Fuel Systems Solutions Inc. Reports Operating Results (10-Q)

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Aug 08, 2009
Fuel Systems Solutions Inc. (FSYS, Financial) filed Quarterly Report for the period ended 2009-06-30.

IMPCO Technologies Inc. manufactures and markets products and systems that allow on-highway and off-highway engines to operate on clean burning gaseous fuels such as propane and natural gas. Company\'s products and just as important company\'s integration expertise enable Original Equipment Manufacturers to satisfy both customer specifications and government emissions regulations for application in the transportation industrial and power generation markets. IMPCO Technologies focuses on the total systems approach in servicing our customers. It is the only company to provide complete tank-to-tailpipe solutions for both on and off highway applications using gaseous fuels. The products we sell range from fuel storage and fuel metering components to electronic fuel control systems exhaust catalysts and fully dressed low emission certified engine packages. Fuel Systems Solutions Inc. has a market cap of $462.8 million; its shares were traded at around $28.8 with a P/E ratio of 16.4 and P/S ratio of 1.3.

Highlight of Business Operations:

Revenue for the three and six months ended June 30, 2009 decreased by approximately $6.0 million and $20.5 million to $92.3 million and $172.4 million, respectively, from $98.3 million and $192.9 million, respectively, for the same periods in 2008.

Net income for the three months ended June 30, 2009 was $7.4 million, or $0.46 per diluted share, as compared to net income of $4.6 million, or $0.29 per diluted share, for the same period in 2008. Net income for the six months ended June 30, 2009 was $14.5 million, or $0.90 per diluted share compared to $10.8 million or $0.69 per diluted share during the same period in the prior year. The increase in net income during second quarter 2009 and first half 2009 was due to an increase in sales for post production OEM conversions, partially offset by the slowdown of sales for aftermarket conversion kits in the transportation market and sales in the industrial market; in addition, net income for second quarter 2008 and first half 2009 included a goodwill impairment charge of $3.9 million.

On May 5, 2009, we purchased the remaining 50% ownership interest in WMTM Equipamentos de Gases, Ltda (WMTM), from White Martin Gases Industriais S.A. (White Martin), BRC Brasils 50% joint venture partner in WMTM, for approximately R$5.0 million (approximately $2.3 million U.S. dollars) of which R$1.0 million (approximately $0.5 million U.S. dollars) was paid on the closing date and a monthly installment of R$0.5 million was paid in June, July and August 2009. The remaining R$2.5 million (approximately $1.2 million U.S. dollars) will be paid in three monthly installments of R$0.5 million (approximately $0.2 million U.S. dollars) from September 5, 2009 through November 5, 2009 and a last installment of R$1.0 million (approximately $0.5 million U.S. dollars) to be paid on December 5, 2009. The results of WMTM are consolidated within BRC operations segment. Revenues in 2009 were $0.4 million.

For the quarter ended June 30, 2009, operating income increased approximately $2.3 million or 22.2% to $12.5 million from $10.2 million for the three months ended June 30, 2008. The increase in operating income for the quarter ended June 30, 2009 was primarily composed of an increase in operating income from BRC operations of $6.3 million, partially offset by a decrease in IMPCO operations operating income of $3.9 million and an increase in corporate expenses of $0.1 million. For the six months ended June 30, 2009, operating income increased approximately $0.2 million, or 1.0%, to $23.8 million from $23.6 million for the six months ended June 30, 2008. The increase in operating income for the six months ended June 30, 2009 was composed of a decrease in corporate expenses of $0.1 million, plus an increase in operating income from BRC operations of $4.0 million, partially offset by a decrease in IMPCO operations operating income of $3.9 million.

BRC Operations. For the three months ended June 30, 2009, revenue for this segment increased by approximately $8.4 million, or 11.5%, to $81.7 million as compared to $73.3 million during the same period in the prior year. BRCs revenue for the second quarter of 2009 includes a decrease of approximately $9.8 million from the weakening of local currencies compared to the dollar from the second quarter of 2008. After considering the impact of foreign exchange rates, revenue in the second quarter of 2009 for BRC had a net increase of $18.2 million from the second quarter of 2008. The increase in revenue during second quarter 2009 was due to an increase in sales for post production OEM conversions and contribution to revenue of $4.1 million from the Distribuidora Shopping acquisition, partially offset by the slowdown of sales for aftermarket conversion kits in the transportation market driven by decreasing gasoline prices, seasonality and the global economic climate. For the six months ended June 30, 2009, revenue for this segment increased by approximately $2.0 million, or 1.4%, to $143.3 million as compared to $141.3 million during the same period in the prior year. BRCs revenue for the first half of 2009 includes a decrease of approximately $19.1 million from the weakening of local currencies compared to the dollar from the second quarter of 2008. After considering the impact of foreign exchange rates, revenue for the first half of 2009 for BRC had a net increase of $21.1 million from the first half of 2008. The increase in revenue in 2009 was due to an increase in sales for post production OEM conversions and contribution to revenue of $6.6 million from the Distribuidora Shopping acquisition, partially offset by the slowdown of sales for aftermarket conversion kits in the transportation market driven by decreasing gasoline prices, seasonality and the global economic climate.

Unicredit Bank Medio Credito Term Loan. On December 2, 2004, MTM entered into a five-year unsecured term loan agreement with Unicredit Banca Medio Credito S.p.A. of Italy, in which MTM received approximately $13.6 million based on the December 31, 2004 exchange rate of $1.36 to the euro. The proceeds of the loan were used for working capital purposes and contributed towards the $22.0 million loaned to IMPCO on December 23, 2004. The payment terms are such that MTM will pay $0.7 million on a quarterly basis throughout the term of the loan and interest based on the 3-month EURIBOR rate plus 1% per annum, which was 2.1% and 3.9% at June 30, 2009 and December 31, 2008. At June 30, 2009 and December 31, 2008 the amount outstanding was approximately $1.4 million and $2.8 million, respectively. The loan agreement requires that MTM maintain a debt to equity ratio of less than 0.80. In addition, MTM is required to maintain net assets of at least $28.1 million based on the average interbank currency exchange rate on June 30, 2009. At June 30, 2009, MTM was in compliance with these covenants.

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