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Furmanite Corp. Reports Operating Results (10-Q)

November 06, 2009 | About:
10qk

10qk

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Furmanite Corp. (FRM) filed Quarterly Report for the period ended 2009-09-30.

Xanser Corporation formerly known as Kaneb Services Inc. conducts its principal businesses in two industry segments specialized technical services and information technology services. Furmanite Corp. has a market cap of $120.9 million; its shares were traded at around $3.3 with a P/E ratio of 10.2 and P/S ratio of 0.4.

Highlight of Business Operations:

For the nine months ended September 30, 2009, consolidated revenues decreased by $35.9 million, or 15.0%, to $203.5 million, compared to $239.4 million for the nine months ended September 30, 2008. Changes related to foreign currency exchange rates unfavorably impacted revenues by $19.4 million, of which $16.1 million and $3.3 million were related to unfavorable impacts from Europe and Asia-Pacific, respectively. Excluding the foreign currency exchange rate impact, revenues decreased by $16.5 million, or 6.9%, for the nine months ended September 30, 2009 compared to the same period for the prior year. This $16.5 million decrease in revenues consisted of a $17.2 million decrease in the United States and a $1.9 million decrease in Europe, partially offset by a $2.6 million increase in Asia-Pacific. The decrease in revenues in the United States was primarily due to reduced volumes of turnaround services, including heat treating, value repair services, and bolting of approximately 23% when compared to revenues in the same period for the prior year. The decrease in revenues in Europe was primarily attributable to a decrease in turnaround services of approximately 3%, which included volume decreases in bolting, on-site machining, and valve repairs when compared to revenues in the same period for the prior year. The increase in revenues in Asia-Pacific was primarily attributable to increases in underpressure services in Singapore which included volume increases in hot tapping services. These increases were partially offset by decreases in turnaround services in Australia, primarily volume decreases in on-site machining due to softening in industry in the first half of 2009.

For the nine months ended September 30, 2009, operating costs decreased $17.5 million, or 11.4%, to $136.4 million, compared to $153.9 million for the nine months ended September 30, 2008. The change related to foreign currency exchange rates favorably impacted costs by $13.0 million, of which $10.9 million and $2.1 million were related to favorable impacts from Europe and Asia-Pacific, respectively. Excluding the foreign currency exchange rate impact, operating costs decreased $4.5 million, or 2.9%, for the nine months ended September 30, 2009, compared to the same period for the prior year. This $4.5 million decrease in operating costs consisted of a $10.5 million decrease in the United States, partially offset by a $4.5 million increase in Europe and a $1.5 million increase in Asia-Pacific. The decrease in operating costs in the United States was attributable to lower salaries and related benefit costs of approximately 16% when compared to the same period for the prior year, consistent with the decrease in revenue. The increase in Europe was due to increased labor and material costs, as well as costs associated with the expansion of operations in the Middle East and Africa. The increase in operating costs in Asia-Pacific was attributable to an increase in labor and equipment costs associated with the increased revenues in Singapore.

For the three months ended September 30, 2009, operating costs decreased $3.5 million, or 7.0%, to $46.6 million, compared to $50.1 million for the three months ended September 30, 2008. The change related to foreign currency exchange rates favorably impacted costs by $2.7 million, of which $2.4 million and $0.3 million were related to favorable impacts from Europe and Asia-Pacific, respectively. Excluding the foreign currency exchange rate impact, operating costs decreased $0.8 million, or 1.5%, for the three months ended September 30, 2009 compared to the same period for the prior year. This $0.8 million decrease in operating costs consisted of a $2.8 million decrease in the United States, a $0.9 million increase in Europe, and a $1.1 million increase in Asia-Pacific. The decrease in operating costs in the United States was attributable to lower salaries and related benefit costs of approximately 12% when compared to the same period for the prior year, consistent with the decrease in revenue. The increase in Europe was due to increased labor and equipment costs, as well as costs associated with expansion of operations in the Middle East and Africa. The increase in operating costs in Asia-Pacific was attributable to an increase in labor and equipment costs associated with the increased revenues in Singapore.

For the three months ended September 30, 2009, selling, general and administrative expenses increased $3.2 million, or 17.7%, to $21.0 million compared to $17.8 million for the three months ended September 30, 2008. The change related to foreign currency exchange rates favorably impacted costs by $0.9 million, of which $0.8 million and $0.1 million were related to favorable impacts in Europe and Asia-Pacific, respectively. Excluding the foreign currency exchange rate differences, selling, general and administrative expenses increased $4.1 million, or 22.6%, for the three months ended September 30, 2009, compared to the same period for the prior year. This $4.1 million increase in selling, general and administrative costs consists of a $2.9 million increase in the United States, a $0.9 million increase in Europe and a $0.3 million increase in Asia-Pacific. The United States increase was primarily attributable to increases in salaries and related benefit costs, and to a lesser extent, other professional services. The increase in salaries and related benefit costs were primarily due to additional sales force in 2009. The increase in other professional services cost was a function of timing, as a proportionally higher concentration of these expenses was incurred in the three months ended September 30, 2009 compared to the same period of the prior year, however year-to-date professional expenses are comparable between years. The increase in Europe was primarily attributable to expanded activities in the Middle East and Africa as well as an increase in salaries and related benefits costs primarily related to an increase in sales force. The increase in Asia-Pacific was attributable to labor cost increases associated with the increase in revenue level.

In 2005, Furmanite Worldwide, Inc. and subsidiaries (FWI), a wholly-owned subsidiary of the Parent Company, entered into the Second Amendment to its Amended and Restated Loan Agreement, dated August 11, 2002, with the Bank of Scotland (the previous loan agreement). Pursuant to the Second Amendment, the Bank of Scotland increased the revolving credit commitment under the original Loan Agreement from $25.0 million to $50.0 million in connection with an acquisition by the Company. FWI funded the cost of the acquisition and certain related transaction costs by borrowing $15.6 million under the $50.0 million revolving bank facility (the $50.0 million facility). At December 31, 2008, $27.6 million was outstanding under the $50.0 million facility which consisted of amounts borrowed by the Company for working capital needs. Borrowings under the $50.0 million facility bore interest at the option of the borrower at variable rates (based on either the LIBOR rate or prime rate) which were 3.5% at December 31, 2008.

During 2006, $15.0 million, secured by a letter of credit, was borrowed under the $50.0 million facility (the $15.0 million facility) that provided for working capital. The proceeds were used to repay earlier borrowings outstanding under the $50.0 million facility and for working capital purposes. At December 31, 2008, there was $7.5 million outstanding under the $15.0 million facility. Borrowings under the $15.0 million facility bore interest at the option of the borrower at variable rates (based on either the LIBOR rate or prime rate) which were 2.7% at December 31, 2008. The $15.0 million facility had the similar financial and operational covenants as the $50.0 million facility and was without recourse to the Parent Company.

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