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EX-32.2 - EX-32.2 - Fuel Systems Solutions, Inc.fsys-ex322_9.htm
EX-31.2 - EX-31.2 - Fuel Systems Solutions, Inc.fsys-ex312_7.htm
EX-32.1 - EX-32.1 - Fuel Systems Solutions, Inc.fsys-ex321_8.htm
EX-31.1 - EX-31.1 - Fuel Systems Solutions, Inc.fsys-ex311_6.htm

 

 

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 March 31, 2016

or

o

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  o

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  o

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

o

Accelerated filer

x

Non-accelerated filer

o

Smaller reporting company

o

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

Number of shares outstanding of each of the issuer’s classes of common stock as of April 29, 2016:

18,094,043 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—March 31, 2016 and December 31, 2015

3

 

 

Condensed Consolidated Statements of Operations—Three months ended March 31, 2016 and 2015

4

 

 

Condensed Consolidated Statements of Comprehensive Loss—Three months ended March 31, 2016 and 2015

5

 

 

Condensed Consolidated Statements of Cash Flows—Three months ended March 31, 2016 and 2015

6

 

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

 

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

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

 

Controls and Procedures

28

Part II. Other Information

 

Item 1.

 

Legal Proceedings

29

Item 1A.

 

Risk Factors

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

 

Defaults Upon Senior Securities

29

Item 4.

 

Mine Safety Disclosure

29

Item 5.

 

Other Information

29

Item 6.

 

Exhibits

30

Signature

31

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)

 

 

  

March 31,

2016

 

  

December 31,
2015

 

ASSETS

  

 

 

 

  

 

 

 

Current assets:

  

 

 

 

  

 

 

 

Cash and cash equivalents

  

$

48,541

  

  

$

60,162

  

Accounts receivable, less allowance for doubtful accounts of $2,502 and $3,005 at March 31, 2016 and December 31, 2015, respectively

  

 

45,838

  

  

 

44,524

  

Inventories

  

 

75,244

  

  

 

62,717

  

Other current assets

  

 

15,466

  

  

 

15,523

  

Short-term investments

 

 

1,000

 

 

 

1,000

 

Related party receivables, net

  

 

303

  

  

 

316

  

Total current assets

  

 

186,392

  

  

 

184,242

  

Equipment and leasehold improvements, net

  

 

35,795

  

  

 

35,583

  

Deferred tax assets, net

  

 

4,695

  

  

 

4,552

  

Intangible assets, net

  

 

2,620

  

  

 

2,680

  

Other assets

  

 

1,428

  

  

 

1,382

  

Total Assets

  

$

230,930

 

 

$

228,439

  

LIABILITIES AND EQUITY

  

 

 

 

  

 

 

 

Current liabilities:

  

 

 

 

  

 

 

 

Accounts payable

  

$

35,718

  

  

$

34,117

  

Accrued expenses

  

 

28,819

 

 

 

26,859

  

Income taxes payable

  

 

647

 

  

 

233

  

Term loans and debt

  

 

35

  

  

 

9

  

Related party payables

  

 

2,110

  

  

 

2,525

  

Total current liabilities

  

 

67,329

  

  

 

63,743

  

Other liabilities

  

 

10,090

  

  

 

9,858

  

Term loans and debt

 

 

111

 

 

 

0

 

Deferred tax liabilities, net

  

 

754

  

  

 

751

  

Total Liabilities

  

 

78,284

  

  

 

74,352

  

Equity:

  

 

 

 

  

 

 

 

Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued and outstanding at March 31, 2016 and December 31, 2015

  

 

0

  

  

 

0

  

Common stock, $0.001 par value, authorized 200,000,000 shares; 20,143,108 issued and 18,094,043 outstanding at March 31, 2016 and December 31, 2015, respectively

  

 

20

  

  

 

20

  

Additional paid-in capital

  

 

322,535

  

  

 

322,144

  

Shares held in treasury, 2,049,065 shares at March 31, 2016 and December 31, 2015, respectively

  

 

(20,742

)

  

 

(20,742)

 

Accumulated Deficit

  

 

(107,760

)

  

 

(101,286)

 

Accumulated other comprehensive loss

  

 

(41,407

)

  

 

(46,049)

 

Total Equity

  

 

152,646

  

  

 

154,087

  

Total Liabilities and Equity

  

$

230,930

  

  

$

228,439

  

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
March 31,

 

 

2016

 

 

2015

 

Revenue

$

56,142

 

 

$

63,292

 

Cost of revenue

 

41,505

 

 

 

48,768

 

Gross profit

 

14,637

 

 

 

14,524

 

Operating expenses:

 

 

 

 

 

 

 

Research and development expense

 

5,249

 

 

 

5,263

 

Selling, general and administrative expense

 

14,516

 

 

 

13,713

 

Total operating expenses

 

19,765

 

 

 

18,976

 

Operating loss

 

(5,128

)

 

 

(4,452

)

Other (expense) income, net

 

(583

)

 

 

983

 

Interest expense, net

 

(12

)

 

 

(7

)

Loss from operations before income taxes and non-controlling interest

 

(5,723

)

 

 

(3,476

)

Income tax expense

 

(751

)

 

 

(8,351

)

Net loss

 

(6,474

)

 

 

(11,827

)

Less: Net income attributable to non-controlling interest

 

0

 

 

 

(43

)

Net loss attributable to Fuel Systems Solutions, Inc..

 

(6,474

)

 

 

(11,870

)

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

 

 

 

 

 

 

 

Basic

$

(0.36

)

 

$

(0.62

)

Diluted

$

(0.36

)

 

$

(0.62

)

Number of shares used in per share calculation:

 

 

 

 

 

 

 

Basic

 

18,094,043

 

 

 

19,194,976

 

Diluted

 

18,094,043

 

 

 

19,194,976

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands); (Unaudited)

 

 

Three Months Ended
March 31,

 

 

2016

 

  

2015

 

Net loss

$

(6,474

)

 

$

(11,827

)

Other comprehensive loss, net of tax except for foreign currency items:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

4,642

 

 

 

(15,586

)

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

 

4,642

 

 

 

(15,586

)

Comprehensive loss

 

(1,832

)

 

 

(27,413

)

Less: net comprehensive income attributable to the non-controlling interest

 

0

 

 

 

(8

)

Comprehensive loss attributable to Fuel Systems Solutions, Inc.

$

(1,832

)

 

$

(27,421

)

See accompanying notes to condensed consolidated financial statements.

 

 

5


FUEL SYSTEMS SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands); (Unaudited)

 

 

  

Three  Months Ended
March 31,

 

 

  

2016

 

  

2015

 

Cash flows from operating activities:

  

 

 

 

  

 

 

 

Net loss attributable to Fuel Systems Solutions, Inc.

  

$

(6,474

  

$

(11,870

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

  

 

 

 

  

 

 

 

Depreciation and other amortization

  

 

2,015

  

  

 

2,379

 

Amortization of intangibles arising from acquisitions

  

 

190

  

  

 

473

 

Provision for doubtful accounts

 

 

79

  

 

 

179

 

Write down of inventory

  

 

782

  

  

 

455

 

Deferred income taxes

 

 

(75

)  

 

 

7,776

 

Unrealized loss (gain) on foreign exchange transactions

 

 

367

  

 

 

(610

)

Compensation expense related to equity awards

  

 

391

  

  

 

121

 

Loss on disposal of equipment and other assets

  

 

0

  

  

 

222

 

Changes in assets and liabilities, net of acquisitions:

  

 

 

 

  

 

 

 

(Increase) decrease in accounts receivable

  

 

(128

)  

  

 

308

 

Increase in inventories

  

 

(10,968

)  

  

 

(4,145

)

Decrease (increase) in other current assets

  

 

337

  

  

 

(2,307

)

Decrease (increase) in other assets

  

 

11

  

  

 

(214

Increase (decrease) in accounts payable

  

 

624

  

  

 

(4,308

Increase in income taxes payable

  

 

384

  

  

 

153

 

Increase in accrued expenses and long-term liabilities

  

 

1,176

  

  

 

180

 

Receivables from/payables to related parties, net

  

 

(478

)  

  

 

319

 

Net cash used in operating activities

  

 

(11,767

)  

  

 

(10,889

Cash flows from investing activities:

  

 

 

 

  

 

 

 

Purchase of equipment and leasehold improvements

  

 

(935

)  

  

 

(1,787

Redemption of investments at maturity

  

 

0

  

  

 

5,000

 

Purchase of investments

  

 

0

  

  

 

(6,000

Other

 

 

102

  

 

 

310

 

Net cash used in investing activities

  

 

(833

)  

  

 

(2,477

Cash flows from financing activities:

  

 

 

 

  

 

 

 

Payments on term loans and other loans

  

 

(31

)  

  

 

(6

)

Increase in treasury shares (share repurchase program)

  

 

0

  

  

 

(10,935

Net cash used in financing activities

  

 

(31

)  

  

 

(10,941

Net decrease in cash and cash equivalents

  

 

(12,631

)  

  

 

(24,307

Effect of exchange rate changes on cash

  

 

1,010

  

  

 

(3,050

Net decrease in cash and cash equivalents

  

 

(11,621

)  

  

 

(27,357

Cash and cash equivalents at beginning of period

  

 

60,162

  

  

 

85,180

 

Cash and cash equivalents at end of period

  

$

48,541

  

  

$

57,823

 

Supplemental disclosures of cash flow information:

  

 

 

 

  

 

 

 

Non-cash investing and financing activities:

  

 

 

 

  

 

 

 

Acquisition of equipment in accounts payable

  

$

222

  

  

$

72

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


FUEL SYSTEMS SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

1. Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements included in the Fuel Systems Solutions, Inc. (“Fuel Systems” or “the Company”) 2015 Annual Report on Form 10-K. The accompanying condensed consolidated financial statements as of and for the periods ended March 31, 2016 and 2015 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, 2015.

On September 1, 2015, Fuel Systems, Westport Innovations Inc., an Alberta, Canada corporation (“Westport”), and Whitehorse Merger Sub Inc., a Delaware corporation and a direct wholly owned subsidiary of Westport (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement, the Company will be merged with and into Merger Sub, with the Company surviving the Merger and becoming a direct wholly owned subsidiary of Westport. Pursuant to the original terms of the Merger Agreement, at the effective time of the merger, each outstanding share of common stock of the Company, will be cancelled and converted into the right to receive 2.129 shares of common shares of Westport, subject to certain adjustments.

On March 6, 2016 the Company entered into an Amendment to the Merger Agreement.  This Amendment changed the exchange ratio from 2.129 shares to a range of 3.0793 to 2.129 shares depending on the weighted average price of Westport shares as defined by the Amendment.  Consummation of the merger is subject to various closing conditions.

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 condensed 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 preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) 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 months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2016, or for any future period.  

 

 

2. Recent Accounting Standards

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 a company 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 those goods and services.  In July 2015, the FASB finalized a deferral of this standard resulting in the standard being effective beginning in 2018, with early adoption permitted in the beginning of 2017.  This standard can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption.  The Company is currently evaluating the effect that adopting this new accounting guidance will have on the Company’s consolidated financial statements.

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

7


after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.  The adoption of this standard did not impact the Company’s financial statements.

In August 2014, the FASB issued a new accounting standard update intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. The amendments in this update apply to all companies and not-for-profit organizations. They become effective in the annual period ending after December 15, 2016, with early application permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

In February 2015, the FASB issued a new accounting standard update providing amendments to the consolidation guidance. Among other aspects, the amendments in this update affect the consolidation analysis of reporting entities that are involved with Variable Interest Entities (“VIEs”), and the effect of related parties on the primary beneficiary determination. The amendments in this update reduce the application of the related party guidance for VIEs on the basis of the following three changes: (i) for single decision makers, related party relationships must be considered indirectly on a proportionate basis, rather than in their entirety, (ii) related party relationships should be considered in their entirety for entities that are under common control, only if that common control group has the characteristics of a primary beneficiary, and (iii) if the assessment in clause (ii) is not applicable, but substantially all of the activities of the VIE are conducted on behalf of a single variable interest holder (excluding the decision maker) in a related party group that has the characteristics of a primary beneficiary, that single variable interest holder must consolidate the VIE as the primary beneficiary. The standard is effective for calendar year-end public business entities in 2016, and early adoption is allowed, including in any interim period. The adoption of this standard did not impact the Company’s financial statements.

In August 2015, the FASB issued a new accounting standard, which simplifies the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value” and the previous parameters for “market value” will be eliminated. The new accounting standard defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.”  The standard will be effective for fiscal years beginning after December 15, 2016, with earlier adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its financial statements.

In February 2016, the FASB issued a new lease accounting standard.  The key objective of the new standard is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). For income statement purposes, a dual model has been retained, with leases to be designated as operating leases or finance leases. Expenses will be recognized on a straight-line basis for operating leases, and a front-loaded basis for finance leases. For public entities, the new standard is effective for periods beginning after December 15, 2018, with early adoption permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is currently evaluating the impact of the new standard on its financial statements.

In March 2016, the FASB issued amendments to simplify several aspects of the accounting for share-based payment transactions through ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting.”  The amendments simplify areas such as income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The amendments are effective for annual periods beginning after December 15, 2016, and interim periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The application of this guidance is not expected to have a material impact on the Company’s financial statements.

 

 

3. 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 Condensed Consolidated Statements of Operations.

8


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

 

 

  

As of

 

 

  

March 31, 2016

 

  

December 31, 2015

 

Cash and cash equivalents:

  

 

 

 

  

 

 

 

Cash

  

$

41,468

  

  

$

48,343

  

Money market funds

  

 

7,073

  

  

 

11,819

  

Total cash and cash equivalents

  

$

48,541

  

  

$

60,162

  

Investments:

  

 

 

 

  

 

 

 

Other investments, held to maturity:

  

 

 

 

  

 

 

 

Time deposits (1)

  

 

1,000

  

  

 

1,000

  

Total investments

  

$

1,000

  

  

$

1,000

  

Short-term investments

  

$

1,000

  

  

$

1,000

  

 

Note (1): At March 31, 2016 and December 31, 2015, these amounts represent one Bank of America certificate of deposit (no interest if withdrawn before maturity): a $1.0 million certificate of deposit with a maturity date of June 27, 2016 and 0.52% interest rate.

At March 31, 2016 and December 31, 2015, restricted cash included in other assets was approximately $0.4 million and $0.4 million, respectively.

 

 

4. 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 or non-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 business 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 marketable 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
March 31,
2016

 

  

Fair value measurement at
reporting date using

 

 

  

  

Level 1

 

  

Level 2

 

  

Level 3

 

Assets (in thousands):

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Cash equivalents:

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Money market funds

  

$

7,073

  

  

$

7,073

 

  

$

0

 

  

$

0

  

Other investments, held to maturity:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

  

 

1,000

 

 

 

0

 

 

 

1,000

 

 

 

0

  

Total

  

$

8,073

  

  

$

7,073

  

  

$

1,000

  

  

$

0

  

9


 

 

  

As of
December 31,
2015

 

  

Fair value measurement at
reporting date using

 

 

  

  

Level 1

 

  

Level 2

 

  

Level 3

 

Assets (in thousands):

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Cash equivalents:

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Money market funds

  

$

11,819

  

  

$

11,819

 

  

$

0

 

  

$

0

  

Other investments, held to maturity:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

  

 

1,000

 

 

 

0

 

 

 

1,000

 

 

 

0

  

Total

  

$

12,819

  

  

$

11,819

  

  

$

1,000

  

  

$

0

  

 

 

5. 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.

Inventories are comprised of the following (in thousands):

 

 

  

As of

 

 

  

March 31, 2016

 

 

December 31, 2015

 

Raw materials and parts

  

$

50,967

  

  

$

41,268

  

Work-in-process

  

 

1,938

  

  

 

1,875

  

Finished goods

  

 

21,403

  

  

 

18,462

  

Inventory on consignment

 

 

936

  

  

 

1,112

 

Total inventories

  

$

75,244

  

  

$

62,717

  

 

 

6. Equipment and Leasehold Improvements, Net

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

 

 

  

As of

 

 

  

March 31, 2016

 

 

December 31, 2015

 

Dies, molds, and patterns

  

$

5,207

  

 

$

4,964

  

Machinery and equipment

  

 

58,759

  

 

 

56,108

  

Office furnishings and equipment

  

 

20,463

  

 

 

19,787

  

Automobiles and trucks

  

 

4,542

  

 

 

4,121

  

Leasehold improvements

  

 

16,437

  

 

 

15,881

  

Total equipment and leasehold improvements

  

 

105,408

  

 

 

100,861

  

Less: accumulated depreciation

  

 

(69,613

 

 

(65,278)

 

Equipment and leasehold improvements, net of accumulated depreciation

  

$

35,795

  

 

$

35,583

  

Depreciation expense related to equipment and leasehold improvements was approximately $2.0 million and $2.4 million for the three months ended March 31, 2016 and 2015, respectively.

 

 

10


7. Intangibles

 

At March 31, 2016 and December 31, 2015, intangible assets consisted of the following (in thousands):

 

 

  

WT Average
Remaining
Amortization
period (in years)

 

  

As of March 31, 2016

 

  

As of December 31, 2015

 

  

  

Gross
Book Value

 

  

Accumulated
Amortization

 

 

Net
Book Value

 

  

Gross
Book Value

 

  

Accumulated
Amortization

 

 

Net
Book Value

 

Existing technology

  

 

3.5

  

  

$

24,115

  

  

$

(23,266

)

 

$

849

  

  

$

23,551

  

  

$

(22,693

)

 

$

858

  

Customer relationships

  

 

12.2

  

  

 

18,079

  

  

 

(16,669

)

 

 

1,410

  

  

 

17,800

  

  

 

(16,383

)

 

 

1,417

  

Trade name

  

 

6.1

  

  

 

3,953

  

  

 

(3,592

)

 

 

361

  

  

 

3,810

  

  

 

(3,405

)

 

 

405

  

Total

 

 

 

 

 

$

46,147

 

 

$

(43,527

)

 

$

2,620

 

 

$

45,161

 

 

$

(42,481

)

 

$

2,680

 

 

Amortization expense related to existing technology and customer relationships of $0.1 million and $0.4 million for the three months ended March 31, 2016 and 2015, 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 March 31, 2016 and 2015, 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

 

Nine months ending December 31, 2016

  

$

491

  

2017

  

 

509

  

2018

  

 

370

  

2019

  

 

297

  

2020

  

 

266

  

2021

  

 

228

  

Thereafter

  

 

459

  

 

  

$

2,620

  

 

 

8. 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 during the three months ended March 31, 2016 and 2015 are as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Balance at beginning of period

 

$

5,333

 

 

$

6,424

 

Provisions charged to costs and expenses

 

 

877

 

 

 

703

 

Settlements

 

 

(267

)

 

 

(941

)

Adjustments to pre-existing warranties

 

 

(860

)

 

 

(382

)

Effect of foreign currency translation

 

236

 

 

 

(441

)

Balance at end of period

 

$

5,319

 

 

$

5,363

 

 

 

9. Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2016 was (13.1)% compared to an effective tax rate of (240.2)% for the three months ended March 31, 2015.

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.

11


For the three months ended March 31, 2015, our effective tax rate was impacted by a tax expense of $7.8 million related to an increase in valuation allowance on deferred tax assets that existed as of the beginning of 2015 in Italy, as the Company has determined that it is more likely than not that these assets will not be realized in the foreseeable future.   This conclusion was based on the weight of the available positive and negative evidence, including the three year cumulative loss recorded in Italy (after adjustments required for tax purposes) as of 2015.

The Company believes that the likelihood of recoverability of the net deferred tax assets in the loss jurisdictions is less than the “more likely than not” threshold, in addition to the valuation allowance recorded in connection with the deferred tax assets in Italy in the first quarter of 2015, a valuation allowance is maintained on the entire domestic and certain foreign jurisdictions deferred tax assets.

For the three months ended March 31, 2016 and 2015 the Company incurred a pre-tax loss of approximately $8.5 million and $5.0 million, respectively, in the loss jurisdictions.

As of March 31, 2016, the Company had approximately $14.9 million of unrecognized tax benefits. There was no significant change in unrecognized tax benefits for the three months ended March 31, 2016. 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.

 

 

10. Debt Payable

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

 

 

  

Available as of
March 31,
2016

 

  

March 31, 2016

 

  

December 31,
2015

 

(a) Revolving lines of credit—Italy and Argentina

  

$

 

9,333

  

  

$

0

  

  

$

0

  

(b) Revolving line of credit—USA

  

 

30,000

  

  

 

0

  

  

 

0

  

(c) Other indebtedness

  

 

 

  

  

 

146

  

  

 

9

  

 

  

$

39,333

  

  

 

146

  

  

 

9

  

Less: current portion

  

 

 

 

  

 

35

  

  

 

9

  

Non-current portion

  

 

 

 

  

$

111

  

  

$

0

  

 

At March 31, 2016, the Company’s weighted average interest rate on outstanding debt was 11.0%. The Company is party to numerous credit agreements and other borrowings. All foreign currency denominated revolving lines of credit have been converted using the closing currency rate as of March 31, 2016.

(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 $2.3 million, which is unsecured, and $4.4 million which is collateralized by accounts receivable. The interest rates on these revolving lines of credit are fixed and variable and range from 0.8% to 3.8% as of March 31, 2016. At March 31, 2016 and December 31, 2015, there were no balances outstanding.

The revolving lines of credit in Argentina consist of two lines for a total amount of availability of approximately $2.6 million. These lines are unsecured with no balance outstanding at March 31, 2016 and December 31, 2015. At March 31, 2016, 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 March 31, 2016, the Company and IMPCO Technologies, Inc. (“IMPCO”) maintain an unsecured, revolving short term credit facility with Intesa SanPaolo S.p.A. (“Intesa”) amounting to $30.0 million. IMPCO intends to use the borrowings for its general corporate purposes and Fuel Systems guarantees IMPCO’s payments. At March 31, 2016 and December 31, 2015, there were no balances outstanding. The maximum aggregate principal amount of loans available at any time was $30.0 million with a maturity date of April 29, 2016.  The Company did not renew this agreement. At March 31, 2016, the Company was in compliance with the covenants as defined by the agreement.

12


(c) Other indebtedness

Other indebtedness includes a capital lease bearing interest at 11.0%.

 

 

11. Equity

The following table summarizes the changes in equity for the three month period ended March 31, 2016 (in thousands, except for share amounts):

 

 

Fuel Systems Stockholders’ Equity

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Shares Held
in
Treasury

 

 


Accumulated
Deficit

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

18,094,043

 

 

$

20

 

 

$

322,144

 

 

$

(20,742

)

 

$

(101,286

)

 

$

(46,049

)

 

$

154,087

 

Net loss

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(6,474

)

 

 

0

 

 

 

(6,474

)

Foreign currency translation adjustment

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,642

 

 

 

4,642

 

Vesting of stock options

 

0

 

 

 

0

 

 

 

57

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

57

 

Issuance and vesting of restricted stock, net of shares withheld for employee tax

 

0

 

 

 

0

 

 

 

334

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

334

 

Balance, March 31, 2016

 

18,094,043

 

 

$

20

 

 

$

322,535

 

 

$

(20,742

)

 

$

(107,760

)

 

$

(41,407

)

 

$

152,646

 

 

Shares Held in Treasury

As of March 31, 2016 and December 31, 2015, the Company had 2,049,065 shares, respectively, held in treasury with a value of approximately $20.7 million, respectively.  On November 3, 2014, the Company’s Board of Directors approved a share repurchase program for up to $25.0 million of the Company’s common stock for up to one year.  Under this program, 2,041,066 shares were repurchased in the open market. The remainder of the treasury shares held by the Company at March 31, 2016 relates to 1,419 shares that came from surrender of shares tendered for the exercise price in lieu of cash from the exercise of warrants, and 6,580 shares that came from the surrender of shares for U.S. payroll tax withholding obligations associated with vesting of restricted stock.

 

 

 

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 March 31, 2016

(in thousands)

 

 

 

Unrealized Gains and

(Losses) on Available

-for-Sale Securities

 

 

Foreign

Currency

Items

 

 

Total

 

Beginning balance, December 31, 2015

 

 

  0

 

 

 

(46,049

)

 

 

(46,049

)

Current period Other Comprehensive Income activity before reclassifications

 

 

0

 

 

 

4,642

 

 

 

4,642

 

Net current-period Other Comprehensive Income

 

 

 

 

 

 

4,642

 

 

 

4,642

 

Ending balance, March 31, 2016

 

 

0

 

 

 

(41,407

)

 

 

(41,407

)

13


 

 

 

 

Three Months Ended March 31, 2015

(in thousands)

 

 

 

Unrealized Gains and

(Losses) on Available

-for-Sale Securities

 

 

Foreign

Currency

Items

 

 

Total

 

Beginning balance, December 31, 2014

 

 

0

 

  

 

(26,403

)

 

 

(26,403

)

Current period Other Comprehensive Income (Loss) activity before reclassifications

 

 

0

 

  

 

(15,586

)  

 

 

(15,586

)

Net current-period Other Comprehensive Income (Loss)

 

 

0

 

  

 

(15,586

)  

 

 

(15,586

)

Net current-period Other Comprehensive Income attributable to noncontrolling interest

 

 

0

 

 

 

35

 

 

 

35

 

Ending balance, March 31, 2015

 

 

0

  

  

 

(41,954

)  

 

 

(41,954

)

 

(b) Reclassifications out of Accumulated Other Comprehensive Loss

For the three months ended March 31, 2016 and 2015, there were no reclassifications out of Accumulated Other Comprehensive Loss.

 

 

13. Stock-Based Compensation

The Company has one stock option plan and one phantom stock option plan that provide for the issuance of options and phantom stock options respectively, to key employees and directors of the Company at the fair market value at the time of grant. Options and phantom stock options granted under these plans generally vest in four or five years and are generally exercisable while the individual is an employee or a non-employee director, or ordinarily within one month following termination of employment. In no event may options or phantom stock options be exercised more than ten years after the date of the grant.  Phantom stock options convey the right to the grantee to receive a cash payment once exercisable, equal to the positive difference between the fair market value of the stock on the date of the exercise less the exercise price on the date of the grant.

Under the Company’s 2009 Restricted Stock Plan, the Company’s Board of Directors may grant restricted stock and restricted stock units to officers, employees and non-employee directors. Restricted stock is awarded to non-employee directors and normally vests in one year. In the current year, certain key employee personnel were awarded restricted stock units vesting on each anniversary of the grant date, over a period of three years.  When the restricted stock units vest, at the discretion of the Board of Directors, employees will receive either stock or cash equal to the closing price of the stock on the vesting date times the number of units.

In estimating the fair value of stock-based compensation, the Company uses the historical volatility of its shares based on seven year averages.

Stock-based compensation expense for the three months ended March 31, 2016 and 2015 was allocated as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Cost of revenue

 

$

12

 

 

$

12

 

Research and development expense

 

 

14

 

 

 

9

 

Selling, general and administrative expense

 

 

365

 

 

 

100

 

 

 

$

 

391

 

 

$

121

 

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.

14


The following table displays stock option activity including the weighted average stock option prices for the three months ended March 31, 2016:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Term

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2015

 

 

117,020

 

 

$

13.97

 

 

7.1 yrs

 

$

0

 

Granted

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Exercised

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Forfeited

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

117,020

 

 

$

13.97

 

 

6.9 yrs

 

$

0

 

Vested and exercisable at March 31, 2016

 

 

48,606

 

 

$

14.87

 

 

6.5 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 March 31, 2016 and 2015, the aggregate intrinsic value of options exercised under the Company’s stock option plans was zero, as there were no options exercised.

As of March 31, 2016, total unrecognized stock-based compensation cost related to unvested stock options was $0.4 million, expected to be recognized over a weighted-average period of 2.4 years.  As of December 31, 2015, total unrecognized stock-based compensation cost related to unvested stock options was $0.4 million, expected to be recognized over a weighted-average period of 2.7 years.

Phantom Stock Options

The following table displays stock option activity including the weighted average phantom stock option prices for the three months ended March 31, 2016:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Term

Outstanding at December 31, 2015

 

 

118,750

 

 

$

14.02

 

 

7.1 yrs

Granted

 

 

0

 

 

 

0

 

 

 

Exercised

 

 

0

 

 

 

0

 

 

 

Forfeited

 

 

0

 

 

 

0

 

 

 

Outstanding at March 31, 2016

 

 

118,750

 

 

$

14.02

 

 

6.8 yrs

Vested and exercisable at March 31, 2016

 

 

49,875

 

 

$

14.91

 

 

6.2 yrs

 

The Company’s cash-settled phantom stock options are accounted for as liability awards and are re-measured at fair value each reporting period.  Compensation expense is recognized over the requisite service period and is equal to the fair value less the exercise price of the stock.  If the fair value is below the exercise price, no expense is recognized.

The phantom stock options have been accounted for as a liability within the Condensed Consolidated Financial Statements based on the closing price of the Company’s stock price at the reporting period end.  As of March 31, 2016 and December 31, 2015, total liability related to phantom stock options were zero.

15


Stock-Based Compensation Activity – Restricted Stock and Restricted Stock Units

A summary of unvested restricted stock awards as of March 31, 2016 and changes during the three month period then ended are presented below.

 

 

 

Number of

Shares

 

 

Weighted Average

Grant Date Fair

Value

 

Unvested at December 31, 2015

 

 

303,859

 

 

$

10.65

 

Granted

 

 

30,000

 

 

 

5.68

 

Vested

 

 

0

 

 

 

0

 

Forfeited

 

 

(6,054

)

 

 

8.26

 

Unvested at March 31, 2016 (1)

 

 

327,805

 

 

$

10.24

 

(1)Includes 291,000 restricted stock units

As of March 31, 2016, total unrecognized stock-based compensation cost related to unvested restricted stock and restricted stock units was approximately $2.0 million, which is expected to be recognized over a weighted-average period of approximately 2.1 years. As of December 31, 2015, total unrecognized stock-based compensation cost related to unvested restricted stock was approximately $2.3 million, expected to be recognized over a weighted-average period of approximately 2.1 years.

 

 

 

14. Loss Per Share

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

 

 

  

Three Months Ended March 31,

 

 

  

2016

 

  

2015

 

Numerator:

  

 

 

 

  

 

 

 

Net loss attributable to Fuel Systems Solutions, Inc.

  

$

(6,474)

  

  

$

(11,870)

  

Denominator:

  

 

 

 

  

 

 

 

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

  

 

18,094,043

 

  

 

19,194,976

  

Effect of dilutive securities:

  

 

 

 

  

 

 

 

Employee stock options

  

 

0

 

  

 

0

  

Unvested restricted stock

  

 

0

 

  

 

0

 

Dilutive potential common shares

  

 

18,094,043

  

  

 

19,194,976

  

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

  

 

 

 

  

 

 

 

Basic

  

$

(0.36)

  

  

$

(0.62)

  

Diluted

  

$

(0.36)

  

  

$

(0.62)

  

 

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

 

 

Three Months Ended March 31,

 

 

2016

 

  

2015

 

Anti-dilutive instruments excluded from computation of diluted net income per share:

 

 

 

  

 

 

 

Options

 

117,020

  

  

 

88,264

  

Restricted stock and restricted stock units

 

305,387

  

  

 

1,493

  

 

 

16


15. Related Party Transactions

The following table sets forth amounts (in thousands) that are included within the captions noted on the Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015 representing related party transactions with the Company:

 

 

 

As of

 

 

 

March 31, 2016

 

 

December 31, 2015

 

Current Receivables with related parties:

 

 

 

 

 

 

 

 

Bianco S.p.A. (a)

 

$

263

 

 

$

249

 

Others (b)

 

 

12

 

 

 

6

 

IMCOS Due S.r.L (c)

 

 

0

 

 

 

32

 

Current Receivables with JVs and related partners:

 

 

 

 

 

 

 

 

PDVSA Industrial S.A. (d)

 

 

1,505

 

 

 

1,445

 

Ideas & Motion S.r.L. (e)

 

 

28

 

 

 

29

 

 

 

 

1,808

 

 

 

1,761

 

Less Allowance on Doubtful Accounts:

 

 

 

 

 

 

 

 

PDVSA Industrial S.A. (d)

 

 

(1,505)

 

 

 

(1,445)

 

 

 

$

303

 

 

$

316

 

Current Payables with related parties:

 

 

 

 

 

 

 

 

TCN Vd S.r.L. (f)

 

 

631

 

 

 

773

 

TCN S.r.L. (g)

 

 

579

 

 

 

555

 

Europlast S.r.L. (h)

 

 

437

 

 

 

647

 

A.R.S. Elettromeccanica (i)

 

 

277

 

 

 

366

 

Grosso, de Rienzo, Riscossa, Di Toro e Associati (j)

 

 

76

 

 

 

104

 

Ningbo Topclean Mechanical Technology Co. Ltd. (k)

 

 

68

 

 

 

13

 

Others (b)

 

 

22

 

 

 

43

 

Erretre S.r.L. (l)

 

 

14

 

 

 

11

 

IMCOS Due S.r.L (c)

 

 

6

 

 

 

13

 

Current Payable with JVs and related partners:

 

 

 

 

 

 

 

 

Ideas & Motion S.r.L. (e)

 

 

0

 

 

 

0

 

 

 

$

2,110

 

 

$

2,525

 

 

(a)

Bianco S.p.A. is 100% owned by TCN S.r.L. (see note (g) below).

(b)

Includes Biemmedue S.p.A. (100% owned by the Company’s Chief Executive Officer along with his brother, Pier Antonio Costamagna, who retired as an executive officer of the Company and as General Manager of MTM S.r.L., effective February 5, 2014), MTM Hydro S.r.L. (46% owned by the Company’s Chief Executive Officer along with his brother, Pier Antonio Costamagna), Immobiliare IV Marzo (30% owned directly and indirectly by the Company’s Chief Executive Officer, his brother, Pier Antonio Costamagna, and two employees of the Company), Delizie Bakery Srl (100% owned by IMCOS Due S.r.L., see (c) below), and Galup S.r.L. (90% owned by TCN S.r.L., see note (g) below).

(c)

IMCOS Due S.r.L. is 100 % owned by the Company’s Chief Executive Officer along with his brother Antonio Costamagna and their immediate family.

(d)

PDVSA Industrial S.A. (“PDVSA”) is a 70% owner of a joint venture, Sistemas De Conversion Del Alba, S.A. (“SICODA”) with the remaining 30% owned by the Company.  Due to uncertainty as to the collectability of the above receivable, a full allowance has been maintained.

(e)

Ideas & Motion S.r.L. is an Italian consulting and services company in which the Company owns an equity ownership interest of 14.28%.

(f)

TCN Vd S.r.L. is 90% owned by TCN S.r.L. (see note (g) below) as well as 3% by the Company’s Chief Executive Officer, along with his brother, Pier Antonio Costamagna.

(g)

TCN S.r.L. is 30% owned by Mariano Costamagna, the Company’s Chief Executive Officer, along with his brother, Pier Antonio Costamagna.

(h)

Europlast S.r.L. is 90% owned by the Company’s Chief Executive Officer, his brother, Pier Antonio Costamagna and one immediate family member.

(i)

A.R.S. Elettromeccanica is 100% owned by Biemmedue S.p.A. (see note (b) above).

(j)

Marco Di Toro, a former director of the Company who resigned effective March 4, 2016, is a partner of the law firm Grosso, de Rienzo, Riscossa, Di Toro e Associati.

(k)

Ningbo Topclean Mechanical Technology Co. Ltd. is 100% owned by MTM Hydro S.r.L. (see note (b) above).

(l)

Erretre S.r.l. is 70% owned by the Company’s Chief Executive Officer’s immediate family.

17


 

The following table sets forth amounts (services and goods) purchased from and sold to related parties (in thousands).

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Sales

 

Related Party Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCN Vd S.r.L

 

$

533

 

 

$

0

 

 

$

633

 

 

$

0

 

Ningbo Topclean Mechanical Technology Co. Ltd.

 

 

383