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EXHIBIT 99.2
Unaudited Interim Consolidated Financial
Statements of Generac Portable Products, Inc.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN 000'S, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 916 $ 281
Accounts receivable (less allowances of $216 and $193, respectively) 33,606 38,762
Inventories 64,721 69,908
Deferred income taxes 1,557 1,557
Prepaid expenses and other current assets 5,021 4,749
--------- ---------
Total current assets 105,821 115,257
Property, plant and equipment, net 26,860 27,609
Intangible assets, net 200,418 201,791
Deferred financing costs, net 6,036 6,134
Other 31 41
--------- ---------
Total assets $ 339,166 $ 350,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 92,744 $ 8,218
Trade accounts payable 10,725 17,635
Accrued employee compensation, benefits and payroll withholdings 1,337 1,924
Other accrued liabilities 8,358 10,900
--------- ---------
Total current liabilities 113,164 38,677
Long-term debt obligations 122,059 199,521
Other long-term obligations 1,188 1,049
Deferred income taxes 1,231 3,908
--------- ---------
Total liabilities 237,642 243,155
Commitments and contingencies (Note 4)
Common stock warrants 2,115 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 112,481 112,481
Retained earnings 1,304 6,276
Accumulated other comprehensive loss (2,719) (1,538)
Excess of purchase price over book value of net assets acquired
from entities partially under common control (11,658) (11,658)
--------- ---------
Total stockholders' equity 99,409 105,562
--------- ---------
Total liabilities and stockholders' equity $ 339,166 $ 350,832
========= =========
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN $000'S)
For the Quarter For the Quarter
Ended Ended
March 31, 2001 April 1, 2000
-------------- -------------
Net sales $ 53,939 $ 70,859
Cost of sales 44,404 56,841
-------- --------
Gross profit 9,535 14,018
Operating expenses:
Selling and service 7,992 7,334
General and administrative 2,030 2,303
Intangible asset amortization 1,374 1,341
-------- --------
Income (loss) from operations (1,861) 3,040
Other expense:
Interest expense 5,597 5,109
Deferred financing cost amortization 127 235
Other expense (income), net 64 (25)
-------- --------
Loss before income tax benefit (7,649) (2,279)
Benefit for income taxes (2,677) (805)
-------- --------
Net loss $ (4,972) $ (1,474)
======== ========
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN $000'S)
For the Quarter For the Quarter
Ended Ended
March 31, 2001 April 1, 2000
-------------- -------------
Operating activities:
Net loss $ (4,972) $ (1,474)
Adjustments to reconcile net loss to net cash used for operating activities
Depreciation 1,060 958
Amortization 1,501 1,576
Accretion on zero coupon notes 313 -
Deferred income taxes (2,677) (805)
Increase (decrease) in cash due to changes in:
Accounts receivable 4,831 (5,764)
Inventories 4,775 (24,307)
Other assets (265) (405)
Trade accounts payable (6,844) 16,061
Accrued liabilities (3,338) (8,495)
-------- --------
Net cash used for operating activities (5,616) (22,655)
-------- --------
Investing activities:
Capital expenditures (424) (1,812)
-------- --------
Net cash used for investing activities (424) (1,812)
-------- --------
Financing activities:
Net borrowings under revolving loan facility 8,800 27,100
Payments on other long-term debt obligations (2,049) (2,055)
Payment of deferred financing costs (29) -
-------- --------
Net cash provided by financing activities 6,722 25,045
-------- --------
Effect of exchange rate changes on cash (47) (131)
-------- --------
Net increase (decrease) in cash and cash equivalents 635 447
Cash and cash equivalents:
Beginning of period $ 281 $ 384
-------- --------
End of period $ 916 $ 831
======== ========
Supplemental cash flow information:
Cash paid for interest $ 8,348 $ 8,336
======== ========
Cash paid for taxes $ - $ 135
======== ========
The accompanying notes are an integral part of the financial statements.
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GENERAC PORTABE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. BASIS OF PRESENTATION
Generac Portable Products, Inc. (together with its subsidiaries,
including Generac Portable Products, LLC, GPPD, Inc. and GPPW, Inc. on a
consolidated basis, "Generac" or the "company"), has domestic operations located
in Jefferson, Wisconsin and branch operations in the United Kingdom, Germany and
Spain, and is a leader in the design, manufacture and sale of portable
generators and pressure washers for use in both industrial and residential
applications. Generac sells primarily to large home center retailers throughout
the United States, Canada and Europe.
These financial statements have been prepared by Generac pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
and, in the opinion of Generac's management, include all adjustments (all of
which are normal and recurring in nature) necessary to present fairly the
financial position, results of operations and cash flows of Generac for the
interim periods presented. These financial statements include the accounts of
Generac's wholly owned subsidiaries, and all significant intercompany
transactions have been eliminated. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed and omitted pursuant to such
rules and regulations. These unaudited consolidated financial statements should
be read in conjunction with Generac's audited financial statements for the year
ended December 31, 2000 included in the company's Form 10-K as filed with the
SEC on April 2, 2001. Certain reclassifications have been made to the first
quarter 2000 financial statements to conform to the first quarter 2001
presentation.
2. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
Raw materials and sub-assemblies $ 42,998 $ 43,488
Finished goods 21,723 26,420
----------- ------------
$ 64,721 $ 69,908
=========== ============
3. INCOME TAXES
Generac recorded an income tax benefit by estimating the annual
effective income tax rate and applying that rate to the pretax loss.
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4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Generac is involved in certain legal
actions and claims. Management believes that such litigation and claims will be
resolved without material adverse effect on Generac's financial position,
results of operations or cash flows.
5. COMPREHENSIVE LOSS
Components of total comprehensive loss for the quarters ended March 31,
2001 and April 1, 2000, consist of the following:
FOR THE QUARTER FOR THE QUARTER
ENDED ENDED
MARCH 31, 2001 APRIL 1, 2000
--------------- ---------------
Net loss $(4,972) $(1,474)
Other comprehensive loss
Hedging activities - (see note 8) (365) -
Foreign currency translation adjustments (816) (397)
------- -------
Total other comprehensive loss (1,181) (397)
------- -------
Comprehensive loss $(6,153) $(1,871)
======= =======
6. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
On July 9, 1998, Generac Portable Products, LLC and GPPW, Inc. ("GPPW")
co-issued $110 million of 11 1/4% senior subordinated notes due 2006 (the
"Notes") which are guaranteed by Generac Portable Products, Inc. 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.
The following unaudited condensed supplemental consolidating financial
information as of March 31, 2001 and December 31, 2000 and for the periods ended
March 31, 2001 and April 1, 2000, reflects the investments of Generac Portable
Products, Inc., GPPW and GPPD, Inc. ("GPPD") in Generac Portable Products, LLC
using the equity method. Generac Portable Products, Inc., 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 Portable Products, Inc., and GPPW and
GPPD hold a 5% and 95% ownership interest in Generac Portable Products, LLC,
respectively.
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AS OF MARCH 31, 2001
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
-------------- ---- ---- ------------- ------------ ------------
Current assets $ 5,523 $ 276 $ 5,247 $ 100,298 $ (5,523) $ 105,821
Investment in affiliates 111,431 5,387 101,752 - (218,570) -
Noncurrent assets 1,231 - - 233,345 (1,231) 233,345
--------- --------- --------- --------- --------- ---------
$ 118,185 $ 5,663 $ 106,999 $ 333,643 $(225,324) $ 339,166
========= ========= ========= ========= ========= =========
Current liabilities $ 5,523 $ - $ - $ 113,164 $ (5,523) $ 113,164
Long-term debt - - - 122,059 - 122,059
Other long-term obligations 1,231 61 1,170 1,188 (1,231) 2,419
Common stock warrants - - - 2,115 - 2,115
Stockholders' equity 111,431 5,602 105,829 95,117 (218,570) 99,409
--------- --------- --------- --------- --------- ---------
$ 118,185 $ 5,663 $ 106,999 $ 333,643 $(225,324) $ 339,166
========= ========= ========= ========= ========= =========
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
========= ========= ========= ========= ========= =========
FOR THE QUARTER ENDED MARCH 31, 2001
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
-------------- ---- ---- ------------- ------------ ------------
Net sales $ - $ - $ - $ 53,939 $ - $ 53,939
Gross profit - - - 9,535 - 9,535
Operating expenses - - - 11,396 - 11,396
--------- --------- --------- --------- --------- ---------
Operating loss - - - (1,861) - (1,861)
Interest expense - - - 5,597 - 5,597
Other expense (income), net - - - 191 - 191
Equity in losses of affiliates (4,972) (382) (7,267) - 12,621 -
--------- --------- --------- --------- --------- ---------
Loss before income taxes (4,972) (382) (7,267) (7,649) 12,621 (7,649)
Benefit for income taxes - (134) (2,543) - - (2,677)
--------- --------- --------- --------- --------- ---------
Net loss $ (4,972) $ (248) $ (4,724) $ (7,649) $ 12,621 $ (4,972)
========= ========= ========= ========= ========= =========
FOR THE QUARTER ENDED APRIL 1, 2000
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
-------------- ---- ---- ------------- ------------ ------------
Net sales $ - $ - $ - $ 70,859 $ - $ 70,859
Gross profit - - - 14,018 - 14,018
Operating expenses - - - 10,978 - 10,978
--------- --------- --------- --------- --------- ---------
Operating income
- - - 3,040 - 3,040
Interest expense
- - - 5,109 - 5,109
Other expense (income), net
- - - 210 - 210
Equity in losses of affiliates (1,474) (114) (2,165) - 3,753 -
--------- --------- --------- --------- --------- ---------
Loss before income taxes (1,474) (114) (2,165) (2,279) 3,753 (2,279)
Benefit for income taxes - (40) (765) - - (805)
--------- --------- --------- --------- --------- ---------
Net loss $ (1,474) $ (74) $ (1,400) $ (2,279) $ 3,753 $ (1,474)
========= ========= ========= ========= ========= =========
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7. SEGMENT INFORMATION
Generac is a leader in the design, manufacture and sale of portable
generators and pressure washers. 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
------ ------ ------------
Net sales - for the quarter ended March 31, 2001 $ 48,751 $ 5,188 $ 53,939
Net sales - for the quarter ended April 1, 2000 64,785 6,074 70,859
Long-lived assets - as of March 31, 2001 231,287 2,058 233,345
Long-lived assets - as of December 31, 2000 233,371 2,204 235,575
Generac sells primarily to large home center retailers. Three customers
accounted for approximately 77% of net sales for the quarter ended March 31,
2001. Accounts receivable from these three customers approximated $20,054 at
March 31, 2001. Two customers accounted for approximately 65% of net sales for
the quarter ended April 1, 2000. Accounts receivable from these two customers
approximated $20,854 at December 31, 2000. These customers individually
comprised more than 10% of Generac's net sales for the respective periods.
Generac purchases its materials from a broad supplier base. Three
suppliers accounted for approximately 52% of purchases for the quarterly period
ended March 31, 2001. Accounts payable to these three suppliers approximated
$1,090 at March 31, 2001. Two suppliers accounted for approximately 42% of
purchases for the quarter ended April 1, 2000. Accounts payable to these two
suppliers approximated $3,759 at December 31, 2000. Each of these suppliers
individually comprised more than 10% of Generac's purchases for the respective
periods. Briggs and Stratton Corporation was one of the major suppliers listed
above in each of the respective periods.
8. HEDGING ACTIVITIES
As of January 1, 2001 the company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires all derivative instruments to be
recorded on the balance sheet as assets or liabilities, at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
comprehensive income, depending on whether a derivative is designated and
qualifies as part of a hedge transaction and if so, the type of hedge
transaction.
The company entered into an interest rate swap agreement on August 10,
1998 to reduce the impact of changes in interest rates on its floating rate
debt. As of March 31, 2001, this interest rate swap agreement was currently
outstanding with a financial institution, having a total
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notional principal amount of $30.0 million and expiring in October 2003. The
interest rate swap is designated as a cash flow hedge instrument based upon the
criteria established by SFAS No. 133. For a derivative designated as a cash flow
hedge, the effective portion of the derivative's gain or loss due to a change in
fair value is initially recorded as a component of other comprehensive income
and subsequently reclassified into earnings when the hedged exposure affects
earnings.
The cumulative effect of adopting SFAS No. 133 as of January 1, 2001
was insignificant. The impact of SFAS No. 133 during the quarter ended March 31,
2001 resulted in a net loss, recognized in comprehensive loss, of $365.
9. VOLUME REBATES AND TIME BASED INCENTIVES
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.
Generac adopted the provisions of EITF 00-22 on January 1, 2001. Adoption of
EITF 00-22 resulted in a decrease in net sales and a corresponding decrease in
selling and service expenses of $1,713 and $2,193 for the quarters ended March
31, 2001 and April 1, 2000, respectively.
10. LONG-TERM DEBT OBLIGATIONS
At March 31, 2001, the Company was in violation of certain financial
covenants under the Senior Secured Credit Facility. The Company did not seek a
waiver of these defaults and, as a result, all debt under the Senior Secured
Credit Facility has been classified as a current liability. In connection with
the merger with Briggs and Stratton Corporation (Note 11), all of the
outstanding balances under the Senior Secured Credit Facility were paid.
11. 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 occurred on May 15, 2001.
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 ultimately 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
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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.
In connection with the merger, Generac Portable Products, LLC and GPPW
made a tender offer for the $110 million aggregate principal amount of
outstanding Notes. All of the Notes were tendered pursuant to the offer and
accepted for payment on May 15, 2001.
The aggregate amount paid by Briggs to the Shareholders at closing was
approximately $45 million, of which $8.1 million was placed in escrow, leaving a
cash payment of approximately $36.9 million. This amount was derived as follows:
stated price of $55 million, less a working capital adjustment of $6.5 million
and transaction costs (including the Shareholders' portion of the tender offer
fees and premium) of approximately $3.5 million.
Debt paid by Briggs at closing approximated $218.5 million, comprised
of $115.7 million for the tendered Notes (including $1.1 million of premium and
$4.6 million of accrued interest), $15.3 million to retire Generac's zero coupon
notes and $87.5 million to retire Generac's senior debt.
The consideration payable and other terms of the Merger Agreement were
determined by arms-length negotiations between the parties. The stockholders of
Generac approved the Merger Agreement and the transactions contemplated thereby
at a special meeting held on April 24, 2001.
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