Attached files

file filename
EX-31 - EX-31.1 - Fuel Systems Solutions, Inc.fsys-ex31_2014063010.htm
EX-32 - EX-32.2 - Fuel Systems Solutions, Inc.fsys-ex32_2014063013.htm
EX-31 - EX-31.2 - Fuel Systems Solutions, Inc.fsys-ex31_2014063011.htm
EX-32 - EX-32.1 - Fuel Systems Solutions, Inc.fsys-ex32_2014063012.htm
EXCEL - IDEA: XBRL DOCUMENT - Fuel Systems Solutions, Inc.Financial_Report.xls

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission File No. 001-32999

 

FUEL SYSTEMS SOLUTIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

20-3960974

(State of Incorporation)

 

(IRS Employer I.D. No.)

780 Third Avenue 25th Floor New York, NY 10017

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (646) 502-7170

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2014:

20,105,520 shares of Common Stock, $0.001 par value per share.

 

 

 

 

 


FUEL SYSTEMS SOLUTIONS, INC.

INDEX

 

 

 

 

Page

Part I. Financial Information

 

Item 1.

 

Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets—June 30, 2014 and December 31, 2013

3

 

 

Condensed Consolidated Statements of Operations—Three and six months ended June 30, 2014 and 2013

4

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income—Three and six months ended June 30, 2014 and 2013

5

 

 

Condensed Consolidated Statements of Cash Flows—Six months ended June 30, 2014 and 2013

6

 

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

 

Controls and Procedures

36

Part II. Other Information

 

Item 1.

 

Legal Proceedings

37

Item 1A.

 

Risk Factors

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

 

Defaults Upon Senior Securities

38

Item 4.

 

Mine Safety Disclosure

38

Item 5.

 

Other Information

38

Item 6.

 

Exhibits

38

Signature

40

Exhibits

 

 

 

 

 

 

2


PART I—FINANCIAL INFORMATION

Item 1.       Financial Statements

FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

June 30,
2014

 

  

December 31,
2013

 

ASSETS

 

 

 

  

 

 

 

Current assets:

 

 

 

  

 

 

 

Cash and cash equivalents

$

69,649

  

  

$

80,961

  

Accounts receivable, less allowance for doubtful accounts of $3,867 and $3,993 at June 30, 2014 and December 31, 2013, respectively

 

59,518

  

  

 

65,008

 

Inventories

 

94,486

  

  

 

95,052

 

Deferred tax assets, net

 

11,978

  

  

 

10,234

 

Other current assets

 

25,930

  

  

 

21,490

 

Short-term investments

 

17,972

  

  

 

14,615

 

Related party receivables

 

3,548

  

  

 

2,787

 

Total current assets

 

283,081

  

  

 

290,147

 

Equipment and leasehold improvements, net

 

54,311

  

  

 

58,402

 

Goodwill, net

 

7,545

  

  

 

48,896

 

Deferred tax assets, net

 

5,261

  

  

 

4,129

 

Intangible assets, net

 

8,570

  

  

 

11,790

 

Other assets

 

1,212

  

  

 

1,260

 

Long-term investments

 

0

  

  

 

675

 

Total Assets

$

359,980

  

  

$

415,299

 

LIABILITIES AND EQUITY

 

 

 

  

 

 

 

Current liabilities:

 

 

 

  

 

 

 

Accounts payable

$

39,407

  

  

$

40,702

 

Accrued expenses

 

41,233

  

  

 

42,094

 

Income taxes payable

 

243

  

  

 

216

 

Current portion of term loans and debt

 

211

  

  

 

213

 

Related party payables

 

2,480

  

  

 

2,860

 

Total current liabilities

 

83,574

  

  

 

86,085

 

Term and other loans

 

107

  

  

 

215

 

Other liabilities

 

7,195

  

  

 

8,364

 

Deferred tax liabilities

 

1,361

  

  

 

1,583

 

Total Liabilities

 

92,237

  

  

 

96,247

 

Equity:

 

 

 

  

 

 

 

Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued and outstanding at June 30, 2014 and December 31, 2013

 

—  

  

  

 

—  

 

Common stock, $0.001 par value, authorized 200,000,000 shares; 20,113,519 issued and 20,105,520 outstanding at June 30, 2014; and 20,104,009 issued and 20,096,010 outstanding at December 31, 2013

 

20

  

  

 

20

 

Additional paid-in capital

 

320,540

  

  

 

320,345

 

Shares held in treasury, 7,999 shares at June 30, 2014 and December 31, 2013

 

(276

)

  

 

(295

)

Accumulated Deficit

 

(46,931

)

  

 

(735

)

Accumulated other comprehensive loss

 

(5,768

)

  

 

(439

)

Total Fuel Systems Solutions, Inc. Equity

 

267,585

  

  

 

318,896

 

Non-controlling interest

 

158

  

  

 

156

 

Total Equity

 

267,743

  

  

 

319,052

 

Total Liabilities and Equity

$

359,980

  

  

$

415,299

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenue

$

87,391

 

 

$

111,095

 

 

$

168,687

 

 

$

209,695

 

Cost of revenue

 

69,539

 

 

 

85,276

 

 

 

133,434

 

 

 

162,258

 

Gross profit

 

17,852

 

 

 

25,819

 

 

 

35,253

 

 

 

47,437

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

7,118

 

 

 

7,268

 

 

 

13,505

 

 

 

13,793

 

Selling, general and administrative expense

 

14,300

 

 

 

13,730

 

 

 

27,597

 

 

 

27,686

 

Impairments

 

44,341

 

 

 

0

 

 

 

44,341

 

 

 

0

 

Total operating expenses

 

65,759

 

 

 

20,998

 

 

 

85,443

 

 

 

41,479

 

Operating (loss) income

 

(47,907

)

 

 

4,821

 

 

 

(50,190

)

 

 

5,958

 

Other income (expense), net

 

894

 

 

 

(909

)

 

 

1,419

 

 

 

(1,244

)

Interest (expense) income, net

 

(27

)

 

 

27

 

 

 

(14

)

 

 

43

 

(Loss) income from operations before income taxes and non-controlling interest

 

(47,040

)

 

 

3,939

 

 

 

(48,785

)

 

 

4,757

 

Income tax benefit (expense)

 

2,844

 

 

 

(1,359

)

 

 

2,585

 

 

 

(2,902

)

Net (loss) income

 

(44,196

)

 

 

2,580

 

 

 

(46,200

)

 

 

1,855

 

Less: Net (loss) attributable to the non-controlling interest

 

(6

)

 

 

0

 

 

 

(4

)

 

 

0

 

Net (loss) income attributable to Fuel Systems Solutions, Inc..

 

(44,190

)

 

 

2,580

 

 

 

(46,196

)

 

 

1,855

 

Net (loss) income per share attributable to Fuel Systems Solutions, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(2.20

)

 

$

0.13

 

 

$

(2.30

)

 

$

0.09

 

Diluted

$

(2.20

)

 

$

0.13

 

 

$

(2.30

)

 

$

0.09

 

Number of shares used in per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

20,101,026

 

 

 

20,065,789

 

 

 

20,098,532

 

 

 

20,057,653

 

Diluted

 

20,101,026

 

 

 

20,078,863

 

 

 

20,098,532

 

 

 

20,070,621

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands); (Unaudited)

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2014

 

  

2013

 

 

2014

 

  

2013

 

Net (loss) income

$

(44,196

)

 

$

2,580

 

 

$

(46,200

)

 

$

1,855

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(1,522

)

 

 

1,240

 

 

 

(5,238

)

 

 

(6,306

)

Unrealized gain on investments arising during period

 

10

 

 

 

38

 

 

 

25

 

 

 

21

 

Foreign currency unrealized (loss) gain on investments during period (1)

 

(97

)

 

 

48

 

 

 

(110

)

 

 

(449

)

Net realized gain reclassified during period (1)

 

0

 

 

 

(266

)

 

 

0

 

 

 

(686

)

Other comprehensive (loss) income, net of tax except for foreign currency items

 

(1,609

)

 

 

1,060

 

 

 

(5,323

)

 

 

(7,420

)

Comprehensive (loss) gain

 

(45,805

)

 

 

3,640

 

 

 

(51,523

)

 

 

(5,565

)

Less: net comprehensive gain (loss) attributable to non-controlling interest

 

(4

)

 

 

0

 

 

 

2

 

 

 

0

 

Comprehensive (loss) income attributable to Fuel Systems Solutions, Inc.

$

(45,801

)

 

$

3,640

 

 

$

(51,525

)

 

$

(5,565

)

(1) See Note 12

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands); (Unaudited)

 

 

Six Months Ended
June 30,

 

 

2014

 

  

2013

 

Cash flows from operating activities:

 

 

 

  

 

 

 

Net (loss) income

$

(46,200

)

  

$

1,855

  

Less: Net loss attributable to the non-controlling interest

 

4

  

  

 

0

  

Net (loss) income attributable to Fuel Systems Solutions, Inc.

 

(46,196

)

  

 

1,855

  

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

  

 

 

 

Depreciation and other amortization

 

5,501

  

  

 

5,443

  

Amortization of intangibles arising from acquisitions

 

1,252

  

  

 

1,538

  

Impairments

 

44,341

  

  

 

0

  

Provision for doubtful accounts

 

77

  

  

 

78

  

Write down of inventory

 

1,891

  

  

 

1,325

  

Other non-cash items

 

14

  

  

 

(247

)

Deferred income taxes

 

(3,356

)

  

 

(441

)

Unrealized (gain) loss on foreign exchange transactions

 

(825

)

  

 

2,175

  

Compensation expense related to equity awards

 

196

  

  

 

174

  

Loss (gain) on disposal of equipment and other assets

 

564

  

  

 

(407

)

Reduction of contingent consideration

 

0

  

  

 

(406

)

Changes in assets and liabilities, net of acquisitions:

 

 

  

  

 

 

 

Decrease (increase) in accounts receivable

 

4,044

  

  

 

(6,452

)

Increase in inventories

 

(2,978

)

  

 

(8,739

)

Increase in other current assets

 

(5,764

)

  

 

(2,960

)

Decrease (increase) in other assets

 

724

  

  

 

(603

)

(Decrease) increase in accounts payable

 

(261

)

  

 

11,624

  

Increase in income taxes payable

 

84

  

  

 

1,395

  

Increase in accrued expenses

 

403

  

  

 

47

  

Decrease in long-term liabilities

 

(1,097

)

  

 

(267

)

Receivables from/payables to related party, net

 

(1,107

)

  

 

814

  

Net cash (used in) provided by operating activities

 

(2,493

)

  

 

5,946

  

Cash flows from investing activities:

 

 

 

  

 

 

 

Purchase of equipment and leasehold improvements

 

(6,041

)

  

 

(3,991

)

Purchase of investments

 

(3,000

)

  

 

(12,626

)

Sale of investments

 

0

  

  

 

6,753

  

Other

 

121

  

  

 

192

  

Net cash used in investing activities

 

(8,920

)

  

 

(9,672

)

Cash flows from financing activities:

 

 

 

  

 

 

 

Payments on term loans and other loans

 

(107

)

  

 

(142

)

Other

 

19

  

  

 

94

  

Net cash used in financing activities

 

(88

)

  

 

(48

)

Net decrease in cash and cash equivalents

 

(11,501

)

  

 

(3,774

)

Effect of exchange rate changes on cash

 

189

  

  

 

(938

)

Net decrease in cash and cash equivalents

 

(11,312

)

  

 

(4,712

)

Cash and cash equivalents at beginning of period

 

80,961

  

  

 

75,675

  

Cash and cash equivalents at end of period

$

69,649

  

  

$

70,963

  

Supplemental disclosures of cash flow information:

 

 

 

  

 

 

 

Non-cash investing and financing activities:

 

 

 

  

 

 

 

Acquisition of equipment in accounts payable

$

347

  

  

$

264

  

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


FUEL SYSTEMS SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

 

1.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements included in the Fuel Systems Solutions, Inc. (“Fuel Systems” or “the Company”) 2013 Annual Report on Form 10-K. The accompanying condensed consolidated financial statements as of and for the periods ended June 30, 2014 and 2013 are unaudited and reflect all adjustments (including normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in Fuel Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The Company designs, manufactures and supplies alternative fuel components and systems for use in the transportation, industrial and power generation industries on a global basis. The Company’s components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas used in internal combustion engines.

The Consolidated Financial Statements include the accounts of the Company and our majority-owned subsidiaries. All intercompany transactions, including intercompany profits and losses and intercompany balances, have been eliminated in consolidation. Investments in unconsolidated joint ventures or affiliates (“joint ventures”) are accounted for under the equity method of accounting, whereby the investment is initially recorded at the cost of acquisition and adjusted to recognize the Company’s share in undistributed earnings or losses since acquisition. The Company’s share in the earnings or losses for its joint ventures would be reflected in equity share in income of unconsolidated affiliates. If the investment in an unconsolidated joint venture is reduced to a zero balance due to prior losses, the Company recognizes any further losses related to its share to the extent that there are any receivables, loans or advances to the joint venture. These additional losses would be reflected in selling, general, and administrative expenses.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2014, or for any future period. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

2.

Recent Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update that improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity’s operations and financial results.  The amendments in this update are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014.  Early adoption is permitted.  The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

In May 2014, the FASB issued a new accounting standard update providing additional guidance for revenue recognition in relation to contractual arrangements with customers.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.  The amendments in this update are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016.  Early adoption is not permitted. The Company is currently defining the approach and planning the initial review activities necessary for the transition to the new standard.

In June 2014, the FASB issued a new accounting standard update providing additional guidance on how to account for share-based payments where the terms of an award may provide that the performance target could be achieved after an employee completes the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite period is treated as a performance condition.  The amendments in this update are effective for fiscal years, and interim periods within those years beginning after December 15, 2015, and may be applied (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the

7


earliest annual period presented in the financial statements and to all new or modified awards thereafter. Earlier adoption is permitted.  The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

 

 

3.

Acquisitions

Acquisition of additional equity interest in Rohan BRC

On September 13, 2013, the Company acquired an additional 44.89% equity interest in Rohan BRC Gas Equipment Private Limited (“Rohan BRC”), an Indian company that assembles, sells and services Liquefied Petroleum Gas (“LPG”) and Compressed Natural Gas (“CNG”) equipment for automotive or other use, for both Original Equipment Manufacturers (“OEM”) and retrofit markets. This acquisition was justified by business and operations opportunities. The aggregate purchase price for the acquisition of the additional ownership interest in Rohan BRC totaled approximately $1.2 million (€0.9 million), net of cash acquired of $0.1 million (€0.1 million), of which $0.8 million (€0.6 million) was paid at closing, with the remainder to be settled within two years from the acquisition date.

The Company previously owned an equity interest of 50.01% in Rohan BRC and accounted for it under the equity method due to a lack of control on its board of directors and on the majority of its operations. Consequently, the acquisition of the additional 44.89% qualified as a step-acquisition. In accordance with the step-acquisition authoritative guidance, the previously held equity interest in Rohan BRC, including inventory on consignment, was re-measured at fair value on the date of acquisition resulting in a fair value of $2.0 million (€1.5 million), and then the total consideration paid for the additional equity interest acquired was compared to its fair value on the date of acquisition. The re-measurement resulted in a loss of $2.0 million (€1.5 million), recorded in cost of revenue for the year ended December 31, 2013.

The results of operations of Rohan BRC have been included in the accompanying consolidated statements of operations from the date of acquisition within the FSS Automotive operating segment.

The Company has determined that the acquisition of the additional 44.89% equity interest in Rohan BRC was a non-material business combination.

 

4.

Cash and Investments

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s marketable securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. The Company’s marketable securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders’ equity. The Company determines realized gains and losses on the sale of marketable securities on a specific identification method, and reflects such gains and losses as a component of interest and other income, net, in the accompanying Consolidated Statements of Operations.

The Company maintains investments in trading securities in connection with its non-qualified Deferred Compensation Plan, whereby selected key employees and directors may elect to defer a portion of their compensation each year. The Company’s investments associated with its Deferred Compensation Plan consist of mutual funds that are publicly traded and for which inputs are directly or indirectly observable in the marketplace. These trading securities are reported at fair value, with unrealized gains and losses included in earnings. In addition, the Deferred Compensation liability includes the value of deferred shares of the Company’s common stock, which is publicly traded and for which current market prices are readily available. The fair market value of the investments in the Deferred Compensation Plan is included in long-term investments, with the corresponding deferred compensation obligation included in other liabilities on the Condensed Consolidated Balance Sheets. Changes in the fair value of the benefits payable to participants and investments are both recognized as components of compensation expense. The net impact of changes in fair value was not material. The Deferred Compensation Plan was terminated during the second quarter of 2014 and the funds will be distributed within one year.

8


Cash, cash equivalents, and marketable securities consist of the following (in thousands):

 

 

As of

 

 

June 30, 2014

 

  

December 31, 2013

 

Cash and cash equivalents:

 

 

 

  

 

 

 

Cash

$

58,510

  

  

$

72,302

  

Money market funds

 

11,139

  

  

 

8,659

  

Total cash and cash equivalents

$

69,649

  

  

$

80,961

  

Investments:

 

 

 

  

 

 

 

Available for sale securities:

 

 

 

  

 

 

 

German Government bonds (1)

 

12,362

  

  

 

12,615

  

Trading securities:

 

 

 

  

 

 

 

Deferred Compensation Plan assets

 

610

  

  

 

675

  

Other investments, held to maturity:

 

 

 

  

 

 

 

Time deposits (2)

 

5,000

  

  

 

2,000

  

Total investments

$

17,972

  

  

$

15,290

  

Short term investments

$

17,972

  

  

$

14,615

  

Long term investments

$

0

  

  

$

675

  

Notes:

(1): The contractual maturity date is October 10, 2014.

(2): Represents two Bank of America certificates of deposit each with an interest rate of 0.26% (no interest if withdrawn before maturity): a $2 million certificate of deposit with a maturity date of January 16, 2015, and a $3 million certificate of deposit with a maturity date of January 22, 2015.

The following table summarizes unrealized gains and losses related to the Company’s investments designated as available-for-sale (in thousands):

 

 

As of June 30, 2014

 

 

Amortized
Cost

 

  

Gross
Unrealized
Gain

 

  

Gross 
Unrealized
(Loss)

 

  

Forex
Effect

 

  

Fair
Value

 

German Government bonds

$

12,147

  

  

$

80

  

  

$

0

  

  

$

135

  

  

$

12,362

 

Total

$

12,147

  

  

$

80

  

  

$

0

  

  

$

135

  

  

$

12,362

 

 

 

As of December 31, 2013

 

 

Amortized
Cost

 

  

Gross
Unrealized
Gain

 

  

Gross
Unrealized
(Loss)

 

  

Forex
Effect

 

  

Fair
Value

 

German Government bonds

$

12,315

 

 

$

55

 

 

$

0

 

 

$

245

 

 

$

12,615

 

Total

$

12,315

 

 

$

55

 

 

$

0

 

 

$

245

 

 

$

12,615

 

In the six months ended June 30, 2013, there were realized gains of approximately $0.4 million pertaining to €5.0 million of notional amount of German Government bonds acquired above par at 100.435 in June of 2012 for $6.3 million, with a maturity date of March 14, 2014, and sold before maturity at 100.09 on February 8, 2013 for approximately $6.8 million.

Unrealized gains and losses on trading securities pertaining to the Company’s Deferred Compensation Plan included in earnings for the three and six months ended June 30, 2014 and 2013 were less than $0.1 million in all periods.

As of June 30, 2014 and 2013, the Company did not have any investments in available for sale marketable securities that were in an unrealized loss position for a period of 12 months or greater.

At June 30, 2014 and December 31, 2013, restricted cash balance was approximately $0.5 million included in other assets.

 

9


5.

Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs that are supported by little or no market activities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company classifies its cash equivalents and securities within Level 1 or Level 2. This is because the Company values its cash equivalents, available for sale and trading securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

 

 

As of
June 30,
2014

 

  

Fair value measurement at
reporting date using

 

 

  

Level 1

 

  

Level 2

 

  

Level 3

 

Assets (in thousands):

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Cash equivalents:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Money market funds

$

11,139

  

  

$

11,139

  

  

$

0

  

  

$

0

  

Available for sale securities:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

German Government bonds

 

12,362

  

  

 

12,362

  

  

 

0

  

  

 

0

  

Trading securities:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Deferred Compensation Plan assets

 

610

  

  

 

0

  

  

 

610

  

  

 

0

  

Other investments, held to maturity:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Time deposits

 

5,000

  

  

 

0

  

  

 

5,000

  

  

 

0

  

Total

$

29,111

  

  

$

23,501

  

  

$

5,610

  

  

$

0

  

 

 

As of
December 31,
2013

 

  

Fair value measurement at
reporting date using

 

 

  

Level 1

 

  

Level 2

 

  

Level 3

 

Assets (in thousands):

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Cash equivalents:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Money market funds

$

8,659

  

  

$

8,659

  

  

$

0

  

  

$

0

  

Available for sale securities:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

German Government bonds

 

12,615

  

  

 

12,615

  

  

 

0

  

  

 

0

  

Trading securities:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Deferred Compensation Plan assets

 

675

  

  

 

0

  

  

 

675

  

  

 

0

  

Other investments, held to maturity:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Time deposits

 

2,000

  

  

 

0

  

  

 

2,000

  

  

 

0

  

Total

$

23,949

  

  

$

21,274

  

  

$

2,675

  

  

$

0

  

 

6.

Inventories

Inventories, consisting of raw materials and parts, work-in-process, and finished goods are stated at the lower of cost or market value. Cost is determined by the first-in, first-out, or the FIFO method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in-process and finished goods.

10


Inventories are comprised of the following (in thousands):

 

 

As of

 

 

June 30, 2014

 

  

December 31, 2013

 

Raw materials and parts

$

58,060

  

  

$

56,790

  

Work-in-process

 

2,629

  

  

 

1,503

  

Finished goods

 

33,797

  

  

 

36,759

  

Total inventories

$

94,486

  

  

$

95,052

  

 

7.

Equipment and Leasehold Improvements, Net

Equipment and leasehold improvements, net, consist of the following (in thousands):

 

 

As of

 

 

June 30, 2014

 

 

December 31, 2013

 

Dies, molds, and patterns

$

5,662

  

 

$

5,677

  

Machinery and equipment

 

65,842

  

 

 

67,673

  

Office furnishings and equipment

 

22,351

  

 

 

21,092

  

Automobiles and trucks

 

5,159

  

 

 

4,548

  

Leasehold improvements

 

24,360

  

 

 

25,259

  

Total equipment and leasehold improvements

 

123,374

  

 

 

124,249

  

Less: accumulated depreciation

 

(69,063

)

 

 

(65,847

)

Equipment and leasehold improvements, net of accumulated depreciation

$

54,311

  

 

$

58,402

  

Depreciation expense related to equipment and leasehold improvements was approximately $2.8 million and $2.6 million for the three months ended June 30, 2014 and 2013, respectively. Depreciation expense related to equipment and leasehold improvements was $5.5 million and $5.4 million for the six months ended June 30, 2014 and 2013, respectively.

 

 

8.

Goodwill and Intangibles

The changes in the carrying amount of goodwill by business segment for the six months ended June 30, 2014 are as follows (in thousands):

 

 

FSS Automotive

 

 

FSS Industrial

 

 

Total

 

Goodwill, gross

$

50,071

 

 

$

15,651

 

 

$

65,722

 

Accumulated impairment losses

 

(9,043

)

 

 

(7,783

)

 

 

(16,826

)

Net balance as of December 31, 2013

$

41,028

 

 

$

7,868

 

 

$

48,896

 

Impairment loss (1)

 

(35,780

)

 

 

(4,158

)

 

 

(39,938

)

Currency translation

 

(1,361

)

 

 

(52

)

 

 

(1,413

)

Goodwill, gross

$

48,677

 

 

$

15,590

 

 

$

64,267

 

Accumulated impairment losses

 

(44,790

)

 

 

(11,932

)

 

 

(56,722

)

Net balance as of June 30, 2014

$

3,887

 

 

$

3,658

 

 

$

7,545

 

Note (1): see Note 14 “Impairments”

At June 30, 2014 and December 31, 2013, intangible assets consisted of the following (in thousands):

 

 

WT Average
Remaining
Amortization
period (in years)

 

  

As of June 30, 2014

 

  

As of December 31, 2013

 

  

Gross
Book Value

 

  

Accumulated
Amortization

 

 

Net
Book Value

 

  

Gross
Book Value

 

  

Accumulated
Amortization

 

 

Net
Book Value

 

Existing technology

 

5.2

  

  

$

27,359

  

  

$

(22,985

)

 

$

4,374

  

  

$

27,774

  

  

$

(21,150

)

 

$

6,624

  

Customer relationships

 

11.1

  

  

 

20,369

  

  

 

(17,732

)

 

 

2,637

  

  

 

21,013

  

  

 

(17,909

)

 

 

3,104

  

Trade name

 

4.5

  

  

 

4,891

  

  

 

(3,332

)

 

 

1,559

  

  

 

5,005

  

  

 

(2,944

)

 

 

2,061

  

Non-compete agreements

 

0

  

  

 

0

  

  

 

0

  

 

 

0

  

  

 

158

  

  

 

(157

)

 

 

1

  

Total

  

 

 

  

$

52,619

  

  

$

(44,049

)

 

$

8,570

  

  

$

53,950

  

  

$

(42,160

)

 

$

11,790

  

Amortization expense related to existing technology and customer relationships of $0.5 million and $0.6 million for the three months ended June 30, 2014 and 2013, respectively, and of $1.0 million and $1.2 million for the six months ended June 30, 2014 and

11


2013, respectively, is reported as a component of cost of revenue. Amortization expense related to trade name and non-compete agreements of $0.1 million and $0.1 million for three months ended June 30, 2014 and 2013, respectively, and of $0.3 million and $0.4 million for the six months ended June 30, 2014 and 2013, respectively, is reported as a component of operating expenses.

Amortization expense for the remaining lives of the intangible assets is estimated to be as follows (in thousands):

 

 

Amortization
Expense

 

Six months ending December 31, 2014

$

1,069

  

2015

 

2,019

  

2016

 

1,623

  

2017

 

1,143

  

2018

 

956

  

2019

 

619

  

Thereafter

 

1,141

  

 

$

8,570

  

 

9.

Warranties

Estimated future warranty obligations related to certain products are provided by charges to operations in the period in which the related revenue is recognized. Estimates are based, in part, on historical experience.

Changes in the Company’s product warranty liability, included within Accrued expenses on the Condensed Consolidated Balance Sheets, during the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2014

 

  

2013

 

 

2014

 

  

2013

 

Balance at beginning of period

$

8,212

  

  

$

10,297

  

 

$

8,695

  

  

$

11,639

  

Provisions charged to costs and expenses

 

699

  

  

 

1,031

  

 

 

1,697

  

  

 

2,765

  

Settlements

 

(1,238

)

  

 

(739

)

 

 

(2,254

)

  

 

(3,002

)

Adjustments to pre-existing warranties

 

(251

)

  

 

(774

)

 

 

(567

)

  

 

(1,386

)

Effect of foreign currency translation

 

94

  

  

 

(59

)

 

 

(55

)

  

 

(260

)

Balance at end of period

$

7,516

  

  

$

9,756

  

 

$

7,516

  

  

$

9,756

  

 

10.

Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2014 was 6.0% compared to an effective tax rate of 34.5% for the three months ended June 30, 2013. The Company’s effective tax rate for the six months ended June 30, 2014 was 5.3% compared to an effective tax rate of 61.0% for the six months ended June 30, 2013.

The Company operates in an international environment with significant operations in various locations outside of the United States, which have statutory tax rates that are different from the United States tax rate. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates. The change in the effective tax rate is primarily a result of the fluctuation of earnings in the various jurisdictions and losses incurred in the United States and certain foreign jurisdictions (“loss jurisdictions”) for which no tax benefit has been recorded. For the three months ended June 30, 2014 and 2013 the Company incurred a pre-tax loss of approximately $0.9 million and $0.9 million, respectively, in the loss jurisdictions. For the six months ended June 30, 2014 and 2013, the Company incurred a pre-tax loss of approximately $3.2 million and $4.1 million, respectively, in the loss jurisdictions. The Company continues to believe that the likelihood of recoverability of the net deferred tax assets in the loss jurisdictions is less than the “more likely than not” threshold, therefore, a valuation allowance is maintained on the entire domestic and certain foreign jurisdictions deferred tax assets.

As of June 30, 2014, the Company had approximately $12.9 million of unrecognized tax benefits. There was no significant change in unrecognized tax benefits for the three and six months ended June 30, 2014. Although it is reasonably possible that our unrecognized tax benefits will change over the next 12 months, the Company does not anticipate such changes to have a significant impact on our income tax expense due to the valuation allowance position maintained in certain jurisdictions.

 

12


11.

Debt Payable

The Company’s outstanding debt is summarized as follows (in thousands):

 

 

Available as of
June 30,
2014

 

  

June 30,
2014

 

  

December 31,
2013

 

(a) Revolving lines of credit—Italy and Argentina

$

12,905

  

  

$

0

  

  

$

0

  

(b) Revolving line of credit—USA

 

20,000

  

  

 

0

  

  

 

0

  

(c) Other indebtedness

 

0

  

  

 

318

  

  

 

428

  

 

$

32,905

  

  

 

318

  

  

 

428

  

Less: current portion

  

  

 

  

 

211

  

  

 

213

  

Non-current portion

 

 

 

  

$

107

  

  

$

215

  

At June 30, 2014, the Company’s weighted average interest rate on outstanding debt was 1.0%. The Company is party to numerous credit agreements and other borrowings. All foreign denominated revolving lines of credit have been converted using the average interbank currency rate at June 30, 2014. The fair value of the debt obligations approximated the recorded value as of June 30, 2014 and December 31, 2013 and represents a level 3 measurement within the fair value hierarchy (see Note 5).

(a) Revolving Lines of Credit – Italy and Argentina

The Company maintains various revolving lines of credit in Italy and Argentina. The revolving lines of credit in Italy include $6.9 million which is unsecured and $4.0 million which is collateralized by accounts receivable. The interest rates on these revolving lines of credit are fixed and variable and range from 1.2% to 4.2% as of June 30, 2014. At June 30, 2014 and December 31, 2013, there were no balances outstanding.

The revolving lines of credit in Argentina consist of two lines for a total amount of availability of approximately $1.9 million. These lines are unsecured with no balance outstanding at June 30, 2014 and December 31, 2013. At June 30, 2014, the interest rates for the lines of credit in Argentina ranged from 4.5% to 30.0%.

All lines are callable on demand.

(b) Revolving Line of Credit – USA

As of June 30, 2014, the Company and IMPCO Technologies, Inc. (“IMPCO”) maintain an unsecured, revolving short term credit facility with Intesa SanPaolo S.p.A. (“Intesa”) amounting to $20.0 million. IMPCO intends to use the borrowings for its general corporate purposes and Fuel Systems guarantees IMPCO’s payments. At June 30, 2014 and December 31, 2013, there were no balances outstanding. The maximum aggregate principal amount of loans available at any time was originally $13.0 million with a maturity date of April 30, 2014, which was subsequently renewed to April 30, 2015 with a new aggregate principal amount of loans available at any time increased to $20.0 million. At the Company’s option, the loans will bear interest on either the applicable LIBOR rate plus 2.0%, the bank’s prime rate plus 1.0% or the bank’s cost of funds rate plus 2.0%. The bank’s prime rate is a floating interest rate that may change as often as once a day. If any amounts under a loan remain outstanding after the loan’s maturity date, such amounts will bear interest at the bank’s prime rate plus 2.0%. In addition, this revolving credit facility carries a commitment fee of 0.5% of the average daily unused amount. The line of credit contains quarterly covenants, which require the Company to maintain (1) a ratio of Net Debt/EBITDA for the then most recently concluded period of four consecutive fiscal quarters of the Company to be less than 2, (2) a consolidated net worth of at least $135.0 million, and (3) the Company shall not, and shall not permit any of its subsidiaries to create, incur, assume or permit to exist any Debt other than (i) debt of any such subsidiary owing to any other subsidiary or to the Company or (ii) debt for borrowed money in a total aggregate principal amount, the U.S. Dollar equivalent of which does not exceed $75.0 million. At June 30, 2014, the Company was in compliance with these covenants.

(c) Other indebtedness

Other indebtedness includes capital leases and various term loans and lines of credits involving the Company’s foreign subsidiaries. These term loans and lines of credit are used primarily to fund the operations of these subsidiaries and bear interest ranging from 0.50% to 6.95%.

 

13


12.

Changes and reclassifications in Accumulated Other Comprehensive Loss by Component

(a) Changes in Accumulated Other Comprehensive Loss by Component (all amounts are net of tax, except foreign currency items)

 

 

Three Months Ended June 30, 2014
(in thousands)

 

 

Unrealized Gains and
(Losses) on Available-
for-Sale Securities

 

  

Foreign
Currency
Items

 

 

Total

 

Beginning balance, March 31,
2014

 

70

  

  

 

(4,216

)

 

 

(4,145

)

Current period Other Comprehensive Income (Loss) activity before reclassifications

 

10

  

  

 

(1,619

)

 

 

(1,609

)

Net current-period Other Comprehensive Income (Loss)

 

10

  

  

 

(1,619

)

 

 

(1,609

)

Net current-period Other Comprehensive Income attributable to noncontrolling interest

 

0

 

 

 

(14

)

 

 

(14

)

Ending balance, June 30, 2014

 

80

  

  

 

(5,848

)

 

 

(5,768

)

 

 

Six Months Ended June 30, 2014
(in thousands)

 

 

Unrealized Gains and
(Losses) on Available-
for-Sale Securities

 

  

Foreign
Currency
Items

 

 

Total

 

Beginning balance, December 31, 2013

 

55

  

  

 

(494

)

 

 

(439

)

Current period Other Comprehensive Income (Loss) activity before reclassifications

 

25

  

  

 

(5,348

)

 

 

(5,323

)

Net current-period Other Comprehensive Income (Loss)

 

25

  

  

 

(5,348

)

 

 

(5,323

)

Net current-period Other Comprehensive Income attributable to noncontrolling interest

 

0

 

 

 

(6

)

 

 

(6

)

Ending balance, June 30, 2014

 

80

  

  

 

(5,848

)

 

 

(5,768

)

 

 

Three Months Ended June 30, 2013
(in thousands)

 

 

Unrealized Gains and
(Losses) on Available-
for-Sale Securities

 

 

Foreign
Currency
 Items

 

 

Total

 

Beginning balance, March 31,
2013

 

(17

)

 

 

(10,523

)

 

 

(10,540

)

Current period Other Comprehensive Income activity before reclassifications

 

38

 

 

 

1,288

 

 

 

1,326

  

Amounts reclassified from Accumulated Other Comprehensive Loss

 

 

 

 

(266

)

 

 

(266

)

Net current-period Other Comprehensive Income

 

38

  

 

 

1,022

  

 

 

1,060

  

Ending balance, June 30, 2013

 

21

  

 

 

(9,501

)

 

 

(9,480

)

14


 

 

Six Months Ended June 30, 2013
(in thousands)

 

 

Unrealized Gains and
(Losses) on Available-
for-Sale Securities

 

 

Foreign
Currency 
Items

 

 

Total

 

Beginning balance, December 31, 2012

 

(9

)

 

 

(2,051

)

 

 

(2,060

)

Current period Other Comprehensive Income (Loss) activity before reclassifications

 

21

  

 

 

(6,755

)

 

 

(6,734

)

Amounts reclassified from Accumulated Other Comprehensive Income (Loss)

 

9

  

 

 

(695

)

 

 

(686

)

Net current-period Other Comprehensive Income (Loss)

 

30

  

 

 

(7,450

)

 

 

(7,420

)

Ending balance, June 30, 2013

 

21

  

 

 

(9,501

)

 

 

(9,480

)

(b) Reclassifications out of Accumulated Other Comprehensive Loss

 

 

Amount Reclassified from Accumulated Other
Comprehensive Income (Loss) (in thousands)

 

Details about Accumulated Other Comprehensive
Income (Loss) Components

Three Months Ended
June 30, 2014

 

  

Three Months Ended
June 30, 2013

 

 

Affected Line Item in the
Statement Where Net
Income is Presented

 

Unrealized losses on available-for-sale securities

$

0

  

  

$

0

  

 

  

Other Expense
(Income), net

  

Foreign Currency Items:

 

 

 

  

 

 

 

 

 

 

 

Foreign currency gain on available for sale
securities

 

0

  

  

 

0

  

 

  

Other Expense
(Income), net

  

Foreign currency gain on available for sale
securities

  

  

 

  

 

(266

)

 

  

Other Expense
(Income), net

  

Total reclassifications for the
period

$

0

  

  

$

(266

)

 

  

 

 

 

 

Amount Reclassified from Accumulated Other
Comprehensive Income (Loss) (in thousands)

 

Details about Accumulated Other Comprehensive
Income (Loss) Components

Six Months Ended
June 30, 2014

 

  

Six Months Ended
June 30, 2013

 

 

Affected Line Item in the
Statement Where Net
Income is Presented

 

Unrealized losses on available-for-sale securities

$

0

  

  

$

9

  

 

  

Other Expense
(Income), net

  

Foreign Currency Items:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency gain on available for sale
securities

 

0

 

 

 

(429

)

 

 

Other Expense
(Income), net

  

Foreign currency gain on available for sale
securities

 

  

 

 

 

(266

)

 

 

Other Expense
(Income), net

  

Total reclassifications for the
period

$

0

 

 

$

(686

)

 

 

  

 

 

13.

Stock-Based Compensation

The Company has two stock option plans that provide for the issuance of options to key employees and directors of the Company at the fair market value at the time of grant. The 2011 Stock Option Plan, which was approved by shareholders on May 23, 2012, provided the Company with an additional 300,000 options for issuance. Options previously granted under these plans generally vest in four or five years and are generally exercisable while the individual is an employee or a director, or ordinarily within one month following termination of employment. In no event may options be exercised more than ten years after date of grant. Under the

15


Company’s 2009 Restricted Stock Bonus Plan, which was approved by shareholders on August 27, 2009 and replaced the 2006 Incentive Bonus Plan, the Company’s Board of Directors may grant restricted stock to officers, employees and non-employee directors.

Stock-based compensation expense for the three and six months ended June 30, 2014 and 2013 was allocated as follows (in thousands):

 

 

Three Months Ended
June 30,

 

  

Six Months Ended
June 30,

 

 

2014

 

  

2013

 

  

2014

 

  

2013

 

Cost of revenue

$

12

  

  

$

8

  

  

$

21

  

  

$

17

  

Research and development expense

 

9

  

  

 

7

  

  

 

16

  

  

 

11

  

Selling, general and administrative expense

 

80

  

  

 

80

  

  

 

159

  

  

 

146

  

 

$

101

  

  

$

95

  

  

$

196

  

  

$

174

  

Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company has not recorded any excess tax benefits as a result of the net operating loss carry-forward position for United States income tax purposes.

Stock-Based Compensation Activity – Stock Options

Shares of common stock issued upon exercise of stock options are from previously unissued shares. The following table displays stock option activity including the weighted average stock option prices for the six months ended June 30, 2014:

 

 

Number of
Shares

 

  

Weighted
Average
Exercise Price

 

  

Weighted 
Average
Remaining
Contractual Term

 

  

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding at December 31, 2013

 

113,940

  

 

$

14.95

  

  

 

7.5yrs

  

  

$

39

  

Granted

 

41,450

  

 

 

10.37

  

  

 

 

 

  

 

 

 

Exercised

 

0

  

 

 

0

  

  

 

 

 

  

 

 

 

Forfeited

 

(27,065

)

 

 

13.15

  

  

 

 

 

  

 

 

 

Outstanding at June 30, 2014

 

128,325

  

 

$

13.85

  

  

 

8.65 yrs

 

  

$

32

  

Vested and exercisable at June 30, 2014

 

26,715

  

 

$

15.63

  

  

 

7.78 yrs

 

  

$

0

  

The aggregate intrinsic value as of a particular date is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money at each respective period.

During the three months ended June 30, 2014 and 2013, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $0.0 million and $0.5 million, respectively, determined as of the date of option exercise. During the six months ended June 30, 2014 and 2013, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $0.0 million and $0.5 million, respectively, determined as of the date of option exercise.

As of June 30, 2014, total unrecognized stock-based compensation cost related to unvested stock options was $0.9 million, which is expected to be recognized over a weighted-average period of 3.82 years. As of June 30, 2013, total unrecognized stock-based compensation cost related to unvested stock options was $0.9 million, expected to be recognized over a weighted-average period of 4.2 years.

16


Stock-Based Compensation Activity – Restricted Stock

A summary of unvested restricted stock awards as of June 30, 2014 and changes during the six month period then ended are presented below.

 

 

Number of
Shares

 

  

Weighted Average
Grant  Date  Fair
Value

 

Nonvested at December 31, 2013

 

11,380

  

  

$

15.53

  

Granted

 

28,200

  

  

 

10.64

  

Vested

 

(9,510

)  

  

 

15.78

  

Forfeited

 

0

  

  

 

0

  

Nonvested at June 30, 2014

 

30,070

  

  

$

12.05

  

As of June 30, 2014, total unrecognized stock-based compensation cost related to unvested restricted stock was $0.3 million, which is expected to be recognized over a weighted-average period of approximately 1.1 year.  

 

14.

Impairments

In accordance with Accounting Standard Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other”, the Company performs its annual impairment test during the fourth quarter, after the annual budgeting process is completed. Furthermore, goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Each interim period, management assesses whether or not an indicator of impairment is present that would necessitate that a goodwill impairment analysis be performed in an interim period other than during the fourth quarter.

During the second quarter of 2014, the Company determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis. These indicators included the recent trading values of Fuel Systems Solutions, Inc. stock, and corresponding decline in the Company’s market capitalization, coupled with market conditions and business trends within the Company’s various reporting units. As a result, the Company examined the Italian reporting units of its FSS Automotive segment, as well as the Canadian and Netherlands reporting units of its FSS Industrial segment.

Due to the complexity and the effort required to estimate the fair value of the reporting units in the step one of the impairment test and to estimate the fair values of all assets and liabilities of the reporting units in the second step of the test, the fair value estimates were derived based on preliminary assumptions and analyses that are subject to change. Based on the Company’s preliminary analyses, the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the two reporting units within the FSS Automotive segment, as well as for the two reporting units within the FSS Industrial segment.

As a result during the second quarter of 2014, the Company recognized, based on its best estimate, impairment charges of $33.1 million and $2.6 million, respectively, in relation with its two reporting units located in Italy within its FSS Automotive segment, and impairment charges of $3.1 million and $1.1 million, respectively, in relation with its two reporting units located in Canada and in the Netherlands within its FSS Industrial segment. These impairment charges were included as a separate component of operating income for the three and six months ended June 30, 2014. As a result, as of June 30, 2014, the Company had $7.5 million of goodwill on its Consolidated Balance Sheet. Any adjustments to the estimated impairment loss following completion of the measurement of the impairment will be recorded in the third quarter of 2014.

During the fourth quarter of 2014, the Company will perform its annual goodwill impairment review for all of its reporting units as of October 1, 2014. If there are any changes in the Company’s stock price, or significant changes in the business climate or operating results of the Company’s reporting units, the Company may incur additional goodwill impairment charges.

In addition, in accordance with ASC Topic 360, “Impairment and Disposal of Long-Lived Asset”, the Company concluded a triggering event occurred, requiring the assessment of impairment for certain of its long-lived assets. Upon completion of the assessment, the Company concluded that long-lived assets were impaired and recorded a $4.4 million impairment charge associated with intangible assets and equipment and leasehold improvements within its FSS Automotive segment.

These impairments were measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal to determine fair values of the impairment assets. The inputs and assumptions utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined by ASC 820.

17


The following table summarizes the impairment charges for each reporting unit by asset category (in thousand):

 

 

Three and Six Months ended June 30, 2014

 

 

Italy

 

 

US

 

 

Netherlands

 

 

Canada

 

 

Total

 

Equipment and leasehold improvements

$

2,239

 

 

$

439

 

 

$

0

 

 

$

0

 

 

$

2,678

 

Goodwill

 

35,780

 

 

 

0

 

 

 

1,094

 

 

 

3,064

 

 

 

39,938

 

Intangible assets

 

1,017

 

 

 

708

 

 

 

0

 

 

 

0

 

 

 

1,725

 

Total Impairments

$

39,036

 

 

 

1,147

 

 

 

1,094

 

 

 

3,064

 

 

$

44,341

 

In connection with these impairment charges, the Company recognized a tax benefit of approximately $1.1 million.

 

 

15.

Earnings Per Share

The following table sets forth the computation of unaudited basic and diluted earnings per share (in thousands, except share and per share data):

 

 

Three Months Ended June 30,

 

  

Six Months Ended June 30,

 

 

2014

 

  

2013

 

  

2014

 

  

2013

 

Numerator:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net (loss) income attributable to Fuel Systems Solutions, Inc.

$

(44,190

)  

  

$

2,580

  

  

$

(46,196

)  

  

$

1,855

  

Denominator:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Denominator for basic earnings per share—weighted average number of shares

 

20,101,026

  

  

 

20,065,789

  

  

 

20,098,532

  

  

 

20,057,653

  

Effect of dilutive securities:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Employee stock options

 

0

 

  

 

13,024

 

  

 

0

 

  

 

12,968

  

Unvested restricted stock

 

0

 

  

 

50

 

  

 

0

 

  

 

0

 

Dilutive potential common shares

 

20,101,026

  

  

 

20,078,863

  

  

 

20,098,532

  

  

 

20,070,621

  

Net (loss) income per share attributable to Fuel Systems Solutions, Inc.:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Basic

$

(2.20

)  

  

$

0.13

  

  

$

(2.30

)  

  

$

0.09

  

Diluted

$

(2.20

)  

  

$

0.13

  

  

$

(2.30

)  

  

$

0.09

  

The following table represents the numbers of anti-dilutive instruments excluded from the computation of diluted earnings per share:

 

 

Three Months Ended June 30,

 

  

Six Months Ended June 30,

 

 

2014

 

  

2013

 

  

2014