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x

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

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

 

For the quarterly period ended June 30, 2019

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 Number: 0-21810

 

GENTHERM INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

Michigan

 

95-4318554

 

 

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

21680 Haggerty Road, Northville, MI

 

48167

 

 

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (248504-0500

 

Securities registered pursuant to Section 12-(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, no par value

THRM

The NASDAQ Global Select Market

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

  

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

At July 25, 2019, there were 32,982,600 issued and outstanding shares of Common Stock of the registrant.

 

 

 

 

 


 

GENTHERM INCORPORATED

TABLE OF CONTENTS

 

 

 

 

 

 

 

Part I. Financial Information

  

3

 

 

Item 1.

 

 

Financial Statements (Unaudited)

 

3

 

 

 

 

Consolidated Condensed Balance Sheets

 

3

 

 

 

 

Consolidated Condensed Statements of Income

 

4

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income

 

5

 

 

 

 

Consolidated Condensed Statements of Cash Flows

 

6

 

 

 

 

Consolidated Condensed Statements of Changes in Shareholders’ Equity

 

7

 

 

 

 

Notes to Unaudited Consolidated Condensed Financial Statements

 

9

 

Item 2.

 

 

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

 

30

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

Item 4.

 

 

Controls and Procedures

 

39

 

Part II. Other Information

  

40

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

Item 1A.

 

Risk Factors

 

40

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

Item 6.

 

Exhibits

 

41

 

Signatures

  

43

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

June 30,
2019

 

 

December 31,
2018

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

33,677

 

 

$

39,620

 

Restricted cash

 

2,504

 

 

 

 

Accounts receivable, less allowance of $1,399 and $851, respectively

 

171,640

 

 

 

166,858

 

Inventory:

 

 

 

 

 

 

 

Raw materials

 

66,181

 

 

 

61,679

 

Work in process

 

6,660

 

 

 

5,939

 

Finished goods

 

39,772

 

 

 

44,917

 

Inventory, net

 

112,613

 

 

 

112,535

 

Derivative financial instruments

 

1,155

 

 

 

92

 

Prepaid expenses and other assets

 

50,128

 

 

 

54,271

 

Assets held for sale

 

6,714

 

 

 

69,699

 

Total current assets

 

378,431

 

 

 

443,075

 

Property and equipment, net

 

169,345

 

 

 

171,380

 

Goodwill

 

65,114

 

 

 

55,311

 

Other intangible assets, net

 

55,479

 

 

 

56,385

 

Operating lease right-of-use assets

 

13,267

 

 

 

 

Deferred financing costs

 

1,782

 

 

 

647

 

Deferred income tax assets

 

60,071

 

 

 

64,024

 

Other non-current assets

 

8,421

 

 

 

12,225

 

Total assets

$

751,910

 

 

$

803,047

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

$

84,009

 

 

$

93,113

 

Accrued liabilities

 

62,706

 

 

 

65,808

 

Current lease liabilities

 

5,031

 

 

 

 

Current maturities of long-term debt

 

2,955

 

 

 

3,413

 

Liabilities held for sale

 

6,714

 

 

 

13,062

 

Total current liabilities

 

161,415

 

 

 

175,396

 

Pension benefit obligation

 

6,765

 

 

 

7,211

 

Non-current lease liabilities

 

7,741

 

 

 

 

Long-term debt, less current maturities

 

104,393

 

 

 

136,477

 

Deferred income tax liabilities

 

2,577

 

 

 

1,177

 

Other non-current liabilities

 

3,738

 

 

 

3,087

 

Total liabilities

$

286,629

 

 

$

323,348

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common Stock:

 

 

 

 

 

 

 

No par value; 55,000,000 shares authorized, 33,147,567 and 33,856,629 issued and

   outstanding at June 30, 2019 and December 31, 2018, respectively

 

115,310

 

 

 

140,300

 

Paid-in capital

 

14,020

 

 

 

14,934

 

Accumulated other comprehensive loss

 

(39,440

)

 

 

(39,500

)

Accumulated earnings

 

375,391

 

 

 

363,965

 

Total shareholders’ equity

 

465,281

    

 

 

479,699

 

Total liabilities and shareholders’ equity

$

751,910

 

 

$

803,047

 

See accompanying notes to the consolidated condensed financial statements.

 

 

 

3


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Product revenues

$

243,326

 

 

$

266,400

 

 

$

501,247

 

 

$

530,986

 

Cost of sales

 

170,612

 

 

 

189,308

 

 

 

353,226

 

 

 

372,652

 

Gross margin

 

72,714

 

 

 

77,092

 

 

 

148,021

 

 

 

158,334

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net research and development expenses

 

19,255

 

 

 

21,022

 

 

 

38,152

 

 

 

44,326

 

Selling, general and administrative expenses

 

31,829

 

 

 

34,262

 

 

 

64,442

 

 

 

70,686

 

Acquisition transaction expenses

 

342

 

 

 

 

 

 

380

 

 

 

 

Restructuring expenses

 

1,231

 

 

 

6,215

 

 

 

3,145

 

 

 

7,080

 

Total operating expenses

 

52,657

 

 

 

61,499

 

 

 

106,119

 

 

 

122,092

 

Operating income

 

20,057

 

 

 

15,593

 

 

 

41,902

 

 

 

36,242

 

Interest expense

 

(1,240

)

 

 

(1,240

)

 

 

(2,608

)

 

 

(2,420

)

Foreign currency (loss) gain

 

(804

)

 

 

5,174

 

 

 

(601

)

 

 

596

 

Gain on sale of business

 

 

 

 

 

 

 

4,970

 

 

 

 

Impairment loss

 

(9,885

)

 

 

 

 

 

(20,369

)

 

 

 

Other income

 

171

 

 

 

215

 

 

 

314

 

 

 

1,326

 

Earnings before income tax

 

8,299

 

 

 

19,742

 

 

 

23,608

 

 

 

35,744

 

Income tax expense

 

5,548

 

 

 

3,083

 

 

 

12,443

 

 

 

6,119

 

Net income

$

2,751

 

 

$

16,659

 

 

$

11,165

 

 

$

29,625

 

Basic earnings per share

$

0.08

 

 

$

0.46

 

 

$

0.33

 

 

$

0.81

 

Diluted earnings per share

$

0.08

 

 

$

0.45

 

 

$

0.33

 

 

$

0.81

 

Weighted average number of shares – basic

 

33,441

 

 

 

36,523

 

 

 

33,508

 

 

 

36,560

 

Weighted average number of shares – diluted

 

33,574

 

 

 

36,667

 

 

 

33,651

 

 

 

36,663

 

 

 

See accompanying notes to the consolidated condensed financial statements.

 

 

 

4


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

$

2,751

 

 

$

16,659

 

 

$

11,165

 

 

$

29,625

 

Other comprehensive income (loss), gross of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments gain (loss)

 

3,477

 

 

 

(22,994

)

 

 

(597

)

 

 

(11,244

)

Unrealized gain (loss) on foreign currency derivative securities

 

297

 

 

 

(1,561

)

 

 

1,063

 

 

 

551

 

Unrealized loss on commodity derivative securities

 

 

 

 

 

 

 

 

 

 

(218

)

Other comprehensive income (loss), gross of tax

$

3,774

 

 

$

(24,555

)

 

$

466

 

 

$

(10,911

)

Other comprehensive income (loss), related tax effect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of accounting change due to ASU 2018-02

 

 

 

 

 

 

 

 

 

 

(40

)

Foreign currency translation adjustments gain (loss)

 

3

 

 

 

(156

)

 

 

(174

)

 

 

(232

)

Unrealized gain (loss) on foreign currency derivative securities

 

(65

)

 

 

419

 

 

 

(232

)

 

 

(148

)

Unrealized loss on commodity derivative securities

 

 

 

 

 

 

 

 

 

 

(68

)

Other comprehensive income (loss), related tax effect

$

(62

)

 

$

263

 

 

$

(406

)

 

$

(488

)

Other comprehensive (loss) income, net of tax

$

3,712

 

 

$

(24,292

)

 

$

60

 

 

$

(11,399

)

Comprehensive income (loss)

$

6,463

 

 

$

(7,633

)

 

$

11,225

 

 

$

18,226

 

 

See accompanying notes to the consolidated condensed financial statements.

 

 

 

5


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

Net income

$

11,165

 

 

$

29,625

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

22,217

 

 

 

25,823

 

Deferred income taxes

 

3,070

 

 

 

(1,799

)

Stock compensation

 

3,291

 

 

 

4,063

 

Defined benefit plan income

 

(699

)

 

 

(103

)

Provision of doubtful accounts

 

545

 

 

 

204

 

Loss on sale of property and equipment

 

227

 

 

 

2,156

 

Operating lease expense

 

2,903

 

 

 

 

Impairment loss

 

20,369

 

 

 

 

Gain on sale of business

 

(4,970

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(4,021

)

 

 

(17,469

)

Inventory

 

1,650

 

 

 

1,631

 

Prepaid expenses and other assets

 

276

 

 

 

(12,094

)

Accounts payable

 

(9,528

)

 

 

10,540

 

Accrued liabilities

 

(6,087

)

 

 

(10,034

)

Net cash provided by operating activities

 

40,408

 

 

 

32,543

 

Investing Activities:

 

 

 

 

 

 

 

Proceeds from the sale of property and equipment

 

82

 

 

 

698

 

Proceeds from sale of a business

 

47,500

 

 

 

 

Acquisition of subsidiary, net of cash acquired

 

(15,476

)

 

 

(15

)

Purchases of property and equipment

 

(13,024

)

 

 

(22,138

)

Net cash provided by (used in) investing activities

 

19,082

 

 

 

(21,455

)

Financing Activities:

 

 

 

 

 

 

 

Borrowing of debt

 

28,371

 

 

 

15,000

 

Repayments of debt

 

(61,120

)

 

 

(46,742

)

Cash paid for financing costs

 

(1,278

)

 

 

 

Cash paid for the cancellation of restricted stock

 

(926

)

 

 

(882

)

Proceeds from the exercise of Common Stock options

 

4,771

 

 

 

4,966

 

Repurchase of Common Stock

 

(33,040

)

 

 

(20,241

)

Net cash used in financing activities

 

(63,222

)

 

 

(47,899

)

Foreign currency effect

 

293

 

 

 

(1,004

)

Net decrease in cash, cash equivalents and restricted cash

 

(3,439

)

 

 

(37,815

)

Cash, cash equivalents and restricted cash at beginning of period

 

39,620

 

 

 

103,172

 

Cash, cash equivalents and restricted cash at end of period

$

36,181

 

 

$

65,357

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for taxes

$

3,522

 

 

$

18,100

 

Cash paid for interest

$

2,712

 

 

$

2,608

 

Supplemental disclosure of non-cash transactions:

 

 

 

 

 

 

 

Common Stock issued to Board of Directors and employees

$

3,019

 

 

$

2,419

 

See accompanying notes to the consolidated condensed financial statements.

 

 

6


GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at March 31, 2019

 

33,653

 

 

$

134,486

 

 

$

14,513

 

 

$

(43,152

)

 

$

372,640

 

 

$

478,487

 

Stock repurchase

 

(630

)

 

 

(25,000

)

 

 

 

 

 

 

 

 

 

 

 

(25,000

)

Exercise of Common Stock options for cash

 

116

 

 

 

4,936

 

 

 

(379

)

 

 

 

 

 

 

 

 

4,557

 

Cancellation of restricted stock

 

(21

)

 

 

(550

)

 

 

 

 

 

 

 

 

 

 

 

(550

)

Stock option compensation

 

 

 

 

 

 

 

(114

)

 

 

 

 

 

 

 

 

(114

)

Common Stock issued to Board of Directors and employees

 

30

 

 

 

1,438

 

 

 

 

 

 

 

 

 

 

 

 

1,438

 

Currency translation, net

 

 

 

 

 

 

 

 

 

 

3,480

 

 

 

 

 

 

3,480

 

Foreign currency hedge, net

 

 

 

 

 

 

 

 

 

 

232

 

 

 

 

 

 

232

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

2,751

 

 

 

2,751

 

Balance at June 30, 2019

 

33,148

 

 

$

115,310

 

 

$

14,020

 

 

$

(39,440

)

 

$

375,391

 

 

$

465,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at March 31, 2018

 

36,794

 

 

$

266,812

 

 

$

16,155

 

 

$

(7,551

)

 

$

335,032

 

 

$

610,448

 

Stock repurchase

 

(629

)

 

 

(20,241

)

 

 

 

 

 

 

 

 

 

 

 

(20,241

)

Exercise of Common Stock options for cash

 

241

 

 

 

5,335

 

 

 

(1,120

)

 

 

 

 

 

 

 

 

4,215

 

Cancellation of restricted stock

 

(25

)

 

 

(223

)

 

 

 

 

 

 

 

 

 

 

 

(223

)

Stock option compensation

 

 

 

 

 

 

 

803

 

 

 

 

 

 

 

 

 

803

 

Common Stock issued to Board of Directors and employees

 

20

 

 

 

1,057

 

 

 

 

 

 

 

 

 

 

 

 

1,057

 

Currency translation, net

 

 

 

 

 

 

 

 

 

 

(23,150

)

 

 

 

 

 

(23,150

)

Foreign currency hedge, net

 

 

 

 

 

 

 

 

 

 

(1,142

)

 

 

 

 

 

(1,142

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

16,659

 

 

 

16,659

 

Balance at June 30, 2018

 

36,401

 

 

$

252,740

 

 

$

15,838

 

 

$

(31,843

)

 

$

351,691

 

 

$

588,426

 

See accompanying notes to the consolidated condensed financial statements.

7


 

 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at December 31, 2018

 

33,857

 

 

$

140,300

 

 

$

14,934

 

 

$

(39,500

)

 

$

363,965

 

 

$

479,699

 

Cumulative effect of accounting change due to adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

261

 

 

 

261

 

Stock repurchase

 

(830

)

 

 

(33,040

)

 

 

 

 

 

 

 

 

 

 

 

(33,040

)

Exercise of Common Stock options for cash

 

129

 

 

 

5,957

 

 

 

(1,186

)

 

 

 

 

 

 

 

 

4,771

 

Cancellation of restricted stock

 

(38

)

 

 

(926

)

 

 

 

 

 

 

 

 

 

 

 

(926

)

Stock option compensation

 

 

 

 

 

 

 

272

 

 

 

 

 

 

 

 

 

272

 

Common Stock issued to Board of Directors and employees

 

30

 

 

 

3,019

 

 

 

 

 

 

 

 

 

 

 

 

3,019

 

Currency translation, net

 

 

 

 

 

 

 

 

 

 

(771

)

 

 

 

 

 

(771

)

Foreign currency hedge, net

 

 

 

 

 

 

 

 

 

 

831

 

 

 

 

 

 

831

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

11,165

 

 

 

11,165

 

Balance at June 30, 2019

 

33,148

 

 

$

115,310

 

 

$

14,020

 

 

$

(39,440

)

 

$

375,391

 

 

$

465,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at December 31, 2017

 

36,761

 

 

$

265,048

 

 

$

15,625

 

 

$

(20,444

)

 

$

293,645

 

 

$

553,874

 

Cumulative effect of accounting change due to adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,264

)

 

 

(3,264

)

Cumulative effect of accounting change due to adoption of ASU 2016-16

 

 

 

 

 

 

 

 

 

 

 

 

 

31,645

 

 

 

31,645

 

Cumulative effect of accounting change due to adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

40

 

 

 

 

Exercise of Common Stock options for cash

 

298

 

 

 

6,396

 

 

 

(1,430

)

 

 

 

 

 

 

 

 

4,966

 

Cancellation of restricted stock

 

(49

)

 

 

(882

)

 

 

 

 

 

 

 

 

 

 

 

(882

)

Stock option compensation

 

 

 

 

 

 

 

1,643

 

 

 

 

 

 

 

 

 

1,643

 

Commons stock issued to Board of Directors and employees

 

20

 

 

 

2,419

 

 

 

 

 

 

 

 

 

 

 

 

2,419

 

Stock repurchase

 

(629

)

 

 

(20,241

)

 

 

 

 

 

 

 

 

 

 

 

(20,241

)

Currency translation, net

 

 

 

 

 

 

 

 

 

 

(11,476

)