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The Company and Subsequent Events | 6 Months Ended
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Jun. 30, 2018
Company And Subsequent Events [Abstract] |
The Company and Subsequent Events | Note 1 – The Company and Subsequent Events Gentherm Incorporated is a global technology and industry leader in the design, development, and manufacturing of innovative thermal management technologies. Unless the context otherwise requires, the terms “Company”, “we”, “us” and “our” used herein refer to Gentherm Incorporated and its consolidated subsidiaries. Our products provide solutions for automotive passenger comfort and convenience, battery thermal management, remote power generation, patient temperature management, environmental product testing and other consumer and industrial temperature control needs. Our automotive products can be found on the vehicles of nearly all major automotive manufacturers operating in North America, Europe and Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities and to identify future thermal technology product opportunities in both automotive and other markets. We concentrate our research on the development of new technologies and new applications from existing technologies to create product and market opportunities for a wide array of thermal management solutions. New Strategic Plan On June 25, 2018, Gentherm announced a new strategic plan intended to improve business performance and position the Company to deliver above-market growth and improved profitability to its shareholders. An important element of the strategy is the Fit-for-Growth initiative that focuses on purchasing excellence, rationalization of research and development activities, reducing selling, general and administrative expense, minimization or elimination of investments in non-core areas and developing a manufacturing footprint commensurate with the new plan. Non-core areas of investment so far identified under the Fit-for-Growth initiative are concentrated in the following areas of Gentherm’s industrial segment: California Advanced Research and Development, Gentherm Global Power Technologies (GPT) and Cincinnati Sub Zero’s Industrial Chamber business (CSZ-IC). The strategy also identified several product categories the Company will exit, including furniture, aviation, battery management electronics, industrial battery packs, automotive thermoelectric generators and other non-core electronics. Fit-for-Growth The Fit-for-Growth cost savings initiative began in January 2018. Consultant costs associated with the initiative, some of which were incurred during the first quarter of 2018, were reported in restructuring expenses for both the three and six-month periods ended June 30, 2018. The total amount of consultant costs incurred during the six-month period ended June 30, 2018 is $1,499. We expect to incur an additional $840 in consultant costs during the second half of 2018. Gentherm recognized $1,737 in one-time employee termination costs in restructuring expenses pertaining to Fit-for-Growth during the three and six-months ended June 30, 2018. Management cannot reasonably estimate the total amount of employee termination costs expected to be incurred from implementing Fit-for-Growth. Lastly, management recognized $11 in contract termination costs in restructuring expenses and does not anticipate additional contract termination costs in the future from implementing Fit-for-Growth. Advanced Research and Development Rationalization and Site Consolidation In June, Gentherm completed a sale of its battery management systems division located in Irvine, California. A loss on the sale of $1,107 was recognized in restructuring expenses during the three and six-month periods ended June 30, 2018. Gentherm also initiated a plan to consolidate advanced research and development operations, including the closure of two leased facilities located in Azusa, California. One of these facilities was vacated in June; the other facility is expected to be vacated at the end of the 2018 third quarter. During the three and six-month periods ended June 30,2018, Gentherm recognized $435 in contract termination costs in restructuring expenses related to the vacated facility, and expects to incur an additional $537 in contract termination costs related to the second facility during the third quarter. Gentherm recognized $881 in one-time employee termination costs in restructuring expenses for employees whose termination was effective on or before June 30, 2018. We expect to incur $166 in additional one-time employee termination costs for employees whose termination benefits are contingent on a continuation of service through October 2018. Note 1 – The Company and Subsequent Events – Continued Lastly, during the three and six-month periods ended June 30, 2018, Gentherm recognized $1,200 in restructuring expenses for the disposal of long-lived assets controlled and used in Azusa, California. We do not expect to incur additional asset disposal costs from our exit from Azusa, California. GPT and CSZ-IC Gentherm is in the early stages of developing a program to identify potential buyers for GPT and CSZ-IC. For the six-month period ended June 30, 2018, Gentherm recognized $210 in one-time employee termination costs in restructuring expenses relating to the planned divestitures. An estimate of the total cost expected from the divestitures could not be determined as of June 30, 2018. Restructuring Liability A reconciliation of the beginning and ending restructuring liability is as follows:
|  | One-Time Employee Termination Benefit Costs |  |  | Contract Termination Costs |  |  | Consulting Costs |  |  | Asset Disposal Costs |  |  | Total |
Six Months Ended June 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Additions, charged to costs |  |  | 2,828 |  |  |  | 446 |  |  |  | 1,499 |  |  |  | 2,307 |  |  |  | 7,080 |
Payments and impairments |  |  | (1,951 | ) |  |  | (18 | ) |  |  | (867 | ) |  |  | (2,307 | ) |  |  | (5,143 | )
Balance, end of period |  | $ | 877 |  |  | $ | 428 |  |  | $ | 632 |  |  | $ | — |  |  | $ | 1,937 |
The cumulative amount of restructuring expenses incurred and recognized in the automotive and industrial segments during the six months ended June 30, 2018 was $3,247 and $3,833, respectively. See Note 5 to our consolidated condensed financial statements for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income. U.S. Tax Reform The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on all offshore earnings that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, and in accordance with guidance provided by Staff Accounting Bulletin No. 118 (SAB 118), the Company had not completed its accounting for the tax effects of the Tax Act; however, in certain cases, as described below the Company made a provisional estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the year ended December 31, 2017, the provision for income taxes includes a provisional income tax expense of $20,153 related to items for which the Company was able to determine a reasonable estimate. For the six-month period ended June 30, 2018, there have been no changes to the provisional income tax expenses booked in 2017. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, the Company’s estimates may be affected as additional regulatory guidance is issued with respect to the Tax Act. Any adjustments to the provisional amounts will be recognized as a component of the provision for income taxes in the period in which such adjustments are determined, but in any event, no later than the fourth quarter of 2018, in accordance with SAB 118. Deferred tax assets and liabilities The Company remeasured its U.S. deferred tax assets and liabilities at 21%. However, the Company is still analyzing certain aspects of the Tax Act and refining the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In the year ended December 31, 2017, the provision for income taxes included provisional income tax expense of $5,808 related to the remeasurement of deferred tax balances. For the six-month period ended June 30, 2018, there have been no changes to the provisional income tax expenses in 2017. Note 1 – The Company and Subsequent Events – Continued Transition Tax on Deferred Foreign Earnings The one-time transition tax is based on the Company’s post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. In the year ended December 31, 2017, the provision for income taxes included provisional income tax expense of $23,923 related to the one-time transition tax liability of the Company’s foreign subsidiaries. The Company has not completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 E&P previously deferred from U.S. income taxes and the amounts held in cash or other specified assets. For the six-month period ended June 30, 2018, there have been no changes to the provisional income tax expenses booked in 2017. A benefit of $9,578 was included in the provision for income taxes for the year-ended December 31, 2017 to offset the one-time transition tax related to the previous deferred tax liability that existed for the undistributed foreign earnings that were not permanently reinvested. For the three and six-month periods ended June 30, 2018, there have been no changes to the provisional income tax benefit booked in 2017 related to this item. However, we continue to recognize a deferred tax liability related to foreign withholding tax that will be incurred for undistributed foreign earnings that are not permanently reinvested. Subsequent Events We have evaluated subsequent events through the date that our consolidated condensed financial statements are issued. No events have taken place that meet the definition of a subsequent event requiring adjustments to or disclosures in this Form 10-Q.

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