Gentherm Incorporated is a global technology and industry leader in the design, development, and manufacturing of innovative thermal management technologies. Unless the context otherwise requires, the terms “Company”, “we”, “us” and “our” used herein refer to Gentherm Incorporated and its consolidated subsidiaries. Our products provide solutions for automotive passenger comfort and convenience, battery thermal management, remote power generation, patient temperature management, environmental product testing and other consumer and industrial temperature control needs. Our automotive products can be found on the vehicles of nearly all major automotive manufacturers operating in North America, Europe and Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities and to identify future thermal technology product opportunities in both automotive and other markets. We concentrate our research on the development of new technologies and new applications from existing technologies to create product and market opportunities for a wide array of thermal management solutions.

On June 25, 2018, Gentherm announced a new strategic plan intended to improve business performance and position the Company to deliver above-market growth and improved profitability to its shareholders. An important element of the strategy is the Fit-for-Growth initiative that focuses on purchasing excellence, rationalization of research and development activities, reducing selling, general and administrative expense, minimization or elimination of investments in non-core areas and developing a manufacturing footprint commensurate with the new plan. Non-core areas of investment under the Fit-for-Growth initiative are concentrated in the following areas of Gentherm’s industrial segment: Non-core areas of investment under the Fit-for-Growth initiative are concentrated in the following areas of Gentherm’s industrial segment: Gentherm Global Power Technologies (“GPT”), Cincinnati Sub Zero’s Industrial Chamber business (“CSZ-IC”) and our battery management systems division in Irvine, California. We also completed the site consolidation plan for our advanced research and development operations and vacated two lease facilities in Azusa, California. On February 1, 2019, we completed the sale of CSZ-IC to Weiss Technik North America, Inc. for total cash proceeds of $47.5 million.

The strategy also identified several product categories the Company has now exited, including furniture, aviation, battery management electronics, industrial battery packs, automotive thermoelectric generators and other non-core electronics.

The Fit-for-Growth cost savings initiative began in January 2018. Consultant costs associated with the initiative were reported in restructuring expenses. The total amount of consultant costs incurred during 2018 was $2,852. We expect to incur an additional $600 thousand in consultant costs in the first quarter of 2019 from implementing Fit-for-Growth.

Gentherm also recognized $6,598 in one-time employee termination costs in restructuring expenses pertaining to Fit-for-Growth. Gentherm recognized $17 in contract termination costs in restructuring expenses pertaining to Fit-for-Growth.

In June 2018, Gentherm completed a sale of its battery management systems division located in Irvine, California. A loss on the sale of $1,107 was recognized in restructuring expenses.

Gentherm has completed its site consolidation plan of advanced research and development operations and vacated the two leased facilities in Azusa, California. Gentherm recognized $643 in contract termination costs in restructuring expenses from implementing our site consolidation plan.

Gentherm recognized $1,094 in one-time employee termination costs in restructuring expenses pertaining to the site consolidation plan of advanced research and development operations.

Lastly, Gentherm recognized $1,400 in restructuring expenses for the disposal of long-lived assets controlled and used in Azusa, California.

During 2018, Gentherm launched a program to actively market GPT and CSZ-IC to potential buyers and initiated all other actions required to complete the divestiture plan. Gentherm incurred $304 in consultant costs in restructuring expenses to launch the sales plan and does not expect to incur additional consultant costs associated with the plan in the future. Lastly, Gentherm recognized $757 in one-time employee termination costs in restructuring expenses related to the divestiture process. See Note 15 to our consolidated financial statements for additional information regarding the assets and liabilities classified as held for sale.

A reconciliation of the beginning and ending restructuring liability is as follows:

	One-Time Employee Termination Benefit Costs			Contract Termination Costs			Consulting Costs			Asset Disposal Costs			Total
Year Ended December 31, 2018
Balance, beginning of period	$	—		$	—		$	—		$	—		$	—
Additions, charged to costs		8,449			660			3,156			2,507			14,772
Payments		(6,370	)		(271	)		(3,077	)		(2,507	)		(12,225	)
Balance, end of period	$	2,079		$	389		$	79		$	—		$	2,547

The cumulative amount of restructuring expenses incurred and recognized in the automotive reporting segment during 2018 was $9,164. The cumulative amount of restructuring expenses incurred and recognized in the industrial reporting segment during the year ended December 31, 2018 was $5,608. See Note 9 to our consolidated financial statements for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income.

On November 1, 2017, we acquired substantially all of the assets and assumed substantially all of the operating liabilities of Etratech Inc., an Ontario corporation and all of the outstanding shares of Etratech Hong Kong, an entity organized under the laws of Hong Kong, in an all-cash transaction. Etratech manufactures advanced electronic controls and control systems for the automotive, recreational vehicle, marine, security, medical and other industries. Etratech’s world headquarters and North American manufacturing operations are located in Burlington, Canada. See Note 17 to the consolidated financial statements for additional information regarding the acquisition of Etratech.

On January 4, 2016 and January 5, 2016, the Company completed reorganization transactions (the “Reorganization”) related to our North American business (the “Windsor Operations”). As part of our original integration plan to eliminate redundancies associated with the 2011 acquisition of Gentherm GmbH (formerly named W.E.T. Automotive Systems AG), the Windsor Operations have been consolidated into our existing European and North American facilities. As a result of the Reorganization, some of the business activities previously performed by the Windsor Operations are now being performed by other subsidiaries.

Related to the Reorganization, the Company declared intercompany dividends, incurred and paid withholding taxes to the Canadian Revenue Agency of $7,600 during 2016. Additionally, the Company incurred income tax expense of $2,500 related to the intercompany dividends. These amounts incurred are expected to cover all future intercompany dividends needed to distribute the remaining earnings of the subsidiary to its parent in conjunction with the potential future liquidation of the subsidiary.

In addition to the $7,600 of withholding tax and $2,500 of income taxes, the Reorganization required the Company to make a one-time income tax payment of approximately $32,600. The one-time income tax payment was accrued during the first quarter of 2016; however, the Company also recorded an offsetting deferred charge for approximately the same amount because the one-time income tax payment will result in tax deductions against income taxes in future periods. Therefore, the income tax payment did not have a material impact on the Company’s earnings during the first quarter of 2016 nor any subsequent quarter. The withholding tax payment was paid entirely in 2016. The income tax payments of $2,500 and $32,600 were paid during the first quarter of 2017. No payments related to the Reorganization were made in 2018.

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

The Automotive reporting segment is comprised of the results from our global automotive businesses. Operating results from our climate comfort systems, specialized automotive cable systems, battery thermal management, and automotive electronic and software systems are all reported in the Automotive segment because of their complementary focus on automotive content, passenger thermal comfort and convenience. Etratech’s operating results are included within Gentherm’s Automotive segment due to the concentration of product applications within the automotive, RV and marine industries.

Climate comfort system solutions include seat heaters, variable temperature Climate Control Seats (“CCS”) designed to provide individualized thermal comfort to automobile passengers, and integrated electronic components, such as blowers and electronic control units and that utilize our proprietary electronics technology and software. Other climate comfort system solutions include steering wheel heaters, neck climate control systems and surface climate control system products for doors, armrests, cupholders and storage bins.

The Industrial reporting segment represents the combined results from our remote power generation systems business, our patient temperature management systems business, our environmental testing equipment business and our advanced research and product development division. Our remote power generation systems business is managed by our subsidiary Gentherm Global Power Technologies (“GPT”) and our patient temperature management and environment test equipment businesses are managed by our subsidiary Cincinnati Sub-Zero (“CSZ”). The advanced research and product development division is engaged in projects to improve the efficiency and functionality of thermal management technologies and to develop, market, and distribute products based on these new technologies. The operating results from these businesses and division are presented together as one reporting segment because of their joint concentration on identifying new markets and product applications based on thermal management technologies.

See Note 9 of the consolidated financial statements for information regarding the Company’s segment revenues from external customers, including geographic composition, operating income, depreciation and amortization, and goodwill.