ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements (and notes related thereto) and other more detailed financial information appearing elsewhere in this Annual Report. Further, you should read the following discussion and analysis of our financial condition and results of operations together with the “Risk Factors” included elsewhere in this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also “Forward-Looking Statements” in Part I of this Annual Report.
Overview
Gentherm Incorporated is a global market leader of innovative thermal management and pneumatic comfort technologies. Our automotive products include Climate Control Seats (CCS®), Climate Control Interiors (CCITM), Lumbar and Massage Comfort Solutions, Valve Systems, and Climate and Comfort Electronics. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Our medical products include patient temperature management systems that can be found in hospitals throughout the world.
Our Automotive sales are driven by the number of light vehicles produced by the OEMs primarily in our key markets of North America, Europe, China, Japan and South Korea, which is ultimately dependent on consumer demand for automotive light 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 incentives. Vehicle content has also been driven by trends in consumer preferences. 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. Our industry is increasingly progressing towards a focus on human comfort, health and wellness, which is evidenced by increasing adoption rates for comfort products. Gentherm is an independent partner that can cooperate with any combination of the vehicle OEMs and seat manufacturers globally, to create innovative and unique configurations that adapt to industry trends.
Modine Transaction
On January 29, 2026, the Company entered into definitive agreements with Modine, SpinCo and Merger Sub with respect to a Reverse Morris Trust transaction, and pursuant to and subject to the terms and conditions of such definitive agreements, (i) Modine will transfer (or cause to be transferred) and SpinCo will accept and assume (or cause to be accepted and assumed) all of the rights, titles and interests to and under certain assets and liabilities relating to Performance Technologies, (ii) Modine will execute the Spin-Off and make the Distribution of SpinCo Common Stock to its shareholders and (iii) following the Distribution, Merger Sub will be merged with and into SpinCo. The Modine Transaction was unanimously approved by the Boards of Directors of both Modine and the Company.
Upon completion of the Merger, SpinCo will become a wholly owned subsidiary of the Company. In addition, shareholders of the Company immediately prior to the Merger will own approximately 60.0% and former SpinCo shareholders as of the Distribution will own approximately 40.0% of the outstanding shares of the Common Stock on a fully diluted basis.
The definitive agreements entered into in connection with the Modine Transaction include (i) Merger Agreement, including the forms of specified ancillary agreements to be entered into as of closing, and (ii) the Separation Agreement.
Prior to and as a condition of, the Distribution, SpinCo will make a cash payment to Modine of $210 million (the “SpinCo Cash Distribution”), subject to adjustment for cash, working capital and indebtedness of SpinCo and subject to decrease if additional shares of Common Stock will be issued to Modine shareholders to support the intended tax-free treatment of the Distribution to Modine’s shareholders for U.S. federal income tax purposes.
On January 29, 2026, SpinCo and the Company executed a 364-day bridge loan facility commitment letter with a financial institution, pursuant to which such financial institution committed to provide up to $790 million in aggregate (collectively, the “Bridge Facilities”) to SpinCo and the Company. The commitment letter provides funding for the SpinCo Cash Distribution. The commitment
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letter also provides funding to the Company to backstop capacity under the Revolving Credit Facility (as defined below) while the Company seeks lender consent for the Modine Transaction, to pay a special dividend to the Company’s shareholders, if necessary to support the intended tax-free treatment of the Distribution to Modine shareholders, and to pay fees and expenses of the Modine Transaction. The Bridge Facility is expected to be replaced with permanent financing. If the Modine Transaction is consummated, any indebtedness incurred by SpinCo under the Bridge Facility or the permanent financing will become indebtedness of a wholly owned subsidiary of the Company.
The Modine Transaction is expected to close in the fourth quarter of 2026, subject to various closing conditions, including specified approvals by the Company’s shareholders, completion of financing for SpinCo, a customary IRS tax ruling, receipt of required regulatory approvals and the satisfaction of other customary closing conditions.
Recent Trends
Tariffs and Global Trade Environment
Since March 2025, the U.S. government has periodically announced additional significant tariffs on various goods imported to the U.S. and other countries have periodically announced reciprocal tariffs on goods imported to such countries, including goods used by or manufactured by us. There has been significant uncertainty resulting from the implementation, termination and/or conditional pause of these additional tariffs, as well as related litigation challenging the legality of some tariffs. Further, it is reasonably possible that new or additional tariffs will be periodically announced in the future given the current global trade environment. We continue to monitor and evaluate the direct and indirect impacts of these tariffs and heightened global trade disputes. Our business model of regionally-focused manufacturing and delivery limits the global impact of certain trade restrictions and tariffs. Further, the majority of our supply components are not currently subject to the additional tariffs or are compliant with exceptions, and we believe that we can generally mitigate the direct impact of any such tariffs currently in effect by directly or indirectly passing the additional costs through to customers. We are taking and will continue to take additional actions to mitigate any direct and indirect impacts.
For the year ended December 31, 2025, the additional tariffs did not have a material impact on our results of operations, financial position, and cash flows. However, these matters are changing rapidly and there is significant uncertainty as to how long and to what degree that Gentherm and the automotive industry will be impacted by these or other additional tariffs, the adverse global trade environment and the resulting economic uncertainty.
Global Conditions
The global automotive light vehicle industry is impacted by a number of factors, including global and regional economic conditions. At times in recent years, the global economy has experienced significant volatility, inflationary pressures and supply chain disruptions, which have a widespread adverse effect on the global automotive industry. These macroeconomic conditions have resulted in fluctuating demand and production disruptions, facility closures, labor shortages, work stoppages, and increased prices of inputs to our products. Although some supply chain conditions have steadily improved and certain inflationary pressures have moderated, 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.
We are exposed to foreign currency risk due to the translation and remeasurement of the results of certain international operations into U.S. dollars as part of the consolidation process. Therefore, fluctuations in foreign currency exchange rates can create volatility in the results of operations and may adversely affect our financial condition.
We have a global manufacturing footprint that enables us to serve our customers in the regions they operate and shift production between regions to remain competitive. There have been various ongoing geopolitical conflicts, such as the current conflicts between Russia and Ukraine and in the Middle East and heightened tensions in the Red Sea and in the South China Sea. These conflicts have interrupted ocean freight shipping and if prolonged or intensified, could have a substantial adverse effect on our financial results. Further, it is reasonably possible that certain political pressures, such as changes to international trade agreements, increases in tariffs, import quotas or other trade restrictions or actions, including export controls and other retaliatory responses to such actions, could continue to affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the
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mix of production to higher cost regions. See “—Tariffs and Global Trade Environment” above for further information on the impact of tariffs and the global trade environment in 2025. We, like other manufacturers, have a high proportion of fixed structural costs, and therefore relatively small changes in industry vehicle production can have a substantial effect on our financial results.
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 (February 2026 release), global light vehicle production in 2025 in the Company’s key markets of North America, Europe, China, Japan and South Korea, as compared to 2024, are shown below (in millions of units):
Total light vehicle production volume in key markets 77.5 74.7 3.7 %
The S&P Global Mobility report (February 2026 release) forecasted light vehicle production volume in the Company’s key markets for full year 2026 to decrease to 76.7 million units, a 1.0% decrease from full year 2025 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 have been and may continue to be significantly different from period to period due to changes in macroeconomic 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 2025, we secured an estimated $2,200 million of automotive new business awards. 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 December 31, 2025, the date of this Annual 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 2025 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges on future business. Revenues resulting from automotive new business awards also are subject to additional risks and uncertainties as described in Item 1 under “Forward-Looking Statements” of this Annual Report.
Stock Repurchase Program
In June 2024, the Board of Directors authorized the 2024 Stock Repurchase Program to commence upon expiration of the Company’s prior stock repurchase program on June 30, 2024. Under the 2024 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 June 30, 2027. Repurchases under the 2024 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. Any such repurchases may be executed using open market purchases, accelerated share repurchase programs, privately negotiated agreements or other transactions. Repurchases may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources.
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During the year ended December 31, 2025, the Company repurchased $10.0 million of Common Stock with an average price paid per share of $26.24. The 2024 Stock Repurchase Program had $110.1 million of repurchase authorization remaining as of December 31, 2025.
Reportable Segments
The Company has two reportable segments for financial reporting purposes: Automotive and Medical. See Note 19, “Segment Reporting,” to the consolidated financial statements included in this Annual Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues, operating income and depreciation and amortization.
Results of Operations Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
This section discusses our consolidated results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. For a detailed discussion of our consolidated results of operations for the years ended December 31, 2024 compared to the year ended December 31, 2023, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under “Results of Operations Year Ended December 31, 2024 Compared to December 31, 2023” in our annual report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 19, 2025.
The results of operations for the years ended December 31, 2025 and 2024, in thousands, were as follows:
Year Ended December 31,
Operating expenses:
Loss on sale of land and building, net 2,196 — (2,196 )
Impairment of intangible assets and property and equipment — 2,501 2,501
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Product revenues by product category, in thousands, for the years ended December 31, 2025 and 2024 were as follows:
Year Ended December 31,
(a)
Product categories have been modified, and prior-period amounts have been recast to conform with the current period presentation. Climate Control Seats (CCS) includes CCS Heat (previously Seat Heaters), CCS Vent/CCS Active (previously CCS) and CCS Neck Conditioners (previously included in Other Automotive). Climate Control Interiors (CCI) includes CCI Steering Wheel Heat and CCI Interior Heat (previously included in Other Automotive). Other Automotive includes Automotive Cables, Battery Performance Solutions, non-automotive electronics and contract manufacturing electronics (previously classified as Electronics).
Product Revenues
Below is a summary of our product revenues, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31, Variance Due To:
2025 2024 Favorable / (Unfavorable) Automotive Volume FX Pricing/ Other Total
Product revenues for the year ended December 31, 2025 increased 2.9% as compared to the year ended December 31, 2024. The increase in product revenues is due to favorable automotive volumes and favorable foreign currency impacts primarily attributable to the Euro, partially offset by unfavorable pricing and unfavorable currency impacts primarily attributable to the Chinese Renminbi and Korean Won.
Cost of Sales
Below is a summary of our cost of sales and gross margin, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31, Variance Due To:
Gross margin - Percentage of product revenues 24.2 % 25.2 %
Cost of sales for the year ended December 31, 2025 increased by 4.3% as compared to the year ended December 31, 2024. The increase in cost of sales is primarily due to higher automotive volumes, unfavorable foreign currency impacts primarily attributable to the Euro, higher quality costs and higher labor costs, partially offset by material purchasing savings.
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Net Research and Development Expenses
Below is a summary of our net research and development expenses, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Percentage of product revenues 6.3 % 6.1 %
Net research and development expenses for the year ended December 31, 2025 increased 6.8% as compared to the year ended December 31, 2024. The increase in net research and development expenses is primarily related to higher employee compensation and tooling and development expenses.
Selling, General and Administrative Expenses
Below is a summary of our selling, general and administrative expenses, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Percentage of product revenues 11.3 % 10.7 %
Selling, general and administrative expenses for the year ended December 31, 2025 increased 9.6% as compared to the year ended December 31, 2024. Merger and acquisition expenses were $6.6 million for the year ended December 31, 2025. The remaining increase in selling, general and administrative expenses is primarily related to higher expenses for leases, leadership transition, information technology and employee compensation and unfavorable foreign currency impacts primarily attributable to the Euro and Mexican Peso.
Restructuring Expenses, net
Below is a summary of our restructuring expenses, net, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Restructuring expenses, net primarily relate to discrete restructuring activities focused on optimizing our manufacturing footprint and cost structure. See Note 4, "Restructuring" in the notes to the consolidated financial statements included in this Annual Report for additional information.
Loss on Sale of Land and Building, net
Below is a summary of our loss on sale of land and building, net, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Loss on sale of land and building, net $ 2,196 $ — $ (2,196 )
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Loss on sale of land and building, net for the year ended December 31, 2025 is primarily due to the sale of our former headquarters building in Northville, Michigan in January 2025.
Impairment of Intangible Assets and Property and Equipment
Below is a summary of our impairment of intangible assets and property and equipment, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Impairment of intangible assets and property and equipment $ — $ 2,501 $ 2,501
Impairment of intangible assets and property and equipment for the year ended December 31, 2024 related to equipment determined to have no future use.
Interest Expense, net
Below is a summary of our interest expense, net, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
The decrease in interest expense during the year ended December 31, 2025 compared to 2024 is primarily related to a lower average borrowing on the Revolving Credit Facility and the change in fair value of an interest rate swap derivative in the prior year period.
Foreign Currency (Loss) Gain
Below is a summary of our foreign currency gain (loss), in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Foreign currency loss for the year ended December 31, 2025 included net realized foreign currency gain of $1.8 million and unrealized net foreign currency loss of $30.3 million.
Foreign currency gain for the year ended December 31, 2024 included net realized foreign currency loss of $1.1 million and unrealized net foreign currency gain of $10.7 million.
Other (Loss) Income
Below is a summary of our other (loss) income, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
The decrease is primarily driven by non-cash impairment charges related to our non-consolidated equity investments during the year ended December 31, 2025. See Note 2, "Summary of Significant Accounting Policies," in the notes to the consolidated financial statements included in this Annual Report for additional information.
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Income Tax Expense
Below is a summary of our income tax expense, in thousands, for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Income tax expense was $17.6 million for the year ended December 31, 2025, on earnings before income tax of $35.8 million, representing an effective tax rate of 49.0.%. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the unfavorable impact of global intangible low tax income ("GILTI"), withholding taxes, unfavorable tax effects of equity vesting and other non-deductible expenses, partially offset by the impact of income taxes on foreign earnings at tax rates varying from the U.S. Federal statutory tax rate, research and development credits, and incentive tax rates in various jurisdictions.
Income tax expense was $37.3 million for the year ended December 31, 2024, on earnings before income tax of $102.3 million, representing an effective tax rate of 36.5%. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the unfavorable impact of GILTI, withholding taxes, other non-deductible expenses, and the settlement of a prior period tax audit, partially offset by the impact of income taxes on foreign earnings at tax rates varying from the U.S. Federal statutory tax rate, research and development credits and incentive tax rates in various jurisdictions.
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 and investment opportunities that will enhance our business strategies.
As of December 31, 2025, the Company had $160.8 million of cash and cash equivalents and $307.9 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 December 31, 2025, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled $103.1 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 and borrowings available under our Second Amended and Restated Credit Agreement and cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.
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Cash and Cash Flows
The table below summarizes our cash activity for each of the last two fiscal years (in thousands):
Year Ended December 31,
Cash and cash equivalents at beginning of period $ 134,134 $ 149,673
Net cash used in investing activities (52,398 ) (53,531 )
Net cash used in financing activities (42,483 ) (51,705 )
Foreign currency effect on cash and cash equivalents 4,789 (19,949 )
Cash and cash equivalents at end of period $ 160,833 $ 134,134
Cash Flows From Operating Activities
Net cash provided by operating activities totaled $116.8 million and $109.6 million for the years ended December 31, 2025 and 2024, respectively. Cash flow provided by operating activities for the year ended December 31, 2025 consisted primarily of net income of $18.3 million, increased by $110.2 million for non-cash charges for depreciation and amortization, unrealized stock based compensation, provisions for inventory, loss on disposition of property and equipment and other, including unrealized foreign currency loss, $27.6 million related to increase in accounts payable and $13.9 million for changes in net other assets and liabilities, partially offset by $22.3 million for non-cash deferred income taxes, $21.6 million of change in inventory and $9.3 million change in accounts receivable. Cash flow provided by operating activities for the year ended December 31, 2024 consisted primarily of net income of $64.9 million, increased by $82.9 million for non-cash charges for depreciation, amortization, stock based compensation, deferred income taxes, impairment of intangible assets and property and equipment and provision for inventory, partially offset by $35.5 million related to changes in assets and liabilities, $1.6 million for a gain on disposition of property and equipment and $1.1 million of other.
Cash Flows From Investing Activities
Net cash used in investing activities totaled $52.4 million and $53.5 million for the years ended December 31, 2025 and 2024, respectively. Cash flows used in investing activities for the year ended December 31, 2025 primarily included capital expenditures of $55.7 million and technology investments of $1.2 million, partially offset by proceeds from the sale of property and equipment of $3.8 million and proceeds from deferred purchase price of factored receivables of $0.7 million. Cash flows used in investing activities for the year ended December 31, 2024 primarily included capital expenditures of $73.3 million and technology investments of $1.0 million, partially offset by proceeds from deferred purchase price of factored receivables of $12.9 million and proceeds from the sale of property and equipment of $7.9 million.
Cash Flows From Financing Activities
Net cash used in financing activities totaled $42.5 million and $51.7 million for the years ended December 31, 2025 and 2024, respectively. Cash flows used in financing activities for the year ended December 31, 2025 primarily included $31.1 million net repayments of debt, $10.0 million of cash paid for the repurchase of Common Stock and $1.3 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year. Cash flows used in financing activities for the year ended December 31, 2024 primarily included $2.6 million net repayments of debt, $51.6 million of cash paid for the repurchase of Common Stock and $3.3 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by $5.8 million of proceeds from the exercise of Common Stock options.
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Debt
The following table summarizes the Company’s debt at December 31, 2025 and 2024 (dollars in thousands):
December 31,
InterestRate PrincipalBalance InterestRate PrincipalBalance
Less: current maturities (73 ) (137 )
Credit Agreement
Gentherm, together with certain of its subsidiaries, maintains a revolving credit note (“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 "Agent"). The Second Amended and Restated Credit Agreement was entered into on June 10, 2022 and amends and restates 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.
Finance Leases
As of December 31, 2025 and 2024, there was $0.1 million and $0.2 million of outstanding finance leases, respectively.
Modine Transaction
On January 29, 2026, the Company and SpinCo executed a 364-day bridge loan facility commitment letter with Barclays Bank PLC (“Barclays Bank”), pursuant to which Barclays Bank has committed financing to the Company and SpinCo of $790 million in the aggregate, including (i) $290 million to fund the SpinCo Distribution, to pay a special dividend to the Company’s shareholders, if necessary to support the intended tax-free treatment of the Distribution to Modine shareholders, and to pay fees and expenses of the Modine Transaction, and (ii) $500 million to backstop capacity under the Revolving Credit Facility while the Company seeks lender consent for the Modine Transaction. The Bridge Facility is expected to be replaced with permanent financing. If the Modine Transaction is consummated, any indebtedness incurred by SpinCo under the Bridge Facility or the permanent financing will become indebtedness of a wholly owned subsidiary of the Company.
Material Cash Requirements
The following table summarizes current and long-term material cash requirements as of December 31, 2025, which we expect to fund primarily with operating cash flows. We have not included amounts for material and component purchase obligations related to
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standard recurring purchases of materials for use in our manufacturing operations as these amounts are generally consistent from year to year, closely reflect our levels of production, and are not long-term in nature.
Payments Due by Period
(1)
Long-term debt obligations do not include an amount payable for interest. See Note 8, “Debt,” to the consolidated financial statements included in this Annual Report for additional information.
(2)
See Note 7, “Leases,” to the consolidated financial statements included in this Annual Report for additional information.
(3)
Capital commitments is comprised of commitments for capital expenditures. Such commitments are typically less than one year.
Restructuring
In July 2025, we committed to a restructuring plan to further optimize our manufacturing footprint by realigning our global manufacturing capacity. We expect to incur cash restructuring costs of between $3 million and $4 million for employee severance and retention costs and $1 million of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $1 million and $2 million.
In February 2025, we committed to a restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Europe. We expect to incur cash restructuring costs of between $4 million and $6 million for employee severance and retention costs and between $2 million and $3 million of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $1 million and $2 million.
In February 2025, we committed to an additional restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Asia. We expect to incur cash restructuring costs of between $2 million and $3 million for employee severance and retention costs and $1 million of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $2 million and $3 million.
See Note 4, “Restructuring,” to the consolidated financial statements included in this Annual Report for additional information regarding these plans.
Capital Expenditures
We anticipate capital expenditures in fiscal year 2026 of approximately $45 million to $55 million. We will continue to support organic growth through capacity expansion in our facilities and make capital improvements as necessary. We believe cash on hand, cash generated from operations, and the borrowing capacity available under our Second Amended and Restated Credit Agreement will be sufficient to support our capital expenditures.
Other Commitments
In December 2021, the Company committed to make a $5 million investment in Autotech Fund III, L.P., pursuant to a limited partnership agreement. As a limited partner, the Company will periodically make capital contributions toward this total commitment amount over the expected ten year life of the fund. The Company has made contributions of approximately $2.9 million to the Autotech Fund III, LP as of December 31, 2025. Timing of the remaining $2.1 million of capital contributions is unknown and therefore amounts have been excluded from the Material Cash Requirements table above.
Effects of Inflation
The automotive component supply industry has historically been subject to inflationary pressures with respect to materials and labor. At times in recent years, the automotive industry has experienced significant volatility in the costs of certain materials and
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components, labor and transportation. Although supply chain conditions have steadily improved and certain inflationary pressures have moderated, 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. Although the Company has developed and implemented strategies to mitigate the impact of higher material component costs and transportation costs through sourcing and manufacturing efficiencies where possible, 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
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In preparing these consolidated financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material to our financial statements.
We have identified the following estimates as our most critical accounting estimates, which are those that are most important to aid in fully understanding and evaluating the Company’s financial condition and results of operations, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies are disclosed in Note 2, "Summary of Significant Accounting Policies", of the notes to the consolidated financial statements.
Goodwill
Critical estimates: Goodwill is tested for impairment at least annually as of December 31 and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In conducting our annual impairment assessment testing, we first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.
The Company utilizes an income approach to estimate the fair value of a reporting unit and a market valuation approach to further support this analysis. The income approach is based on projected debt-free cash flow that is discounted to the present value using discount factors that consider the timing and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based on the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in our industry. Fair value is estimated using internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of our estimated cost of equity and of debt (“cost of capital”) derived using both known and estimated customary market metrics. Our weighted average cost of capital is adjusted to reflect risk, if necessary. Other significant assumptions include terminal value growth rates and terminal value margin rates. To further support the fair value estimate determined by the income approach, the Company utilizes a market valuation approach to estimate the fair value of a reporting unit. The market approach considers historical and/or anticipated financial metrics of a reporting unit and applies valuation multiples based on recent observed transactions involving companies similar enough to the reporting units from which to draw meaningful conclusions.
Judgments and uncertainties: These fair value calculations contain uncertainties as they require management to make assumptions about future cash flows and appropriate discount rates to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium. Our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over
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the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities.
Also, the market valuation approach is highly subjective as it requires the selection of comparable companies and valuation multiples.
Impact if actual results differ from assumptions: As of December 31, 2025, our goodwill balance included $81.0 million related to our Automotive segment and $27.9 million related to our Medical segment. These balances could be fully or partially impaired if management does not achieve the expected cash flows assumed in the fair value estimates or if assumptions and cash flow estimates change in future periods.
The Company’s Medical segment is comprised of one reporting unit (the “Medical reporting unit”). The estimated fair value of the Medical reporting unit exceeded its carrying value by approximately 25% as of December 31, 2025. The Medical reporting unit is at risk of failing future impairment tests, as the estimate of fair value does not substantially exceed its carrying value. The Company’s estimated future cash flow projections for the Medical reporting unit for the period of 2026 through 2030 assume a compound annual growth rate for revenue of approximately 14.0%, which we deem to be a critical assumption in the fair value determination as of December 31, 2025. This forecasted revenue growth, which is significantly higher than historical periods, is primarily driven by our anticipated product launches. Realization of this assumed revenue growth is dependent on the successful launch of these new products and the acceptance of customers. If this 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 a material impairment of goodwill. Additionally, forecasted cash flows assume margin expansion as a direct result of the forecasted revenue growth. If we experience higher costs than assumed in our forecast or if we experience other deviations from forecasted results and/or external factors (e.g., increase of interest rates), it could result in a material impairment.
The Company's reporting units in its Automotive segment each have a fair value that is substantially in excess of its respective carrying value as of December 31, 2025.
Income Taxes
Critical estimates: The Company is subject to income taxes in the United States and numerous international jurisdictions. In calculating our effective income tax rate, we make judgments regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions. When determining whether we will be able to realize deferred tax assets, judgment is used to evaluate the positive and negative evidence, including forecasting taxable income using historical and future operating results. The provision for income taxes includes current income taxes as well as deferred income taxes. Deferred tax assets and liabilities are measured based on the difference between the financial statement and tax base of assets and liabilities at the applicable enacted tax rates.
Judgments and uncertainties: We have various tax filing positions with regard to the timing and amount of deductions and credits and the allocation of income among various tax jurisdictions, based on our interpretation of local tax laws, supported by external advisor review for material positions.
Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized when management considers it more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on the evaluation of positive and negative evidence, which includes historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis.
The Company is subject to ongoing tax examinations and assessments in various jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities and a number of years may elapse before a particular matter, for which a liability has been established, is audited and fully resolved or clarified. In evaluating the exposures associated with various tax filing positions, the Company may record liabilities for such exposures. The Company generally adjusts its liabilities for unrecognized tax benefits and related indemnification obligations through earnings in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available.
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Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and may materially increase or decrease the effective tax rate, as well as impact the Company’s operating results.
Impact if actual results differ from assumptions: Some or all of management’s judgments are subject to review by the taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded, and we were unable to realize this benefit, it could have a material adverse effect on our financial results and cash flows. Further, if the Company is unable to generate sufficient future taxable income, there is a material change in the actual effective tax rates, a change to the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then the Company could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate.
For the year ended December 31, 2025, each change of the effective tax rate by one percentage point would impact income tax expense by $0.4 million.
Recent Accounting Pronouncements
For a complete description of recent accounting standards which we have not yet been required to implement which may be applicable to our operations, as well as accounting standards that have been adopted during the year ended December 31, 2025, see Note 3, “New Accounting Pronouncements,” to the consolidated financial statements included in this Annual Report.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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, Hungarian Forint, North Macedonian Denar, Ukrainian Hryvnia, Japanese Yen, Chinese Renminbi, Korean Won, Czech Koruna, Vietnamese Dong and Moroccan Dirham.
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.
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 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 statements of income on the same line as the hedged item. Also, the Company records the ineffective portion, if any, on the same line as the hedged item. Cash flows associated with derivatives are reported in net cash provided by operating activities in the Company’s consolidated statements of cash flows.
Information related to the fair values of all derivative instruments in our consolidated balance sheet as of December 31, 2025 is set forth in Note 13, “Financial Instruments” in the consolidated financial statements included in this Annual Report.
Interest Rate Sensitivity
The table 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.
Expected Maturity Date
Liabilities
Long-Term Debt:
Based on the amounts outstanding as of December 31, 2025, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $1.9 million. To hedge the Company's exposure to interest payment fluctuations on a portion of the borrowings, we entered into a floating-to-fixed interest rate swap agreement with a notional amount of $100.0 million.
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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.
Expected Maturity or Transaction Date
Anticipated Transactions and Related Derivatives 2026 2027 Total Fair Value
USD Functional Currency
Exchange Agreements:
(Receive MXN / Pay USD)
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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited consolidated financial statements and related financial information required to be filed hereunder are indexed on page F-1 of this Annual Report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
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 December 31, 2025. 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 December 31, 2025.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework (2013).” Based on that evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2025.
The attestation report of the Company’s independent registered public accounting firm, regarding the effectiveness of the Company’s internal control over financial reporting, is set forth in Item 15, "Exhibits and Financial Statement Schedules," included under the caption "Report of Independent Registered Public Accounting Firm".
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
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ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2025, none of the Company's directors or Section 16 officers adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or (ii) any non-Rule 10b5-1 trading arrangement.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth under the following captions in our proxy statement to be filed with respect to the 2026 annual meeting of shareholders (the “Proxy Statement”), all of which is incorporated herein by reference: “Proposal No. 1 – Election of Directors”, “Corporate Governance – Key Policies and Practices”, “Corporate Governance – Standing Committees of the Board”, “Executive Officers” and “Additional Information – Requirements for Submission of Shareholder Proposals and Nominations for 2027 Annual Meeting.”
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Director Compensation”, “Compensation Discussion & Analysis”, “Compensation and Talent Committee Report”, and “Named Executive Officer Compensation Tables.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is set forth under the following caption in our Proxy Statement, which is incorporated herein by reference: “Security Ownership of Certain Beneficial Owners and Management.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Proposal No. 1 – Election of Directors – Director Independence” and “Related Person Transactions.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is set forth under the following caption in our Proxy Statement, which is incorporated herein by reference: “Proposal No. 3 – Ratification of Appointment of Independent Registered Public Accounting Firm For 2026" and "Audit Committee Matters.”
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report:
1.
Financial Statements.
The following financial statements of the Company and reports of independent accountants are included in Item 15 of this Annual Report:
Page
Consolidated Balance Sheets F-5
Consolidated Statements of Income F-6
Consolidated Statements of Comprehensive Income F-7
Consolidated Statements of Changes in Shareholders’ Equity F-8
Consolidated Statements of Cash Flows F-9
Notes to the Consolidated Financial Statements F-10
2.
Financial Statement Schedule.
The following Schedule to Financial Statements is included herein:
Schedule II — Valuation and Qualifying Accounts.
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3.
Exhibits.
The exhibits to this Annual Report are as follows:
Incorporated by Reference
3.2 Amended and Restated Bylaws of Gentherm Incorporated 8-K 3.1 5/26/16
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Incorporated by Reference
10.8** Form of First Amendment to Executive Offer Letter 8-K 10.7 3/15/21
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Incorporated by Reference
19 Securities Trading Policy X
21 List of Subsidiaries (Direct and Indirect) of the Company X
23.1 Consent of Ernst & Young LLP X
24 Power of Attorney X
31.1 Section 302 Certification - CEO X
31.2 Section 302 Certification – CFO X
32.1*** Section 906 Certification – CEO X
32.2*** Section 906 Certification - CFO X
101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents X
* Schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish any omitted schedules or exhibits upon the request of the SEC.
** Indicates management contract or compensatory plan or arrangement.
*** Documents are furnished not filed.
ITEM 16. Form 10-K Summary
None.
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INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-5
Notes to the Consolidated Financial Statements F-10
Note 1 - Overview F-10
Note 2 - Summary of Significant Accounting Policies F-10
Note 3 - New Accounting Pronouncements F-17
Note 4 - Restructuring F-17
Note 5 - Details of Certain Financial Statement Components F-20
Note 6 - Goodwill and Other Intangibles F-21
Note 7 - Leases F-22
Note 8 - Debt F-23
Note 9 - Pension and Other Post Retirement Benefit Plans F-24
Note 10 - Commitments and Contingencies F-26
Note 11 - Supplier Finance Program F-28
Note 12 - Earnings Per Share F-28
Note 13 - Financial Instruments F-29
Note 14 - Fair Value Measurements F-31
Note 15 - Equity F-31
Note 16 - Reclassifications Out of Accumulated Other Comprehensive Loss F-33
Note 17 - Accounting for Stock Based Compensation F-34
Note 18 - Income Taxes F-38
Note 19 - Segment Reporting F-43
Note 20 - Subsequent Event F-46
Schedule II - Valuation and Qualifying Accounts F-48
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Gentherm Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gentherm Incorporated (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2026, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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Valuation of Goodwill
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2020.
Detroit, Michigan
February 19, 2026
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Gentherm Incorporated
Opinion on Internal Control Over Financial Reporting
We have audited Gentherm Incorporated’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Gentherm Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated February 19, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Detroit, Michigan
February 19, 2026
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GENTHERM INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
ASSETS
Current Assets:
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt 73 137
Shareholders’ equity:
Common Stock:
Accumulated other comprehensive loss (964 ) (85,193 )
The accompanying notes are an integral part of these consolidated financial statements
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GENTHERM INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
Operating expenses:
Loss on sale of land and building, net 2,196 — —
Impairment of intangible assets and property and equipment — 2,501 —
Impairment of goodwill — — 19,509
Diluted earnings per share $ 0.59 $ 2.06 $ 1.22
The accompanying notes are an integral part of these consolidated financial statements
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GENTHERM INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
Other comprehensive income (loss):
Pension benefit obligations, net of tax 130 (840 ) 56
Foreign currency translation adjustments, net of tax 77,982 (45,266 ) 13,439
The accompanying notes are an integral part of these consolidated financial statements
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GENTHERM INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Accumulated
Other
Common Stock Paid-in Comprehensive Accumulated
Shares Amount Capital Loss Earnings Total
Other comprehensive loss — — — (55,033 ) — (55,033 )
The accompanying notes are an integral part of these consolidated financial statements
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GENTHERM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Operating Activities:
Loss (gain) on disposition of property and equipment 3,025 (1,603 ) 721
Impairment of intangible assets and property and equipment — 2,501 —
Impairment of goodwill — — 19,509
Changes in assets and liabilities:
Investing Activities:
Proceeds from the sale of property and equipment 3,770 7,862 391
Proceeds from deferred purchase price of factored receivables 745 12,876 13,903
Cost of technology investments (1,240 ) (955 ) (815 )
Financing Activities:
Proceeds from the exercise of Common Stock options — 5,791 263
Supplemental disclosure of cash flow information:
Non-Cash Investing Activities:
Deferred purchase price of receivables factored in the period — 9,276 13,885
The accompanying notes are an integral part of these consolidated financial statements
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note 1 — Overview
Gentherm Incorporated, a Michigan corporation, and its consolidated subsidiaries (“Gentherm”, “we”, “us”, “our” or the “Company”) is a global market leader of innovative thermal management and pneumatic comfort technologies. Our automotive products include Climate Control Seats (CCS®), Climate Control Interiors (CCITM), Lumbar and Massage Comfort Solutions, Valve Systems, and Climate and Comfort Electronics. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Our medical products include patient temperature management systems that can be found in hospitals throughout the world.
On January 29, 2026, Gentherm, entered into definitive agreements to combine the Performance Technologies business (“Performance Technologies”) of Modine Manufacturing Co., a Wisconsin corporation (“Modine”), with Gentherm. Refer to Note 20 – Subsequent Event for details.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and those entities in which it has a controlling financial interest. The Company evaluates its relationship with other entities for consolidation and to identify whether such entities are variable interest entities (“VIE”) and to assess whether the Company is the primary beneficiary of such entities. Investments in affiliates in which Gentherm does not have control but does have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method. When Gentherm does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in affiliates are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.
Intercompany transactions and balances between consolidated businesses have been eliminated.
Use of Estimates
In preparing these consolidated financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. 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.
Business Combinations
In accordance with ASC Topic 805, “Business Combinations,” acquisitions are recorded using the acquisition method of accounting. The Company includes the operating results of acquired entities from their respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest as of the acquisition date fair value. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
acquired, liabilities assumed and any non-controlling interest is recognized as goodwill. Costs incurred as a result of a business combination other than costs related to the issuance of debt or equity securities are recorded in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to assets acquired and liabilities assumed with the corresponding offset to goodwill.
Revenue Recognition
Revenue is recognized from agreements containing enforceable rights and obligations, when promised goods are delivered or services are completed. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from product revenues. Shipping and handling fees billed to customers are included in product revenues, while costs of shipping and handling are included in cost of sales.
Automotive Revenues
The Company generates revenue from the production of automotive parts sold to its customers under long-term supply agreements (“LTAs”). The duration of an LTA is generally consistent with the life cycle of a vehicle; however, a LTA does not reach the level of a performance obligation until Gentherm receives either a purchase order and/or a materials release from its customer for a specific number of production parts at a specified price, at which point an enforceable contract exists. Revenue is recognized when control of the production parts has transferred to the customer according to the terms of the contract, which typically occurs at a point in time when the parts are shipped or delivered to the customer’s premises.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring production parts. Transaction price is determined based on the price and quantity of parts specified in the contract with the customer at the time of shipment, adjusted for discrete price adjustments and consideration payable to a customer. Discrete price reductions may occur to remain competitive with market prices. These price reductions are negotiated based on changes in product specifications, product content/cost or other commercial factors. Some of these amounts include estimates of variable consideration which are recorded at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations.
From time to time, the Company provides cash incentives to customers in exchange for new business awards. The Company evaluates the underlying economics of each amount of consideration payable to a customer to determine the proper accounting by understanding the reasons for the payment, the rights and obligations resulting from the payment, the nature of the promises in the contract, and other relevant facts and circumstances. When the Company concludes that the payment is incurred only if the new business is obtained and the Company expects to recover the amounts from the customer over the term of the new business arrangement, the Company recognizes these payments as an asset. The Company amortizes the asset as a reduction of revenue as products related to the payment are transferred to the customer, based on the total amount of products expected to be sold over the term of the arrangement (generally 5 to 10 years following start of production). The Company evaluates the amounts capitalized each reporting period for recoverability and recognizes a reduction of revenue for any amounts that are no longer expected to be recovered over the term of the business arrangement. Payments to customers that are not capitalized are recognized as a reduction to revenue at the time of the commitment to make such payments.
As of December 31, 2025 and 2024, total capitalized payments to customers were $18,168 and $14,276, respectively.
During the years ended December 31, 2025, 2024 and 2023, the Company recognized $1,634, $447 and $179 as reductions of revenue due to amortization and write-off of previously capitalized payments.
The Company has no material contract assets or contract liabilities as of December 31, 2025.
Medical Revenues
Revenues from our patient temperature management business unit are generated from the sale of products and equipment. Our medical products and equipment focus on patient temperature management. The Company sells medical products and equipment
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
primarily through distributor and group purchasing organization agreements. These agreements allow member participants to the distributor or group purchasing organization to make purchases at discounted prices negotiated by the distributor or group purchasing organization. A rebate is incurred at the point in time a member participant purchases product covered under these types of agreements. Rebates are accounted for as variable consideration, using an expected value, probability weighted approach, based on the level of sales to the distributor and the time lag between the initial sale and the rebate claim in determining the transaction price of a contract. Revenue is recognized when control of the medical products or equipment has transferred to the customer according to the terms of the contract, which typically occurs at the point in time when the parts are either shipped or delivered to the customer’s premises.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of less than 90 days to be cash equivalents. The Company had cash and cash equivalents of $103,135 and $106,905 held in foreign jurisdictions as of December 31, 2025 and 2024, respectively.
Concentration of Credit Risk
The following is a summary of the percentage of product revenues and accounts receivable from the Company's customers with a percentage of Product Revenues greater than 10 percent:
Percentage of Total Product Revenues Percentage of Total Net Accounts Receivable
Year Ended December 31, Year Ended December 31,
Accounts Receivable
Accounts receivable are stated at the invoiced amount, less allowance for doubtful accounts for estimated amounts not expected to be collected, and do not bear interest.
The Company establishes and maintains allowances for the inability or unwillingness of customers to make required payments on their accounts receivable balances. These allowances reflect management's estimate of credit losses over the remaining expected life of such assets, measured primarily using historical write-off experience by industry and regional economic data, as well as current conditions and forecasts that affect the collectability of the reported amount. We write-off accounts receivable when they become uncollectible. As of December 31, 2025 and 2024, the Company’s accounts receivable are reflected net of reserves of $1,600 and $1,605, respectively. Changes in the allowance for doubtful accounts were not significant during the years ended December 31, 2025 and 2024.
In the Asia-Pacific region, the Company receives bank notes from certain customers to settle trade receivables. The collection of such bank notes is included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. Bank notes held by the Company are classified as notes receivable within other current assets. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-party financial institutions in exchange for cash.
Inventory
The Company’s inventory is measured at the lower of cost or net realizable value. Raw materials, components and consumables are measured using the weighted average cost method. Work-in-process and finished goods are measured using the first-in first-out
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
method. If the net realizable value expected on the reporting date is below cost, a write-down is recorded to adjust inventory to its net realizable value. We recognize a reserve for obsolete and slow-moving inventories based on estimates of future sales and an inventory item’s capacity to be repurposed for a different use. We consider the number of months' supply on hand based on current planned requirements, uncommitted future projections and historical usage in estimating the inventory reserve.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Expenditures for general repairs and maintenance are charged to expense as incurred. When property or equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts. Gains or losses from retirements and disposals are recorded as operating income or expense.
Depreciation is computed using the straight-line method. The estimated useful lives of the Company’s property and equipment are as follows:
Asset Category Useful Life
Buildings and improvements 1 to 30 years
Machinery and equipment 10 years
Production tooling 2 to 10 years
Leasehold improvements Term of lease
Information technology 1 to 5 years
The Company recognized depreciation expense of $45,792, $45,503 and $42,186 for the years ended December 31, 2025, 2024 and 2023, respectively.
Tooling
The Company incurs costs related to tooling used in the manufacture of products sold to its customers. In some cases, the Company enters into contracts with its customers whereby the Company incurs the costs to design, develop and purchase tooling and is then reimbursed by the customer under a reimbursement contract. Tooling costs that will be reimbursed by customers are included in other current assets in the accompanying consolidated balance sheets at the lower of accumulated cost or the customer reimbursable amount. As of December 31, 2025 and 2024, the Company had $23,553 and $19,740, respectively, of reimbursable tooling costs capitalized. Company-owned tooling is included in property and equipment and depreciated over its expected useful life, generally two to ten years.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets recorded in conjunction with business combinations are based on the Company’s estimate of fair value, as of the date of acquisition.
Amortization of other intangible assets is computed using the straight-line method. The useful lives for acquired intangible assets are listed below as follows:
Asset Category Useful Life
Customer relationships 8 to 15 years
Technology 5 to 12 years
Product development costs 5 to 10 years
Trade names Indefinite
Software development costs 4 to 5 years
Our business strategy largely centers on designing products based upon internally developed and purchased technology, and we protect certain technology with patents that have value to our business strategy. All costs associated with the development and
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
issuance of new patents are expensed as incurred. Such costs are classified as net research and development expenses in the accompanying consolidated statements of income.
Valuation of Long-lived Assets
The carrying value of long-lived assets held for use, including definite-lived intangible assets, is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset held for use is considered impaired when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. Impairment losses on long-lived assets held for sale are recognized if the carrying value of the asset is in excess of the asset’s estimated fair value, reduced for the cost to dispose of the asset.
Impairments of Other Intangible Assets and Goodwill
Goodwill is tested for impairment at least annually as of December 31 and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In conducting our annual impairment assessment testing, we first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.
The Company utilizes an income approach to estimate the fair value of a reporting unit and a market valuation approach to further support this analysis (level 3). The income approach is based on projected debt-free cash flow that is discounted to the present value using discount factors that consider the timing and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based on the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in our industry. Fair value is estimated using internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of our estimated cost of equity and of debt (“cost of capital”) derived using both known and estimated customary market metrics. Our weighted average cost of capital is adjusted to reflect risk, if necessary. Other significant assumptions include terminal value growth rates and terminal value margin rates. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, we believe that the income approach provides a reasonable estimate of the fair value of a reporting unit.
In addition to annual impairment testing, which is performed in the fourth quarter of each fiscal year, the Company continuously monitors for events and circumstances that could negatively impact the key assumptions used in determining fair value and therefore would require interim impairment testing, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company's market capitalization, and general industry, market and macroeconomic conditions
The Company performs its indefinite-lived intangible asset impairment assessment annually as of December 31, and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.
See Note 6, "Goodwill and Other Intangibles," for additional information about the asset impairment analyses.
Investments in Non-consolidated Affiliates
In December 2021, the Company committed to make a $5,000 investment in Autotech Fund III, L.P. (“Autotech”), pursuant to a limited partnership agreement. Autotech focuses broadly on the automotive industry and complements the Company’s innovation strategy. As a limited partner, the Company will periodically make capital contributions toward its total commitment amount over the
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
expected ten-year life of the fund. The Company has made contributions totaling approximately $2,855 as of December 31, 2025. Our investment is accounted for under the equity method. In the years ended December 31, 2025, 2024 and 2023 we recognized $303, $0 and ($104) in other (loss) income. The carrying value was $2,933 and $1,540 as of December 31, 2025 and 2024, respectively.
In addition to Autotech, the Company’s Automotive segment has ownership interests in two non-consolidated affiliates that are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. As a result of observable transactions and impairment indicators during the years ended December 31, 2025, 2024 and 2023, the Company recognized ($4,941), $1,097 and ($2,900), respectively in other (loss) income. The carrying value of these investments was $1,463 and $6,254 as of December 31, 2025 and 2024, respectively.
Research and Development Expenses
Research and development activities are expensed as incurred. Such costs and related reimbursements are classified as net research and development expenses in the accompanying consolidated statements of income.
Leases
The Company determines whether a contractual arrangement is or contains a lease at contract inception. A lease liability and corresponding right-of-use asset are measured and recognized based on the present value of lease payments. To determine the present value of lease payments, the Company uses its incremental borrowing rate as of the lease commencement date, unless there is a rate implicit in the lease agreement. The incremental borrowing rate is based on the Company’s credit rating, determined on a fully collateralized loan basis from information available at commencement date, and the duration of the lease term (the “reference rate”). For leases at foreign subsidiaries denominated in U.S. dollars, a risk premium associated with the borrower subsidiary’s country is added to the reference rate. For significant leases at foreign subsidiaries denominated in a foreign currency, the U.S. dollar risk free rate with a duration similar to that of the lease term is subtracted from the reference rate and a corresponding foreign currency risk free rate with a duration similar to that of the lease term is added to the reference rate.
Operating lease assets are included in operating lease right-of-use assets and the related liabilities are included in current lease liabilities and non-current lease liabilities in the accompanying consolidated balance sheets. Assets under finance leases are included in property and equipment, net, and the related liabilities are included in current maturities of long-term debt, and long-term debt on the Company’s consolidated balance sheets.
For all classes of underlying assets, the Company accounts for leases that contain separate lease and non-lease components as containing a single lease component. The Company does not recognize lease right-of-use assets and lease liabilities from leases with an original lease term of 12 months or less and, instead, recognizes rent payments on a straight-line basis over the lease term in the consolidated statements of income.
Income Taxes
The Company records income tax expense using the liability method which specifies that deferred tax assets and liabilities be measured each year based on the difference between the financial statement and tax base of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided for deferred tax assets when management considers it more likely than not that the asset will not be realized. At December 31, 2025 and 2024, a valuation allowance has been provided for certain deferred tax assets which the Company has concluded are more likely than not to not be realized. If future annual taxable income were to be significantly less than current and projected levels, there is a risk that certain of our deferred tax assets not already provided for by the valuation allowance would expire prior to utilization.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties related to income tax matters in income tax expense.
Derivative Financial Instruments – Hedge Accounting
All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. 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.
The Company accounts for its designated derivative financial instruments as cash flow hedges. For derivative contracts which are designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative contract is recorded to accumulated other comprehensive loss (“AOCI”) in the accompanying consolidated balance sheets. When the underlying hedge transaction is realized, the gain or loss included in AOCI is recorded into earnings in the consolidated statements of income on the same line as the hedged item. Also, the Company records the ineffective portion, if any, on the same line as the hedged item. These hedging transactions and the respective correlations meet the requirements for hedge accounting.
Exposure to fluctuations in interest rates and certain commodity prices are managed by entering into swaps with various counterparties. The Company does not enter into derivative transactions for speculative or trading purposes. As part of the hedging program approval process, Gentherm identifies the specific financial risk which the derivative transaction will minimize, the appropriate hedging instrument to be used to reduce the risk and the correlation between the financial risk and the hedging instrument. Hedge positions, as well as the correlation between the transaction risks and the hedging instruments, are reviewed on an ongoing basis.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of the Company's common stock, no par value ("Common Stock") outstanding during the respective period. The Company’s diluted earnings per share give effect to all potential shares of Common Stock outstanding during a period that do not have an anti-dilutive impact to the calculation. In computing the number of diluted shares outstanding, the treasury stock method is used in order to arrive at a net number of shares created upon the conversion of Common Stock equivalents.
Stock Based Compensation
Stock based payments that involve the issuance of Common Stock to employees, including grants of employee stock options, restricted stock, and time-based and performance-based restricted stock units, are recognized in the consolidated financial statements as compensation expense based upon the fair value on the date of grant.
Stock based payments that are satisfied only by the payment of cash, such as stock appreciation rights, are accounted for as liabilities. The liability is reported at market value of the vested portion of the underlying units. During each period, the change in the liability is recorded as compensation expense.
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 3 — New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Income Taxes
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 enhances income tax disclosures to further disaggregate the effective tax rate reconciliation and income taxes paid. This update is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 should be adopted prospectively, but retrospective application is permitted. The Company adopted ASU 2023-09 as of December 31, 2025 using a prospective approach. See Note 18 "Income Taxes" for the disclosures related to the adoption of 2023-09.
Recently Issued Accounting Pronouncements Not Yet Adopted
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ". ASU 2024-03 enhances disclosures around certain costs and expenses. Retrospective adoption is required for all periods presented in the financial statements and early adoption is permitted. This update is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. We are currently in the process of determining the impact the implementation of ASU 2024-03 will have on the Company’s financial statement disclosures.
Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)". ASU 2025-06 modernizes the accounting for internal-use software costs. Retrospective, prospective, or a modified transition approach for adoption are all permitted, as well as early adoption at the beginning of an annual reporting period. This update is effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. We are currently in the process of determining the impact the implementation of ASU 2025-06 will have on the Company’s financial statement disclosures.
Note 4 — Restructuring
The Company continuously monitors market developments, industry trends and changing customer needs and in response, may undertake restructuring actions, as necessary, to execute management’s strategy, streamline operations and optimize the Company’s cost structure. Restructuring actions may include the realignment of existing manufacturing footprint, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs.
These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly statutory requirements or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination.
2025 EMEA Plan
In February 2025, the Company committed to a restructuring plan to further optimize the Company’s manufacturing footprint by realigning its manufacturing capacity in Europe (“2025 EMEA Plan”). As a result, the Company will close its facility in Plzeň, Czech Republic and relocate the manufacturing activities into other existing facilities within the region.
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GENTHERM INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
The Company expects to incur cash restructuring costs of between $4,000 and $6,000 for employee severance and retention costs and between $2,000 and $3,000 of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $1,000 and $2,000. The actions under the 2025 EMEA Plan are expected to be substantially completed by the end of 2026.
During the year ended December 31, 2025, the Company recognized restructuring expense of $3,604, for employee separation costs and $1,178, for other costs.
2025 Asia Plan
In February 2025, the Company committed to an additional restructuring plan to further optimize the Company’s manufacturing footprint by realigning its manufacturing capacity in Asia (“2025 Asia Plan”). As a result, the Company will relocate certain manufacturing activities from its facility in Shanghai, China to its new facility in Tianjin, China.
The Company expects to incur cash restructuring costs of between $2,000 and $3,000 for employee severance and retention costs and $1,000 of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $2,000 and $3,000. The actions under the 2025 Asia Plan are expected to be substantially completed in the first half of 2026.
During the year ended December 31, 2025, the Company recognized restructuring expense of $2,270 for employee separation costs and $826, for other costs.
2025 Manufacturing Footprint Plan
In July 2025, the Company committed to an additional restructuring plan to further optimize the Company’s manufacturing footprint by realigning its global manufacturing capacity (“2025 Manufacturing Footprint Plan”). As a result, the Company will relocate certain manufacturing activities between existing locations.
The Company expects to incur cash restructuring costs of between $3,000 and $4,000 for employee severance and retention costs and $1,000 of other transition costs primarily for machinery and equipment move and set up costs. Additionally, we expect to incur capital expenditures of between $1,000 and $2,000. The actions under the 2025 Manufacturing Footprint Plan are expected to be substantially completed by the end of 2027.
During the year ended December 31, 2025, the Company recognized restructuring expense of $2,190, for employee separation costs.
2023 Manufacturing Footprint Rationalization
In September 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint through the closure and relocation of its former manufacturing facility in Greenville, South Carolina to a new facility in Monterrey, Mexico.
During the years ended December 31, 2025, 2024 and 2023, the Company recognized restructuring expenses of $0, $1,839 and $538, respectively, for employee separation costs and $645, $454 and $159, respectively, for other costs.
The actions under the 2023 Manufacturing Footprint Plan are substantially complete.