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| ARGN > SEC Filings for ARGN > Form 10-Q on 1-May-2009 | All Recent SEC Filings |
1-May-2009
Quarterly Report
General
Amerigon Incorporated ("we," the "Company" or the "registrant") designs, develops and markets products based on our advanced, proprietary, efficient thermoelectric device ("TED") technologies for a wide range of global markets and heating and cooling applications. Our current principal product is our proprietary Climate Control Seat™ ("CCS™" or "CCS") which we sell to automobile and truck original equipment manufacturers or their tier one suppliers. The CCS provides year-round comfort to automotive seat occupants by producing both active heating and cooling. As of March 2009, we have shipped approximately 4.6 million units of our CCS product to customers since 2000. Our CCS product is currently offered as an optional feature on 41 automobile models produced by Ford Motor Company, General Motors Corporation, Toyota Motor Corporation, Nissan Motors, Honda Motor Company and Hyundai Corporation. Tata Motors, Ltd. features CCS on its Jaguar and Land Rover luxury brands which it acquired from Ford Motor Company in 2008.
Since the initial introduction of CCS, we have introduced new designs that incorporated improvements in electrical efficiency, size, weight, and noise and are more versatile. These include our Micro Thermal Module™ ("MTM™" or "MTM") technology and our CCS II configuration. Further improvements in engineering design are currently in development and are expected to be introduced on future vehicle models.
In 2008, we launched a heated and ventilated only variant of the CCS ("HV"). This product works in a similar fashion to our CCS, only there is no active cooling capability and no TED. In the cooling mode, the vent only system will use the ambient cabin air to provide a degree of cooling comfort to the seat occupant. In the heating mode, the vent only system will be supplemented with more traditional resistive heating elements. This system has a lower price and is targeted to certain lower cost vehicle models and certain geographical markets.
In 2008, we entered into development agreement to develop a suite of heated and cooled bedding products with Sealy Corporation, the largest bedding manufacturer in the world, using Amerigon's advanced TED technology.
Results of Operations
First Quarter 2009 Compared with First Quarter 2008
Product Revenues. Product revenues for the three months ended March 31, 2009 ("First Quarter 2009"), were $10,170,000 compared with product revenues of $17,360,000 for the three months ended March 31, 2008 ("First Quarter 2008"), a decrease of $7,190,000, or 41%. Lower sales resulting from lower volumes on existing programs were partially offset by higher sales from new model introductions. Unit shipments were 143,000 units for the First Quarter 2009 compared with unit shipments of 253,000 in the First Quarter 2008, a decrease of 110,000 units or 43%. The lower product revenues and unit volumes on existing programs were due to a significant decline in the overall automotive market. Automotive production and sales volumes, impacted by slowing worldwide economic activity and decreasing availability of consumer credit, were significantly lower during the First Quarter 2009 as compared to the First Quarter 2008. In North America, one of our most important markets, the Seasonally Adjusted Annual Rate ("SAAR") for vehicle sales, was 9.5 million, down 38%, from 15.2 million during the First Quarter 2008. Vehicle production levels have been
reduced accordingly. Additionally, during the First Quarter 2009 we experienced a decline in product revenues as our customers, primarily in Asia, reduced their purchases of CCS components from us in order to lower their on hand raw material inventory. As a result, our product revenue volume reflected lower selling rates than the current production levels on several vehicle programs. We estimated that the impact of the lower existing vehicle volumes was to reduce product revenues by approximately $12,000,000 to $13,000,000 during the First Quarter 2009. New vehicles equipped with CCS and launched since the end of the First Quarter 2008 included the, Nissan Maxima, Ford F150 Pickup, Chevrolet Suburban, Chevrolet Tahoe, Chevrolet Avalanche, GMC Yukon, GMC Yukon XL, GMC Yukon Denali and the GMC Sierra Pickup. Two programs launched during 2008 had higher revenue in 2009 due to the impact of full quarter shipments; the Lincoln MKS and Infiniti FX.
Cost of Sales. Cost of sales decreased to $7,752,000 in the First Quarter 2009 from $11,801,000 in the First Quarter 2008. This decrease of $4,049,000, or 34%, is attributable to lower sales volumes offset partially by a lower gross profit percentage. The gross profit percentage during the First Quarter 2009 was 24% and was 32% during the First Quarter 2008. This decrease is primarily attributable to higher raw material costs during the First Quarter 2009 as compared to the First Quarter 2008, an unfavorable change in the mix of products sold which favored programs having a lower gross margin percentage during the First Quarter 2009 compared with the First Quarter 2008 and lower coverage of fixed cost at the lower volume levels. TED's which represent the key component of the CCS system contain the metal Tellurium ("Te"). Higher costs for Te represent the most significant portion of our higher raw material cost. During the early months of 2008 the market for Te experienced a significant increase. The average price of a kilogram of Te in 2007 was approximately $100 and increased to a peak of $286 in April 2008. Since that time, the average market price has decreased to a current average of $180 per kilogram during March 2009. We do not purchase Te directly but have agreed to price increases for our TED suppliers as a result of the increase in their Te costs. Existing Te supply contracts and on-hand inventory resulted in a delay in the impact of higher Te market prices to us until the third quarter 2008. Although the market for Te has moderated, we expect that the lower levels will not result in reduced costs to Amerigon because of our supplier's need to work off inventory until at least the third quarter 2009.
Net Research and Development Expenses. Net research and development expenses increased to $1,746,000 in the First Quarter 2009 from $1,590,000 in the First Quarter 2008. This $156,000, or 10%, increase was due to increased research activities associated with our advanced TED program partially offset by lower costs to support a smaller number of new vehicle programs to be launched during 2009 as compared to 2008. The increase in research and development expenses in our advanced TED program is associated with a recent breakthrough in our TED material program. Much of our higher research and development expenses are focused on further advancing and commercializing new TED material. Our research and development reimbursements have decreased due to lower partner supported research projects during the First Quarter 2009.
We classify development and prototype costs and related reimbursements as research and development. This is consistent with accounting standards applied in the automotive industry. Depreciation costs for tooling are included in cost of sales.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $2,149,000 in the First Quarter 2009 compared with $2,127,000 in the First Quarter 2008.
Interest Income. We had interest income of $22,000 for the First Quarter 2009 compared with $297,000 for the First Quarter 2008. The decrease of $275,000, or 93%, resulted from lower average yields on our cash equivalents and short-term investments.
Income Tax Expense. We recorded income tax benefit of $467,000 during the First Quarter 2009. This reflected an estimated effective tax rate for the year of approximately 33% on a pretax loss of $1,403,000. During the First Quarter 2008, we recorded an income tax expense totaling $820,000 reflecting a 37% effective tax rate on pretax income of $2,191,000.
Liquidity and Capital Resources
We had cash and cash equivalents of $25,185,000 at March 31, 2009 and $25,303,000 at December 31, 2008. During the First Quarter 2009, we borrowed $1,300,000 from our Revolving Credit Line which proceeds supported our cash position. This election to draw under the Revolving Credit Line reflects our interest in ensuring the reliability of the available credit in light of the current credit market climate. We intend to repay the outstanding loans during the second quarter of 2009 from our current cash reserves. We manage our cash, cash equivalents and short-term investments to fund operating requirements.
We believe that our current working capital of $29,884,000 and our $20.0 million revolving line of credit will be adequate to fund our current business needs.
On April 29, 2008, we amended our Revolving Credit Line with Comerica Bank. The amendment increased the amount available to $20,000,000 from $10,000,000. Under the terms of the amendment, a Borrowing Base limiting the loans available under the Revolving Credit Line is effective when aggregate loans exceed $10,000,000. The Borrowing Base is equal to 85% of Eligible Domestic accounts receivable (as defined by the agreement), plus the lesser of 60% of Eligible Foreign accounts receivable (as defined by the agreement) or $3,000,000, plus 50% of Eligible Inventory (as defined by the agreement), plus 70% of the market value of Eligible Securities (as defined by the agreement). All other terms of the Revolving Credit Line were substantially unaffected by the amendment. As of March 31, 2009, we had loans outstanding under the Revolving Credit Line totaling $1,300,000 and one letter of credit was outstanding totaling $165,000. Total availability under the line as of March 31, 2009 was $18,535,000.
Cash used by operating activities during the First Quarter 2009 was $1,518,000 and was attributable to a net loss of $936,000, plus deferred taxes of $472,000, less non-cash adjustments including depreciation and amortization of $370,000, stock option compensation of $274,000 and defined benefit plan expense of $47,000. An increase in net operating assets and liabilities of $801,000 also contributed to the use of cash by operating activities.
As of March 31, 2009, working capital was $29,884,000 and was $30,471,000 at December 31, 2008, a decrease of $587,000, or 2%. This decrease was primarily due to increases in the Revolving Credit Line, which offset a decrease in our cash and cash equivalents, and accounts payable of $1,300,000 and $485,000, respectively, and due to decreases in prepaid expenses and other assets, current deferred income tax assets and cash of $323,000, $242,000 and $118,000, respectively. These were offset partially by increases in inventory and accounts receivable of $757,000 and $385,000, respectively, and a decrease in accrued liabilities of $467,000. Inventory increased primarily due to the timing of volume shipments of inventory for our North American customers. Accounts receivable increased despite of the decrease in product revenues during the First Quarter 2009, as compared with the fourth quarter of 2008 due to an increase in product revenues during the last month of the First Quarter 2009 compared with the last month of the Fourth Quarter of 2008. Accounts payable increased due to the timing of inventory purchases during the quarter as compared with that of the fourth quarter 2008. Our levels of inventory and accounts payable tend to fluctuate as a result of sourcing products from Asia and extended payment terms with certain suppliers.
Cash used in investing activities was $389,000 during the First Quarter 2009, reflecting purchases of property and equipment totaling $198,000, and the cost to acquire new patents and patent application filings of $191,000. Purchases of property and equipment for the period are primarily related to new equipment purchases needed to maintain current production programs and other operational facilities.
Cash provided by financing activities was $1,829,000 during the First Quarter 2009, reflecting borrowings under the Revolving Credit Line of $1,300,000 and the proceeds of Common Stock option exercises totaling $529,000.
New Accounting Pronouncements
In December 2007 the Financial Accounting Standards Board issued Statement of financial Accounting Standard No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest in a gain or loss when a subsidiary is deconsolidated. We adopted this statement effective January 1, 2009 and it had no impact on our operating results and financial position.
Critical Accounting Policies
Critical accounting policies are those accounting policies that management believes are important to the portrayal of our financial condition and results and require management's most difficult, subjective or complex judgments, as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our 2008 annual report on Form 10-K includes a description of certain critical accounting policies, including those with respect to warranty reserves, allowances for doubtful accounts, deferred tax asset valuation allowance and inventory reserves.
Certain matters discussed or referenced in this report, including expectations of increased revenues and continuing losses, our financing requirements, our capital expenditures and our prospects for the development of platforms with major automotive manufacturers, are forward-looking statements. Other forward-looking statements may be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "anticipate", "intend", "continue", or similar terms, variations of such terms or the negative of such terms. All forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in our expectations with regard to such statements or any change in events, conditions or circumstances on which any such statement is based. Although such statements are based upon our current expectations, and we believe such expectations are reasonable, such expectations, and the forward-looking statements based on them, are subject to a number of factors, risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements, including those described below and in our other filings with the Securities and Exchange Commission.
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