Gentherm Incorporated — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed March 15, 2013. The filing includes quarterly results for the three months ended December 31, 2012. Gentherm supplies automotive seat-comfort and cable systems, alongside thermoelectric products. W.E.T., acquired in May 2011, was consolidated for all of 2012 but only from the acquisition date in 2011, limiting direct year-over-year comparability.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $555.0 million | $369.6 million |
| Gross profit / margin | $141.9 million / 25.6% | $95.0 million / 25.7% |
| Operating income | $36.1 million | $17.8 million |
| Net income | $24.3 million | $11.2 million |
| Net income attributable to Gentherm | $17.9 million | $9.7 million |
| Net income attributable to common shareholders | $11.2 million | $1.4 million |
| Diluted EPS | $0.39 | $0.06 |
| Cash from operating activities | $36.9 million | $34.2 million |
- Fourth-quarter revenue was $148.2 million, versus $131.0 million in Q4 2011. Q4 net income was $5.7 million and diluted EPS was $0.09; the comparable 2011 quarter reported net income of $10.1 million and diluted EPS of $0.24.
- Gross margin was nearly flat year over year. Full-year revenue growth of 50% largely reflected a full year of W.E.T. sales in 2012 versus approximately seven and a half months in 2011. Historical Gentherm revenue was essentially unchanged at $132.3 million versus $132.3 million.
- 2012 operating cash flow was $36.9 million. Investing activities used $35.4 million, including $26.8 million of property and equipment purchases. Financing activities provided $32.5 million, primarily reflecting a $75.5 million common-stock offering and offsetting debt and preferred-stock repayments.
- At year-end, cash was $58.2 million, working capital $124.9 million, and total debt $57.0 million, including $17.2 million current maturities. Undrawn revolving availability was $29.6 million under the U.S. facility and €20 million under the W.E.T. facility; a $0.45 million letter of credit reduced U.S. availability. The company reported compliance with its debt covenants.
Material changes and unusual items
- W.E.T. generated $422.7 million of 2012 revenue and $30.6 million of operating income before reconciling items. Gentherm’s reported growth therefore substantially reflects acquisition consolidation, not comparable organic growth.
- Foreign-exchange movements affected results: management estimated that 2012 revenue would have been about $13.4 million higher had the average euro exchange rate matched 2011’s rate.
- Gentherm changed its accounting for external patent-application costs in Q4 2012, expensing them as incurred rather than capitalizing them. The change reduced operating income by $1.0 million and EPS by $0.02 in 2012; the filing also presents impacts for prior years.
- A $1.6 million accelerated royalty charge affected historical Gentherm’s 2012 cost of sales. A $1.3 million benefit from tax-law changes enacted in January 2013 was expected to be recognized in Q1 2013.
- After year-end, the W.E.T. domination and profit-transfer agreement was registered on February 22, 2013 following settlement of minority-shareholder litigation. The settlement included approximately $7.5 million cash and 3.3 million Gentherm shares, and increased the minority-shareholder tender price to €85 per share. Subsequent share purchases brought Gentherm’s reported W.E.T. ownership to approximately 99%.
Outlook, commentary, and risks
- Management stated that cash and expected revenue were sufficient for operating needs for the foreseeable future; the filing provides no numerical revenue or earnings guidance.
- Management highlighted product launches and expanded geographic availability of existing automotive programs. It also described continued R&D in thermoelectric materials, waste-heat recovery, and W.E.T. product and manufacturing integration; commercial success and timing remain uncertain.
- Key risks include dependence on automotive production and lengthy vehicle-program sales cycles; customer concentration (Johnson Controls 22%, Lear 18%, Bosch 10% of 2012 revenue); supplier and raw-material availability and pricing; currency exposure; competition; and execution of W.E.T. integration.
- Debt covenants and variable-rate borrowings constrain flexibility. Series C preferred stock carries an 8% cumulative dividend and scheduled redemptions through September 2013; repayment or conversion can require cash or dilute common shareholders. Common-stock dividends were prohibited while preferred shares and the bank facility remained outstanding.
- No other material pending litigation was reported. The auditor issued an unqualified opinion on the financial statements and internal controls; management said controls were effective at year-end and that the prior-year material weakness had been remediated.
Important facts for investors to verify
- Separate W.E.T.-driven consolidation growth from underlying Gentherm growth, and assess segment-level margins and cash generation.
- Review the complete cash-flow and debt schedules, including covenant headroom, upcoming maturities, and the financing of the post-year-end W.E.T. settlement and minority-share purchases.
- Confirm the remaining Series C preferred balance, redemption schedule, dividend and make-whole obligations, and potential common-share dilution.
- Assess the accounting-policy change’s effect on comparability, and validate the expected 2013 tax benefit and the assumptions supporting deferred tax assets.
- Monitor customer and supplier concentration, foreign-exchange exposure, and progress toward integration and commercialization of new products.