Business context and reporting period
Issuer identification: The filing is Amerigon Incorporated’s Form 10-K for the fiscal year ended December 31, 2011; it does not identify Gentherm Inc. Investors should confirm the issuer before relying on this summary. Amounts below are U.S. dollars unless stated otherwise.
Amerigon develops automotive seat heating and cooling systems and other thermoelectric products. On May 16, 2011, it acquired a 76.28% interest in W.E.T. Automotive Systems AG, a supplier of seat comfort systems and automotive cable systems. 2011 consolidated results include W.E.T. only from the acquisition date, so reported year-over-year comparisons are substantially affected by the acquisition.
Financial results and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $369.6 million | $112.4 million |
| Gross profit / margin | $94.7 million / 25.6% | $32.7 million / 29.1% |
| Operating income | $18.9 million | $12.1 million |
| Net income | $11.9 million | $9.4 million |
| Net income attributable to Amerigon | $10.3 million | $10.0 million |
| Net income attributable to common shareholders | $2.1 million | $10.0 million |
| Basic / diluted EPS | $0.09 / $0.09 | $0.46 / $0.44 |
Preferred-stock dividends of $8.2 million reduced 2011 income attributable to common shareholders. Reported gross margin declined from the prior year; management cited product mix and higher raw-material costs. On a non-GAAP historical-Amerigon basis, excluding W.E.T., 2011 revenue was $132.3 million, operating income $8.0 million and gross margin 27.9%, versus $112.4 million, $12.1 million and 29.1%, respectively, in 2010.
Fourth-quarter 2011 revenue was $131.0 million, gross profit $34.2 million, operating income $8.2 million and net income $10.2 million. Net income attributable to common shareholders was $6.0 million, or $0.26 per basic share. The quarter included a reversal of tax recorded on a derivative gain; management said the timing adjustment was not material to the second- or fourth-quarter statements.
Cash from operations was $35.4 million; investing cash outflow was $117.1 million, primarily reflecting the W.E.T. acquisition; financing cash inflow was $85.5 million. Year-end cash and equivalents were $23.8 million, with no short-term investments, and working capital was $66.0 million. Total debt was $76.2 million, including $14.6 million current maturities; long-term debt was $61.7 million. The balance sheet also reported $50.1 million of Series C convertible preferred stock. The company reported compliance with its credit-facility covenants and $25 million and €10 million available under revolving facilities at year-end.
Material changes versus the prior comparable period
- Reported revenue rose 229%, principally because W.E.T. contributed $237.2 million from its May acquisition date, alongside stronger historical-Amerigon sales and higher CCS shipments.
- Historical-Amerigon CCS shipments increased to 1.922 million units from 1.597 million. New vehicle programs and mattress and cup-holder sales contributed to growth.
- Reported operating income increased, but Amerigon’s historical operating income declined to $8.0 million from $12.1 million; reported gross margin also fell to 25.6% from 29.1%.
- Research and development expense rose to $28.4 million from $9.7 million, including $18.8 million attributable to W.E.T. Acquisition transaction expenses were $5.3 million.
- Debt increased from zero at year-end 2010 to $76.2 million, and the company issued Series C preferred stock to help fund the acquisition. The preferred shares carry an 8% annual cumulative dividend and scheduled quarterly redemptions, payable in cash, common shares or a combination subject to conditions.
Outlook, risks and unusual items
- Management stated that cash on hand and expected revenue were sufficient for operating needs for the foreseeable future; the filing gives no specific revenue or earnings guidance.
- The planned German domination and profit-and-loss transfer agreement (DPLTA) was blocked from registration pending minority-shareholder litigation. Until resolved, W.E.T. remains separately managed, limiting integration and access to its profits; timing and outcome were uncertain.
- Management reported ineffective disclosure controls and internal control over financial reporting, identifying a material weakness related to insufficient skilled accounting staff for timely analysis, documentation and review of acquisition-related transactions. The auditor issued an adverse opinion on internal control; W.E.T.’s controls were excluded from the assessment. Management planned to hire additional skilled accountants. The financial-statement audit opinion was unqualified.
- Key risks include automotive production and customer demand, customer and supplier concentration, raw-material prices, foreign exchange exposure, acquisition integration, goodwill and intangible-asset impairment, and debt service and refinancing. W.E.T. litigation, variable-rate debt, preferred-share dilution and redemption provisions are also relevant.
- Non-operating results included a $6.1 million derivative revaluation loss and a $9.2 million foreign-currency gain. The W.E.T. purchase-price allocation was preliminary, and could change materially.
Important facts for investors to verify
- Confirm the issuer and ticker: the supplied metadata says Gentherm, but this filing names Amerigon Incorporated (NASDAQ: ARGN).
- Separate acquisition-driven growth from underlying performance; review W.E.T.’s full-year pro forma figures and historical-Amerigon results.
- Check the status and financial consequences of the DPLTA litigation, minority-shareholder tender rights and integration plans.
- Assess debt maturities, covenant headroom, preferred-stock dividends and amortization, potential common-stock issuance, and liquidity under weaker operating conditions.
- Track remediation of the material weakness and any subsequent changes to the preliminary acquisition accounting, goodwill and acquired intangibles.