unrealized gains and losses recognized in other comprehensive
income (loss) for all periods presented. Accordingly, cumulative
adjustments at April 1, 2008 of $20,402 to investments, $3,370 to
opening deficit and $17,032 to accumulated other comprehensive
income (AOCI) under Canadian GAAP would not be made under US
GAAP. For US GAAP purposes, the Company recognized an increase
in investments and AOCI of $20,402 for the year ended March 31,
2007.Under Canadian GAAP, the income tax recovery generated by a
reversal of a previously recognized future income tax valuation
allowance to reduce future income tax liabilities generated by
mark to market adjustments on available for sale securities is
recognized in net loss for the year. The valuation allowance is
reversed while the related tax expense is included in AOCI until
the shares are sold at which time the tax expense is included in
net loss. Under US GAAP, the reversal of the valuation allowance
would be recognized in other comprehensive income (loss).
Accordingly, for US GAAP purposes, future income tax expense of
$2,362 (2008  $1,164) recognized under Canadian GAAP would not
be recognized in the years ended March 31, 2009 and 2008.For Canadian and US GAAP purposes, the cost and the related
amounts included in AOCI related to securities sold are
reclassified to net loss based on weighted average amounts of the
 shares sold.(d)
    
    Acquired in-process research and development costs:Under Canadian GAAP, acquired in-process research and development
costs are capitalized and amortized to net income or loss. For
US GAAP purposes, such in-process research and development costs
are expensed immediately if there is no alternative use for the
research and developments. Accordingly, amortization of
in-process research and development recorded under Canadian GAAP
for the years ended March 31, 2009, 2008 and 2007 of $144, $145
and $144, respectively, would not be recognized under U.S. GAAP.
As at March 31, 2009, the carrying value of intellectual property
would be reduced by $430 (2008  $574) with a corresponding
increase in deficit.
  33




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (e)
    
    Cumulative translation adjustmentIn 2009, CWI paid a dividend to its joint
venture partners of $18.6 million. The
transaction between CWI and Company
resulted in a reduction in the Companys
net investment in CWI. For Canadian GAAP
purposes, the Company recognized a
foreign exchange gain on the reduction of
the net investment and reduced AOCI by a
corresponding amount. Under U.S. GAAP,
foreign exchange gains or losses arising
from a net investment in a foreign
operation are recognized in other
comprehensive income until the investment
is sold. Accordingly, for U.S. GAAP
purposes, a foreign exchange gain of $793
recognized in net loss for Canadian GAAP
is not recognized under U.S. GAAP.(f)
    
    Stock-based compensation:As described in note 15, the Company has
granted stock options to certain
directors, consultants and employees.
These options are granted for services
provided to the Company. For Canadian
GAAP purposes, only options granted on or
after April 1, 2002 are accounted for
using the fair value method. In
addition, on April 1, 2004, the Company
recognized a cumulative adjustment to
deficit for stock-based compensation
related to stock options granted to
employees on or after April 1, 2002 that
would have been recognized prior to April
1, 2004 had the Company applied the fair
value method since April 1, 2002.For US GAAP purposes, effective April 1,
2004, the Company changed its accounting
policy for recognizing stock-based
compensation from the intrinsic value
method to the fair value method using the
transition provisions of Statement of
Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure(SFAS 148).
As permitted by SFAS 148, the Company
adopted the fair value method
retroactively without restatement using
the modified prospective method. For
U.S. GAAP purposes, all options granted
subsequent to December 15, 1995 are
measured using the fair value method but,
for the Company, only the effect of those
options outstanding and unvested as of
April 1, 2004 on the results from
operations in the year in which SFAS 148
is adopted would be recognized.Accordingly, on adoption of the fair
value method for US GAAP purposes,
adjustments to deficit of $2,493, share
capital of $68, and additional paid in
capital of $2,425 recognized for Canadian
GAAP purposes are not recognized for US
GAAP purposes. In addition, for US GAAP
purposes in years prior to 2005, the
Company recognized stock-based
compensation of $2,165 relating to stock
options issued to non-employees prior to
April 1, 2002.Under US GAAP, an additional $211 would
be recognized prior to 2002 as a result
of certain option modifications.
  34




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (f)
    
    Stock-based compensation (continued):Additional information about the PSUs issued under the 2001 PSU Plan are as follows:
 Weighted averagegrant date fairUnits
    
    
    valueUnvested, March 31, 2007
    
    
    85,713
    
    
    $
    5.25Units granted
    
    
    553,900
    
    
    
    7.91Units vested
    
    
    (111,043
    )
    
    
    5.46Unvested, March 31, 2008
    
    
    528,570
    
    
    
    6.69Units granted
    
    
    667,815
    
    
    
    9.01Units vested
    
    
    (47,087
    )
    
    
    8.09Units cancelled
    
    
    (16,888
    )
    
    
    8.29Unvested, March 31, 2009
    
    
    1,132,410
    
    
    $
    7.56
  2009
    
    
    2008Stock optionsOutstanding
    
    $
    3,259
    
    
    $
    5,454Exercisable
    
    
    1,313
    
    
    
    3,302PSUs:Outstanding
    
    $
    1,302
    
    
    $
    4,366Exercisable
    
    
    813
    
    
    
    2,909
  (g)
    
    Income taxes:Under both Canadian and US GAAP, future income tax assets and liabilities are measured using the income
tax rates and income tax laws that, at the balance sheet date, are expected to apply when the assets are
realized or the liabilities are settled. In Canada, announcements of changes in income tax rates and tax
laws by the government can have the effect of being substantially enacted at the balance sheet date even
though they are not yet proclaimed into law. When persuasive evidence exists that the government is able
and committed to enacting proposed changes in the foreseeable future, the substantively enacted rate is
used to measure the future tax assets and liabilities. Under US GAAP, only the income tax rates and
income tax laws enacted at the balance sheet date are used to measure the future income tax assets and
liabilities. For the years ended March 31, 2009, 2008, and 2007, enacted rates for US GAAP purposes were
equal to rates used for Canadian GAAP purposes.
  35




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (g)
    
    Income taxes (continued):Income tax recovery (expense) consists of:
 Net income (loss)before taxes andJoint VenturePartners share ofnet income from
    
    
    Income tax recovery (expense)joint ventures
    
    
    Current
    
    
    Deferred
    
    
    TotalYear ended March 31, 2009:Canada
    
    
    (32,739
    )
    
    
    (460
    )
    
    
    (2,131
    )
    
    
    (2,591
    )United States
    
    
    18,958
    
    
    
    (3,059
    )
    
    
    (1,114
    )
    
    
    (4,173
    )Germany
    
    
    (48
    )
    
    
    243
    
    
    
    
    
    
    
    243China
    
    
    (268
    )
    
    
    
    
    
    
    
    
    
    
    Australia
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    (13,683
    )
    
    
    (3,276
    )
    
    
    (3,245
    )
    
    
    (6,521
    )Year ended March 31, 2008:Canada
    
    $
    (14,760
    )
    
    $
    
    
    
    $
    (1,164
    )
    
    $
    (1,164
    )United States
    
    
    5,862
    
    
    
    (218
    )
    
    
    5,855
    
    
    
    5,637Germany
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    China
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    $
    (9,224
    )
    
    $
    (218
    )
    
    $
    4,691
    
    
    $
    4,473Year ended March 31, 2007:Canada
    
    $
    (18,028
    )
    
    $
    (16
    )
    
    $
    
    
    
    $
    (16
    )United States
    
    
    8,937
    
    
    
    (189
    )
    
    
    3,455
    
    
    
    3,266Germany
    
    
    790
    
    
    
    (199
    )
    
    
    
    
    
    
    (199
    )$
    (8,301
    )
    
    $
    (404
    )
    
    $
    3,455
    
    
    $
    3,051
 Uncertainty in
Income Taxes  An Interpretation of SFAS Statement No. 109
   36




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##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (g)
    
    Income taxes (continued):The following is a summary of the tax years that remain subject to examination by tax jurisdiction:
 Canada
    
    Fiscal year 2004 to 2009United States
    
    Fiscal year 2005 to 2009Germany
    
    Fiscal year 2003 to 2009China
    
    Fiscal year 2007 to 2009
  (h)
    
    Effect of US GAAP differences:The effect of the previously discussed accounting differences on total assets, total liabilities and shareholders equity,
net loss, comprehensive loss and loss per share under US GAAP are as follows:
 2009
    
    
    2008Total assets, Canadian GAAP
    
    $
    135,504
    
    
    $
    78,940Differences in accounting for:Intellectual property (d)
    
    
    (430
    )
    
    
    (574
    )Reclassification of unamortized transaction costs (a)
    
    
    763
    
    
    
    Total assets, US GAAP
    
    $
    135,837
    
    
    $
    78,366Total liabilities, Canadian GAAP
    
    $
    74,546
    
    
    $
    49,144Reclassification of unamortized transaction costs (a)
    
    
    763
    
    
    
    Total liabilities, US GAAP
    
    $
    75,309
    
    
    $
    49,144Shareholders equity, Canadian GAAP
    
    $
    60,958
    
    
    $
    29,796Difference in accounting for:Intellectual property (d)
    
    
    (430
    )
    
    
    (574
    )Shareholders equity, US GAAP
    
    $
    60,528
    
    
    $
    29,222
  37




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##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (h)
    
    Effect of US GAAP differences (continued):
 2009
    
    
    2008
    
    
    2007Loss for the year, Canadian GAAP
    
    $
    (24,425
    )
    
    $
    (10,315
    )
    
    $
    (11,307
    )Difference in amortization of discount on convertible notes and debt issuance
costs (a)(b)
    
    
    
    
    
    
    147
    
    
    
    423Difference in accounting for inducement fee and unamortized discount on
conversion of convertible notes (a)
    
    
    
    
    
    
    (4,424
    )
    
    
    Difference is accounting for reclassification of cumulative translation
adjustment on dividend paid by joint venture (f)
    
    
    (793
    )
    
    
    
    
    
    
    Reversal of tax expense on realized gain on available for sale securities (c)
    
    
    2,362
    
    
    
    1,164
    
    
    
    Amortization of intellectual property (d)
    
    
    144
    
    
    
    145
    
    
    
    144Loss for the year, US GAAP
    
    
    (22,712
    )
    
    
    (13,283
    )
    
    
    (10,740
    )Other comprehensive income (loss):Cumulative translation adjustment on CWI dividend (f)
    
    
    793
    
    
    
    
    
    
    
    Unrealized gain on available for sale securities (c)
    
    
    
    
    
    
    
    
    
    
    20,402Reversal of tax expense on realized gain on available for
sale securities (c)
    
    
    (2,362
    )
    
    
    (1,164
    )
    
    
    (1,569
    )
    
    
    (1,164
    )
    
    
    20,402Comprehensive income (loss), US GAAP
    
    $
    (24,281
    )
    
    $
    (14,447
    )
    
    $
    9,662Basic and diluted loss per share, US GAAP
    
    $
    (0.75
    )
    
    $
    (0.53
    )
    
    $
    (0.50
    )
  (i)
    
    Additional financial information and disclosures required under US GAAP:
 (i)
    
    Accounts receivable:A summary of the components of accounts receivable is as follows:
 2009
    
    
    2008Customer trade receivable
    
    $
    2,002
    
    
    $
    1,014Government funding receivable
    
    
    2,968
    
    
    
    2,077Due from Joint Venture Partner
    
    
    
    
    
    
    3,344Other receivables
    
    
    1,447
    
    
    
    593$
    6,417
    
    
    $
    7,028
  38




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##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (i)
    
    Additional financial information and disclosures required under US GAAP (continued):
 (ii)
    
    Accounts payable and accrued liabilities:A summary of the components of accounts payable and accrued liabilities is as follows:
 2009
    
    
    2008Trade accounts payable
    
    $
    8,802
    
    
    $
    6,641Accrued payroll
    
    
    2,670
    
    
    
    1,176Accrued interest
    
    
    403
    
    
    
    378Income taxes payable
    
    
    2,236
    
    
    
    211Other
    
    
    248
    
    
    
    64$
    14,359
    
    
    $
    8,470
 (iii)
    
    Warranty liability:A continuity of the warranty liability is as follows:
 2009
    
    
    2008
    
    
    2007Balance, beginning of year
    
    $
    9,157
    
    
    $
    6,971
    
    
    $
    5,770Warranty claims
    
    
    (9,254
    )
    
    
    (2,333
    )
    
    
    (2,270
    )Warranty accruals
    
    
    17,105
    
    
    
    6,534
    
    
    
    4,924Change in warranty estimates
    
    
    4,317
    
    
    
    (1,292
    )
    
    
    (1,387
    )Impact of foreign exchange
    
    
    3,266
    
    
    
    (723
    )
    
    
    (66
    )Balance, end of year
    
    $
    24,591
    
    
    $
    9,157
    
    
    $
    6,971
 (iv)
    
    Cost of revenue:Cost of revenue related to product revenue for the year ended
March 31, 2009 was $78,290 (2008  $37,157; 2007  $28,961) and
cost of revenue related to parts revenue was $12,730 (2008 -
$11,866; 2007  $9,420).(v)
    
    Investments and fair value:Effective April 1, 2008, the Company adopted SFAS No. 157, Fair
Value Measurements(SFAS No. 157), which defines fair value as
the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
SFAS No. 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value. The adoption of this statement did not have a material
impact on the Companys results of operations or financial
condition.
  39




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##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (i)
    
    Additional financial information and disclosures required under US GAAP (continued):
 (v)
    
    Investments and fair value (continued):The Company also adopted Financial Accounting Standards Board (FASB) Staff Position No. FAS 157-2, Effective
Date of FASB Statement No. 157, which defers for one year the effective date of SFAS No. 157 for non-financial
assets and liabilities measured at fair value on a nonrecurring basis, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually). The purpose of this
deferral is to allow the FASB and constituents additional time to consider the effect of various implementation
issues that have arisen, or may arise, for the application of SFAS No. 157.SFAS No. 157 describes three levels of inputs used to measure and categorize fair value. The following is a
brief description of those three levels: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 Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. These inputs may reflect managements own assumptions about the
assumptions a market participant would use in valuing the asset or liability.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.The following table presents certain information for the Companys financial assets and liabilities that are
measured at fair value on a recurring basis at March 31, 2009:
 Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Short-term investments
    
    $
    43,576
    
    
    $
    43,576
    
    
    $
    
    
    
    $
    Long-term investments
    
    
    1,456
    
    
    
    1,416
    
    
    
    
    
    
    
    40Balance as of March 31, 2009
    
    $
    45,032
    
    
    $
    44,992
    
    
    $
    
    
    
    $
    40
  40




---



##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (i)
    
    Additional financial information and disclosures required under US GAAP (continued):
 (vi)
    
    Other disclosures:Deferred revenue is
included in other long-term
liabilities on the balance
sheet for Canadian GAAP
purposes and disclosed in
note 11. Under US GAAP,
this amount would be
presented separately on the
balance sheet.From time to time, the
Company performs research
and development for
unrelated parties. The
Company receives revenue
for such research and
development activities from
these parties based on
contractual arrangements.
These arrangements
generally require the
Company to perform certain
specific activities and
revenue is received as the
activities are performed.
Revenue received is not
repayable, irrespective of
the outcome of the
activities. There were no
material research and
development arrangements in
progress as at March 31,
2009 or 2008. During the
year ended March 31, 2009,
the Company earned revenue
of $793 (2008  $1,172;
2007  $1,622) related to
such activities. Costs
expensed related to these
activities were $442 (2008
  $721; 2007  $1,503).
 (j)
    
    Recently issued accounting pronouncements:In February 2007, the FASB issued Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities -
including an amendment to FAS 115(SFAS 159). SFAS 159
permits a company to choose to measure certain financial
assets, financial liabilities and firm commitments at fair
value. The standard is effective for the Company on April 1,
2008. The adoption of SFAS 159 did not have a material
impact on the Companys consolidated financial statements for
US GAAP purposes.In December 2007, the FASB issued Statement of Financial
Accounting Standards 141(R), Business Combinations(SFAS
141(R)). The statement broadens the scope of SFAS 141 to
all transactions in which an entity obtains control over
another entity. The statement provides further guidance on
the recognition of identifiable assets and liabilities and
the measurement of goodwill. The statement is effective for
the Company on April 1, 2009. SFAS 141(R) will only affect
the Company if an acquisition occurs after adoption of SFAS
141(R).In December 2007, the FASB issued Statement of Financial
Accounting Standards 160 Non-Controlling Interests in
Consolidated Financial Statements  an amendment of ARB No.
51(SFAS 160). The statement clarifies the definition of a
non-controlling interest, requires non-controlling interests
to be presented as part of equity on the balance sheet,
changes the way the consolidated income statement is
presented and establishes a single method of accounting for a
change in a parents ownership interest in a subsidiary. The
statement also provides for further disclosures in the
consolidated financial statements. The statement is
effective for the Company on April 1, 2009 and is not
expected to materially impact the consolidated financial
statements for US GAAP purposes although the Company will be
required to reclassify the amount for Joint Venture Partners
share of net assets of joint ventures to equity and provide
certain additional disclosures.
  41




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##### 



WESTPORT INNOVATIONS INC.
  24.
    
    Reconciliation to United States generally accepted accounting standards (continued):
 (j)
    
    Recently issued accounting pronouncements (continued):In March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities  an
amendment of FASB Statement No. 133(SFAS 161).
SFAS 161 requires enhanced disclosures about an
entitys derivative and hedging activities. FAS 161
is effective for the Company on April 1, 2009. SFAS
161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.
The Company is evaluating the impact of the new
statement.In May 2008, FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments
that may be Settled in Cash Upon Conversion (Including Partial Settlement), which will
change the accounting treatment for convertible debt securities that may settle fully
or partly in cash. FSP No. APB 14-1 requires bifurcation of convertible debt securities
into a debt component that is initially recorded at fair value and an equity component
that represents the difference between initial proceeds from the issuance of the
instrument and the fair value allocated to the debt component. The debt component is
then subsequently accreted to par value over its expected life. The standard is
effective for fiscal years and interim periods beginning after December 15, 2008, and
must be retroactively applied to all periods presented, even if the instrument has
matured, converted or has been otherwise extinguished as of the effective date of the
standard. The Company is evaluating the impact of FSP No. APB 14-1.In October 2008, FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset when the Market for that Asset is not Activewhich clarifies the
application of SFAS No. 157 in a market that is not active and provides key
considerations in determining the fair value of the financial asset. FSP FAS 157-3 is
effective upon issuance, including prior periods. Revisions in a valuation technique
shall be accounted for as a change in accounting estimate. The Company does not
anticipate that the adoption of this standard for US GAAP purposes will have a material
impact on the consolidated financial statements.In June 2008, FASB ratified EITF No. 07-05, Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entitys Own Stock(EITF 07-05). EITF 07-05
provides that an entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own stock,
including evaluating the instruments contingent exercise and settlement provisions.
EITF 07-05 is effective for the Company on April 1, 2009. The Company is currently
evaluating the impact of the adoption of EITF 07-05.
  42