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Note 7 - Segment Reporting | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Segment Reporting Disclosure [Text Block] |
7. | Segment Reporting
The Company has two reportable segments for financial reporting purposes – Domestic and International. The Domestic segment includes the legacy Generac business, (excluding its traditional Latin American export operations), and the acquisitions that are based in the U.S. and Canada, all of which have revenues that are substantially derived from the U.S. and Canada. The International segment includes the legacy Generac business's Latin American export operations, and the Ottomotores, Tower Light, Pramac, Motortech and Selmec acquisitions, all of which have revenues that are substantially derived from outside the U.S and Canada. Both reportable segments design and manufacture a wide range of power generation equipment, energy technology solutions, and other power 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, distribution methods and regional considerations. The Company's product offerings consist primarily of power generation equipment, energy technology solutions, and other power products geared for varying end customer uses. Residential products and commercial & industrial (C&I) products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, C&I, and other products by reportable segment is as follows:
|  | Net Sales by Segment |
|  | Year Ended December 31, 2019 |
Product Classes |  | Domestic |  |  | International |  |  | Total |
Residential products |  | $ | 1,086,019 |  |  | $ | 57,704 |  |  | $ | 1,143,723 |
Commercial & industrial products |  |  | 513,482 |  |  |  | 358,113 |  |  |  | 871,595 |
Other |  |  | 143,397 |  |  |  | 45,621 |  |  |  | 189,018 |
Total net sales |  | $ | 1,742,898 |  |  | $ | 461,438 |  |  | $ | 2,204,336 |
|  | Year Ended December 31, 2018 |
Product Classes |  | Domestic |  |  | International |  |  | Total |
Residential products |  | $ | 980,707 |  |  | $ | 62,032 |  |  | $ | 1,042,739 |
Commercial & industrial products |  |  | 461,415 |  |  |  | 358,855 |  |  |  | 820,270 |
Other |  |  | 124,398 |  |  |  | 36,057 |  |  |  | 160,455 |
Total net sales |  | $ | 1,566,520 |  |  | $ | 456,944 |  |  | $ | 2,023,464 |
|  | Year Ended December 31, 2017 |
Product Classes |  | Domestic |  |  | International |  |  | Total |
Residential products |  | $ | 796,237 |  |  | $ | 74,253 |  |  | $ | 870,490 |
Commercial & industrial products |  |  | 372,635 |  |  |  | 311,718 |  |  |  | 684,353 |
Other |  |  | 102,806 |  |  |  | 21,724 |  |  |  | 124,530 |
Total net sales |  | $ | 1,271,678 |  |  | $ | 407,695 |  |  | $ | 1,679,373 |
Residential products consist primarily of automatic home standby generators ranging in output from 6kW to 60kW, portable generators, energy storage and monitoring solutions, and other outdoor power equipment. These products are sold through independent residential dealers, national and regional retailers, e-commerce merchants, electrical/HVAC/solar wholesalers, solar installers, and outdoor power equipment dealers. The residential products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time. C&I products consist of larger output stationary generators used in C&I applications and fueled by diesel, natural gas, liquid propane and bi-fuel, with power outputs ranging from 10kW up to 3,250kW. Also included in C&I products are mobile generators, light towers, mobile heaters and mobile pumps. These products are sold through industrial distributors and dealers, equipment rental companies and equipment distributors. The C&I products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. Substantially all of the C&I products revenues are transferred to the customer at a point in time. Other products consist primarily of aftermarket service parts and product accessories sold to our dealers, the amortization of extended warranty deferred revenue, and remote monitoring subscription revenue. The aftermarket service parts and product accessories are generally transferred to the customer at a point in time, while the extended warranty and subscription revenue are recognized over the life of the contract. 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, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | 428,667 |  |  | $ | 388,495 |  |  | $ | 282,450 |
International |  |  | 25,448 |  |  |  | 36,057 |  |  |  | 34,850 |
Total adjusted EBITDA |  | $ | 454,115 |  |  | $ | 424,552 |  |  | $ | 317,300 |
Interest expense |  |  | (41,544 | ) |  |  | (40,956 | ) |  |  | (42,667 | )
Depreciation and amortization |  |  | (60,767 | ) |  |  | (47,408 | ) |  |  | (51,988 | )
Non-cash write-down and other adjustments (1) |  |  | (240 | ) |  |  | (3,532 | ) |  |  | (2,923 | )
Non-cash share-based compensation expense (2) |  |  | (16,694 | ) |  |  | (14,563 | ) |  |  | (10,205 | )
Loss on extinguishment of debt (3) |  |  | (926 | ) |  |  | (1,332 | ) |  |  | - |
Loss on pension settlement (4) |  |  | (10,920 | ) |  |  | - |  |  |  | - |
Transaction costs and credit facility fees (5) |  |  | (2,724 | ) |  |  | (3,883 | ) |  |  | (2,145 | )
Business optimization expenses (6) |  |  | (1,572 | ) |  |  | (952 | ) |  |  | (2,912 | )
Other |  |  | 879 |  |  |  | (850 | ) |  |  | (761 | )
Income before provision for income taxes |  | $ | 319,607 |  |  | $ | 311,076 |  |  | $ | 203,699 |
| (1) | Includes certain foreign currency and purchase accounting related adjustments, gains/losses on disposal of assets and unrealized mark-to-market adjustments on commodity contracts.
| (2) | Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods.
| (3) | Represents the non-cash write-off of original issue discount and deferred financing costs due to a voluntary prepayment of Term Loan debt.
| (4) | Represents pre-tax settlement charges related to the termination of the Company’s domestic pension plan in the fourth quarter of 2019.
| (5) | 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.
| (6) | Represents severance and other non-recurring restructuring charges related to the consolidation of certain of our facilities.
In the fourth quarter of 2019, management has determined that the Latin American export operations of the legacy Generac business (GPS LATAM) should have been included in the International reportable segment beginning in 2018. Previously, GPS LATAM was reported in the Domestic segment, in amounts that were not material. This change is to reflect the current leadership structure as well as how the Company makes financial decisions and allocates resources for the overall Latin America reporting unit. To reflect this change, management has chosen to correct the net sales and adjusted EBITDA by segment included in this Form 10-K for the years ended December 31, 2019, 2018, and 2017. The following table details the amounts adjusted from the Domestic segment to the International segment.
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Residential Products |  | $ | 7,129 |  |  | $ | 9,924 |  |  | $ | 18,888 |
Commercial & industrial products |  |  | 5,724 |  |  |  | 2,651 |  |  |  | 12,940 |
Other |  |  | 998 |  |  |  | 1,230 |  |  |  | - |
Total Net Sales |  | $ | 13,851 |  |  | $ | 13,805 |  |  | $ | 31,828 |
Adjusted EBITDA |  | $ | 984 |  |  | $ | 190 |  |  | $ | 7,840 |
There was no impact to the Company’s reporting of total assets, depreciation and amortization, and capital expenditures by segment as a result of this change. The following tables summarize additional financial information by reportable segment:
|  | Assets |
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | 2,123,251 |  |  | $ | 1,868,554 |  |  | $ | 1,612,607 |
International |  |  | 542,418 |  |  |  | 557,760 |  |  |  | 413,358 |
Total |  | $ | 2,665,669 |  |  | $ | 2,426,314 |  |  | $ | 2,025,965 |
|  | Depreciation and Amortization |
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | 46,145 |  |  | $ | 35,586 |  |  | $ | 37,962 |
International |  |  | 14,764 |  |  |  | 11,822 |  |  |  | 14,026 |
Total |  | $ | 60,909 |  |  | $ | 47,408 |  |  | $ | 51,988 |
|  | Capital Expenditures |
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | 36,007 |  |  | $ | 38,242 |  |  | $ | 29,258 |
International |  |  | 24,795 |  |  |  | 9,359 |  |  |  | 4,003 |
Total |  | $ | 60,802 |  |  | $ | 47,601 |  |  | $ | 33,261 |
The Company’s sales in the United States represent approximately 75%, 74%, and 74% of total sales for the years ended December 31, 2019, 2018 and 2017, respectively. Approximately 80% of the Company’s identifiable long-lived assets are located in the United States as of December 31, 2019 and 2018.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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