Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with “Item 1 – Business,” the consolidated financial statements and the related notes thereto in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Item 1A - Risk Factors.”
Overview
We are a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, grid services solutions, and other power products serving the residential, light commercial and industrial markets.
Power generation and storage is a key focus of the Company, which differentiates us from our competitors who also have broad operations outside of the power equipment market. As the only significant market participant with a primary focus on these products, we maintain one of the leading market positions in the power equipment market in North America and an expanding presence internationally. We believe we have one of the widest ranges of products in the marketplace, including residential, commercial and industrial standby generators; as well as portable and mobile generators used in a variety of applications. A key strategic focus for the Company in recent years has been leveraging our leading position in the growing market for cleaner burning, more cost-effective natural gas fueled generators to expand into applications beyond standby power, allowing us to participate in distributed generation projects. The Company in recent years has been evolving its business model to also focus on clean energy products, solutions, and services. In 2019, we began providing energy storage systems as a clean energy solution for residential use that capture and store electricity from solar panels or other power sources and help reduce home energy costs while also protecting homes from shorter-duration power outages. During 2020, we entered the market for grid services involving distributed energy optimization and control software that helps support the operational stability of the world's power grids. We have also been focused on connecting the equipment we manufacture to the users of that equipment, helping to drive additional value to our customers and our distribution partners over the product lifecycle. The strategic focus on expanding the connectivity of our products will broaden our monitoring capabilities and also enable the increasing utilization of this equipment as distributed energy resources as the nascent market for grid-services expands over the next several years. Overall, as the traditional centralized utility model evolves over time, we believe that a cleaner, more decentralized grid infrastructure will build-out, and Generac's energy technology solutions are strategically positioned to participate in this future "Grid 2.0".
In addition to power generation and storage solutions, other products that we design and manufacture include light towers which provide temporary lighting for various end markets, and a broad and growing product line of outdoor power equipment for residential and commercial use.
Impact of COVID-19 on Our Business
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization in March 2020 and has negatively affected the global economy, disrupted global supply chains and created significant market volatility and uncertainty. Our management team has been very proactive in addressing the impact of COVID-19 on our business. The situation continues to evolve, and we are working to ensure employee safety, monitor customer demand, proactively address supply chain or production challenges, and support our communities during this challenging time. We manufacture and provide essential products and services to a variety of critical infrastructure customers around the globe, and as a result, substantially all of our operations and production activities have, to-date, been operational. We have implemented changes in our work practices, maintaining a safe working environment for production and office employees at our facilities, while enabling other employees to productively work from home.
The further extent of the impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic, our ability to operate during the pandemic, actions taken by domestic and foreign governments to contain the spread of the virus, and the related length of its impact on the global economy and our customers.
Demand
The COVID-19 pandemic has created significant uncertainty within various global markets that we serve. Several areas of our business have been and may continue to be negatively impacted, in particular our Commercial and Industrial (C&I) products around the world. The decline in oil prices has impacted our C&I mobile products demand significantly as national rental customers are deferring their capital spending. C&I stationary product shipments through our North American distributor channel and our Telecom customers have slowed during 2020 due to declines in quoting activity. Additionally, the COVID-19 pandemic has caused a broad-based sharp drop in global demand for our C&I products in our International segment, which magnified the slower economic growth and geopolitical headwinds that were already being experienced by our international business. Given the magnitude of the downturn in demand for C&I products, we initiated a number of meaningful cost-cutting actions for this part of our business during the second quarter of 2020 to better align our cost structure with customer demand. We are continuing to monitor these negative impacts on our C&I product demand closely and may implement additional measures in response.
With regard to our Residential products, historical experience and our current year results have shown that demand for Residential products can decouple from broader economic trends as these products are largely driven by power outages. The aging and underinvested electrical grid in the U.S. continues to be more vulnerable to elevated power outages across the country. As the vast majority of U.S. citizens are spending much more time at home due to the pandemic, it is becoming more essential to have a backup power strategy, especially as homeowners are doing more critical activities like working and learning from home. In addition, with California emerging as a major market for back-up power and our entrance into clean energy, these incremental growth drivers have helped to more than offset the impact of lower consumer spending due to COVID-19.
Supply Chain and Operations
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, and business shutdowns. While we are deemed an essential, critical infrastructure business and our facilities currently remain operational, this continues to be a fluid process and subject to change. We have experienced and may continue to experience increased employee absences at several of our production facilities. If we were to encounter a significant work stoppage, disruption, or COVID-19 outbreak at one or more of our locations or suppliers, we may not be able to satisfy customer demand for a period of time.
The COVID-19 pandemic has disrupted the global supply chain and we are continually monitoring scheduled material receipts to mitigate any delays. To date, we have not experienced significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic, but this could be subject to change if one or more of our suppliers can no longer operate in this environment. We have maintained business continuity by utilizing safety stock inventory levels and executing air freight strategies. The COVID-19 pandemic has also impacted the global logistics network. Although we have experienced inbound and outbound logistics delays and increased costs in moving shipments across several regions, the impact to our business thus far has not been significant. This could change if freight carriers are delayed or not able to operate.
Liquidity
Although the COVID-19 outbreak has created uncertain market conditions, we believe our business model, current cash balance, projected cash flow generation, and availability under our ABL credit facility provide us with a strong balance sheet and liquidity position. This financial strength allows us, notwithstanding unforeseen impacts of the current COVID-19 pandemic, to remain focused on our strategic plan and provides the flexibility to continue to invest in future growth opportunities.
Business Drivers and Operational Factors
In operating our business and monitoring its performance, we pay attention to a number of business drivers and trends as well as operational factors. The statements in this section are based on our current expectations.
Business Drivers and Trends
Our performance is affected by the demand for reliable power generation products, energy storage systems, grid services solutions, and other power products by our customer base. This demand is influenced by several important drivers and trends affecting our industry, including the following:
Key Mega-trends: There are some important mega-trends that we believe represent major themes that will drive significant secular growth opportunities across our business over the long term. “Grid 2.0”, which is the evolution of the traditional electrical utility model, includes the decentralization and de-carbonization of the grid and a migration toward distributed energy resources that is expected to drive demand for a variety of clean energy and grid services solutions going forward. Attitudes around global warming and climate change are shifting, which includes the expectation of more severe weather driving increased power outage activity. Natural gas is expected to be a key fuel of the future with the abundance of supply globally leading to increasing demand for natural gas generators in applications beyond standby power. The legacy infrastructure is in need of a major investment cycle to rebuild and upgrade aging networks and systems including transportation, water and power. The wireless telecommunications infrastructure is shifting to the next generation “5G” architecture, which will enable new technologies requiring significant improvement in network uptime through backup power solutions.
The onset of the COVID-19 pandemic in early 2020 has led to a new and emerging mega-trend that we refer to as “Home as a Sanctuary,” where millions of people are working, learning, shopping, entertaining, and in general, spending more time at home. As working adults spend much more time working from home and school-age children learning from home, they become more sensitive to power outages due to lost productivity. These trends combined with ongoing elevated power outage activity has led to a significant increased awareness, importance and need for backup power security. As a result of spending more time at home, homeowners are also investing more into home improvement projects and outdoor project activity, which is leading to increased and broad-based demand for home standby generators as well as chore products used in a variety of property maintenance applications.
Increasing penetration opportunity. Many potential customers are still not aware of the costs and benefits of automatic backup power solutions. We estimate that penetration rates for home standby generators are still only approximately 5.0% of the addressable market of homes in the United States. The decision to purchase backup power for many light-commercial buildings such as convenience stores, restaurants and gas stations is more return-on-investment driven and, as a result, these applications have relatively lower penetration rates as compared to buildings used in code-driven or mission critical applications such as hospitals, wastewater treatment facilities, 911 call centers, data centers and certain industrial locations. The emergence of lower cost, cleaner burning natural gas fueled generators has helped to increase the penetration of standby generators over the past decade in the light-commercial market. In addition, the installed base of backup power for telecommunications infrastructure is still increasing due to a variety of factors, including the impending rollout of next-generation 5G wireless networks enabling new technologies and the growing importance for critical communications being transmitted over wireless networks. We believe by expanding our distribution network, continuing to develop our product lines, and targeting our marketing efforts, we can continue to build awareness and increase penetration for our standby generators for residential, commercial and industrial purposes.
Effect of large scale and baseline power disruptions. Power disruptions are an important driver of customer awareness for back-up power and have historically influenced demand for generators, both in the United States and internationally. Increased frequency and duration of major power outage events, that have a broader impact beyond a localized level, increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period, which we believe may last for six to twelve months following a major power outage event for standby generators. For example, there have been a number of major outage events that occurred over the past decade that drove strong demand for portable and home standby generators, and the increased awareness of these products contributed to strong revenue growth in both the year they occurred along with the following subsequent year. Major power disruptions are unpredictable by nature and, as a result, our sales levels and profitability may fluctuate from period to period. In addition, there are smaller, more localized power outages that occur frequently across the United States that drive the baseline level of demand for back-up power solutions. The level of baseline power outage activity occurring across the United States can also fluctuate, and may cause our financial results to fluctuate from year to year.
Energy storage and monitoring markets developing quickly. During 2019, we entered the rapidly developing energy storage, monitoring and management markets with the acquisitions of Pika Energy and Neurio Technologies, along with the subsequent introduction of complete energy storage systems - marketed under the names PWRcell™ and PWRview™. We believe the electric utility landscape will undergo significant changes in the decade ahead as a result of rising utility rates, grid instability and power quality issues, environmental concerns, and the continuing performance and cost improvements in renewable energy and batteries. On-site power generation from solar, wind, geothermal, and natural gas generators is projected to become more prevalent as will the need to monitor, manage, and store this power – potentially developing into a significant market opportunity. The capabilities provided by Pika and Neurio have enabled us to bring an efficient and intelligent energy-savings solution to the energy storage and monitoring markets, which enabled us to quickly ramp shipments for these clean energy solutions during 2020, and we believe will position Generac as a key participant going forward. Although different from the emergency backup power space, we believe this market will develop similarly as the home standby generator market has over the past two decades given both products can provide power resiliency to homeowners. We expect to further advance our growing capabilities for energy storage systems including product development, sourcing, distribution, and marketing, as we leverage our significant competencies in the residential standby generator market to accelerate our market position in the emerging residential energy storage, monitoring and management markets.
California market for backup power increasing. Over the past two years, utilities in the state of California have executed a number of Public Safety Power Shutoff (PSPS) events in large portions of their service areas. These events were pro-active measures to prevent their equipment from potentially causing catastrophic wildfires during the dry and windy season of the year. The occurrence of these events, along with the utilities warning these actions could continue in the future as they upgrade their transmission and distribution infrastructure, have resulted in significant awareness and increased demand for our generators in California, where penetration rates of home standby generators still stand at only approximately 1%. We have a significant focus on expanding distribution in California and are working together with local regulators, inspectors, and gas utilities to increase their bandwidth and sense of urgency around approving and providing the infrastructure necessary for home standby and other backup power products. Our efforts in this part of the country will also be helpful in developing the market for energy storage and monitoring where the installed base of solar and other renewable sources of electricity are some of the highest in the U.S., and the regulatory environment is increasingly mandating renewable energy on new construction applications.
Impact of residential investment cycle. The market for residential generators and energy storage systems is also affected by the residential investment cycle and overall consumer confidence and sentiment. When homeowners are confident of their household income, the value of their home and overall net worth, they are more likely to invest in their home. These trends can have an impact on demand for residential generators and energy storage systems. Trends in the new housing market, highlighted by residential housing starts, can also impact demand for these products. Demand for outdoor power equipment is also impacted by several of these factors, as well as weather precipitation patterns. Finally, the existence of renewable energy mandates and investment tax credits and other subsidies can also have an impact on the demand for energy storage systems.
Impact of business capital investment and other economic cycles. The global market for our commercial and industrial products is affected by different capital investment cycles, which can vary across the numerous regions around the world in which we participate. These markets include non-residential building construction, durable goods and infrastructure spending, as well as investments in the exploration and production of oil & gas, as businesses or organizations either add new locations or make investments to upgrade existing locations or equipment. These trends can have a material impact on demand for these products. The capital investment cycle may differ for the various commercial and industrial end markets that we serve including light commercial, retail, office, telecommunications, industrial, data centers, healthcare, construction, oil & gas and municipal infrastructure, among others. The market for these products is also affected by general economic and geopolitical conditions as well as credit availability in the geographic regions that we serve.
Factors Affecting Results of Operations
We are subject to various factors that can affect our results of operations, which we attempt to mitigate through factors we can control, including continued product development, expanded distribution, pricing, cost control and hedging. Certain operational and other factors that affect our business include the following:
Effect of commodity, currency and component price fluctuations. Industry-wide price fluctuations of key commodities, such as steel, copper and aluminum, along with other components we use in our products, as well as changes in labor costs required to produce our products, can have a material impact on our results of operations. Acquisitions in recent years have further expanded our commercial and operational presence outside of the United States. These international acquisitions, along with our existing global supply chain, expose us to fluctuations in foreign currency exchange rates and regulatory tariffs that can also have a material impact on our results of operations.
We have historically attempted to mitigate the impact of any inflationary pressures through improved product design and sourcing, manufacturing efficiencies, price increases and select hedging transactions. Our results are also influenced by changes in fuel prices in the form of freight rates, which in some cases are accepted by our customers and in other cases are paid by us.
Seasonality. Although there is demand for our products throughout the year, in each of the past five years, approximately 19% to 21% of our net sales occurred in the first quarter, 22% to 25% in the second quarter, 26% to 28% in the third quarter and 27% to 31% in the fourth quarter, with different seasonality depending primarily on the occurrence, timing and severity of major power outage activity in each year. Major outage activity is unpredictable by nature and, as a result, our sales levels and profitability may fluctuate from period to period. The seasonality experienced during a major power outage, and for the subsequent quarters following the event, will vary relative to other periods where no major outage events occurred.
During 2020, elevated power outage activity and the emergence of the "Home as a Sanctuary" trend driven by the COVID-19 pandemic led to a significant increase in demand for home standby generators. This increased demand has resulted in extended lead times for these products as of December 31, 2020, and as a result, our net sales during 2021 are expected to be more level-loaded throughout the year relative to historical seasonal patterns.
Factors influencing interest expense. Interest expense can be impacted by a variety of factors, including market fluctuations in LIBOR, interest rate election periods, interest rate swap agreements, repayments or borrowings of indebtedness, and amendments to our credit agreements. In connection with our term loan amendment in December 2019, language was added to the agreement to include a benchmark replacement rate, selected by the administrative agent and the borrower, as a replacement to LIBOR that would take affect at the time LIBOR ceases. We plan to work with our lenders in the future to amend other LIBOR based debt agreements to add a replacement rate should the use of LIBOR cease. Interest expense decreased during 2020 compared to 2019, primarily due to lower LIBOR rates and lower outstanding borrowings. Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information.
Factors influencing provision for income taxes and cash income taxes paid. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act, which significantly changed how the U.S. taxes corporations. Since enactment, the U.S. Treasury Department (Treasury) issued several new regulations and other guidance which we have incorporated into our final tax calculations.
As of December 31, 2020, we had approximately $102 million of tax-deductible goodwill and intangible asset amortization remaining from our acquisition by CCMP Capital Advisors, LLC in 2006. This remaining balance will fully amortize in our 2021 tax return, resulting in approximately $26 million of cash tax savings during 2021. Beginning in 2022, this tax amortization will no longer exist, resulting in a higher cash tax obligation on a go-forward basis.
Components of Net Sales and Expenses
Net Sales
Our net sales primarily consist of product sales to our customers. This includes sales of our power generation equipment, energy storage systems, and other power products to the residential, light commercial and industrial markets, as well as service parts to our dealer network. Net sales also include shipping and handling charges billed to customers, with the related freight costs included in cost of goods sold. Additionally, we offer other services, including extended warranties, remote monitoring, grid optimization, installation and maintenance services. However, these services accounted for less than two percent of our net sales for the year ended December 31, 2020. Refer to Note 2, “Summary of Accounting Policies - Revenue Recognition,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on our revenue streams and related revenue recognition accounting policies.
We are not dependent on any one channel or customer for our net sales, with no single customer representing more than 6% of our sales, and our top ten customers representing less than 24% of our net sales for the year ended December 31, 2020.
Costs of Goods Sold
The principal elements of costs of goods sold are component parts, raw materials, freight, factory overhead and labor. Component parts and raw materials comprised approximately 75% of costs of goods sold for the year ended December 31, 2020. The principal component parts are engines, alternators, and batteries. We design and manufacture air-cooled engines for certain of our generators up to 24kW, along with certain liquid-cooled, natural gas engines. We source engines for certain of our smaller products and all of our diesel products. For certain natural gas engines, we source the base engine block, and then add a significant amount of value engineering, sub-systems and other content to the point that we are recognized as the original equipment manufacturer (OEM) of those engines. We design and manufacture many of the alternators for our units. We also manufacture other generator components where we believe we have a design and cost advantage. We source component parts from an extensive global network of reliable, high quality suppliers. In some cases, these relationships are proprietary.
The principal raw materials used in the manufacturing process that are sourced are steel, copper and aluminum. We are susceptible to fluctuations in the cost of these commodities, impacting our costs of goods sold. We seek to mitigate the impact of commodity prices on our business through a continued focus on global sourcing, product design improvements, manufacturing efficiencies, price increases and select hedging transactions. We are also impacted by foreign currency fluctuations given our global supply chain. There is typically a lag between raw material price fluctuations and their effect on our costs of goods sold.
Other sources of costs include our manufacturing and warehousing facilities, factory overhead, labor and shipping costs. Factory overhead includes utilities, insurance, support personnel, depreciation, general supplies, support and maintenance. Although we attempt to maintain a flexible manufacturing cost structure, our margins can be impacted when we cannot timely adjust labor and manufacturing costs to match fluctuations in net sales.
Operating Expenses
Our operating expenses consist of costs incurred to support our sales, marketing, distribution, service parts, engineering, information systems, human resources, accounting, finance, risk management, legal and tax functions, among others. These expenses include personnel costs such as salaries, bonuses, employee benefit costs, taxes, and share-based compensation cost, and are classified into three categories: selling and service, research and development, and general and administrative. Additionally, the amortization expense related to our finite-lived intangible assets is included within operating expenses.
Selling and service. Our selling and service expenses consist primarily of personnel expense, marketing expense, standard assurance warranty expense and other sales expenses. Our personnel expense recorded in selling and services expenses includes the expense of our sales force responsible for our broad customer base and other personnel involved in the marketing, sales and service of our products. Standard warranty expense, which is recorded at the time of sale, is estimated based on historical trends. Our marketing expenses include direct mail costs, printed material costs, product display costs, market research expenses, trade show expenses, media advertising, promotional expenses and co-op advertising costs. Marketing expenses are generally related to the launch of new product offerings, participation in trade shows and other events, opportunities to create market awareness for our products, and general brand awareness marketing efforts.
Research and development. Our research and development expenses support numerous projects covering all of our product lines. They also support our connectivity, remote monitoring, and energy monitoring initiatives. We operate engineering facilities with extensive capabilities at many locations globally and employ over 500 personnel with focus on new product development, existing product improvement and cost containment. We are committed to research and development, and rely on a combination of patents and trademarks to establish and protect our proprietary rights. Our research and development costs are expensed as incurred.
General and administrative. Our general and administrative expenses include personnel costs for general and administrative employees; accounting, legal and professional services fees; information technology costs; insurance; travel and entertainment expense; and other corporate expenses.
Amortization of intangibles. Our amortization of intangibles expense includes the straight-line amortization of finite-lived tradenames, customer lists, patents and technology, and other intangibles assets.
Other (Expense) Income
Other (expense) income includes the interest expense on our outstanding borrowings, amortization of debt financing costs and original issue discount, and cash flows related to interest rate swap agreements. Other (expense) income also includes other financial items such as losses on extinguishment of debt, loss on pension settlement, and investment income earned on our cash and cash equivalents.
Results of Operations
A detailed discussion of the year-over-year changes from the Company's fiscal 2018 to fiscal 2019 can be found in the Management's Discussion and Analysis section of the Company's fiscal 2019 Annual Report on Form 10-K filed February 25, 2020.
Year ended December 31, 2020 compared to year ended December 31, 2019
The following table sets forth our consolidated statement of operations data for the periods indicated:
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales
|
|
$
|
2,485,200
|
|
|
$
|
2,204,336
|
|
|
$
|
280,864
|
|
|
|
12.7
|
%
|
Cost of goods sold
|
|
|
1,527,546
|
|
|
|
1,406,584
|
|
|
|
120,962
|
|
|
|
8.6
|
%
|
Gross profit
|
|
|
957,654
|
|
|
|
797,752
|
|
|
|
159,902
|
|
|
|
20.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and service
|
|
|
246,373
|
|
|
|
217,683
|
|
|
|
28,690
|
|
|
|
13.2
|
%
|
Research and development
|
|
|
80,251
|
|
|
|
68,394
|
|
|
|
11,857
|
|
|
|
17.3
|
%
|
General and administrative
|
|
|
119,644
|
|
|
|
110,868
|
|
|
|
8,776
|
|
|
|
7.9
|
%
|
Amortization of intangible assets
|
|
|
32,280
|
|
|
|
28,644
|
|
|
|
3,636
|
|
|
|
12.7
|
%
|
Total operating expenses
|
|
|
478,548
|
|
|
|
425,589
|
|
|
|
52,959
|
|
|
|
12.4
|
%
|
Income from operations
|
|
|
479,106
|
|
|
|
372,163
|
|
|
|
106,943
|
|
|
|
28.7
|
%
|
Total other expense, net
|
|
|
(32,915
|
)
|
|
|
(52,556
|
)
|
|
|
19,641
|
|
|
|
-37.4
|
%
|
Income before provision for income taxes
|
|
|
446,191
|
|
|
|
319,607
|
|
|
|
126,584
|
|
|
|
39.6
|
%
|
Provision for income taxes
|
|
|
98,973
|
|
|
|
67,299
|
|
|
|
31,674
|
|
|
|
47.1
|
%
|
Net income
|
|
|
347,218
|
|
|
|
252,308
|
|
|
|
94,910
|
|
|
|
37.6
|
%
|
Net income attributable to noncontrolling interests
|
|
|
(3,358
|
)
|
|
|
301
|
|
|
|
(3,659
|
)
|
|
|
-1215.6
|
%
|
Net income attributable to Generac Holdings Inc.
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
98,569
|
|
|
|
39.1
|
%
|
The following sets forth our reportable segment information for the periods indicated:
|
|
Net Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Domestic
|
|
$
|
2,088,808
|
|
|
$
|
1,742,898
|
|
|
$
|
345,910
|
|
|
|
19.8
|
%
|
International
|
|
|
396,392
|
|
|
|
461,438
|
|
|
|
(65,046
|
)
|
|
|
-14.1
|
%
|
Total net sales
|
|
$
|
2,485,200
|
|
|
$
|
2,204,336
|
|
|
$
|
280,864
|
|
|
|
12.7
|
%
|
|
|
Adjusted EBITDA by Segment
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Domestic
|
|
$
|
563,394
|
|
|
$
|
428,667
|
|
|
$
|
134,727
|
|
|
|
31.4
|
%
|
International
|
|
|
20,379
|
|
|
|
25,448
|
|
|
|
(5,069
|
)
|
|
|
-19.9
|
%
|
Total Adjusted EBITDA
|
|
$
|
583,773
|
|
|
$
|
454,115
|
|
|
$
|
129,658
|
|
|
|
28.6
|
%
|
The following table sets forth our product class information for the periods indicated:
|
|
Net Sales by Product Class
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Residential products
|
|
$
|
1,556,501
|
|
|
$
|
1,143,723
|
|
|
$
|
412,778
|
|
|
|
36.1
|
%
|
Commercial & industrial products
|
|
|
701,751
|
|
|
|
871,595
|
|
|
|
(169,844
|
)
|
|
|
-19.5
|
%
|
Other
|
|
|
226,948
|
|
|
|
189,018
|
|
|
|
37,930
|
|
|
|
20.1
|
%
|
Total net sales
|
|
$
|
2,485,200
|
|
|
$
|
2,204,336
|
|
|
$
|
280,864
|
|
|
|
12.7
|
%
|
Net sales. The increase in Domestic segment sales for the year ended December 31, 2020 was primarily due to strong growth in shipments of home standby generators and portable generators as elevated outage activity and nationwide stay-at-home orders heightened consumer awareness of power reliability concerns. Chore products sold directly to consumers were also strong during the current year as homeowners increased outdoor project activity. In addition, shipments of the PWRcell™ energy storage system had a strong impact on growth as we expanded our presence in the rapidly developing solar-plus-storage market. This broad-based residential products growth was partially offset by continued weakness in sales of C&I mobile products due to the ongoing impacts from the COVID-19 pandemic, as well as lower shipments of C&I products to national telecom customers as compared to a strong prior year comparison.
The decrease in International segment sales for the year ended December 31, 2020 was primarily driven by a broad-based sharp drop in global demand caused by the COVID-19 pandemic and its impact on the C&I power generation market in certain key regions of the world, which magnified the slower economic growth and geopolitical headwinds already being experienced prior to the pandemic. However, the year-over-year decline in the fourth quarter was at a notably lesser rate relative to recent quarters as certain regions are beginning to show signs of recovery.
Total contribution from non-annualized recent acquisitions for the year ended December 31, 2020 was $32.4 million.
Net income attributable to Generac Holdings Inc. Net income attributable to Generac Holdings Inc. was $350.6 million as compared to $252.0 million in the prior year period. The current year net income includes $11.5 million of pre-tax charges taken in the second quarter of 2020 relating to business optimization, restructuring, and other costs to address the impact of the COVID-19 pandemic and the decline in oil prices on end markets for our products. The cost reduction actions taken include certain headcount reductions, non-cash asset write-downs, and other charges. The charges, which primarily relate to C&I products, consist of $6.3 million classified within costs of goods sold and $5.2 million classified within operating expenses.
Gross profit. Gross profit margin for the year ended December 31, 2020 was 38.5% compared to 36.2% for the year ended December 31, 2019. The overall increase in gross profit margin reflected a favorable sales mix towards significantly higher shipments of residential products, along with a lower mix of C&I products. The current year period includes the impact of the aforementioned $6.3 million of charges classified within costs of goods sold.
Operating expenses. Operating expenses increased $53.0 million, or 12.4%, as compared to the prior year. The current year period includes the impact of the aforementioned $5.2 million of charges classified within operating expenses. In addition, the increase in operating expenses was primarily driven by higher variable expenses from the significant increase in sales volume, incremental spend related to clean energy products and the impact of acquisitions, higher employee costs, and additional intangible amortization. These increases were partially offset by a reduction in operating expenses as a result of the restructuring actions initiated in the second quarter of 2020 and an overall reduction in controllable operating expenses.
Other expense. The decrease in other expense, net was driven by a reduction in interest expense due to lower LIBOR rates and lower outstanding borrowings in the current year, as well as a $10.9 million pre-tax settlement charge related to the termination of the Company’s domestic pension plan in the fourth quarter of 2019.
Provision for income taxes. The effective income tax rates for the years ended December 31, 2020 and 2019 were 22.2% and 21.1%, respectively. The increase in the effective tax rate is primarily due to a reduction in the prior year U.S. state income tax expense, which did not repeat in the current year, as well as higher earnings in the current year, which dilute the impact of discrete tax benefits.
Adjusted EBITDA. Adjusted EBITDA is defined in, and there is a reconciliation of net income to Adjusted EBITDA attributable to the Company in, "Non-GAAP Measures - Adjusted EBITDA" included below in Item 7 of this Annual Report on Form 10-K. Adjusted EBITDA margins for the Domestic segment for the year ended December 31, 2020 were 27.0% of net sales as compared to 24.6% of net sales for the year ended December 31, 2019. Adjusted EBITDA margin in the current year benefited from favorable sales mix and higher operating leverage from the significant revenue growth, partially offset by the aforementioned higher operating expense investments.
Adjusted EBITDA margins for the International segment, before deducting for non-controlling interests, for the year ended December 31, 2020 were 5.1% of net sales as compared to 5.5% of net sales for the year ended December 31, 2019. Decreased operating leverage on lower sales volumes was the primary contributor to the margin decline, partially offset by lower operating expenses as a result of the restructuring activities initiated in the second quarter of 2020.
Adjusted net income. Adjusted Net Income is defined in, and there is a reconciliation of net income to Adjusted Net Income attributable to the Company in, "Non-GAAP Measures - Adjusted Net Income" included below in Item 7 of this Annual Report on Form 10-K. Adjusted Net Income of $412.2 million for the year ended December 31, 2020 increased 29.7% from $317.8 million for the year ended December 31, 2019, due to the factors outlined above together with an increase in the cash income tax rate from 15.0% in 2019 to 17.9% in 2020.
Liquidity and Financial Position
Our primary cash requirements include payment for our raw material and component supplies, salaries & benefits, facility and lease costs, operating expenses, interest and principal payments on our debt and capital expenditures. We finance our operations primarily through cash flow generated from operations and, if necessary, borrowings under our ABL credit facility (ABL Facility).
Our credit agreements originally provided for a $1.2 billion term loan B credit facility (Term Loan) and include a $300.0 million uncommitted incremental term loan facility. The Term Loan currently matures on December 13, 2026 and bears interest at rates based upon either a base rate plus an applicable margin of 0.75% or adjusted LIBOR rate plus an applicable margin of 1.75%. The Term Loan does not require an Excess Cash Flow payment if our secured leverage ratio is maintained below 3.75 to 1.00 times. As of December 31, 2020, our secured leverage ratio was 1.12 to 1.00 times, and we were in compliance with all covenants of the Term Loan. There are no financial maintenance covenants on the Term Loan.
Our credit agreements also provide for the $300.0 million ABL Facility, which matures on June 12, 2023. As of December 31, 2020, there was no outstanding balance under the ABL Facility, leaving $299.6 million of availability, net of outstanding letters of credit. We were in compliance with all covenants of the ABL Facility as of December 31, 2020.
As of December 31, 2020, we had $954.7 million of liquidity comprised of $655.1 million of cash and cash equivalents and $299.6 million available under our ABL Facility. Additionally, we have no maturities on our Term Loan until December 2026. We believe we have a strong liquidity position that allows us, notwithstanding unforeseen impacts of the current COVID-19 pandemic, to execute our strategic plan and provides the flexibility to continue to invest in future growth opportunities.
In September 2018, our Board of Directors approved a $250.0 million stock repurchase program, which expired in October 2020. In September 2020, the Board of Directors approved another stock repurchase program, which commenced on October 27, 2020, and under which we may repurchase $250.0 million of common stock over 24 months from time to time, in amounts and at prices we deem appropriate, subject to market conditions and other considerations. During the year ended December 31, 2020, no repurchases were made. Since the inception of all stock repurchase programs starting in August 2015, we have repurchased 8,676,706 shares of our common stock for $305.5 million (an average repurchase price of $35.21 per share), all funded with cash on hand.
Long-term Liquidity
We believe that our cash and cash equivalents, cash flow from operations, and availability under our ABL Facility and other short-term lines of credit provide us with sufficient capital to continue to grow our business in the future. We may use a portion of our cash flow to pay interest and principal on our outstanding debt, as well as repurchase shares of our common stock, impacting the amount available for working capital, capital expenditures and other general corporate purposes. As we continue to expand our business, we may require additional capital to fund working capital, capital expenditures or acquisitions.
Cash Flow
Year ended December 31, 2020 compared to year ended December 31, 2019
The following table summarizes our cash flows by category for the periods presented:
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Net cash provided by operating activities
|
|
$
|
486,533
|
|
|
$
|
308,887
|
|
|
$
|
177,646
|
|
|
|
57.5
|
%
|
Net cash used in investing activities
|
|
|
(124,095
|
)
|
|
|
(170,078
|
)
|
|
|
45,983
|
|
|
|
-27.0
|
%
|
Net cash used in financing activities
|
|
|
(30,428
|
)
|
|
|
(41,918
|
)
|
|
|
11,490
|
|
|
|
-27.4
|
%
|
The increase in net cash provided by operating activities was primarily driven by higher sales volumes and resulting higher operating earnings in the current year, as well as a significant working capital investment that was made in the prior year which did not repeat in the current year.
Net cash used in investing activities for the year ended December 31, 2020 primarily represented cash payments of $64.8 million related to the acquisition of businesses and $62.1 million for the purchase of property and equipment. Net cash used in investing activities for the year ended December 31, 2019 primarily consisted of cash payments of $112.0 million related to the acquisition of businesses and $60.8 million for the purchase of property and equipment.
Net cash used in financing activities for the year ended December 31, 2020 primarily consisted of $282.5 million of debt repayments ($277.7 million of short-term borrowings and $4.8 million of long-term borrowings), $14.9 million of taxes paid related to equity awards, and $4.0 million of contingent consideration for acquired businesses. These payments were partially offset by $257.9 million cash proceeds from borrowings ($257.6 million for short-term borrowings and $0.3 million for long-term borrowings) and $13.1 million of proceeds from the exercise of stock options.
Net cash used in financing activities for the year ended December 31, 2019 primarily consisted of $112.6 million of debt repayments ($53.1 million of long-term borrowings and $59.5 million of short-term borrowings), $6.4 million of taxes paid related to equity awards, and $5.5 million of contingent consideration for acquired businesses. These payments were partially offset by $75.0 million of cash proceeds from borrowings ($73.3 million for short-term borrowings and $1.7 million for long-term borrowings) and $9.4 million of proceeds from the exercise of stock options.
Senior Secured Credit Facilities
Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 and the “Liquidity and Financial Position” section included in Item 7 of this Annual Report on Form 10-K for information on the senior secured credit facilities.
Covenant Compliance
The Term Loan contains restrictions on the Company’s ability to pay distributions and dividends. Payments can be made to the Company or other parent companies for certain expenses such as operating expenses in the ordinary course, fees and expenses related to any debt or equity offering and to pay franchise or similar taxes. Dividends can be used to repurchase equity interests, subject to limitations in certain circumstances. Additionally, the Term Loan restricts the aggregate amount of dividends and distributions that can be paid and, in certain circumstances, requires pro forma compliance with certain fixed charge coverage ratios or gross leverage ratios, as applicable, in order to pay certain dividends and distributions. The Term Loan also contains other affirmative and negative covenants that, among other things, limit the incurrence of additional indebtedness, liens on property, sale and leaseback transactions, investments, loans and advances, mergers or consolidations, asset sales, acquisitions, transactions with affiliates, prepayments of certain other indebtedness and modifications of our organizational documents. The Term Loan does not contain any financial maintenance covenants.
The Term Loan contains customary events of default, including, among others, nonpayment of principal, interest or other amounts, failure to perform covenants, inaccuracy of representations or warranties in any material respect, cross-defaults with other material indebtedness, certain undischarged judgments, the occurrence of certain ERISA, bankruptcy or insolvency events, or the occurrence of a change in control (as defined in the Term Loan). A bankruptcy or insolvency event of default will cause the obligations under the Term Loan to automatically become immediately due and payable.
The ABL Facility also contains covenants and events of default substantially similar to those in the Term Loan, as described above.
Contractual Obligations
The following table summarizes our expected payments for significant contractual obligations as of December 31, 2020, using the interest rates in effect as of that date:
(U.S. Dollars in thousands)
|
|
Total
|
|
|
Less than 1 Year
|
|
|
2 - 3 Years
|
|
|
4 - 5 Years
|
|
|
After 5 Years
|
|
Long-term debt, including current portion (1)
|
|
$
|
833,990
|
|
|
$
|
1,836
|
|
|
$
|
1,951
|
|
|
$
|
142
|
|
|
$
|
830,061
|
|
Finance lease obligations, including current portion
|
|
|
27,371
|
|
|
|
2,312
|
|
|
|
3,939
|
|
|
|
2,517
|
|
|
|
18,603
|
|
Interest on long-term debt and finance lease obligations
|
|
|
111,035
|
|
|
|
16,553
|
|
|
|
34,903
|
|
|
|
34,641
|
|
|
|
24,938
|
|
Operating leases
|
|
|
71,706
|
|
|
|
19,530
|
|
|
|
27,654
|
|
|
|
12,811
|
|
|
|
11,711
|
|
Total contractual cash obligations
|
|
$
|
1,044,102
|
|
|
$
|
40,231
|
|
|
$
|
68,447
|
|
|
$
|
50,111
|
|
|
$
|
885,313
|
|
(1) The Term Loan matures on December 13, 2026. The ABL Facility provides for a $300.0 million senior secured ABL revolving credit facility, which matures on June 12, 2023. There was no outstanding balance on the ABL Facility as of December 31, 2020.
Capital Expenditures
Our operations require capital expenditures for facilities and related improvements, technology, research & development, tooling, equipment, capacity expansion, IT systems & infrastructure and upgrades. Capital expenditures were $62.1 million, $60.8 million, and $47.6 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were funded through cash from operations.
As a result of increased demand for our products and in order to expand manufacturing and distribution capacity, we have entered into an agreement to purchase an approximate 420,000 square foot building in Trenton, South Carolina. The transaction funded in February 2021.
Off-Balance Sheet Arrangements
We have an arrangement with a finance company to provide floor plan financing for selected dealers. This arrangement provides liquidity for our dealers by financing dealer purchases of products with credit availability from the finance company. We receive payment from the finance company after shipment of product to the dealer, and our dealers are given a longer period of time to pay the finance company. If our dealers do not pay the finance company, we may be required to repurchase the applicable inventory held by the dealer. We do not indemnify the finance company for any credit losses they may incur.
Total dealer purchases financed under this arrangement accounted for approximately 12% and 11% of net sales for the years ended December 31, 2020 and 2019, respectively. The amount financed by dealers which remained outstanding was $55.6 million and $49.6 million as of December 31, 2020 and 2019, respectively.
Critical Accounting Policies
In preparing the financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that have an impact on the asset, liability, revenue and expense amounts reported. These estimates can also affect our supplemental information disclosures, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to U.S. GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. We make routine estimates and judgments in determining net realizable value of accounts receivable, inventories, property and equipment, prepaid expenses, product warranties and other reserves. Management believes our most critical accounting estimates and assumptions are in the following areas: goodwill and other indefinite-lived intangible asset impairment assessment; business combinations and purchase accounting; and income taxes.
Goodwill and Other Indefinite-Lived Intangible Assets
Refer to Note 2, “Summary of Accounting Policies – Goodwill and Other Indefinite-Lived Intangible Assets,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s policy regarding the accounting for goodwill and other intangible assets. The Company performed the required annual impairment tests for goodwill and other indefinite-lived intangible assets for the fiscal years 2020, 2019 and 2018, and found no impairment.
When preparing a discounted cash flow analysis for purposes of our annual impairment test, we make a number of key estimates and assumptions. We estimate the future cash flows of the business based on historical and forecasted revenues and operating costs. This, in turn, involves further estimates, such as estimates of future growth rates and inflation rates. In addition, we apply a discount rate to the estimated future cash flows for the purpose of the valuation. This discount rate is based on the estimated weighted average cost of capital for the business and may change from year to year. Weighted average cost of capital includes certain assumptions such as market capital structures, market betas, risk-free rate of return and estimated costs of borrowing.
In our October 31, 2020 impairment test calculation, the Latin America reporting unit and the Generac Mobile Products reporting unit each had an estimated fair value that exceeded its carrying value by approximately 10%.
The carrying value of the Latin America goodwill was $43.6 million. Key financial assumptions utilized to determine the fair value of the reporting unit include revenue growth levels that reflect the impact of the COVID-19 pandemic with an eventual return to normalized revenue growth patterns and profitability from recovering end markets, improving profit margins, a 3% terminal growth rate and an 11.7% discount rate. The reporting unit’s fair value would approximate its carrying value with a 70 basis point increase in the discount rate or a 75 basis point reduction in the sales continuous annual growth rate and terminal growth rate.
The carrying value of the Generac Mobile Products goodwill was $48.6 million. Key financial assumptions utilized to determine the fair value of the reporting unit include revenue growth levels that reflect the impact of the COVID-19 pandemic as well as the impact of a decline in oil prices on end markets with an eventual return to normalized revenue growth levels from recovering end markets, improving profit margins, a 3% terminal growth rate and a 14.6% discount rate. The reporting unit’s fair value would approximate its carrying value with a 100 basis point increase in the discount rate or a 100 basis point reduction in the sales continuous annual growth rate and terminal growth rate.
As noted above, a considerable amount of management judgment and assumptions are required in performing the goodwill and indefinite-lived intangible asset impairment tests. While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values. A number of factors, many of which we have no ability to control, could cause actual results to differ from the estimates and assumptions we employed. These factors include:
|
●
|
continued negative impact from the COVID-19 pandemic;
|
|
●
|
a prolonged global or regional economic downturn;
|
|
●
|
a significant decrease in the demand for our products;
|
|
●
|
the inability to develop new and enhanced products and services in a timely manner;
|
|
●
|
a significant adverse change in legal factors or in the business climate;
|
|
●
|
an adverse action or assessment by a regulator;
|
|
●
|
successful efforts by our competitors to gain market share in our markets;
|
|
●
|
disruptions to the Company’s business;
|
|
●
|
inability to effectively integrate acquired businesses;
|
|
●
|
unexpected or unplanned changes in the use of assets or entity structure; and
|
If management's estimates of future operating results change or if there are changes to other assumptions due to these factors, the estimate of the fair values may change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.
Business Combinations and Purchase Accounting
We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and tangible long-lived assets. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and assumptions, the most significant being projected revenue growth rates, profit margins, forecasted cash flows, discount rates and terminal growth rates. Refer to Note 1, “Description of Business,” and Note 3, "Acquisitions," to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s business acquisitions.
Income Taxes
We account for income taxes in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Our estimate of income taxes payable, deferred income taxes and the effective tax rate is based on an analysis of many factors including interpretations of federal, state and international income tax laws; the difference between tax and financial reporting bases of assets and liabilities; estimates of amounts currently due or owed in various jurisdictions; and current accounting standards. We review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known.
In assessing the realizability of the deferred tax assets on our balance sheet, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. We consider the taxable income in prior carryback years, scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Refer to Note 15, “Income Taxes,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s income taxes.
New Accounting Standards
For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, refer to Note 2, “Summary of Accounting Policies - New Accounting Pronouncements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Non-GAAP Measures
Adjusted EBITDA
The computation of Adjusted EBITDA attributable to Generac Holdings Inc. is based on the definition of EBITDA contained in our credit agreement, as amended. To supplement our consolidated financial statements presented in accordance with U.S. GAAP, we provide the computation of Adjusted EBITDA attributable to the Company, taking into account certain charges and gains that were recognized during the periods presented.
We view Adjusted EBITDA as a key measure of our performance. We present Adjusted EBITDA not only due to its importance for purposes of our credit agreements, but also because it assists us in comparing our performance across reporting periods on a consistent basis as it excludes items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA:
|
●
|
for planning purposes, including the preparation of our annual operating budget and developing and refining our internal projections for future periods;
|
|
●
|
to allocate resources to enhance the financial performance of our business;
|
|
●
|
as a benchmark for the determination of the bonus component of compensation for our senior executives under our management incentive plan, as described further in our Proxy Statement;
|
|
●
|
to evaluate the effectiveness of our business strategies and as a supplemental tool in evaluating our performance against our budget for each period; and
|
|
●
|
in communications with our Board of Directors and investors concerning our financial performance.
|
We believe Adjusted EBITDA is used by securities analysts, investors and other interested parties in the evaluation of the Company. Management believes the disclosure of Adjusted EBITDA offers an additional financial metric that, when coupled with results prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and the reconciliation to U.S. GAAP results, provides a more complete understanding of our results of operations and the factors and trends affecting our business. We believe Adjusted EBITDA is useful to investors for the following reasons:
|
●
|
Adjusted EBITDA and similar non-GAAP measures are widely used by investors to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, tax jurisdictions, capital structures and the methods by which assets were acquired;
|
|
●
|
investors can use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of our Company, including our ability to service our debt and other cash needs; and
|
|
●
|
by comparing our Adjusted EBITDA in different historical periods, our investors can evaluate our operating performance excluding the impact of items described below.
|
The adjustments included in the reconciliation table listed below are provided for under our Term Loan and ABL Facility, and also are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by our management and Board of Directors. These adjustments eliminate the impact of a number of items that:
|
●
|
we do not consider indicative of our ongoing operating performance, such as non-cash write-downs and other charges, non-cash gains, write-offs relating to the retirement of debt, severance costs and other restructuring-related business optimization expenses;
|
|
●
|
we believe to be akin to, or associated with, interest expense, such as administrative agent fees, revolving credit facility commitment fees and letter of credit fees; or
|
|
●
|
are non-cash in nature, such as share-based compensation expense.
|
We explain in more detail in footnotes (a) through (g) below why we believe these adjustments are useful in calculating Adjusted EBITDA as a measure of our operating performance.
Adjusted EBITDA does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:
|
●
|
Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
|
|
●
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
●
|
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
|
|
●
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
|
|
●
|
several of the adjustments that we use in calculating Adjusted EBITDA, such as non-cash write-downs and other charges, while not involving cash expense, do have a negative impact on the value of our assets as reflected in our consolidated balance sheet prepared in accordance with U.S. GAAP; and
|
|
●
|
other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
Furthermore, as noted above, one of our uses of Adjusted EBITDA is as a benchmark for determining elements of compensation for our senior executives. At the same time, some or all of these senior executives have responsibility for monitoring our financial results, generally including the adjustments in calculating Adjusted EBITDA (subject ultimately to review by our Board of Directors in the context of the Board's review of our financial statements). While many of the adjustments (for example, transaction costs and credit facility fees), involve mathematical application of items reflected in our financial statements, others involve a degree of judgment and discretion. While we believe all of these adjustments are appropriate, and while the calculations are subject to review by our Board of Directors in the context of the Board's review of our financial statements, and certification by our Chief Financial Officer in a compliance certificate provided to the lenders under our Term Loan and ABL Facility, this discretion may be viewed as an additional limitation on the use of Adjusted EBITDA as an analytical tool.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
The following table presents a reconciliation of net income to Adjusted EBITDA attributable to Generac Holdings Inc.:
|
|
Year Ended December 31,
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net income attributable to Generac Holdings Inc.
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
238,257
|
|
Net income attributable to noncontrolling interests (a)
|
|
|
(3,358
|
)
|
|
|
301
|
|
|
|
2,963
|
|
Net income
|
|
|
347,218
|
|
|
|
252,308
|
|
|
|
241,220
|
|
Interest expense
|
|
|
32,991
|
|
|
|
41,544
|
|
|
|
40,956
|
|
Depreciation and amortization
|
|
|
68,773
|
|
|
|
60,767
|
|
|
|
47,408
|
|
Provision for income taxes
|
|
|
98,973
|
|
|
|
67,299
|
|
|
|
69,856
|
|
Non-cash write-down and other adjustments (b)
|
|
|
(327
|
)
|
|
|
240
|
|
|
|
3,532
|
|
Non-cash share-based compensation expense (c)
|
|
|
20,882
|
|
|
|
16,694
|
|
|
|
14,563
|
|
Loss on extinguishment of debt (d)
|
|
|
-
|
|
|
|
926
|
|
|
|
1,332
|
|
Loss on pension settlement (e)
|
|
|
-
|
|
|
|
10,920
|
|
|
|
-
|
|
Transaction costs and credit facility fees (f)
|
|
|
2,151
|
|
|
|
2,724
|
|
|
|
3,883
|
|
Business optimization and other charges (g)
|
|
|
12,158
|
|
|
|
1,572
|
|
|
|
952
|
|
Other
|
|
|
954
|
|
|
|
(879
|
)
|
|
|
850
|
|
Adjusted EBITDA
|
|
|
583,773
|
|
|
|
454,115
|
|
|
|
424,552
|
|
Adjusted EBITDA attributable to noncontrolling interests
|
|
|
2,358
|
|
|
|
4,965
|
|
|
|
7,759
|
|
Adjusted EBITDA attributable to Generac Holdings Inc.
|
|
$
|
581,415
|
|
|
$
|
449,150
|
|
|
$
|
416,793
|
|
(a) Includes the noncontrolling interests’ share of expenses related to Pramac purchase accounting, including intangible amortization of $4.3 million, $4.2 million, and $4.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.
(b) Represents the following non-cash adjustments: gains/losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts, transactional foreign currency gains/losses and certain purchase accounting related adjustments. We believe that adjusting net income for these non-cash items is useful for the following reasons:
|
●
|
The gains/losses on disposals of assets result from the sale of assets that are no longer useful in our business and therefore represent gains or losses that are not from our core operations;
|
|
●
|
The adjustments for unrealized mark-to-market gains and losses on commodity contracts represent non-cash items to reflect changes in the fair value of forward contracts that have not been settled or terminated. We believe it is useful to adjust net income for these items because the charges do not represent a cash outlay in the period in which the charge is incurred, although Adjusted EBITDA must always be used together with our U.S. GAAP statements of comprehensive income and cash flows to capture the full effect of these contracts on our operating performance;
|
|
●
|
The purchase accounting adjustments represent non-cash items to reflect fair value at the date of acquisition, and therefore do not reflect our ongoing operations
|
(c) Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting period.
(d) Represents the non-cash write-off of original issue discount and deferred financing costs due to voluntary prepayments of Term Loan debt. Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the losses on extinguishment of debt.
(e) Represents pre-tax settlement charges related to the termination of the Company’s domestic pension plan in the fourth quarter of 2019. Refer to Note 16, “Benefit Plans,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information regarding the Company’s pension plans.
(f) Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance, or debt issuance or refinancing, together with certain fees relating to our senior secured credit facilities, such as administrative agent fees and credit facility commitment fees under our Term Loan and ABL Facility, which we believe to be akin to, or associated with, interest expense and whose inclusion in Adjusted EBITDA is therefore similar to the inclusion of interest expense in that calculation.
(g) Typically, represents severance and non-recurring plant consolidation costs. For the year-ended December 31, 2020, represents severance, non-cash asset write-downs and other charges to address the impact of the COVID-19 pandemic and decline in oil prices on demand for C&I products. These charges represent expenses that are nonrecurring and do not reflect our ongoing operations.
Adjusted Net Income
To further supplement our consolidated financial statements in accordance with U.S. GAAP, we provide the computation of Adjusted Net Income attributable to the Company, which is defined as net income before noncontrolling interest and provision for income taxes adjusted for the following items: cash income tax expense, amortization of intangible assets, amortization of deferred financing costs and original issue discount related to our debt, intangible impairment charges, certain transaction costs and other purchase accounting adjustments, losses on extinguishment of debt, business optimization expenses, certain other non-cash gains and losses, and adjusted net income attributable to noncontrolling interests, as set forth in the reconciliation table below.
We believe Adjusted Net Income is used by securities analysts, investors and other interested parties in the evaluation of our company’s operations. Management believes the disclosure of Adjusted Net Income offers an additional financial metric that, when used in conjunction with U.S. GAAP results and the reconciliation to U.S. GAAP results, provides a more complete understanding of our ongoing results of operations, and the factors and trends affecting our business.
The adjustments included in the reconciliation table listed below are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by investors and securities analysts. Similar to the Adjusted EBITDA reconciliation, these adjustments eliminate the impact of a number of items we do not consider indicative of our ongoing operating performance or cash flows, such as amortization costs, transaction costs and write-offs relating to the retirement of debt. We also make adjustments to present cash taxes paid as a result of our favorable tax attributes, causing our cash tax rate to be lower than our U.S GAAP tax rate.
Similar to Adjusted EBITDA, Adjusted Net Income does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:
|
●
|
Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs;
|
|
●
|
although amortization is a non-cash charge, the assets being amortized may have to be replaced in the future, and Adjusted Net Income does not reflect any cash requirements for such replacements; and
|
|
●
|
other companies may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.
|
The following table presents a reconciliation of net income to Adjusted Net Income attributable to Generac Holdings Inc.:
|
|
Year Ended December 31,
|
|
(U.S. Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net income attributable to Generac Holdings Inc.
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
238,257
|
|
Net income attributable to noncontrolling interests
|
|
|
(3,358
|
)
|
|
|
301
|
|
|
|
2,963
|
|
Net income
|
|
|
347,218
|
|
|
|
252,308
|
|
|
|
241,220
|
|
Provision for income taxes
|
|
|
98,973
|
|
|
|
67,299
|
|
|
|
69,856
|
|
Income before provision for income taxes
|
|
|
446,191
|
|
|
|
319,607
|
|
|
|
311,076
|
|
Amortization of intangible assets
|
|
|
32,280
|
|
|
|
28,644
|
|
|
|
22,112
|
|
Amortization of deferred finance costs and original issue discount
|
|
|
2,598
|
|
|
|
4,712
|
|
|
|
4,749
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
926
|
|
|
|
1,332
|
|
Loss on pension settlement
|
|
|
-
|
|
|
|
10,920
|
|
|
|
-
|
|
Transaction costs and other purchase accounting adjustments (a)
|
|
|
(1,328
|
)
|
|
|
874
|
|
|
|
2,578
|
|
Business optimization and other charges
|
|
|
12,158
|
|
|
|
1,572
|
|
|
|
952
|
|
Adjusted net income before provision for income taxes
|
|
|
491,899
|
|
|
|
367,255
|
|
|
|
342,799
|
|
Cash income tax expense (b)
|
|
|
(79,723
|
)
|
|
|
(47,945
|
)
|
|
|
(47,064
|
)
|
Adjusted net income
|
|
|
412,176
|
|
|
|
319,310
|
|
|
|
295,735
|
|
Adjusted net income attributable to noncontrolling interests
|
|
|
(32
|
)
|
|
|
1,488
|
|
|
|
3,522
|
|
Adjusted net income attributable to Generac Holdings Inc.
|
|
$
|
412,208
|
|
|
$
|
317,822
|
|
|
$
|
292,213
|
|
(a) Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance or debt issuance or refinancing, and certain purchase accounting adjustments.
(b) For the years ended December 31, 2020, 2019, and 2018, the amount is based on a cash income tax rate of 17.9%, 15.0%, and 15.1%, respectively. Cash income tax expense is based on the projected taxable income and corresponding cash taxes payable for the full year after considering the effects of current and deferred income tax items, and is calculated by applying the derived cash tax rate to the period’s pretax income.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Generac Holdings Inc.
Waukesha, WI
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Generac Holdings Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also 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, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 10 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (Topic 842), using the modified retrospective approach.
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 critical audit matters does not alter in any way our opinion on the 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 accounts or disclosures to which it relates.
Goodwill – Refer to Note 9 to the financial statements.
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company’s estimate for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. This requires management to make significant estimates and assumptions including estimates of future growth rates, inflation rates and discount rates based on the estimated weighted average cost of capital for the business. Changes in the assumptions could have a significant impact on the fair value, which could result in an impairment charge. The Company performed their annual impairment assessment of its reporting units as of October 31, 2020. In the October 31, 2020 impairment test calculation, the Latin America and Generac Mobile reporting units each had an estimated fair value that exceeded their carrying value by approximately 10%. Because the estimated fair value exceeded the carrying value for each, no impairment was recorded. The carrying value of goodwill for the Company’s Latin America and Generac Mobile reporting units as of the October 31, 2020 impairment assessment was $43.6 million and $48.6 million, respectively.
Key financial assumptions utilized to determine the fair value of the Latin America reporting unit include revenue growth levels that reflect the impact of the COVID-19 pandemic with an eventual return to normalized revenue growth patterns and profitability from recovering end markets, improving profit margins, a 3% terminal growth rate and a 11.7% discount rate. Key financial assumptions utilized to determine the fair value of the Generac Mobile reporting unit include revenue growth levels that reflect the impact of the COVID-19 pandemic as well as the impact of a decline in oil prices on end markets with an eventual return to normalized revenue growth levels from recovering end markets, improving profit margins, a 3% terminal growth rate and a 14.6% discount rate.
The principle consideration for our determination that the evaluation of goodwill is a critical audit matter is that there is a high degree of auditor effort, judgment and subjectivity involved in designing and performing procedures to evaluate the reasonableness of management’s key financial assumptions utilized to determine the fair value of the Latin America and Generac Mobile reporting units.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenue growth rates, improving profit margins, the terminal growth rate and the selection of the discount rate for the Latin America and Generac Mobile reporting units included the following, among others:
|
●
|
Evaluated the design and effectiveness of the controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting unit, such as controls related to management’s forecast and the selection of the discount rate.
|
|
●
|
Obtained the Company’s discounted cash flow model and evaluated the valuation analysis for mathematical accuracy.
|
|
●
|
Utilized fair value specialists to evaluate whether the valuation techniques applied by management were appropriate.
|
|
●
|
Assessed management’s historical ability to accurately forecast the Company’s results of operations.
|
|
●
|
Assessed management’s intent and/or ability to take specific actions included in the discounted cash flow model.
|
|
●
|
Evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to the Board of Directors, and (3) forecasted information included in industry reports.
|
|
●
|
Independently calculated a discount rate and compared it to the rate utilized by the Company.
|
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 23, 2021
We have served as the Company’s auditor since 2016.
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Generac Holdings Inc.
Waukesha, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Generac Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 23, 2021, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded West Coast Energy Systems LLC, which was acquired in July 2020, Mean Green Products, LLC, which was acquired in September 2020, and Enbala Power Networks Inc., which was acquired in October 2020, and whose financial statements constitute 4.7% and 2.6% of net and total assets, respectively, 0.6% of net sales, and (0.3)% of net income of the consolidated financial statements of the Company as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at West Coast Energy Systems LLC, Mean Green Products, LLC and Enbala Power Networks Inc.
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/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 23, 2021
Generac Holdings Inc.
|
Consolidated Balance Sheets
|
(U.S. Dollars in Thousands, Except Share and Per Share Data)
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
655,128
|
|
|
$
|
322,883
|
|
Accounts receivable, less allowance for credit losses of $12,001 and $6,968 at December 31, 2020 and 2019, respectively
|
|
|
374,906
|
|
|
|
319,538
|
|
Inventories
|
|
|
603,317
|
|
|
|
522,024
|
|
Prepaid expenses and other assets
|
|
|
36,382
|
|
|
|
31,384
|
|
Total current assets
|
|
|
1,669,733
|
|
|
|
1,195,829
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
343,936
|
|
|
|
316,976
|
|
|
|
|
|
|
|
|
|
|
Customer lists, net
|
|
|
49,205
|
|
|
|
55,552
|
|
Patents and technology, net
|
|
|
86,727
|
|
|
|
85,546
|
|
Other intangible assets, net
|
|
|
9,932
|
|
|
|
8,259
|
|
Tradenames, net
|
|
|
146,159
|
|
|
|
148,377
|
|
Goodwill
|
|
|
855,228
|
|
|
|
805,284
|
|
Deferred income taxes
|
|
|
1,497
|
|
|
|
2,933
|
|
Operating lease and other assets
|
|
|
73,006
|
|
|
|
46,913
|
|
Total assets
|
|
$
|
3,235,423
|
|
|
$
|
2,665,669
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
39,282
|
|
|
$
|
58,714
|
|
Accounts payable
|
|
|
330,247
|
|
|
|
261,977
|
|
Accrued wages and employee benefits
|
|
|
63,036
|
|
|
|
41,361
|
|
Other accrued liabilities
|
|
|
204,812
|
|
|
|
132,629
|
|
Current portion of long-term borrowings and finance lease obligations
|
|
|
4,147
|
|
|
|
2,383
|
|
Total current liabilities
|
|
|
641,524
|
|
|
|
497,064
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings and finance lease obligations
|
|
|
841,764
|
|
|
|
837,767
|
|
Deferred income taxes
|
|
|
115,769
|
|
|
|
96,328
|
|
Operating lease and other long-term liabilities
|
|
|
179,955
|
|
|
|
140,432
|
|
Total liabilities
|
|
|
1,779,012
|
|
|
|
1,571,591
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
66,207
|
|
|
|
61,227
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01, 500,000,000 shares authorized, 72,024,329 and 71,667,726 shares issued at December 31, 2020 and 2019, respectively
|
|
|
721
|
|
|
|
717
|
|
Additional paid-in capital
|
|
|
525,541
|
|
|
|
498,866
|
|
Treasury stock, at cost, 9,173,731 and 9,103,013 shares at December 31, 2020 and 2019, respectively
|
|
|
(332,164
|
)
|
|
|
(324,551
|
)
|
Excess purchase price over predecessor basis
|
|
|
(202,116
|
)
|
|
|
(202,116
|
)
|
Retained earnings
|
|
|
1,432,565
|
|
|
|
1,084,383
|
|
Accumulated other comprehensive loss
|
|
|
(34,254
|
)
|
|
|
(24,917
|
)
|
Stockholders’ equity attributable to Generac Holdings Inc.
|
|
|
1,390,293
|
|
|
|
1,032,382
|
|
Noncontrolling interests
|
|
|
(89
|
)
|
|
|
469
|
|
Total stockholders’ equity
|
|
|
1,390,204
|
|
|
|
1,032,851
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,235,423
|
|
|
$
|
2,665,669
|
|
See notes to consolidated financial statements.
|
|
|
|
Generac Holdings Inc.
|
Consolidated Statements of Comprehensive Income
|
(U.S. Dollars in Thousands, Except Share and Per Share Data)
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,485,200
|
|
|
$
|
2,204,336
|
|
|
$
|
2,023,464
|
|
Costs of goods sold
|
|
|
1,527,546
|
|
|
|
1,406,584
|
|
|
|
1,298,424
|
|
Gross profit
|
|
|
957,654
|
|
|
|
797,752
|
|
|
|
725,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and service
|
|
|
246,373
|
|
|
|
217,683
|
|
|
|
191,887
|
|
Research and development
|
|
|
80,251
|
|
|
|
68,394
|
|
|
|
50,019
|
|
General and administrative
|
|
|
119,644
|
|
|
|
110,868
|
|
|
|
103,841
|
|
Amortization of intangibles
|
|
|
32,280
|
|
|
|
28,644
|
|
|
|
22,112
|
|
Total operating expenses
|
|
|
478,548
|
|
|
|
425,589
|
|
|
|
367,859
|
|
Income from operations
|
|
|
479,106
|
|
|
|
372,163
|
|
|
|
357,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32,991
|
)
|
|
|
(41,544
|
)
|
|
|
(40,956
|
)
|
Investment income
|
|
|
2,182
|
|
|
|
2,767
|
|
|
|
1,893
|
|
Loss on extinguishment of debt
|
|
|
–
|
|
|
|
(926
|
)
|
|
|
(1,332
|
)
|
Loss on pension settlement
|
|
|
–
|
|
|
|
(10,920
|
)
|
|
|
–
|
|
Other, net
|
|
|
(2,106
|
)
|
|
|
(1,933
|
)
|
|
|
(5,710
|
)
|
Total other expense, net
|
|
|
(32,915
|
)
|
|
|
(52,556
|
)
|
|
|
(46,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
446,191
|
|
|
|
319,607
|
|
|
|
311,076
|
|
Provision for income taxes
|
|
|
98,973
|
|
|
|
67,299
|
|
|
|
69,856
|
|
Net income
|
|
|
347,218
|
|
|
|
252,308
|
|
|
|
241,220
|
|
Net income attributable to noncontrolling interests
|
|
|
(3,358
|
)
|
|
|
301
|
|
|
|
2,963
|
|
Net income attributable to Generac Holdings Inc.
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
238,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
4,948
|
|
|
$
|
2,210
|
|
|
$
|
(5,976
|
)
|
Net unrealized gain (loss) on derivatives
|
|
|
(14,285
|
)
|
|
|
(13,855
|
)
|
|
|
2,924
|
|
Pension liability adjustment
|
|
|
–
|
|
|
|
10,541
|
|
|
|
437
|
|
Other comprehensive income (loss)
|
|
|
(9,337
|
)
|
|
|
(1,104
|
)
|
|
|
(2,615
|
)
|
Total comprehensive income
|
|
|
337,881
|
|
|
|
251,204
|
|
|
|
238,605
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
(364
|
)
|
|
|
(635
|
)
|
|
|
1,647
|
|
Comprehensive income attributable to Generac Holdings Inc.
|
|
$
|
338,245
|
|
|
$
|
251,839
|
|
|
$
|
236,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Generac Holdings Inc. per common share - basic:
|
|
$
|
5.61
|
|
|
$
|
4.09
|
|
|
$
|
3.57
|
|
Weighted average common shares outstanding - basic:
|
|
|
62,280,889
|
|
|
|
61,926,986
|
|
|
|
61,662,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Generac Holdings Inc. per common share - diluted:
|
|
$
|
5.48
|
|
|
$
|
4.03
|
|
|
$
|
3.54
|
|
Weighted average common shares outstanding - diluted:
|
|
|
63,737,734
|
|
|
|
62,865,446
|
|
|
|
62,233,225
|
|
See notes to consolidated financial statements.
|
Generac Holdings Inc.
|
Consolidated Statements of Stockholders' Equity
|
(U.S. Dollars in Thousands, Except Share Data)
|
|
|
Generac Holdings Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess Purchase Price
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Over
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Predecessor
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Basis
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
Balance at December 31, 2017
|
|
|
70,820,173
|
|
|
$
|
708
|
|
|
$
|
459,816
|
|
|
|
(8,448,874
|
)
|
|
$
|
(294,005
|
)
|
|
$
|
(202,116
|
)
|
|
$
|
610,836
|
|
|
$
|
(21,198
|
)
|
|
$
|
554,041
|
|
|
$
|
279
|
|
|
$
|
554,320
|
|
Unrealized gain on interest rate swaps, net of tax of $1,027
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,924
|
|
|
|
2,924
|
|
|
|
–
|
|
|
|
2,924
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(5,976
|
)
|
|
|
(5,976
|
)
|
|
|
(2
|
)
|
|
|
(5,978
|
)
|
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price
|
|
|
366,245
|
|
|
|
4
|
|
|
|
1,737
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,741
|
|
|
|
–
|
|
|
|
1,741
|
|
Net share settlement of restricted stock awards
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(38,186
|
)
|
|
|
(1,812
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,812
|
)
|
|
|
–
|
|
|
|
(1,812
|
)
|
Stock repurchases
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(560,000
|
)
|
|
|
(25,656
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(25,656
|
)
|
|
|
–
|
|
|
|
(25,656
|
)
|
Cash dividends paid to noncontrolling interest of subsidiary
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(314
|
)
|
|
|
(314
|
)
|
Share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
14,563
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,563
|
|
|
|
–
|
|
|
|
14,563
|
|
Pension liability adjustment, net of tax of $154
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
437
|
|
|
|
437
|
|
|
|
–
|
|
|
|
437
|
|
Redemption value adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(17,970
|
)
|
|
|
–
|
|
|
|
(17,970
|
)
|
|
|
–
|
|
|
|
(17,970
|
)
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
238,257
|
|
|
|
–
|
|
|
|
238,257
|
|
|
|
749
|
|
|
|
239,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
71,186,418
|
|
|
$
|
712
|
|
|
$
|
476,116
|
|
|
|
(9,047,060
|
)
|
|
$
|
(321,473
|
)
|
|
$
|
(202,116
|
)
|
|
$
|
831,123
|
|
|
$
|
(23,813
|
)
|
|
$
|
760,549
|
|
|
$
|
712
|
|
|
$
|
761,261
|
|
Change in noncontrolling interest share
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(154
|
)
|
|
|
(154
|
)
|
Unrealized loss on interest rate swaps, net of tax of ($4,877)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,855
|
)
|
|
|
(13,855
|
)
|
|
|
–
|
|
|
|
(13,855
|
)
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,210
|
|
|
|
2,210
|
|
|
|
(30
|
)
|
|
|
2,180
|
|
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price
|
|
|
481,308
|
|
|
|
5
|
|
|
|
6,056
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,061
|
|
|
|
–
|
|
|
|
6,061
|
|
Net share settlement of restricted stock awards
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(55,953
|
)
|
|
|
(3,078
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(3,078
|
)
|
|
|
–
|
|
|
|
(3,078
|
)
|
Cash dividends paid to noncontrolling interest of subsidiary
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(285
|
)
|
|
|
(285
|
)
|
Share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
16,694
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,694
|
|
|
|
–
|
|
|
|
16,694
|
|
Pension liability adjustment and settlement, net of tax
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,541
|
|
|
|
10,541
|
|
|
|
–
|
|
|
|
10,541
|
|
Redemption value adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,253
|
|
|
|
–
|
|
|
|
1,253
|
|
|
|
–
|
|
|
|
1,253
|
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
252,007
|
|
|
|
–
|
|
|
|
252,007
|
|
|
|
226
|
|
|
|
252,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
71,667,726
|
|
|
$
|
717
|
|
|
$
|
498,866
|
|
|
|
(9,103,013
|
)
|
|
$
|
(324,551
|
)
|
|
$
|
(202,116
|
)
|
|
$
|
1,084,383
|
|
|
$
|
(24,917
|
)
|
|
$
|
1,032,382
|
|
|
$
|
469
|
|
|
$
|
1,032,851
|
|
Accounting standard adoption impact
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,147
|
)
|
|
|
–
|
|
|
|
(1,147
|
)
|
|
|
–
|
|
|
|
(1,147
|
)
|
Unrealized loss on interest rate swaps, net of tax of ($4,826)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(14,285
|
)
|
|
|
(14,285
|
)
|
|
|
–
|
|
|
|
(14,285
|
)
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,948
|
|
|
|
4,948
|
|
|
|
(29
|
)
|
|
|
4,919
|
|
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price
|
|
|
356,603
|
|
|
|
4
|
|
|
|
5,793
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,797
|
|
|
|
–
|
|
|
|
5,797
|
|
Net share settlement of restricted stock awards
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(70,718
|
)
|
|
|
(7,613
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(7,613
|
)
|
|
|
–
|
|
|
|
(7,613
|
)
|
Share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
20,882
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
20,882
|
|
|
|
–
|
|
|
|
20,882
|
|
Redemption value adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,247
|
)
|
|
|
–
|
|
|
|
(1,247
|
)
|
|
|
–
|
|
|
|
(1,247
|
)
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
350,576
|
|
|
|
–
|
|
|
|
350,576
|
|
|
|
(529
|
)
|
|
|
350,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
72,024,329
|
|
|
$
|
721
|
|
|
$
|
525,541
|
|
|
|
(9,173,731
|
)
|
|
$
|
(332,164
|
)
|
|
$
|
(202,116
|
)
|
|
$
|
1,432,565
|
|
|
$
|
(34,254
|
)
|
|
$
|
1,390,293
|
|
|
$
|
(89
|
)
|
|
$
|
1,390,204
|
|
See notes to consolidated financial statements.
|
Generac Holdings Inc.
|
Consolidated Statements of Cash Flows
|
(U.S. Dollars in Thousands)
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
347,218
|
|
|
$
|
252,308
|
|
|
$
|
241,220
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
36,493
|
|
|
|
32,265
|
|
|
|
25,296
|
|
Amortization of intangible assets
|
|
|
32,280
|
|
|
|
28,644
|
|
|
|
22,112
|
|
Amortization of original issue discount and deferred financing costs
|
|
|
2,598
|
|
|
|
4,712
|
|
|
|
4,749
|
|
Loss on extinguishment of debt
|
|
|
–
|
|
|
|
926
|
|
|
|
1,332
|
|
Loss on pension settlement
|
|
|
–
|
|
|
|
10,920
|
|
|
|
–
|
|
Deferred income taxes
|
|
|
21,195
|
|
|
|
18,733
|
|
|
|
23,600
|
|
Share-based compensation expense
|
|
|
20,882
|
|
|
|
16,694
|
|
|
|
14,563
|
|
Other
|
|
|
7,145
|
|
|
|
1,086
|
|
|
|
2,474
|
|
Net changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(55,976
|
)
|
|
|
8,231
|
|
|
|
(43,243
|
)
|
Inventories
|
|
|
(77,983
|
)
|
|
|
26,369
|
|
|
|
(152,594
|
)
|
Other assets
|
|
|
12,859
|
|
|
|
(358
|
)
|
|
|
(6,362
|
)
|
Accounts payable
|
|
|
66,040
|
|
|
|
(69,404
|
)
|
|
|
86,359
|
|
Accrued wages and employee benefits
|
|
|
20,157
|
|
|
|
(3,724
|
)
|
|
|
12,626
|
|
Other accrued liabilities
|
|
|
60,593
|
|
|
|
(16,252
|
)
|
|
|
16,972
|
|
Excess tax benefits from equity awards
|
|
|
(6,968
|
)
|
|
|
(2,263
|
)
|
|
|
(1,877
|
)
|
Net cash provided by operating activities
|
|
|
486,533
|
|
|
|
308,887
|
|
|
|
247,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
179
|
|
|
|
95
|
|
|
|
214
|
|
Proceeds from beneficial interest in securitization transactions
|
|
|
2,651
|
|
|
|
2,630
|
|
|
|
3,933
|
|
Expenditures for property and equipment
|
|
|
(62,128
|
)
|
|
|
(60,802
|
)
|
|
|
(47,601
|
)
|
Acquisition of business, net of cash acquired
|
|
|
(64,797
|
)
|
|
|
(112,001
|
)
|
|
|
(65,440
|
)
|
Net cash used in investing activities
|
|
|
(124,095
|
)
|
|
|
(170,078
|
)
|
|
|
(108,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
257,593
|
|
|
|
73,340
|
|
|
|
53,965
|
|
Proceeds from long-term borrowings
|
|
|
277
|
|
|
|
1,660
|
|
|
|
51,425
|
|
Repayments of short-term borrowings
|
|
|
(277,719
|
)
|
|
|
(59,518
|
)
|
|
|
(27,880
|
)
|
Repayments of long-term borrowings and finance lease obligations
|
|
|
(4,758
|
)
|
|
|
(53,049
|
)
|
|
|
(101,827
|
)
|
Stock repurchases
|
|
|
–
|
|
|
|
–
|
|
|
|
(25,656
|
)
|
Payment of contingent acquisition consideration
|
|
|
(4,000
|
)
|
|
|
(5,550
|
)
|
|
|
–
|
|
Payment of debt issuance costs
|
|
|
–
|
|
|
|
(1,473
|
)
|
|
|
(1,702
|
)
|
Cash dividends paid to noncontrolling interest of subsidiary
|
|
|
–
|
|
|
|
(285
|
)
|
|
|
(314
|
)
|
Taxes paid related to equity awards
|
|
|
(14,910
|
)
|
|
|
(6,438
|
)
|
|
|
(5,659
|
)
|
Proceeds from the exercise of stock options
|
|
|
13,089
|
|
|
|
9,395
|
|
|
|
5,614
|
|
Net cash used in financing activities
|
|
|
(30,428
|
)
|
|
|
(41,918
|
)
|
|
|
(52,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
235
|
|
|
|
1,510
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
332,245
|
|
|
|
98,401
|
|
|
|
86,010
|
|
Cash and cash equivalents at beginning of period
|
|
|
322,883
|
|
|
|
224,482
|
|
|
|
138,472
|
|
Cash and cash equivalents at end of period
|
|
$
|
655,128
|
|
|
$
|
322,883
|
|
|
$
|
224,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
28,765
|
|
|
$
|
35,465
|
|
|
$
|
41,007
|
|
Income taxes
|
|
|
61,861
|
|
|
|
61,767
|
|
|
|
41,044
|
|
See notes to consolidated financial statements.
|
Generac Holdings Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2020, 2019 and 2018
(U.S. Dollars in Thousands, Except Share and Per Share Data)
1.
|
Description of Business
|
Founded in 1959, Generac Holdings Inc. (the Company) is a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, grid service solutions, and other power products serving the residential, light commercial and industrial markets. Generac’s power products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, wholesalers, and equipment rental companies, as well as sold direct to certain end user customers.
Over the years, the Company has executed a number of acquisitions that support its strategic plan (refer to Item 1 in this Annual Report on Form 10-K for discussion of our "Powering Our Future" strategic plan). A summary of acquisitions affecting the reporting periods presented include:
|
●
|
In June 2018, the Company acquired Selmec Equipos Industriales, S.A. de C.V. (Selmec), headquartered in Mexico City, Mexico. Selmec is a designer and manufacturer of industrial generators ranging from 10kW to 2,750kW. Selmec offers a market-leading service platform and specialized engineering capabilities, together with robust integration, project management and remote monitoring services.
|
|
●
|
In February 2019, the Company acquired a majority share of Captiva Energy Solutions Private Limited (Captiva). Captiva, founded in 2010 and headquartered in Kolkata, India, specializes in customized industrial generators for the India market.
|
|
●
|
In March 2019, the Company acquired Neurio Technology Inc. (Neurio), founded in 2005 and headquartered in Vancouver, British Columbia. Neurio is a leading energy data company focused on metering technology and sophisticated analytics to optimize energy use within a home or business.
|
|
●
|
In April 2019, the Company acquired Pika Energy, Inc. (Pika), founded in 2010 and located in Westbrook, Maine. Pika is a designer and manufacturer of battery storage technologies that capture and store solar or other power sources for homeowners and businesses, and is also a developer of advanced power electronics, software and controls for smart energy storage and management.
|
|
●
|
In July 2020, the Company acquired West Coast Energy Systems LLC (Energy Systems), its industrial distributor in northern California. This addition enhances the Company's ability to serve the west coast markets for both commercial & industrial (C&I) and residential products.
|
|
●
|
In September 2020, the Company acquired Mean Green Products, LLC (Mean Green), founded in 2009 and located in Ross, Ohio. Mean Green is a designer and manufacturer of commercial grade, battery-powered turf care products that provide quiet, zero emissions and reduced maintenance options as compared to traditional commercial mowers.
|
|
●
|
In October 2020, the Company acquired Enbala Power Networks Inc. (Enbala), founded in 2003 and headquartered in Denver, Colorado. Enbala is one of the leading providers of distributed energy optimization and control software that helps support the operational stability of the world's power grids.
|
2.
|
Summary of Accounting Policies
|
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. GAAP. All intercompany amounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company maintains the majority of its domestic cash in a few commercial banks in multiple operating and investment accounts. Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are uninsured.
One customer accounted for approximately 13% and 9% of accounts receivable at December 31, 2020 and 2019, respectively. No one customer accounted for greater than 6%, 5%, and 6%, of net sales during the years ended December 31, 2020, 2019, or 2018, respectively.
Accounts Receivable and Allowance for Credit Losses
The Company's trade and other receivables primarily arise from the sale of our products to independent residential dealers, industrial distributors and dealers, national and regional retailers, electrical/HVAC/solar wholesalers, e-commerce partners, equipment rental companies, equipment distributors, solar installers, utilities, and certain end users with payment terms generally ranging from 30 to 90 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customers' ability to pay. These factors include the customer's financial condition, past payment experience, credit bureau information, and regional considerations.
Receivables are recorded at their face value amount less an allowance for credit losses. The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on an entity by entity basis. The estimate of expected credit losses considers a historical loss experience rate that is adjusted for delinquency trends, collection experience, and/or economic risk where appropriate based on current market conditions. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss.
The Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. In addition, the Company holds a credit insurance plan that covers the risk of loss up to specified amounts on certain trade receivables. As of December 31, 2020, the Company had gross receivables of $386,907 and an allowance for credit losses of $12,001.
The following is a tabular reconciliation of the Company's allowance for credit losses:
|
|
Year Ended December 31, 2020
|
|
Balance at beginning of period
|
|
$
|
6,968
|
|
Adoption of ASU 2016-13
|
|
|
1,147
|
|
Established for Acquisitions
|
|
|
198
|
|
Provision for credit losses
|
|
|
4,645
|
|
Charge-offs
|
|
|
(1,448
|
)
|
Currency translation
|
|
|
491
|
|
Balance at end of period
|
|
$
|
12,001
|
|
Inventories
Inventories are stated at the lower of cost or market, with cost determined generally using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated using the straight-line method over the estimated useful lives of the assets, which are summarized below (in years). Costs of leasehold improvements are amortized over the lesser of the term of the lease (including renewal option periods) or the estimated useful lives of the improvements. Finance lease right of use assets are included in property and equipment. Refer to Note 10, "Leases," to the consolidated financial statements for the Company's lease disclosure.
Land improvements
|
|
8
|
–
|
20
|
|
Buildings and improvements
|
|
10
|
–
|
40
|
|
Machinery and equipment
|
|
3
|
–
|
15
|
|
Dies and tools
|
|
3
|
–
|
10
|
|
Vehicles
|
|
3
|
–
|
6
|
|
Office equipment and systems
|
|
3
|
–
|
15
|
|
Leasehold improvements
|
|
2
|
–
|
20
|
|
Total depreciation expense was $36,493, $32,265, and $25,296 for the years ended December 31, 2020, 2019 and 2018, respectively.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price over fair value of identifiable net assets acquired from business acquisitions. Goodwill is not amortized, but is reviewed for impairment on an annual basis and between annual tests if indicators of impairment are present. The Company evaluates goodwill for impairment annually as of October 31 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. The Company has the option to assess goodwill for impairment by performing either a qualitative assessment or quantitative test. The qualitative assessment determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is not required to be performed. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the quantitative test. In the quantitative test, the calculated fair value of the reporting unit is compared to its book value including goodwill. If the fair value of the reporting unit is in excess of its book value, the related goodwill is not impaired. If the fair value of the reporting unit is less than its book value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Other indefinite-lived intangible assets consist of certain tradenames. The Company tests the carrying value of these tradenames annually as of October 31, or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable, by comparing the assets’ fair value to its carrying value. Fair value is measured using a relief-from-royalty approach, which assumes the fair value of the tradename is the discounted cash flows of the amount that would be paid had the Company not owned the tradename and instead licensed the tradename from another company.
The Company performed the required annual impairment tests for goodwill and other indefinite-lived intangible assets for the fiscal years 2020, 2019 and 2018, and found no impairment.
Impairment of Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets (excluding goodwill and indefinite-lived tradenames). Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of an asset, a loss is recognized for the difference between the fair value and carrying value of the asset.
Debt Issuance Costs
Debt discounts and direct costs incurred in connection with the issuance or amendment of long-term debt are deferred and recorded as a reduction of outstanding debt and amortized to interest expense using the effective interest method over the terms of the related credit agreements. $2,598, $4,712, and $4,749 of deferred financing costs and original issue discount were amortized to interest expense during fiscal years 2020, 2019 and 2018, respectively. Excluding the impact of any future long-term debt issuances or prepayments, estimated amortization to interest expense for the next five years is as follows: 2021 - $2,640; 2022 - $2,689; 2023 - $2,579; 2024 - $2,508; 2025 - $2,555.
Income Taxes
The Company is a C Corporation and therefore accounts for income taxes pursuant to the liability method. Accordingly, the current or deferred tax consequences of a transaction are measured by applying the provision of enacted tax laws to determine the amount of taxes payable currently or in future years. Deferred income taxes are provided for temporary differences between the income tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. The Company considers taxable income in prior carryback years, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, as appropriate, in making this assessment.
Revenue Recognition
The Company’s revenues primarily consist of product sales to its customers. The Company considers the purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customers. For each contract, the Company considers the commitment to transfer products, each of which is distinct, to be the identified performance obligations. Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of product, which is generally the price stated in the contract specific for each item sold, adjusted for the value of expected returns, discounts, rebates, or other promotional incentives or allowances offered to our customers. Expected returns for damaged or defective product are estimated using the expected value method based upon historical product return experience. Discounts and rebates offered to customers are typically defined in the master sales agreements with customers and, therefore, are recorded using the most likely amount method based on the terms of the contract. Promotional incentives are defined programs offered for short, specific periods of time and are estimated using the expected value method based upon historical experience. The Company does not expect the transaction price for revenue recognized will be subject to a significant revenue reversal. As the Company’s product sale contracts and standard payment terms have a duration of less than one year, it uses the practical expedient applicable to such contracts and does not consider the time value of money. Sales, use, value add and other similar taxes assessed by governmental authorities and collected concurrent with revenue-producing activities are excluded from revenue. The Company has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods sold in the consolidated statements of comprehensive income. Product revenues are recognized at the point in time when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer. To determine when control has transferred, the Company considers if there is a present right to payment and if legal title, physical possession, and the significant risks and rewards of ownership of the asset has transferred to the customer. As substantially all of the Company’s product revenues are recognized at a point in time, the amount of unsatisfied performance obligations at each period end is not material. The Company’s contracts have an original expected duration of one year or less. As a result, the Company has elected to use the practical expedient to not disclose its remaining performance obligations.
At the request of certain customers, the Company will warehouse inventory billed to the customer but not delivered. Unless all revenue recognition criteria have been met, the Company does not recognize revenue on these transactions until the customer takes possession of the product.
While the Company’s standard payment terms are less than one year, the specific payment terms and conditions in its customer contracts vary. In some cases, customers prepay for their goods; in other cases, after appropriate credit evaluation, an open credit line is granted and payment is due in arrears. Contracts with payment in arrears are recognized in the consolidated balance sheets as accounts receivable upon revenue recognition, while contracts where customers pay in advance are recognized as customer deposits and recorded in other accrued liabilities in the consolidated balance sheets until revenue is recognized. The balance of customer deposits (contract liabilities) was $25,710 and $9,952 at December 31, 2020 and December 31, 2019, respectively. During the year ended December 31, 2020, the Company recognized revenue of $8,703 related to amounts included in the December 31, 2019 customer deposit balance. The Company typically recognizes revenue within one year of the receipt of the customer deposit.
The Company offers standard warranty coverage on substantially all products that it sells and accounts for this standard warranty coverage as an assurance warranty. As such, no transaction price is allocated to the standard warranty, and the Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Refer to Note 11, “Product Warranty Obligations,” to the consolidated financial statements for further information regarding the Company’s standard warranties.
The Company also sells extended warranty coverage for certain products, which it accounts for as service warranties. In most cases, the extended warranty is sold as a separate contract. As such, extended warranty sales are considered a separate performance obligation, and the extended warranty transaction is separate and distinct from the product. The extended warranty transaction price is initially recorded as deferred revenue in the consolidated balance sheets and amortized on a straight-line basis to net sales in the consolidated statements of comprehensive income over the life of the contracts following the standard warranty period. For extended warranty contracts that the Company sells under a third-party marketing agreement, it is required to pay fees to the third-party service provider and classifies these fees as costs to obtain a contract. The contract costs are deferred and recorded as other assets in the consolidated balance sheets. The deferred contract costs are amortized to net sales in the consolidated statements of comprehensive income consistent with how the related deferred revenue is recognized. Refer to Note 11, “Product Warranty Obligations,” to the consolidated financial statements for further information regarding the Company’s extended warranties.
In addition to extended warranties, the Company offers other services, including remote monitoring, installation, maintenance and grid services in certain circumstances. Total service revenues accounted for less than two percent of revenue during the year ended December 31, 2020.
Refer to Note 7, “Segment Reporting,” to the consolidated financial statements for the Company’s disaggregated revenue disclosure. The information discussed above is applicable to each of the Company’s product classes.
Advertising and Co-Op Advertising
Expenditures for advertising, included in selling and service expenses in the consolidated statements of comprehensive income, are expensed as incurred. Expenditures for advertising production costs are expensed when the related advertisement is first run. Expenditures for Co-Op advertising are expensed when claimed by the customer. Total expenditures for advertising were $53,678, $44,153, and $34,792 for the years ended December 31, 2020, 2019 and 2018, respectively.
Research and Development
The Company expenses research and development costs as incurred. Total expenditures incurred for research and development were $80,251, $68,394, and $50,019 for the years ended December 31, 2020, 2019 and 2018, respectively.
Foreign Currency Translation and Transactions
Balance sheet amounts for non-U.S. Dollar functional currency businesses are translated into U.S. Dollars at the rates of exchange in effect at the end of the fiscal year. Income and expenses incurred in a foreign currency are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to accumulated other comprehensive loss, a component of stockholders’ equity, in the consolidated balance sheets. Gains and losses from foreign currency transactions are recognized as incurred in the consolidated statements of comprehensive income.
Fair Value of Financial Instruments
ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the pronouncement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and ABL facility borrowings), excluding Term Loan borrowings, approximates the fair value of these instruments based upon their short-term nature. The fair value of Term Loan borrowings, which have an aggregate carrying value of $815,260, was approximately $831,038 (Level 2) at December 31, 2020, as calculated based on independent valuations whose inputs and significant value drivers are observable.
For the fair value of the assets and liabilities measured on a recurring basis, refer to the fair value table in Note 5, “Derivative Instruments and Hedging Activities,” to the consolidated financial statements. The fair value of all derivative contracts is classified as Level 2. The valuation techniques used to measure the fair value of derivative contracts, all of which have counterparties with high credit ratings, were based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. The fair value of derivative contracts considers the Company’s credit risk in accordance with ASC 820-10.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Derivative Instruments and Hedging Activities
The Company records all derivatives in accordance with ASC 815, Derivatives and Hedging, which requires derivative instruments to be reported in the consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes. Refer to Item 7A of this Annual Report on Form 10-K for further information on the Company’s derivatives.
Share-Based Compensation
Share-based compensation expense, including stock options and restricted stock awards, is generally recognized on a straight-line basis over the vesting period based on the fair value of awards which are expected to vest. The fair value of all share-based awards is estimated on the date of grant. Refer to Note 17, “Share Plans,” to the consolidated financial statements for further information on the Company’s share-based compensation plans and accounting.
New Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standard updates (“ASUs”) to the FASB Accounting Standards Codification (ASC). ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.
Recently Adopted Accounting Standards
On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade and other receivables. The Company adopted this standard using the modified retrospective approach as of the date of adoption, meaning no prior period balances were impacted by the adoption. The adoption of the standard impacts the way the Company estimates the allowance for doubtful accounts on its trade and other receivables, and the Company recorded a decrease to retained earnings of $1,147 as a result of adopting ASU 2016-13. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to Note 2 to the consolidated financial statements, “Summary of Accounting Policies - Accounts Receivable and Allowance for Credit Losses,” for further information regarding the Company’s allowance for expected credit losses.
On January 1, 2020, the Company elected to apply the optional expedients discussed in ASU 2020-04, Reference Rate Reform. This guidance was issued to address challenges likely to arise in accounting for contract modifications and hedge accounting because of reference rate reform. The update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued if certain criteria are met. The adoption of the optional expedients in this standard permits the Company to account for the change to a reference rate on its LIBOR based term loan as a continuation of the existing contract rather than having to account for the change in rate as a modification or extinguishment. Additionally, the election of the optional expedients permits the Company to continue with its hedge accounting treatment for its interest rate swaps despite expected changes due to reference rate reform.
Fiscal 2020
Acquisition of Enbala
On October 7, 2020, the Company acquired Enbala for a purchase price, net of cash acquired, of $41,982. The acquisition purchase price was funded solely through cash on hand.
The Company recorded a preliminary purchase price allocation during the fourth quarter of 2020 based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the Company recorded $46,645 of intangible assets, including $27,545 of goodwill recorded in the Domestic segment, as of the acquisition date. A portion of the goodwill ascribed to this acquisition is deductible for tax purposes. The accompanying consolidated financial statements include the results of Enbala from the date of acquisition through December 31, 2020.
Other Acquisitions
In July 2020, the Company acquired Energy Systems, its industrial distributor in northern California.
In September 2020, the Company acquired Mean Green, a designer and manufacturer of commercial grade, battery-powered turf care products.
The combined purchase price for these acquisitions was $22,815 and was funded solely through cash on hand. The accompanying consolidated financial statements include the results of the acquired businesses since the dates of acquisition through December 31, 2020.
Fiscal 2019
Acquisition of Pika
On April 26, 2019, the Company acquired Pika for a purchase price, net of cash acquired, of $49,068. The acquisition purchase price was funded solely through cash on hand.
The Company finalized the Pika purchase price allocation during the first quarter of 2020 based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the Company recorded $58,196 of intangible assets, including $19,896 of goodwill recorded in the Domestic segment, as of the acquisition date. The goodwill ascribed to the acquisition is not deductible for tax purposes. The accompanying consolidated financial statements include the results of Pika from the date of acquisition through December 31, 2020.
Acquisition of Neurio
On March 12, 2019, the Company acquired Neurio for a purchase price of $59,071, net of cash acquired and inclusive of a deferred payment of $7,922 which was made during the third quarter of 2019. The acquisition purchase price was funded solely through cash on hand.
The Company finalized the Neurio purchase price allocation during the first quarter of 2020 based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the Company recorded $58,762 of intangible assets, including $17,862 of goodwill recorded in the Domestic segment, as of the acquisition date. Substantially all of the goodwill ascribed to this acquisition is deductible for tax purposes. The accompanying consolidated financial statements include the results of Neurio from the date of acquisition through December 31, 2020.
Other Acquisitions
In February 2019, the Company acquired a majority share of Captiva, a manufacturer of customized industrial generators in Kolkata, India. The purchase price was immaterial to the Company and was funded solely through cash on hand. The accompanying consolidated financial statements include the results of the acquired business from the date of acquisition through December 31, 2020.
Fiscal 2018
Acquisition of Selmec
On June 1, 2018, the Company acquired Selmec for a purchase price of $79,972, net of cash acquired and inclusive of earnout payments of $14,902. Changes in the fair value of the earnout liability during 2020 and 2019 of $(2,241) and $(977), respectively, were recognized as a component of operating income in the Company's consolidated statements of comprehensive income. Changes in the fair value of the earnout liability during 2020 and 2019 included interest accretion of $536 and $2,740, respectively, and other fair value remeasurement adjustments of $(2,777) and $(3,717), respectively. The acquisition purchase price was funded solely through cash on hand.
The Company finalized the Selmec purchase price allocation during the second quarter of 2019 based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the Company recorded $79,827 of intangible assets, including $46,196 of goodwill recorded in the International segment, as of the acquisition date. The goodwill ascribed to the acquisition is not deductible for tax purposes. The accompanying consolidated financial statements include the results of Selmec from the date of acquisition through December 31, 2020.
Summary Purchase Price Allocations
The fair values assigned to certain assets acquired and liabilities assumed, as of the acquisition dates, for the years ended December 31 are as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable
|
|
$
|
5,151
|
|
|
$
|
4,643
|
|
|
$
|
14,302
|
|
Inventories
|
|
|
3,711
|
|
|
|
4,313
|
|
|
|
8,000
|
|
Prepaid expenses and other assets
|
|
|
897
|
|
|
|
304
|
|
|
|
4,323
|
|
Property and equipment
|
|
|
635
|
|
|
|
384
|
|
|
|
5,572
|
|
Intangible assets
|
|
|
26,057
|
|
|
|
79,200
|
|
|
|
33,631
|
|
Goodwill
|
|
|
42,698
|
|
|
|
41,428
|
|
|
|
46,196
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
3,217
|
|
|
|
3,252
|
|
Other assets
|
|
|
1,122
|
|
|
|
133
|
|
|
|
597
|
|
Total assets acquired
|
|
|
80,271
|
|
|
|
133,622
|
|
|
|
115,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,088
|
|
|
|
4,380
|
|
|
|
7,216
|
|
Accrued wages and employee benefits
|
|
|
700
|
|
|
|
4,408
|
|
|
|
397
|
|
Other accrued liabilities
|
|
|
2,151
|
|
|
|
602
|
|
|
|
13,671
|
|
Current portion of long-term debt
|
|
|
-
|
|
|
|
937
|
|
|
|
-
|
|
Deferred income taxes
|
|
|
4,134
|
|
|
|
9,958
|
|
|
|
10,974
|
|
Other long-term liabilities
|
|
|
4,401
|
|
|
|
778
|
|
|
|
3,643
|
|
Redeemable non-controlling interest
|
|
|
-
|
|
|
|
3,165
|
|
|
|
-
|
|
Net assets acquired
|
|
$
|
64,797
|
|
|
$
|
109,394
|
|
|
$
|
79,972
|
|
Pro Forma Information
The following unaudited pro forma information of the Company gives effect to all acquisitions as though the transactions had occurred on January 1, 2018. Refer to Note 1, “Description of Business,” for further information on the acquisitions included in the table.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
2,485,200
|
|
|
$
|
2,204,336
|
|
|
$
|
2,023,464
|
|
Pro forma
|
|
|
2,512,017
|
|
|
|
2,242,710
|
|
|
|
2,093,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Generac Holdings Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
238,257
|
|
Pro forma
|
|
|
339,317
|
|
|
|
239,925
|
|
|
|
220,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Generac Holdings Inc. per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
5.48
|
|
|
$
|
4.03
|
|
|
$
|
3.54
|
|
Pro forma
|
|
|
5.34
|
|
|
|
3.84
|
|
|
|
3.26
|
|
This unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated on January 1, 2018.
4.
|
Redeemable Noncontrolling Interest
|
On March 1, 2016, the Company acquired a 65% ownership interest in PR Industrial S.r.l. and its subsidiaries (Pramac). The 35% noncontrolling interest in Pramac had an acquisition date fair value of $34,253, and was recorded as a redeemable noncontrolling interest in the consolidated balance sheet, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Pramac. In February 2019, the Company amended its agreement with the noncontrolling interest holder of Pramac, extending the agreement by five years, allowing the Company to exercise its call option rights in partial increments at certain times during the five year period, and providing that the noncontrolling interest holder no longer holds the right to put its shares to the Company until April 1, 2021. The put and call option price is based on a multiple of earnings, subject to a floor and the terms of the acquisition agreement, as amended.
On February 1, 2019, the Company acquired a 51% ownership interest in Captiva Energy Solutions, Ltd (Captiva). The 49% noncontrolling interest in Captiva has an acquisition date fair value of $3,165, and was recorded as a redeemable noncontrolling interest in the consolidated balance sheet, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Captiva. The noncontrolling interest holder has a put option to sell his interest to the Company any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. The put option price is based on a multiple of earnings, subject to the terms of the acquisition. Further, the Company has a call option that it may redeem any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. The call option price is based on a multiple of earnings, subject to the terms of the acquisition.
For both transactions, the redeemable noncontrolling interest is recorded at the greater of the initial fair value, increased or decreased for the noncontrolling interests’ share of comprehensive income (loss), or the estimated redemption value, with any adjustments to the redemption value impacting retained earnings, but not net income. However, the redemption value adjustments are reflected in the earnings per share calculation, as detailed in Note 14, “Earnings Per Share,” to the consolidated financial statements. The following table presents the changes in the redeemable noncontrolling interest:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
2018
|
|
Balance at beginning of period
|
|
$
|
61,227
|
|
|
$
|
61,004
|
|
|
|
$
|
43,929
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
3,165
|
|
(1)
|
|
|
-
|
|
Net income
|
|
|
(2,829
|
)
|
|
|
75
|
|
|
|
|
2,214
|
|
Foreign currency translation
|
|
|
6,562
|
|
|
|
(1,764
|
)
|
|
|
|
(3,109
|
)
|
Redemption value adjustment
|
|
|
1,247
|
|
|
|
(1,253
|
)
|
|
|
|
17,970
|
|
Balance at end of period
|
|
$
|
66,207
|
|
|
$
|
61,227
|
|
|
|
$
|
61,004
|
|
(1) Represents the noncontrolling interest of Captiva calculated at the date of acquisition, February 1, 2019.
|
5.
|
Derivative Instruments and Hedging Activities
|
Commodities
The Company is exposed to price fluctuations in commodities including steel, copper and aluminum; and periodically utilizes commodity derivatives to mitigate the impact of these potential price fluctuations on its financial results. These derivatives typically have maturities of less than eighteen months. At December 31, 2020 and 2019, the Company had one and no commodity contracts outstanding, respectively.
Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in cost of goods sold in the Company’s consolidated statements of comprehensive income. Net pre-tax gains (losses) recognized were $2,185, $(174), and $(874) for the years ended December 31, 2020, 2019 and 2018, respectively.
Foreign Currencies
The Company is exposed to foreign currency exchange risk as a result of transactions denominated in currencies other than the U.S. Dollar. The Company periodically utilizes foreign currency forward purchase and sales contracts to manage the volatility associated with certain foreign currency purchases and sales in the normal course of business. Contracts typically have maturities of twelve months or less. As of December 31, 2020 and 2019, the Company had forty-four and forty-three foreign currency contracts outstanding, respectively.
Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in "other, net" in the Company’s consolidated statements of comprehensive income. Net pre-tax gains (losses) recognized for the years ended December 31, 2020, 2019 and 2018 were $355, $(1,195), and $(653), respectively.
Interest Rate Swaps
In 2017, the Company entered into twenty interest rate swap agreements, twelve of which were still outstanding as of December 31, 2020. In December 2019, in conjunction with the amendment to its Term Loan, the Company amended those interest rate swaps to remove the LIBOR floor, which also resulted in minor reductions to the future dated swap fixed rates. In March 2020, the Company entered into three additional interest rate swap agreements, bringing the total outstanding interest rate swaps to fifteen as of December 31, 2020. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking these hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of the gains or losses are reported as a component of accumulated other comprehensive loss (AOCL) in the consolidated balance sheets. The amount of after-tax gains (losses) recognized for the years ended December 31, 2020, 2019 and 2018 were $(14,285), $(13,855), and $2,924, respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.
Fair Value
The following table presents the fair value of the Company’s derivatives:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Commodity contracts
|
|
$
|
1,386
|
|
|
$
|
6
|
|
Foreign currency contracts
|
|
|
(154
|
)
|
|
|
31
|
|
Interest rate swaps
|
|
|
(29,536
|
)
|
|
|
(10,425
|
)
|
The fair value of the commodity contract is included in prepaid expenses and other current assets, and the fair values of the foreign currency contracts and interest rate swaps are included in other accrued liabilities and other long-term liabilities in the consolidated balance sheet as of December 31, 2020. The fair value of the commodity and foreign currency contracts are included in prepaid expenses and other current assets, and the fair value of the interest rate swaps are included in other accrued liabilities and other long-term liabilities in the consolidated balance sheet as of December 31, 2019. Excluding the impact of credit risk, the fair value of the derivative contracts as of December 31, 2020 and 2019 is a liability of $28,667 and $10,588, respectively, which represents the net amount the Company would pay to exit all of the agreements on those dates.
6.
|
Accumulated Other Comprehensive Loss
|
The following presents a tabular disclosure of changes in AOCL during the years ended December 31, 2020 and 2019, net of tax:
|
|
Foreign Currency Translation Adjustments
|
|
|
Defined Benefit Pension Plan
|
|
|
Unrealized Loss on Cash Flow Hedges
|
|
|
|
Total
|
|
Beginning Balance – January 1, 2020
|
|
$
|
(16,622
|
)
|
|
$
|
-
|
|
|
$
|
(8,295
|
)
|
|
|
$
|
(24,917
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
4,948
|
|
|
|
-
|
|
|
|
(14,285
|
)
|
(1)
|
|
|
(9,337
|
)
|
Amounts reclassified from AOCL
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
Net current-period other comprehensive income (loss)
|
|
|
4,948
|
|
|
|
-
|
|
|
|
(14,285
|
)
|
|
|
|
(9,337
|
)
|
Ending Balance – December 31, 2020
|
|
$
|
(11,674
|
)
|
|
$
|
-
|
|
|
$
|
(22,580
|
)
|
|
|
$
|
(34,254
|
)
|
|
|
Foreign Currency Translation Adjustments
|
|
|
Defined Benefit Pension Plan
|
|
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
|
|
|
Total
|
|
Beginning Balance – January 1, 2019
|
|
$
|
(18,832
|
)
|
|
$
|
(10,541
|
)
|
|
|
$
|
5,560
|
|
|
|
$
|
(23,813
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
2,210
|
|
|
|
1,474
|
|
(2)
|
|
|
(13,855
|
)
|
(3)
|
|
|
(10,171
|
)
|
Amounts reclassified from AOCL
|
|
|
-
|
|
|
|
9,067
|
|
(4)
|
|
|
-
|
|
|
|
|
9,067
|
|
Net current-period other comprehensive income (loss)
|
|
|
2,210
|
|
|
|
10,541
|
|
|
|
|
(13,855
|
)
|
|
|
|
(1,104
|
)
|
Ending Balance – December 31, 2019
|
|
$
|
(16,622
|
)
|
|
$
|
-
|
|
|
|
$
|
(8,295
|
)
|
|
|
$
|
(24,917
|
)
|
|
(1)
|
Represents unrealized losses of $(19,111), net of tax effect of $4,826 for the year ended December 31, 2020.
|
|
(2)
|
Represents unrecognized actuarial gains of $1,992 net of tax effect of $(518), included in the computation of net periodic pension cost for the year ended December 31, 2019. Refer to Note 16, “Benefit Plans,” to the consolidated financial statements for additional information.
|
|
(3)
|
Represents unrealized losses of $(18,732), net of tax effect of $4,877 for the year ended December 31, 2019.
|
|
(4)
|
Details of reclassifications from AOCL during 2019 are as follows:
|
|
|
Amounts reclassified from AOCL
|
|
Loss on pension settlement
|
|
$
|
10,920
|
|
Amortization of net loss
|
|
|
843
|
|
Total before tax
|
|
|
11,763
|
|
Income tax impact
|
|
|
(2,696
|
)
|
Amounts reclassified from AOCL during 2019
|
|
$
|
9,067
|
|
The Company has two reportable segments for financial reporting purposes – Domestic and International. The Domestic segment includes the legacy Generac business (excluding its traditional Latin American export operations), and the acquisitions that are based in the U.S. and Canada, all of which have revenues substantially derived from the U.S. and Canada. The International segment includes the legacy Generac business Latin American export operations, and the Ottomotores, Tower Light, Pramac, Motortech and Selmec acquisitions, all of which have revenues substantially derived from outside the U.S and Canada. Both reportable segments design and manufacture a wide range of energy technology solutions and other power products. The Company has multiple operating segments, which it aggregates into the two reportable segments, based on materially similar economic characteristics, products, production processes, classes of customers, distribution methods and regional considerations.
The Company's product offerings consist primarily of power generation equipment, energy storage systems, and other power products geared for varying end customer uses. Residential products and C&I products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, C&I, and other products by reportable segment is as follows:
|
|
Net Sales by Segment
|
|
|
|
Year Ended December 31, 2020
|
|
Product Classes
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Residential products
|
|
$
|
1,495,383
|
|
|
$
|
61,118
|
|
|
$
|
1,556,501
|
|
Commercial & industrial products
|
|
|
404,867
|
|
|
|
296,884
|
|
|
|
701,751
|
|
Other
|
|
|
188,558
|
|
|
|
38,390
|
|
|
|
226,948
|
|
Total net sales
|
|
$
|
2,088,808
|
|
|
$
|
396,392
|
|
|
$
|
2,485,200
|
|
|
|
Year Ended December 31, 2019
|
|
Product Classes
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Residential products
|
|
$
|
1,086,019
|
|
|
$
|
57,704
|
|
|
$
|
1,143,723
|
|
Commercial & industrial products
|
|
|
513,482
|
|
|
|
358,113
|
|
|
|
871,595
|
|
Other
|
|
|
143,397
|
|
|
|
45,621
|
|
|
|
189,018
|
|
Total net sales
|
|
$
|
1,742,898
|
|
|
$
|
461,438
|
|
|
$
|
2,204,336
|
|
|
|
Year Ended December 31, 2018
|
|
Product Classes
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Residential products
|
|
$
|
980,707
|
|
|
$
|
62,032
|
|
|
$
|
1,042,739
|
|
Commercial & industrial products
|
|
|
461,415
|
|
|
|
358,855
|
|
|
|
820,270
|
|
Other
|
|
|
124,398
|
|
|
|
36,057
|
|
|
|
160,455
|
|
Total net sales
|
|
$
|
1,566,520
|
|
|
$
|
456,944
|
|
|
$
|
2,023,464
|
|
Residential products consist primarily of automatic home standby generators ranging in output from 7.5kW to 150kW, portable generators, energy storage and monitoring solutions, and other outdoor power equipment. These products are sold through independent residential dealers, national and regional retailers, e-commerce merchants, electrical/HVAC/solar wholesalers, solar installers, and outdoor power equipment dealers. The residential products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time.
C&I products consist of larger output stationary generators used in C&I applications and fueled by diesel, natural gas, liquid propane and bi-fuel, with power outputs ranging from 10kW up to 3,250kW. Also included in C&I products are mobile generators, light towers, mobile heaters and mobile pumps. These products are sold through industrial distributors and dealers, equipment rental companies and equipment distributors. The C&I products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. Substantially all of the C&I products revenues are transferred to the customer at a point in time.
Other consists primarily of aftermarket service parts and product accessories sold to our dealers, the amortization of extended warranty deferred revenue, remote monitoring subscription revenue, grid services, installation and maintenance service revenue. The aftermarket service parts and product accessories are generally transferred to the customer at a point in time, while the extended warranty and subscription revenue are recognized over the life of the contract. Other service revenue is recognized when the service is performed.
Management evaluates the performance of its segments based primarily on Adjusted EBITDA, which is reconciled to Income before provision for income taxes below. The computation of Adjusted EBITDA is based on the definition that is contained in the Company’s credit agreements.
|
|
Adjusted EBITDA
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
563,394
|
|
|
$
|
428,667
|
|
|
$
|
388,495
|
|
International
|
|
|
20,379
|
|
|
|
25,448
|
|
|
|
36,057
|
|
Total adjusted EBITDA
|
|
$
|
583,773
|
|
|
$
|
454,115
|
|
|
$
|
424,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32,991
|
)
|
|
|
(41,544
|
)
|
|
|
(40,956
|
)
|
Depreciation and amortization
|
|
|
(68,773
|
)
|
|
|
(60,767
|
)
|
|
|
(47,408
|
)
|
Non-cash write-down and other adjustments (1)
|
|
|
327
|
|
|
|
(240
|
)
|
|
|
(3,532
|
)
|
Non-cash share-based compensation expense (2)
|
|
|
(20,882
|
)
|
|
|
(16,694
|
)
|
|
|
(14,563
|
)
|
Loss on extinguishment of debt (3)
|
|
|
-
|
|
|
|
(926
|
)
|
|
|
(1,332
|
)
|
Loss on pension settlement (4)
|
|
|
-
|
|
|
|
(10,920
|
)
|
|
|
-
|
|
Transaction costs and credit facility fees (5)
|
|
|
(2,151
|
)
|
|
|
(2,724
|
)
|
|
|
(3,883
|
)
|
Business optimization and other charges (6)
|
|
|
(12,158
|
)
|
|
|
(1,572
|
)
|
|
|
(952
|
)
|
Other
|
|
|
(954
|
)
|
|
|
879
|
|
|
|
(850
|
)
|
Income before provision for income taxes
|
|
$
|
446,191
|
|
|
$
|
319,607
|
|
|
$
|
311,076
|
|
|
(1)
|
Includes certain foreign currency and purchase accounting related adjustments, gains/losses on disposal of assets and unrealized mark-to-market adjustments on commodity contracts.
|
|
(2)
|
Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods.
|
|
(3)
|
Represents the non-cash write-off of original issue discount and deferred financing costs due to a voluntary prepayment of Term Loan debt.
|
|
(4)
|
Represents pre-tax settlement charges related to the termination of the Company’s domestic pension plan in the fourth quarter of 2019.
|
|
(5)
|
Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance, debt issuance or refinancing, together with certain fees relating to our senior secured credit facilities.
|
|
(6)
|
For the year ended December 31, 2020, represents severance, non-cash asset write-downs, and other charges to address the impact of the COVID-19 pandemic and decline in oil prices. For the year ended December 31, 2019, represents severance and other charges related to the consolidation of certain of our facilities.
|
The following tables summarize additional financial information by reportable segment:
|
|
Assets
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
2,659,597
|
|
|
$
|
2,123,251
|
|
|
$
|
1,868,554
|
|
International
|
|
|
575,826
|
|
|
|
542,418
|
|
|
|
557,760
|
|
Total
|
|
$
|
3,235,423
|
|
|
$
|
2,665,669
|
|
|
$
|
2,426,314
|
|
|
|
Depreciation and Amortization
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
53,020
|
|
|
$
|
46,145
|
|
|
$
|
35,586
|
|
International
|
|
|
15,753
|
|
|
|
14,764
|
|
|
|
11,822
|
|
Total
|
|
$
|
68,773
|
|
|
$
|
60,909
|
|
|
$
|
47,408
|
|
|
|
Capital Expenditures
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
51,867
|
|
|
$
|
36,007
|
|
|
$
|
38,242
|
|
International
|
|
|
10,261
|
|
|
|
24,795
|
|
|
|
9,359
|
|
Total
|
|
$
|
62,128
|
|
|
$
|
60,802
|
|
|
$
|
47,601
|
|
The Company’s sales in the United States represent approximately 82%, 75%, and 74% of total sales for the years ended December 31, 2020, 2019 and 2018, respectively. Approximately 81% and 80% of the Company’s identifiable long-lived assets are located in the United States as of December 31, 2020 and 2019, respectively.
Inventories consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw material
|
|
$
|
375,516
|
|
|
$
|
328,021
|
|
Work-in-process
|
|
|
6,833
|
|
|
|
10,387
|
|
Finished goods
|
|
|
220,968
|
|
|
|
183,616
|
|
Total
|
|
$
|
603,317
|
|
|
$
|
522,024
|
|
As of December 31, 2020 and 2019, inventories totaling $9,154 and $18,684, respectively, were on consignment at customer locations.
Property and equipment consists of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land and improvements
|
|
$
|
18,363
|
|
|
$
|
18,252
|
|
Buildings and improvements
|
|
|
198,908
|
|
|
|
177,079
|
|
Machinery and equipment
|
|
|
153,696
|
|
|
|
117,114
|
|
Dies and tools
|
|
|
24,190
|
|
|
|
22,040
|
|
Vehicles
|
|
|
6,037
|
|
|
|
3,955
|
|
Office equipment and systems
|
|
|
107,923
|
|
|
|
99,124
|
|
Leasehold improvements
|
|
|
5,276
|
|
|
|
4,293
|
|
Construction in progress
|
|
|
30,227
|
|
|
|
36,299
|
|
Gross property and equipment
|
|
|
544,620
|
|
|
|
478,156
|
|
Accumulated depreciation
|
|
|
(200,684
|
)
|
|
|
(161,180
|
)
|
Total
|
|
$
|
343,936
|
|
|
$
|
316,976
|
|
Total property and equipment included finance leases of $27,269 and $26,063 at December 31, 2020 and 2019, respectively, primarily made up of buildings and improvements. Amortization of finance lease right of use assets is recorded within depreciation expense in the consolidated statements of comprehensive income. The initial measurement of new finance lease right of use assets is accounted for as a non-cash item in the consolidated statement of cash flows. Refer to Note 10, “Leases,” for further information regarding the Company’s accounting for leases under ASC 842, Leases.
9.
|
Goodwill and Intangible Assets
|
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2020 and 2019 are as follows:
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
$
|
621,451
|
|
|
$
|
143,204
|
|
|
$
|
764,655
|
|
Acquisitions of businesses, net
|
|
|
37,758
|
|
|
|
3,078
|
|
|
|
40,836
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
(207
|
)
|
|
|
(207
|
)
|
Balance at December 31, 2019
|
|
|
659,209
|
|
|
|
146,075
|
|
|
|
805,284
|
|
Acquisitions of businesses, net
|
|
|
42,722
|
|
|
|
-
|
|
|
|
42,722
|
|
Foreign currency translation
|
|
|
604
|
|
|
|
6,618
|
|
|
|
7,222
|
|
Balance at December 31, 2020
|
|
$
|
702,535
|
|
|
$
|
152,693
|
|
|
$
|
855,228
|
|
Refer to Note 3, “Acquisitions,” to the consolidated financial statements for further information regarding the Company’s acquisitions.
The details of the gross goodwill applicable to each reportable segment at December 31, 2020 and 2019 are as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net
|
|
Domestic
|
|
$
|
1,205,728
|
|
|
$
|
(503,193
|
)
|
|
$
|
702,535
|
|
|
$
|
1,162,402
|
|
|
$
|
(503,193
|
)
|
|
$
|
659,209
|
|
International
|
|
|
157,304
|
|
|
|
(4,611
|
)
|
|
|
152,693
|
|
|
|
150,686
|
|
|
|
(4,611
|
)
|
|
|
146,075
|
|
Total
|
|
$
|
1,363,032
|
|
|
$
|
(507,804
|
)
|
|
$
|
855,228
|
|
|
$
|
1,313,088
|
|
|
$
|
(507,804
|
)
|
|
$
|
805,284
|
|
The following table summarizes intangible assets by major category as of December 31, 2020 and 2019:
|
|
Weighted Average
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Amortization Years
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
9
|
|
|
$
|
58,729
|
|
|
$
|
(40,891
|
)
|
|
$
|
17,838
|
|
|
$
|
56,669
|
|
|
$
|
(36,613
|
)
|
|
$
|
20,056
|
|
Customer lists
|
|
12
|
|
|
|
370,736
|
|
|
|
(321,531
|
)
|
|
|
49,205
|
|
|
|
369,932
|
|
|
|
(314,380
|
)
|
|
|
55,552
|
|
Patents and technology
|
|
10
|
|
|
|
233,271
|
|
|
|
(146,544
|
)
|
|
|
86,727
|
|
|
|
213,972
|
|
|
|
(128,426
|
)
|
|
|
85,546
|
|
Software
|
|
-
|
|
|
|
1,046
|
|
|
|
(1,046
|
)
|
|
|
-
|
|
|
|
1,046
|
|
|
|
(1,046
|
)
|
|
|
-
|
|
Non-compete/other
|
|
4
|
|
|
|
16,469
|
|
|
|
(6,537
|
)
|
|
|
9,932
|
|
|
|
12,063
|
|
|
|
(3,804
|
)
|
|
|
8,259
|
|
Total finite-lived intangible assets
|
|
|
|
|
$
|
680,251
|
|
|
$
|
(516,549
|
)
|
|
$
|
163,702
|
|
|
$
|
653,682
|
|
|
$
|
(484,269
|
)
|
|
$
|
169,413
|
|
Indefinite-lived tradenames
|
|
|
|
|
|
128,321
|
|
|
|
-
|
|
|
|
128,321
|
|
|
|
128,321
|
|
|
|
-
|
|
|
|
128,321
|
|
Total intangible assets
|
|
|
|
|
$
|
808,572
|
|
|
$
|
(516,549
|
)
|
|
$
|
292,023
|
|
|
$
|
782,003
|
|
|
$
|
(484,269
|
)
|
|
$
|
297,734
|
|
Amortization of intangible assets was $32,280, $28,644 and $22,112 in 2020, 2019 and 2018, respectively. Excluding the impact of any future acquisitions, the Company estimates amortization expense for the next five years will be as follows: 2021 - $33,906; 2022 - $26,649; 2023 - $22,129; 2024 - $18,581; 2025 - $16,808.
The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right of use (“ROU”) asset and lease liability at the lease commencement date based on the present value of the lease payments over the lease term. As the Company’s leases generally do not provide an implicit rate, the incremental borrowing rate is used to determine the present value of lease payments. The incremental borrowing rate is a collateralized rate determined based on the lease term, the Company’s credit rating, and other market information available at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and is reduced by any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term, while lease expense for finance leases is recognized as depreciation and interest expense using the effective interest method. The Company’s variable lease expense generally consists of property tax and insurance payments that are variable in nature, however, these amounts are immaterial to the consolidated financial statements and are therefore not separately reported.
The Company has lease agreements with both lease and nonlease components, which it elected to account for as a single lease component. However, the Company did not elect to apply the recognition exception for short-term leases. The Company is applying these elections to all asset classes.
The Company leases certain manufacturing facilities, distribution centers, office space, warehouses, automobiles, machinery and computer equipment globally under both finance and operating leases. The Company’s leases have remaining lease terms of up to 20 years, of which certain leases, primarily within the buildings and improvements asset class, include options to extend the leases for up to 10 additional years. Further, the Company leases certain buildings from a noncontrolling interest holder, which the Company has determined to be arms’ length transactions.
The Company is a lessor of one building that it leases to a third party. The lease income related to this arrangement is not material to the consolidated financial statements.
The Company records its operating lease cost and amortization of finance lease ROU assets within cost of goods sold or operating expenses in the consolidated statements of comprehensive income depending on the cost center of the underlying asset. The Company records its finance lease interest cost within interest expense in the consolidated statements of comprehensive income.
The components of total lease cost consist of the following:
|
|
Year Ended December 31, 2020
|
|
|
Year Ended December 31, 2019
|
|
Operating lease cost
|
|
$
|
18,648
|
|
|
$
|
9,647
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of ROU assets
|
|
|
2,587
|
|
|
|
2,531
|
|
Interest on lease liabilities
|
|
|
2,237
|
|
|
|
2,227
|
|
Total lease cost
|
|
$
|
23,472
|
|
|
$
|
14,405
|
|
Prior to the adoption of ASU 2016-02 in 2019, lease expense consisted of payments on operating leases. Total rent expense related to operating leases for the year ended December 31, 2018 was approximately $10,739.
As of January 1, 2019, the date of the adoption of ASU 2016-02, the Company recognized ROU assets and lease liabilities related to operating leases of $42,024 and $42,056, respectively, and there was no cumulative effect adjustment made to retained earnings. Supplemental balance sheet information related to the Company’s leases is as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Operating Leases
|
|
|
|
|
|
|
|
|
Operating lease ROU assets (1)
|
|
$
|
62,030
|
|
|
$
|
35,950
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities - current (2)
|
|
$
|
17,192
|
|
|
$
|
7,231
|
|
Operating lease liabilities - noncurrent (3)
|
|
|
46,558
|
|
|
|
29,778
|
|
Total operating lease liabilities
|
|
$
|
63,750
|
|
|
$
|
37,009
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
|
|
|
|
Finance lease ROU assets, gross
|
|
$
|
34,929
|
|
|
$
|
29,142
|
|
Accumulated depreciation - finance lease ROU assets
|
|
|
(7,660
|
)
|
|
|
(3,079
|
)
|
Finance lease ROU assets, net (4)
|
|
$
|
27,269
|
|
|
$
|
26,063
|
|
|
|
|
|
|
|
|
|
|
Finance lease liabilities - current (5)
|
|
$
|
2,311
|
|
|
$
|
1,830
|
|
Finance lease liabilities - noncurrent (6)
|
|
|
25,060
|
|
|
|
24,132
|
|
Total finance lease liabilities
|
|
$
|
27,371
|
|
|
$
|
25,962
|
|
|
(1)
|
Recorded in the operating lease and other assets line within the consolidated balance sheets
|
|
(2)
|
Recorded in the other accrued liabilities line within the consolidated balance sheets
|
|
(3)
|
Recorded in the operating lease and other long-term liabilities line within the consolidated balance sheets
|
|
(4)
|
Recorded in the property and equipment, net line within the consolidated balance sheets
|
|
(5)
|
Recorded in the current portion of long-term borrowings and finance lease obligations line within the consolidated balance sheets
|
|
(6)
|
Recorded in the long-term borrowings and finance lease obligations line within the consolidated balance sheets
|
Supplemental cash flow information related to the Company’s leases is as follows:
|
|
Year Ended December 31, 2020
|
|
|
Year Ended December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
18,412
|
|
|
$
|
10,125
|
|
Operating cash flows from finance leases
|
|
|
1,871
|
|
|
|
1,864
|
|
Financing cash flows from finance leases
|
|
|
3,957
|
|
|
|
3,237
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
41,678
|
|
|
|
4,021
|
|
Finance leases
|
|
|
3,737
|
|
|
|
8,797
|
|
Weighted average remaining lease term and discount rate information related to the Company’s leases as of December 31, 2020 is as follows:
Weighted average remaining lease term (in years)
|
|
|
|
|
Operating Leases
|
|
|
4.92
|
|
Finance Leases
|
|
|
12.90
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Operating Leases
|
|
|
4.48
|
%
|
Finance Leases
|
|
|
7.66
|
%
|
The maturities of the Company’s lease liabilities as of December 31, 2020 are as follows:
|
|
Finance Leases
|
|
|
Operating Leases
|
|
2021
|
|
$
|
4,146
|
|
|
$
|
19,530
|
|
2022
|
|
|
4,292
|
|
|
|
18,135
|
|
2023
|
|
|
3,112
|
|
|
|
9,519
|
|
2024
|
|
|
2,999
|
|
|
|
7,452
|
|
2025
|
|
|
2,678
|
|
|
|
5,359
|
|
After 2025
|
|
|
28,596
|
|
|
|
11,711
|
|
Total minimum lease payments
|
|
|
45,823
|
|
|
|
71,706
|
|
Interest component
|
|
|
(18,452
|
)
|
|
|
(7,956
|
)
|
Present value of minimum lease payments
|
|
$
|
27,371
|
|
|
$
|
63,750
|
|
11.
|
Product Warranty Obligations
|
The Company records a liability for standard product warranty obligations accounted for as assurance warranties at the time of sale to a customer based upon historical warranty experience. The Company also records a liability for specific warranty matters when they become known and are reasonably estimable. The following is a tabular reconciliation of the Company’s standard product warranty liability accounted for as an assurance warranty:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of period
|
|
$
|
49,316
|
|
|
$
|
41,785
|
|
|
$
|
35,422
|
|
Product warranty reserve assumed in acquisition
|
|
|
124
|
|
|
|
1,062
|
|
|
|
-
|
|
Payments
|
|
|
(33,496
|
)
|
|
|
(26,096
|
)
|
|
|
(20,029
|
)
|
Provision for warranty issued
|
|
|
42,093
|
|
|
|
32,060
|
|
|
|
26,910
|
|
Changes in estimates for pre-existing warranties
|
|
|
1,181
|
|
|
|
505
|
|
|
|
(518
|
)
|
Balance at end of period
|
|
$
|
59,218
|
|
|
$
|
49,316
|
|
|
$
|
41,785
|
|
The Company also sells extended warranty coverage for certain products, which it accounts for as a service warranty. The sales of extended warranties are recorded as deferred revenue, and typically have a duration of five to ten years. The deferred revenue related to extended warranty coverage is amortized over the duration of the extended warranty contract period, following the standard warranty period, using the straight-line method. The Company believes the straight-line method is appropriate because the performance obligation is satisfied based on the passage of time. The amortization of deferred revenue is recorded to net sales in the consolidated statements of comprehensive income. The following is a tabular reconciliation of the deferred revenue related to extended warranty coverage:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of period
|
|
$
|
78,738
|
|
|
$
|
68,340
|
|
|
$
|
57,854
|
|
Deferred revenue contracts issued
|
|
|
26,968
|
|
|
|
24,483
|
|
|
|
21,440
|
|
Amortization of deferred revenue contracts
|
|
|
(15,918
|
)
|
|
|
(14,085
|
)
|
|
|
(10,954
|
)
|
Balance at end of period
|
|
$
|
89,788
|
|
|
$
|
78,738
|
|
|
$
|
68,340
|
|
The timing of recognition of the Company’s deferred revenue balance related to extended warranties at December 31, 2020 is as follows:
2021
|
|
$
|
18,754
|
|
2022
|
|
|
18,819
|
|
2023
|
|
|
16,464
|
|
2024
|
|
|
11,849
|
|
After 2024
|
|
|
23,902
|
|
Total
|
|
$
|
89,788
|
|
The Company has a post-sale extended warranty marketing program with a third party. In the program’s agreement, the Company is required to pay fees to the third-party service provider based on the number of extended warranty contracts that they sell, which it classifies as costs to obtain a contract. The contract costs are deferred and recorded as other assets in the consolidated balance sheets. The deferred contract costs are amortized to net sales in the consolidated statements of comprehensive income over the same period that the underlying deferred revenue is recognized. The balance of deferred contract costs as of December 31, 2020 and 2019 was $6,869 and $6,190, respectively. Amortization of deferred contract costs recorded during the years ended December 31, 2020, 2019 and 2018 was $1,303, $869 and $615, respectively.
Standard product warranty obligations and extended warranty related deferred revenues are included in the consolidated balance sheets as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Product warranty liability
|
|
|
|
|
|
|
|
|
Current portion - other accrued liabilities
|
|
$
|
37,417
|
|
|
$
|
27,885
|
|
Long-term portion - other long-term liabilities
|
|
|
21,801
|
|
|
|
21,431
|
|
Total
|
|
$
|
59,218
|
|
|
$
|
49,316
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue related to extended warranties
|
|
|
|
|
|
|
|
|
Current portion - other accrued liabilities
|
|
$
|
18,857
|
|
|
$
|
15,519
|
|
Long-term portion - other long-term liabilities
|
|
|
70,931
|
|
|
|
63,219
|
|
Total
|
|
$
|
89,788
|
|
|
$
|
78,738
|
|
Short-term borrowings are included in the consolidated balance sheets as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ABL facility
|
|
$
|
-
|
|
|
$
|
30,961
|
|
Other lines of credit
|
|
|
39,282
|
|
|
|
27,753
|
|
Total
|
|
$
|
39,282
|
|
|
$
|
58,714
|
|
Long-term borrowings are included in the consolidated balance sheets as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Term loan
|
|
$
|
830,000
|
|
|
$
|
830,000
|
|
Original issue discount and deferred financing costs
|
|
|
(15,450
|
)
|
|
|
(18,048
|
)
|
ABL facility
|
|
|
-
|
|
|
|
-
|
|
Finance lease obligation
|
|
|
27,371
|
|
|
|
25,962
|
|
Other
|
|
|
3,990
|
|
|
|
2,236
|
|
Total
|
|
|
845,911
|
|
|
|
840,150
|
|
Less: current portion of debt
|
|
|
1,836
|
|
|
|
553
|
|
Less: current portion of finance lease obligation
|
|
|
2,311
|
|
|
|
1,830
|
|
Total
|
|
$
|
841,764
|
|
|
$
|
837,767
|
|
Maturities of long-term borrowings outstanding at December 31, 2020, excluding finance lease obligations as their maturities are disclosed in Note 10, “Leases,” and before considering original issue discount and deferred financing costs, are as follows:
2021
|
|
$
|
1,836
|
|
2022
|
|
|
1,905
|
|
2023
|
|
|
46
|
|
2024
|
|
|
115
|
|
After 2024
|
|
|
830,088
|
|
Total
|
|
$
|
833,990
|
|
The Company’s credit agreements originally provided for a $1,200,000 term loan B credit facility (Term Loan) and currently include a $300,000 uncommitted incremental term loan facility. The maturity date of the Term Loan is currently December 13, 2026. The Term Loan is guaranteed by all of the Company’s wholly-owned domestic restricted subsidiaries, and is secured by associated collateral agreements which pledge a first priority lien on virtually all of the Company’s assets, including fixed assets and intangibles, other than cash, trade accounts receivable, inventory, and other current assets and proceeds thereof, which are secured by a second priority lien. The Term Loan initially bore interest at rates based upon either a base rate plus an applicable margin of 1.75% or adjusted LIBOR rate plus an applicable margin of 2.75%, subject to a LIBOR floor of 0.75%. Currently, the Term Loan bears interest at rates based upon either a base rate plus an applicable margin of 0.75% or adjusted LIBOR rate plus an applicable margin of 1.75%.
In June 2018, the Company amended the Term Loan, which further reduced the applicable margin rates to base rate plus a fixed applicable margin of 0.75% or adjusted LIBOR rate plus a fixed applicable margin of 1.75%. In connection with this amendment and in accordance with ASC 470-50, the Company capitalized $829 of fees paid to creditors as deferred financing costs on long-term borrowings and expensed $118 of transaction fees in the second quarter of 2018.
In December 2019, the Company amended its Term Loan to extend the maturity date from May 31, 2023 to December 13, 2026, as well as to remove the LIBOR floor of 0.75% from the adjusted LIBOR rate. In connection with this amendment and in accordance with ASC 470-50, the Company capitalized $1,247 of fees paid to creditors as deferred financing costs on long-term borrowings and expensed $432 of transaction fees in the fourth quarter of 2019. Additionally, the Company made a voluntary prepayment of $49,000 on the Term Loan, which resulted in the write-off of $926 of original issue discount and capitalized debt issuance costs as a loss on extinguishment of debt in the consolidated statements of comprehensive income.
In connection with our Term Loan amendment in December 2019, language was added to the agreement to include a benchmark replacement rate, selected by the administrative agent and the borrower, as a replacement to LIBOR that would take affect at the time LIBOR ceases. The Company plans to work with its lenders in the future to amend other LIBOR based debt agreements to add a replacement rate should the use of LIBOR cease.
The Term Loan does not require an Excess Cash Flow payment if the Company’s net secured leverage ratio is maintained below 3.75 to 1.00 times. As of December 31, 2020, the Company’s net secured leverage ratio was 1.12 to 1.00 times, and the Company was in compliance with all covenants of the Term Loan. There are no financial maintenance covenants on the Term Loan.
The Company’s credit agreements also provide for a senior secured ABL revolving credit facility (ABL Facility). The maturity date of the ABL Facility is currently June 12, 2023. Borrowings under the ABL Facility are guaranteed by all of the Company’s wholly-owned domestic restricted subsidiaries, and are secured by associated collateral agreements which pledge a first priority lien on all cash, trade accounts receivable, inventory, and other current assets and proceeds thereof, and a second priority lien on all other assets, including fixed assets and intangibles of the Company and certain domestic subsidiaries. ABL Facility borrowings initially bore interest at rates based upon either a base rate plus an applicable margin of 1.00% or adjusted LIBOR rate plus an applicable margin of 2.00%, in each case, subject to adjustments based upon average availability under the ABL Facility. Currently, the ABL Facility bears interest at rates based upon either a base rate plus an applicable margin of 0.125% or an adjusted LIBOR rate plus an applicable margin of 1.125%, in each case subject to adjustments based upon average availability under the ABL Facility.
In June 2018, the Company amended the ABL Facility; increasing it from $250,000 to $300,000 and extending the maturity date to June 12, 2023. In addition, the ABL Facility amendment modified the pricing by reducing certain applicable interest rates to either a base rate plus an applicable margin of 0.375% or an adjusted LIBOR rate plus an applicable margin of 1.375%. In connection with this amendment and in accordance with ASC 470-50, the Company capitalized $755 of new debt issuance costs as deferred financing costs on long-term borrowings and wrote-off $34 of capitalized debt issuance costs as a loss on extinguishment of debt in the second quarter of 2018.
In June 2018, the Company borrowed $50,000 under the ABL Facility, the proceeds of which were used as a voluntary prepayment of the Term Loan. As a result of the prepayment of the Term Loan, the Company wrote-off $1,298 of original issue discount and capitalized debt issuance costs during the second quarter of 2018 as a loss on extinguishment of debt in the consolidated statements of comprehensive income. In October 2018, the Company repaid the $50,000 outstanding ABL Facility balance with cash on hand.
As of December 31, 2020, there was no outstanding balance under the ABL Facility, leaving $299,621 of availability, net of outstanding letters of credit.
As of December 31, 2020 and December 31, 2019, short-term borrowings consisted of borrowings by the Company’s foreign subsidiaries on local lines of credit and the ABL Facility, which totaled $39,282 and $58,714, respectively.
13.
|
Stock Repurchase Programs
|
In September 2018, the Company’s Board of Directors approved a $250,000 stock repurchase program, which expired in October 2020. In September 2020, the Company’s Board of Directors approved another stock repurchase program, which commenced on October 27, 2020, and allows for the repurchase of up to $250,000 of the Company's common stock over a 24-month period. The Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations. The repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s common stock and general market and economic conditions, applicable legal requirements, and compliance with the terms of the Company’s outstanding indebtedness. The repurchases may be funded with cash on hand, available borrowings or proceeds from potential debt or other capital markets sources. The stock repurchase program may be suspended or discontinued at any time without prior notice. During the years ended December 31, 2020 and 2019, the Company did not repurchase any shares of its common stock. During the year ended December 31, 2018, the Company repurchased 560,000 shares of its common stock for $25,656, all funded with cash on hand. Since the inception of all programs starting in August 2015, the Company has repurchased 8,676,706 shares of its common stock for $305,547 (at an average cost per share of $35.21), all funded with cash on hand.
Basic earnings per share is calculated by dividing net income attributable to the common shareholders of the Company by the weighted average number of common shares outstanding during the period, exclusive of restricted shares. Except where the result would be anti-dilutive, diluted earnings per share is calculated by assuming the vesting of unvested restricted stock and the exercise of stock options. Refer to Note 4, “Redeemable Noncontrolling Interest,” to the consolidated financial statements for further information regarding the accounting for redeemable noncontrolling interests.
The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Generac Holdings Inc.
|
|
$
|
350,576
|
|
|
$
|
252,007
|
|
|
$
|
238,257
|
|
Redeemable noncontrolling interest redemption value adjustment
|
|
|
(1,247
|
)
|
|
|
1,253
|
|
|
|
(17,970
|
)
|
Net income attributable to common shareholders
|
|
$
|
349,329
|
|
|
$
|
253,260
|
|
|
$
|
220,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic
|
|
|
62,280,889
|
|
|
|
61,926,986
|
|
|
|
61,662,031
|
|
Dilutive effect of stock compensation awards (1)
|
|
|
1,456,845
|
|
|
|
938,460
|
|
|
|
571,194
|
|
Diluted shares
|
|
|
63,737,734
|
|
|
|
62,865,446
|
|
|
|
62,233,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.61
|
|
|
$
|
4.09
|
|
|
$
|
3.57
|
|
Diluted
|
|
$
|
5.48
|
|
|
$
|
4.03
|
|
|
$
|
3.54
|
|
|
(1)
|
Excludes approximately 26,100 stock options for the year ended December 31, 2018, as the impact of such awards was anti-dilutive. There were no awards with an anti-dilutive impact for the years ended December 31, 2020 and 2019.
|
The Company’s provision for income taxes consists of the following:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
62,714
|
|
|
$
|
41,686
|
|
|
$
|
32,072
|
|
State
|
|
|
13,071
|
|
|
|
4,211
|
|
|
|
9,639
|
|
Foreign
|
|
|
1,974
|
|
|
|
2,660
|
|
|
|
4,546
|
|
Total
|
|
|
77,759
|
|
|
|
48,557
|
|
|
|
46,257
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
20,452
|
|
|
|
19,393
|
|
|
|
22,225
|
|
State
|
|
|
1,243
|
|
|
|
1,390
|
|
|
|
1,910
|
|
Foreign
|
|
|
(1,197
|
)
|
|
|
(1,263
|
)
|
|
|
479
|
|
Total
|
|
|
20,498
|
|
|
|
19,520
|
|
|
|
24,614
|
|
Change in valuation allowance
|
|
|
716
|
|
|
|
(778
|
)
|
|
|
(1,015
|
)
|
Provision for income taxes
|
|
$
|
98,973
|
|
|
$
|
67,299
|
|
|
$
|
69,856
|
|
The Company files U.S. federal, U.S. state and foreign jurisdiction tax returns which are subject to examination up to the expiration of the statute of limitations. The Company believes the tax positions taken on its returns would be sustained upon an exam, or where a position is uncertain, adequate reserves have been recorded. As of December 31, 2020, the Company is no longer subject to income tax examinations for United States federal income taxes for tax years prior to 2017. Due to the carryforward of net operating losses and research & development credits, the Company’s Wisconsin state income tax returns for tax years 2009 through 2019 remain open. In addition, the Company is subject to audit by various foreign taxing jurisdictions for tax years 2015 through 2019.
The Company is regularly under tax return examination by tax authorities in the various jurisdictions in which we operate. The Company is actively managing the examinations and working to address any open matters. While the Company does not believe any material taxes or penalties are due, there is a possibility that the ultimate tax outcome of an examination may result in differences from what was recorded. Such differences may affect the provision for income taxes in the period in which the determination is made, and could impact the Company’s financial results.
Significant components of deferred tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
24,358
|
|
|
$
|
21,053
|
|
Deferred revenue
|
|
|
15,851
|
|
|
|
14,697
|
|
Inventories
|
|
|
11,795
|
|
|
|
9,879
|
|
Stock-based compensation
|
|
|
8,348
|
|
|
|
7,490
|
|
Operating loss and credit carryforwards
|
|
|
31,275
|
|
|
|
28,356
|
|
Bad debt
|
|
|
1,633
|
|
|
|
1,094
|
|
Other
|
|
|
8,558
|
|
|
|
4,275
|
|
Valuation allowance
|
|
|
(5,740
|
)
|
|
|
(5,024
|
)
|
Total deferred tax assets
|
|
|
96,078
|
|
|
|
81,820
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
|
171,831
|
|
|
|
142,159
|
|
Depreciation
|
|
|
33,716
|
|
|
|
27,864
|
|
Debt refinancing costs
|
|
|
3,544
|
|
|
|
4,119
|
|
Prepaid expenses
|
|
|
1,259
|
|
|
|
1,073
|
|
Total deferred tax liabilities
|
|
|
210,350
|
|
|
|
175,215
|
|
Net deferred tax liabilities
|
|
$
|
(114,272
|
)
|
|
$
|
(93,395
|
)
|
As of December 31, 2020 and 2019, deferred tax assets of $1,497 and $2,933, and deferred tax liabilities of $115,769 and $96,328, respectively, were reflected on the consolidated balance sheets.
The Company maintains a valuation allowance against the deferred tax assets when it is uncertain it will generate sufficient taxable income to utilize the asset. During 2020, the valuation allowance increased by $716 primarily due to state net operating losses which are unlikely to be utilized, partially offset by utilization of loss carryforwards in certain foreign subsidiaries.
At December 31, 2020, the Company had various state research & development and state manufacturing tax credit carryforwards of approximately $4,513 and $19,303, respectively, which expire between 2024 and 2035. The Company believes it will generate sufficient taxable income in these jurisdictions to fully utilize the credits prior to their expiration.
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Unrecognized tax benefit, beginning of period
|
|
$
|
6,720
|
|
|
$
|
5,635
|
|
Increase in unrecognized tax benefit for positions taken in prior period
|
|
|
332
|
|
|
|
633
|
|
Increase in unrecognized tax benefit for positions taken in current period
|
|
|
750
|
|
|
|
495
|
|
Statute of limitation expirations
|
|
|
(189
|
)
|
|
|
(43
|
)
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
Unrecognized tax benefit, end of period
|
|
$
|
7,613
|
|
|
$
|
6,720
|
|
The unrecognized tax benefit as of December 31, 2020 and 2019, if recognized, would favorably impact the effective tax rate.
As of December 31, 2020 and 2019, total accrued interest of approximately $95 and $71, respectively, and accrued penalties of approximately $274 and $195, respectively, associated with net unrecognized tax benefits are included in the consolidated balance sheets. Interest and penalties are recorded as a component of income tax expense.
The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending December 31, 2021.
A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2020, 2019 and 2018 are as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
U.S. statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State taxes
|
|
|
4.3
|
|
|
|
4.3
|
|
|
|
4.7
|
|
State tax rate differential
|
|
|
0.0
|
|
|
|
(1.0
|
)
|
|
|
-
|
|
Research and development credits
|
|
|
(1.1
|
)
|
|
|
(0.8
|
)
|
|
|
(1.3
|
)
|
State credits
|
|
|
(1.5
|
)
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
Share-based compensation (1)
|
|
|
(1.0
|
)
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
Tax Act impact
|
|
|
0.0
|
|
|
|
-
|
|
|
|
(0.2
|
)
|
Other
|
|
|
0.5
|
|
|
|
(0.8
|
)
|
|
|
(0.2
|
)
|
Effective tax rate
|
|
|
22.2
|
%
|
|
|
21.1
|
%
|
|
|
22.5
|
%
|
|
(1)
|
With the adoption of ASU 2016-09 in 2017, excess tax benefits from equity awards are reflected within the provision for income taxes rather than within the consolidated balance sheet.
|
Medical and Dental Plans
The Company maintains medical and dental benefit plans covering its full-time domestic employees and their dependents. These plans are partially or fully self-funded under which participant claims are obligations of the plan. These plans are funded through employer and employee contributions at a level sufficient to pay for the benefits provided by the plan. The Company’s contributions to the plans were $24,617, $18,290, and $14,660 for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company’s foreign subsidiaries participate in government sponsored medical benefit plans. In certain cases, the Company purchases supplemental medical coverage for certain employees at these foreign locations. The expenses related to these plans are not material to the Company’s consolidated financial statements.
Savings Plan
The Company maintains a defined-contribution 401(k) savings plan for eligible domestic employees. Under the plan, employees may defer receipt of a portion of their eligible compensation. The Company may contribute a matching contribution of 50% of the first 6% of eligible compensation of employees that is deferred. The Company may also contribute a non-elective contribution for eligible employees employed on December 31, 2008 that were impacted by the freezing of the Company’s pension plans. The Company’s matching contributions are subject to vesting. Forfeitures may be applied against plan expenses and Company contributions. The Company recognized $5,332, $4,791 and $4,193 of expense related to these plans for the years ended December 31, 2020, 2019 and 2018, respectively.
Pension Plans
Historically, the Company maintained noncontributory salaried and hourly pension plans (Pension Plans) covering certain domestic employees. The Pension Plans were frozen effective December 31, 2008. Effective December 31, 2018, the Pension Plans were merged into the same plan (Pension Plan), resulting in no change to benefits for participants. The benefits under the salaried plan were based upon years of service and the participants’ defined final average monthly compensation. The benefits under the hourly plan were based on a unit amount at the date of termination multiplied by the participant’s years of credited service.
In 2019, the Company completed the termination of its Pension Plan. In connection with the Company’s activities to terminate the plan, lump sum distributions were made in the fourth quarter of 2019 to individuals who elected lump sum distributions, including rolling over their accounts to the Company’s 401(k) savings plan. Also in the fourth quarter of 2019, annuity contracts were purchased to settle obligations for the remaining participants. Upon settlement of the pension liability, the Company reclassified related unrecognized pension losses recorded in AOCL to the consolidated statements of comprehensive income. As a result, the Company recorded pre-tax settlement charges of $10,920 in the fourth quarter of the year ended December 31, 2019.
Certain of the Company’s foreign subsidiaries participate in local statutory defined benefit or other post-employment benefit plans. These plans provide benefits that are generally based on years of credited service and a percentage of the employee’s eligible compensation earned throughout the applicable service period. Liabilities recorded under these plans are included in other long-term liabilities in the Company’s consolidated balance sheets and are not material.
The Company adopted an equity incentive plan (the 2010 Plan) on February 10, 2010 in connection with its initial public offering. The 2010 Plan, as amended, allowed for granting of up to 9.1 million share-based awards to executives, directors and employees. Awards available for grant under the 2010 Plan included stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. Awards under the 2010 Plan ceased in June 2019. Total share-based compensation expense related to the Plan, net of estimated forfeitures, was $11,681, $15,738, and $14,563 for the years ended December 31, 2020, 2019 and 2018, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.
On June 13, 2019, the stockholders of Generac Holdings Inc. approved the Company’s 2019 Equity Incentive Plan (the 2019 Plan). Following the effectiveness of the 2019 Plan, no new awards may be made under the Plan. The 2019 Plan allows for granting of up to 2.7 million share-based awards to executives, directors and employees. Awards available for grant under the 2019 Plan include stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. Total share-based compensation expense related to the 2019 Plan, net of estimated forfeitures, was $9,201 and $956 for the years ended December 31, 2020 and 2019, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.
Stock Options - Stock options granted in 2020 have an exercise price between $91.00 per share and $158.89 per share; stock options granted in 2019 have an exercise price of $52.07 per share; and stock options granted in 2018 have an exercise price between $43.88 per share and $45.29 per share. Stock options vest in equal installments over four years, subject to the grantee’s continued employment or service and expire ten years after the date of grant.
Stock option exercises can be net-share settled such that the Company withholds shares with value equivalent to the exercise price of the stock option awards plus the employees’ minimum statutory obligation for the applicable income and other employment taxes. Total shares withheld were 24,070, 32,211 and 63,817 for the years ended December 31, 2020, 2019 and 2018, respectively, and were based on the value of the stock on the exercise dates. The net-share settlement has the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued.
Employees can also utilize a cashless for cash exercise of stock options, such that all exercised shares will be sold in the market immediately. Cash equivalent to the exercise price of the awards plus the employees’ minimum statutory tax obligations is remitted to the Company, with the remaining cash being transferred to the employee. Total net proceeds from the cashless for cash exercise of stock options were $13,089, $9,395 and $5,614 for the years ended December 31, 2020, 2019 and 2018, respectively, and are reflected as a financing activity in the consolidated statement of cash flows.
Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to stock option exercises were $7,297, $3,360 and $3,846 for the years ended December 31, 2020, 2019 and 2018, respectively, and are reflected as a financing activity in the consolidated statements of cash flows.
The grant-date fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on an analysis of historic volatility of the Company’s stock price. The average expected life is based on the contractual term of the option using the simplified method. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized is net of estimated forfeitures. Forfeitures are estimated based on actual share option forfeiture history.
The weighted-average assumptions used in the Black-Scholes-Merton option pricing model for 2020, 2019 and 2018 are as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Weighted average grant date fair value
|
|
$
|
35.79
|
|
|
$
|
19.33
|
|
|
$
|
17.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
37
|
%
|
Risk free interest rate
|
|
|
1.56
|
%
|
|
|
2.52
|
%
|
|
|
2.60
|
%
|
Expected annual dividend per share
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expected life of options (years)
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
A summary of the Company’s stock option activity and related information for the years ended December 31, 2020, 2019 and 2018 is as follows:
|
|
Number of Options
|
|
|
Weighted-Average Exercise Price
|
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
|
Aggregate Intrinsic Value ($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
1,472,130
|
|
|
$
|
33.11
|
|
|
|
7.3
|
|
|
$
|
25,281
|
|
Granted
|
|
|
366,231
|
|
|
|
43.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(267,909
|
)
|
|
|
19.90
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(49,285
|
)
|
|
|
43.34
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
1,521,167
|
|
|
|
37.70
|
|
|
|
7.0
|
|
|
$
|
19,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
369,779
|
|
|
|
52.07
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(263,250
|
)
|
|
|
30.75
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(35,010
|
)
|
|
|
43.79
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
1,592,686
|
|
|
|
42.04
|
|
|
|
6.9
|
|
|
$
|
93,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
173,650
|
|
|
|
102.32
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(216,196
|
)
|
|
|
39.88
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(21,450
|
)
|
|
|
50.25
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
1,528,690
|
|
|
|
49.08
|
|
|
|
6.3
|
|
|
$
|
272,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2020
|
|
|
845,365
|
|
|
|
39.15
|
|
|
|
4.9
|
|
|
$
|
159,145
|
|
As of December 31, 2020, there was $10,673 of total unrecognized compensation cost, net of expected forfeitures, related to unvested options. The cost is expected to be recognized over the remaining service period, having a weighted-average period of 2.4 years. Total share-based compensation cost related to the stock options for the years ended December 31, 2020, 2019 and 2018 was $5,860, $5,597 and $4,998, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.
Restricted Stock – Restricted stock awards vest in equal installments over three years, subject to the grantee’s continued employment or service. Certain restricted stock awards also include performance shares, whereby the number of performance shares that can be earned are contingent upon Company performance measures over a three-year period. Performance measures are based on a weighting of a number of financial metrics, from which grantees may earn from 0% to 200% of their target performance share award. The performance period for the 2018 awards covers the years 2018 through 2020, the performance period for the 2019 awards covers the years 2019 through 2021, and the performance period for the 2020 awards covers the years 2020 through 2022. The Company estimates the number of performance shares that will vest based on projected financial performance. The fair value of restricted awards is determined based on the market value of the Company's shares on the grant date. The fair market value of the restricted awards at the time of the grant is amortized to expense over the period of vesting. The compensation expense recognized for restricted share awards is net of estimated forfeitures.
Restricted stock vesting is net-share settled such that, upon vesting, the Company withholds shares with value equivalent to the employees’ minimum statutory tax obligation, and then pays the cash to the taxing authorities on behalf of the employees. In effect, the Company repurchases these shares and classifies them as treasury stock. Total shares withheld were 70,718, 55,953 and 38,186 for the years ended December 31, 2020, 2019 and 2018, respectively, and were based on the value of the stock on the vesting dates. Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to restricted stock vesting were $7,613, $3,078 and $1,812 for the years ended December 31, 2020, 2019 and 2018, respectively, and are reflected as a financing activity within the consolidated statements of cash flows.
A summary of the Company's restricted stock activity for the years ended December 31, 2020, 2019 and 2018 is as follows:
|
|
Shares
|
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2017
|
|
|
392,276
|
|
|
$
|
37.77
|
|
Granted
|
|
|
208,803
|
|
|
|
44.49
|
|
Vested
|
|
|
(128,433
|
)
|
|
|
39.03
|
|
Forfeited
|
|
|
(46,650
|
)
|
|
|
39.43
|
|
Non-vested as of December 31, 2018
|
|
|
425,996
|
|
|
|
40.50
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
265,255
|
|
|
|
62.38
|
|
Vested
|
|
|
(184,628
|
)
|
|
|
38.78
|
|
Forfeited
|
|
|
(14,986
|
)
|
|
|
44.23
|
|
Non-vested as of December 31, 2019
|
|
|
491,637
|
|
|
|
52.84
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
183,868
|
|
|
|
95.14
|
|
Vested
|
|
|
(200,390
|
)
|
|
|
45.10
|
|
Forfeited
|
|
|
(18,921
|
)
|
|
|
56.58
|
|
Non-vested as of December 31, 2020
|
|
|
456,194
|
|
|
|
68.42
|
|
As of December 31, 2020, there was $20,608 of unrecognized compensation cost, net of expected forfeitures, related to non-vested restricted stock awards. That cost is expected to be recognized over the remaining service period, having a weighted-average period of 1.9 years. Total share-based compensation cost related to the restricted stock for the years ended December 31, 2020, 2019 and 2018, inclusive of performance shares, was $15,022, $11,097 and $9,565, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.
During 2020, 2019 and 2018, 15,275, 22,544 and 33,419 shares of stock, respectively, were granted to certain members of the Company’s Board of Directors as a component of their compensation for their service on the Board, all of which were fully vested at time of grant. A non-employee director can elect to receive his or her director fees in the form of deferred stock units, which voluntarily defers the issuance of the related shares granted until the director separates from the Company or a triggering event occurs. 10,528, 16,604 and 22,675 of deferred stock units are included in the shares of stock granted to certain members of the Company’s Board of Directors for the years 2020, 2019, and 2018, respectively. Total share-based compensation cost for these share grants in 2020, 2019 and 2018 was $1,558, $1,391 and $1,718, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.
18.
|
Commitments and Contingencies
|
The Company has an arrangement with a finance company to provide floor plan financing for certain dealers. The Company receives payment from the finance company after shipment of product to the dealer. The Company participates in the cost of dealer financing up to certain limits and has agreed to repurchase products repossessed by the finance company, but does not indemnify the finance company for any credit losses they incur. The amount financed by dealers which remained outstanding under this arrangement at December 31, 2020 and 2019 was approximately $55,600 and $49,600, respectively.
In the normal course of business, the Company is named as a defendant in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may result from such lawsuits are not expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
19.
|
Quarterly Financial Information (Unaudited)
|
|
|
Quarters in the Year Ended December 31, 2020
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Net sales
|
|
$
|
475,915
|
|
|
$
|
546,848
|
|
|
$
|
701,355
|
|
|
$
|
761,082
|
|
Gross profit
|
|
|
172,320
|
|
|
|
208,983
|
|
|
|
276,149
|
|
|
|
300,202
|
|
Operating income
|
|
|
62,862
|
|
|
|
89,553
|
|
|
|
155,637
|
|
|
|
171,054
|
|
Net income attributable to Generac Holdings Inc.
|
|
|
44,460
|
|
|
|
66,145
|
|
|
|
114,970
|
|
|
|
125,001
|
|
Net income attributable to common shareholders per common share - basic:
|
|
$
|
0.69
|
|
|
$
|
1.04
|
|
|
$
|
1.86
|
|
|
$
|
2.02
|
|
Net income attributable to common shareholders per common share - diluted:
|
|
$
|
0.68
|
|
|
$
|
1.02
|
|
|
$
|
1.82
|
|
|
$
|
1.97
|
|
|
|
Quarters in the Year Ended December 31, 2019
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Net sales
|
|
$
|
470,353
|
|
|
$
|
541,916
|
|
|
$
|
601,135
|
|
|
$
|
590,932
|
|
Gross profit
|
|
|
162,175
|
|
|
|
195,838
|
|
|
|
217,517
|
|
|
|
222,222
|
|
Operating income
|
|
|
71,173
|
|
|
|
90,926
|
|
|
|
105,556
|
|
|
|
104,508
|
|
Net income attributable to Generac Holdings Inc.
|
|
|
44,861
|
|
|
|
61,958
|
|
|
|
75,574
|
|
|
|
69,614
|
|
Net income attributable to common shareholders per common share - basic:
|
|
$
|
0.77
|
|
|
$
|
0.99
|
|
|
$
|
1.20
|
|
|
$
|
1.14
|
|
Net income attributable to common shareholders per common share - diluted:
|
|
$
|
0.76
|
|
|
$
|
0.98
|
|
|
$
|
1.18
|
|
|
$
|
1.12
|
|
20.
|
Valuation and Qualifying Accounts
|
For the years ended December 31, 2020, 2019 and 2018:
|
|
Balance at Beginning of Year
|
|
|
Additions Charged to Earnings
|
|
|
Additions Charged to Retained Earnings (1)
|
|
|
Charges to Reserve, Net (2)
|
|
|
Reserves Established for Acquisitions
|
|
|
Balance at End of Year
|
|
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
6,968
|
|
|
$
|
4,645
|
|
|
$
|
1,147
|
|
|
$
|
(957
|
)
|
|
$
|
198
|
|
|
$
|
12,001
|
|
Reserves for inventory
|
|
|
24,293
|
|
|
|
11,353
|
|
|
|
-
|
|
|
|
(8,788
|
)
|
|
|
959
|
|
|
|
27,817
|
|
Valuation of deferred tax assets
|
|
|
5,024
|
|
|
|
716
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
4,873
|
|
|
$
|
3,086
|
|
|
$
|
-
|
|
|
$
|
(1,033
|
)
|
|
$
|
42
|
|
|
$
|
6,968
|
|
Reserves for inventory
|
|
|
23,140
|
|
|
|
4,821
|
|
|
|
-
|
|
|
|
(3,867
|
)
|
|
|
199
|
|
|
|
24,293
|
|
Valuation of deferred tax assets
|
|
|
5,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(778
|
)
|
|
|
5,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
4,805
|
|
|
$
|
1,941
|
|
|
$
|
-
|
|
|
$
|
(2,123
|
)
|
|
$
|
250
|
|
|
$
|
4,873
|
|
Reserves for inventory
|
|
|
15,987
|
|
|
|
10,004
|
|
|
|
-
|
|
|
|
(3,720
|
)
|
|
|
869
|
|
|
|
23,140
|
|
Valuation of deferred tax assets
|
|
|
6,817
|
|
|
|
478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493
|
)
|
|
|
5,802
|
|
|
(1)
|
Result of adopting ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
|
|
(2)
|
Deductions from the allowance for doubtful accounts equal accounts receivable written off against the allowance, less recoveries, as well as foreign currency translation adjustments. Deductions from the reserves for inventory excess and obsolete items equal inventory written off against the reserve as items were disposed of, as well as foreign currency translation adjustments.
|
The Company performed an evaluation of subsequent events through the date these financial statements were issued and no such events were identified.