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Form 10-Q GENERAC HOLDINGS INC. For: Jun 30

August 8, 2022 4:14 PM EDT

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0001474735 GENERAC HOLDINGS INC. false --12-31 Q2 2022 0.01 0.01 500,000,000 500,000,000 72,588,588 72,386,017 2,408 8,734 930 4,136 5 3 5 5 0 20 3 82 5 10 0 33,000 0 Represents the non-cash write-off of original issue discount and deferred financing costs due primarily to a voluntary prepayment of Term Loan debt. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the six months ended June 30, 2022, particularly the Euro and British Pound. Includes gains/losses on disposals of assets and sales of certain investments, unrealized mark-to-market adjustments on commodity contracts, certain foreign currency related adjustments, and certain purchase accounting and contingent consideration adjustments. Payable on the third business day after December 31, 2023. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, 2021 particularly the Euro and Mexican Peso. The current year period predominantly represents severance and other non-recurring restructuring charges related to the suspension of operations at certain of our facilities. Excludes approximately 17,000 stock options and restricted stock awards for the three months ended March 31, 2022 as the impact of such awards was anti-dilutive. There were no awards with an anti-dilutive impact for the three months ended March 31, 2021. Represents unrealized gains of $16,379 on the interest rate swaps, net of tax effect of $(4,136) for the six months ended June 30, 2021. 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. Payable within 45 calendar days following the conclusion of the earnout period, December 31, 2025. To be paid in the form of common stock issued upon achievement of certain performance targets at the end of the earnout period. Represents unrealized gains of $9,537 on the interest rate swaps, net of tax effect of $(2,408) for the three months ended June 30, 2022. To be paid in the form of common stock issued upon achievement of certain performance targets following the end of each of two earnout periods, one ended June 30, 2022, and one ending June 30, 2023. Represents unrealized gains of $34,591 on the interest rate swaps, net of tax effect of $(8,734) for the six months ended June 30, 2022. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the six months ended June 30, 2021 particularly the Euro and British Pound. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended June 30, 2022, particularly the Euro and British Pound. 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Table of Contents



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 

For the quarterly period ended June 30, 2022

  

OR

  

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

20-5654756

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

  

S45 W29290 Hwy 59, Waukesha, WI

53189

(Address of principal executive offices)

(Zip Code)

 

(262544-4811

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

GNRC

New York Stock Exchange

 

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 ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

 

As of August 3, 2022, there were 63,830,918 shares of registrant’s common stock outstanding.

 



 

  

 

GENERAC HOLDINGS INC.

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements

 
     
 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

1

     
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021

2

     
 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021

3

     
 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021

4

     
 

Notes to Condensed Consolidated Financial Statements

5

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

     

Item 4.

Controls and Procedures

30

   

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

30

     

Item 1A.

Risk Factors

30

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

     
Item 3. Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     

Item 6.

Exhibits

31

     
 

Signatures

32

 

 

 
 

PART I. FINANCIAL INFORMATION

 


Item 1.           Financial Statements

 

Generac Holdings Inc.

Condensed Consolidated Balance Sheets

(U.S. Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $467,140  $147,339 

Accounts receivable, less allowance for credit losses

  692,291   546,466 

Inventories

  1,240,524   1,089,705 

Prepaid expenses and other assets

  91,356   64,954 

Total current assets

  2,491,311   1,848,464 
         

Property and equipment, net

  446,007   440,852 
         

Customer lists, net

  217,152   238,722 

Patents and technology, net

  469,384   492,473 

Other intangible assets, net

  51,727   66,436 

Tradenames, net

  233,023   243,531 

Goodwill

  1,388,051   1,409,674 

Deferred income taxes

  14,091   15,740 

Operating lease and other assets

  162,205   121,888 

Total assets

 $5,472,951  $4,877,780 
         

Liabilities and stockholders’ equity

        

Current liabilities:

        

Short-term borrowings

 $77,514  $72,035 

Accounts payable

  614,009   674,208 

Accrued wages and employee benefits

  61,249   72,060 

Other accrued liabilities

  415,730   331,674 

Current portion of long-term borrowings and finance lease obligations

  3,674   5,930 

Total current liabilities

  1,172,176   1,155,907 
         

Long-term borrowings and finance lease obligations

  1,286,499   902,091 

Deferred income taxes

  151,643   205,964 

Operating lease and other long-term liabilities

  360,041   341,681 

Total liabilities

  2,970,359   2,605,643 
         

Redeemable noncontrolling interests

  82,830   58,050 
         

Stockholders’ equity:

        

Common stock, par value $0.01, 500,000,000 shares authorized, 72,588,588 and 72,386,017 shares issued at June 30, 2022 and December 31, 2021, respectively

  727   725 

Additional paid-in capital

  967,819   952,939 

Treasury stock, at cost

  (475,294)  (448,976)

Excess purchase price over predecessor basis

  (202,116)  (202,116)

Retained earnings

  2,210,582   1,965,957 

Accumulated other comprehensive loss

  (82,839)  (54,755)

Stockholders’ equity attributable to Generac Holdings Inc.

  2,418,879   2,213,774 

Noncontrolling interests

  883   313 

Total stockholders' equity

  2,419,762   2,214,087 

Total liabilities and stockholders’ equity

 $5,472,951  $4,877,780 

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income

(U.S. Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net sales

 $1,291,391  $919,981  $2,427,247  $1,727,415 

Costs of goods sold

  834,406   580,246   1,609,514   1,065,866 

Gross profit

  456,985   339,735   817,733   661,549 
                 

Operating expenses:

                

Selling and service

  120,066   78,777   218,309   147,201 

Research and development

  41,599   25,344   81,343   47,732 

General and administrative

  52,600   41,610   94,572   74,509 

Amortization of intangibles

  25,876   11,052   51,930   20,031 

Total operating expenses

  240,141   156,783   446,154   289,473 

Income from operations

  216,844   182,952   371,579   372,076 
                 

Other (expense) income:

                

Interest expense

  (10,235)  (7,721)  (19,789)  (15,444)

Investment income

  92   244   169   847 

Loss on extinguishment of debt

  (3,743)  (831)  (3,743)  (831)

Other, net

  505   (373)  751   2,936 

Total other expense, net

  (13,381)  (8,681)  (22,612)  (12,492)
                 

Income before provision for income taxes

  203,463   174,271   348,967   359,584 

Provision for income taxes

  45,826   46,362   74,434   81,730 

Net income

  157,637   127,909   274,533   277,854 

Net income attributable to noncontrolling interests

  1,278   873   4,316   1,825 

Net income attributable to Generac Holdings Inc.

 $156,359  $127,036  $270,217  $276,029 
                 

Net income attributable to Generac Holdings Inc. per common share - basic:

 $2.24  $2.06  $3.85  $4.44 

Weighted average common shares outstanding - basic:

  63,662,510   62,605,166   63,607,711   62,533,725 
                 

Net income attributable to Generac Holdings Inc. per common share - diluted:

 $2.21  $2.01  $3.78  $4.34 

Weighted average common shares outstanding - diluted:

  64,713,748   64,088,709   64,799,002   64,097,378 
                 

Comprehensive income attributable to Generac Holdings Inc.

 $120,864  $119,246  $243,229  $273,062 

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Stockholders' Equity

(U.S. Dollars in Thousands, Except Share Data)

(Unaudited)

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at April 1, 2022

  72,589,905  $727  $959,890   (8,740,863) $(471,833) $(202,116) $2,067,868  $(46,402) $2,308,134  $478  $2,308,612 

Unrealized gain on interest rate swaps, net of tax of $2,408

                       7,129   7,129      7,129 

Foreign currency translation adjustment

                       (43,566)  (43,566)  (256)  (43,822)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  (1,317)     194                  194      194 

Net share settlement of restricted stock awards

           (14,588)  (3,461)           (3,461)     (3,461)

Share-based compensation

        7,735                  7,735      7,735 

Redemption value adjustment

                    (13,645)     (13,645)     (13,645)

Net income

                    156,359      156,359   661   157,020 
                                             

Balance at June 30, 2022

  72,588,588  $727  $967,819   (8,755,451) $(475,294) $(202,116) $2,210,582  $(82,839) $2,418,879  $883  $2,419,762 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at January 1, 2022

  72,386,017  $725  $952,939   (8,667,031) $(448,976) $(202,116) $1,965,957  $(54,755) $2,213,774  $313  $2,214,087 

Unrealized gain on interest rate swaps, net of tax of $8,734

                       25,857   25,857      25,857 

Foreign currency translation adjustment

                       (53,941)  (53,941)  (74)  (54,015)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  202,571   2   (1,682)                 (1,680)     (1,680)

Net share settlement of restricted stock awards

           (88,420)  (26,318)           (26,318)     (26,318)

Share-based compensation

        16,562                  16,562      16,562 

Redemption value adjustment

                    (25,592)     (25,592)     (25,592)

Net income

                    270,217      270,217   644   270,861 
                                             

Balance at June 30, 2022

  72,588,588  $727  $967,819   (8,755,451) $(475,294) $(202,116) $2,210,582  $(82,839) $2,418,879  $883  $2,419,762 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at April 1, 2021

  72,205,746  $723  $534,303   (9,251,818) $(358,362) $(202,116) $1,581,681  $(31,499) $1,524,730  $(161) $1,524,569 

Unrealized loss on interest rate swaps, net of tax of ($930)

                       (2,752)  (2,752)     (2,752)

Foreign currency translation adjustment

                       (3,332)  (3,332)  (2)  (3,334)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  47,234      1,617                  1,617      1,617 

Net share settlement of restricted stock awards

           (279)  (119)           (119)     (119)

Share-based compensation

        6,973                  6,973      6,973 

Redemption value adjustment

                    1,747      1,747      1,747 

Net income

                    127,036      127,036   201   127,237 
                                             

Balance at June 30, 2021

  72,252,980  $723  $542,893   (9,252,097) $(358,481) $(202,116) $1,710,464  $(37,583) $1,655,900  $38  $1,655,938 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at January 1, 2021

  72,024,329  $721  $525,541   (9,173,731) $(332,164) $(202,116) $1,432,565  $(34,254) $1,390,293  $(89) $1,390,204 

Unrealized gain on interest rate swaps, net of tax of $4,136

                       12,243   12,243      12,243 

Foreign currency translation adjustment

                       (15,572)  (15,572)  (5)  (15,577)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  228,651   2   4,931                  4,933      4,933 

Net share settlement of restricted stock awards

           (78,366)  (26,317)           (26,317)     (26,317)

Share-based compensation

        12,421                  12,421      12,421 

Redemption value adjustment

                    1,870      1,870      1,870 

Net income

                    276,029      276,029   132   276,161 
                                             

Balance at June 30, 2021

  72,252,980  $723  $542,893   (9,252,097) $(358,481) $(202,116) $1,710,464  $(37,583) $1,655,900  $38  $1,655,938 

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(U.S. Dollars in Thousands)

(Unaudited)

 

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Operating activities

        

Net income

 $274,533  $277,854 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  25,629   19,435 

Amortization of intangible assets

  51,930   20,031 

Amortization of original issue discount and deferred financing costs

  1,287   1,295 

Loss on extinguishment of debt

  3,743   831 

Deferred income taxes

  (61,625)  7,003 

Share-based compensation expense

  16,562   12,421 

Gain on disposal of assets

  (587)  (3,978)

Other noncash (gains) charges

  (2,037)  (142)

Net changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

  (143,308)  (96,846)

Inventories

  (158,232)  (163,820)

Other assets

  1,637   (4,172)

Accounts payable

  (54,583)  186,041 

Accrued wages and employee benefits

  (11,876)  2,537 

Other accrued liabilities

  86,616   38,028 

Excess tax benefits from equity awards

  (15,996)  (21,525)

Net cash provided by operating activities

  13,693   274,993 
         

Investing activities

        

Proceeds from sale of property and equipment

  1,883   74 

Proceeds from sale of investment

  1,308   4,902 

Proceeds from beneficial interests in securitization transactions

  1,843   1,363 

Contribution to equity method investment

  (10,229)  (216)

Expenditures for property and equipment

  (46,503)  (54,222)

Acquisition of business, net of cash acquired

  (11,421)  (419,017)

Net cash used in investing activities

  (63,119)  (467,116)
         

Financing activities

        

Proceeds from short-term borrowings

  216,681   57,589 

Proceeds from long-term borrowings

  935,000   50,000 

Repayments of short-term borrowings

  (208,244)  (73,675)

Repayments of long-term borrowings and finance lease obligations

  (538,401)  (53,095)

Payment of contingent acquisition consideration

     (3,750)

Payment of debt issuance costs

  (10,330)  (1,185)

Purchase of additional ownership interest

  (375)  (27,164)

Taxes paid related to equity awards

  (38,347)  (39,967)

Proceeds from exercise of stock options

  10,383   18,567 

Net cash provided by (used in) financing activities

  366,367   (72,680)
         

Effect of exchange rate changes on cash and cash equivalents

  2,860   (239)
         

Net increase (decrease) in cash and cash equivalents

  319,801   (265,042)

Cash and cash equivalents at beginning of period

  147,339   655,128 

Cash and cash equivalents at end of period

 $467,140  $390,086 

 

 

See notes to condensed consolidated financial statements.

 

 

Generac Holdings Inc.
Notes to Condensed Consolidated Financial Statements

(U.S. Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)

 

 

 

1.   Description of Business and Basis of Presentation

 

Founded in 1959, Generac Holdings Inc. (the Company) is a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, grid service devices & solutions, and other power products serving the residential, light commercial, and industrial markets. Generac’s power products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, 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 its strategic plan (as discussed in Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2021). A summary of acquisitions affecting the reporting periods presented include:

 

 In June 2021, the Company acquired Deep Sea Electronics Limited (Deep Sea), founded in 1975 and headquartered in Hunmanby, United Kingdom. Deep Sea is an industry leading designer and manufacturer of a diverse suite of flexible control solutions focused on the global power generation and transfer switch markets.
 In July 2021, the Company acquired Chilicon Power, LLC (Chilicon), a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market. Based in Los Angeles, California, Chilicon's power inversion and monitoring system technologies maximize photovoltaic (solar power) system production, lower installer operational cost, and promote end-user satisfaction.
 In September 2021, the Company acquired Apricity Code Corporation (Apricity Code), an advanced engineering and product design company located in Bend, Oregon.
 In September 2021, the Company acquired Off Grid Energy Ltd (Off Grid Energy), a designer and manufacturer of industrial-grade mobile energy storage systems. Headquartered in Rugby, United Kingdom, Off Grid Energy offers a diverse range of energy storage solutions that provide cleaner and more flexible energy for industrial and mobile applications. 
 In October 2021, the Company acquired Tank Utility, Inc. (Tank Utility). Headquartered in Boston, Massachusetts, Tank Utility is a provider of IoT propane tank monitoring that enables the optimization of propane fuel logistics.
 In December 2021, the Company acquired ecobee Inc. (ecobee), founded in 2007 and headquartered in Toronto, Canada. ecobee is a leader in sustainable home technology solutions including smart thermostats that deliver significant energy savings, security, and peace of mind. 
 In June 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively EEC). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles (GAAP). All intercompany amounts and transactions have been eliminated in consolidation.

 

The condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments except where disclosed) necessary for the fair presentation of the financial position, results of operation, and cash flows have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

 

The preparation of the condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021.

 

5

 

New Accounting Pronouncements

 

Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standard updates (ASUs) to the FASB Accounting Standards Codification (ASC). ASUs issued were assessed and have already been adopted in a prior period or determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

 

 

2.   Acquisitions

 

Fiscal 2022 Acquisitions

 

On June 30, 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively EEC). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

Fiscal 2021 Acquisitions

 

Acquisition of Deep Sea

 

On June 1, 2021, the Company acquired Deep Sea for a purchase price, net of cash acquired, of $420,700. Headquartered in Hunmanby, United Kingdom, Deep Sea is an industry leading designer and manufacturer of a diverse suite of flexible control solutions focused on the global power generation and transfer switch markets. The acquisition purchase price was funded solely through cash on hand.

 

The Company finalized its purchase price allocation during the second quarter of 2022 based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $437,874 of intangible assets, including $263,604 of goodwill recorded in the International segment, as of the acquisition date. The goodwill ascribed to this acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Deep Sea from the date of acquisition through June 30, 2022. 

 

Acquisition of Chilicon

 

On July 2, 2021, the Company acquired Chilicon for a purchase price, net of cash acquired, of $61,129. Based in Los Angeles, California, Chilicon is a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market. Chilicon's power inversion and monitoring system technologies maximize photovoltaic (solar power) system production, lower installer operational cost, and promote end-user satisfaction. The fair value of the consideration transferred consisted of the following: 

 

Cash paid at closing

 $11,821 

Deferred cash payment (1)

  6,000 

Common stock issued at closing

  12,000 

Contingent consideration (2)

  31,308 

Total purchase price

 $61,129 

 

(1)

Payable on the third business day after December 31, 2023.
(2)Payable within 45 calendar days following the conclusion of the earnout period, December 31, 2025. To be paid in the form of common stock issued upon achievement of certain performance targets at the end of the earnout period.

 

The Company finalized its purchase price allocation during the second quarter of 2022 based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $70,174 of intangible assets, including $36,974 of goodwill recorded in the Domestic segment, as of the acquisition date. The goodwill ascribed to the Chilicon acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Chilicon from the date of acquisition through June 30, 2022. 

 

Acquisition of Off Grid Energy

 

On September 1, 2021, the Company acquired Off Grid Energy for a purchase price of $56,949, net of cash acquired and inclusive of estimated contingent consideration of $29,054 that is to be paid in cash upon achievement of certain performance targets at the end of the earnout period which ended on March 31, 2022. The contingent consideration is expected to be paid during Q3 2022. Headquartered in Rugby, United Kingdom, Off Grid Energy is a designer and manufacturer of industrial-grade mobile energy storage systems. The acquisition purchase price was funded through cash on hand.

 

The Company recorded its preliminary purchase price allocation during the third quarter of 2021, and it was updated in the fourth quarter of 2021 as well as in the first and second quarters of 2022, based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities at that time. As a result, the Company recorded $56,076 of intangible assets, including $21,531 of goodwill recorded in the International segment, as of the acquisition date. The goodwill ascribed to this acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Off Grid Energy from the date of acquisition through June 30, 2022. 

 

The allocation of the purchase price to identifiable assets and liabilities is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but not to exceed 12 months following the acquisition date. As the Company finalizes valuations, adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. 

 

6

 

Acquisition of ecobee

 

On December 1, 2021, the Company acquired ecobee for a purchase price, net of cash acquired, of $735,632. Headquartered in Toronto, Canada, ecobee is a leader in sustainable home technology solutions including smart thermostats that deliver significant energy savings, security and peace of mind. The fair value of the consideration transferred consisted of the following:

 

Cash paid at closing

 $225,458 

Common stock issued at closing

  420,774 

Contingent consideration (1)

  89,400 

Total purchase price

 $735,632 

 

(1)

To be paid in the form of common stock issued upon achievement of certain performance targets following the end of each of two earnout periods, one ended June 30, 2022, and one ending June 30, 2023. 

 

The Company recorded its preliminary purchase price allocation during the fourth quarter of 2021, which was updated in the first and second quarters of 2022, based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities at that time. As a result, the Company recorded $798,746 of intangible assets, including $243,346 of goodwill recorded in the Domestic segment, as of the acquisition date. A portion of the goodwill ascribed to this acquisition is deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of ecobee from the date of acquisition through June 30, 2022. 

 

The allocation of the purchase price to identifiable assets and liabilities is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but not to exceed 12 months following the acquisition date. As the Company finalizes valuations, adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. 

 

Other Acquisitions

 

On September 1, 2021, the Company acquired Apricity Code, an advanced engineering and product design company located in Bend, Oregon.

 

On October 1, 2021, the Company acquired Tank Utility, a provider of IoT propane tank monitoring that enables the optimization of propane fuel logistics.

 

The combined purchase price for these two acquisitions was $29,945, net of cash acquired, and was funded solely through cash on hand. The Company recorded its preliminary purchase price allocation for Apricity Code and Tank Utility during the third and fourth quarters of 2021, respectively, and then updated in the first and second quarters of 2022, based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities. The accompanying consolidated financial statements include the results of these two acquired businesses since the dates of acquisition through June 30, 2022. 

 

The allocation of the purchase price to identifiable assets and liabilities is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but not to exceed 12 months following the acquisition date. As the Company finalizes valuations, adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. 

 

Pro forma financial information is not presented for the above acquisitions as the effects of the acquisitions individually and in the aggregate are not material to the Company's results of operations or financial position prior to the acquisition dates.

 

Summary Purchase Price Allocations

 

The fair values assigned to certain assets acquired and liabilities assumed, as of the acquisition dates, are as follows for the 2021 acquisitions:

 

  

Deep Sea

  

ecobee

  

All Other

  

Total

 

Accounts receivable

 $9,574  $23,337  $13,852  $46,763 

Inventories

  9,970   7,258   7,034   24,262 

Prepaid expenses and other assets

  1,181   5,689   6,594   13,464 

Property and equipment

  8,838   3,588   480   12,906 

Intangible assets

  174,270   555,400   81,171   810,841 

Goodwill

  263,604   243,346   80,871   587,821 

Deferred income taxes

  -   46,721   6,547   53,268 

Other assets

  151   11,722   8,526   20,399 

Total assets acquired

  467,588   897,061   205,075   1,569,724 
                 

Accounts payable

  8,998   25,968   7,473   42,439 

Accrued wages and employee benefits

  2,106   1,354   872   4,332 

Other accrued liabilities

  1,737   19,898   18,258   39,893 

Short-term borrowings

  -   -   800   800 

Current portion of long-term debt

  -   -   233   233 

Deferred income taxes

  33,957   80,447   19,930   134,334 

Other long-term liabilities

  90   33,762   7,862   41,714 

Long-term borrowings and finance lease obligations

  -   -   1,624   1,624 

Net assets acquired

 $420,700  $735,632  $148,023  $1,304,355 

 

7

 
 

3.   Redeemable Noncontrolling Interest

 

On March 1, 2016, the Company acquired a 65% ownership interest in PR Industrial S.r.l. and its subsidiaries (Pramac). 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 condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Pramac. In February 2019, the Company amended its agreement with the noncontrolling interest holder of Pramac, extending the agreement by five years, allowing the Company to exercise its call option rights in partial increments at certain times during the