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Generac Reports Strong Second Quarter 2012 Results

Any forward-looking statement made by Generac in this press release speaks only as of the date on which it is made. Generac undertakes 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.

Reconciliations to GAAP Financial Metrics

Adjusted EBITDA

The computation of Adjusted EBITDA is based on the definition of EBITDA contained in Generac's credit agreement, dated as of May 30, 2012, which is substantially the same definition that was contained in the Company’s previous credit agreements. To supplement the Company's condensed consolidated financial statements presented in accordance with US GAAP, Generac provides a summary to show the computation of Adjusted EBITDA, taking into account certain charges and gains that were taken during the periods presented.

Adjusted Net Income

To further supplement Generac's condensed consolidated financial statements presented in accordance with US GAAP, the Company provides a summary to show the computation of Adjusted net income. Adjusted net income is defined as Net income before provision (benefit) for income taxes adjusted for the following items: cash income tax (expense) benefit, amortization of intangible assets, amortization of deferred financing costs and original issue discount related to the Company's debt, intangible impairment charges, certain transaction costs and other purchase accounting adjustments, and certain non-cash gains and losses.

Free Cash Flow

In addition, we reference free cash flow to further supplement Generac's condensed consolidated financial statements presented in accordance with US GAAP. Free cash flow is defined as Net cash provided by operating activities less Expenditures for property and equipment and is intended to be a measure of operational cash flow taking into account additional capital expenditure investment into the business.

The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with US GAAP. Please see our SEC filings for additional discussion of the basis for Generac's reporting of Non-GAAP financial measures.

Generac Holdings Inc.
Condensed Consolidated Statements of Comprehensive Income
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
       
 
Three Months Ended June 30, Six Months Ended June 30,
  2012       2011     2012       2011  
 
 
Net sales $ 239,137 $ 161,363 $ 533,698 $ 285,344
Costs of goods sold   151,708       101,010     335,264       177,814  
Gross profit 87,429 60,353 198,434 107,530
 
Operating expenses:
Selling and service 22,122 17,317 47,248 31,622
Research and development 5,703 3,608 10,758 7,493
General and administrative 10,158 5,772 19,264 11,889
Amortization of intangibles   12,288       11,856     24,513       23,583  
Total operating expenses   50,271       38,553     101,783       74,587  
Income from operations 37,158 21,800 96,651 32,943
 
Other (expense) income:
Interest expense (9,894 ) (5,934 ) (15,568 ) (11,935 )
Investment income 29 23 48 59
Loss on extinguishment of debt (9,999 ) (186 ) (14,308 ) (186 )
Other, net   (1,595 )     (327 )   (2,020 )     (568 )
Total other expense, net   (21,459 )     (6,424 )   (31,848 )     (12,630 )
 
Income before provision for income taxes 15,699 15,376 64,803 20,313
Provision for income taxes   6,364       87     25,408       180  
Net income $ 9,335     $ 15,289   $ 39,395     $ 20,133  
 
Net income per common share - basic: $ 0.14 $ 0.23 $ 0.59 $ 0.30
Weighted average common shares outstanding - basic: 67,309,260 67,134,999 67,254,870 67,121,356
 
Net income per common share - diluted: $ 0.14 $ 0.23 $ 0.57 $ 0.30
Weighted average common shares outstanding - diluted: 68,645,533 67,718,654 68,599,867 67,463,440
 
Dividends declared per share $ 6.00 $ - $ 6.00 $ -
 
Comprehensive income $ 10,039 $ 12,587 $ 40,030 $ 17,986
   
Generac Holdings Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
 
 
June 30, December 31,
  2012       2011  
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 10,307 $ 93,126
Accounts receivable, less allowance for doubtful accounts 100,108 109,705
Inventories 227,038 162,124
Deferred income taxes 17,000 14,395
Prepaid expenses and other assets   4,503       3,915  
Total current assets 358,956 383,265
 
Property and equipment, net 85,786 84,384
 
Customer lists, net 53,785 72,897
Patents, net 74,276 78,167
Other intangible assets, net 6,548 7,306
Deferred financing costs, net 15,078 3,459
Trade names, net 148,434 148,401
Goodwill 547,968 547,473
Deferred income taxes 200,900 227,363
Other assets   44       78  
Total assets $ 1,491,775     $ 1,552,793  
 
Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings $ 13,000 $
Accounts payable 75,391 81,053
Accrued wages and employee benefits 12,405 14,439
Other accrued liabilities 59,881 47,024
Current portion of long-term borrowings   6,750       22,874  
Total current liabilities 167,427 165,390
 
Long-term borrowings 875,513 575,000
Other long-term liabilities   44,229       43,514  
Total liabilities 1,087,169 783,904
 
Stockholders’ equity:
Common stock, par value $0.01, 500,000,000 shares authorized, 68,055,203 and 67,652,812 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively 680 676
Additional paid-in capital 738,384 1,142,701
Excess purchase price over predecessor basis (202,116 ) (202,116 )
Accumulated deficit (117,620 ) (157,015 )
Accumulated other comprehensive loss   (14,722 )     (15,357 )
Total stockholders’ equity   404,606       768,889  
Total liabilities and stockholders’ equity $ 1,491,775     $ 1,552,793  
Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
   
Six Months Ended June 30,
  2012       2011  
 
Operating activities
Net income $ 39,395 $ 20,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,995 3,940
Amortization of intangible assets 24,513 23,583
Amortization of original issue discount 343
Amortization of deferred financing costs 1,016 996
Loss on extinguishment of debt 14,308 186
Provision for losses on accounts receivable 67 (29 )
Deferred income taxes 23,610
Loss on disposal of property and equipment 91 18
Share-based compensation expense 5,257 3,717
Net changes in operating assets and liabilities:
Accounts receivable 10,676 (16,627 )
Inventories (64,609 ) (12,591 )
Other assets (306 ) 1,183
Accounts payable (6,043 ) 2,927
Accrued wages and employee benefits (2,034 ) (19 )
Other accrued liabilities   9,428       567  
Net cash provided by operating activities 59,707 27,984
 
Investing activities
Proceeds from sale of property and equipment 16 4
Expenditures for property and equipment (5,504 ) (3,404 )
Acquisition of business   (2,279 )      
Net cash used in investing activities (7,767 ) (3,400 )
 
Financing activities
Proceeds from short-term borrowings 13,000
Proceeds from long-term borrowings 1,455,614
Repayments of long-term borrowings (1,172,874 ) (24,731 )
Payment of debt issuance costs (24,928 )
Cash dividends paid (404,332 )
Taxes paid related to the net share settlement of equity awards (2,785 )
Excess tax benefits from equity awards 1,546
Proceeds from exercise of stock options         310  
Net cash used in financing activities (134,759 ) (24,421 )
 
Net (decrease) increase in cash and cash equivalents (82,819 ) 163
Cash and cash equivalents at beginning of period   93,126       78,583  
Cash and cash equivalents at end of period $ 10,307     $ 78,746  
 
Generac Holdings Inc.
Reconciliation Schedules
(Dollars in Thousands, Except Share and Per Share Data)
         
Net income to Adjusted EBITDA reconciliation
Three Months Ended June 30, Six Months Ended June 30, Year Ended December 31,
2012 2011 2012 2011 2011
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
 
Net income $ 9,335 $ 15,289 $ 39,395 $ 20,133 $ 324,643
Interest expense 9,894 5,934 15,568 11,935 23,718
Depreciation and amortization 14,290 13,860 28,508 27,523 56,123
Income taxes provision 6,364 87 25,408 180 (237,677 )
Non-cash impairment and other charges (1) 454 158 250 604 10,400
Non-cash share-based compensation expense (2) 2,818 1,717 5,257 3,717 8,646
Loss on extinguishment of debt 9,999 186 14,308 186 377
Transaction costs and credit facility fees (3) 1,284 258 1,419 431 1,719
Other   153       127     280       391     527  
Adjusted EBITDA $ 54,591     $ 37,616   $ 130,393     $ 65,100   $ 188,476  
 
(1) Includes losses on disposals of assets, amortization of earn-out discount and unrealized mark-to-market adjustments on commodity contracts. A full description of these and the other reconciliation adjustments contained in these schedules is included in Generac's SEC filings.
 
(2) Includes share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods.
 
(3) 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.
 
 
Net income to Adjusted net income reconciliation
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
(unaudited) (unaudited) (unaudited) (unaudited)
 
Net income $ 9,335 $ 15,289 $ 39,395 $ 20,133
Provision for income taxes   6,364       87     25,408       180  
Income before provision for income taxes 15,699 15,376 64,803 20,313
Amortization of intangible assets 12,288 11,856 24,513 23,583
Amortization of deferred financing costs and original issue discount 853 494 1,359 996
Transaction costs and other purchase accounting adjustments (4) 1,292 - 1,292 -
Loss on extinguishment of debt   9,999       186     14,308       186  
Adjusted net income before provision for income taxes 40,131 27,912 106,275 45,078
Cash income tax expense   (272 )     (256 )   (327 )     (280 )
Adjusted net income $ 39,859     $ 27,656   $ 105,948     $ 44,798  
 
Adjusted net income per common share - diluted: $ 0.58 $ 0.41 $ 1.54 $ 0.66
 
Weighted average common shares outstanding - diluted: 68,645,533 67,718,654 68,599,867 67,463,440
 
(4) Represents transaction costs and other purchase accounting adjustments incurred directly in connection with any investment, as defined in our credit agreement, equity issuance or debt issuance or refinancing.
 
Free cash flow reconciliation
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
(unaudited) (unaudited) (unaudited) (unaudited)
 
Net cash provided by operating activities $ 21,123 $ 15,313 $ 59,707 $ 27,984
Expenditures for property and equipment   (3,366 )     (1,835 )   (5,504 )     (3,404 )
Free cash flow $ 17,757     $ 13,478   $ 54,203     $ 24,580  
 
 
LTM June 30,
2012
(unaudited)
 
2011 net cash provided by operating activities, as reported $ 169,712
Add: June 2012 YTD net cash provided by operating activities, as reported 59,707
Less: June 2011 YTD net cash provided by operating activities, as reported   (27,984 )
LTM net cash provided by operating activities   201,435  
 
2011 expenditures for property and equipment, as reported (12,060 )
Include: June 2012 YTD expenditures for property and equipment, as reported (5,504 )
Exclude: June 2011 YTD expenditures for property and equipment, as reported   3,404  
LTM expenditures for property and equipment   (14,160 )
 
Free cash flow $ 187,275  
 
 
Pro forma sales reconciliation LTM June 30,
2012
(unaudited)
 
2011 net sales, as reported $ 791,976
Add: June 2012 YTD net sales, as reported 533,698
Less: June 2011 YTD net sales, as reported (285,344 )
Pro forma Magnum net sales (July 1, 2011 - September 30, 2011)   41,689  
Pro forma net sales $ 1,082,019  
 
 
Pro forma Adjusted EBITDA reconciliation LTM June 30,
2012
(unaudited)
 
2011 Adjusted EBITDA, as reported $ 188,476
Add: June 2012 YTD Adjusted EBITDA, as reported 130,393
Less: June 2011 YTD Adjusted EBITDA, as reported (65,100 )
Pro forma Magnum adjusted EBITDA (July 1, 2011 - September 30, 2011)   4,560  
Pro forma adjusted EBITDA $ 258,329  
 

SOURCE: Generac Holdings Inc.

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