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A B O U T G E N E R A C
Founded in 1959.
A leading designer and manufacturer of a wide
range of power generation equipment and other
engine powered products serving residential, light
commercial and industrial markets.
Products are available globally through a broad
network of independent dealers, distributors, retailers,
wholesalers and equipment rental companies, as well
as sold direct to certain end users.
Ten acquisitions completed since 2011, including
recent strategic acquisitions of Pramac (March 2016)
and Motortech (January 2017).
Approximately 4,500 employees as of 1/1/2017.
Global manufacturing, distribution, fulfillment and
commercial footprint with facilities located in the U.S.,
Latin America, Europe and Asia.
Cumulative total return of GNRC shares of 113% over
the past five years (2011-2016), as compared to the
S&P 500 of 98% during the same period (assumes all
dividends were reinvested).
708178_Wrap.indd 4-6
To Our Shareholders
2016 was another year of growth for Generac with contributions from our most recent acquisitions alongside organic
growth in our residential markets helping to offset further declines in mobile products due to the continued weakness
in domestic energy markets. In addition to top line growth, Adjusted EBITDA and Adjusted EPS also improved over
the prior year and we generated very strong free cash flow for 2016. The strong free cash flow allowed us to continue to
deploy cash in a variety of beneficial ways for our shareholders, including making strategic investments in acquisitions
as well as certain capital expenditures, while also paying down debt and returning capital through share repurchases.
We also made important enhancements to our Powering Ahead strategic plan during 2016 and are very excited on the
targeted impact they will have on our future.
Key Strategic Accomplishments
Focus on growing overall home standby generator market remains. We made additional progress and pursued a
number of strategic initiatives to increase the awareness, availability and affordability of home standby generators. These
include specific projects and activities targeted towards generating more sales leads, improving close rates, and reducing
the total overall cost of these products. We believe we further enhanced our market position for residential backup power
products during 2016, as retail placement and the number of active residential dealers at the end of the year were at all-
time highs. In addition to distribution-related initiatives, we introduced an updated version of our industry-leading
home standby product line with several key design improvements focused on enabling more efficient installations that we
anticipate will lead to a reduction in labor costs and give our dealers increased bandwidth during periods of high demand.
Expanding remote monitoring capabilities. Another important accomplishment during 2016 was the development
of our competencies around remote monitoring. We have offered our Mobile Link remote monitoring solution to our
residential customers since 2013, which is a cellular based service sold as an accessory with an annual subscription.
During 2016, we invested heavily and made substantial progress in developing hardware and software competencies
required to make connectivity a standard feature in all products going forward. Late in 2017 we plan to launch an
updated line of residential standby generators that will come standard with this technology and will include multiple
service levels for customers depending on their monitoring needs. We believe this new platform will allow for unique
insights into how and when these products are used, which is critical information as we develop future products and
understand additional market opportunities that may exist.
Important updates to Powering Ahead strategic plan. During 2016 we made important updates to Powering Ahead,
our strategic plan that has guided our focus and investment decisions since 2011. We believe our success over the
last six years is directly related to our execution of Powering Ahead as we have doubled the revenues of the company,
increased our served markets fourfold, and delivered cumulative shareholder returns that considerably exceeded
the overall market during that time. During the year, our management team critically analyzed the elements of our
strategy as they relate to our market opportunities, competencies, vulnerabilities and areas for improvement, and we
determined that important enhancements to Powering Ahead were appropriate to position Generac for continued
success. The first two strategic pillars “Growing the Residential Standby Market” and “Gaining Industrial Market
Share” continue to provide tremendous runway and will remain for the foreseeable future. However, important
transitions are taking place with the last two pillars of “Diversifying Our Demand” and “Entering New Geographies”.
708178_Ltr.indd 1
4/18/17 5:09 PM
Motortech acquisition and transition from “Diversification” to “Lead Gas”. We have significantly diversified
our product portfolio since 2010 to include many engine powered products beyond our core offering of backup
generators. With a broader product offering now in place, our team believes the time is right to place a higher priority
on expanding our natural gas fueled backup and prime powered generator lines as the market for these products
continues to expand at greater rates than traditional diesel power generation solutions. As part of this strategic focus
toward “Lead with Gas Power Generation,” on January 1st, 2017 we acquired Motortech, which allows us to build on
our gas engine design technologies and competencies. Based in Celle, Germany, Motortech is a leading manufacturer
of gaseous-engine control systems and components, which are sold globally to gas-engine manufacturers and to
aftermarket customers. With our increased focus on natural gas, we are targeting to expand our global addressable
market for these products with the Motortech acquisition being the first key step towards this goal.
Pramac acquisition and transition from “Enter” to “Expand” within geographies. The other notable change
to Powering Ahead is a shift away from “Entering New Geographies” and instead creating improved focus on
“Expanding within Geographies” where we are currently located. Over the last six years, we have put Generac on
the path to becoming a major global player in the markets we serve, as we have significantly increased our sales mix
outside the U.S. and Canada. This increase is largely the result of the acquisitions of Ottomotores in 2012, Tower
Light in 2013, and the recent addition of Pramac in March of 2016. Pramac, headquartered in Siena, Italy, is a
leading global manufacturer of stationary, mobile and portable generators sold in over 150 countries through a broad
distribution network. These acquisitions have dramatically increased our international footprint allowing us to better
participate in the over $13 billion annual market for backup power generation outside the U.S. and Canada. With
these critical strategic steps now taken, we believe that our focus should be on improving our market share position
and profitability within the international regions where we operate today.
In Closing
We believe we continue to successfully transition Generac to be a more diversified business, and in the process,
have greatly expanded our addressable markets thereby positioning us for future growth. Our strong liquidity
position gives us the flexibility to continue to invest organically in new products, technologies and infrastructure
across the business as our end markets improve. We remain confident regarding the overall long-term growth
prospects for our business, and we believe the enhancements we are making to our Powering Ahead strategy will
ensure that we are allocating our resources going forward to generate the best return for our shareholders.
On behalf of the entire Generac team, I would like to thank our stakeholders for your ongoing confidence and
support as we look forward to continued success in the future.
Sincerely,
Aaron P. Jagdfeld
President and Chief Executive Officer
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Or
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-34627
GENERAC HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
S45 W29290 Hwy 59, Waukesha, WI
(Address of principal executive offices)
20-5654756
(IRS Employer Identification No.)
53189
(Zip Code)
(262) 544-4811
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, $0.01 par value
New York Stock Exchange
(Title of class)
(Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:2)
Smaller reporting company (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:2)
The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, 2016, the last
business day of the registrant’s most recently completed second fiscal quarter, was approximately $2,247,442,615 based upon the
closing price reported for such date on the New York Stock Exchange.
As of February 17, 2017, 62,735,597 shares of registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2016 furnished to the
Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K. Portions of the registrant’s
Proxy Statement for the 2017 Annual Meeting of Stockholders (the ‘‘2017 Proxy Statement’’), which will be filed by the
registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, 2016, are incorporated by
reference into Part III of this Form 10-K.
2016 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 6.
Item 7.
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Item 13.
Item 14.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
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Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
(This page has been left blank intentionally.)
Forward-Looking Statements
This annual report contains forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements give our current expectations and projections relating to our financial
condition, results of operations, plans, objectives, future performance and business. You can identify
forward-looking statements by the fact that they do not relate strictly to historical or current facts.
These statements may include words such as ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘forecast,’’ ‘‘project,’’
‘‘plan,’’ ‘‘intend,’’ ‘‘believe,’’ ‘‘confident,’’ ‘‘may,’’ ‘‘should,’’ ‘‘can have,’’ ‘‘likely,’’ ‘‘future,’’ ‘‘optimistic’’
and other words and terms of similar meaning in connection with any discussion of the timing or
nature of future operating or financial performance or other events.
The forward-looking statements contained in this annual report are based on assumptions that we
have made in light of our industry experience and on our perceptions of historical trends, current
conditions, expected future developments and other factors we believe are appropriate under the
circumstances. As you read and consider this report, you should understand that these statements are
not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond
our control) and assumptions. Although we believe that these forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could affect our actual financial results
and cause them to differ materially from those anticipated in the forward-looking statements. The
forward-looking statements contained in this annual report include estimates regarding:
(cid:129) our business, financial and operating results, and future economic performance;
(cid:129) proposed new product and service offerings; and
(cid:129) management’s goals, expectations and objectives and other similar expressions concerning
matters that are not historical facts.
Factors that could affect our actual financial results and cause them to differ materially from those
anticipated in the forward-looking statements include:
(cid:129) frequency and duration of power outages impacting demand for our products;
(cid:129) availability, cost and quality of raw materials and key components used in producing our
products;
(cid:129) the impact on our results of possible fluctuations in interest rates and foreign currency exchange
rates;
(cid:129) the possibility that the expected synergies, efficiencies and cost savings of our acquisitions will
not be realized, or will not be realized within the expected time period;
(cid:129) the risk that our acquisitions will not be integrated successfully;
(cid:129) difficulties we may encounter as our business expands globally;
(cid:129) competitive factors in the industry in which we operate;
(cid:129) our dependence on our distribution network;
(cid:129) our ability to invest in, develop or adapt to changing technologies and manufacturing techniques;
(cid:129) loss of our key management and employees;
(cid:129) increase in product and other liability claims or recalls; and
(cid:129) changes in environmental, health and safety laws and regulations.
Should one or more of these risks or uncertainties materialize, or should any of these assumptions
prove incorrect, our actual results may vary in material respects from those projected in any forward-
looking statements. A detailed discussion of these and other factors that may affect future results is
contained in Item 1A of this Annual Report on Form 10-K. Stockholders, potential investors and other
readers should consider these factors carefully in evaluating the forward-looking statements.
Any forward-looking statement made by us in this report speaks only as of the date on which it is
made. Factors or events that could cause our actual results to differ may emerge from time to time,
and it is not possible for us to predict all of them. We undertake no obligation to update any forward-
looking statement, whether as a result of new information, future developments or otherwise, except as
may be required by law.
Item 1. Business
PART I
We are a leading designer and manufacturer of a wide range of power generation equipment and
other engine powered products serving the residential, light commercial and industrial markets. Power
generation is our primary focus, which differentiates us from our primary competitors that also have
broad operations outside of the generator market. As the only significant market participant focused
predominantly on these products, we have one of the leading market positions in the power generation
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. Other engine
powered products that we design and manufacture include light towers which provide temporary
lighting for various end markets; commercial and industrial mobile heaters used in the oil & gas,
construction and other industrial markets; and a broad product line of outdoor power equipment for
residential and commercial use.
We design, manufacture, source and modify engines, alternators, transfer switches and other
components necessary for our products, which are fueled by natural gas, liquid propane, gasoline, diesel
and Bi-Fuel(cid:2). Our products are available globally through a broad network of independent dealers,
distributors, retailers, wholesalers and equipment rental companies under a variety of brand names. We
also sell direct to certain national and regional account customers, as well as to individual consumers,
that are the end users of our products.
We have a significant market share in the residential and light commercial markets for automatic
standby generators, which we believe remain under-penetrated in the marketplace. We also have a
leading market position for portable generators used in residential, light construction and recreational
applications. We believe that our leading market position is largely attributable to our strategy of
providing a broad product line of high-quality, innovative and affordable products through our
extensive and multi-layered distribution network to whom we offer comprehensive support and
programs from the factory. In addition, we are a leading provider of light towers, mobile generators,
flameless heaters, outdoor power equipment and industrial diesel generators ranging in sizes up
to 3,250kW.
History
Generac Holdings Inc. (the Company or Generac) is a Delaware corporation, which was founded
in 1959 to market a line of affordable portable generators that offered superior performance and
features. Through innovation and focus, we have grown to be a leading provider of power generation
equipment and other engine powered products to the residential, light-commercial and industrial
markets.
Key events in our history include the following:
(cid:129) In 1980, we expanded beyond portable generators into the industrial market with the
introduction of our first stationary generators that provided up to 200 kW of power output.
(cid:129) During the 1990’s, we expanded our industrial product development and global distribution
system, forming a series of alliances that tripled our higher-output generator sales.
2
(cid:129) In 1998, we sold our Generac(cid:3) portable products business (which included portable generator
and power washer product lines) to a private equity firm who eventually sold this business to
another company.
(cid:129) Our growth accelerated in 2000 as we expanded our purpose-built line of residential automatic
standby generators and implemented our multi-layered distribution philosophy.
(cid:129) In 2005, we introduced our quiet-running QT Series generators, accelerating our penetration in
the commercial market.
(cid:129) In 2006, the founder of Generac Power Systems sold the company to affiliates of CCMP Capital
Advisors, LLC (CCMP), together with certain other investors and members of our management.
(cid:129) In 2008, we successfully expanded our position in the portable generator market after the
expiration of our non-compete agreement that was entered into when we sold our Generac(cid:3)
portable products business in 1998.
(cid:129) In February 2010, we completed our initial public offering of 20.7 million primary shares of our
common stock (including additional share over allotment).
(cid:129) In early 2011, we re-entered the market for gasoline-powered pressure washers (or power
washers), which we previously exited in 1998 with the sale of our Generac(cid:3) portable products
business.
(cid:129) In August 2013, CCMP completed the last of a series of sale transactions that began in
November 2012 by which it sold substantially all of the shares of common stock that it owned as
of the initial public offering.
Additionally, we have executed a number of acquisitions that support our strategic plan. A
summary of these acquisitions can be found in Note 1, ‘‘Description of Business,’’ to the consolidated
financial statements in Item 8 of this Annual Report on Form 10-K.
Reportable Segments
Effective in the second quarter of 2016, we changed our segment reporting from one reportable
segment to two reportable segments—Domestic and International—as a result of the recent Pramac
acquisition and the ongoing strategy to expand the business internationally. The Domestic segment
includes the legacy Generac business and the impact of acquisitions that are based in the United States,
all of which have revenues that are substantially derived from the U.S. and Canada. The International
segment includes the Ottomotores, Tower Light and Pramac acquisitions, all of which have revenues
that are substantially derived from outside the U.S. and Canada. Both segments design and
manufacture a wide range of power generation equipment and other engine powered products, which
are discussed in further detail below in the context of our product classes. Refer to Note 6, ‘‘Segment
Reporting,’’ to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for
further information.
Products
We design and manufacture stationary, portable and mobile generators with single-engine outputs
ranging between 800W and 3,250kW. We have the ability to expand the power range for certain
stationary generator solutions to much larger multi-megawatt systems through an integrated paralleling
configuration called Modular Power Systems (MPS). Other engine powered products that we design
and manufacture include light towers, mobile heaters, power washers and water pumps, along with a
broad line of outdoor power equipment. We classify our products into three categories based on similar
range of power output geared for varying end customer uses: Residential products,
3
Commercial & Industrial (C&I) products and Other products. The following summary outlines our
portfolio of products, including their key attributes and customer applications.
Residential Products
Our residential automatic standby generators range in output from 6kW to 60kW, with
manufacturer’s suggested retail prices (MSRPs) from approximately $1,899 to $16,199. These products
operate on natural gas, liquid propane or diesel and are permanently installed with an automatic
transfer switch, which we also manufacture. Air-cooled engine residential standby generators range in
outputs from 6kW to 22kW, are available in steel and aluminum enclosures and serve as an emergency
backup for small to medium-sized homes. Liquid-cooled engine generators serve as emergency backup
for larger homes and small businesses and range in output from 22kW to 60kW. We also provide a
cellular-based remote monitoring system for home standby generators called Mobile Link(cid:2), which
allows our customers to check the status of their generator conveniently from a desktop PC, tablet
computer or smartphone, and also provides the capability to receive maintenance and service alerts.
We provide a broad product line of portable generators that are fueled predominantly by gasoline,
with certain models running on propane and diesel fuel, which range in size from 800W to 17,500W.
These products serve as an emergency home backup source of electricity and are also used for
construction and recreational purposes. Our portable generators are targeted at homeowners, with price
points ranging between the consumer value end of the market through the premium homeowner
market; at professional contractors, starting at the value end through the premium contractor segment;
and inverter generators targeted at the recreational market. In addition, we offer manual transfer
switches to supplement our portable generator product offering. The acquisition of PR Industrial S.r.l.
(Pramac) in March 2016 added a broad product line of portable generators that are sold globally and
used for numerous residential, light construction and recreational purposes.
We provide a broad product line of engine driven power washers for residential and commercial
use, fueled by gasoline, which range in pressure from 2,500 to 4,200 PSI. Additionally, we offer a
product line of water pumps built to meet the water removal needs of homeowners, farmers,
construction crews and other end-user applications.
Further, we provide a broad product line of outdoor power equipment that includes trimmer &
brush mowers, log splitters, lawn & leaf vacuums, and chipper shredders for the property maintenance
needs of larger-acreage residences, light commercial properties, municipalities and farms. These
products are largely sold in North America through catalogs and outdoor power equipment dealers
primarily under the DR(cid:3) brand name.
Residential products comprised 53.5%, 51.2% and 49.5%, respectively, of total net sales in 2016,
2015 and 2014.
Commercial & Industrial Products
We offer a full line of C&I generators fueled by diesel, natural gas, liquid propane and Bi-Fuel(cid:2).
We believe we have one of the broadest product offerings in the industry with power outputs ranging
from 10kW up to 3,250kW.
Our light-commercial standby generators include a full range of affordable systems from 22kW to
150kW and related transfer switches, providing three-phase power sufficient for most small and
mid-sized businesses including grocery stores, convenience stores, restaurants, gas stations, pharmacies,
retail banks, small health care facilities and other small-footprint retail applications. Our light-
commercial generators run on natural gas, liquid propane and diesel fuel.
We manufacture a broad line of standard and configured stationary generators and related transfer
switches for various industrial standby, continuous-duty and prime rated applications. Our single-engine
4
industrial generators range in output from 10kW up to 3,250kW, which includes stationary and
containerized packages, with our MPS technology extending our product range up to much larger
multi-megawatt systems through an integrated paralleling configuration. We offer four fuel options for
our industrial generators, including diesel, natural gas, liquid propane or Bi-Fuel(cid:2). Bi-Fuel(cid:2) generators
operate on a combination of both diesel and natural gas to allow our customers the advantage of
multiple fuel sources and extended run times. Our industrial standby generators are primarily used as
emergency backup for large healthcare, telecom, datacom, commercial office, municipal and
manufacturing customers.
Our MPS technology combines the power of several smaller generators to produce the output of a
larger generator, providing our customers with redundancy and scalability in a cost-effective manner.
For larger industrial applications, our MPS products offer customers an efficient, affordable way to
scale their standby power needs, and also offers superior reliability given its built-in redundancy which
allows individual units to be taken off-line for routine maintenance while retaining coverage for critical
circuits.
We provide a broad line of light towers, mobile generators and mobile heaters, which provide
temporary lighting, power and heat for various end markets, such as road and commercial construction,
energy, mining, military and special events. We also manufacture commercial mobile pumps which
utilize wet and dry-priming pump systems for a wide variety of wastewater applications.
The acquisition of Pramac in March 2016 added a broad product line of C&I stationary and
mobile generators that are sold in over 150 countries through a broad distribution network.
C&I products comprised 38.6%, 41.6% and 44.6% respectively, of total net sales in 2016, 2015 and
2014.
Other Products
Our ‘‘Other Products’’ category includes aftermarket service parts to our dealers, product
accessories and proprietary engines to third-party original equipment manufacturers (OEMs).
Other power products comprised 7.9%, 7.2% and 5.9%, respectively, of total net sales in 2016,
2015 and 2014.
Distribution Channels and Customers
We distribute our products through several distribution channels to increase awareness of our
product categories and brands, and to ensure our products reach a broad customer base. This
distribution network includes independent residential dealers, industrial distributors and dealers,
national and regional retailers, e-commerce merchants, electrical and HVAC wholesalers (including
certain private label arrangements), catalogs, equipment rental companies and equipment distributors.
We also sell direct to certain national and regional account customers, as well as to individual
consumers, that are the end users of our products.
We believe our distribution network is a competitive advantage that has strengthened over the
years as a result of adding, expanding and developing the various distribution channels through which
we sell our products. Our network is well balanced with no customer providing more than 7% of our
sales in 2016.
Our overall dealer network located in the United States, Canada and Latin America, is the
industry’s largest network of factory direct independent generator contractors in North America. We
further expanded our dealer network on a global basis with the acquisition of Pramac in March 2016,
particularly in Europe, the Middle East and Asia/Pacific regions.
5
Our residential/light commercial dealer network sells, installs and services our residential and light
commercial products to end users. We have increased our level of investment in recent years by
focusing on a variety of initiatives to more effectively market and sell our home standby products and
better align our dealer network with Generac.
Our industrial network consists of a combination of primary distributors as well as a support
network of dealers serving the United States and Canada. The industrial distributors and dealers
provide industrial and commercial end users with ongoing sales and product support. Our industrial
distributors and dealers maintain the local relationships with commercial electrical contractors,
specifying engineers and national account regional buying offices. In recent years, we have been
expanding our dealer network globally through the Ottomotores acquisition in December 2012 and
Pramac acquisition in March 2016, along with organic means, in order to expand our international sales
opportunities.
Our retail distribution network includes thousands of locations across the globe and includes a
variety of regional and national home improvement chains, retailers, clubs, buying groups and farm
supply stores. These physical retail locations are supplemented by a number of catalog and e-commerce
retailers. This network primarily sells our residential standby, portable and light-commercial generators,
as well as our other engine powered tools. The placement of our products at retail locations drives
significant awareness for our brands and the automatic home standby product category.
Our wholesaler network distributes our residential and light-commercial generators, and consists of
selling branches of both national and local distribution houses for electrical and HVAC products.
On a selective basis, we have established private label and licensing arrangements with third party
partners to provide residential, light-commercial and industrial generators. These partners include
leading home equipment, electrical equipment and construction machinery companies, each of which
provides access to incremental channels of distribution for our products.
The distribution for our mobile products includes international, national, regional and specialty
equipment rental companies, equipment distributors and construction companies, which primarily serve
non-residential building construction, road construction, energy markets and special events. In addition,
our Tower Light and Pramac businesses provide access to numerous independent distributors in
over 150 countries.
We sell direct to certain national and regional account customers that are the end users of our
products covering a number of end market verticals, including telecommunication, retail, banking,
convenience stores, grocery stores and other light commercial applications. Additionally, a portion of
our portable generators and other engine powered tools are sold direct to individual consumers, who
are the end users of the product.
Business Strategy
We have been executing on our ‘‘Powering Ahead’’ strategic plan, which serves as the framework
for the significant investments we have made to capitalize on the long-term growth prospects of
Generac. As we continue to move the Powering Ahead plan into the future, we are focused on a
number of initiatives that are driven by the same four key objectives:
Growing the residential standby generator market. As the leader in the home standby generator
market, it is incumbent upon us to continue to drive growth and increase the penetration rate of these
products in households across the United States and Canada. Central to this strategy is to increase the
awareness, availability and affordability of home standby generators. Ongoing power outage activity,
combined with expanding our residential/light commercial dealer base and overall distribution in
affected regions, are key drivers in elevating the awareness of home standby generators over the long
term. We intend to continue to supplement these key growth drivers by focusing on a variety of
6
strategic initiatives targeted toward generating more sales leads, improving close rates and reducing the
total overall cost of a home standby system. In addition, we intend to continue to focus on innovation
in this growing product category and introduce new products into the marketplace. With only
approximately 4.0% penetration of the addressable market of homes in the United States (which we
define as single-family detached, owner-occupied households with a home value of over $100,000, as
defined by the U.S. Census Bureau’s 2015 American Housing Survey for the United States), we believe
there are opportunities to further penetrate the residential standby generator market.
Gaining commercial and industrial market share. Our growth strategy for commercial and industrial
power generation products is focused on incremental market share gains. Key to this objective are
efforts to leverage our expanding platform of diesel and natural gas offerings by better optimizing our
industrial distribution partners’ capabilities to market, sell and support these products. Specifically, we
continue to pursue certain initiatives to expand our distributors’ interactions with engineering firms and
electrical contractors responsible for specifying and selecting our products within C&I power generation
applications. We are also committed to a number of sales process initiatives to improve the overall
specification rates for our products which should increase quoting activity and close rates for our
industrial distributors.
Lead with gas power generation products. We will attempt to gain incremental market share within
commercial and industrial markets through our leading position in the growing market for cleaner
burning, more cost effective natural gas fueled standby power solutions. While still a much smaller
portion of the overall C&I market, we believe demand for these products continues to increase at a
faster rate than traditional diesel fueled generators as a result of their lower capital investment and
operating costs. We also intend to explore new gaseous generator related market opportunities,
including increasing our product capabilities for continuous-duty and prime rated applications, by
leveraging our deep technical capabilities for gaseous-fueled products, leading position for natural gas
standby generators and growing market acceptance for these products.
Expanding global presence. We have increased our revenues shipped outside the U.S. and Canada
in recent years, with sales outside this region accounting for approximately 20% of our revenues during
2016, as compared to approximately 10% and 9% in 2015 and 2014, respectively. This increase is
largely the result of acquisitions made that comprise our International segment—Ottomotores, Tower
Light and Pramac. These businesses have significantly increased our global presence by adding product,
manufacturing and distribution capabilities that serve local markets around the world, and have
resulted in us becoming a leading global player in the markets for backup power and mobile power
equipment. As we look forward, we intend to leverage our increased international footprint attained
from these acquisitions to serve the over $13 billion annual market for power generation equipment
outside the U.S. and Canada. We also intend to improve the profit margins of our International
segment by executing on several revenue and cost synergies, and driving organic growth in existing
markets with additional investment and focus, including the expanding opportunity for global gaseous-
fueled products. We will continue to evaluate other opportunities to expand into additional regions of
the world through both organic initiatives and potential acquisitions.
We believe the investments we have made to date, due in part to our Powering Ahead strategy,
have helped to capitalize on the macro, secular growth drivers for our business and are an important
part of our efforts to diversify and globalize our business. See ‘‘Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Business Drivers and Trends’’ for
additional drivers that influence demand for our products and other trends affecting the markets that
we serve.
7
Manufacturing
We operate numerous manufacturing plants, distribution facilities and inventory warehouses
located throughout the world. We maintain inventory warehouses in the United States that
accommodate material storage and rapid response requirements of our customers. See
‘‘Item 2—Properties’’ for additional details regarding the locations and activities of our principal
operations.
In recent years, we have added manufacturing capacity through investments in automation,
improved utilization and the expansion of our manufacturing footprint through organic means as well
as through acquisitions. We believe we have sufficient capacity to achieve our business goals for the
near-to-intermediate term.
Research and Development
Our primary focus on power generation equipment and other engine powered products drives
technological innovation, specialized engineering and manufacturing competencies. Research and
development (R&D) is a core competency and includes a staff of over 300 engineers working on
numerous projects. Our sponsored research and development expense was $37.2 million, $32.9 million
and $31.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Research and
development is conducted at several of our manufacturing facilities worldwide and is focused on
developing new technologies and product enhancements as well as maintaining product competitiveness
by improving manufacturing costs, safety characteristics, reliability and performance while ensuring
compliance with regulatory standards. We have over 30 years of experience using natural gas engines
and have developed specific expertise with fuel systems and emissions technology. In the residential and
light commercial markets, we have developed proprietary engines, cooling packages, controls, fuel
systems and emissions systems. We believe that our expertise in engine powered equipment gives us the
capability to develop new products that will allow continued diversification in our end markets.
Intellectual Property
We are committed to research and development, and we rely on a combination of patents and
trademarks to establish and protect our proprietary rights. Our patents protect certain features and
technologies we have developed for use in our products including fuel systems, air flow, electronics and
controls, noise reduction and air-cooled engines. We believe the existence of these patents and
trademarks, along with our ongoing processes to register additional patents and trademarks, protect our
intellectual property rights and enhance our competitive position. We also use proprietary
manufacturing processes that require customized equipment.
Suppliers of Raw Materials
Our primary raw material inputs are steel, copper and aluminum, all of which are purchased from
third parties and, in many cases, as part of machined or manufactured components. We have developed
an extensive network of reliable suppliers in the United States and internationally. Our strategic global
sourcing function continuously evaluates the quality and cost structure of our products and assesses the
capabilities of our supply chain. Components are sourced accordingly based on this evaluation. Our
supplier quality engineers conduct on-site audits of major supply chain partners and help to maintain
the reliability of critical sourced components.
Competition
The market for power generation equipment and other engine powered products is competitive.
We face competition from a variety of large diversified industrial companies as well as smaller
generator manufacturers, along with mobile equipment and engine powered tools providers, both
8
domestic and internationally. However, specifically in the generator market, most of the traditional
participants compete on a more specialized basis, focused on specific applications within their larger
diversified product mix. We are the only significant market participant with a primary focus on power
generation with a core emphasis on standby, portable and mobile generators with broad capabilities
across the residential, light-commercial and industrial markets. We believe that our engineering
capabilities and core focus on generators provide us with manufacturing flexibility and enables us to
maintain a first-mover advantage over our competition for product innovation. We also believe our
broad product offering, diverse distribution model and strong factory support provide additional
advantages as well.
A summary of the primary competitors across our main product classes are as follows:
Residential products—Kohler, Briggs & Stratton, Cummins, Honda, Champion, Techtronics
International, Husqvarna and Ariens, along with a number of smaller domestic and foreign competitors;
certain of which also have broad operations in other manufacturing businesses.
C&I products—Caterpillar, Cummins, Kohler, MTU, Stemac, Selmec, IGSA, Wacker, MultiQuip,
Terex, Doosan, Briggs & Stratton (Allmand), Atlas Copco and Himonisa; certain of which focus on the
market for diesel generators as they are also diesel engine manufacturers. Also, we compete against
other regional packagers that serve local markets throughout the world.
In a continuously evolving market, we believe our scale and broad capabilities make us well
positioned to remain competitive. We compete primarily on the basis of brand reputation, quality,
reliability, pricing, innovative features, breadth of product offering, product availability and factory
support.
Employees
As of December 31, 2016, we had 4,202 employees (3,608 full time and 594 part-time and
temporary employees). Of those, 2,266 employees were directly involved in manufacturing at our
manufacturing facilities.
Domestically, we have had an ‘‘open shop’’ bargaining agreement for the past 50 years. The
current agreement, which expires October 17, 2021, covers our Waukesha and Eagle, Wisconsin
facilities. Additionally, our plants in Mexico, Italy and Brazil are operated under various local or
national union groups. Our other facilities are not unionized.
Regulation, including Environmental Matters
As a manufacturing company, our operations are subject to a variety of federal, state, local and
foreign laws and regulations covering environmental, health and safety matters. Applicable laws and
regulations include those governing, among other things, emissions to air, discharges to water, noise
and employee safety, as well as the generation, handling, storage, transportation, treatment, and
disposal of waste and other materials. In addition, our products are subject to various laws and
regulations relating to, among other things, emissions and fuel requirements, as well as labeling and
marketing.
Our products sold in the United States are regulated by the U.S. Environmental Protection Agency
(EPA), California Air Resources Board (CARB) and various other state and local air quality
management districts. These governing bodies continue to pass regulations that require us to meet
more stringent emission standards, and all of our engines and engine-driven products are regulated
within the United States and its territories. Other countries have varying degrees of regulation
depending upon product application and fuel types.
9
Available Information
The Company’s principal executive offices are located at S45 W29290 Highway 59, Waukesha,
Wisconsin, 53189 and the Company’s telephone number is (262) 544-4811. The Company’s annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports are available free of charge through the ‘‘Investors’’ portion of the Company’s web
site, www.generac.com, as soon as reasonably practical after they are filed with the Securities and
Exchange Commission (SEC). The SEC maintains a web site, www.sec.gov, which contains reports,
proxy and information statements, and other information filed electronically with the SEC by the
Company. The information provided on these websites is not part of this report and is therefore not
incorporated herein by reference.
Executive Officers
The following table sets forth information regarding our executive officers:
Name
Age
Position
Aaron P. Jagdfeld . . . . . . . . . . . . . . . . . . .
York A. Ragen . . . . . . . . . . . . . . . . . . . . .
Russell S. Minick . . . . . . . . . . . . . . . . . . .
Erik Wilde . . . . . . . . . . . . . . . . . . . . . . . .
Roger F. Pascavis . . . . . . . . . . . . . . . . . . .
Patrick Forsythe . . . . . . . . . . . . . . . . . . . .
President, Chief Executive Officer and Chairman
45
45 Chief Financial Officer
56 Chief Marketing Officer
42 Executive Vice President, North America Industrial
56 Executive Vice President, Strategic Global Sourcing
49 Executive Vice President, Global Engineering
Aaron P. Jagdfeld has served as our Chief Executive Officer since September 2008, as a director
since November 2006 and was named Chairman in February 2016. Prior to becoming Chief Executive
Officer, Mr. Jagdfeld worked for Generac for 15 years. He began his career in the finance department
in 1994 and became our Chief Financial Officer in 2002. In 2007, he was appointed President and was
responsible for sales, marketing, engineering and product development. Prior to joining Generac,
Mr. Jagdfeld worked in the audit practice of the Milwaukee, Wisconsin office of Deloitte and Touche.
Mr. Jagdfeld holds a Bachelor of Business Administration in Accounting from the University of
Wisconsin-Whitewater.
York A. Ragen has served as our Chief Financial Officer since September 2008. Prior to becoming
Chief Financial Officer, Mr. Ragen held Director of Finance and Vice President of Finance positions at
Generac. Prior to joining Generac in 2005, Mr. Ragen was Vice President, Corporate Controller at
APW Ltd., a spin-off from Applied Power Inc., now known as Actuant Corporation. Mr. Ragen began
his career in the Audit division of Arthur Andersen’s Milwaukee, Wisconsin office. Mr. Ragen holds a
Bachelor of Business Administration in Accounting from the University of Wisconsin-Whitewater.
Russell S. Minick began serving as our Chief Marketing Officer in August 2016. Prior to this
appointment he served as Executive Vice President, Residential Products since October 2011, with this
responsibility being expanded in January 2014 to Executive Vice President, Global Residential Products
and to Executive Vice President, North America in September 2014. Prior to joining Generac,
Mr. Minick was President & CEO of Home Care Products for Electrolux from 2006 to 2011, President
of The Gunlocke Company at HNI Corporation from 2003 to 2006, Senior Vice President of Sales,
Marketing and Product Development at True Temper Sports from 2002 to 2003, and General Manager
of Extended Warranty Operations for Ford Motor Company from 1998 to 2002. Mr. Minick is a
graduate of the University of Northern Iowa, and holds a degree in marketing.
Erik Wilde began serving as our Executive Vice President, North America Industrial in July 2016.
Mr. Wilde was Vice President and General Manager of the Mining Division for Komatsu America
Corp. from 2013 until he joined Generac. Prior to that role, he held leadership positions as Vice
President of the ICT Business Division and Product Marketing back to 2005. Mr. Wilde holds a
10
Bachelor of Business Administration in Management from Boise State University and an M.B.A. from
Keller Graduate School of Management.
Roger Pascavis has served as our Executive Vice President, Strategic Global Sourcing since March
2013. Prior to becoming Executive Vice President of Strategic Global Supply, he served as the Senior
Vice President of Operations since January 2008. Mr. Pascavis joined Generac in 1995 and has served
as Director of Materials and Vice President of Operations. Prior to joining Generac, Mr. Pascavis was a
Plant Manager for MTI in Waukesha, Wisconsin. Mr. Pascavis holds a B.S. in Industrial Technology
from the University of Wisconsin-Stout and an M.B.A. from Lake Forest Graduate School of
Management.
Patrick Forsythe has served as our Executive Vice President of Global Engineering since re-joining
Generac in July 2015. Mr. Forsythe was Vice President, Global Engineering & Technology of Hayward
Industries from 2008 to 2015, Vice President, Global Engineering at Ingersoll Rand Company (and the
acquired Doosan Infracore International) from 2004 to 2008, and Director of Engineering at Ingersoll
Rand Company from 2002 to 2004. Prior to 2002, Mr. Forsythe worked in various engineering
management capacities with Generac from 1995 to 2002. Mr. Forsythe holds a Higher National
Diploma (HND) in Mechanical Engineering from the University of Ulster (United Kingdom), a B.S. in
Mechanical Engineering, and an M.S. in Manufacturing Management & Technology from The Open
University (United Kingdom).
Item 1A. Risk Factors
You should carefully consider the following risks. These risks could materially affect our business,
results of operations or financial condition, cause the trading price of our common stock to decline
materially or cause our actual results to differ materially from those expected or those expressed in any
forward-looking statements made by us. These risks are not exclusive, and additional risks to which we
are subject include, but are not limited to, the factors mentioned under ‘‘Forward-Looking Statements’’
and the risks of our businesses described elsewhere in this Annual Report.
Risk factors related to our business and industry
Demand for the majority of our products is significantly affected by unpredictable power-outage activity that
can lead to substantial variations in, and uncertainties regarding, our financial results from period to period.
Sales of our products are subject to consumer buying patterns, and demand for the majority of our
products is affected by power outage events caused by thunderstorms, hurricanes, ice storms, blackouts
and other power grid reliability issues. The impact of these outage events on our sales can vary
depending on the location, frequency and severity of the outages. Sustained periods without major
power disruptions can lead to reduced consumer awareness of the benefits of standby and portable
generator products and can result in reduced sales growth rates and excess inventory. There are
smaller, more localized power outages that occur frequently that drive a baseline level of demand for
back-up power solutions. The lack of major power-outage events and fluctuations to the baseline levels
of power-outage activity are part of managing our business, and these fluctuations could have an
adverse effect on our net sales and profits. Despite their unpredictable nature, we believe power
disruptions create awareness and accelerate adoption for our home standby products.
Demand for our products is significantly affected by durable goods spending by consumers and businesses,
and other macroeconomic conditions.
Our business is affected by general economic conditions, and uncertainty or adverse changes such
as the prolonged downturn in U.S. residential investment and the impact of more stringent credit
standards could lead to a decline in demand for our products and pressure to reduce our prices. Our
sales of light-commercial and industrial generators are affected by conditions in the non-residential
11
construction sector and by the capital investment trends for small and large businesses and
municipalities. If these businesses and municipalities cannot access credit markets or do not utilize
discretionary funds to purchase our products as a result of the economy or other factors, our business
could suffer and our ability to realize benefits from our strategy of increasing sales in the light-
commercial and industrial sectors through, among other things, our focus on innovation and product
development, including natural gas engine and modular technology, could be adversely affected. In
addition, consumer confidence and home remodeling expenditures have a significant impact on sales of
our residential products, and prolonged periods of weakness in consumer durable goods spending could
have a material impact on our business. Typically, we do not have contracts with our customers which
call for committed volume, and we cannot guarantee that our current customers will continue to
purchase our products at the same level, if at all. If general economic conditions or consumer
confidence were to worsen, or if the non-residential construction sector or rate of capital investments
were to decline, our net sales and profits would likely be adversely affected. Additionally, timing of
capital spending by our national account customers can vary from quarter-to-quarter based on capital
availability and internal capital spending budgets.
Decreases in the availability and quality, or increases in the cost, of raw materials and key components we use
could materially reduce our earnings.
The principal raw materials that we use to produce our products are steel, copper and aluminum.
We also source a significant number of component parts from third parties that we utilize to
manufacture our products. The prices of those raw materials and components are susceptible to
significant fluctuations due to trends in supply and demand, transportation costs, government
regulations and tariffs, price controls, economic conditions and other unforeseen circumstances beyond
our control. We do not have long-term supply contracts in place to ensure the raw materials and
components we use are available in necessary amounts or at fixed prices. If we are unable to mitigate
raw material or component price increases through product design improvements, price increases to our
customers, manufacturing productivity improvements, or hedging transactions, our profitability could be
adversely affected. Also, our ability to continue to obtain quality materials and components is subject to
the continued reliability and viability of our suppliers, including in some cases, suppliers who are the
sole source of certain important components. If we are unable to obtain adequate, cost efficient or
timely deliveries of required raw materials and components, we may be unable to manufacture
sufficient quantities of products on a timely basis. This could cause us to lose sales, incur additional
costs, delay new product introductions or suffer harm to our reputation.
The industry in which we compete is highly competitive, and our failure to compete successfully could
adversely affect our results of operations and financial condition.
We operate in markets that are highly competitive. Some of our competitors have established
brands and are larger in size or are divisions of large diversified companies which have substantially
greater financial resources than we do. Some of our competitors may be willing to reduce prices and
accept lower margins in order to compete with us. In addition, we could face new competition from
large international or domestic companies with established industrial brands that enter our end
markets. Demand for our products may also be affected by our ability to respond to changes in design
and functionality, to respond to downward pricing pressure, and to provide shorter lead times for our
products than our competitors. If we are unable to respond successfully to these competitive pressures,
we could lose market share, which could have an adverse impact on our results. For further
information, see ‘‘Item 1—Business—Competition’’.
12
Our industry is subject to technological change, and our failure to continue developing new and improved
products and to bring these products rapidly to market could have an adverse impact on our business.
New products, or refinements and improvements of existing products, may have technical failures,
delayed introductions, higher than expected production costs or may not be well accepted by our
customers. If we are not able to anticipate, identify, develop and market high quality products in line
with technological advancements that respond to changes in customer preferences, demand for our
products could decline and our operating results could be adversely affected.
We rely on independent dealers and distribution partners, and the loss of these dealers and distribution
partners, or of any of our sales arrangements with significant private label, telecommunications, retail or
equipment rental customers, would adversely affect our business.
In addition to our direct sales force and manufacturer sales representatives, we depend on the
services of independent distributors and dealers to sell our products and provide service and
aftermarket support to our end customers. We also rely upon our distribution channels to drive
awareness for our product categories and our brands. In addition, we sell our products to end users
through private label arrangements with leading home equipment, electrical equipment and
construction machinery companies; arrangements with top retailers and equipment rental companies;
and our direct national accounts with telecommunications and industrial customers. Our distribution
agreements and any contracts we have with large telecommunications, retail and other customers are
typically not exclusive, and many of the distributors with whom we do business offer competitors’
products and services. Impairment of our relationships with our distributors, dealers or large customers,
loss of a substantial number of these distributors or dealers or of one or more large customers, or an
increase in our distributors’ or dealers’ sales of our competitors’ products to our customers or of our
large customers’ purchases of our competitors’ products could materially reduce our sales and profits.
Also, our ability to successfully realize our growth strategy is dependent in part on our ability to
identify, attract and retain new distributors at all layers of our distribution platform, and we cannot be
certain that we will be successful in these efforts. For further information, see ‘‘Item 1—Business—
Distribution Channels and Customers’’.
Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if
third parties claim that we are in violation of their intellectual property rights.
We consider our intellectual property rights to be important assets, and seek to protect them
through a combination of patent, trademark, copyright and trade secret laws, as well as licensing and
confidentiality agreements. These protections may not be adequate to prevent third parties from using
our intellectual property without our authorization, breaching any confidentiality agreements with us,
copying or reverse engineering our products, or developing and marketing products that are
substantially equivalent to or superior to our own. The unauthorized use of our intellectual property by
others could reduce our competitive advantage and harm our business. Not only are intellectual
property-related proceedings burdensome and costly, but they could span years to resolve and we might
not ultimately prevail. We cannot guarantee that any patents, issued or pending, will provide us with
any competitive advantage or will not be challenged by third parties. Moreover, the expiration of our
patents may lead to increased competition with respect to certain products.
In addition, we cannot be certain that we do not or will not infringe third parties’ intellectual
property rights. Any such claim, even if it is without merit, may be expensive and time-consuming to
defend, subject us to damages, cause us to cease making, using or selling certain products that
incorporate the disputed intellectual property, require us to redesign our products, divert management
time and attention, and/or require us to enter into costly royalty or licensing arrangements.
13
Our operations are subject to various environmental, health and safety laws and regulations, and
non-compliance with or liabilities under such laws and regulations could result in substantial costs, fines,
sanctions and claims.
Our operations are subject to a variety of foreign, federal, state and local environmental, health
and safety laws and regulations including those governing, among other things, emissions to air;
discharges to water; noise; and the generation, handling, storage, transportation, treatment and disposal
of waste and other materials. In addition, under federal and state environmental laws, we could be
required to investigate, remediate and/or monitor the effects of the release or disposal of materials
both at sites associated with past and present operations and at third-party sites where wastes
generated by our operations were disposed. This liability may be imposed retroactively and whether or
not we caused, or had any knowledge of, the existence of these materials and may result in our paying
more than our fair share of the related costs. We could also be subject to a recall action by regulatory
authorities. Violations of or liabilities under such laws and regulations could result in substantial costs,
fines and civil or criminal proceedings or personal injury and workers’ compensation claims.
Our products are subject to substantial government regulation.
Our products are subject to extensive statutory and regulatory requirements governing, among
other things, emissions and noise, including standards imposed by the EPA, CARB and other regulatory
agencies around the world. These laws are constantly evolving and many are becoming increasingly
stringent. Changes in applicable laws or regulations, or in the enforcement thereof, could require us to
redesign our products and could adversely affect our business or financial condition in the future.
Developing and marketing products to meet such new requirements could result in substantial
additional costs that may be difficult to recover in some markets. In some cases, we may be required to
modify our products or develop new products to comply with new regulations, particularly those
relating to air emissions. Typically, additional costs associated with significant compliance modifications
are passed on to the market. While we have been able to meet previous deadlines and requirements,
failure to comply with other existing and future regulatory standards could adversely affect our position
in the markets we serve.
We may incur costs and liabilities as a result of product liability claims.
We face a risk of exposure to product liability claims in the event that the use of our products is
alleged to have resulted in injury or other damage. Although we currently maintain product liability
insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if
at all, or obtain insurance that will provide adequate coverage against potential claims. Product liability
claims can be expensive to defend and can divert the attention of management and other personnel for
long periods of time, regardless of the ultimate outcome. A significant unsuccessful product liability
defense could have a material adverse effect on our financial condition and results of operations. In
addition, we believe our business depends on the strong brand reputation we have developed. If our
reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect
to some of our products, which could reduce our sales and profitability.
The loss of any key members of our senior management team or key employees could disrupt our operations
and harm our business.
Our success depends, in part, on the efforts of certain key individuals, including the members of
our senior management team, who have significant experience in the power products industry. If, for
any reason, our senior executives do not continue to be active in management, or if our key employees
leave our company, our business, financial condition or results of operations could be adversely
affected. Failure to continue to attract these individuals at reasonable compensation levels could have a
material adverse effect on our business, liquidity and results of operations. Although we do not
14
anticipate that we will have to replace any of these individuals in the near future, the loss of the
services of any of our key employees could disrupt our operations and have a material adverse effect
on our business.
Disruptions caused by labor disputes or organized labor activities could harm our business.
We may from time to time experience union organizing activities in our non-union facilities.
Disputes with the current labor union or new union organizing activities could lead to work slowdowns
or stoppages and make it difficult or impossible for us to meet scheduled delivery times for product
shipments to our customers, which could result in loss of business. In addition, union activity could
result in higher labor costs, which could harm our financial condition, results of operations and
competitive position. A work stoppage or limitations on production at our facilities for any reason
could have an adverse effect on our business, results of operations and financial condition. In addition,
many of our suppliers have unionized work forces. Strikes or work stoppages experienced by our
customers or suppliers could have an adverse effect on our business, results of operations and financial
condition.
We may experience material disruptions to our manufacturing operations.
While we seek to operate our facilities in compliance with applicable rules and regulations and
take measures to minimize the risks of disruption at our facilities, a material disruption at one of our
manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or
negatively impact our financial results. Any of our manufacturing facilities, or any of our equipment
within an otherwise operational facility, could cease operations unexpectedly due to a number of
events, including:
(cid:129) equipment or information technology infrastructure failure;
(cid:129) disruptions in the transportation infrastructure including roads, bridges, railroad tracks and
container ports;
(cid:129) fires, floods, tornados, earthquakes, or other catastrophes; and
(cid:129) other operational problems.
In addition, a significant portion of our manufacturing and production facilities are located in
Wisconsin within a 100-mile radius of each other. We could experience prolonged periods of reduced
production due to unforeseen events occurring in or around our manufacturing facilities in Wisconsin.
In the event of a business interruption at our facilities, in particular our Wisconsin facilities, we may be
unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers or
meet customer shipment needs, among other severe consequences. Such an event could have a material
and adverse impact on our financial condition and results of our operations.
A significant portion of our purchased components are sourced in foreign countries, exposing us to additional
risks that may not exist in the United States.
We source a significant portion of our purchased components overseas, primarily in Asia and
Europe. Our international sourcing subjects us to a number of potential risks in addition to the risks
associated with third-party sourcing generally. Such risks include:
(cid:129) inflation or changes in political and economic conditions;
(cid:129) unstable regulatory environments;
(cid:129) changes in import and export duties;
(cid:129) domestic and foreign customs and tariffs;
15
(cid:129) currency rate fluctuations;
(cid:129) trade restrictions;
(cid:129) labor unrest;
(cid:129) logistical challenges, including extended container port congestion;
(cid:129) communications challenges; and
(cid:129) other restraints and burdensome taxes.
These factors may have an adverse effect on our ability to efficiently and cost effectively source
our purchased components overseas. In particular, if the U.S. dollar were to depreciate significantly
against the currencies in which we purchase raw materials from foreign suppliers, our cost of goods
sold could increase materially, which would adversely affect our results of operations.
We are vulnerable to supply disruptions from single-sourced suppliers.
We single-source certain types of parts in our product designs. Any delay in our suppliers’
deliveries may impair our ability to deliver products to our customers. A wide variety of factors could
cause such delays including, but not limited to, lack of capacity, economic downturns, availability of
credit, weather events or natural disasters.
As a U.S. corporation that conducts business in a variety of foreign countries, we are subject to the Foreign
Corrupt Practices Act and a variety of anti-corruption laws worldwide. A determination that we violated any
of these laws may affect our business and operations adversely.
The U.S. Foreign Corrupt Practices Act (FCPA) generally prohibits U.S. companies and their
intermediaries from making improper payments to foreign officials for the purpose of obtaining or
keeping business. The United Kingdom Bribery Act (UKBA) prohibits domestic and foreign bribery of
the private sector as well as public officials. Any determination that we have violated any
anti-corruption laws could have a material adverse effect on our financial position, operating results
and cash flows.
Our total assets include goodwill and other indefinite-lived intangibles. If we determine these have become
impaired, net income could be materially adversely affected.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business
combinations. Indefinite-lived intangibles are comprised of certain tradenames. At December 31, 2016,
goodwill and other indefinite-lived intangibles totaled $833.0 million. We review goodwill and other
intangibles at least annually for impairment and any excess in carrying value over the estimated fair
value is charged to the statement of operations. Future impairment may result from, among other
things, deterioration in the performance of an acquired business or product line, adverse market
conditions and changes in the competitive landscape, adverse changes in applicable laws or regulations,
including changes that restrict the activities of an acquired business or product line, and a variety of
other circumstances. A reduction in net income resulting from the write-down or impairment of
goodwill or indefinite-lived intangibles could have a material adverse effect on our financial statements.
We are unable to determine the specific impact of changes in selling prices or changes in volumes of our
products on our net sales.
Because of the wide range of products that we sell, the level of customization for many of our
products, the frequent rollout of new products and the fact that we do not apply pricing changes
uniformly across our entire portfolio of products, we are unable to determine with specificity the effect
of volume changes or changes in selling prices on our net sales.
16
We may not realize all of the anticipated benefits of our acquisitions or those benefits may take longer to
realize than expected. We may also encounter significant unexpected difficulties in integrating acquired
businesses.
Our ability to realize the anticipated benefits of our acquisitions will depend, to a large extent, on
our ability to integrate the acquired businesses with our business. The combination of independent
businesses is a complex, costly and time-consuming process. Further, integrating and managing
businesses with international operations may pose challenges not previously experienced by our
management. As a result, we may be required to devote significant management attention and
resources to integrating the business practices and operations of any acquired businesses with ours. The
integration process may disrupt our business and, if implemented ineffectively, could preclude
realization of the full benefits expected by us. Our failure to meet the challenges involved in integrating
an acquired business into our existing operations or otherwise to realize the anticipated benefits of the
transaction could cause an interruption of, or a loss of momentum in, our activities and could adversely
affect our results of operations.
In addition, the overall integration of our acquired businesses may result in material unanticipated
problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of
management’s attention, and may cause our stock price to decline. The difficulties of combining the
operations of acquired businesses with ours include, among others:
(cid:129) managing a larger company;
(cid:129) maintaining employee morale and retaining key management and other employees;
(cid:129) complying with newly applicable foreign regulations;
(cid:129) integrating two business cultures, which may prove to be incompatible;
(cid:129) the possibility of faulty assumptions underlying expectations regarding the integration process;
(cid:129) retaining existing customers and attracting new customers;
(cid:129) consolidating corporate and administrative infrastructures and eliminating duplicative operations;
(cid:129) the diversion of management’s attention from ongoing business concerns and performance
shortfalls as a result of the diversion of management’s attention to the acquisition;
(cid:129) unanticipated issues in integrating information technology, communications and other systems;
(cid:129) unanticipated changes in applicable laws and regulations;
(cid:129) managing tax costs or inefficiencies associated with integrating the operations of the combined
company;
(cid:129) unforeseen expenses or delays associated with the acquisition;
(cid:129) difficulty comparing financial reports due to differing financial and/or internal reporting systems;
and
(cid:129) making any necessary modifications to internal financial control standards to comply with the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.
Many of these factors will be outside of our control and any one of them could result in increased
costs, decreases in the amount of expected revenues and diversion of management’s time and energy,
which could materially impact our business, financial condition and results of operations. In addition,
even if the operations of our acquired businesses are integrated successfully with our operations, we
may not realize the full benefits of the transaction, including the synergies, cost savings or sales or
growth opportunities that we expect. These benefits may not be achieved within the anticipated time
17
frame, or at all. Or, additional unanticipated costs may be incurred in the integration of our businesses.
All of these factors could cause dilution to our earnings per share, decrease or delay the expected
accretive effect of the acquisition, and cause a decrease in the price of our common stock. As a result,
we cannot assure you that the combination of our acquisitions with our business will result in the
realization of the full benefits anticipated from the transaction.
We may encounter difficulties in implementing or operating a new enterprise resource planning (ERP) system
across our subsidiaries, which may adversely affect our operations and financial reporting.
In 2016, we implemented a new ERP system for a majority of our business as part of our ongoing
efforts to improve and strengthen our operational and financial processes and our reporting systems;
and we will be implementing the new ERP system at our other locations in future years. The ERP
system may not provide the benefits anticipated, could add costs and complications to ongoing
operations, and may impact our ability to process transactions efficiently, all of which may have a
material adverse effect on the Company’s business and results of operations.
Failures or security breaches of our networks or information technology systems could have an adverse effect
on our business.
We rely heavily on information technology (IT) both in our products and services for customers
and in our IT systems. Further, we collect and store sensitive information in our data centers and on
our networks. Government agencies and security experts have warned about growing risks of hackers,
cyber-criminals, malicious insiders and other actors targeting confidential information and all types of
IT systems. These actors may engage in fraudulent activities, theft of confidential or proprietary
information and sabotage.
Our IT systems and our confidential information may be vulnerable to damage or intrusion from a
variety of attacks including computer viruses, worms or other malicious software programs. These
attacks pose a risk to the security of the products, systems and networks of our customers, suppliers
and third-party service providers, as well to the confidentiality of our information and the integrity and
availability of our data. While we attempt to mitigate these risks through controls, due diligence,
training, surveillance and other measures, we remain vulnerable to information security threats.
Despite the precautions we take, an intrusion or infection of our systems could result in the
disruption of our business, loss of proprietary or confidential information, or injuries to people or
property. Similarly, an attack on our IT systems could result in theft or disclosure of trade secrets or
other intellectual property or a breach of confidential customer or employee information. Any such
events could have an adverse impact on sales, harm our reputation and cause us to incur legal liability
and increased costs to address such events and related security concerns. As the threats evolve and
become more potent, we may incur additional costs to secure the products that we sell, as well as our
data and infrastructure of networks and devices.
Risks related to our common stock
If securities or industry analysts do not publish research or reports about our business, if they adversely
change their recommendations regarding our common stock or if our results of operations do not meet their
expectations, our common stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that
industry or securities analysts publish about us or our business. If one or more of these analysts cease
coverage of our company or fail to publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if
one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our
18
results of operations do not meet their expectations, our stock price could decline and such decline
could be material.
Anti-takeover provisions in our amended and restated certificate of incorporation and by-laws could prohibit a
change of control that our stockholders may favor and could negatively affect our stock price.
Provisions in our amended and restated certificate of incorporation and by-laws may make it more
difficult and expensive for a third party to acquire control of us even if a change of control would be
beneficial to the interests of our stockholders. These provisions could discourage potential takeover
attempts and could adversely affect the market price of our common stock. These provisions may also
prevent or frustrate attempts by our stockholders to replace or remove our management. For example,
our amended and restated certificate of incorporation and by-laws:
(cid:129) permit our board of directors to issue preferred stock with such terms as they determine,
without stockholder approval;
(cid:129) provide that only one-third of the members of the board of directors are elected at each
stockholders meeting and prohibit removal without cause;
(cid:129) require advance notice for stockholder proposals and director nominations; and
(cid:129) contain limitations on convening stockholder meetings.
These provisions make it more difficult for stockholders or potential acquirers to acquire us
without negotiation and could discourage potential takeover attempts and could adversely affect the
market price of our common stock.
We do not have plans to pay dividends on our common stock in the foreseeable future.
We currently do not have plans to pay dividends in the foreseeable future on our common stock.
We intend to use future earnings for the operation and expansion of our business, as well as for
repayment of outstanding debt and for share repurchases. In addition, the terms of our senior secured
credit facilities limit our ability to pay dividends on our common stock. As a result, capital
appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future.
While we may change this policy at some point in the future, we cannot assure that we will make such
a change.
Risks related to our capital structure
We have a significant amount of indebtedness which could adversely affect our cash flow and our ability to
remain in compliance with debt covenants and make payments on our indebtedness.
We have a significant amount of indebtedness. As of December 31, 2016, we had total
indebtedness of $1,052.9 million. Our significant level of indebtedness increases the possibility that we
may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other
amounts due in respect of our indebtedness. Our significant indebtedness, combined with our other
financial obligations and contractual commitments could have other important consequences. For
example, it could:
(cid:129) make it more difficult for us to satisfy our obligations with respect to our indebtedness, which
could result in an event of default under the agreements governing our indebtedness;
(cid:129) make us more vulnerable to adverse changes in general economic, industry and competitive
conditions and adverse changes in government regulation;
19
(cid:129) require us to dedicate a portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
(cid:129) limit our flexibility in planning for, or reacting to, changes in our business and the industry in
which we operate;
(cid:129) place us at a competitive disadvantage compared to our competitors that have less debt; and
(cid:129) limit our ability to borrow additional amounts for working capital, capital expenditures,
acquisitions, debt service requirements, execution of our business strategy or other purposes.
Any of the above-listed factors could materially adversely affect our business, financial condition,
results of operations and cash flows. While we maintain interest rate swaps covering a portion of our
outstanding debt, our interest expense could increase if interest rates increase because debt under our
credit facilities bears interest at a variable rate once above a certain LIBOR floor. If we do not have
sufficient earnings to service our debt, we may be required to refinance all or part of our existing debt,
sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to
do.
The terms of our credit facilities restrict our current and future operations, particularly our ability to respond
to changes in our business or to take certain actions.
Our credit facilities contain, and any future indebtedness of ours or our subsidiaries would likely
contain, a number of restrictive covenants that impose significant operating and financial restrictions on
us and our subsidiaries, including restrictions on our ability to engage in acts that may be in our best
long-term interests. These restrictions include, among other things, our ability to:
(cid:129) incur liens;
(cid:129) incur or assume additional debt or guarantees or issue preferred stock;
(cid:129) pay dividends, or make redemptions and repurchases, with respect to capital stock;
(cid:129) prepay, or make redemptions and repurchases of, subordinated debt;
(cid:129) make loans and investments;
(cid:129) make capital expenditures;
(cid:129) engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with
affiliates;
(cid:129) change the business conducted by us or our subsidiaries; and
(cid:129) amend the terms of subordinated debt.
The operating and financial restrictions in our credit facilities and any future financing agreements
may adversely affect our ability to finance future operations or capital needs or to engage in other
business activities. A breach of any of the restrictive covenants in our credit facilities would result in a
default. If any such default occurs, the lenders under our credit facilities may elect to declare all
outstanding borrowings, together with accrued interest and other fees, to be immediately due and
payable, or enforce their security interest, any of which would result in an event of default. The lenders
will also have the right in these circumstances to terminate any commitments they have to provide
further borrowings. Our existing credit facilities do not contain any financial maintenance covenants.
20
We may need additional capital to finance our growth strategy or to refinance our existing credit facilities, and
we may not be able to obtain it on acceptable terms, or at all, which may limit our ability to grow.
We may require additional financing to expand our business. Financing may not be available to us
or may be available to us only on terms that are not favorable. The terms of our senior secured credit
facilities limit our ability to incur additional debt. In addition, economic conditions, including a
downturn in the credit markets, could impact our ability to finance our growth on acceptable terms or
at all. If we are unable to raise additional funds or obtain capital on acceptable terms, we may have to
delay, modify or abandon some or all of our growth strategies. In the future, if we are unable to
refinance our credit facilities on acceptable terms, our liquidity could be adversely affected.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own, operate or lease manufacturing, distribution and office facilities globally totaling over four
million square feet. We also operate a dealer training center at our Eagle, Wisconsin facility, which
allows us to train new industrial and residential dealers on the service and installation of our products
and provide existing dealers with training on product innovations. We also have inventory warehouses
that accommodate material storage and rapid response requirements of our customers.
The following table provides information about our principal facilities exceeding 10,000 square
feet:
Location
Owned/
Leased
Activities
Segment
Waukesha, WI . . . . . . . . Owned Corporate headquarters, manufacturing, storage, R&D, Domestic
service parts distribution
Eagle, WI . . . . . . . . . . . Owned Manufacturing, office, training
Whitewater, WI . . . . . . . Owned Manufacturing, office, distribution
Oshkosh, WI . . . . . . . . . Owned Manufacturing, office, storage, R&D
Berlin, WI . . . . . . . . . . . Owned Manufacturing, office, storage, R&D
Jefferson, WI . . . . . . . . Owned Manufacturing, distribution, R&D
Various WI . . . . . . . . . . Leased
Maquoketa, IA . . . . . . . Owned
Vergennes, VT . . . . . . . Leased Office
Winooski, VT . . . . . . . . Leased Manufacturing, R&D
Mexico City, Mexico . . . Owned Manufacturing, sales, distribution, storage, office, R&D International
International
Mexico City, Mexico . . . Leased Office, storage and warehouse
International
Curitiba, Brazil
Milan, Italy . . . . . . . . . . Leased Manufacturing, sales, distribution, storage, office, R&D International
International
Casole d’Elsa, Italy . . . . Leased Manufacturing, office, storage, R&D
International
Balsicas, Spain . . . . . . . . Leased Manufacturing, office, storage, R&D
Foshan, China . . . . . . . . Owned Manufacturing, office, storage, R&D
International
Saint-Nizier-sous-
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
. . . . . . . Leased Manufacturing, sales, distribution, storage, office
Storage
Storage, rental property
Charlieu, France . . . . . Leased
Sales, office, storage
. . Leased Manufacturing, office, storage
Ribeirao Preto, Brazil
Fellbach, Germany . . . . . Leased
Crewe, England . . . . . . . Leased
Celle, Germany . . . . . . . Owned Manufacturing, office, sales, R&D
Charzyno, Poland . . . . . . Owned Manufacturing
Sales, office, storage
Sales, office, storage
International
International
International
International
International
International
As of December 31, 2016, substantially all of our domestically-owned and a portion of our
internationally-owned properties are subject to collateral provisions under our senior secured credit
facilities.
21
Item 3. Legal Proceedings
From time to time, we are involved in legal proceedings primarily involving product liability, patent
and employment matters and general commercial disputes arising in the ordinary course of our
business. As of December 31, 2016, we believe that there is no litigation pending that would have a
material effect on our results of operations or financial condition.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
PART II
of Equity Securities
Price Range of Common Stock
Shares of our common stock are traded on the New York Stock Exchange (NYSE) under the
symbol ‘‘GNRC.’’ The following table sets forth the high and low sales prices reported on the NYSE
for our common stock by fiscal quarter during 2016 and 2015, respectively.
2016
High
Low
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43.49
$38.00
$39.25
$38.51
$35.74
$33.13
$33.86
$27.26
2015
High
Low
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32.53
$39.78
$49.35
$50.41
$26.88
$27.16
$39.62
$43.74
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
The following table summarizes the stock repurchase activity for the three months ended
December 31, 2016, which consisted of the withholding of shares upon the vesting of restricted stock
awards to pay withholding taxes on behalf of the recipient and shares repurchased under the
Company’s $250.0 million stock repurchase program authorized in October 2016:
Total Number
of Shares
Purchased
Average Price
Paid per
Share
10/01/16 - 10/31/16 . . . . . . . . . . . . . .
11/01/16 - 11/30/16 . . . . . . . . . . . . . .
12/01/16 - 12/31/16 . . . . . . . . . . . . . .
38,699
716,809
481,000
Total
. . . . . . . . . . . . . . . . . . . . . . . .
1,236,508
$38.58
39.66
41.84
$40.47
Total Number Of
Shares Purchased
As Part Of Publicly
Announced Plans Or
Programs
38,500
716,000
481,000
Approximate Dollar
Value Of Shares
That May Yet Be
Purchased Under
The Plans Or
Programs
$248,639,009
220,244,705
200,120,516
For equity compensation plan information, please refer to Note 15, ‘‘Share Plans,’’ to the
consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
22
Stock Performance Graph
The line graph below compares the cumulative total stockholder return on our common stock with
the cumulative total return of the Standard & Poor’s S&P 500 Index, the S&P 500 Industrials Index
and the Russell 2000 Index for the five-year period ended December 31, 2016. The graph and table
assume that $100 was invested on December 31, 2011 in each of our common stock, the
S&P 500 Index, the S&P 500 Industrials Index and the Russell 2000 Index, and that all dividends were
reinvested. Cumulative total stockholder returns for our common stock, the S&P 500 Index, the
S&P 500 Industrials Index and the Russell 2000 Index are based on our fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN
Generac Holdings Inc.
S&P 500 Index - Total Returns
S&P 500 Industrials Index
Russell 2000 Index
$350
$300
$250
$200
$150
$100
$50
$0
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
ASSUMES $100 INVESTED ON DEC. 31, 2011
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2016
2MAR201716533738
Company / Market / Peer Group
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
Generac Holdings Inc.
. . . . . . . . . . .
S&P 500 Index—Total Returns . . . . .
S&P 500 Industrials Index . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . .
$100.00
100.00
100.00
100.00
$157.76
116.00
115.35
116.35
$296.17
153.57
162.27
161.52
$244.51
174.60
178.22
169.42
$155.67
177.01
173.70
161.95
$213.03
198.18
206.46
196.45
Holders
As of February 17, 2017, there were approximately 199 registered holders of record of Generac’s
common stock. A substantially greater number of holders of Generac common stock are ‘‘street name’’
or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.
Dividends
We do not have plans to pay dividends on our common stock in the foreseeable future. However,
in the future, subject to factors such as general economic and business conditions, our financial
condition and results of operations, our capital requirements, our future liquidity and capitalization,
and other such factors that our board of directors may deem relevant, we may change this policy and
choose to pay dividends. Our ability to pay dividends on our common stock is currently restricted by
the terms of our senior secured credit facilities and may be further restricted by any future
indebtedness we incur. Our business is conducted through our subsidiaries, including our principal
23
operating subsidiary, Generac Power Systems. Dividends from, and cash generated by our subsidiaries
will be our principal sources of cash to repay indebtedness, fund operations, repurchase shares of
common stock and pay dividends. Accordingly, our ability to pay dividends to our stockholders is
dependent on the earnings and distributions of funds from our subsidiaries, including Generac Power
Systems.
Securities Authorized for Issuance Under Equity Compensation Plans
For information on securities authorized for issuance under our equity compensation plans, see
‘‘Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters,’’ which is incorporated herein by reference.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Securities
Not applicable.
Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial data for the periods and
at the dates indicated. The selected historical consolidated financial data for the years ended
December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements
included elsewhere in this annual report. The selected historical consolidated financial data for the
years ended December 31, 2013 and 2012 is derived from our audited historical consolidated financial
statements not included in this annual report.
The results indicated below and elsewhere in this annual report are not necessarily indicative of
our future performance. This information should be read together with ‘‘Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and our consolidated
financial statements and related notes thereto in Item 8 of this Annual Report on Form 10-K.
24
(U.S. Dollars in thousands, except per share data)
2016
2015
2014
2013
2012
Year Ended December 31,
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $1,444,453 $1,317,299 $1,460,919 $1,485,765 $1,176,306
735,906
930,347
Costs of goods sold . . . . . . . . . . . . . . . . . .
857,349
916,205
944,700
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling and service . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . .
Amortization of intangibles(1) . . . . . . . . . . .
Tradename and goodwill impairment(2) . . . .
Gain on remeasurement of contingent
consideration(3) . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . .
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt(4) . . . . . . . .
Gain (loss) on change in contractual interest
rate(5) . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to acquisitions . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . .
514,106
459,950
516,219
569,560
440,400
164,607
37,229
74,700
32,953
—
—
309,489
204,617
(44,568)
44
(574)
(2,957)
(1,082)
902
130,242
32,922
52,947
23,591
40,687
120,408
31,494
54,795
21,024
—
—
(4,877)
280,389
179,561
222,844
293,375
(42,843)
123
(4,795)
(2,381)
(1,195)
(5,487)
(47,215)
130
(2,084)
16,014
(396)
(1,462)
107,515
29,271
55,490
25,819
—
—
218,095
351,465
(54,435)
91
(15,336)
—
(1,086)
(1,983)
101,448
23,499
46,031
45,867
—
—
216,845
223,555
(49,114)
79
(14,308)
—
(1,062)
(2,798)
Total other expense, net . . . . . . . . . . . . . . .
(48,235)
(56,578)
(35,013)
(72,749)
(67,203)
Income before provision for income taxes . . .
Provision for income taxes . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Generac
156,382
57,570
98,812
122,983
45,236
77,747
258,362
83,749
174,613
278,716
104,177
174,539
156,352
63,129
93,223
24
—
—
—
—
Holdings Inc.
. . . . . . . . . . . . . . . . . . . . . $
98,788 $
77,747 $ 174,613 $ 174,539 $
93,223
Net income attributable to common
shareholders per common share—diluted: . $
1.50 $
1.12 $
2.49 $
2.51 $
1.35
Statement of Cash Flows data:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . $
Amortization of intangible assets . . . . . . . . .
Expenditures for property and equipment . . .
Other Financial Data:
Adjusted EBITDA attributable to Generac
21,465 $
32,953
(30,467)
16,742 $
23,591
(30,651)
13,706 $
21,024
(34,689)
10,955 $
25,819
(30,770)
8,293
45,867
(22,392)
Holdings Inc.(6) . . . . . . . . . . . . . . . . . . . $ 274,603 $ 270,816 $ 337,283 $ 402,613 $ 289,809
Adjusted net income attributable to Generac
Holdings Inc.(7) . . . . . . . . . . . . . . . . . . .
198,257
198,436
234,165
301,664
220,792
25
(U.S. Dollars in thousands)
Balance Sheet Data:
Current assets . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles and other assets . . . . .
As of
As of
December 31, December 31, December 31, December 31, December 31,
2014
As of
As of
As of
2015
2012
2016
2013
$ 683,509
212,793
704,640
260,742
$ 632,017
184,213
669,719
292,686
$ 707,637
168,821
635,565
352,396
$ 627,310
146,390
608,287
394,237
$ 473,866
104,718
552,943
459,470
Total assets . . . . . . . . . . . . . . . . . . . . .
$1,861,684
$1,778,635
$1,864,419
$1,776,224
$1,590,997
Total current liabilities . . . . . . . . . . . . .
Long-term borrowings, less current
portion . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . .
Redeemable noncontrolling interests . . .
Stockholders’ equity . . . . . . . . . . . . . . .
$ 341,939
$ 213,224
$ 240,522
$ 250,845
$ 294,859
1,006,758
78,737
33,138
401,112
1,037,132
62,408
—
465,871
1,065,858
68,240
—
489,799
1,155,298
53,010
—
317,071
785,031
47,479
—
463,628
Total liabilities and stockholders’ equity .
$1,861,684
$1,778,635
$1,864,419
$1,776,224
$1,590,997
(1) Our amortization of intangibles expense includes the straight-line amortization of customer lists,
patents, certain tradenames and other finite-lived intangible assets.
(2) During the fourth quarter of 2015, our Board of Directors approved a plan to strategically transition
and consolidate certain of our brands acquired through acquisitions over the past several years to the
Generac(cid:3) tradename. This brand strategy change resulted in a reclassification to a two year remaining
useful life for the impacted tradenames and a $36.1 million non-cash charge to write-down to net
realizable value. Additionally, during the fourth quarter of 2015, a $4.6 million goodwill impairment
charge was recorded related to the write-down of the Ottomotores reporting unit goodwill. Refer to
Note 2, ‘‘Significant 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 2015 impairment charges.
(3) During the second quarter of 2014, we recorded a gain of $4.9 million related to an adjustment to a
certain earn-out obligation in connection with the Tower Light acquisition.
(4) For the years ended December 31, 2016, 2015, 2014 and 2013, represents the non-cash write-off of
original issue discount and deferred financing costs due to voluntary debt prepayments. Additionally,
for the year ended December 31, 2013, represents the loss on extinguishment of debt as a result of a
refinancing transaction in May 2013. For the year ended December 31, 2012, represents the loss on
extinguishment of debt as a result of the refinancing transactions in February and May 2012. Refer to
Note 10, ‘‘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.
(5) For the year ended December 31, 2016, represents a non-cash loss in the third quarter relating to the
continued 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio
remaining above 3.0 times and expected to remain above 3.0 times based on current projections. For
the year ended December 31, 2015, represents a non-cash loss relating to a 25 basis point increase in
borrowing costs as a result of the credit agreement leverage ratio rising above 3.0 times effective third
quarter 2015 and expected to remain above 3.0 times based on projections at that time. For the year
ended December 31, 2014, represents a non-cash gain relating to a 25 basis point reduction in
borrowing costs as a result of the credit agreement leverage ratio falling below 3.0 times effective
second quarter 2014 and expected to remain below 3.0 times based on projections at that time. Refer
to Note 10, ‘‘Credit Agreements,’’ to the consolidated financial statements in Item 8 of this Annual
Report on Form 10-K for further information on the gains and losses on changes in the contractual
interest rate.
(6) Adjusted EBITDA represents net income before noncontrolling interests, interest expense, taxes,
depreciation and amortization, as further adjusted for the other items reflected in the reconciliation
table set forth below. The computation of adjusted EBITDA is based on the definition of EBITDA
contained in the Term Loan and Amended ABL Facility (terms defined in Note 10, ‘‘Credit
26
Agreements,’’ to the consolidated financial statements in Item 8 of this Annual Report on
Form 10-K), which is substantially the same definition that was contained in the Company’s previous
credit agreements.
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 because it excludes items
that we do not believe are indicative of our core operating performance. Our management uses
Adjusted EBITDA:
(cid:129) for planning purposes, including the preparation of our annual operating budget and developing
and refining our internal projections for future periods;
(cid:129) to allocate resources to enhance the financial performance of our business;
(cid:129) 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;
(cid:129) to evaluate the effectiveness of our business strategies and as a supplemental tool in evaluating our
performance against our budget for each period; and
(cid:129) 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:
(cid:129) 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;
(cid:129) 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
(cid:129) 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 Amended 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:
(cid:129) we do not consider indicative of our ongoing operating performance, such as non-cash write-downs
and other charges, non-cash gains and write-offs relating to the retirement of debt, severance costs
and other restructuring-related business optimization expenses;
(cid:129) 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
(cid:129) are non-cash in nature, such as share-based compensation.
We explain in more detail in footnotes (a) through (h) 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
27
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:
(cid:129) Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital
expenditures or contractual commitments;
(cid:129) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
(cid:129) Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;
(cid:129) 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;
(cid:129) 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
our assets as reflected in our consolidated balance sheet prepared in accordance with U.S. GAAP;
and
(cid:129) 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
Amended 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.
28
The following table presents a reconciliation of net income to Adjusted EBITDA attributable to
Generac Holdings Inc.:
(U.S. Dollars in thousands)
2016
2015
2014
2013
2012
Net income attributable to Generac
Holdings Inc.
. . . . . . . . . . . . . . . . . . . . $ 98,788 $ 77,747 $174,613 $174,539 $ 93,223
Year Ended December 31,
Net income attributable to noncontrolling
interests(a) . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . .
Non-cash write-down and other
adjustments(b) . . . . . . . . . . . . . . . . . . . .
Non-cash share-based compensation
expense(c) . . . . . . . . . . . . . . . . . . . . . . .
Tradename and goodwill impairment(d) . . . .
Loss on extinguishment of debt(e) . . . . . . .
(Gain) loss on change in contractual interest
rate(f) . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs and credit facility fees(g) .
Business optimization expenses(h) . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA attributable to
24
98,812
44,568
54,418
57,570
—
77,747
42,843
40,333
45,236
—
—
174,613
47,215
34,730
83,749
174,539
54,435
36,774
104,177
—
93,223
49,114
54,160
63,129
357
3,892
(3,853)
78
247
9,493
8,241
— 40,687
4,795
574
12,612
—
2,084
2,957
2,442
7,316
(120)
2,381
2,249
1,947
465
(16,014)
1,851
—
296
12,368
—
15,336
—
3,863
—
1,043
10,780
—
14,308
—
4,117
—
731
278,387
270,816
337,283
402,613
289,809
noncontrolling interests . . . . . . . . . . . . . .
3,784
—
—
—
—
Adjusted EBITDA attributable to Generac
Holdings Inc.
. . . . . . . . . . . . . . . . . . . . $274,603 $270,816 $337,283 $402,613 $289,809
(a) For the year ended December 31, 2016, includes the noncontrolling interests’ share of expenses
related to Pramac purchase accounting, including the step-up in value of inventories and
intangible amortization of $8.0 million.
(b) Represents the following non-cash charges: gains/losses on disposal of assets, unrealized
mark-to-market adjustments on commodity contracts, foreign currency gains/losses and certain
purchase accounting related adjustments. Additionally, the year ended December 31, 2014
includes a gain of $4.9 million related to an adjustment to an earn-out obligation in connection
with the Tower Light acquisition.
We believe that adjusting net income for these non-cash charges is useful for the following
reasons:
(cid:129) 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;
(cid:129) 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;
(cid:129) 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; and
29
(cid:129) The adjustment to a certain earn-out obligation in connection with the Tower Light acquisition
recorded in the year ended December 31, 2014, is a one-time charge that we believe does 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) During the fourth quarter of 2015, our Board of Directors approved a plan to strategically
transition and consolidate certain of our brands acquired through acquisitions over the past
several years to the Generac(cid:3) tradename. This brand strategy change resulted in a reclassification
to a two year remaining useful life for the impacted tradenames and a $36.1 million non-cash
charge to write-down to net realizable value. Additionally, during the fourth quarter of 2015, a
$4.6 million goodwill impairment charge was recorded related to the write-down of the
Ottomotores reporting unit goodwill. Refer to Note 2, ‘‘Significant 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 2015 impairment charges.
(e) For the years ended December 31, 2016, 2015, 2014 and 2013, represents the non-cash write-off
of original issue discount and deferred financing costs due to voluntary debt prepayments.
Additionally, for the year ended December 31, 2013, represents the loss on extinguishment of
debt as a result of a refinancing transaction in May 2013. For the year ended December 31, 2012,
represents the loss on extinguishment of debt as a result of the refinancing transactions in
February and May 2012. Refer to Note 10, ‘‘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.
(f) For the year ended December 31, 2016, represents a non-cash loss in the third quarter relating to
the continued 25 basis point increase in borrowing costs as a result of the credit agreement
leverage ratio remaining above 3.0 times and expected to remain above 3.0 times based on
current projections. For the year ended December 31, 2015, represents a non-cash loss relating to
a 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio
rising above 3.0 times effective third quarter 2015 and expected to remain above 3.0 times based
on projections at that time. For the year ended December 31, 2014, represents a non-cash gain
relating to a 25 basis point reduction in borrowing costs as a result of the credit agreement
leverage ratio falling below 3.0 times effective second quarter 2014 and expected to remain below
3.0 times based on projections at that time. Refer to Note 10, ‘‘Credit Agreements,’’ to the
consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further
information on the gains and losses on changes in the contractual interest rate.
(g) 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:
(cid:129) administrative agent fees and revolving credit facility commitment fees under our Term Loan
and Amended 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;
(cid:129) transaction costs relating to the acquisition of a business; and
(cid:129) other financing costs incurred relating to the dividend recapitalization transactions completed
in May 2012 and 2013.
(h) For the year ended December 31, 2016, represents charges relating to business optimization and
restructuring costs to address the significant and extended downturns for capital spending within
the oil & gas industry. For the year ended December 31, 2015, represents severance and
non-recurring restructuring charges related to the integration of our facilities, which represent
expenses that are not from our core operations and do not reflect our ongoing operations.
(7) Adjusted Net Income is defined as net income before noncontrolling interests and provision for
income taxes adjusted for the following items: cash income tax expense, amortization of intangible
30
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.
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 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.
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:
(cid:129) Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital
needs;
(cid:129) 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
(cid:129) other companies may calculate Adjusted Net Income differently than we do, limiting its usefulness
as a comparative measure.
31
The following table presents a reconciliation of net income to Adjusted Net Income attributable to
Generac Holdings Inc.:
(U.S. Dollars in thousands)
2016
2015
2014
2013
2012
Net income attributable to Generac
Holdings Inc.
. . . . . . . . . . . . . . . .
$ 98,788
$ 77,747
$174,613
$174,539
$ 93,223
Year Ended December 31,
Net income attributable to
noncontrolling interests . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . .
Income before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . .
Amortization of deferred finance
costs and original issue discount . . .
Tradename and goodwill impairment .
Loss on extinguishment of debt . . . . .
(Gain) loss on change in contractual
24
98,812
57,570
—
77,747
45,236
—
—
174,613
83,749
174,539
104,177
—
93,223
63,129
156,382
32,953
122,983
23,591
258,362
21,024
278,716
25,189
156,352
45,867
3,940
—
574
5,429
40,687
4,795
6,615
—
2,084
4,772
—
15,336
3,759
—
14,308
interest rate . . . . . . . . . . . . . . . . .
2,957
2,381
(16,014)
—
—
Transaction costs and other purchase
accounting adjustments(a) . . . . . . .
Business optimization expenses . . . . .
Adjusted net income before provision
for income taxes . . . . . . . . . . . . . .
Cash income tax expense(b) . . . . . . .
Adjusted net income . . . . . . . . . . . . .
Adjusted net income attributable to
5,653
7,316
2,710
1,947
(3,623)
—
2,842
—
3,317
—
209,775
(9,299)
204,523
(6,087)
268,448
(34,283)
326,855
(25,821)
223,603
(2,811)
200,476
198,436
234,165
301,034
220,792
noncontrolling interests . . . . . . . . .
2,219
—
—
—
—
Adjusted net income attributable to
Generac Holdings Inc.
. . . . . . . . .
$198,257
$198,436
$234,165
$301,034
$220,792
(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. Additionally, the year ended December 31, 2014 includes a gain of
$4.9 million related to an adjustment to an earn-out obligation in connection with the Tower
Light acquisition.
(b) For the year ended December 31, 2016, amount is based on a cash income tax rate of 5.9%.
Cash income tax expense for 2016 is based on the projected taxable income and corresponding
cash tax rate 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.
For the years ended December 31, 2015, 2014, 2013 and 2012, amounts are based on actual
cash income taxes paid during each year.
32
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,’’ ‘‘Item 6—Selected Financial Data’’ and 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 designer and manufacturer of a wide range of power generation equipment and
other engine powered products serving the residential, light commercial and industrial markets. Power
generation is our primary focus, which differentiates us from our primary competitors that also have
broad operations outside of the power equipment market. As the only significant market participant
focused predominantly on these products, we have 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. Other engine powered products that we design and manufacture include light towers
which provide temporary lighting for various end markets; commercial and industrial mobile heaters
used in the oil & gas, construction and other industrial markets; and a broad product line of outdoor
power equipment for residential and commercial use.
Over the past several years, we have executed a number of acquisitions that support our strategic
plan. A summary of these acquisitions can be found in Note 1, ‘‘Description of Business,’’ to the
consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
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, mobile
product solutions and other engine powered products by our customer base. This demand is influenced
by several important drivers and trends affecting our industry, including the following:
Increasing penetration opportunity. Many potential customers are not aware of the costs and
benefits of automatic backup power solutions. We estimate that penetration rates for home standby
generators are only approximately 4.0% of U.S. single-family detached, owner-occupied households with
a home value of over $100,000, as defined by the U.S. Census Bureau’s 2015 American Housing Survey
for 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 in the light-commercial
market. In addition, the installed base of backup power for telecommunications infrastructure is
increasing due to the growing importance for uninterrupted voice and data services. We believe by
expanding our distribution network, continuing to develop our product line, and targeting our
33
marketing efforts, we can continue to build awareness and increase penetration for our standby and
mobile generators for residential, commercial and industrial purposes.
Effect of large scale and baseline power disruptions. Power disruptions are an important driver of
customer awareness 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 portable or standby generator during the immediate and subsequent
period, which we believe may last for nine to twelve months following a major power outage event for
standby generators. 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.
Impact of residential investment cycle. The market for residential generators 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.
Trends in the new housing market highlighted by residential housing starts can also impact demand for
our residential generators. Demand for outdoor power equipment is also impacted by several of these
factors, as well as weather precipitation patterns.
Impact of business capital investment 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, 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. In addition, we believe demand for our mobile power products
benefit over the long term from a secular shift towards renting versus buying this type of equipment.
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 and cost control. 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, can have a material impact on our results of operations. Also, with the Pramac acquisition in
2016, we have further expanded our commercial and operational presence outside of the United States.
This acquisition, along with our existing international presence, exposes us to fluctuations in foreign
currency exchange rates that can have a material impact on our results of operations.
We have historically attempted to mitigate the impact of rising commodity, currency and
component prices 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
34
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 23% to 27% of our net sales occurred in the first quarter, 20% to 25% in the
second quarter, 24% to 27% in the third quarter and 25% to 29% in the fourth quarter, with different
seasonality depending 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. We maintain a flexible production and supply chain infrastructure in order to respond
to outage-driven peak demand.
Factors influencing interest expense and cash 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, credit facility pricing grids, and repayments or borrowings of indebtedness. Cash
interest expense increased during 2016 compared to 2015, primarily due additional debt assumed in
recent acquisitions, increased borrowings at other foreign subsidiaries and an increase in the LIBOR
rate. Refer to Note 10, ‘‘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. We had approximately
$592 million of tax-deductible goodwill and intangible asset amortization remaining as of December 31,
2016 related to our acquisition by CCMP in 2006 that we expect to generate aggregate cash tax savings
of approximately $231 million through 2021, assuming continued profitability and a 39% tax rate. The
recognition of the tax benefit associated with these assets for tax purposes is expected to be
$122 million annually through 2020 and $102 million in 2021, which generates annual cash tax savings
of $48 million through 2020 and $40 million in 2021, assuming profitability and a 39% tax rate. As a
result of the asset acquisition of the Magnum business in the fourth quarter of 2011, we had
approximately $38.0 million of incremental tax deductible goodwill and intangible assets remaining as of
December 31, 2016. We expect these assets to generate aggregate cash tax savings of $14.9 million
through 2026 assuming continued profitability and a 39% tax rate. The amortization of these assets for
tax purposes is expected to be $3.8 million annually through 2025 and $2.8 million in 2026, which
generates an additional annual cash tax savings of $1.5 million through 2025 and $1.1 million in 2026,
assuming profitability and a 39% tax rate. Based on current business plans, we believe that our cash tax
obligations through 2026 will be significantly reduced by these tax attributes. Other domestic
acquisitions have resulted in additional tax deductible goodwill and intangible assets that will generate
tax savings, but are not material to the Company’s consolidated financial statements.
Components of Net Sales and Expenses
Net Sales
Substantially all of our net sales are generated through the sale of our power generator equipment
and other engine powered products to the residential, light commercial and industrial markets. We also
sell engines to certain customers and service parts to our dealer network. Net sales, which include
shipping and handling charges billed to customers, are generally recognized upon shipment of products
to our customers. Related freight costs are included in cost of sales.
We are not dependent on any one channel or customer for our net sales, with no single customer
representing more than 7% of our sales, and our top ten customers representing less than 22% of our
total sales for the year ended December 31, 2016.
35
Costs of Goods Sold
The principal elements of costs of goods sold in our manufacturing operations are component
parts, raw materials, factory overhead and labor. Component parts and raw materials comprised
approximately 78% of costs of goods sold for the year ended December 31, 2016. The principal
component parts are engines and alternators. We design and manufacture air-cooled engines for certain
of our generators up to 22kW, along with certain liquid-cooled 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 OEM of those engines. We design many of the
alternators for our units and either manufacture or source alternators for certain of 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. However, 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, 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, finance, risk management, legal and
tax functions, among others. These expenses include personnel costs such as salaries, bonuses,
employee benefit costs and taxes, 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, 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. 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, and opportunities to create market awareness for home standby generators in
areas impacted by heightened power outage activity.
Research and development. Our research and development expenses support numerous projects
covering all of our product lines. We operate engineering facilities at many locations globally and
employ over 300 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.
36
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 other intangibles assets.
Other Income (Expense)
Other income (expense) includes the interest expense on our outstanding borrowings, amortization
of debt financing costs and original issue discount, and expenses related to interest rate swap
agreements. Other income (expense) also includes other financial items such as losses on
extinguishment of debt, gains (losses) on change in contractual interest rate, interest income earned on
our cash and cash equivalents, and costs related to acquisitions.
Costs related to acquisitions.
In 2016, the other expenses include transaction expenses related to
the acquisitions of Pramac and Motortech. In 2015, the other expenses include transaction expenses
related to the acquisitions of CHP and Pramac. In 2014, the other expenses include transaction
expenses related to the acquisitions of Powermate and MAC. Refer to Note 3, ‘‘Acquisitions’’ and
Note 19, ‘‘Subsequent Events’’ to the consolidated financial statements in Item 8 of this Annual Report
on Form 10-K for additional information on the Company’s recent acquisitions.
Results of Operations
Year ended December 31, 2016 compared to year ended December 31, 2015
The following table sets forth our consolidated statement of operations data for the periods
indicated:
(U.S. Dollars in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling and service . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . .
Tradename and goodwill impairment . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . .
Year Ended December 31,
2016
2015
$ Change % Change
$1,444,453
930,347
$1,317,299
857,349
127,154
72,998
514,106
459,950
54,156
9.7%
8.5%
11.8%
164,607
37,229
74,700
32,953
—
309,489
204,617
(48,235)
156,382
57,570
98,812
24
130,242
32,922
52,947
23,591
40,687
280,389
179,561
(56,578)
122,983
45,236
77,747
—
34,365
4,307
21,753
9,362
26.4%
13.1%
41.1%
39.7%
(40,687) (cid:4)100.0%
10.4%
29,100
25,056
14.0%
8,343 (cid:4)14.7%
27.2%
33,399
27.3%
12,334
21,065
24
21,041
27.1%
N/A
27.1%
Net income attributable to Generac Holdings Inc. . . . . .
$
98,788
$
77,747
37
The following sets forth our reportable segment information for the periods indicated:
(U.S. Dollars in thousands)
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
Year Ended December 31,
2016
2015
$1,173,559
270,894
$1,204,589
112,710
$ Change % Change
(31,030) (cid:4)2.6%
140.3%
158,184
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,444,453
$1,317,299
127,154
9.7%
Adjusted EBITDA
Year Ended December 31,
2016
2015
$ Change % Change
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$261,428
16,959
Total Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . .
$278,387
$254,882
15,934
$270,816
6,546
1,025
7,571
2.6%
6.4%
2.8%
The following table sets forth our product class information for the periods indicated:
(U.S. Dollars in thousands)
Residential products . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & industrial products . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 772,436
557,532
114,485
$ 673,764
548,440
95,095
98,672
9,092
19,390
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,444,453
$1,317,299
127,154
14.6%
1.7%
20.4%
9.7%
Year Ended December 31,
2016
2015
$ Change % Change
Net sales. The decrease in Domestic sales for the year ended December 31, 2016 was primarily
due to significant declines in shipments of mobile products into oil & gas and general rental markets.
Partially offsetting these impacts was the contribution from the CHP acquisition, along with increased
shipments of portable and home standby generators.
The increase in International sales for the year ended December 31, 2016 was due to the
contribution from the Pramac acquisition. Partially offsetting this impact were declines in organic
shipments of mobile products into the European region.
The total contribution from non-annualized recent acquisitions for the year ended December 31,
2016 was $236.6 million.
Net income attributable to Generac Holdings Inc. Net income attributable to Generac
Holdings Inc. for the year ended December 31, 2016 includes the impact of $7.1 million of
non-recurring, pre-tax charges relating to business optimization and restructuring costs to address the
impact of the significant and extended downturn for capital spending within the oil & gas industry. The
cost-reduction actions taken include the consolidation of production facilities, headcount reductions,
certain non-cash asset write-downs and other non-recurring product-related charges. The charges
consist of $2.7 million classified within cost of goods sold and $4.4 million classified within operating
expenses. The increase in net income attributable to Generac Holdings Inc. was primarily due to a
prior year $40.7 million pre-tax, non-cash charge for the impairment of certain intangible assets,
partially offset by the business optimization charge discussed above and the other factors outlined in
this section.
Gross profit. Gross profit margin for the year ended December 31, 2016 was 35.6% compared to
34.9% for the year ended December 31, 2015, which includes the impact of the aforementioned
38
$2.7 million of business optimization charges classified within cost of goods sold, as well as $4.2 million
of expense relating to the purchase accounting adjustment for the step-up in value of inventories
relating to the Pramac acquisition. Excluding the impact of these adjustments, gross profit margin was
36.1%, an improvement of 120 basis points over the prior year. The increase was primarily due to the
favorable impacts from lower commodity costs and overseas sourcing benefits from a stronger U.S.
Dollar, along with an overall favorable organic product mix. In addition, gross margin in the prior year
was negatively impacted by temporary increases in certain costs associated with the west coast port
congestion as well as other overhead-related costs that did not repeat in the current year. These factors
were partially offset by the mix impact from the Pramac acquisition.
Operating expenses. Excluding the impact of the aforementioned current year $4.4 million of
business optimization charges and prior year $40.7 million of intangible impairment charges classified
within operating expenses, operating expenses increased $65.4 million, or 27.3%, to $305.1 million for
the year ended December 31, 2016 from $239.7 million for the year ended December 31, 2015. The
increase was primarily due to the addition of recurring operating expenses associated with recent
acquisitions and increased amortization expense.
Other expense. Other expense in the prior year included a non-cash $4.8 million loss on
extinguishment of debt resulting from $150.0 million of voluntary prepayments of Term Loan debt, and
a $2.4 million non-cash loss resulting from an increase in our Term Loan interest rate spread of 25
basis points. In the current year, other expense included a $3.0 million non-cash loss resulting from a
continuation of the 25 basis point spread increase, and a $0.6 million loss on extinguishment of debt
resulting from a $25.0 million voluntary prepayment of Term Loan debt.
Income tax expense. The effective income tax rates for the years ended December 31, 2016 and
2015 were 36.8%.
Adjusted EBITDA. Adjusted EBITDA margins for the Domestic segment for the year ended
December 31, 2016 were 22.3% of net sales as compared to 21.2% of net sales for the year ended
December 31, 2015. This increase was primarily due to overall favorable product mix; lower commodity
costs and overseas sourcing benefits from a stronger U.S. Dollar; and the benefit of cost-reduction
actions within domestic mobile products, partially offset by increased promotional activities.
Adjusted EBITDA margins for the International segment for the year ended December 31, 2016
were 6.3% of net sales as compared to 14.1% of net sales for the year ended December 31, 2015. This
decrease was primarily due to a large decline in mobile products margins given the reduced operating
leverage on lower organic sales volume, unfavorable sales mix, foreign currency impacts with the
weakness in the British Pound, and, to a lesser extent, the Pramac acquisition sales mix.
Adjusted net income. Adjusted Net Income of $198.3 million for the year ended December 31,
2016 decreased 0.1% from $198.4 million for the year ended December 31, 2015. The increased
earnings outlined above were offset by an increase in cash income tax expense and adjusted net income
attributable to noncontrolling interests.
39
Year ended December 31, 2015 compared to year ended December 31, 2014
The following table sets forth our consolidated statement of operations data for the periods
indicated:
(U.S. Dollars in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling and service . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . .
Tradename and goodwill impairment
. . . . . . . . . . . .
Gain on remeasurement of contingent consideration .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Total other expense, net
. . . . . . . . . .
Income before provision for income taxes
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2015
2014
$1,317,299
857,349
$1,460,919
944,700
459,950
516,219
130,242
32,922
52,947
23,591
40,687
—
280,389
179,561
(56,578)
122,983
45,236
120,408
31,494
54,795
21,024
—
(4,877)
222,844
293,375
(35,013)
258,362
83,749
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
77,747
$ 174,613
% Change
$ Change
(143,620) (cid:4)9.8%
(87,351) (cid:4)9.2%
(56,269) (cid:4)10.9%
8.2%
9,834
4.5%
1,428
(1,848) (cid:4)3.4%
12.2%
2,567
40,687
N/A
4,877 (cid:4)100.0%
25.8%
57,545
(113,814) (cid:4)38.8%
(21,565)
61.6%
(135,379) (cid:4)52.4%
(38,513) (cid:4)46.0%
(96,866) (cid:4)55.5%
The following table sets forth our reportable segment information for the periods indicated:
(U.S. Dollars in thousands)
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Net Sales
Year Ended December 31,
2015
2014
$1,204,589
112,710
$1,343,367
117,552
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,317,299
$1,460,919
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$254,882
15,934
$322,769
14,514
Total Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . .
$270,816
$337,283
Adjusted EBITDA
Year Ended December 31,
2015
2014
$ Change
% Change
(138,778) (cid:4)10.3%
(4,842) (cid:4)4.1%
(143,619) (cid:4)9.8%
$ Change
% Change
(67,887) (cid:4)21.0%
9.8%
(66,467) (cid:4)19.7%
1,420
40
The following table sets forth our product class information for the periods indicated:
(U.S. Dollars in thousands)
Residential products . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & industrial products . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2015
2014
$ 673,764
548,440
95,095
$ 722,206
652,216
86,497
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,317,299
$1,460,919
$ Change
% Change
(48,442) (cid:4)6.7%
(103,776) (cid:4)15.9%
9.9%
(143,620) (cid:4)9.8%
8,598
Net sales. The decrease in Domestic sales for the year ended December 31, 2015 was primarily
due to lower demand of home standby generators as a result of the significant decline in the power
outage severity environment during 2015, and a reduction in shipments into oil & gas and general
rental markets and, to a lesser extent, reduced shipments to telecom national account customers.
Partially offsetting these impacts was the contribution from the CHP acquisition.
The decrease in International sales for the year ended December 31, 2015 was primarily due to the
negative impact of foreign currency translation.
The contribution from non-annualized recent acquisitions to the year ended December 31, 2015
was $62.8 million.
Gross profit. Gross profit margin for the year ended December 31, 2015 decreased to 34.9% from
35.3% for the year ended December 31, 2014. The decline in gross margin was primarily due to
unfavorable absorption of manufacturing overhead-related costs, partially offset by the favorable impact
of lower commodity costs and overseas sourcing benefits from a stronger U.S. dollar.
Operating expenses. Operating expenses for the year ended December 31, 2015 include a non-cash
$36.1 million impairment charge relating to tradenames as a result of a new brand strategy to transition
and consolidate various brands to the Generac(cid:3) tradename, and a non-cash $4.6 million impairment
charge relating to the write-down of the goodwill of the Ottomotores reporting unit. Additionally,
operating expenses for the year ended December 31, 2014 include a $4.9 million gain relating to a
remeasurement of a contingent earn-out obligation from the Tower Light acquisition. Excluding the
impact of these items, operating expenses increased $12.0 million primarily due to the addition of
recurring operating expenses associated with the CHP acquisition, increased marketing and advertising
expenses, and a $2.6 million increase in the amortization of intangible assets. This was partially offset
by reductions in variable operating expenses on lower sales volumes.
Other expense. The increase in other expense was primarily due to a $16.0 million non-cash gain
recorded in the year ended December 31, 2014 relating to a 25 basis point reduction in borrowing costs
as a result of the credit agreement leverage ratio falling below 3.0 times effective second quarter 2014
and remaining below 3.0 times based on projections at that time, and a $2.4 million non-cash loss
recorded in the year ended December 31, 2015 relating to a 25 basis point increase in borrowing costs
as a result of our credit agreement leverage ratio rising above 3.0 times effective third quarter 2015 and
remaining above 3.0 times based on projections at the time. Additionally, $150.0 million of voluntary
prepayments of Term Loan debt were made in the year ended December 31, 2015, resulting in a
non-cash $4.8 million loss on extinguishment of debt compared to voluntary prepayments of Term Loan
debt of $87.0 million in the year ended December 31, 2014, which resulted in a non-cash $2.1 million
loss on extinguishment of debt. The debt repayments resulted in a year-over-year decrease in interest
expense of $4.4 million.
Income tax expense. The effective tax rate for 2015 was 36.8% as compared to 32.4% for 2014.
The increase in income tax rate was primarily attributable to a decrease in the Company’s federal
domestic production activity deduction due to lower pre-tax income.
41
Net income. As a result of the factors identified above, we generated net income of $77.7 million
for the year ended December 31, 2015 compared to $174.6 million for the year ended December 31,
2014.
Adjusted EBITDA. Adjusted EBITDA margins for the Domestic segment for the year ended
December 31, 2015 were 21.2% of net sales as compared to 24.0% of net sales for the year ended
December 31, 2014. This decrease was primarily due to increased marketing and advertising expenses,
and reduced overall leverage of fixed operating expenses, partially offset by the favorable impact of
lower commodity costs and overseas sourcing benefits from a stronger U.S. Dollar.
Adjusted EBITDA margins for the International segment for the year ended December 31, 2015
were 14.1% of net sales as compared to 12.3% of net sales for the year ended December 31, 2014. This
increase was primarily due to lower operating expenses.
Adjusted net income. Adjusted Net Income of $198.4 million for the year ended December 31,
2015 decreased 15.3% from $234.2 million for the year ended December 31, 2014, due to the factors
outlined above, partially offset by a decrease in cash income tax expense.
Liquidity and Financial Position
Our primary cash requirements include payment for our raw material and component supplies,
salaries & benefits, 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 Amended ABL Facility.
The Company’s credit agreements provided for a $1.2 billion Term Loan and include a
$300.0 million uncommitted incremental term loan facility. The Term Loan matures on May 31, 2023.
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%. Beginning in the second quarter of 2014, and measured each subsequent quarter thereafter, the
applicable margin related to base rate loans is reduced to 1.50% and the applicable margin related to
LIBOR rate loans is reduced to 2.50%, to the extent that the Company’s net debt leverage ratio, as
defined in the Term Loan, is below 3.00 to 1.00 for that measurement period. The Company’s net debt
leverage ratio as of December 31, 2016 was above 3.00 to 1.00. As of December 31, 2016, the Company
is 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 the $250.0 million Amended ABL Facility. The
maturity date of the Amended ABL Facility is May 29, 2020. In May 2015, the Company borrowed
$100.0 million under the Amended ABL Facility, the proceeds of which were used as a voluntary
prepayment of Term Loan borrowings. As of December 31, 2016, there was $100.0 million outstanding
under the Amended ABL Facility, and the Company is in compliance with all of its covenants.
At December 31, 2016, we had cash and cash equivalents of $67.3 million and $145.6 million of
availability under our revolving ABL credit facility, net of outstanding letters of credit.
In August 2015, our Board of Directors approved a $200.0 million stock repurchase program,
which we completed with stock repurchases in the third quarter of 2016. In October 2016, our Board of
Directors approved a $250.0 million stock repurchase program, under which we may repurchase an
additional $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. 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 our
shares of common stock and general market and economic conditions, applicable legal requirements,
42
and compliance with the terms of the Company’s outstanding indebtedness. The repurchases may be
funded from cash on hand, available borrowings, or proceeds from potential debt or other capital
market sources. The stock repurchase program may be suspended or discontinued at any time without
prior notice. For the year ended December 31, 2016, we repurchased 3,968,706 shares of our common
stock for $149.9 million, and for the year ended December 31, 2015, the Company repurchased
3,303,500 shares of its common stock for $99.9 million, all funded with cash on hand.
Refer to Note 10, ‘‘Credit Agreements,’’ to the consolidated financial statements in Item 8 of this
Annual Report on Form 10-K for additional information.
Long-term Liquidity
We believe that our cash flow from operations and availability under our Amended ABL Facility,
combined with relatively low ongoing capital expenditure requirements and favorable tax attributes
(which result in a lower cash tax rate as compared to the U.S. statutory tax rate) provide us with
sufficient capital to continue to grow our business in the future. We will 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, 2016 compared to year ended December 31, 2015
The following table summarizes our cash flows by category for the periods presented:
(U.S. Dollars in thousands)
Net cash provided by operating activities . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
Change
% Change
$ 253,409
(105,822)
(195,705)
$ 188,619
(104,328)
(154,483)
$ 64,790
(1,494)
(41,222)
34.3%
1.4%
26.7%
The 34.3% increase in net cash provided by operating activities was primarily driven by a reduction
in working capital investment during the current year as compared to the larger investment that was
incurred in the prior year, and an overall increase in operating earnings.
Net cash used in investing activities for the year ended December 31, 2016 primarily represents
cash payments of $76.7 million related to the acquisitions of businesses and $30.5 million for the
purchase of property and equipment. Net cash used in investing activities for the year ended
December 31, 2015 primarily represents cash payments of $74.6 million related to the acquisition of
CHP and $30.7 million for the purchase of property and equipment.
Net cash used in financing activities for the year ended December 31, 2016 primarily represents
$149.9 million payments for the repurchase of the Company’s common stock, $65.4 million of debt
repayments ($37.6 million of long-term borrowings and $27.8 million of short-term borrowings) and
$12.4 million related to the net settlement of equity awards. These payments were partially offset by
$28.7 million cash proceeds from short-term borrowings and $7.9 million of excess tax benefits from
equity awards.
Net cash used in financing activities for the year ended December 31, 2015 primarily represents
$174.0 million of debt repayments ($150.8 million of long-term borrowings and $23.2 million of
short-term borrowings), partially offset by $126.4 million cash proceeds from borrowings ($100.0 million
from long-term borrowings under the Amended ABL facility and $26.4 million from short-term
borrowings). In addition, the Company paid $99.9 million for the repurchase of its common stock and
43
$13.0 million for the net share settlement of equity awards, which was partially offset by $9.6 million of
excess tax benefits from equity awards.
Year ended December 31, 2015 compared to year ended December 31, 2014
The following table summarizes our cash flows by category for the periods presented:
(U.S. Dollars in thousands)
Net cash provided by operating activities . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . .
Year Ended December 31,
2015
2014
$ 188,619
(104,328)
(154,483)
$ 252,986
(95,491)
(116,023)
Change
% Change
$(64,367) (cid:4)25.4%
9.3%
33.1%
(8,837)
(38,460)
The 25.4% decrease in net cash provided by operating activities was primarily attributable to lower
operating earnings during the year ended December 31, 2015, along with higher working capital
investment primarily due to a decrease in accounts payable, partially offset by lower cash tax payments.
Net cash used in investing activities for the year ended December 31, 2015 was primarily related to
cash payments of $74.6 million related to the acquisition of CHP and $30.7 million for the purchase of
property and equipment. Net cash used in investing activities for the year ended December 31, 2014
was primarily attributable to cash payments of $61.2 million related to the acquisition of businesses and
$34.7 million for the purchase of property and equipment.
Net cash used in financing activities for the year ended December 31, 2015 primarily represents
$174.0 million of debt repayments ($150.8 million of long-term borrowings and $23.2 million of
short-term borrowings), partially offset by $126.4 million cash proceeds from borrowings ($100.0 million
from long-term borrowings under the Amended ABL facility and $26.4 million from short-term
borrowings). In addition, the Company paid $99.9 million for the repurchase of its common stock and
$13.0 million for the net share settlement of equity awards, which was partially offset by $9.6 million of
excess tax benefits from equity awards.
Net cash used in financing activities for the year ended December 31, 2014 primarily represents
$120.4 million of debt repayments ($94.0 million of long-term borrowings and $26.4 million of
short-term borrowings); partially offset by $6.6 million cash proceeds from short-term borrowings. In
addition, the Company paid $12.2 million for the net share settlement of equity awards, which was
partially offset by $11.0 million of excess tax benefits from equity awards.
Senior Secured Credit Facilities
Refer to Note 10, ‘‘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,
44
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 Amended 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, 2016:
(U.S. Dollars in thousands)
Long-term debt, including curent
Total
Less than 1 Year
2 - 3 Years
4 - 5 Years
After 5 Years
portion(1) . . . . . . . . . . . . . . . . . . .
$1,043,753
$14,399
$
320
$100,034
$929,000
Capital lease obligations, including
current portion . . . . . . . . . . . . . . . .
Interest on long-term debt . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . .
4,647
212,971
36,839
566
36,369
7,922
1,064
67,782
13,682
1,034
64,176
9,506
1,983
44,644
5,730
Total contractual cash obligations(2) . .
$1,298,210
$59,256
$82,848
$174,750
$981,357
(1) The Term Loan provides for a $1.2 billion term loan B credit facility and includes a $300.0 million
uncommitted incremental term loan facility. The Term Loan matures on May 31, 2023. The
Amended ABL Facility provides for a $250.0 million senior secured ABL revolving credit facility,
which matures on May 29, 2020. There was $100.0 million outstanding on the Amended ABL
Facility as of December 31, 2016.
(2) Pension obligations are excluded from this table as we are unable to estimate the timing of
payment due to the inherent assumptions underlying the obligation. However, the Company
estimates we will contribute $0.6 million to our pension plans in 2017.
Capital Expenditures
Our operations require capital expenditures for technology, tooling, equipment, capacity expansion,
systems and upgrades. Capital expenditures were $30.5 million and $30.7 million for the years ended
December 31, 2016 and 2015, respectively, and were funded through cash from operations.
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
provider. 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.
45
Total inventory financed under this arrangement accounted for approximately 8% and 9% of net
sales for the years ended December 31, 2016 and 2015, respectively. The amount financed by dealers
which remained outstanding was $33.9 million and $32.4 million as of December 31, 2016 and 2015,
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 supplemental information disclosures of the
Company, including information about contingencies, risk and financial condition. The Company
believes, given current facts and circumstances, that its 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. The Company makes routine estimates and judgments in determining net
realizable value of accounts receivable, inventories, property and equipment, and prepaid expenses.
Management believes the Company’s 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; defined benefit pension obligations; estimates of product
warranty and other contingencies; income taxes and share based compensation.
Goodwill and Other Indefinite-Lived Intangible Assets
Refer to Note 2, ‘‘Significant 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 2016, 2015 and 2014, and found no impairment following the
2016 and 2014 tests. There were no reporting units with a carrying value at-risk of exceeding fair value
as of the October 31, 2016 impairment test date.
After performing the impairment tests for fiscal year 2015, the Company determined that the fair
value of the Ottomotores reporting unit was less than its carrying value, resulting in a non-cash
goodwill impairment charge of $4.6 million in the fourth quarter of 2015. The fair value was
determined using a discounted cash flow analysis, which utilizes key estimates and assumptions as
discussed below. Additionally, in the fourth quarter of 2015, the Company’s Board of Directors
approved a plan to strategically transition and consolidate certain of the Company’s brands acquired
through acquisitions over the past several years to the Generac(cid:3) tradename. This brand strategy change
resulted in a reclassification to a two year remaining useful life for the impacted tradenames, causing
the fair value to be less than the carrying value using the relief-from-royalty approach in a discounted
cash flow analysis. As such, a $36.1 million non-cash impairment charge was recorded in the fourth
quarter of 2015 to write-down the impacted tradenames to net realizable value. See Note 2,
‘‘Significant 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 impairment charges recorded in 2015.
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
46
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.
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:
(cid:129) a prolonged global or regional economic downturn;
(cid:129) a significant decrease in the demand for our products;
(cid:129) the inability to develop new and enhanced products and services in a timely manner;
(cid:129) a significant adverse change in legal factors or in the business climate;
(cid:129) an adverse action or assessment by a regulator;
(cid:129) successful efforts by our competitors to gain market share in our markets;
(cid:129) disruptions to the Company’s business;
(cid:129) inability to effectively integrate acquired businesses;
(cid:129) unexpected or planned changes in the use of assets or entity structure; and
(cid:129) business divestitures.
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, and 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, earnings margins, and forecasted cash flows
based on the discount rate and terminal growth rate. See Note 1, ‘‘Description of Business,’’ 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.
Defined Benefit Pension Obligations
The Company’s pension benefit obligation and related pension expense or income are calculated in
accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) 715-30, Defined Benefit Plans—Pension, and are impacted by certain actuarial assumptions,
47
including the discount rate and the expected rate of return on plan assets. Such rates are evaluated on
an annual basis considering factors including market interest rates and historical asset performance.
Actuarial valuations for fiscal year 2016 used a discount rate of 4.14% for the salaried pension plan
and 4.16% for the hourly pension plan. Our discount rate was selected using a methodology that
matches plan cash flows with a selection of ‘‘Aa’’ or higher rated bonds, resulting in a discount rate that
better matches a bond yield curve with comparable cash flows. In estimating the expected return on
plan assets, we study historical markets and preserve the long-term historical relationships between
equities and fixed-income securities. We evaluate current market factors such as inflation and interest
rates before we determine long-term capital market assumptions and review peer data and historical
returns to check for reasonableness and appropriateness. Changes in the discount rate and return on
assets can have a significant effect on the funded status of our pension plans, stockholders’ equity and
related expense. We cannot predict these changes in discount rates or investment returns and,
therefore, cannot reasonably estimate whether the impact in subsequent years will be significant.
The funded status of our pension plans is the difference between the projected benefit obligation
and the fair value of its plan assets. The projected benefit obligation is the actuarial present value of all
benefits expected to be earned by the employees’ service. No compensation increase is assumed in the
calculation of the projected benefit obligation, as the plans were frozen effective December 31, 2008.
Further information regarding the funded status of our pension plans can be found in Note 14,
‘‘Benefit Plans,’’ to the consolidated financial statements in Item 8 of this Annual Report on
Form 10-K.
Our funding policy for our pension plans is to contribute amounts at least equal to the minimum
annual amount required by applicable regulations. Given this policy, we expect to make $0.6 million in
contributions to our pension plans in 2017.
Product Warranty Reserves and Other Contingencies
The reserves, if any, for product warranty, product liability, litigation and customer rebates are
fact-specific and take into account such factors as specific customer situations, historical experience,
and current and expected economic conditions. Further information on these reserves are reflected
under Notes 2, 9, and 16 to the consolidated financial statements in Item 8 of this Annual Report on
Form 10-K.
Income Taxes
We account for income taxes in accordance with 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 13, ‘‘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.
48
Share Based Compensation
Under the fair value recognition provisions of ASC 718, Compensation—Stock Compensation, share
based compensation cost is measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period. Determining the fair value of share based
awards at the grant date requires judgment, including estimating expected dividends and market
volatility of our stock. In addition, judgment is also required in estimating the amount of share based
awards that are expected to be forfeited. If actual results differ significantly from these estimates, share
based compensation expense and our results of operations could be impacted. See Note 15, ‘‘Share
Plans’’ to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for
further information on the Company’s share based compensation.
New Accounting Standards
For information with respect to new accounting pronouncements and the impact of these
pronouncements on our consolidated financial statements, see Note 2, ‘‘Significant Accounting
Policies—New Accounting Pronouncements,’’ to the consolidated financial statements in Item 8 of this
Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency exchange rates, commodity prices
and interest rates. To reduce the risk from these changes, we use financial instruments from time to
time. We do not hold or issue financial instruments for trading purposes.
Foreign Currency
We are exposed to foreign currency exchange risk as a result of transactions denominated in
currencies other than the U.S. Dollar, as well as operating businesses in foreign countries. Periodically,
we utilize 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. Realized gains and losses on transactions denominated in foreign
currency are recorded in earnings as a component of cost of goods sold on the statements of
comprehensive income.
The following is a summary of the foreign currency contracts outstanding as of December 31, 2016
(in thousands):
Currency Denomination
Trade Dates
Effective Dates
Notional
Amount
Expiration Dates
GBP . . . . . . . . . . . . . . . . . . . . . .
USD . . . . . . . . . . . . . . . . . . . . . .
9/28/16 - 12/20/16
9/26/16 - 12/19/16
9/28/16 - 1/9/17
9/26/16 - 12/19/16
5,850
7,950
1/27/17 - 6/28/17
1/13/17 - 6/30/17
Commodity Prices
We are a purchaser of commodities and of components manufactured from commodities including
steel, aluminum, copper and others. As a result, we are exposed to fluctuating market prices for those
commodities. While such materials are typically available from numerous suppliers, commodity raw
materials are subject to price fluctuations. We generally buy these commodities and components based
upon market prices that are established with the supplier as part of the purchase process. Depending
on the supplier, these market prices may reset on a periodic basis based on negotiated lags and
calculations. To the extent that commodity prices increase and we do not have firm pricing from our
suppliers, or our suppliers are not able to honor such prices, we may experience a decline in our gross
49
margins to the extent we are not able to increase selling prices of our products or obtain manufacturing
efficiencies or supply chain savings to offset increases in commodity costs.
Periodically, we engage in certain commodity risk management activities to mitigate the impact of
potential price fluctuations on our financial results. These derivatives typically have maturities of less
than eighteen months. As of December 31, 2016, we had the following commodity forward contract
outstanding (in thousands):
Hedged
Item
Trade Date
Effective Date
Notional
Amount
Fixed Price
Expiration Date
Copper . . . . . . October 19, 2016 October 20, 2016
$3,502
$2.118 per LB December 31, 2017
For additional information on the Company’s commodity forward contracts, including amounts
charged to the statement of comprehensive income during 2016, see Note 4, ‘‘Derivative Instruments
and Hedging Activity,’’ to the consolidated financial statements in Item 8 of this Annual Report on
Form 10-K.
Interest Rates
As of December 31, 2016, all of the outstanding debt under our Term Loan was subject to floating
interest rate risk. As of December 31, 2016, we had the following interest rate swap contracts
outstanding (in thousands):
Hedged Item
Contract Date
Effective Date
Notional
Amount
Fixed LIBOR
Rate
Expiration Date
Interest rate . . . . . . . . . . . . October 23, 2013
Interest rate . . . . . . . . . . . . October 23, 2013
Interest rate . . . . . . . . . . . .
May 19, 2014
July 1, 2014
July 1, 2014
July 1, 2014
$100,000
$100,000
$100,000
1.7420% July 1, 2018
1.7370% July 1, 2018
1.6195% July 1, 2018
At December 31, 2016, the fair value of these interest rate swaps was a liability of $1.7 million. For
additional information on the Company’s interest rate swaps, including amounts charged to the
statement of comprehensive income during 2016, see Note 4, ‘‘Derivative Instruments and Hedging
Activities,’’ and Note 5, ‘‘Accumulated Other Comprehensive Loss,’’ to our consolidated financial
statements in Item 8 of this Annual Report on Form 10-K. Even after giving effect to these swaps, we
are exposed to risks due to changes in interest rates with respect to the portion of our Term Loan that
is not covered by the swaps. A hypothetical change in the LIBOR interest rate of 100 basis points
would have changed annual cash interest expense by approximately $6.3 million (or, without the swaps
in place, $9.3 million) in 2016. The existence of a 0.75% LIBOR floor provision in our Term Loan
limits the impact of a hypothetical 100 basis point change in LIBOR at current December 31, 2016
LIBOR rates.
50
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Generac Holdings Inc.
Waukesha, Wisconsin
We have audited the accompanying consolidated balance sheet of Generac Holdings Inc. and
subsidiaries (the ‘‘Company’’) as of December 31, 2016, and the related consolidated statements of
comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2016.
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Generac Holdings Inc. and subsidiaries as of
December 31, 2016, and the consolidated results of their operations and their cash flows for the year
ended December 31, 2016, in conformity accounting principles generally accepted in the United States
of America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013) and our report dated
February 24, 2017 expressed an unqualified opinion thereon.
/s/ Deloitte & Touche LLP
Milwaukee, WI
February 24, 2017
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Generac Holdings Inc.
Waukesha, Wisconsin
We have audited the accompanying consolidated balance sheet of Generac Holdings Inc. (the
Company) as of December 31, 2015, and the related consolidated statements of comprehensive income,
stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2015.
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Generac Holdings Inc. at December 31, 2015, and the
consolidated results of its operations and its cash flows for each of the two years in the period ended
December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, WI
February 26, 2016, (except for Note 6, Segment Reporting, and Note 2, New Accounting Pronouncements,
as to which the date is February 24, 2017)
52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Generac Holdings Inc.
Waukesha, Wisconsin
We have audited the internal control over financial reporting of Generac Holdings Inc. and its
subsidiaries (the ‘‘Company’’) as of December 31, 2016, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. As described in Management’s Report on Internal Control Over Financial
Reporting, management excluded from its assessment the internal control over financial reporting at
the PR Industrial business (‘‘Pramac’’), which was acquired on March 1, 2016 and whose financial
statements constitute 22.5% and 11.1% of net and total assets, respectively, 12.6% of revenues, and
0.7% of net income of the total consolidated financial statement amounts as of and for the year ended
December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting
at Pramac. 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 conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons performing
similar functions, and effected by the company’s board of directors, management, and other personnel
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 the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial reporting to future periods are subject to the
risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2016, based on the criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
53
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2016 and the
related consolidated statement of comprehensive income, stockholders’ equity and cash flows for the
year ended December 31, 2016 of Generac Holdings Inc. and our report dated February 24, 2017
expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Milwaukee, WI
February 24, 2017
54
Generac Holdings Inc.
Consolidated Balance Sheets
(U.S. Dollars in Thousands, Except Share and Per Share Data)
Current assets:
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $5,642 and $2,494 at
December 31, 2016 and 2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer lists, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradenames, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$
67,272
$ 115,857
241,857
349,731
24,649
683,509
212,793
45,312
48,061
2,925
158,874
704,640
3,337
2,233
182,185
325,375
8,600
632,017
184,213
39,313
53,772
2,768
161,057
669,719
34,812
964
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,861,684
$1,778,635
Current liabilities:
Liabilities and stockholders’ equity
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued wages and employee benefits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term borrowings and capital lease obligations . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
31,198
181,519
21,189
93,068
14,965
341,939
$
8,594
108,332
13,101
82,540
657
213,224
Long-term borrowings and capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,006,758
17,278
61,459
1,037,132
4,950
57,458
Total liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,427,434
1,312,764
Redeemable noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,138
—
Stockholders’ equity:
Common stock, par value $0.01, 500,000,000 shares authorized, 70,261,481 and
69,582,669 shares issued at December 31, 2016 and 2015, respectively . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Treasury stock, at cost, 7,564,874 and 3,567,575 shares at December 31, 2016 and
2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess purchase price over predecessor basis . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity attributable to Generac Holdings Inc.
. . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
702
449,049
696
443,109
(262,402)
(202,116)
456,052
(40,163)
401,122
(10)
401,112
(111,516)
(202,116)
358,173
(22,475)
465,871
—
465,871
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,861,684
$1,778,635
See notes to consolidated financial statements.
55
Generac Holdings Inc.
Consolidated Statements of Comprehensive Income
(U.S. Dollars in Thousands, Except Share and Per Share Data)
Year Ended December 31,
2016
2015
2014
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,444,453
930,347
$ 1,317,299
857,349
$ 1,460,919
944,700
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
514,106
459,950
516,219
Operating expenses:
Selling and service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename and goodwill impairment
. . . . . . . . . . . . . . . . . . .
Gain on remeasurement of contingent consideration . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on change in contractual interest rate . . . . . . . . . . .
Costs related to acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . . . .
164,607
37,229
74,700
32,953
—
—
309,489
204,617
(44,568)
44
(574)
(2,957)
(1,082)
902
(48,235)
156,382
57,570
98,812
24
130,242
32,922
52,947
23,591
40,687
—
280,389
179,561
(42,843)
123
(4,795)
(2,381)
(1,195)
(5,487)
(56,578)
122,983
45,236
77,747
—
120,408
31,494
54,795
21,024
—
(4,877)
222,844
293,375
(47,215)
130
(2,084)
16,014
(396)
(1,462)
(35,013)
258,362
83,749
174,613
—
Net income attributable to Generac Holdings Inc.
. . . . . . . . . . .
$
98,788
$
77,747
$
174,613
Net income attributable to common shareholders per
common share—basic:
. . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding—basic: . . . . . .
$
1.51
64,905,793
$
1.14
68,096,051
$
2.55
68,538,248
Net income attributable to common shareholders per
common share—diluted: . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
Weighted average common shares outstanding—diluted:
$
1.50
65,382,774
$
1.12
69,200,297
$
2.49
70,171,044
Other comprehensive income (loss):
. . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
Net unrealized gain (loss) on derivatives . . . . . . . . . . . . . . . . .
Pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(18,545) $
535
322
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss attributable to noncontrolling interests . . . . .
(17,688)
81,124
(973)
(7,624) $
(965)
1,881
(3,082)
(1,420)
(8,850)
(6,708)
(13,352)
71,039
—
161,261
—
Comprehensive income attributable to Generac Holdings Inc.
. . .
$
82,097
$
71,039
$
161,261
See notes to consolidated financial statements.
56
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Generac Holdings Inc.
Consolidated Statements of Cash Flows
(U.S. Dollars in Thousands)
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of original issue discount and deferred financing costs . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename and goodwill impairment
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on change in contractual interest rate . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on remeasurement of contingent consideration . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in operating assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued wages and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
$ 98,812
$ 77,747
$ 174,613
21,465
32,953
3,940
—
574
2,957
—
39,347
9,493
127
(9,082)
15,514
406
32,908
5,196
6,719
(7,920)
16,742
23,591
5,429
40,687
4,795
2,381
—
26,955
8,241
540
9,610
9,084
5,063
(27,771)
(5,361)
445
(9,559)
13,706
21,024
6,615
—
2,084
(16,014)
(4,877)
37,878
12,612
1,248
(2,988)
3,508
2,456
15,269
(9,405)
6,229
(10,972)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
253,409
188,619
252,986
Investing activities
Proceeds from sale of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures for property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit paid related to acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,360
(30,467)
(61,386)
(15,329)
105
(30,651)
(73,782)
—
394
(34,689)
(61,196)
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(105,822)
(104,328)
(95,491)
Financing activities
Proceeds from short-term borrowings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term borrowings and capital lease obligations . . . . . . . . . . . . . . . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to the net share settlement of equity awards . . . . . . . . . . . . . . . . . .
Proceeds from the exercise of stock options
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,712
—
(27,755)
(37,627)
(149,937)
(4,557)
(76)
(14,008)
1,623
7,920
26,384
100,000
(23,149)
(150,826)
(99,942)
(2,117)
(1,436)
(12,956)
—
9,559
6,550
—
(26,444)
(94,035)
—
(4)
(902)
(12,160)
—
10,972
Net cash used in financing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(195,705)
(154,483)
(116,023)
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
(467)
(48,585)
115,857
(3,712)
(73,904)
189,761
(1,858)
39,614
150,147
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 67,272
$ 115,857
$ 189,761
Supplemental disclosure of cash flow information
Cash paid during the period
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,456
8,889
$ 39,524
6,087
$ 42,592
34,283
See notes to consolidated financial statements.
58
Generac Holdings Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2016, 2015, and 2014
(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 designer and manufacturer of
a wide range of power generation equipment and other engine powered products serving the
residential, light-commercial and industrial markets. Generac’s power products are available globally
through a broad network of independent dealers, distributors, retailers, 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 our strategic plan
(refer to Item 1 in this Annual Report on Form 10-K for discussion of our Powering Ahead strategic
plan). A summary of these acquisitions include the following:
(cid:129) In October 2011, the Company acquired substantially all the assets of Magnum Products
(Magnum), a supplier of generator powered light towers and mobile generators for a variety of
industrial applications. The Magnum business is a strategic fit for the Company as it provides
diversification through the introduction of new engine powered products, distribution channels
and end markets.
(cid:129) In December 2012, the Company acquired the equity of Ottomotores UK and its affiliates
(Ottomotores), with operations in Mexico City, Mexico and Curitiba, Brazil. Ottomotores is a
leading manufacturer in the Mexican market for industrial diesel gensets and is a market
participant throughout all of Latin America.
(cid:129) In August 2013, the Company acquired the equity of Tower Light SRL and its wholly-owned
subsidiaries (Tower Light). Headquartered outside Milan, Italy, Tower Light is a leading
developer and supplier of mobile light towers throughout Europe, the Middle East and Africa.
(cid:129) In November 2013, the Company purchased the assets of Baldor Electric Company’s generator
division (Baldor Generators). Baldor Generators offers a complete line of power generation
equipment throughout North America with power output up to 2.5MW, which expands the
Company’s commercial and industrial product lines.
(cid:129) In September 2014, the Company acquired the equity of Pramac America LLC (Powermate),
resulting in the ownership of the Powermate trade name and the right to license the DeWalt
brand name for certain residential engine powered tools. This acquisition expands Generac’s
residential product portfolio in the portable generator category.
(cid:129) In October 2014, the Company acquired MAC, Inc. (MAC). MAC is a leading manufacturer of
premium-grade commercial and industrial mobile heaters for the United States and Canadian
markets. The acquisition expands the Company’s portfolio of mobile power products and
provides increased access to the oil & gas market.
(cid:129) In August 2015, the Company acquired Country Home Products and its subsidiaries (CHP).
CHP is a leading manufacturer of high-quality, innovative, professional-grade engine powered
equipment used in a wide variety of property maintenance applications, which are primarily sold
in North America under the DR(cid:3) Power Equipment brand. The acquisition provides an
expanded product lineup and additional scale to the Company’s residential engine powered
products.
59
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
1. Description of Business (Continued)
(cid:129) In March 2016, the Company acquired a majority ownership interest in PR Industrial S.r.l and
its subsidiaries (Pramac). Headquartered in Siena, Italy, Pramac is a leading global manufacturer
of stationary, mobile and portable generators primarily sold under the Pramac(cid:3) brand. Pramac
products are sold in over 150 countries through a broad distribution network.
(cid:129) In January 2017, the Company acquired Motortech GmbH & affiliates (Motortech),
headquartered in Celle, Germany. Motortech is a leading manufacturer of gaseous-engine
control systems and accessories, which are sold primarily to European gas-engine manufacturers
and to aftermarket customers.
2. Significant 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. generally accepted accounting principles (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 one commercial bank 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 9% and 11% of accounts receivable at December 31,
2016 and 2015, respectively. No one customer accounted for greater than 7%, 7% and 8%, of net sales
during the years ended December 31, 2016, 2015, or 2014, respectively.
Accounts Receivable
Receivables are recorded at their face value amount less an allowance for doubtful accounts. The
Company estimates and records an allowance for doubtful accounts based on specific identification and
historical experience. The Company writes off uncollectible accounts against the allowance for doubtful
accounts after all collection efforts have been exhausted. Sales are generally made on an unsecured
basis.
Inventories
Inventories are stated at the lower of cost or market, with cost determined generally using the
first-in, first-out method.
60
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
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.
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dies and tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 - 20
10 - 40
3 - 10
3 - 10
3 - 6
3 - 15
2 - 20
Total depreciation expense was $21,465, $16,742, and $13,706 for the years ended December 31,
2016, 2015, and 2014, 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 first performing a qualitative assessment to determine
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 further goodwill impairment testing 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 a two-step goodwill impairment test. In
the first step, the 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
and no further analysis is necessary. If the fair value of the reporting unit is less than its book value,
there is an indication of potential impairment and a second step is performed. When required, the
second step of testing involves calculating the implied fair value of goodwill for the reporting unit. The
implied fair value of goodwill is determined in the same manner as goodwill recognized in a business
combination, which is the excess of the fair value of the reporting unit determined in step one over the
fair value of its net assets and identifiable intangible assets as if the reporting unit had been acquired.
If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. For reporting units with a negative
book value (i.e., excess of liabilities over assets), qualitative factors are evaluated to determine whether
it is necessary to perform the second step of the goodwill impairment test.
61
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
The Company performed the required annual impairment tests for goodwill and other indefinite-
lived intangible assets for the fiscal years 2016, 2015 and 2014, and found no impairment following the
2016 and 2014 tests. There were no reporting units with a carrying value at-risk of exceeding fair value
as of the October 31, 2016 impairment test date.
After performing the impairment tests for fiscal year 2015, the Company determined that the fair
value of the Ottomotores reporting unit was less than its carrying value, resulting in a non-cash
goodwill impairment charge in the fourth quarter of 2015 of $4,611 to write-down the balance of the
Ottomotores goodwill. The decrease in fair value of the Ottomotores reporting unit was due to several
factors in the second half of 2015: the continued challenges of the Latin American economies,
devaluation of the Peso against the U.S. Dollar, the slow development of Mexican energy reform as a
result of decreasing oil prices; combining to cause 2015 results to fall short of prior expectations and
future forecasts to decrease. The fair value was determined using a discounted cash flow analysis, which
utilized key financial assumptions including the sales growth factors discussed above, a 3% terminal
growth rate and a 15.7% discount rate.
Other indefinite-lived intangible assets consist of certain tradenames. The Company tests the
carrying value of these tradenames 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 conducts its annual
impairment test for indefinite-lived intangible assets as of October 31 of each year.
In the fourth quarter of 2015, the Company’s Board of Directors approved a plan to strategically
transition and consolidate certain of the Company’s brands acquired in acquisitions over the past
several years to the Generac(cid:3) tradename. This brand strategy change resulted in a reclassification to a
two year remaining useful life for the impacted tradenames, causing the fair value to be less than the
carrying value using the relief-from-royalty approach in a discounted cash flow analysis. As such, a
$36,076 non-cash impairment charge was recorded to write-down the impacted tradenames to net
realizable value.
Other than the impairment charges discussed above, the Company found no other impairment
when performing the required annual impairment tests for goodwill and other indefinite-lived intangible
assets for fiscal year 2015. There can be no assurance that future impairment tests will not result in a
charge to earnings.
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.
62
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
Debt Issuance Costs
Debt discounts and direct and incremental costs incurred in connection with the issuance 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.
Approximately $3,939, $5,429, and $6,615 of deferred financing costs and original issue discount were
amortized to interest expense during fiscal years 2016, 2015 and 2014, respectively. Excluding the
impact of any future long-term debt issuances or prepayments, estimated amortization expense for the
next five years is as follows: 2017—$2,516; 2018—$4,314; 2019—$4,466; 2020—$4,420; 2021—$4,419.
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
Sales, net of estimated returns and allowances, are recognized upon shipment of product to the
customer, which is generally when title passes, the Company has no further obligations, and the
customer is required to pay subject to agreed upon payment terms. The Company, at the request of
certain customers, 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 customers take possession of the product. In these cases, the funds collected on product
warehoused for these customers are recorded as a customer advance until the customer takes
possession of the product and the Company’s obligation to deliver the goods is completed. Customer
advances are included in accrued liabilities in the consolidated balance sheets.
The Company provides for certain estimated sales programs, discounts and incentive expenses
which are recognized as a reduction of sales.
Shipping and Handling Costs
Shipping and handling costs billed to customers are included in net sales, and the related costs are
included in cost of goods sold in the consolidated statements of comprehensive income.
63
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
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. Total expenditures for advertising were
$45,488, $39,258, and $32,352 for the years ended December 31, 2016, 2015, and 2014, respectively.
Research and Development
The Company expenses research and development costs as incurred. Total expenditures incurred
for research and development were $37,229, $32,922, and $31,494 for the years ended December 31,
2016, 2015 and 2014, 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 fiscal year-end. 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
The Financial Accounting Standards Board (FASB) Accounting Standards Update (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 $903,673, was approximately $904,780 (Level 2) at December 31, 2016, 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, see the fair value
table in Note 4, ‘‘Derivative Instruments and Hedging Activities,’’ to the consolidated financial
64
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
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 be reported on 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.
Stock-Based Compensation
Stock-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.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This
guidance is the culmination of the FASB’s joint project with the International Accounting Standards
Board to clarify the principles for recognizing revenue. The core principal of the guidance is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. The guidance provides a five-step process that entities should follow in order to
achieve that core principal. ASU 2014-09, as amended by ASU 2015-14, Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with
Customers (Topic 606): Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with
Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers, becomes effective for the Company in 2018. The guidance can be applied either on a full
retrospective basis or on a modified retrospective basis in which the cumulative effect of initially
65
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
applying the standard is recognized at the date of initial application. While the Company is continuing
to assess all potential impacts the standard may have on its financial statements, it believes that the
adoption will not have a significant impact on its revenue related to equipment and parts sales, which
represent substantially all of the revenue for the Company. The Company has not yet determined its
method of adoption.
In February 2016, the FASB issued ASU 2016-02, Leases. This guidance is being issued to increase
transparency and comparability among organizations by requiring the recognition of lease assets and
lease liabilities on the statement of financial position and by disclosing key information about leasing
arrangements. The guidance should be applied using a modified retrospective approach and is effective
for the Company in 2019, with early adoption permitted. The Company is currently assessing the
impact the adoption of this guidance will have on its results of operations and financial position.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation: Improvements
to Employee Share-Based Payment Accounting. This guidance is a part of the FASB’s initiative to reduce
complexity in accounting standards, and includes simplification involving several aspects of the
accounting for share-based payment transactions, including excess tax benefits. The guidance should be
applied on a modified retrospective basis and is effective for the Company in 2017, with early adoption
permitted. While the Company is still currently assessing all impacts of the guidance, the primary
impact of adoption will be the recognition of excess tax benefits within the provision for income taxes
on the statement of comprehensive income rather than within additional paid-in capital on the balance
sheet. Additionally, this change will result in excess tax benefits from stock compensation to be
reflected in net cash from operating activities on the statement of cash flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain
Cash Receipts and Cash Payments. This guidance is being issued to decrease diversity in practice for
how certain cash receipts and cash payments are presented and classified in the statement of cash
flows. This guidance should be applied on a retrospective basis and is effective for the Company in
2018, with early adoption permitted. The Company does not believe that this guidance will have a
significant impact on its presentation of the statement of cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other: Simplifying the
Test for Goodwill Impairment. This guidance is being issued to simplify the subsequent measurement of
goodwill by eliminating Step 2 of the goodwill impairment test. Under the new guidance, the
recognition of a goodwill impairment charge is calculated based on the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. This guidance should be applied on a prospective
basis and is effective for the Company in 2020. Early adoption is permitted for goodwill impairment
tests performed after January 1, 2017. The Company is currently assessing the impact the adoption will
have on its results of operations and financial position.
In the first quarter of 2016, the Company adopted ASU 2015-03, Interest—Imputation of Interest:
Simplifying the Presentation of Debt Issuance Costs. As a result, the Company adjusted the impacted line
items in the December 31, 2015 consolidated balance sheet to conform to the current period’s
presentation; decreasing both the Deferred financing costs, net and Long-term borrowings and capital
66
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
2. Significant Accounting Policies (Continued)
lease obligations line items by $12,965. Also in the first quarter of 2016, the Company adopted
ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. As a result, the Company
adjusted the impacted line items in the December 31, 2015 consolidated balance sheet to conform to
the current period’s presentation; decreasing the Deferred income taxes line item within current assets
by $29,355, increasing the Deferred income taxes line item within noncurrent assets by $28,139, and
decreasing the Deferred income taxes line within noncurrent liabilities by $1,216.
There are several other new accounting pronouncements issued by the FASB. Each of these
pronouncements, as applicable, has been or will be adopted by the Company. Management does not
believe any of these accounting pronouncements has had or will have a material impact on the
Company’s consolidated financial statements.
3. Acquisitions
Acquisition of Pramac
On March 1, 2016, the Company acquired a 65% ownership interest in Pramac for a purchase
price, net of cash acquired, of $60,886. Headquartered in Siena, Italy, Pramac is a leading global
manufacturer of stationary, mobile and portable generators primarily sold under the Pramac(cid:3) brand.
Pramac products are sold in over 150 countries through a broad distribution network. The acquisition
purchase price was funded solely through cash on hand.
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 has within its control the right to require the Company to redeem its
interest in Pramac. The noncontrolling interest holder has a put option to sell their interests to the
Company any time within five years from the date of acquisition. The put option price is either (i) a
fixed amount if voluntarily exercised within the first two years after the acquisition, or (ii) based on a
multiple of earnings, subject to the terms of the acquisition. Additionally, the Company holds a call
option that it may redeem commencing 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 that is
subject to the terms of the acquisition. Both the put and call option only provide for the complete
transfer of the noncontrolling interest, with no partial transfers of interest permitted.
67
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
3. Acquisitions (Continued)
The redeemable noncontrolling interest is recorded at the greater of the initial fair value,
increased or decreased for the noncontrolling interests’ share of comprehensive net income (loss), or
the estimated redemption value, with any adjustment 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 12, ‘‘Earnings Per Share,’’ to the consolidated financial
statements. The following table presents the changes in the redeemable noncontrolling interest:
Beginning Balance—January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest of Pramac . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2016
$ —
34,253
100
(2,124)
909
Ending Balance—December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,138
The Company recorded a preliminary purchase price allocation during the first quarter of 2016,
which was updated in the fourth quarter of 2016, based upon its estimates of the fair value of the
acquired assets and assumed liabilities. The preliminary purchase price allocation as of the balance
sheet date was as follows:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 1, 2016
$ 51,289
39,889
19,138
34,471
46,202
7,698
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198,687
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and capital lease obligations (including current
portion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,105
40,270
18,599
23,521
34,253
53
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60,886
The goodwill ascribed to this acquisition is not deductible for tax purposes. The accompanying
consolidated financial statements include the results of Pramac from the date of acquisition through
December 31, 2016.
68
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
3. Acquisitions (Continued)
Acquisition of CHP
On August 1, 2015, the Company acquired CHP for a purchase price, net of cash acquired, of
$74,570. Headquartered in Vergennes, Vermont, CHP is a leading manufacturer of high-quality,
innovative, professional-grade engine powered equipment used in a wide variety of property
maintenance applications, with sales primarily in North America. The acquisition purchase price was
funded solely through cash on hand.
The Company recorded a preliminary purchase price allocation during the third quarter of 2015
based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the
Company recorded approximately $81,726 of intangible assets, including approximately $30,076 of
goodwill, as of the acquisition date. The purchase price allocation was finalized in the fourth quarter of
2015, resulting in a $6,552 decrease to total intangible assets, including an increase of $6,208 in
goodwill. The goodwill ascribed to this acquisition is not deductible for tax purposes. In addition, the
Company assumed $12,000 of debt along with this acquisition. The accompanying consolidated financial
statements include the results of CHP from the date of acquisition through December 31, 2016.
Acquisition of MAC
On October 1, 2014, the Company acquired MAC for a purchase price, net of cash acquired, of
$53,747. MAC is a leading manufacturer of premium-grade commercial and industrial mobile heaters
within the United States and Canada. The acquisition was funded solely through cash on hand.
The Company recorded a preliminary purchase price allocation during the fourth quarter of 2014
based upon its estimates of the fair value of the acquired assets and assumed liabilities. As a result, the
Company recorded approximately $49,378 of intangible assets, including approximately $25,898 of
goodwill, as of the acquisition date. The purchase price allocation was finalized during the third quarter
of 2015, resulting in a $4,229 decrease to total intangible assets, including an increase of $2,481 to
goodwill. The goodwill ascribed to this acquisition is not deductible for tax purposes. The
accompanying consolidated financial statements include the results of MAC from the date of
acquisition through December 31, 2016.
69
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
3. Acquisitions (Continued)
Pro Forma Information
The following unaudited pro forma information of the Company gives effect to these acquisitions
as though the transactions had occurred on January 1, 2014:
Year Ended December 31,
2016
2015
2014
Net Sales:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,444,453
1,473,799
$1,317,299
1,556,459
$1,460,919
1,776,843
Net income attributable to Generac Holdings Inc.:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Generac Holdings Inc. per
common share—diluted
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
98,788
100,907
1.50
1.53
$
$
77,747
78,618
$ 174,613
174,926
$
1.12
1.14
2.49
2.49
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, 2014.
4. Derivative Instruments and Hedging Activities
Commodities
The Company is exposed to significant price fluctuations in commodities it uses as raw materials,
and periodically utilizes commodity derivatives to mitigate the impact of these potential price
fluctuations on its financial results and its economic well-being. These derivatives typically have
maturities of less than eighteen months. At both December 31, 2016 and 2015, the Company had one
commodity contract outstanding, covering the purchases of copper.
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
gains (losses) recognized were $739, $(1,909) and $(629) for the years ended December 31, 2016, 2015,
and 2014, 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.
70
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
4. Derivative Instruments and Hedging Activities (Continued)
As of December 31, 2016 and 2015, the Company had thirty-eight and six foreign currency 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
losses recognized for the years ended December 31, 2016, 2015 and 2014 were $385, $624 and $149,
respectively.
Interest Rate Swaps
In October 2013, the Company entered into two interest rate swap agreements, and in May 2014,
the Company entered into an additional interest rate swap agreement. 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 various hedge transactions.
These interest rate swap agreements qualify as cash flow hedges, and accordingly, the effective portions
of the gains or losses are reported as a component of accumulated other comprehensive loss (AOCL).
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,
2016
December 31,
2015
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency contracts . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
623
(150)
(1,739)
$ (400)
(171)
(2,618)
The fair value of the commodity contract is included in other assets, the fair value of the foreign
currency contracts are included in other accrued liabilities, and the fair value of the interest rate swaps
are included in other long-term liabilities in the consolidated balance sheet as of December 31, 2016.
The fair value of the commodity and foreign currency contracts are included in other accrued liabilities,
and the fair value of the interest rate swaps are included in other long-term liabilities in the
consolidated balance sheet as of December 31, 2015. Excluding the impact of credit risk, the fair value
of the derivative contracts as of December 31, 2016 and 2015 is a liability of $1,295 and $3,248,
respectively, which represents the amount the Company would need to pay to exit the agreements on
those dates.
The amount of gains (losses) recognized in AOCL in the consolidated balance sheets on the
effective portion of interest rate swaps designated as hedging instruments for the years ended
December 31, 2016, 2015 and 2014 were $535, $(965) and $(1,420), respectively. The amount of gains
(losses) recognized in cost of goods sold in the consolidated statements of comprehensive income for
71
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
4. Derivative Instruments and Hedging Activities (Continued)
commodity and foreign currency contracts not designated as hedging instruments for the years ended
December 31, 2016, 2015 and 2014 were $354, $(2,533) and $(778), respectively.
5. Accumulated Other Comprehensive Loss
The following presents a tabular disclosure of changes in AOCL during the years ended
December 31, 2016 and 2015, net of tax:
Foreign
Currency
Translation
Adjustments
Defined
Benefit
Pension Plan
Unrealized Gain
(Loss) on Cash
Flow Hedges
Total
Beginning Balance—January 1, 2016 . . . . . . . . . .
$ (9,502)
$(11,362)
$(1,611)
$(22,475)
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from AOCL . . . . . . . . . . .
(18,545)
—
(273)(1)
595(3)
535(2)
—
(18,283)
595
Net current-period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,545)
322
535
(17,688)
Ending Balance—December 31, 2016 . . . . . . . . . .
$(28,047)
$(11,040)
$(1,076)
$(40,163)
Foreign
Currency
Translation
Adjustments
Defined
Benefit
Pension Plan
Unrealized
Loss on Cash
Flow Hedges
Total
Beginning Balance—January 1, 2015 . . . . . . . . . . .
$(1,878)
$(13,243)
$ (646)
$(15,767)
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from AOCL . . . . . . . . . . .
(7,624)
—
1,105(4)
776(6)
(965)(5)
—
(7,484)
776
Net current-period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,624)
1,881
(965)
(6,708)
Ending Balance—December 31, 2015 . . . . . . . . . .
$(9,502)
$(11,362)
$(1,611)
$(22,475)
(1) Represents unrecognized actuarial losses of $(412), net of tax benefit of $139, included in the
computation of net periodic pension cost for the year ended December 31, 2016. See Note 14,
‘‘Benefit Plans,’’ to the consolidated financial statements for additional information.
(2) Represents unrealized gains of $876, net of tax effect of $(341) for the year ended December 31,
2016.
(3) Represents actuarial losses of $941, net of tax effect of $(346), amortized to net periodic pension
cost for the year ended December 31, 2016. See Note 14, ‘‘Benefit Plans,’’ to the consolidated
financial statements for additional information.
72
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
5. Accumulated Other Comprehensive Loss (Continued)
(4) Represents unrecognized actuarial gains of $1,829, net of tax effect of $(724), included in the
computation of net periodic pension cost for the year ended December 31, 2015. See Note 14,
‘‘Benefit Plans,’’ to the consolidated financial statements for additional information.
(5) Represents unrealized losses of $(1,574), net of tax benefit of $609 for the year ended
December 31, 2015.
(6) Represents actuarial losses of $1,228, net of tax effect of $(452), amortized to net periodic pension
cost for the year ended December 31, 2015. See Note 14, ‘‘Benefit Plans,’’ to the consolidated
financial statements for additional information.
6. Segment Reporting
Effective in the second quarter of 2016, the Company changed its segment reporting from one
reportable segment to two reportable segments—Domestic and International—as a result of the recent
Pramac acquisition and the ongoing strategy to expand the business internationally. The Domestic
segment includes the legacy Generac business and the impact of acquisitions that are based in the
United States, all of which have revenues that are substantially derived from the U.S. and Canada. The
International segment includes the Ottomotores, Tower Light and Pramac acquisitions, all of which
have revenues that are substantially derived from outside of the U.S and Canada. Both reportable
segments design and manufacture a wide range of power generation equipment and other engine
powered 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 and distribution methods. All segment information has been
retrospectively applied to all periods presented to reflect the new reportable segment structure.
Reportable Segments
2016
2015
2014
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . .
$1,173,559
270,894
$1,204,589
112,710
$1,343,367
117,552
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,444,453
$1,317,299
$1,460,919
Net Sales
Year Ended December 31,
73
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
6. Segment Reporting (Continued)
The Company’s product offerings consist primarily of power generation equipment and other
engine powered products geared for varying end customer uses. Residential products and commercial &
industrial products are each a similar class of products based on similar power output and end
customer. The breakout of net sales between residential, commercial & industrial, and other products
by product class is as follows:
Product Classes
Net Sales
Year Ended December 31,
2016
2015
2014
Residential products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & industrial products
. . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 772,436
557,532
114,485
$ 673,764
548,440
95,095
$ 722,206
652,216
86,497
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,444,453
$1,317,299
$1,460,919
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,
2016
2015
2014
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 261,428
16,959
$ 254,882
15,934
$ 322,769
14,514
Total adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 278,387
$ 270,816
$ 337,283
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash write-down and other adjustments(1) . . . . . . . . . . . . .
Non-cash share-based compensation expense(2) . . . . . . . . . . . . .
Tradename and goodwill impairment(3) . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt(4) . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on change in contractual interest rate(5) . . . . . . . . .
Transaction costs and credit facility fees(6) . . . . . . . . . . . . . . . .
Business optimization expenses(7) . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(44,568)
(54,418)
(357)
(9,493)
—
(574)
(2,957)
(2,442)
(7,316)
120
(42,843)
(40,333)
(3,892)
(8,241)
(40,687)
(4,795)
(2,381)
(2,249)
(1,947)
(465)
(47,215)
(34,730)
3,853
(12,612)
—
(2,084)
16,014
(1,851)
—
(296)
Income before provision for income taxes . . . . . . . . . . . . . . . . .
$ 156,382
$ 122,983
$ 258,362
(1) Includes gains/losses on disposal of assets, unrealized mark-to-market adjustments on commodity
contracts, and certain foreign currency and purchase accounting related adjustments.
(2) Represents share-based compensation expense to account for stock options, restricted stock and
other stock awards over their respective vesting periods.
74
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
6. Segment Reporting (Continued)
(3) Represents the 2015 impairment of certain tradenames due to a change in brand strategy to
transition and consolidate various brands to the Generac(cid:3) tradename ($36,076) and the
impairment of goodwill related to the Ottomotores reporting unit ($4,611).
(4) Represents the write-off of original issue discount and capitalized debt issuance costs due to
voluntary debt prepayments.
(5) For the year ended December 31, 2016, represents a non-cash loss in the third quarter 2016
relating to the continued 25 basis point increase in borrowing costs as a result of the credit
agreement leverage ratio remaining above 3.0 times and expected to remain above 3.0 based on
current projections. For the year ended December 31, 2015, represents a non-cash loss relating to
a 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio rising
above 3.0 times effective third quarter 2015 and expected to remain above 3.0 times based on
projections at the time. For the year ended December 31, 2014 represents a non-cash gain relating
to a 25 basis point reduction in borrowing costs as a result of the credit agreement leverage ratio
falling below 3.0 times effective second quarter 2014 and expected to remain below 3.0 times based
on projections at the time.
(6) 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.
(7) Represents charges relating to business optimization and restructuring costs.
The following tables summarize additional financial information by reportable segment:
Assets
Year Ended December 31,
2016
2015
2014
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . .
$1,521,665
340,019
$1,605,043
173,592
$1,672,336
192,083
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,861,684
$1,778,635
$1,864,419
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . .
$42,346
12,072
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$54,418
2016
2015
$35,327
5,006
$40,333
2014
$29,410
5,320
$34,730
Depreciation and Amortization
Year Ended December 31,
75
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
6. Segment Reporting (Continued)
Capital Expenditures
Year Ended December 31,
2016
2015
2014
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,936
3,531
$29,368
1,283
$33,976
713
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,467
$30,651
$34,689
The Company’s sales in the United States represent approximately 77%, 85%, and 84% of total
sales for the years ended December 31, 2016, 2015 and 2014, respectively. Approximately 87% and
93% of the Company’s identifiable long-lived assets are located in the United States as of
December 31, 2016 and 2015, respectively.
7. Balance Sheet Details
Inventories consist of the following:
Raw material
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$218,911
2,950
127,870
$179,769
2,567
143,039
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$349,731
$325,375
December 31,
2016
2015
As of December 31, 2016 and 2015, inventories totaling $10,598 and $11,253, respectively, were on
consignment at customer locations.
Property and equipment consists of the following:
December 31,
2016
2015
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Dies and tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and systems . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress
$ 12,079
122,747
81,687
23,269
1,474
66,929
2,319
8,654
$
8,553
104,774
72,280
20,066
1,244
29,395
3,338
30,482
Gross property and equipment
. . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
319,158
(106,365)
270,132
(85,919)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212,793
$184,213
76
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the years ended
December 31, 2016 and 2015 are as follows:
Balance at December 31, 2014 . . . . . . . . . . . . . .
Acquisitions of businesses, net . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . .
Acquisitions of businesses, net . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . .
Domestic
International
Total
$582,686
38,765
—
621,451
—
—
$ 52,879
—
(4,611)
48,268
46,202
(11,281)
$635,565
38,765
(4,611)
669,719
46,202
(11,281)
Balance at December 31, 2016 . . . . . . . . . . . . . .
$621,451
$ 83,189
$704,640
The details of the gross goodwill allocated to each reportable segment at December 31, 2016 and
2015 are as follows:
Year Ended December 31, 2016
Year Ended December 31, 2015
Gross
Accumulated
Impairment
Net
Gross
Accumulated
Impairment
Net
Domestic . . . . . . . . . . . . . . .
International . . . . . . . . . . . .
$1,124,644
87,800
$(503,193) $621,451
83,189
(4,611)
$1,124,644
52,879
$(503,193) $621,451
48,268
(4,611)
Total . . . . . . . . . . . . . . . .
$1,212,444
$(507,804) $704,640
$1,177,523
$(507,804) $669,719
See Note 3, ‘‘Acquisitions,’’ to the consolidated financial statements for further information
regarding the Company’s acquisitions and Note 2, ‘‘Significant Accounting Policies—Goodwill and
Other Indefinite-Lived Intangible Assets,’’ to the consolidated financial statements for further
information regarding the Company’s 2015 goodwill impairment charge.
77
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
8. Goodwill and Intangible Assets (Continued)
The following table summarizes intangible assets by major category as of December 31, 2016 and
2015:
Weighted
Average
Amortization
Years
December 31, 2016
December 31, 2015
Gross
Accumulated Net Book
Amortization
Value
Gross
Accumulated Net Book
Amortization
Value
Finite-lived intangible assets:
Tradenames . . . . . . . . . . .
Customer lists . . . . . . . . .
Patents . . . . . . . . . . . . . .
Unpatented technology . .
Software . . . . . . . . . . . . .
Non-compete/other . . . . .
Total finite-lived
intangible assets . . . .
Indefinite-lived
8
9
14
15
—
7
$ 50,742 $ (20,189) $ 30,553 $ 43,252 $ (10,516) $ 32,736
39,313
53,772
1,541
4
1,223
(275,287)
(72,719)
(11,628)
(1,042)
(508)
(288,623)
(82,038)
(11,771)
(1,046)
(986)
314,600
126,491
13,169
1,046
1,731
333,935
130,099
13,169
1,046
2,513
45,312
48,061
1,398
—
1,527
$531,504 $(404,653) $126,851 $500,289 $(371,700) $128,589
tradenames . . . . . . . . .
128,321
— 128,321
128,321
— 128,321
Total intangible assets . . . . .
$659,825 $(404,653) $255,172 $628,610 $(371,700) $256,910
See Note 2, ‘‘Significant Accounting Policies—Goodwill and Other Indefinite-Lived Intangible
Assets,’’ to the consolidated financial statements for further information regarding the Company’s 2015
brand strategy change and resulting tradename impairment charge, which was netted against the gross
intangible asset balance at December 31, 2015.
Amortization of intangible assets was $32,953, $23,591 and $21,024 in 2016, 2015 and 2014,
respectively. Excluding the impact of any future acquisitions, the Company estimates amortization
expense for the next five years will be as follows: 2017—$27,856; 2018—$19,511; 2019—$17,816; 2020—
$17,743; 2021—$15,958.
9. Product Warranty Obligations
The Company records a liability for product warranty obligations 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. Additionally, the Company sells
extended warranty coverage for certain products. The sales of extended warranties are recorded as
deferred revenue, which is recognized over the life of the contracts.
78
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
9. Product Warranty Obligations (Continued)
The following is a tabular reconciliation of the product warranty liability, excluding the deferred
revenue related to our extended warranty coverage:
Year Ended December 31,
2016
2015
2014
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranty reserve assumed in acquisition . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for warranty issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in estimates for pre-existing warranties . . . . . . . . . . . . . . . . .
$ 30,197
840
(18,691)
19,148
201
$ 30,909
351
(21,686)
20,823
(200)
$ 33,734
360
(20,975)
22,890
(5,100)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,695
$ 30,197
$ 30,909
The following is a tabular reconciliation of the deferred revenue related to extended warranty
coverage:
Year Ended December 31,
2016
2015
2014
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue contracts assumed in acquisition . . . . . . . . . . . . . . .
Deferred revenue contracts issued . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred revenue contracts . . . . . . . . . . . . . . . . . . . .
$28,961
—
7,733
(5,614)
$27,193
291
5,978
(4,501)
$23,092
—
7,343
(3,242)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,080
$28,961
$27,193
Product warranty obligations and warranty related deferred revenues are included in the balance
sheets as follows:
December 31,
2016
2015
Product warranty liability
Current portion—other accrued liabilities . . . . . . . . . . . . . . . .
Long-term portion—other long-term liabilities . . . . . . . . . . . .
$20,763
10,932
$21,726
8,471
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,695
$30,197
Deferred revenue related to extended warranties
Current portion—other accrued liabilities . . . . . . . . . . . . . . . .
Long-term portion—other long-term liabilities . . . . . . . . . . . .
$ 6,728
24,352
$ 6,026
22,935
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,080
$28,961
79
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
10. Credit Agreements
Short-term borrowings are included in the consolidated balance sheets as follows:
ABL facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
31,198
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,198
2016
2015
$ —
8,594
$8,594
December 31,
Long-term borrowings are included in the consolidated balance sheets as follows:
December 31,
2016
2015
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue discount and deferred financing costs . . . . . .
ABL facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 929,000
(26,677)
100,000
4,647
14,753
$ 954,000
(29,905)
100,000
1,694
12,000
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of debt
. . . . . . . . . . . . . . . . . . . . . .
Less: current portion of capital lease obligation . . . . . . . . .
1,021,723
14,399
566
1,037,789
500
157
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,006,758
$1,037,132
Maturities of long-term borrowings outstanding at December 31, 2016, are as follows:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,965
745
639
100,547
931,504
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,048,400
The Company’s credit agreements provided for a $1,200,000 term loan B credit facility (Term
Loan) and include a $300,000 uncommitted incremental term loan facility. In November 2016, the
Company amended its Term Loan to extend the maturity date from May 31, 2020 to May 31, 2023. 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 all 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%. Beginning in the second quarter of 2014, and measured each quarterly period thereafter, the
80
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
10. Credit Agreements (Continued)
applicable margin related to base rate loans is reduced to 1.50% and the applicable margin related to
LIBOR rate loans is reduced to 2.50%, in each case, if the Company’s net debt leverage ratio, as
defined in the Term Loan, falls below 3.00 to 1.00 for that measurement period.
Because the Company’s net debt leverage ratio was below 3.00 to 1.00 on April 1, 2014, it realized
a 25 basis point reduction in borrowing costs in the second quarter of 2014. As a result, the Company
recorded a cumulative catch-up gain of $16,014 in the second quarter of 2014, which represents the
total cash interest savings over the remaining term of the loan, as the Company projected the net debt
leverage ratio to remain below 3.00 to 1.00 using current forecasts at that time. The gain was recorded
as original issue discount on long-term borrowings in the consolidated balance sheets and as a gain on
change in contractual interest rate in the consolidated statements of comprehensive income.
Because the Company’s net debt leverage ratio was above 3.00 to 1.00 on July 1, 2015, it realized a
25 basis point increase in borrowing costs in the third quarter of 2015. As a result, the Company
recorded a cumulative catch-up loss of $2,381 in the third quarter of 2015, which represents the
additional cash interest expected to be paid while the net debt leverage ratio is expected to be
above 3.00 to 1.00 using current forecasts at that time. The loss was recorded against original issue
discount on long-term borrowings in the consolidated balance sheets and as a loss on change in
contractual interest rate in the consolidated statements of comprehensive income.
As the Company’s net debt leverage ratio continued to be above 3.00 to 1.00 on July 1, 2016, the
Company recorded a cumulative catch-up loss of $2,957 in the third quarter of 2016, which represents
the additional cash interest expected to be paid while the net debt leverage ratio is expected to be
above 3.00 to 1.00 using current forecasts at that time. The loss was recorded against original issue
discount on long-term borrowings in the consolidated balance sheets and as a loss on change in
contractual interest rate in the consolidated statements of comprehensive income. The Company’s net
debt leverage ratio as of December 31, 2016 was above 3.00 to 1.00.
In May 2015, the Company amended certain provisions and covenants of the Term Loan. In
connection with this amendment and in accordance with ASC 470-50, Debt Modifications and
Extinguishments, the Company capitalized $1,528 of fees paid to creditors as original issue discount on
long-term borrowings and expensed $49 of transaction fees in the second quarter of 2015.
In November 2016, the Company amended its Term Loan to extend the maturity date from
May 31, 2020 to May 31, 2023. In connection with this amendment and in accordance with ASC 470-50,
Debt Modifications and Extinguishments, the Company capitalized $4,242 of fees paid to creditors as
original issue discount on long-term borrowings and expensed $315 of transaction fees in the fourth
quarter of 2016. As of December 31, 2016, the Company is 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 originally provided for a $150,000 senior secured ABL
revolving credit facility (ABL Facility). The maturity date of the ABL Facility originally was May 31,
2018. 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
81
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
10. Credit Agreements (Continued)
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.
In May 2015, the Company amended its ABL Facility. The amendment (i) increased the ABL
Facility from $150,000 to $250,000 (Amended ABL Facility), (ii) extended the maturity date from
May 31, 2018 to May 29, 2020, (iii) increased the uncommitted incremental facility from $50,000 to
$100,000, (iv) reduced the interest rate spread by 50 basis points and (v) reduced the unused line fee
by 12.5 basis points across all tiers. Additionally, the amendment relaxes certain restrictions on the
Company’s ability to, among other things, (i) make additional investments and acquisitions (including
foreign acquisitions), (ii) make restricted payments and (iii) incur additional secured and unsecured
debt (including foreign subsidiary debt). In connection with this amendment and in accordance with
ASC 470-50, the Company capitalized $540 of new debt issuance costs in 2015.
In May 2015, the Company borrowed $100,000 under the Amended ABL Facility, the proceeds of
which were used as a voluntary prepayment towards the Term Loan. As of December 31, 2016, there
was $100,000 outstanding under the Amended ABL Facility, leaving $145,593 of availability, net of
outstanding letters of credit.
In April, September and December 2014, the Company made voluntary prepayments of the Term
Loan of $12,000, $50,000 and $25,000, respectively, with available cash on hand that was applied to
future principal amortizations and the Excess Cash Flow payment requirement in the Term Loan. As a
result of the prepayments, the Company wrote off $2,084 of original issue discount and capitalized debt
issuance costs during the year ended December 31, 2014 as a loss on extinguishment of debt in the
consolidated statement of comprehensive income.
In March and May 2015, the Company made voluntary prepayments of the Term Loan of $50,000
and $100,000, respectively, which were applied to the Excess Cash Flow payment requirement in the
Term Loan. As a result of the prepayments, the Company wrote off $4,795 of original issue discount
and capitalized debt issuance costs during the year ended December 31, 2015 as a loss on
extinguishment of debt in the consolidated statement of comprehensive income.
In November 2016, the Company made a voluntary prepayment of the Term Loan of $25,000,
which will be applied to the Excess Cash Flow payment requirement in the Term Loan. As a result of
the prepayment, the Company wrote off $574 of original issue discount and capitalized debt issuance
costs during the year ended December 31, 2016 as a loss on extinguishment of debt in the consolidated
statement of comprehensive income.
As of December 31, 2016 and December 31, 2015, short-term borrowings consisted primarily of
borrowings by our foreign subsidiaries on local lines of credit, which totaled $31,198 and $8,594,
respectively.
82
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
11. Stock Repurchase Program
In August 2015, the Company’s Board of Directors approved a $200,000 stock repurchase program.
Under the program, the Company may repurchase up to $200,000 of its common stock over the
following 24 months, in amounts and at prices the Company deems appropriate, subject to market
conditions and other considerations. The Company completed the program in the third quarter of 2016.
In October 2016, the Company’s Board of Directors approved a $250,000 stock repurchase
program. Under the program, the Company may repurchase an additional $250,000 of its common
stock over the following 24 months. 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 repurchase 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 shares of 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. For the year ended December 31, 2016,
the Company repurchased 3,968,706 shares of its common stock for $149,937. Since the inception of
the programs, the Company has repurchased 7,272,206 shares of its common stock for $249,879, all
funded with cash on hand.
12. Earnings Per Share
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
83
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
12. Earnings Per Share (Continued)
stock options, as well as their related income tax benefits. The following table reconciles the numerator
and the denominator used to calculate basic and diluted earnings per share:
Numerator
Net income attributable to Generac Holdings Inc.
Redeemable noncontrolling interest redemption value
. . . . . . . .
Year Ended December 31,
2016
2015
2014
$
98,788
$
77,747
$
174,613
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(909)
—
—
Net income attributable to common shareholders . . . . . . . . .
$
97,879
$
77,747
$
174,613
Denominator
Weighted average shares, basic . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock compensation awards(1) . . . . . . . . . .
64,905,793
476,981
68,096,051
1,104,246
68,538,248
1,632,796
Diluted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,382,774
69,200,297
70,171,044
Net income attributable to common shareholders per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.51
1.50
$
$
1.14
1.12
$
$
2.55
2.49
(1) Excludes approximately 15,800, 161,400 and 81,600 stock options for the years ended December 31,
2016, 2015 and 2014, respectively, as the impact of such awards was anti-dilutive. Excludes
approximately 1,000 shares of restricted stock for the year ended December 31, 2015, as the impact
of such awards was anti-dilutive.
84
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
13. Income Taxes
The Company’s provision for income taxes consists of the following:
Year Ended December 31,
2016
2015
2014
Current:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,717
2,047
4,460
$13,614
1,966
3,588
$38,161
1,645
5,701
Deferred:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,224
19,168
45,507
41,264
3,029
(5,585)
38,708
638
31,869
1,387
(7,326)
25,930
138
42,474
(3,134)
(1,462)
37,878
364
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,570
$45,236
$83,749
As of December 31, 2016, due to the carryforward of net operating losses, and research and
development credits, the Company is open to U.S. federal and state income tax examinations for the
tax years 2006 through 2015. In addition, the Company is subject to audit by various foreign taxing
jurisdictions for the tax years 2011 through 2015. During 2015, the Internal Revenue Service completed
field work on income tax audits for the 2012 and 2013 tax years. A final audit report was issued and
resulted in no change to the Company’s provision for income taxes.
85
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
13. Income Taxes (Continued)
Significant components of deferred tax assets and liabilities are as follows:
December 31,
2016
2015
Deferred tax assets:
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss and credit carryforwards . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,758
10,645
10,159
7,512
7,291
20,927
2,822
(4,362)
$18,982
9,389
9,772
7,684
7,974
15,677
2,842
(1,523)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,752
70,797
Deferred tax liabilitites:
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt refinancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,133
25,194
7,193
1,173
91,693
12,455
19,507
7,732
1,241
40,935
Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . .
$(13,941) $29,862
As of December 31, 2016 and 2015, deferred tax assets of $3,337 and $34,812, and deferred tax
liabilities of $17,278 and $4,950, respectively, were reflected on the consolidated balance sheets.
The Company had approximately $592,000 of tax-deductible goodwill and intangible asset
amortization remaining as of December 31, 2016 related to our acquisition by CCMP in 2006 that is
expected to generate aggregate cash tax savings of approximately $231,000 through 2021, assuming
continued profitability and a 39% tax rate. The recognition of the tax benefit associated with these
assets for tax purposes is expected to be approximately $122,000 annually through 2020 and
approximately $102,000 in 2021, which generates annual cash tax savings of approximately $48,000
through 2020 and approximately $40,000 in 2021, assuming profitability and a 39% tax rate.
Generac Brazil, acquired as part of the Ottomotores acquisition, has generated net operating losses
for multiple years as part of the start-up of the business. The realizability of the deferred tax assets
associated with these net operating losses is uncertain so a valuation allowance was recorded in the
opening balance sheet as of December 8, 2012 and continued through December 31, 2016.
In addition, the Company recorded a valuation allowance in the opening balance sheet and as of
December 31, 2016 related to the Pramac acquisition. The valuation allowance represents a reserve for
deferred tax assets, including loss carryforwards, of Pramac subsidiaries, for which utilization is
uncertain.
86
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
13. Income Taxes (Continued)
At December 31, 2016, the Company had state research and development credits, and state
manufacturing credit carryforwards of approximately $17,498 and $3,736, respectively, which expire
between 2017 and 2031.
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and
penalties, were as follows:
Unrecognized tax benefit, beginning of period . . . . . . . . . . . . . . . .
Increase in unrecognized tax benefit for positions taken in current
December 31,
2016
2015
$7,239
$6,394
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
704
845
Unrecognized tax benefit, end of period . . . . . . . . . . . . . . . . . . . .
$7,943
$7,239
The unrecognized tax benefit as of December 31, 2016 and 2015, if recognized, would impact the
effective tax rate.
Interest and penalties are recorded as a component of income tax expense. As of December 31,
2016, 2015 and 2014, total interest of approximately $272, $174 and $86, respectively, and penalties of
approximately $425, $363 and $263, respectively, associated with net unrecognized tax benefits are
included in the Company’s consolidated balance sheets.
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,
2017.
The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested
outside the United States on the basis of estimates that future domestic cash generation will be
sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of
those subsidiary earnings. The Company has not provided for additional U.S. income taxes on
approximately $7,551 of undistributed earnings of consolidated non-U.S. subsidiaries. It is not
practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such
earnings.
87
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
13. Income Taxes (Continued)
A reconciliation of the statutory tax rates and the effective tax rates for the years ended
December 31, 2016, 2015 and 2014 are as follows:
Year Ended
December 31,
2016
2015
2014
U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credits . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0% 35.0% 35.0%
4.1
(2.3)
3.1
(5.0)
— (0.7)
4.1
(1.0)
(1.3)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.8% 36.8% 32.4%
14. Benefit Plans
Medical and Dental Plan
The Company maintains medical and dental benefit plans covering its full-time domestic
employees and their dependents. Certain plans are partially or fully self-funded plans 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 $15,019, $14,352, and $11,701 for the years ended December 31, 2016,
2015, and 2014, 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 defined-contribution 401(k) savings plans for eligible domestic employees.
Under the plans, employees may defer receipt of a portion of their eligible compensation. The
Company amended the 401(k) savings plans effective January 1, 2009, to add Company matching and
non-elective contributions. The Company may contribute a matching contribution of 50% of the
first 6% of eligible compensation of employees. The Company may also contribute a non-elective
contribution for eligible employees employed on December 31, 2008. Both Company matching
contributions and non-elective contributions are subject to vesting. Forfeitures may be applied against
plan expenses and company contributions. The Company recognized $3,400, $3,000 and $3,400 of
expense related to this plan in 2016, 2015 and 2014, respectively.
Pension Plans
The Company has frozen noncontributory salaried and hourly pension plans (Pension Plans)
covering certain domestic employees. The benefits under the salaried plan are based upon years of
88
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
14. Benefit Plans (Continued)
service and the participants’ defined final average monthly compensation. The benefits under the hourly
plan are based on a unit amount at the date of termination multiplied by the participant’s years of
credited service. The Company’s funding policy for the Pension Plans is to contribute amounts at least
equal to the minimum annual amount required by applicable regulations.
The Company uses a December 31 measurement date for the Pension Plans. The table that
includes the accumulated benefit obligation and reconciliation of the changes in projected benefit
obligation, changes in plan assets and the funded status of the Pension Plans is as follows:
Year Ended
December 31,
2016
2015
Accumulated benefit obligation at end of period . . . . . . . . . . .
$ 65,956
$ 63,894
Change in projected benefit obligation
Projected benefit obligation at beginning of period . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,894
2,747
1,363
(2,048)
$ 68,376
2,681
(5,254)
(1,909)
Projected benefit obligation at end of period . . . . . . . . . . . . . .
$ 65,956
$ 63,894
Change in plan assets
Fair value of plan assets at beginning of period . . . . . . . . . . . .
Actual return (loss) on plan assets . . . . . . . . . . . . . . . . . . . . .
Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43,985
3,820
731
(2,048)
$ 45,452
(384)
826
(1,909)
Fair value of plan assets at end of period . . . . . . . . . . . . . . . .
$ 46,488
$ 43,985
Funded status: accrued pension liability included in other
long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(19,468) $(19,909)
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
$(11,040) $(11,362)
The actuarial loss for the Pension Plans that was amortized from AOCL into net periodic (benefit)
cost during 2016 is $941. The amount in AOCL as of December 31, 2016 that is expected to be
recognized as a component of net periodic pension expense during the next fiscal year is $883.
89
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
14. Benefit Plans (Continued)
The components of net periodic pension (benefit) cost are as follows:
Year Ended December 31,
2016
2015
2014
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . .
$ 2,747
(2,868)
941
$ 2,681
(3,041)
1,228
$ 2,591
(2,933)
106
Net periodic pension (benefit) cost
. . . . . . . . . . . . . . .
$
820
$
868
$ (236)
Weighted-average assumptions used to determine the benefit obligations are as follows:
December 31,
2016
2015
Discount rate—salaried pension plan . . . . . . . . . . . . . . . . . . . . . . .
Discount rate—hourly pension plan . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase(1) . . . . . . . . . . . . . . . . . . . . . . . . .
4.14%
4.16%
n/a
4.36%
4.39%
n/a
(1) No compensation increase was assumed as the plans were frozen effective December 31,
2008.
Weighted-average assumptions used to determine net periodic pension (benefit) cost are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . . . . . .
Rate of compensation increase(1) . . . . . . . . . . . . . . . . . .
4.39%
6.62%
n/a
3.99%
6.75%
n/a
5.01%
6.88%
n/a
Year Ended December 31,
2016
2015
2014
(1) No compensation increase was assumed as the plans were frozen effective December 31,
2008.
To determine the long-term rate of return assumption for plan assets, the Company studies
historical markets and preserves the long-term historical relationships between equities and fixed-
income securities consistent with the widely accepted capital market principle that assets with higher
volatility generate a greater return over the long run. The Company evaluates current market factors
such as inflation and interest rates before it determines long-term capital market assumptions and
reviews peer data and historical returns to check for reasonableness and appropriateness.
90
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
14. Benefit Plans (Continued)
The Pension Plans’ weighted-average asset allocation at December 31, 2016 and 2015, by asset
category, is as follows:
December 31,
2016
December 31,
2015
Asset Category
Target
Dollars
%
Dollars
%
Fixed Income . . . . . . . . . . . . . . . . . . . . . .
Domestic equity . . . . . . . . . . . . . . . . . . . .
International equity . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . .
20% $ 7,812
49% 19,615
21% 13,466
5,595
10%
17% $ 8,571
42% 20,479
29% 9,687
12% 5,248
19%
47%
22%
12%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% $46,488
100% $43,985
100%
The fair values of the Pension Plans’ assets at December 31, 2016 are as follows:
Quoted Prices in
Active Markets
for Identical Asset
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Mutual funds . . . . . . . . . . . . . .
Other investments . . . . . . . . . . .
$37,860
8,628
Total . . . . . . . . . . . . . . . . . . .
$46,488
$37,860
—
$37,860
$—
—
$—
$ —
8,628
$8,628
The fair values of the Pension Plan’s assets at December 31, 2015 are as follows:
Quoted Prices in
Active Markets
for Identical Asset
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Mutual funds . . . . . . . . . . . . . .
Other investments . . . . . . . . . . .
$40,310
3,675
Total . . . . . . . . . . . . . . . . . . .
$43,985
$40,310
—
$40,310
$—
—
$—
$ —
3,675
$3,675
A reconciliation of beginning and ending balances for Level 3 assets for the years ended
December 31, 2016 and 2015 is as follows:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,675
4,400
553
$3,185
408
82
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,628
$3,675
Year Ended
December 31,
2016
2015
91
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
14. Benefit Plans (Continued)
Mutual Funds—This category includes investments in mutual funds that encompass both equity and
fixed income securities that are designed to provide a diverse portfolio. The plan’s mutual funds are
designed to track exchange indices, and invest in diverse industries. Some mutual funds are classified as
regulated investment companies. Investment managers have the ability to shift investments from value
to growth strategies, from small to large capitalization funds, and from U.S. to international
investments. These investments are valued at the closing price reported on the active market on which
the individual securities are traded. These investments are classified within Level 1 of the fair value
hierarchy.
Other Investments—This category includes investments in limited partnerships and are valued at
estimated fair value, as determined with the assistance of each respective limited partnership, based on
the net asset value of the investment as of the balance sheet date, which is subject to judgment, and
therefore is classified within Level 3 of the fair value hierarchy.
The Company’s target allocation for equity securities and real estate is generally between
65% - 85%, with the remainder allocated primarily to fixed income (bonds). The Company regularly
reviews its actual asset allocation and periodically rebalances its investments to the targeted allocation
when considered appropriate.
The Company expects to make estimated contributions of $568 to the Pension Plans in 2017.
The following benefit payments are expected to be paid from the Pension Plans:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 - 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,258
2,354
2,430
2,556
2,692
16,021
Certain of the Company’s foreign subsidiaries participate in local 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 accrued wages and
employee benefits in the Company’s consolidated balance sheets and are not material.
15. Share Plans
The Company adopted an equity incentive plan (Plan) on February 10, 2010 in connection with its
initial public offering. The Plan, as amended, allows for granting of up to 9.1 million stock-based
awards to executives, directors and employees. Awards available for grant under the Plan include stock
options, stock appreciation rights, restricted stock, other stock-based awards and performance-based
compensation awards. Total share-based compensation expense related to the Plan was $9,493, $8,241
and $12,612 for the years ended December 31, 2016, 2015 and 2014, respectively, net of estimated
92
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
15. Share Plans (Continued)
forfeitures, which is recorded in operating expenses in the consolidated statements of comprehensive
income.
Stock Options—Stock options granted in 2016 have an exercise price between $33.23 per share and
$35.37 per share; stock options granted in 2015 have an exercise price between $28.36 per share and
$49.70 per share, and the stock options granted in 2014 have an exercise price between $42.20 per
share and $59.01 per share.
Stock options issued in 2012 - 2016 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 options
issued in 2011 and 2010 vest in equal installments over five 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 473,743,
272,296 and 235,644 in 2016, 2015 and 2014, respectively, and were based on the value of the stock on
the exercise dates as determined based upon an average of the Company’s high and low stock sales
price 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. Total payments
for the employees’ tax obligations to the taxing authorities were $13,056, $9,768 and $10,411 in 2016,
2015 and 2014, respectively, and are reflected as a financing activity within the consolidated statements
of cash flows.
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 retained by the Company, with the remaining cash
being transferred to the employee. Total proceeds from the cashless for cash exercise of stock options
were $1,623 in 2016, and are reflected as a financing activity in the consolidated statement 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 and implied volatility measures for a set of peer companies. 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
93
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
15. Share Plans (Continued)
assumptions used in the Black-Scholes-Merton option pricing model for 2016, 2015 and 2014 are as
follows:
Weighted average grant date fair value . . . . . . . . . . . . .
$13.77
$19.07
$26.35
2016
2015
2014
Assumptions:
Expected stock price volatility . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend per share . . . . . . . . . . . . . . . .
Expected life of options (years) . . . . . . . . . . . . . . . . . . .
41%
45%
41%
1.31% 1.72% 1.90%
$ — $ — $ —
6.25
6.25
6.25
The Company periodically evaluates its forfeiture rates and updates the rates it uses in the
determination of its stock-based compensation expense. The impact of the change to the forfeiture
rates on non-cash compensation expense was immaterial for the years ended December 31, 2016, 2015
and 2014.
A summary of the Company’s stock option activity and related information for the years ended
December 31, 2016, 2015 and 2014 is as follows:
Outstanding as of December 31, 2013 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Options
2,937,301
187,189
(549,282)
(259)
(32,810)
Outstanding as of December 31, 2014 . . . . . . .
2,542,139
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
287,165
(604,088)
(6,409)
(90,793)
Outstanding as of December 31, 2015 . . . . . . .
2,128,014
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
398,313
(995,469)
(47,894)
Outstanding as of December 31, 2016 . . . . . . .
1,482,964
Exercisable as of December 31, 2016 . . . . . . .
787,654
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
($ in thousands)
$ 5.74
57.21
3.44
15.94
12.68
9.94
45.18
3.79
50.11
37.27
15.15
33.24
2.89
37.41
27.49
17.64
9.5
$148,369
8.5
$ 96,518
7.7
$ 40,271
7.5
6.7
$ 23,840
$ 19,897
94
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
15. Share Plans (Continued)
As of December 31, 2016, there was $8,051 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 2.7 years. Total share-based
compensation cost related to the stock options for 2016, 2015 and 2014 was $4,366, $4,198 and $8,509,
respectively, which is recorded in operating expenses in the consolidated statements of comprehensive
income.
Restricted Stock—Restricted stock awards issued in 2012 and after, vest in equal installments over
three years, subject to the grantee’s continued employment or service. Certain restricted stock awards
also include performance shares, which were awarded in the years 2014 through 2016. 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 revenue growth and EBITDA
margin, from which grantees may earn from 0% to 200% of their target performance share award. The
performance period for the 2014 awards covers the years 2014 through 2016, the performance period
for the 2015 awards covers the years 2015 through 2017, and the performance period for the 2016
awards covers the years 2016 through 2018. The Company estimates the number of performance shares
that will vest based on projected financial performance. The fair market value of the restricted awards
at the time of the grant is amortized to expense over the period of vesting. The fair value of restricted
awards is determined based on the market value of the Company’s shares on the grant date. 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 obligation for the applicable income and
other employment taxes, and then pays those taxes on behalf of the employee. In effect, the Company
repurchases these shares and classifies as treasury stock, and pays the cash to the taxing authorities on
behalf of the employees to satisfy the tax withholding requirements. Total shares withheld were 28,593,
65,763 and 34,854 in 2016, 2015 and 2014, respectively, and were based on the value of the stock on
the vesting dates as determined based upon an average of the Company’s high and low stock sales price
on the vesting dates. Total payments for the employees’ tax obligations to the taxing authorities were
$952, $3,233 and $1,770 in 2016, 2015 and 2014, respectively, and are reflected as a financing activity
within the consolidated statements of cash flows.
95
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
15. Share Plans (Continued)
A summary of the Company’s restricted stock activity for the years ended December 31, 2016, 2015
and 2014 is as follows:
Non-vested as of December 31, 2013 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
304,406
115,473
(105,123)
(47,472)
Non-vested as of December 31, 2014 . . . . . . . . . . . . . . . .
267,284
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
193,117
(183,362)
(33,999)
Non-vested as of December 31, 2015 . . . . . . . . . . . . . . . .
243,040
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,295
(95,858)
(18,074)
Non-vested as of December 31, 2016 . . . . . . . . . . . . . . . .
361,403
Weighted-
Average Grant-
Date Fair Value
$29.68
54.35
28.31
42.31
38.72
41.31
32.56
47.77
44.16
33.56
41.93
38.30
38.18
As of December 31, 2016, there was $7,192 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 2016, 2015 and 2014 was $5,127, $4,043 and
$4,103, respectively, which is recorded in operating expenses in the consolidated statements of
comprehensive income.
During 2016, 2015 and 2014, 19,326, 16,260 and 8,869 shares, respectively, of fully vested stock
were granted to certain members of the Company’s Board of Directors as a component of their
compensation for their service on the Board. Total compensation cost for these share grants in 2016,
2015 and 2014 was $670, $615 and $509, respectively, which is recorded in operating expenses in the
consolidated statements of comprehensive income.
96
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
16. Commitments and Contingencies
The Company leases certain manufacturing and office facilities, machinery and computer
equipment, automobiles and warehouse space under operating leases. The approximate aggregate
minimum rental commitments at December 31, 2016, are as follows:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,922
7,314
6,368
5,559
3,946
5,730
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,839
Total rent expense for the years ended December 31, 2016, 2015 and 2014, was approximately
$9,146, $4,796, and $4,102, respectively.
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, 2016 and 2015 was approximately $33,900 and $32,400,
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.
17. Quarterly Financial Information (Unaudited)
Quarters Ended 2016
Q1
Q2
Q3
Q4
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Net income attributable to Generac Holdings Inc.
$286,535
98,060
26,964
10,208
$367,376
124,147
44,082
20,888
$373,121
137,772
56,340
26,183
$417,421
154,127
77,231
41,509
Net income attributable to common shareholders per
common share—basic:
. . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common shareholders per
common share—diluted: . . . . . . . . . . . . . . . . . . . . . .
$
$
0.15
0.15
$
$
0.32
0.31
$
$
0.41
0.40
$
$
0.64
0.64
97
Generac Holdings Inc.
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2016, 2015, and 2014
(U.S. Dollars in Thousands, Except Share and Per Share Data)
17. Quarterly Financial Information (Unaudited) (Continued)
Quarters Ended 2015
Q1
Q2
Q3
Q4
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Net income attributable to Generac Holdings Inc.
$311,818
102,603
44,911
19,685
$288,360
95,897
39,467
14,844
$359,291
130,326
67,867
34,036
$357,830
131,124
27,316
9,182
Net income attributable to common shareholders per
common share—basic:
. . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common shareholders per
common share—diluted: . . . . . . . . . . . . . . . . . . . . . .
$
$
0.29
0.28
$
$
0.22
0.21
$
$
0.50
0.49
$
$
0.14
0.14
18. Valuation and Qualifying Accounts
For the years ended December 31, 2016, 2015 and 2014:
Additions
Balance at
Beginning of Charged to
Earnings
Year
Charges to
Reserve, Net(1)
Established for Balance at End
Acquisitions
of Year
Reserves
Year ended December 31, 2016
Allowance for doubtful accounts . .
Reserves for inventory . . . . . . . . . .
Valuation of deferred tax assets . . .
Year ended December 31, 2015
Allowance for doubtful accounts . .
Reserves for inventory . . . . . . . . . .
Valuation of deferred tax assets . . .
Year ended December 31, 2014
Allowance for doubtful accounts . .
Reserves for inventory . . . . . . . . . .
Valuation of deferred tax assets . . .
$ 2,494
10,582
1,523
$ 2,275
9,387
1,385
$ 2,658
6,558
1,021
$1,654
5,359
638
$ 481
3,739
138
$ 672
2,797
364
$(1,110)
(5,357)
—
$ (325)
(3,158)
—
$(1,264)
(2,250)
—
$2,604
2,447
2,201
$
63
614
—
$ 209
2,282
—
$ 5,642
13,031
4,362
$ 2,494
10,582
1,523
$ 2,275
9,387
1,385
(1) Deductions from the allowance for doubtful accounts equal accounts receivable written off, less
recoveries, against the allowance. Deductions from the reserves for inventory excess and obsolete
items equal inventory written off against the reserve as items were disposed of.
19. Subsequent Events
On January 1, 2017, the Company acquired Motortech GmbH and its affiliates (Motortech),
headquartered in Celle, Germany. Motortech is a leading manufacturer of gaseous-engine control
systems and accessories, which are sold primarily to European gas-engine manufacturers and to
aftermarket customers. Motortech employs over 250 people at its German headquarters, manufacturing
plant in Poland, and sales offices located in the United States and China. Prior to December 31, 2016,
a cash deposit of $15,329 was paid, which is recorded in other current assets on the consolidated
balance sheet as of December 31, 2016.
98
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
In April 2016, the Company dismissed Ernst & Young LLP as its independent registered public
accounting firm, and appointed Deloitte & Touche LLP as its new independent registered public
accounting firm. See the Company’s 8-K filed as of April 20, 2016 for full disclosures related to the
change in accountants.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure
that information required to be disclosed by us in reports we file or submit under the Securities
Exchange Act of 1934 (Exchange Act), is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial
Officer, has conducted an evaluation of the design and operation of our disclosure controls and
procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the
period covered by this report on Form 10-K. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective in
providing reasonable assurance that the information required to be disclosed in this report on
Form 10-K has been recorded, processed, summarized and reported as of the end of the period
covered by this report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal
control over financial reporting is designed under the supervision of our Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the consolidated financial statements in accordance with U.S. GAAP.
Internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial statements in accordance with U.S. GAAP,
and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) 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 Company’s financial statements.
There are inherent limitations to the effectiveness of any internal control over financial reporting,
including the possibility of human error or the circumvention or overriding of the controls. Accordingly,
even an effective internal control over financial reporting can provide only reasonable assurance of
achieving its objective. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. 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.
99
Under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, our management conducted an assessment of the effectiveness of internal control
over financial reporting as of December 31, 2016 based on the criteria established in the 2013 Internal
Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, our management has concluded that our internal
control over financial reporting was effective as of December 31, 2016. In conducting this assessment,
our management excluded the Pramac business, which was acquired on March 1, 2016 and whose
financial statements constitute 22.5% and 11.1% of net and total assets, respectively, 12.6% of
revenues, and 0.7% of net income of the total consolidated financial statement amounts as of and for
the year ended December 31, 2016.
In January 2016, we implemented a new global enterprise resource planning (ERP) system for a
majority of our business, with another subsidiary of the Company implementing in October 2016. In
connection with this ERP system implementation, we have updated our internal controls over financial
reporting, as necessary, to accommodate modifications to our business processes and accounting
procedures. Additional implementations will occur at our remaining locations over a multi-year period.
Our independent registered public accounting firm has issued an attestation report on our internal
control over financial reporting as of December 31, 2016. Its report appears in the consolidated
financial statements included in this Annual Report on Form 10-K on page 40.
Changes in Internal Control Over Financial Reporting
Other than the assessment of controls for the ERP system implementation and Pramac acquisition
noted above, there have been no changes in our internal control over financial reporting that occurred
during the year ended December 31, 2016 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Item 10 not already provided herein under ‘‘Item 1—Business—
Executive Officers’’, will be included in our 2017 Proxy Statement and is incorporated herein by
reference.
Item 11. Executive Compensation
The information required by this item will be included in our 2017 Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item, including under the heading ‘‘Securities Authorized for
Issuance Under Equity Compensation Plans,’’ will be included in our 2017 Proxy Statement and is
incorporated herein by reference.
100
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our 2017 Proxy Statement and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our 2017 Proxy Statement and is
incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
Included in Part II of this report:
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of comprehensive income for years ended December 31, 2016, 2015 and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of stockholders’ equity for years ended December 31, 2016, 2015 and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014 . . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
51
55
56
57
58
59
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted, since the required information is not
applicable or is not present in amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements and notes thereto.
(a)(3) Exhibits
See the Exhibits Index following the signature pages for a list of the exhibits being filed or
furnished with or incorporated by reference into this Annual Report on Form 10-K.
101
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
GENERAC HOLDINGS INC.
By:
/s/ AARON JAGDFELD
Aaron Jagdfeld
Chairman, President and Chief Executive Officer
Dated: February 24, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons and on behalf of the Registrant in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ AARON JAGDFELD
Aaron Jagdfeld
Chairman, President and Chief
Executive Officer
February 24, 2017
/s/ YORK A. RAGEN
York A. Ragen
/s/ TODD A. ADAMS
Todd A. Adams
/s/ JOHN D. BOWLIN
John D. Bowlin
/s/ ROBERT D. DIXON
Robert D. Dixon
/s/ ANDREW G. LAMPEREUR
Andrew G. Lampereur
/s/ BENNETT MORGAN
Bennett Morgan
Chief Financial Officer and Chief
Accounting Officer
February 24, 2017
Lead Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
102
Signature
Title
Date
/s/ DAVID A. RAMON
David A. Ramon
/s/ KATHRYN ROEDEL
Kathryn Roedel
/s/ DOMINICK ZARCONE
Dominick Zarcone
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
103
Exhibits
Number
3.1
EXHIBIT INDEX
Description
Third Amended and Restated Certificate of Incorporation of Generac Holdings Inc.
(incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2010).
3.2 Amended and Restated Bylaws of Generac Holdings Inc. (incorporated by reference to
Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on
February 16, 2016).
4.1
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-1 filed with the SEC on January 25, 2010).
10.1 Restatement Agreement, dated as of May 31, 2013, to that certain Credit Agreement, dated
as of February 9, 2012, as amended and restated as of May 31, 2012, among Generac Power
Systems, Inc., Generac Acquisition Corp., the lenders party thereto, JPMorgan Chase Bank,
N.A., as Administrative Agent, and Bank of America, N.A. and Goldman Sachs Bank USA, as
syndication agents (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the SEC on June 4, 2013)
10.2 Guarantee and Collateral Agreement, dated as of February 9, 2012, as amended and restated
as of May 30, 2012, among Generac Holdings Inc., Generac Acquisition Corp., Generac
Power Systems, Inc., certain subsidiaries of Generac Power Systems, Inc. and JPMorgan Chase
Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the SEC on May 31, 2012).
10.3
Credit Agreement, dated as of February 9, 2012, as amended and restated as of May 30, 2012,
as further amended and restated as of May 31, 2013, among Generac Power Systems, Inc.,
Generac Acquisition Corp., the lenders party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent and Bank of America, N.A. and Goldman Sachs Bank USA, as
syndication agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed with the SEC on June 4, 2013).
10.4 Guarantee and Collateral Agreement, dated as of May 30, 2012, among Generac
Holdings Inc., Generac Acquisition Corp., Generac Power Systems, Inc., certain subsidiaries of
Generac Power Systems, Inc. and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K
filed with the SEC on May 31, 2012).
10.5
First Amendment to Guarantee and Collateral Agreement, dated as of May 31, 2013, to that
certain Guarantee and Collateral Agreement, dated as of February 9, 2012, as amended and
restated as of May 30, 2012, among Generac Holdings Inc., Generac Acquisition Corp.,
Generac Power Systems, Inc., certain subsidiaries of Generac Power Systems, Inc. and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 4,
2013).
104
Exhibits
Number
10.6
Description
Credit Agreement, dated as of May 30, 2012, among Generac Power Systems, Inc., its
Domestic Subsidiaries listed as Borrowers on the signature pages thereto, Generac Acquisition
Corp., the lenders party thereto, Bank of America, N.A. as Administrative Agent, JPMorgan
Chase Bank, N.A. and Goldman Sachs Bank USA, as syndication agents, and Wells Fargo
Bank, National Association, as Documentation Agent (incorporated by reference to
Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on May 31,
2012).
10.7 Amendment No. 1 dated as of May 31, 2013 to the Credit Agreement, dated as of May 30,
2012, among Generac Power Systems, Inc., its Domestic Subsidiaries listed as Borrowers on
the signature pages thereto, Generac Acquisition Corp., the lenders party thereto, Bank of
America, N.A. as Administrative Agent, JPMorgan Chase Bank, N.A. and Goldman Sachs
Bank USA, as syndication agents, and Wells Fargo Bank, National Association, as
Documentation Agent (incorporated by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed with the SEC on June 4, 2013)
10.8
First Amendment to the Guarantee and Collateral Agreement, dated as of May 31, 2013, to
that certain Guarantee and Collateral Agreement, dated as of May 30, 2012, among Generac
Holdings Inc., Generac Acquisition Corp., Generac Power Systems, Inc., certain subsidiaries of
Generac Power Systems, Inc. and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
filed with the SEC on June 4, 2013).
10.9 Amendment No. 2 dated as of May 29, 2015 to the Credit Agreement, dated as of May 30,
2012, as amended by Amendment No. 1, dated as of May 31, 2013, among Generac
Holdings, Inc., Generac Acquisition Corp., Generac Power Systems, Inc., certain subsidiaries
of Generac Power Systems, Inc. and Bank of America, N.A., as Administrative Agent and the
other agents named therein (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed with the SEC on June 1, 2015).
10.10 Replacement Term Loan Amendment dated as of November 2, 2016 to the Credit Agreement,
dated as of February 9, 2012, as amended and restated as of May 30, 2012, as further
amended and restated as of May 31, 2013, and as amended by the First Amendment dated as
of May 18, 2015, among Generac Power Systems, Inc., Generac Acquisition Corp., the lenders
party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the other agents
named therein.
10.11+ 2009 Executive Management Incentive Compensation Program (incorporated by reference to
Exhibit 10.46 of the Registration Statement on Form S-1 filed with the SEC on December 17,
2009).
10.12+ Generac Holdings Inc. Amended and Restated 2010 Equity Incentive Plan (incorporated by
reference to Appendix A to the Definitive Proxy Statement on Schedule 14A of the Company
filed with the SEC on April 27, 2012)
10.13+ Generac Holdings Inc. Annual Performance Bonus Plan (incorporated by reference to
Exhibit 10.63 of the Registration Statement on Form S-1 filed with the SEC on January 25,
2010).
10.14+ Amended and Restated Employment Agreement, dated November 5, 2015, between Generac
and Aaron Jagdfeld (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly
Report on Form 10-Q filed with the SEC on November 6, 2015).
105
Exhibits
Number
Description
10.15+ Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.64
of the Registration Statement on Form S-1 filed with the SEC on January 25, 2010).
10.16
Form of Confidentiality, Non-Competition and Intellectual Property Agreement (incorporated
by reference to Exhibit 10.40 of the Registration Statement on Form S-1 filed with the SEC
on November 24, 2009).
10.17+ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.44 of
the Registration Statement on Form S-1 filed with the SEC on January 25, 2010).
10.18+ Form of Nonqualified Stock Option Award Agreement (incorporated by reference to
Exhibit 10.45 of the Registration Statement on Form S-1 filed with the SEC on January 25,
2010).
10.19+ Amended Form of Restricted Stock Award Agreement pursuant to the 2010 Equity Incentive
Plan (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q filed
with the SEC on May 8, 2012).
10.20+ Amended Form of Nonqualified Stock Option Award Agreement pursuant to the 2010 Equity
Incentive Plan (incorporated by reference to Exhibit 10.4 of the Quarterly Report on
Form 10-Q filed with the SEC on May 8, 2012).
10.21+ Amended Form of Restricted Stock Award Agreement with accelerated vesting pursuant to
the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 of the Quarterly
Report on Form 10-Q filed with the SEC on May 8, 2012).
10.22
10.23
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.51 of
the Registration Statement on Form S-1 filed with the SEC on January 11, 2010).
Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.52 of the
Registration Statement on Form S-1 filed with the SEC on January 11, 2010).
10.24+ Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10.1 of
the Quarterly Report on Form 10-Q filed with the SEC on May 5, 2014).
21.1* List of Subsidiaries of Generac Holdings Inc.
23.1* Consent of Deloitte & Touche, Independent Registered Public Accounting Firm.
23.2* Consent of Ernst & Young, Independent Registered Public Accounting Firm.
31.1* Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002.
106
Exhibits
Number
Description
101* The following financial information from the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016, filed with the SEC on February 24, 2017, formatted in
eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at
December 31, 2016 and December 31, 2015; (ii) Consolidated Statements of Comprehensive
Income for the Fiscal Years Ended December 31, 2016, December 31, 2015 and December 31,
2014; (iii) Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended
December 31, 2016, December 31, 2015 and December 31, 2014; (iv) Consolidated Statements
of Cash Flows for the Fiscal Years Ended December 31, 2016, December 31, 2015 and
December 31, 2014; (v) Notes to Consolidated Financial Statements.
*
Filed herewith.
** Furnished herewith.
+ Indicates management contract or compensatory plan or arrangement.
107
GENERAC HOLDINGS INC. - BOARD OF DIRECTORS
Todd Adams (2) (5)
President and Chief Executive Officer
Rexnord Corp.
Director since 2013
William “BJ” Jenkins (2)
President and Chief Executive Officer
Barracuda Networks
Director since 2017
John D. Bowlin (2)
Director since 2006
Former President and Chief Executive
Officer, Miller Brewing Company
Andrew G. Lampereur (1)
Director since 2014
Former Executive Vice President and Chief
Financial Officer, Actuant Corporation
Robert D. Dixon (1) (3)
Director since 2012
Former Chief Executive Officer,
Natural Systems Utilities LLC
Bennett Morgan (2) (3)
Director since 2013
Former President and Chief Operating Officer
Polaris Industries Inc.
Aaron P. Jagdfeld (4)
President and Chief Executive Officer
Generac Holdings Inc.
Director since 2006
David A. Ramon (1)
Executive Chairman and
Acting Chief Executive Officer
Diversified Maintenance
Director since 2010
Kathryn Roedel (3)
Director since 2016
Former Executive Vice President and
Chief Services and Fulfillment Officer
Select Comfort Corporation
Dominick Zarcone (1)
President and Chief Executive Officer
LKQ Corporation
Director since 2016
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating and Corporate
Governance Committee
(4) Executive Chairman
(5) Lead Director
EXECUTIVE OFFICERS
Aaron P. Jagdfeld – 22 years of service
President and Chief Executive Officer
Russ Minick – 6 years of service
Chief Marketing Officer
York A. Ragen – 11 years of service
Chief Financial Officer
Erik Wilde – 1 year of service
Executive Vice President,
North America Industrial
Roger Pascavis – 20 years of service
Executive Vice President, Strategic
Global Sourcing
Patrick Forsythe – 9 years of service
Executive Vice President, Global Engineering
FORWARD-
LOOKING
STATEMENTS
This annual report
contains forward-
looking statements that
are subject to risks
and uncertainties. For
important information
about our use of
forward-looking
statements and
limitations thereof,
please see Part I of our
Annual Report on Form
10-K for the year ended
December 31, 2016,
which is included with
this annual report.
GENERAC HOLDINGS INC. - SHAREHOLDER INFORMATION
ANNUAL MEETING
The 2017 annual meeting of stockholders of Generac
Holdings Inc. will be held on Thursday, June 15, 2017,
at 9:00 a.m. central time, at Generac’s corporate office.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202
FORM 10-K
Our annual report on Form 10-K was filed with
the Securities and Exchange Commission and
is available online, or upon written request to
Generac Holdings Inc. Investor Relations.
STOCK EXCHANGE
Generac Holdings Inc. common stock is listed
on the New York Stock Exchange under the
ticker symbol GNRC.
CORPORATE OFFICE
Generac Holdings Inc.
S45 W29290 Hwy. 59, Waukesha, WI 53189
262-544-4811 - www.generac.com
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
P.O. BOX 30170, College Station, TX 77842-3170
Toll free within the US: 800-962-4284
Outside the US: 781-575-3120
https://www-us.computershare.com/investor/Contact
www.computershare.com/investor
INVESTOR RELATIONS CONTACT
Michael Harris, Vice President – Finance
Generac Holdings Inc.
S45 W29290 Hwy. 59, Waukesha, WI 53189
262-506-6064 - investorrelations@generac.com
4/13/17 1:33 PM
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Generac Holdings Inc.
S45 W29290 Hwy. 59
Waukesha, WI 53189
1-888-GENERAC (1-888-436-3722)
©2017Generac Holdings, Inc. All rights reserved.
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