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EXHIBIT 99.1
Pages 38-64 of the Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 of Generac Portable Products, Inc.
(Commission File No. 333-73247; sometimes shown as 001-15047, 33-73247 or
333-79071).
2
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed, incorporated by reference, as part
of this report:
1. Financial Statements:
See "Index to Financial Statements and Financial Statement Schedules"
on page 38, the Reports of Independent Accountants on pages 40 and 65
and the Consolidated Financial Statements on pages 41 to 63 and pages
66 to 71.
2. Financial Statement Schedules:
See "Index to Consolidated Financial Statements and Financial
Statement Schedules" on page 39, the Reports of Independent
Accountants on pages 40 and 65 and the Financial Statement Schedules
on pages 64 and 72.
3. Exhibits
See "Index to Exhibits" on pages 76 to 77.
(b) No Current Reports on Form 8-K were filed during the last quarter of
the year ended December 31, 2000.
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INDEX TO FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS OF GENERAC PORTABLE PRODUCTS, INC.
Report of Independent Accountants 40
Consolidated Balance Sheets as of December 31, 2000 and 1999 41
Consolidated Statements of Income (Loss) for the years ended December 31, 2000, 1999
and for the period July 10, 1998 through December 31, 1998 42
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and for the period July 10, 1998 through December 31, 1998 43
Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999
and for the period July 10, 1998 through December 31, 1998 44
Notes to Consolidated Financial Statements 45 - 63
Schedule I - Generac Portable Products, Inc. Schedule of Combined Valuation Accounts 64
FINANCIAL STATEMENTS OF PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC
CORPORATION
Independent Auditors' Report 65
Statement of Income for the Six Months and Nine Days Ended July 9, 1998 66
Statement of Cash Flows for the Six Months and Nine Days Ended July 9, 1998 67
Notes to Financial Statements 68 - 71
Schedule II - Portable Products Division, A Business Unit of Generac Corporation
Schedule of Combined Valuation Accounts 72
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Generac Portable Products, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index under Item 14(a)(1) present fairly, in all material
respects, the financial position of Generac Portable Products, Inc. and its
subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and for the period July 10, 1998 through December 31, 1998, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the
index under Item 14(a)(2) present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of Generac Portable Products,
Inc.'s management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 7 to the consolidated financial statements, the
Company expects that an event of default will occur under its bank credit
agreement on March 31, 2001 as a result of a failure to comply with one or more
required financial covenants. In addition, as discussed in Note 16 to the
financial statements, the Company has entered into a merger agreement for the
sale of all outstanding shares of the Company's capital stock to Briggs &
Stratton Corporation. Consummation of the pending merger is expected to also
constitute an event of default under its bank credit agreement and zero coupon
notes. If one or more events of default occur and the Company is unable to
obtain a waiver, the lenders under the bank credit agreement may cause all
amounts thereunder to become immediately due and payable, which would also
constitute an event of default under the Company's zero coupon notes and senior
subordinated notes, and could lead to an acceleration of amounts payable under
such notes. In such circumstances, there can be no assurance that the Company
would be able to make the required payments under the bank credit agreement and
its zero coupon and senior subordinated notes, or, if necessary, to obtain
suitable alternative financing.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
February 26, 2001, except as to Note 16 which is as of March 27, 2001
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN 000'S, EXCEPT SHARE DATA)
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 281 $ 384
Accounts receivable (less allowances of $193 and $548, respectively) 38,762 55,465
Inventories 69,908 58,372
Deferred income taxes 1,557 1,171
Prepaid expenses and other current assets 4,749 144
--------- ---------
Total current assets 115,257 115,536
Property, plant and equipment, net 27,609 28,911
Intangible assets, net 201,791 206,229
Deferred financing costs, net 6,134 6,608
Other 41 205
--------- ---------
Total assets $350,832 $357,489
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,218 $ 8,869
Trade accounts payable 17,635 23,793
Accrued employee compensation, benefits and payroll withholdings 1,924 3,263
Other accrued liabilities 10,900 18,991
--------- ---------
Total current liabilities 38,677 54,916
Long-term debt obligations 199,521 180,520
Other long-term obligations 1,049 1,089
Deferred income taxes 3,908 5,717
--------- ---------
Total liabilities 243,155 242,242
Commitments and contingencies (Note 13)
Common stock warrants 2,115 -
Stockholders' equity:
Common stock, $.01 par value, 12,000 shares authorized; 8,500 shares
issued and outstanding 1 1
Additional paid-in capital 112,481 109,999
Retained earnings 6,276 17,741
Accumulated other comprehensive (loss) income (1,538) (836)
Excess of purchase price over book value of net assets acquired
from entities partially under common control (11,658) (11,658)
--------- ---------
Total stockholders' equity 105,562 115,247
--------- ---------
Total liabilities and stockholders' equity $350,832 $357,489
========= =========
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(AMOUNTS IN $000'S)
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 10, 1998
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
--------------- --------------- ---------------
Net sales $ 242,489 $ 398,096 $ 136,862
Cost of sales 192,061 290,885 98,245
--------------- --------------- ---------------
Gross profit 50,428 107,211 38,617
Operating expenses:
Selling and service 32,356 47,251 16,935
General and administrative 7,911 10,118 2,865
Intangible asset amortization 5,440 5,368 2,531
--------------- --------------- ---------------
Income from operations 4,721 44,474 16,286
Other expense:
Interest expense 21,333 20,823 9,674
Deferred financing cost amortization 1,213 909 401
Expenses from withdrawn common stock offering (Note 15) - 1,160 -
Other expense (income), net (107) 619 (171)
--------------- --------------- ---------------
Income (loss) before income taxes (17,718) 20,963 6,382
Provision (benefit) for income taxes (6,253) 7,424 2,180
--------------- --------------- ---------------
Net income (loss) $ (11,465) $ 13,539 $ 4,202
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND FOR THE PERIOD JULY 10, 1998
THROUGH DECEMBER 31, 1998
(AMOUNTS IN 000'S, EXCEPT SHARE DATA)
Accumulated
Common Stock Additional Other
--------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Other (A) Total
------ ---------- ---------- --------- ------------- --------- ---------
Balances, July 9, 1998 8,500 $ 1 $109,999 $ - $ - $(11,658) $ 98,342
Comprehensive income:
Net income - - - 4,202 - - 4,202
Translation adjustments - - - - 723 - 723
------ ----------- --------- --------- -------- --------- ---------
Total comprehensive income - - - 4,202 723 - 4,925
------ ----------- --------- --------- -------- --------- ---------
Balances, December 31, 1998 8,500 $ 1 $109,999 $ 4,202 $ 723 (11,658) $103,267
====== =========== ========= ========= ======== ========= =========
Balances, December 31, 1998 8,500 $ 1 $109,999 $ 4,202 $ 723 (11,658) $103,267
Comprehensive income (loss):
Net income - - - 13,539 - - 13,539
Translation adjustments - - - - (1,559) - (1,559)
------ ----------- --------- --------- -------- --------- ---------
Total comprehensive income (loss) - - - 13,539 (1,559) - 11,980
------ ----------- --------- --------- -------- --------- ---------
Balances, December 31, 1999 8,500 $ 1 $109,999 $ 17,741 $ (836) $(11,658) $115,247
====== =========== ========= ========= ======== ========= =========
Balances, December 31, 1999 8,500 $ 1 $109,999 $ 17,741 $ (836) $(11,658) $115,247
Capital contribution - - 2,482 - - - 2,482
Comprehensive income (loss):
Net loss - - - (11,465) - - (11,465)
Translation adjustments - - - - (702) - (702)
------ ----------- --------- --------- -------- --------- ---------
Total comprehensive income (loss) - - - (11,465) (702) - (12,167)
------ ----------- --------- --------- -------- --------- ---------
Balances, December 31, 2000 8,500 $ 1 $112,481 $ 6,276 $(1,538) $(11,658) $105,562
====== =========== ========= ========= ======== ========= =========
(A) Amount represents the excess of the purchase price paid in connection
with the Acquisition over the book value of net assets acquired not
recognized as a result of certain continuing shareholder interests.
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN $000'S)
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 10, 1998
ENDED ENDED THROUGH
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- -----------------
Operating activities:
Net income (loss) $(11,465) $ 13,539 $ 4,202
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation 4,050 2,881 1,022
Amortization 6,653 6,277 2,932
Accretion on senior zero coupon notes 116 - -
Deferred income taxes (2,195) 3,180 1,366
Loss on sale of fixed assets - 5 -
Increase (decrease) in cash due to changes in:
Accounts receivable 16,281 (11,253) 6,696
Inventories (11,882) (12,791) (3,627)
Other assets (5,683) 582 (726)
Trade accounts payable (5,873) 11,226 (2,106)
Accrued liabilities (9,139) 6,688 6,454
--------- --------- ---------
Net cash provided by (used in) operating activities (19,137) 20,334 16,213
--------- --------- ---------
Investing activities:
Capital expenditures (2,938) (12,463) (3,814)
Proceeds from sale of fixed assets - 17 34
--------- --------- ---------
Net cash used for investing activities (2,938) (12,446) (3,780)
--------- --------- ---------
Financing activities:
Net borrowings (payments) under revolving loan facility 16,700 (600) (11,008)
Payments on other long-term debt obligations (8,868) (7,794) (434)
Issuance of zero coupon notes and common stock warrants 15,000 - -
Payment of deferred financing costs (739) (532) (77)
--------- --------- ---------
Net cash provided by (used for) financing activities 22,093 (8,926) (11,519)
--------- --------- ---------
Effect of exchange rate changes on cash (121) (106) 15
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (103) (1,144) 929
Cash and cash equivalents:
Beginning of period $ 384 $ 1,528 $ 599
--------- --------- ---------
End of period $ 281 $ 384 $ 1,528
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 21,413 $ 21,708 $ 2,260
========= ========= =========
Cash paid for taxes $ 356 $ 4,610 $ -
========= ========= =========
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. FORMATION OF GENERAC PORTABLE PRODUCTS AND NATURE OF BUSINESS
Generac Portable Products, Inc. ("Generac" or the "company"), a Delaware
corporation, was formed on April 29, 1998 by an investor group organized by
The Beacon Group III--Focus Value Fund L.P. for the purpose of acquiring,
through its indirect wholly-owned limited liability company, Generac Portable
Products, LLC, net assets of the Portable Products Division of Generac Power
Systems, Inc. ("GPSI"), formerly known as GPSI. The primary business activity
of Generac consists of its indirect ownership of 100% of the limited liability
company interests in Generac Portable Products, LLC, a Delaware limited
liability company (the "Operating Company"), through two wholly-owned
subsidiaries: GPPW, Inc. a Wisconsin corporation ("GPPW"), and GPPD, Inc., a
Delaware corporation ("GPPD"). GPPW and GPPD hold, respectively, 5% and 95%
limited liability company interests in Generac Portable Products, LLC. Generac
had no operations during the period April 29, 1998 through July 8, 1998; its
only business activity involved the issuance of $110 million of common stock
to finance a portion of the purchase price discussed below.
On July 9, 1998, Generac caused Generac Portable Products, LLC to
purchase substantially all of the assets, and assume certain of the
liabilities, of the Portable Products Division (the "Predecessor") of GPSI
(the "Acquisition"). The aggregate consideration paid for the net assets of
the Predecessor was approximately $330 million, which included cash acquired
of $0.6 million, direct acquisition costs of $1.4 million and assumed
liabilities of $23.9 million. The purchase price paid for the Predecessor was
adjusted for a post-closing adjustment of $1.0 million based on net working
capital at July 9, 1998, as defined.
The Acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to identifiable
assets acquired and liabilities assumed based upon their estimated fair
values, subject to certain limitations (see Note 2), with the excess purchase
price recorded as goodwill. Goodwill of approximately $214 million has been
recorded as a result of the Acquisition. The following table sets forth the
pro forma information for Generac as if the Acquisition had occurred on
January 1, 1998. This information is unaudited and does not purport to
represent actual sales or net income had the Acquisition actually occurred on
January 1, 1998.
PRO FORMA INFORMATION
FOR THE YEAR ENDED
DECEMBER 31, 1998
-----------------
Net sales $ 276,413
Net income 5,835
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In addition to the issuance of common stock by Generac, the purchase
price was financed through the issuance of Senior Subordinated Notes of $110
million and borrowings of $96.6 million under a $115 million bank credit
facility (see Note 7).
Generac, with domestic operations located in Jefferson, Wisconsin and
branch operations in the United Kingdom, Germany and Spain, is a leading
designer, manufacturer and marketer of engine-powered tools and related
accessories for use in both consumer and commercial applications.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: Generac prepares its financial statements in
conformity with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION: Generac's consolidated financial
statements include the accounts of its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
BASIS OF ACCOUNTING: Pursuant to the Financial Accounting Standards
Board's Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout
Transactions," Generac has limited its accounting basis resulting from the
Acquisition as a result of certain shareholders which also held an interest in
the Predecessor through ownership interests in GPSI. Such limitation was based
upon the lesser of each continuing shareholder's interest in Generac or the
Predecessor, and the Predecessor's historical book value at July 9, 1998. The
difference between the continuing shareholders' basis in the Predecessor and
their proportionate equity in the book value of the Predecessor was not
material. The difference between the total consideration paid in connection
with the Acquisition and the accounting basis recognized is reported as a
separate component of stockholders' equity.
CASH AND CASH EQUIVALENTS: Generac considers all investments
with a maturity of three months or less at the date of purchase to be
cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost
(first-in, first-out method) or market (replacement cost or estimated
net realizable value).
RESEARCH AND DEVELOPMENT COSTS: Generac has an ongoing program of new
product development and existing product enhancement through redesign of
existing products and the addition of new models. Costs related to these
programs are expensed as incurred and totaled $2,553, $2,682 and $1,011 for
the years ended December 31, 2000 and 1999 and for the period ended December
31, 1998, respectively. Costs related to manufacturing start-up activities for
new products are included in cost of sales as incurred.
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PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is
recorded at cost and includes equipment under leases which have been
capitalized. Maintenance and repair costs are charged to expense as incurred.
Gains and losses on disposition of property, plant and equipment are reflected
in income. Depreciation of property, plant and equipment are recorded using
principally the straight-line method for financial reporting purposes over the
estimated useful lives of the assets or terms of related leases as follows:
Land improvements 20
Buildings 40
Machinery and equipment 7-10
Dies and tools 3-5
Office equipment 5-10
Vehicles 3-5
CAPITALIZED SOFTWARE: Generac capitalizes purchased software as well
as internally developed software. Internal software development costs are
capitalized from the time the internal use software is considered probable of
completion until the software is ready for use. Business analysis, system
evaluation, selection and software maintenance costs are expensed as incurred.
Capitalized software costs are amortized using the straight-line method over
the estimated useful life of the software. Capitalized software costs are
recorded as office equipment for financial statement purposes.
INTANGIBLE ASSETS: Goodwill, representing the recognized portion of
the cost of the Acquisition in excess of the fair values assigned to
identifiable net assets acquired, is being amortized on a straight-line basis
over 40 years. The non-compete agreement and patents and trademarks are being
amortized on a straight-line basis over 10 years. Generac assesses the
carrying value of goodwill and other intangibles at each balance sheet date.
Consistent with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", such assessments include, as appropriate, a comparison of
(a) the estimated future nondiscounted cash flows anticipated to be generated
during the remaining amortization period to (b) the net carrying value of the
asset. Impairment assessments of goodwill made in accordance with SFAS No. 121
are made in connection with an analysis of related long-lived assets acquired
in the Acquisition when events or changes in circumstances indicate the
carrying amount of either asset may not be recoverable. Generac recognizes
impairment losses resulting from diminution in value, if any, on a current
basis based upon estimated fair value of the related assets.
DEFERRED FINANCING COSTS: Expenses associated with the issuance of
debt instruments are capitalized and are being amortized over the terms of the
respective financing arrangement using the effective interest rate and
straight-line methods over periods ranging from 5 to 8 years.
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INTEREST RATE SWAPS: To limit the effect of increases in interest
rates, Generac has entered into an interest rate swap arrangement. The
differential between the contract floating and fixed rates is accrued each
period and recorded as an adjustment of interest expense.
PRODUCT WARRANTIES: Generac provides that warranted products are
merchantable and free of defects in workmanship and material generally for a
period of one year. Warranty reserves are provided as charges to operations
under selling and service expense for estimated normal warranty costs and, if
applicable, for any significant problems known to exist on products sold.
Warranty expense totaled $3,950, $5,793 and $1,989 for the years ended
December 31, 2000 and 1999 and for the period ended December 31, 1998,
respectively.
INCOME TAXES: Deferred income tax assets and liabilities are
determined based upon the difference between the financial statement and tax
bases of assets and liabilities, as measured by enacted tax rates which will
be in effect when these differences are expected to reverse. Deferred income
tax expense is the result of changes in the deferred tax assets and
liabilities. A valuation allowance is provided when it is considered more
likely than not that some portion or all of recorded deferred income tax
assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in
the consolidated balance sheets for cash and cash equivalents, accounts
receivable, accounts payable, and short-term borrowings approximate fair value
due to the short-term maturity of these financial instruments. The amounts
reported for borrowings under the bank credit facility approximate fair value
since the underlying instruments bear interest at a variable rate that
reprices frequently. The fair value of Generac's Senior Subordinated Notes at
December 31, 2000 and 1999 is based upon market quotations as of such date.
The fair value of the interest rate swap arrangement is the amount at which it
could be settled, based on a quote obtained from the respective financial
institution (see Note 7).
REVENUE RECOGNITION: Revenue is recognized by the company when all of
the following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred and ownership has transferred to the customer; the price
to the customer is fixed or determinable; and collectability is reasonably
assured. These criteria are satisfied, and accordingly, revenue is recognized,
upon shipment by the company. Provisions for estimated product returns and
sales incentives are recorded in the period in which the sales are recognized.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 was effective for the Company in the fourth
quarter of 2000 and did not have a material effect on the company's financial
statements.
SHIPPING AND HANDLING FEES AND COSTS: During the fourth quarter of
2000, the company adopted the provisions of the Emerging Issues Task Force
("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs." In accordance with EITF 00-10, revenue from shipping and handling
costs is reflected in net sales. The costs associated with shipping and
handling of product for the years ended December 31, 2000 and 1999 and for the
period ended December 31, 1998 were $4,219, $8,021, and $3,128, respectively,
and are reflected in selling and service expense.
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FOREIGN CURRENCY TRANSLATION: The translation of the assets and
liabilities of Generac's international branch operations into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using an average
exchange rate during the period. The gains or (losses) resulting from such
translation are reflected as translation adjustments in accumulated other
comprehensive income (loss).
FUTURE ACCOUNTING CHANGES: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement requires all derivative instruments to
be recorded in the consolidated balance sheets at their fair value. Changes in
fair value of derivatives are required to be recorded each period in current
earnings or other comprehensive income (loss), depending on whether the
derivative is designated as part of a hedge transaction and if it is, the type
of hedge transaction. In June 1999, the statement's effective date was delayed
by one year, and it will be effective January 1, 2001 for Generac. Given the
company's current derivative and hedging activities, the effect of adoption
will not have a material effect on the company's results of operations or
financial position.
In January 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on a subset of EITF No. 00-22, "Accounting for "Points" and Certain
Other Time- or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." This issue requires
recognition of the liability associated with time- or volume-based incentives
as earned by the customer and classification of these incentives as a
reduction of net revenue. EITF 00-22 is effective for the Company in the first
quarter of 2001. The Company classifies these incentives as selling and
service expense and is currently evaluating the impact of implementing EITF
00-22.
3. INVENTORIES
Inventories consist of the following at December 31, 2000 and 1999:
2000 1999
----------------- -----------------
Raw materials and sub-assemblies $ 43,488 $ 33,814
Finished goods 26,420 24,558
----------------- -----------------
$ 69,908 $ 58,372
================= =================
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4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December
31, 2000 and 1999:
2000 1999
----------------- -----------------
Land and land improvements $ 1,061 $ 1,095
Buildings 9,565 9,642
Machinery and equipment 13,188 12,438
Dies and tools 3,806 3,194
Office equipment 7,866 5,899
Vehicles 28 24
----------------- -----------------
35,514 32,292
Accumulated depreciation (7,905) (3,875)
----------------- -----------------
27,609 28,417
Construction in progress - 494
----------------- -----------------
$ 27,609 $ 28,911
================= =================
5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2000 and
1999:
2000 1999
----------------- -----------------
Goodwill $ 214,179 $ 213,928
Trademarks and patents 100 100
Noncompete agreement 852 100
----------------- -----------------
215,131 214,128
Accumulated amortization (13,340) (7,899)
----------------- -----------------
$ 201,791 $ 206,229
================= =================
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at December 31,
2000 and 1999:
2000 1999
----------------- -----------------
Sales incentives $ 3,248 $ 9,370
Product warranty 1,023 1,984
Accrued interest 6,333 6,529
Other 296 1,108
----------------- -----------------
$ 10,900 $ 18,991
================= =================
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7. LONG-TERM DEBT OBLIGATIONS
Long-term debt consists of the following at December 31, 2000 and
1999:
2000 1999
----------------- -----------------
Bank credit facility $ 85,854 $ 77,493
Senior zero coupon notes 10,519 -
Senior subordinated notes 110,000 110,000
Capital lease obligations 1,366 1,896
----------------- -----------------
207,739 189,389
Less: current portion (8,218) (8,869)
----------------- -----------------
$ 199,521 $ 180,520
================= =================
In connection with the Acquisition, Generac Portable Products, LLC
entered into a $115 million bank credit facility (the "Senior Secured Credit
Facility"). The Senior Secured Credit Facility provides for maximum borrowings
under two term loans of $45 million ("A Term Loan") and $40 million ("B Term
Loan"), respectively, with balances outstanding at December 31, 2000 of $31.4
million and $37.7 million, respectively. The Senior Secured Credit Facility also
provides for maximum borrowings of $30 million, less the amount outstanding
under letters of credit, under revolving loan arrangements due December 31,
2003, with a balance outstanding at December 31, 2000 of $16,700. The A Term
Loan Facility will mature 5 1/2 years from July 9, 1998. The B Term Loan
Facility will mature seven years from July 9, 1998. The A Term Loan Facility
will provide for amortization of $2.5 million in the first year, $6.25 million
in the second year, $7.5 million in the third year, $10.0 million in the fourth
year, $12.5 million in the fifth year and $6.25 million in the sixth year. The B
Term Loan Facility will provide for nominal annual amortization in the first
five years and amortization of $19 million in each of the sixth and seventh
years. Additionally, Generac is also required to make an annual principal
payment equal to its excess cash flow, as defined. There is no required excess
cash flow payment for the year ended December 31, 2000. The interest rates under
the A Term Loan Facility and the revolving loan portion of the facility will be
based, at the option of Generac Portable Products, LLC, on either a Eurodollar
rate plus 3.25% per annum or a base rate plus 2.25% per annum, subject to a
pricing grid that will provide for reductions in the applicable interest rate
margins based on Generac's consolidated debt to earnings before interest, income
taxes, depreciation and amortization ("EBITDA") ratio. The interest rate under
the B Term Loan Facility is based, at the option of Generac Portable Products,
LLC, on a Eurodollar rate plus 3.75% or a base rate plus 2.75%, subject to a
pricing grid that will provide for reductions in the applicable interest rate
margins based on Generac's consolidated debt to EBITDA ratio. The weighted
average interest rate for the term loans as of December 31, 2000 was 10.0%.
Borrowings under the revolving loans bear interest at the prime rate plus 2.25%.
A commitment fee of 0.50% per annum is charged on the unused revolving loan
portion of the Senior Secured Credit Facility, subject to a pricing grid that
will provide for reductions in the applicable commitment fee margin based on
51
16
Generac's consolidated debt to EBITDA ratio. Substantially all of Generac's
assets are pledged as collateral under the Senior Secured Credit Facility.
Effective October 15, 1998, Generac entered into an interest rate
swap agreement with a major financial institution to reduce the impact of
changes in interest rates on its floating rate long-term debt. The notional
amount of this agreement was $30 million at December 31, 2000. Interest
expense has been adjusted for the net amount payable under this agreement.
This agreement decreased Generac's interest expense for the year ended
December 31, 2000 by $230. The fair value of the interest rate swap agreement
was $35 at December 31, 2000, which is the amount Generac would have received
to settle the instrument at such date. Generac is exposed to credit loss in
the event of non-performance by the financial institution, however, management
does not anticipate such non-performance.
Also on July 9, 1998, Generac Portable Products, LLC and GPPW issued
$110 million of 11.25% Senior Subordinated Notes due June 30, 2006 (the
"Notes") to BT Alex. Brown Incorporated (the "Initial Purchaser"). The Initial
Purchaser subsequently resold the Notes to qualified institutional buyers
pursuant to Rule 144A of the Securities Exchange Act and to a limited number
of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. The estimated fair value of the
Notes at December 31, 2000 is approximately $28.1 million.
The Notes are redeemable, at Generac's option, in whole at any time
or in part from time to time, on and after July 1, 2002, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of the principal amount thereof) if redeemed during the
twelve-month period commencing on July 1 of the year set forth below, plus, in
each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
- ---- ----------
2002 107.625%
2003 104.750%
2004 102.875%
2005 and thereafter 100.000%
At any time, or from time to time, on or prior to July 1, 2001,
Generac may, at its option, use the net cash proceeds of one or more Public
Equity Offerings, as defined, to redeem the Notes at a redemption price equal
to 111.25% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption.
The Senior Secured Credit Facility and the indenture governing the
Notes contain a number of covenants that, among other things, restrict the
ability of Generac to dispose of assets, repay other indebtedness, incur
additional indebtedness, pay dividends, prepay subordinated
52
17
indebtedness (including, in the case of the Senior Secured Credit Facility,
the Notes), incur liens, make capital expenditures and make certain
investments or acquisitions, engage in mergers or consolidations, engage in
certain transactions with affiliates and otherwise restrict the activities of
Generac. In addition, under the Senior Secured Credit Facility, Generac
Portable Products, LLC will be required to satisfy specified financial ratios
and tests, including a minimum level of EBITDA. Effective October 30, 2000,
the company amended its credit facility which, among other things, waived
existing financial covenant violations at September 30, 2000 and revised
requirements relating to certain financial ratios and tests for periods
through December 31, 2001 including maximum levels of leverage, minimum levels
of interest coverage and minimum required levels of earnings before interest,
income taxes, depreciation and amortization. Additionally, the amendment
provides certain limits on the amount of outstanding revolving loans through
March 31, 2001.
On November 20, 2000, The Beacon Group III - Focus Value Fund, L.P.
(the "Fund"), Generac's majority stockholder, purchased a unit (the "Unit")
consisting of a newly issued senior zero coupon note with an aggregate
principal amount of $19.5 million, due July 1, 2006, and a warrant to purchase
340 shares of the common stock of Generac in exchange for an aggregate of $15
million in cash. The warrants have an exercise price of $.01 per share and are
exercisable at any time through November 20, 2010. The proceeds from the sale
of the Unit were used by Generac to repay the principal of, and interest on,
revolving indebtedness, and for general corporate purposes. Both the senior
zero coupon notes and the warrants have been recorded in the financial
statements at their estimated fair market values at the issuance date. The
difference between the consideration paid by the Fund ($15 million) and the
combined fair market values of the zero coupon notes and attached warrants
totaled $2,482 and has been recorded as an increase in additional paid-in
capital.
Generac expects that an event of default will occur under the Senior
Secured Credit Facility on March 31, 2001 arising from a failure by Generac to
comply with one or more financial covenants set forth in the Senior Secured
Credit Facility. Generac intends to seek a waiver of such event of default from
the lenders party to the Senior Secured Credit Facility. If such event of
default occurs and Generac is unable to obtain a waiver of such event of
default, the lenders under the Senior Secured Credit facility may cause the
loans thereunder to become immediately due and payable, which would constitute
an event of default under the zero coupon notes and the Notes. There can be no
assurance that Generac would be able to make payments under the Senior Secured
Credit Facility, the zero coupon notes and the Notes in such circumstances.
Capital lease obligations relate to Generac's obligations on leases
for industrial equipment. These obligations are due in monthly installments
including principal and interest at a rate of 8.6% and mature November 30,
2002.
The aggregate scheduled maturities of long-term debt and capital
lease obligations in subsequent years are as follows:
2001 $ 8,218
2002 13,266
2003 38,172
2004 18,376
2005 9,188
Thereafter 120,519
-----------------
$ 207,739
=================
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8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
In connection with the Acquisition, Generac established
noncontributory defined benefit pension plans (salaried and hourly) covering
substantially all of its employees. The unfunded benefit obligation assumed as
of the Acquisition date totaled $678. Benefits under the salaried plan are
based upon years of service and the participants' defined final average
monthly compensation. Benefits under the hourly plan are based on a unit
amount at the date of termination multiplied by the participants' credited
service. The plans provide for a continuation of participants' years of
service as credited with GPSI. Generac's funding policy is to contribute
amounts that equal or exceed the minimum requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Net pension expense is
comprised of the following components:
FOR THE PERIOD
JULY 10, 1998
THROUGH
2000 1999 DECEMBER 31, 1998
------------------ ----------------- ---------------------------
Service cost $ 414 $ 340 $ 48
Interest cost on projected benefit obligation 110 88 24
Return on assets (26) (1) -
Amortization of net loss from earlier periods 53 21 -
------------------ ----------------- ---------------------------
$ 551 $ 448 $ 72
================== ================= ===========================
The following table summarizes those items comprising the change in
the benefit obligation:
JULY 10, 1998
THROUGH
2000 1999 DECEMBER 31, 1998
-------------- --------------- ---------------------------
Benefit obligation as of the beginning of the period $ 1,614 $ 750 $ 678
Service cost 414 340 48
Interest cost 110 88 24
Actuarial loss (gain) (422) 436 -
-------------- --------------- ---------------------------
Benefit obligation as of the end of the period $ 1,716 $ 1,614 $ 750
============== =============== ===========================
The following table summarizes those items comprising the change in
the fair value of plan assets during 2000 and 1999. There were no assets
contributed to the plans as of December 31, 1998:
2000 1999
-------------- ---------------
Fair value of plan assets as of the beginning of the period $ 101 $ -
Company contributions 525 100
Actual return on plan assets 26 1
-------------- ---------------
Fair value of plan assets as of the end of the period $ 652 $ 101
============== ===============
54
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The following table summarizes the funded status of the plans as of
December 31, 2000 and 1999:
2000 1999
-------------- ---------------
Funded status of plan $ (1,064) $ (1,513)
Unrecognized net loss (gain) (19) 415
-------------- ---------------
Net amount recognized $ (1,083) $ (1,098)
============== ===============
The assumptions used in developing the pension information as of
December 31, 2000 and 1999 were as follows:
2000 1999
------------------ -----------------
Discount rate 7.50% 8.00%
Return on plan assets 8.00% 8.00%
Rate of compensation increase 5.50% 5.50%
In connection with the Acquisition, Generac established deferred
compensation plans for certain key employees and at December 31, 2000 and
1999, approximately $469 and $401, respectively, was included in other
long-term obligations related to such plans. Deferred compensation expense
charged to operations was $68, $61 and $23 for the years ended December 31,
2000 and 1999 and the period ended December 31, 1998, respectively. In
connection with the Acquisition, Generac established a qualified 401(k) profit
sharing plan covering substantially all full-time employees. The company
contribution for the year ended December 31, 2000 was $132. No contributions
were made to the plan for the year ended December 31, 1999 or for the period
ended December 31, 1998.
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9. INCOME TAXES
The provision for income taxes consists of the following:
FOR THE
PERIOD
JULY 10, 1998
THROUGH
DECEMBER 31,
2000 1999 1998
----------------- -------------- -------------
Current:
Federal $ (4,014) $ 3,799 $ 781
State (44) 295 33
Foreign - 150 -
----------------- -------------- -------------
Total current (4,058) 4,244 814
Deferred:
Federal and state (2,195) 3,180 1,366
----------------- -------------- -------------
Total provision for income taxes $ (6,253) $ 7,424 $ 2,180
================= ============== =============
The components of consolidated pretax income (loss) for the years
ended December 31, 2000 and 1999 are as follows:
2000 1999
-------------------- ------------------
United States $ (16,015) $ 21,247
Europe (1,703) (284)
-------------------- ------------------
Total $ (17,718) $ 20,963
==================== ==================
The following reconciles the U.S. federal statutory income tax rate
with Generac's effective tax rate:
FOR THE PERIOD
JULY 10, 1998
THROUGH
2000 1999 DECEMBER 31, 1998
-------------------------- -------------------- ---------------------------
U.S. federal statutory income tax rate (34.0%) 34.0% 34.0%
State income taxes, net of federal benefit (0.3) 1.8 1.0
Foreign income taxes, net of federal benefit - 0.7 -
Amortization of excess tax goodwill (1.5) (1.3) (2.0)
Other 0.5 0.2 1.2
-------------------------- -------------------- ---------------------------
(35.3%) 35.4% 34.2%
========================== ==================== ===========================
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Deferred income taxes reflected in the balance sheet consist of the
following at December 31, 2000 and 1999:
2000 1999
--------------------------- --------------------------
Deferred tax assets:
Net operating loss carryforwards $ 4,830 $ -
Inventories and receivables 1,003 271
Sales incentives 141 197
Accrued warranty 331 607
Employee benefits 171 203
Other 824 -
--------------------------- --------------------------
7,300 1,278
Deferred tax liabilities:
Fixed assets (1,344) (688)
Intangible assets (8,307) (5,105)
Other - (31)
--------------------------- --------------------------
(9,651) (5,824)
--------------------------- --------------------------
$ (2,351) $ (4,546)
=========================== ==========================
The company has approximately $13,625 in both federal and state net
operating loss carryforwards. These carryforwards expire at various dates
through fiscal 2020. The Tax Reform Act of 1986 imposed substantial
restrictions on the utilization of net operating losses in the event of an
"ownership change" as defined in Section 382 of The Internal Revenue Code of
1986.
10. STOCKHOLDERS' EQUITY
In connection with the initial capitalization of Generac, The Beacon
Group III--Focus Value Fund, L.P., management of Generac and certain other
investors purchased an aggregate of $110 million of common stock, par value of
$.01 per share, constituting 100% of Generac's outstanding common stock. Upon
consummation of the Acquisition, The Beacon Group III--Focus Value Fund, L.P.
and the other stockholders of Generac, and Generac, entered into a
Stockholders' Agreement which includes certain transfer restrictions, voting
agreements and registration rights. Employees who own stock of Generac are
also subject to agreements that restrict their right to transfer their stock
and, under certain conditions, require them to sell a pro rata portion of
their stock in a transaction in which The Beacon Group III--Focus Value Fund,
L.P. is selling its stock. Generac is not obligated to purchase this stock.
As discussed in footnote 7, the Unit consisting of a zero coupon note
and attached warrants were recorded in the financial statements at their
respective fair market values at issuance. The difference between the
consideration paid by the Fund ($15 million) and the
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22
combined fair market values of the zero coupon notes and attached warrants
totaled $2,482 and has been recorded as an increase in additional paid-in
capital.
Effective July 9, 1998, Generac's board of directors approved the
Generac Portable Products, Inc. Stock Option Plan which provides for the
granting of stock options as an incentive to members of the board of directors
and certain key employees. Under this Plan, stock options to acquire up to
1,619 shares of common stock, in the aggregate, may be granted under a
time-vesting formula at an exercise price equal to the fair market value of
the common stock at the date of grant. The options become exercisable in equal
increments beginning on the first anniversary of the grant date over a three
to five-year period and expire ten years subsequent to the grant date.
Stock option transactions for the years ended December 31, 2000 and
1999 and the period ended December 31, 1998 are summarized as follows:
2000 1999 1998
------------------------- -------------------------- --------------------
Options granted - 304 1,164
Exercise price - options granted N/A $ 16,349 $ 12,945
Options forfeited 101 51 -
Exercise price - options forfeited $ 12,945 $ 12,945 N/A
Options outstanding 1,316 1,417 1,164
Exercised options - - -
Exercisable options 557 243 -
Remaining contractual life (years) 8.4 9.4 8.5
Fair value at grant date N/A $ 5,469 $ 4,340
The fair value was estimated using the minimum value method in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
assuming an expected option life of 7 years and a risk-free interest rate of
6%.
Generac applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plan. Accordingly,
no compensation expense has been recognized in the statement of income for the
years ended December 31, 2000 and 1999 and during the period ended December
31, 1998. If compensation cost had been determined in accordance with SFAS
No.123, net income would have decreased approximately $892, $843 and $351
during the years ended December 31, 2000 and 1999 and during the period ended
December 31, 1998, respectively.
On May 20, 1999, the company effected a 1,250 for one common stock
split and on May 28, 1999, the company effected a 1.189 for one common stock
split. On June 9, 2000, the company effected a one for 1,486.25 reverse common
stock split. All share information in these consolidated financial statements
has been retroactively adjusted to reflect these stock splits.
58
23
11. LEASES
Generac leases certain manufacturing equipment, computer equipment
and vehicles under operating leases with lease terms ranging up to 5 years.
Additionally, in connection with the Acquisition, Generac entered into a
capital lease arrangement with GPSI for certain manufacturing equipment.
Property, plant and equipment at December 31, 2000 and 1999 includes $1,753
and $2,102, respectively, for equipment under capital leases, which is net of
$863 and $514 in accumulated depreciation, respectively. Following is a
summary of future minimum payments under capitalized leases and operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year at December 31, 2000:
Operating Capital
Leases Leases
----------------- -----------------
2001 $ 724 $ 673
2002 233 830
2003 90 -
2004 29 -
Thereafter 15 -
----------------- -----------------
$ 1,091 1,503
=================
Less amount representing interest (137)
-----------------
Present value of minimum lease payments $ 1,366
=================
Total rent expense recognized by Generac for the years ended December
31, 2000 and 1999 and for the period ended December 31, 1998 was $2,472,
$2,521 and $559, respectively.
12. SEGMENT INFORMATION
Generac is a leading designer, manufacturer and marketer of
engine-powered tools and related accessories for use in both consumer and
commercial applications. Engineering, manufacturing, marketing and
administrative resources are generally not product specific and Generac
evaluates operating performance based upon the combined results of these
product lines.
Information regarding Generac's geographic areas is summarized below:
United
States Europe Consolidated
----------------- -------------- ------------------
As and for the year ended December 31, 2000:
Net sales to unaffiliated customers $ 220,428 $22,061 $ 242,489
Long-lived assets 233,371 2,204 235,575
As and for the year ended December 31, 1999:
Net sales to unaffiliated customers 358,999 39,097 398,096
Long-lived assets 239,448 2,505 241,953
As and for the period ended December 31, 1998:
Net sales to unaffiliated customers 126,740 10,122 136,862
Long-lived assets 235,517 2,574 238,091
59
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Generac sells primarily to large home center retailers. Two customers
accounted for approximately 61% of net sales for the year ended December 31,
2000. Both customers individually comprise more than 10% of Generac's net
sales. Included in accounts receivable at December 31, 2000 are amounts due
from these two customers aggregating $20,854. Three customers accounted for
approximately 73% and 74% of net sales for the year ended December 31, 1999
and for the period ended December 31, 1998, respectively. All three customers
individually comprise more than 10% of Generac's net sales. Included in
accounts receivable at December 31, 1999 are amounts due from these three
customers aggregating $33,236.
Generac purchases its materials from a broad supplier base. Three
suppliers accounted for approximately 46% of purchases for the year ended
December 31, 2000. Accounts payable to these three suppliers approximated
$8,867 at December 31, 2000. Two suppliers accounted for approximately 44% and
41% of purchases for the year ended December 31, 1999 and the period ended
December 31, 1998, respectively. Accounts payable to these two suppliers
approximated $7,049 at December 31, 1999. Each of these suppliers individually
comprised more than 10% of Generac's purchases for the respective periods.
13. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In the normal course of business Generac is involved in certain legal
actions and claims. It is the opinion of management that such litigation and
claims will be resolved without material adverse effect on Generac's financial
position, results of operations or cash flows.
On September 29, 1999, Generac commenced an arbitration against
Generac Power Systems, Inc. ("GPSI"), entitled In the Matter of An Arbitration
Between Generac Portable Products, Inc. and Generac Power Systems, Inc.,
formerly known as Generac Corporation, under the auspices of the American
Arbitration Association in Milwaukee, Wisconsin. The dispute concerned the
respective rights of the company and GPSI to manufacture and sell in the
retail market portable generators with an output level greater than ten
kilowatts and home standby stationary generators. On May 18, 2000, the company
and GPSI reached an agreement which amended and further clarified the original
non-compete agreement between the two companies. The agreement provides for,
among other things, that the company has the right to manufacture and sell
certain portable air-cooled generators and air-cooled home standby generators
up to and including twenty kilowatts, that GPSI is restricted from
manufacturing any portable air-cooled generator below 12.5 kilowatts and that
the company will pay a 2% royalty on sales of home standby stationary
generators in excess of $15 million during the term of the agreement to GPSI.
The company capitalized costs incurred in conjunction with the
development of the amended non-compete agreement approximating $702, and will
amortize these costs over the remaining life of the non-compete agreement.
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14. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE
NOTES
In connection with the Acquisition, Generac Portable Products, LLC
and GPPW co-issued the Notes, and while Generac Portable Products, LLC and
GPPW are jointly and severally liable for the obligations under the Notes,
GPPW does not conduct any operations, or have any assets of any kind other
than its investment in Generac Portable Products, LLC. Generac has provided a
full and unconditional guarantee of the Notes. However, because Generac has no
operating activities independent of Generac Portable Products, LLC, Generac's
consolidated financial statements are essentially the same as those of Generac
Portable Products, LLC. The following condensed supplemental consolidating
financial information reflects the investments of Generac, GPPW and GPPD in
Generac Portable Products, LLC using the equity method. Generac, GPPW and GPPD
are dependent upon Generac Portable Products, LLC for cash flows to fund their
income tax liabilities arising from their respective investments. GPPW and
GPPD are wholly-owned subsidiaries of Generac, and GPPW and GPPD hold a 5% and
95% ownership interest in Generac Portable Products, LLC, respectively.
AS OF DECEMBER 31, 2000
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
------------------ --------- ------------- ------------------ -------------- ---------------
Current assets $ 5,523 $ 276 $ 5,247 $ 109,734 $ (5,523) $ 115,257
Investment in affiliates 117,220 5,785 109,820 - (232,825) -
Noncurrent assets 3,908 - - 235,575 (3,908) 235,575
------------------ --------- ------------- ------------------ -------------- ---------------
$ 126,651 $ 6,061 $ 115,067 $ 345,309 $ (242,256) $ 350,832
================== ========= ============= ================== ============== ===============
Current liabilities $ 5,523 $ - $ - $ 38,677 $ (5,523) $ 38,677
Long-term debt - - - 199,521 - 199,521
Other long-term obligations 3,908 195 3,713 1,049 (3,908) 4,957
Common stock warrants - - - 2,115 - 2,115
Stockholders' equity 117,220 5,866 111,354 103,947 (232,825) 105,562
------------------ --------- ------------- ------------------ -------------- ---------------
$ 126,651 $ 6,061 $ 115,067 $ 345,309 $ (242,256) $ 350,832
================== ========= ============= ================== ============== ===============
AS OF DECEMBER 31, 1999
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
------------------ --------- ------------- ------------------ -------------- ---------------
Current assets $ 1,619 $ 59 $ 1,112 $ 114,365 $ (1,619) $ 115,536
Investment in affiliates 126,905 6,596 125,303 - (258,804) -
Noncurrent assets 5,717 - - 241,953 (5,717) 241,953
------------------ --------- ------------- ------------------ -------------- ---------------
$ 134,241 $ 6,655 $ 126,415 $ 356,318 $ (266,140) $ 357,489
================== ========= ============= ================== ============== ===============
Current liabilities $ 1,619 $ 23 $ 425 $ 54,468 $ (1,619) $ 54,916
Long-term debt - - - 180,520 - 180,520
Other long-term obligations 5,717 286 5,431 1,089 (5,717) 6,806
Stockholders' equity 126,905 6,346 120,559 120,241 (258,804) 115,247
------------------ --------- ------------- ------------------ -------------- --------------
$ 134,241 $ 6,655 $ 126,415 $ 356,318 $ (266,140) $ 357,489
================== ========= ============= ================== ============== ===============
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FOR THE YEAR ENDED DECEMBER 31, 2000
GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD
------------------- --------- -------------
Net sales $ - $ - $ -
Gross profit - - -
Operating expenses - - -
------------------- --------- -------------
Income from operations - - -
Interest expense - - -
Other expense (income), net - - -
Equity in earnings of affiliates (11,465) (886) (16,909)
------------------- --------- -------------
Income (loss) before income taxes (11,465) (886) (16,909)
Provision (benefit) for income taxes - (317) (6,013)
------------------- --------- -------------
Net income (loss) $ (11,465) $ (569) $ (10,896)
=================== ========= =============
FOR THE YEAR ENDED DECEMBER 31, 1999
GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD
------------------- --------- -------------
Net sales $ - $ - $ -
Gross profit - - -
Operating expenses - - -
------------------- --------- -------------
Income from operations - - -
Interest expense - - -
Other expense (income), net - - -
Equity in earnings of affiliates 13,539 1,045 19,856
------------------- --------- -------------
Income before income taxes 13,539 1,045 19,856
Provision for income taxes - 368 6,994
------------------- --------- -------------
Net income $ 13,539 $ 677 $ 12,862
=================== ========= =============
FOR THE PERIOD ENDED DECEMBER 31, 1998
GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD
------------------- --------- -------------
Net sales $ - $ - $ -
Gross profit - - -
Operating expenses - - -
------------------- --------- -------------
Income from operations - - -
Interest expense - - -
Other expense (income), net - - -
Equity in earnings of affiliates 4,202 319 6,063
------------------- --------- -------------
Income before income taxes 4,202 319 6,063
Provision for income taxes - 109 2,071
------------------- --------- -------------
Net income $ 4,202 $ 210 $ 3,992
=================== ========= =============
FOR THE YEAR ENDED DECEMBER 31, 2000
GENERAC PORTABLE
PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
------------------ -------------- ---------------
Net sales $ 242,489 $ - $ 242,489
Gross profit 50,428 - 50,428
Operating expenses 45,707 - 45,707
------------------ -------------- ---------------
Income from operations 4,721 - 4,721
Interest expense 21,333 - 21,333
Other expense (income), net 1,106 - 1,106
Equity in earnings of affiliates - 29,260 -
------------------ -------------- ---------------
Income (loss) before income taxes (17,718) 29,260 (17,718)
Provision (benefit) for income taxes 77 - (6,253)
------------------ -------------- ---------------
Net income (loss) $ (17,795) $ 29,260 $ (11,465)
================== ============== ===============
FOR THE YEAR ENDED DECEMBER 31, 1999
GENERAC PORTABLE
PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
------------------- --------- -------------
Net sales $ 398,096 $ - $ 398,096
Gross profit 107,211 - 107,211
Operating expenses 62,737 - 62,737
------------------ -------------- ---------------
Income from operations 44,474 - 44,474
Interest expense 20,823 - 20,823
Other expense (income), net 2,688 - 2,688
Equity in earnings of affiliates - (34,440) -
------------------ -------------- ---------------
Income before income taxes 20,963 (34,440) 20,963
Provision for income taxes 62 - 7,424
------------------ -------------- ---------------
Net income $ 20,901 $ (34,440) $ 13,539
================== ============== ===============
FOR THE PERIOD ENDED DECEMBER 31, 1998
GENERAC PORTABLE
PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
------------------ -------------- ---------------
Net sales $ 136,862 $ - $ 136,862
Gross profit 38,617 - 38,617
Operating expenses 22,331 - 22,331
------------------ -------------- ---------------
Income from operations 16,286 - 16,286
Interest expense 9,674 - 9,674
Other expense (income), net 230 - 230
Equity in earnings of affiliates - (10,584) -
------------------ -------------- ---------------
Income before income taxes 6,382 (10,584) 6,382
Provision for income taxes - - 2,180
------------------ -------------- ---------------
Net income $ 6,382 $ (10,584) $ 4,202
================== ============== ===============
15. EXPENSES FROM WITHDRAWN COMMON STOCK OFFERING
During the year ended December 31, 1999, Generac incurred certain
fees and expenses in conjunction with its efforts to complete an initial
public offering of its common stock. Generac withdrew its initial public stock
offering during July 1999. Expenses related to this offering of approximately
$1.2 million were recorded during the year ended December 31, 1999.
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16. SUBSEQUENT EVENTS
On March 21, 2001, Generac Portable Products, Inc. entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Briggs & Stratton
Corporation, ("Briggs"), GPP Merger Corporation, a wholly owned direct
subsidiary of Briggs, and The Beacon Group III -- Focus Value Fund, L.P., the
majority shareholder of Generac ("Beacon"), providing for the merger of GPP
Merger Corporation into Generac, with Generac as the surviving corporation. The
closing of the Merger is expected to occur on (a) the later of April 30, 2001 or
(b) the second business day after satisfaction of the conditions of the Merger.
Pursuant to the terms of the Merger Agreement, the existing
shareholders of Generac and the holders of warrants to purchase Generac stock
(collectively, the "Shareholders") will receive (a) $55 million, adjusted
downward for purchase price adjustments related to the failure, if any, to meet
certain targets for shareholders' equity and working capital minus the
transaction costs of Generac and the Shareholders (the "Base Price"), plus (b)
an amount (the "Earnout") equal to (A) 40% of the amount by which Generac's
consolidated earnings before interest, taxes, depreciation and amortization,
excluding unusual gains and losses, for the 12-month period ending June 30,
2002, multiplied by 6, exceeds the sum of the Base Price plus the transaction
costs of Generac and the Shareholders plus the aggregate amount of indebtedness
of Generac on a consolidated basis as of the closing of the Merger, minus (B)
the amount, if any, payable to holders of options for Generac stock, which
options will be cancelled in connection with the Merger. In no event, however,
will the sum of the Base Price plus the transaction costs of Generac and the
Shareholders plus the aggregate amount of indebtedness of Generac on a
consolidated basis as of the closing of the Merger plus the Earnout plus the
option payments exceed $350 million.
It is expected that the Merger will constitute a "change of control"
under the Indenture dated as of July 1, 1998 (the "Indenture") between Generac
Portable Products, LLC ("LLC") and GPPW Inc. ("GPPW" and together with LLC, the
"Offerors") and HSBC Bank USA (formerly Marine Midland Bank), as trustee, with
respect to the 11-1/4% Senior Subordinated Notes due 2006 (the "Notes") of the
Offerors. The Offerors are wholly owned subsidiaries of Generac. As a
consequence of the "change of control", the Offerors will be obligated within 30
days after the Merger is consummated to make an offer to purchase all or a
portion of the Notes at a purchase price equal to 101% of the principal amount
of the Notes plus accrued and unpaid interest to the date of payment.
In addition, it is expected that consummation of the Merger will
constitute an event of default under Generac's existing credit facility under
the Credit Agreement dated as of July 9, 1998 among LLC, GPPW, Bankers Trust
Company, as administrative agent, and the various banks and financial
institutions parties thereto (as amended, the "Credit Agreement"). If LLC is
unable to obtain a waiver of such event of default, LLC's lenders under the
Credit Agreement may cause the loans thereunder to become immediately due and
payable. In addition, it is also expected that consummation of the Merger will
constitute an event of default under LLC's zero coupon notes due July 1, 2006
under the Unit Purchase Agreement, dated as of November 20, 2000, among Generac,
LLC and Beacon. If LLC is unable to obtain a waiver of such event of default,
Beacon may cause such zero coupon notes to become immediately due and payable.
In the event LLC defaults on the Credit Agreement or the zero coupon notes and
the lenders or Beacon, as the case may be, cause the loans or zero coupon notes
to become immediately due and payable, there can be no assurance that LLC will
be able to make its respective payments thereunder or that LLC will be able to
pay the Notes upon the occurrence of an event of default following the
acceleration of amounts owing under the Credit Agreement or the zero coupon
notes.
On March 27, 2001, Generac Portable Products, LLC and GPPW, Inc.
commenced a cash tender offer and consent solicitation (the "Offer") for all of
the Notes, upon the terms and subject to the conditions set forth in the Offer,
for $1,010 for each $1,000 principal amount of Notes validly tendered pursuant
to the Offer. In addition, tendering holders of the Notes will receive accrued
and unpaid interest on their Notes accepted for purchase to, but not including,
the payment date. The Offer will expire at on April 27, 2001, unless extended.
In conjunction with the Offer, the company is soliciting consents of the
registered holders of Notes to the adoption of certain proposed amendments to
the Indenture relating to the Notes. The proposed amendments will be effective
when the Offer is consummated as to all Notes that are not purchased in the
Offer, provided all other conditions to the Offer have otherwise been satisfied.
The Offer is being made in connection with the Merger Agreement entered into on
March 21, 2001 and is conditioned upon, among other things, the completion of
the merger and the receipt of the consents necessary to adopt the proposed
amendments as well as certain other conditions.
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SCHEDULE I
GENERAC PORTABLE PRODUCTS, INC.
SCHEDULE OF COMBINED VALUATION ACCOUNTS
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
--------------- -------------- -------------- -----------------
ACCOUNTS RECEIVABLE:
For the Year Ended December 31, 2000 548 157 512 193
For the Year Ended December 31, 1999 242 372 66 548
For the Period July 10, 1998 through December 31, 1998 225 17 - 242
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
--------------- -------------- -------------- -----------------
INVENTORY
For the Year Ended December 31, 2000 1,511 581 811 1,281
For the year ended December 31, 1999 774 2,089 1,352 1,511
For the period July 10, 1998 through December 31, 1998 500 593 319 774
64