Generac (US:GNRC)2020-02-25 21:59Investment and Acquisitions - The company has invested in automation and expanded manufacturing capacity through acquisitions, believing it has sufficient capacity to meet near-to-intermediate term business goals[60] - The company has made acquisitions such as Pika Energy and Neurio Technologies to enhance capabilities in energy storage and monitoring markets, providing advanced power electronics and battery management software[61] - The Company acquired Neurio for a purchase price of $59.1 million, recording approximately $58.8 million of intangible assets, including $17.9 million of goodwill as of the acquisition date[290] - The Company also acquired Pika for a purchase price of $49.1 million, resulting in approximately $58.2 million of intangible assets, including $19.9 million of goodwill[291] - The company acquired a majority share of Captiva Energy Solutions in February 2019, enhancing its market presence in India[321] - Generac Holdings Inc. has executed multiple acquisitions to support its strategic plan, including Neurio Technology Inc. and Pika Energy, both acquired in 2019[321] Financial Performance - Net sales for 2019 reached $2,204,336, an increase of 8.93% from $2,023,464 in 2018[311] - Gross profit for 2019 was $797,752, representing a gross margin of approximately 36.2%, up from $725,040 in 2018[311] - Operating income increased to $372,163 in 2019, compared to $357,181 in 2018, reflecting a growth of 4.4%[311] - Net income attributable to Generac Holdings Inc. for 2019 was $252,007, a rise of 5.8% from $238,257 in 2018[311] - Total assets as of December 31, 2019, were $2,665,669, up from $2,426,314 in 2018, marking an increase of 9.9%[309] - Total liabilities decreased to $1,571,591 in 2019 from $1,604,049 in 2018, a reduction of 2.0%[309] - Cash and cash equivalents increased to $322,883 in 2019, compared to $224,482 in 2018, reflecting a growth of 43.8%[309] - Research and development expenses rose to $68,394 in 2019, up from $50,019 in 2018, indicating a 36.6% increase[311] - Retained earnings grew significantly to $1,084,383 in 2019, compared to $831,123 in 2018, an increase of 30.4%[309] - The company reported a total stockholders' equity of $1,032,851 as of December 31, 2019, compared to $761,261 in 2018, reflecting a growth of 35.6%[309] Market Risks and Financial Instruments - The company is exposed to market risks from foreign currency exchange rates, commodity prices, and interest rates, utilizing financial instruments to mitigate these risks[274] - The company has outstanding interest rate swap contracts totaling $625 million, with fixed LIBOR rates ranging from 1.9053% to 2.3673%[279] - A hypothetical change in the LIBOR interest rate of 100 basis points would have changed annual cash interest expense by approximately $4.0 million in 2019[281] - The fair value of interest rate swaps was a liability of $10.6 million as of December 31, 2019[281] Research and Development - The research and development team consists of over 500 engineers focused on power generation equipment and energy storage systems, with expertise in natural gas engines and emissions technology[61] - Total expenditures for research and development were $68,394 million, $50,019 million, and $42,869 million for the years ended December 31, 2019, 2018, and 2017, respectively[342] Internal Controls and Compliance - The internal control over financial reporting was maintained effectively as of December 31, 2019, according to the audit opinion[298] - The Company’s internal control assessment excluded Neurio and Pika, which constituted 5.0% and 2.8% of net and total assets, respectively[300] Goodwill and Intangible Assets - The Latin America reporting unit's carrying value of goodwill was approximately $48.1 million, with an estimated fair value exceeding its carrying value by approximately 10%[294] - The Company recorded a significant amount of intangible assets based on estimates of future cash flows, requiring management to make subjective judgments[292] - The Company’s annual impairment assessment indicated no impairment for the Latin America reporting unit, reflecting recovering end markets and improving profit margins[294] - The Company recorded approximately $58,196 of intangible assets from the Pika acquisition, including $19,896 of goodwill[359] - The Company recorded approximately $58,762 of intangible assets from the Neurio acquisition, including $17,862 of goodwill[361] Taxation - The provision for income taxes in 2019 was $67.30 million, a decrease from $69.86 million in 2018[432] - Total deferred tax assets increased to $81.82 million in 2019 from $68.35 million in 2018, while total deferred tax liabilities rose to $175.22 million from $139.48 million[435] - The effective tax rate for 2019 was 21.1%, slightly lower than 22.5% in 2018[443] - The Company had unrecognized tax benefits of $6.72 million as of December 31, 2019, up from $5.64 million in 2018[438] Employee Benefits - Contributions to medical and dental benefit plans for employees were $18.29 million in 2019, compared to $14.66 million in 2018[445] Other Financial Metrics - The Company reported a loss on pension settlement of $10,920,000 in 2019, which was not present in 2018[316] - The total comprehensive loss for the year ended December 31, 2019, was $(24,917), compared to $(23,813) in 2018, indicating a worsening of the comprehensive loss[396] - The Company’s net secured leverage ratio was 1.50 to 1.00 times as of December 31, 2019, indicating compliance with all covenants of the Term Loan[422] - The Company made a voluntary prepayment of $49,000 on the term loan in December 2019, resulting in a write-off of $926 of original issue discount[421]