All revenues from continuing operations are generated by the Fuel Storage & Vehicle Systems segment.
Product gross margin was 18% in the second quarter of 2014, as compared to 27% in the same period in the prior year. The decline in margin was primarily due to increased manufacturing overheads related to the Company’s expanded manufacturing operation and higher than normal validation and scrap costs related to bringing new equipment on line during the quarter.
The increase in contract services revenue is primarily due to higher levels of engineering services related to CNG fuel storage system integration and next generation storage technologies programs, partially offset by a decrease in engineering activities associated with hydrogen programs. CNG related engineering activities in the second quarter of 2014 primarily consisted of engineering services provided to ZHRO Solutions related to our design, development and validation of a complete packaged CNG fuel storage and delivery system for aftermarket use for heavy and medium-duty trucks that will enable diesel powered trucks to be converted to run on a dedicated CNG injection/engine conversion system developed by ZHRO. The Company also continued to perform development and certification activities during the second quarter of 2014 for the General Motors Impala CNG bi-fuel program.
Costs of contract services represent costs associated with customer funded engineering development programs. Contract services gross margin was 28% in the second quarter of 2014, as compared to 43% in the same period in the prior year. The prior year period was favorably impacted by a non-recurring gain related to the closing out of a certain program that enabled higher margins than the Company has historically realized. Conversely, the current year period was negatively impacted by a change in future cost estimates related to certain ongoing programs.
As previously announced, the Company is in the process of selling the assets of its wholly owned subsidiary, Schneider Power Inc. (Schneider Power), and is actively pursuing buyers for the remaining business operations. Schneider Power, an operator of the 10 megawatt Zephyr Wind Farm and holder of interests in certain renewable energy projects, represents the entire operations of the Company’s Renewable Energy business segment. As a result of the Company’s intent to sell the remaining assets of the business, the historical activities and balances of the Renewable Energy business segment are reported as discontinued operations held for sale in the accompanying condensed consolidated financial information presented herein.
SOURCE Quantum Fuel Systems Technologies Worldwide, Inc.