# Gentherm Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Gentherm Inc](/companies/thrm.md) (CIK 903129)
- Form: 10-Q
- Filed: 2023-10-26
- Accepted by EDGAR: Oct 26, 2023, 17:18 ET
- Period: 2023-09-30
- Accession: 0000950170-23-055690
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/903129/000095017023055690/thrm-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/903129/000095017023055690/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $366.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.10bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $280.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $846.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $86.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $255.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $23.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $73.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $38.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $113.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $23.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $45.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $6.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $15.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $15.8m | us-gaap:ProfitLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $22.3m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.67 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.67 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 33,196,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 33,310,601 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $80.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $26.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $31.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $154.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $700.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.23bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $312.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $565.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $207.3m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $620.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $660.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,423 characters.

### Forward-Looking Statements

*This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events, such as: the expected light vehicle production in the Company’s key markets; the integration of acquisitions; the impact of macroeconomic and geopolitical conditions; the potential impact of ongoing and future labor strikes among certain original equipment manufacturers (“OEMs”) and suppliers; the components of and our ability to execute our updated strategic plan; long-term consumer and technological trends in the Automotive industry and our related market opportunity for our existing and new products and technologies; the competitive landscape; the sufficiency of our cash balances and cash generated from operating, investing and financing activities for our future liquidity and capital resource needs; and our ability to finance sufficient working capital. Reference is made in particular to forward-looking statements included in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Such statements may be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”, or similar terms, variations of such terms or the negative of such terms. The forward-looking statements included in this Report are made as of the date hereof or as of the date specified herein and are based on management’s reasonable expectations and beliefs. In making these statements we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we consider appropriate under the circumstances. Such statements are subject to a number of assumptions, risks, uncertainties and other factors, which are set forth in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent reports filed with or furnished to the Securities and Exchange Commission, and which could cause actual results to differ materially from that described in the forward-looking statements. In addition, with reasonable frequency, we have entered into business combinations, acquisitions, divestitures, strategic investments and other significant transactions. Such forward-looking statements do not include the potential impact of any such transactions that may be completed after the date hereof, each of which may present material risks to the Company’s future business and financial results. Except as required by law, we expressly disclaim any obligation or undertaking to update any forward-looking statements to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.*

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated condensed financial statements and related notes thereto included elsewhere in this Report and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Overview

Gentherm Incorporated is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive and medical industries. Automotive products include variable temperature Climate Control Seats, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, valve systems, and other electronic devices. Our automotive products can be found on vehicles manufactured by nearly all the major OEMs operating in North America and Europe, and several major OEMs in Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Medical products include patient temperature management systems. Our medical products can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil. The Company is also developing a number of new technologies and products that will help enable improvements to existing products, improve health, wellness and patient outcomes and will lead to new product applications for existing and new and adjacent markets.

Our Automotive sales are driven by the number of vehicles produced by the OEMs, which is ultimately dependent on consumer demand for automotive vehicles, our product content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers. Historically, new vehicle demand and product content (i.e. vehicle features) have been driven by macroeconomic and other factors, such as interest rates, automotive manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. Vehicle content has also been driven by trends in consumer preferences, such as preferences for smart devices and features, personalized user experience, and comfort, health and wellness. Economic volatility or weakness in North America, Europe or Asia, as well as global geopolitical factors, have had and could result in a significant reduction in automotive sales and production by our customers, which have had and would have an adverse effect on our business, results of operations and financial condition. We believe our diversified OEM customer base and geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns and benefit from industry upturns in the ordinary course. However, shifts in the mix of global automotive production to higher cost regions or to vehicles that contain less of our product content as well as continuing production challenges and inflationary pressures could adversely impact our profitability. In addition, we may be adversely impacted by volatility or weakness in markets for hybrid or electric vehicles specifically. We believe our products offer certain advantages for hybrid and electric vehicles, including improved energy efficiency, and position us well to withstand changes in the volume mix between vehicles driven by internal combustion engines and hybrid and other electric vehicles. We believe our industry is increasingly progressing towards a focus on human comfort and health, which is evidenced by increasing adoption rates for comfort products. We believe that products we are developing, such as ClimateSense® and our acquisition of Alfmeier’s pneumatic comfort solutions, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness.

### Recent Trends

#### Global Conditions

Since 2020, the global economy has experienced significant volatility and supply chain disruption, which has had a widespread adverse effect on the global automotive industry. These macroeconomic conditions have resulted in fluctuating demand and production disruptions, facility closures, labor shortages and work stoppages. In addition, global inflation has increased significantly beginning in 2021. Rising costs of materials, labor, equipment and other inputs used to manufacture and sell our products, including freight and logistics costs, have impacted, and may in the future impact, operating costs and operating results. We continue to employ measures to mitigate the impact of cost increases through identification of sourcing and manufacturing efficiencies where possible. However, we have been unable to fully mitigate or pass through the increases in our operating costs, which may continue in the future.

The direct and indirect impacts on our markets, operations, and financial performance remain unpredictable. As a result of this continued uncertainty, there may still be impacts on our industry, operations, workforce, supply chains, distribution systems, and demand for our products in the future which cannot be reasonably estimated at this time.

Beginning in the third quarter of 2023 and continuing into the fourth quarter, several North American OEMs have experienced union-led labor strikes at certain of their facilities. As the automotive industry relies heavily on “just-in-time” delivery of components, these strikes have led to labor shortages, work stoppages and other related disruptions, which have limited and continue to limit purchases of our products. During the three and nine months ended September 30, 2023, we experienced an insignificant impact on product revenues resulting from the labor strikes. We estimate that if the current strike actions known as of October 25, 2023, were to continue to be idled through the end of November, it would result in approximately $15 million to $20 million of revenue loss for Gentherm in the fourth quarter of 2023. On October 25, 2023, it was announced that a tentative agreement was reached between union leaders and Ford. Ford represents approximately 25-30% of the impact of the estimated Gentherm revenue loss in the fourth quarter. If the labor strikes are prolonged or expanded, they would have further adverse effects on our business and financial results, and may result in the temporary shutdown of the related Gentherm production facilities.”

On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework. The effective dates for different aspects of the directive are January 1, 2024, and January 1, 2025. The Company will continue to evaluate the potential impact on future periods of these tax regulations.

#### Fit-for-Growth 2.0

During the first half of 2023, we launched Fit-for-Growth 2.0 to execute our long-term strategy that includes a profitability improvement initiative with a plan to achieve high teens Adjusted EBITDA margin rate by 2026. Fit-for-Growth 2.0 is expected to deliver cost reductions through manufacturing productivity, manufacturing footprint optimization, value engineering, sourcing excellence and cost synergies from the Alfmeier acquisition. Additionally, the program is intended to drive operating expense efficiency to leverage scale as we continue our growth path towards our target of over $2 billion dollars by 2026.

#### Acquisitions

On July 13, 2022, the Company completed the acquisition of Jiangmen Dacheng Medical Equipment Co. Ltd (“Dacheng”) and its wholly owned subsidiary, IOB Medical, Inc. Dacheng is a manufacturer of medical materials and medical equipment, including patient temperature management solutions, for numerous local and international customers. The acquisition provided Gentherm

Medical a local presence in China’s high-growth market for patient warming devices and other medical device products, and expanded overall manufacturing capacity to include a low-cost manufacturing site. The total consideration transferred was $35.0 million.

On August 1, 2022, the Company acquired 100% of the equity interests of Alfmeier Präzision SE (“Alfmeier”), a global leader in automotive lumbar and massage comfort solutions and a leading provider of advanced valve systems, integrated electronics and software. The acquisition further expanded the Company's value proposition beyond thermal in comfort, health, wellness, and energy efficiency and aligned well with global consumer demand for expanded offerings in vehicle passenger comfort. The total consideration for this acquisition was $170.7 million.

See Note 2, “Acquisitions” to the consolidated condensed financial statements included in this Report for additional information.

#### Impairments – Non-Automotive Electronics Business

On December 31, 2022, the Company approved a plan to exit its non-automotive electronics business to strengthen the Company’s core business and focus its resources and equipment with businesses and investments that are more strategic and profitable. The Company will continue to sell certain non-automotive electronics products until the exit is complete. During the year ended December 31, 2022, the Company recorded non-cash impairment charges of $9.4 million, $5.6 million and $0.7 million for write downs of inventory, intangible assets and property and equipment, respectively, within the Automotive segment.

During the three and nine months ended September 30, 2023, the Company recorded non-cash impairment charges of $3.4 million and $5.5 million for the write down of inventory within the Automotive segment. This charge is recorded in Cost of sales.

The Company is no longer pursuing a sale of the business and intends to wind-down the operations of the business by the end of 2023, subject to discussions with customers and suppliers.

#### Impairments - Medical Segment

As of December 31, 2022, the estimated fair value of the Medical reporting unit exceeded its carrying value by less than 10%. During the second quarter of 2023, the Company’s Medical reporting unit did not perform in-line with forecasted results primarily driven by slower than anticipated revenue growth. As a result, an indicator of impairment was identified and the Company performed an interim quantitative assessment as of June 30, 2023. The results of this quantitative analysis indicated the carrying value of the reporting unit exceeded the fair value, and accordingly an impairment expense was recorded for $19.5 million.

The primary factors leading to the decline in value from the analysis performed at December 31, 2022 were a reduction in expected future cash flows, due to the Company re-evaluating our forecasted results and an increase in the discount rate which is based on the Medical reporting unit’s weighted average cost of capital. The decline in expected future cash flows resulted primarily from a reduction of forecasted revenue growth rates. If the Company’s revised expectation of revenue growth is not achieved or if the estimated growth rates are reduced because of new information or experience, the fair value of the Medical reporting unit could decrease, which could result in further impairment of goodwill.

#### 2023 Manufacturing Footprint Rationalization

On September 19, 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint. Under this 2023 Plan, the Company will relocate certain existing manufacturing and related activities in its Greenville, South Carolina facility to a new facility in Monterrey, Mexico.

The Company expects to incur total costs of between $14 million and $18 million, of which between $13 million and $17 million are expected to be cash expenditures. The actions under the Plan are expected to be substantially completed by the end of 2025 and generate annual benefits of between $5 million and $6 million. The actual timing, costs and savings of the Plan may differ materially from the Company’s current expectations and estimates.

See Note 3, “Restructuring and Impairments” to the consolidated condensed financial statements included in this Report for additional information.

#### Light Vehicle Production Volumes

Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers. According to the forecasting firm S&P Global Mobility (October 2023 release), global light vehicle production in the three and nine months ended September 30, 2023 in the Company’s key markets of North America, Europe, China, Japan and Korea, as compared to the three and nine months ended September 30, 2022, are shown below (in millions of units):

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | 4.0 | 3.6 | 9.3% | 12.0 | 10.7 | 11.3% |
| Europe | 3.9 | 3.6 | 6.3% | 13.1 | 11.5 | 14.0% |
| Greater China | 7.4 | 7.4 | (0.3)% | 20.0 | 19.1 | 4.8% |
| Japan / South Korea | 3.1 | 2.8 | 8.8% | 9.4 | 8.0 | 16.8% |
| Total light vehicle production volume in key markets | 18.3 | 17.5 | 4.6% | 54.5 | 49.4 | 10.3% |

The S&P Global Mobility (October 2023 release) forecasted light vehicle production volume in the Company’s key markets for full year 2023 to increase to 73.5 million units, an 8.6% increase from full year 2022 light vehicle production volumes. Forecasted light vehicle production volumes are a component of the data we use in forecasting future business. However, these forecasts generally are updated monthly, and future forecasts may be significantly different from period to period due to changes in macroeconomic and geopolitical conditions or matters specific to the automotive industry. Further, due to differences in regional product mix at our manufacturing facilities, as well as material production schedules from our customers for our products on specific vehicle programs, our future forecasted results do not directly correlate with the global and/or regional light vehicle production forecasts of S&P Global Mobility or other third-party sources.

### New Business Awards

We believe that innovation is an important element to gaining market acceptance of our products and strengthening our market position. During the third quarter of 2023, we secured new automotive business awards totaling $520 million, bringing the year-to-date total as of September 30, 2023 to $1.7 billion. Also, through the date of this filing we have reached a year-to-date total of $2 billion. Automotive new business awards represent the aggregate projected lifetime revenue of new awards provided by our customers to Gentherm in the applicable period, with the value based on the price and volume projections received from each customer as of the award date. Although automotive new business awards are not firm customer orders, we believe that new business awards are an indicator of future revenue. New business awards are not projections of revenue or future business as of September 30, 2023, the date of this Report or any other date. Customer projections regularly change over time and we do not update our calculation of any new business award after the date initially communicated. Automotive new business awards in the third quarter 2023 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges or the labor strikes on future business. Revenues resulting from automotive new business awards also are subject to additional risks and uncertainties that are included in this Report or incorporated by reference in “Forward-Looking Statements” above.

### Stock Repurchase Program

In December 2020, the Board of Directors authorized a stock repurchase program (the “2020 Stock Repurchase Program”). Under the 2020 Stock Repurchase Program, the Company is authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock over a three-year period, expiring December 15, 2023. Repurchases under the 2020 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. During the three and nine months ended September 30, 2023, the Company repurchased $11.1 million and $31.1 million, respectively, of shares under the 2020 Stock Repurchase Program with an average price paid per share of $56.91 and $58.54, respectively. The 2020 Stock Repurchase Program had $98.9 million repurchase authorization remaining as of September 30, 2023.

### Reportable Segments

The Company has two reportable segments for financial reporting purposes: Automotive and Medical.

See Note 14, “Segment Reporting” to the consolidated condensed financial statements included in this Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income. The financial information used by our chief operating decision maker to assess operating performance and allocate resources is based on these reportable segments.

### Consolidated Results of Operations

The results of operations for the three and nine months ended September 30, 2023 and 2022, in thousands, were as follows:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenues | $366,195 | $332,962 | $33,233 | $1,102,143 | $861,334 | $240,809 |
| Cost of sales | 279,985 | 252,610 | (27,375) | 846,815 | 657,492 | (189,323) |
| Gross margin | 86,210 | 80,352 | 5,858 | 255,328 | 203,842 | 51,486 |
| Operating expenses: |  |  |  |  |  |  |
| Net research and development expenses | 23,150 | 22,666 | (484) | 72,991 | 62,425 | (10,566) |
| Selling, general and administrative expenses | 38,220 | 34,859 | (3,361) | 113,680 | 96,109 | (17,571) |
| Impairment of goodwill | — | — | — | 19,509 | — | (19,509) |
| Restructuring expenses | 1,099 | 6 | (1,093) | 3,412 | 561 | (2,851) |
| Total operating expenses | 62,469 | 57,531 | (4,938) | 209,592 | 159,095 | (50,497) |
| Operating income | 23,741 | 22,821 | 920 | 45,736 | 44,747 | 989 |
| Interest (expense) income, net | (3,368) | 714 | (4,082) | (9,444) | (1,285) | (8,159) |
| Foreign currency gain (loss) | 2,107 | (8,285) | 10,392 | 384 | (1,516) | 1,900 |
| Other income | 272 | 361 | (89) | 1,058 | 698 | 360 |
| Earnings before income tax | 22,752 | 15,611 | 7,141 | 37,734 | 42,644 | (4,910) |
| Income tax expense | 6,908 | 5,784 | (1,124) | 15,478 | 13,998 | (1,480) |
| Net income | $15,844 | $9,827 | $6,017 | $22,256 | $28,646 | $(6,390) |

Product revenues by product category, in thousands, for the three and nine months ended September 30, 2023 and 2022, were as follows:

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Climate Control Seat | $124,905 | $112,059 | $12,846 | 11.5% | $360,868 | $311,281 | $49,587 | 15.9% |
| Seat Heaters | 77,238 | 75,568 | 1,670 | 2.2% | 231,132 | 210,367 | 20,765 | 9.9% |
| Steering Wheel Heaters | 39,861 | 31,482 | 8,379 | 26.6% | 115,166 | 89,169 | 25,997 | 29.2% |
| Lumbar and Massage Comfort Solutions | 33,260 | 22,740 | 10,520 | 46.3% | 109,602 | 22,740 | 86,862 | 382.0% |
| Valve Systems | 27,830 | 18,542 | 9,288 | 50.1% | 82,516 | 18,542 | 63,974 | 345.0% |
| Automotive Cables | 19,668 | 18,338 | 1,330 | 7.3% | 60,131 | 59,662 | 469 | 0.8% |
| Battery Performance Solutions | 17,242 | 20,331 | (3,089) | (15.2)% | 57,138 | 55,395 | 1,743 | 3.1% |
| Electronics | 10,163 | 12,083 | (1,920) | (15.9)% | 30,456 | 33,190 | (2,734) | (8.2)% |
| Other Automotive | 4,615 | 11,412 | (6,797) | (59.6)% | 21,998 | 29,224 | (7,226) | (24.7)% |
| Subtotal Automotive segment | 354,782 | 322,555 | 32,227 | 10.0% | 1,069,007 | 829,570 | 239,437 | 28.9% |
| Medical segment | 11,413 | 10,407 | 1,006 | 9.7% | 33,136 | 31,764 | 1,372 | 4.3% |
| Total Company | $366,195 | $332,962 | $33,233 | 10.0% | $1,102,143 | $861,334 | $240,809 | 28.0% |

### Product Revenues

Below is a summary of our product revenues, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) | Variance Due To: Automotive Volume | FX | Acquisitions | Pricing / Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenues | $366,195 | $332,962 | $33,233 | $19,621 | $4,825 | $18,866 | $(10,079) | $33,233 |

29

Product revenues for the three months ended September 30, 2023 increased 10.0% as compared to the three months ended September 30, 2022. The increase in product revenues is due to favorable volumes in several product lines within the Automotive segment, favorable foreign currency impacts primarily attributable to the Euro and the Korean Won, and the inclusion of sales from Alfmeier and Dacheng since the acquisitions, partially offset by unfavorable pricing, other, and unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi.

Below is a summary of our product revenues, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) | Variance Due To: Automotive Volume | FX | Acquisitions | Pricing / Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenues | $1,102,143 | $861,334 | $240,809 | $105,363 | $(4,962) | $152,844 | $(12,436) | $240,809 |

Product revenues for the nine months ended September 30, 2023 increased 28.0% as compared to the nine months ended September 30, 2022. The increase in product revenues is due to favorable volumes in several product lines within the Automotive segment, favorable foreign currency impacts primarily attributable to the Euro, and the inclusion of sales from Alfmeier and Dacheng since the acquisitions, partially offset by lower cost recoveries from customers and unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi, the Korean Won, and the Japanese Yen.

### Cost of Sales

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) | Variance Due To: Automotive Volume | Operational Performance | FX | Acquisitions and Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of sales | $279,985 | $252,610 | $(27,375) | $(11,981) | $14,320 | $(6,508) | $(23,206) | $(27,375) |
| Gross margin | $86,210 | $80,352 | $5,858 | $7,640 | $10,218 | $(1,683) | $(10,317) | $5,858 |
| Gross margin - Percentage of product revenues | 23.5% | 24.1% |  |  |  |  |  |  |

Cost of sales for the three months ended September 30, 2023 increased 10.8% as compared to the three months ended September 30, 2022. The increase in cost of sales is primarily due to increased volumes in our Automotive segment, inflation associated with wages, a non-automotive electronics inventory charge related to the exit of the business, the full inclusion of expenses from the acquired businesses and unfavorable foreign currency impacts primarily attributable to the Euro and the Mexican Peso. These increases were partially offset by lower freight, duties, and material costs, and favorable foreign currency impacts primarily attributable to the Chinese Renminbi.

Below is a summary of our cost of sales and gross margin, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) | Variance Due To: Automotive Volume | Operational Performance | FX | Acquisitions and Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of sales | $846,815 | $657,492 | $(189,323) | $(63,515) | $28,417 | $(2,972) | $(151,253) | $(189,323) |
| Gross margin | $255,328 | $203,842 | $51,486 | $41,848 | $18,499 | $(7,934) | $(927) | $51,486 |
| Gross margin - Percentage of product revenues | 23.2% | 23.7% |  |  |  |  |  |  |

Cost of sales for the nine months ended September 30, 2023 increased 28.8% as compared to the nine months ended September 30, 2022. The increase in cost of sales is primarily due to increased volumes in our Automotive segment, inflation associated with wages and material costs, non-automotive electronics inventory charges related to the exit of the business, the full inclusion of expenses from the acquired businesses and unfavorable foreign currency impacts primarily attributable to the Mexican Peso and the Euro. These increases were partially offset by lower freight and duties costs, and favorable foreign currency impacts primarily attributable to the Chinese Renminbi and the Ukranian Hryvnia.

### Net Research and Development Expenses

Below is a summary of our net research and development expenses, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Research and development expenses | $32,298 | $26,841 | $(5,457) |
| Reimbursed research and development expenses | (9,148) | (4,175) | 4,973 |
| Net research and development expenses | $23,150 | $22,666 | $(484) |
| Percentage of product revenues | 6.3% | 6.8% |  |

Net research and development expenses for the three months ended September 30, 2023 increased 2.1% as compared to the three months ended September 30, 2022. The increase in net research and development expenses is primarily related to the full inclusion of net expenses from Alfmeier, partially offset by higher customer reimbursements, excluding those from Alfmeier.

Below is a summary of our net research and development expenses, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Research and development expenses | $94,784 | $75,077 | $(19,707) |
| Reimbursed research and development expenses | (21,793) | (12,652) | 9,141 |
| Net research and development expenses | $72,991 | $62,425 | $(10,566) |
| Percentage of product revenues | 6.6% | 7.2% |  |

Net research and development expenses for the nine months ended September 30, 2023 increased 16.9% as compared to the nine months ended September 30, 2022. The increase in net research and development expenses is primarily related to the full inclusion of net expenses from Alfmeier, increased investments to support new program wins, and lower customer reimbursements, excluding those from Alfmeier.

### Selling, General and Administrative Expenses

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Selling, general and administrative expenses | $38,220 | $34,859 | $(3,361) |
| Percentage of product revenues | 10.4% | 10.5% |  |

Selling, general and administrative expenses for the three months ended September 30, 2023 increased 9.6% as compared to the three months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily related to the full inclusion of expenses from acquired businesses and higher compensation expenses, partially offset by lower acquisition costs.

Below is a summary of our selling, general and administrative expenses, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Selling, general and administrative expenses | $113,680 | $96,109 | $(17,571) |
| Percentage of product revenues | 10.3% | 11.2% |  |

Selling, general and administrative expenses for the nine months ended September 30, 2023 increased 18.3% as compared to the nine months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily related to the full inclusion of expenses from acquired businesses and higher compensation expenses, partially offset by lower acquisition costs.

### Impairment of Goodwill

There was no impairment of goodwill for the three months ended September 30, 2023 and 2022.

Below is a summary of our impairment of goodwill, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Impairment of goodwill | $19,509 | $— | $(19,509) |

Impairment of goodwill for the nine months ended September 30, 2023 related to the recorded Medical reporting unit goodwill impairment.

### Restructuring Expenses

Below is a summary of our restructuring expenses, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Restructuring expenses | $1,099 | $6 | $(1,093) |

During the three months ended September 30, 2023, the Company recognized expenses of $1.1 million for employee separation costs and $0 million for other costs. These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses.

During the three months ended September 30, 2022, the Company recognized expenses of less than $0.1 million for other costs.

Below is a summary of our restructuring expenses, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Restructuring expenses | $3,412 | $561 | $(2,851) |

During the nine months ended September 30, 2023, the Company recognized expenses of $2.6 million for employee separation costs and $0.8 million for other costs. These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses.

During the nine months ended September 30, 2022, the Company recognized expenses of less than $0.1 million for employee separation costs and $0.5 million for other costs.

### Interest (Expense) Income, net

Below is a summary of our interest (expense) income, net, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Interest (expense) income, net | $(3,368) | $714 | $(4,082) |

Interest expense, net for the three months ended September 30, 2023 increased 571.7% as compared to the three months ended September 30, 2022. The increase is primarily related to less benefit from the change in fair value of the interest rate swap derivative and higher interest rates on the revolving credit agreement, partially offset by decreased interest from a lower balance on the revolving credit agreement during the three months ended September 30, 2023.

Below is a summary of our interest expense, net, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Interest expense, net | $(9,444) | $(1,285) | $(8,159) |

Interest expense, net for the nine months ended September 30, 2023 increased 634.9% as compared to the nine months ended September 30, 2022. The increase is primarily related to less benefit from the change in fair value of the interest rate swap derivative and higher interest rates on the revolving credit agreement, partially offset by decreased interest from a lower balance on the revolving credit agreement during the nine months ended September 30, 2023. See Note 6, "Debt," to the consolidated condensed financial statements included in this Report for additional information.

### Foreign Currency Gain (Loss)

Below is a summary of our foreign currency gain (loss), in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Foreign currency gain (loss) | $2,107 | $(8,285) | $10,392 |

Foreign currency gain for the three months ended September 30, 2023 included net realized foreign currency gain of $1.2 million and net unrealized foreign currency gain of $0.9 million.

Foreign currency loss for the three months ended September 30, 2022 primarily included net realized foreign currency loss of $3.0 million and net unrealized foreign currency loss of $5.3 million.

Below is a summary of our foreign currency gain (loss), in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Foreign currency gain (loss) | $384 | $(1,516) | $1,900 |

Foreign currency gain for the nine months ended September 30, 2023 included net realized foreign currency gain of $4.6 million and net unrealized foreign currency loss of $4.2 million.

Foreign currency loss for the nine months ended September 30, 2022 primarily included net realized foreign currency loss of $2.6 million and net unrealized foreign currency gain of $1.1 million.

### Other Income

Below is a summary of our other income, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Other income | $272 | $361 | $(89) |

Other income for the three months ended September 30, 2023 decreased as compared to the three months ended September 30, 2022. The decrease in Other income is due to a decrease in miscellaneous income.

Below is a summary of our other income, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Other income | $1,058 | $698 | $360 |

33

Other income for the nine months ended September 30, 2023 increased as compared to the nine months ended September 30, 2022. The increase in Other income is due to an increase in miscellaneous income.

### Income Tax Expense

Below is a summary of our income tax expense, in thousands, for the three months ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Income tax expense | $6,908 | $5,784 | $(1,124) |

Income tax expense was $6.9 million for the three months ended September 30, 2023, on earnings before income tax of $22.8 million, representing an effective tax rate of 30.4%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate and the unfavorable impact of the global intangible low-tax income (“GILTI”), partially offset by the impact of the release of accruals for uncertain tax positions.

Income tax expense was $5.8 million for the three months ended September 30, 2022 on earnings before income tax of $15.6 million representing an effective tax rate of 37.1%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, the unfavorable impact of the GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of certain favorable tax effects on equity vesting.

Below is a summary of our income tax expense, in thousands, for the nine months ended September 30, 2023 and 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | Favorable / (Unfavorable) |
| --- | ---: | ---: | ---: |
| Income tax expense | $15,478 | $13,998 | $(1,480) |

Income tax expense was $15.5 million for the nine months ended September 30, 2023, on earnings before income tax of $37.7 million, representing an effective tax rate of 41.0%. The pre-tax earnings included the effect of an impairment loss of $19.5 million with a tax benefit of $2.5 million. Adjusted for the impairment impacts, the effective rate was 31.0%. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate and the unfavorable impact of the GILTI, partially offset by the impact of research and development credits in various jurisdictions, certain favorable tax effects of equity vesting and the release of accruals for uncertain tax positions.

Income tax expense was $14.0 million for the nine months ended September 30, 2022 on earnings before income tax of $42.6 million representing an effective tax rate of 32.8%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, the unfavorable impact of GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of certain favorable tax effects of equity vesting.

### Liquidity and Capital Resources

### Overview

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our Second Amended and Restated Credit Agreement. Our cash requirements consist principally of working capital, capital expenditures, research and development, operating lease payments, income tax payments and general corporate purposes. We generally reinvest available cash flows from operations into our business, while opportunistically utilizing our authorized stock repurchase program. Further, we continuously evaluate acquisition, disposition, exits, and investment opportunities that will enhance our business strategies.

As of September 30, 2023, the Company had $154.4 million of cash and cash equivalents and $293.0 million of availability under our Second Amended and Restated Credit Agreement. We may issue debt or equity securities, which may provide an additional source of liquidity. However, there can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current shareholders.

We continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies and the terms of the Second Amended and Restated Credit Agreement. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Gentherm Incorporated. As of September 30, 2023, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $114.7 million. If additional non-U.S. cash was needed for our U.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to the U.S.; however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts.

We currently believe that our cash and cash equivalents, borrowings available under our Second Amended and Restated Credit Agreement and receivables factoring arrangements, and cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.

### Cash and Cash Flows

The following table represents our cash and cash equivalents, in thousands:

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents at beginning of period | $153,891 | $190,606 |
| Net cash provided by operating activities | 80,042 | 12,957 |
| Net cash used in investing activities | (16,945) | (247,841) |
| Net cash (used in) provided by financing activities | (60,751) | 191,582 |
| Foreign currency effect on cash and cash equivalents | (1,883) | (8,141) |
| Cash and cash equivalents at end of period | 154,354 | 139,163 |

#### Cash Flows From Operating Activities

Net cash provided by operating activities totaled $80.0 million during the nine months ended September 30, 2023 primarily reflecting net income of $22.3 million, $19.5 million for non-cash goodwill impairment, $47.9 million for non-cash charges for depreciation, amortization, stock based compensation and loss on disposition of property, and non-cash charges of $6.6 million for inventory provisions, partially offset by $13.2 million related to changes in assets and liabilities, and non-cash charges of $3.0 million for deferred income taxes.

#### Cash Flows From Investing Activities

Net cash used in investing activities was $16.9 million during the nine months ended September 30, 2023, reflecting purchases of property and equipment of $26.5 million and investments in technology companies of $0.6 million, partially offset by proceeds from deferred purchase price of factored receivables of $10.1 million.

#### Cash Flows From Financing Activities

Net cash used in financing activities was $60.8 million during the nine months ended September 30, 2023, reflecting $31.0 million paid to repurchase common stock, $27.2 million of debt repayments and $2.8 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the proceeds from the exercise of Common Stock options totaling $0.3 million.

### Debt

The following table summarizes the Company’s debt, in thousands, as of September 30, 2023 and December 31, 2022:

| Credit Agreement: | September 30, 2023 Interest Rate | Principal Balance | December 31, 2022 Interest Rate | Principal Balance |
| --- | ---: | ---: | ---: | ---: |
| Revolving Credit Facility (U.S. Dollar denominations) | 6.79% | $207,000 | 5.80% | $232,000 |
| Other loans | 3.90% | 247 | 3.89% - 5.21% | 2,011 |
| Finance leases | 3.54% | 675 | 3.57% | 1,085 |
| Total debt |  | 207,922 |  | 235,096 |
| Current maturities |  | (620) |  | (2,443) |
| Long-term debt, less current maturities |  | $207,302 |  | $232,653 |

#### Credit Agreement

Gentherm, together with certain of its subsidiaries, maintain a revolving credit note (the “Revolving Credit Facility”) under its Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with a consortium of lenders and Bank of America, N.A. as administrative agent. The Second Amended and Restated Credit Agreement was entered into on June 10, 2022 and amended and restated in its entirety the Amended and Restated Credit Agreement dated June 27, 2019, by and among Gentherm, certain of its direct and indirect subsidiaries, the lenders party thereto and the Agent. The Second Amended and Restated Credit Agreement has a maximum borrowing capacity of $500 million and matures on June 10, 2027. The Second Amended and Restated Credit Agreement contains covenants, that, among other things, (i) prohibit or limit the ability of the borrowers and any material subsidiary to incur additional indebtedness, create liens, pay dividends, make certain types of investments (including acquisitions), enter into certain types of transactions with affiliates, prepay other indebtedness, sell assets or enter into certain other transactions outside the ordinary course of business, and (ii) require that Gentherm maintain a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Net Leverage Ratio (based on consolidated EBITDA for the applicable trailing four fiscal quarters) as of the end of any fiscal quarter. As of September 30, 2023, the Company was in compliance with the terms of the Second Amended and Restated Credit Agreement.

#### Finance Leases

As of September 30, 2023 and December 31, 2022, there was $0.7 million and $1.1 million, respectively, of outstanding finance leases.

### Other Sources of Liquidity

The Company is party to receivable factoring agreements with unrelated third parties under which we can sell receivables for certain account debtors, on a revolving basis, subject to outstanding balances and concentration limits. The receivable factoring agreements are transferred in their entirety to the acquiring entities and are accounted for as a sale. Some of the agreements, including those assumed through the acquisition of Alfmeier, have deferred purchase price arrangements. As of September 30, 2023, there were $1.2 million available under the receivable factoring agreement.

### Material Cash Requirements

The Company continues to enter into agreements with suppliers to reserve the right to purchase certain semiconductor chips over periods of 12-24 months. As of September 30, 2023, the Company’s total commitments for these semiconductor chip agreements was $25.6 million. See Note 7, “Commitments and Contingencies” to the consolidated condensed financial statements included in this Report for additional information.

In September 2023, the Company committed to a restructuring plan to improve the Company’s manufacturing productivity and rationalize its footprint. As of September 30, 2023, the Company expects to incur total costs of between $14 million and $18 million, of which between $14 million and $17 million are expected to be cash expenditures. See Note 3, “Restructuring and Impairments” to the consolidated condensed financial statements included in this Report for additional information.

Except as described above, there have been no material changes in our cash requirements since December 31, 2022, the end of fiscal year 2022. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our material cash requirements.

### Effects of Inflation

The automotive component supply industry has historically been subject to inflationary pressures with respect to materials and labor. Beginning in 2021 and continuing through 2023, the industry has experienced inflationary cost increases in certain materials and components, labor and transportation. Although the Company has developed and implemented strategies to mitigate the impact of higher material component costs and transportation costs, these strategies, together with commercial negotiations with Gentherm's customers and suppliers, have not fully offset to date and may not fully offset our future cost increases. Such inflationary cost increase may increase the cash required to fund our operations by a material amount.

### Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. For discussion of our significant accounting policies, see Note 2, “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended September 30, 2023. We are not presently aware of any events or circumstances that would require us to update our estimates, assumptions or revise the carrying value of our assets or liabilities, except for the impairment of the Medical segment goodwill, which was assessed in the second quarter of 2023. See Note 3, “Restructuring and Impairments” to the consolidated condensed financial statements included in this Report for additional information. Our estimates may change, however, as new events occur and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.

### Recent Accounting Pronouncements

There are no new accounting pronouncements applicable to the Company as of September 30, 2023.

## Market risk

As filed, 5,859 characters.

The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates, changes in interest rates and price fluctuations of certain material commodities such as copper. Market risks for changes in interest rates relate primarily to the Company's debt obligations under the Second Amended and Restated Credit Agreement. Foreign currency exchange risks are attributable to sales to foreign customers and purchases from foreign suppliers not denominated in a location’s functional currency, foreign plant operations, intercompany indebtedness, acquisitions denominated in foreign currencies, intercompany investments and include exposures to the Euro, Mexican Peso, Canadian Dollar, Hungarian Forint, North Macedonian Denar, Ukrainian Hryvnia, Japanese Yen, Chinese Renminbi, Korean Won, Czech Koruna and Vietnamese Dong.

The Company regularly enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. The decision of whether and when to execute derivative financial instruments, along with the duration of the instrument, may vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored. The Company does not enter into derivative financial instruments for speculative or trading purposes. Some derivative contracts do not qualify for hedge accounting; for other derivative contracts, we elect to not apply hedge accounting.

The Company’s designated hedging relationships are formally documented at the inception of the hedge, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions both at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. For derivative contracts that can be classified as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to Accumulated other comprehensive loss in the consolidated condensed balance sheets. When the underlying hedge transaction is realized, the gain or loss included in Accumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The Company records the ineffective portion of foreign currency and copper commodity hedging instruments, if any, to Cost of sales, and the ineffective portion of interest rate swaps, if any, to Interest expense, net in the consolidated condensed statements of income. Cash flows associated with derivatives are reported in Net cash provided by (used in) operating activities in the consolidated condensed statements of cash flows.

Information related to the fair values of all derivative instruments in our consolidated condensed balance sheet as of September 30, 2023 is set forth in Note 9, “Financial Instruments” in the consolidated condensed financial statements included in this Report.

#### Interest Rate Sensitivity

The table below presents principal cash flows and related weighted average interest rates by expected maturity dates for each of the Company’s debt obligations, excluding finance leases. The information is presented in U.S. dollar equivalents, which is the Company’s reporting currency.

| Liabilities Long-Term Debt: | Expected Maturity Date 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | Total | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Variable rate | $— | $— | $— | $— | $207,000 | $— | $207,000 | $207,000 |
| Variable interest rate as of September 30, 2023 |  |  |  |  | 6.79% |  | 6.79% |  |
| Fixed rate | $247 | $— | $— | $— | $— | $— | $247 | $— |
| Fixed interest rate | 3.90% |  |  |  |  |  | 3.90% |  |

Based on the amounts outstanding as of September 30, 2023, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.1 million. To hedge the Company's exposure to interest payment fluctuations on a portion of these borrowings, we entered into a floating-to-fixed interest rate swap agreement with a notional amount of $100.0 million.

#### Exchange Rate Sensitivity

The table below provides information about the Company’s foreign currency forward exchange rate agreements that are sensitive to changes in foreign currency exchange rates. The table presents the notional amounts and weighted average exchange rates by expected (contractual) maturity dates for each type of foreign currency forward exchange agreement. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract.

| Anticipated Transactions and Related Derivatives USD Functional Currency Forward Exchange Agreements: (Receive MXN / Pay USD) | Expected Maturity or Transaction Date 2023 | 2024 | 2025 | Total | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total contract amount | $14,824 | $59,298 | $29,649 | $103,771 | $6,706 |
| Average contract rate | 19.23 | 19.23 | 19.23 | 19.23 |  |

The table below presents the potential gain and loss in fair value for the foreign currency derivative contracts from a hypothetical 10% change in quoted currency exchange rates.

| Exchange Rate Sensitivity | September 30, 2023 Potential loss in fair value | Potential gain in fair value | December 31, 2022 Potential loss in fair value | Potential gain in fair value |
| --- | ---: | ---: | ---: | ---: |
| Forward Exchange Agreement:(Receive MXN / Pay USD) | $5,978 | $10,677 | $3,999 | $4,888 |

39

## Controls and procedures

As filed, 1,467 characters.

### (a) Evaluation of Disclosure Controls and Procedures

Management of the Company, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2023. As defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.

### (b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 269 characters.

The Company’s risk factors have not materially changed from those previously disclosed in Part 1, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully consider the risks and uncertainties described therein.

Filed Oct 26, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-055690. Last ingested by Listed: Oct 26, 2026, 17:44 ET. No prices; not investment advice.