GENERAC HOLDINGS, INC.
This quarterly 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 quarterly 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 quarterly report include estimates regarding:
? our business, financial and operating results, and future economic
performance;
? proposed new product and service offerings; and
? management's goals, expectations, 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:
? frequency and duration of power outages impacting demand for our products;
? availability, cost and quality of raw materials, key components from our
global supply chain and labor needed in producing our products;
? the impact on our results of possible fluctuations in interest rates, foreign
currency exchange rates, commodities, product mix, logistics costs and
regulatory tariffs;
? 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;
? the risk that our acquisitions will not be integrated successfully;
? the duration and impact of the COVID-19 pandemic;? difficulties we may encounter as our business expands globally or into new
markets;
? our dependence on our distribution network;
? our ability to invest in, develop or adapt to changing technologies and
manufacturing techniques;
? loss of our key management and employees;
? increase in product and other liability claims or recalls;
? failures or security breaches of our networks, information technology systems,
or connected products; and
? changes in environmental, health and safety, or product compliance laws and
regulations affecting our products, operations, or customer demand.
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 our filings with the Securities and Exchange Commission , including
in Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.
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.
Overview
We are 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 solutions, and other power products serving the
residential, commercial and industrial markets.
Power generation and storage is a key focus of the Company, which differentiates
us from many of our competitors who also have broad operations outside of the
power equipment market. As the only significant market participant with a
primary focus on these products, we maintain 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. A key strategic focus for the Company in recent years has been
leveraging our leading position in the growing market for cleaner burning, more
cost effective natural gas-fueled generators to expand into applications beyond
standby power, allowing us to participate in distributed generation projects.
The Company in recent years has been evolving its business model to also focus
on clean energy products, solutions, and services. In 2019, we began providing
energy storage systems as a clean energy solution for residential use that
capture and store electricity from solar panels or other power sources and
help reduce home energy costs while also protecting homes from shorter-duration
power outages. During 2020, we entered the market for grid services by
offering distributed energy optimization and control software that helps support
the operational stability of the world's power grids. We have also been focused
on connecting the equipment we manufacture to the users of that equipment,
helping to drive additional value to our customers and our distribution partners
over the product life cycle. The strategic focus on expanding the connectivity
of our products will broaden our monitoring capabilities and also enable the
increasing utilization of this equipment as distributed energy resources as the
nascent market for grid services expands over the next several years. Overall,
as the traditional centralized utility model evolves over time, we believe that
a cleaner, more decentralized grid infrastructure will build-out, and Generac's
energy technology solutions are strategically positioned to participate in this
future "Grid 2.0".
In addition to power generation and storage solutions, other products that we
design and manufacture include light towers that provide temporary lighting for
various end markets, and a broad and growing product line of outdoor power
equipment for residential and commercial use.
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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, energy storage systems, grid service solutions, and other power products by our customer base. This demand is influenced by several important drivers and trends affecting our industry, including the following:
Key Mega -trends: There are some important mega-trends that we believe represent major themes that will drive significant secular growth opportunities across our business over the long term. "Grid 2.0," which is the evolution of the traditional electrical utility model, includes the decentralization and de-carbonization of the grid and a migration toward distributed energy resources that is expected to drive demand for a variety of clean energy and grid services solutions going forward. Attitudes around global warming and climate change are shifting, which includes the expectation of more severe weather driving increased power outage activity. Natural gas is expected to be a key fuel of the future with the abundance of supply globally leading to increasing demand for natural gas generators in applications beyond standby power. The legacy infrastructure is in need of a major investment cycle to rebuild and upgrade aging networks and systems including transportation, water and power. The wireless telecommunications infrastructure is shifting to the next generation "5G" architecture, which will enable new technologies requiring significant improvement in network uptime through backup power solutions. The onset of the COVID-19 pandemic in early 2020 has led to a new and emerging mega-trend that we refer to as "Home as a Sanctuary," where millions of people are working, learning, shopping, entertaining, and in general, spending more time at home. As working adults spend much more time working from home and school-age children learning from home, they become more sensitive to power outages due to lost productivity. These trends combined with ongoing elevated power outage activity has led to a significant increased awareness, importance and need for backup power security. As a result of spending more time at home, homeowners are also investing more into home improvement projects and outdoor project activity, which is leading to increased and broad-based demand for home standby generators as well as chore products used in a variety of property maintenance applications. Increasing penetration opportunity. Many potential customers are still not aware of the costs and benefits of automatic backup power solutions. We estimate that penetration rates for home standby generators are only approximately 5% of the addressable market of homes inthe United States . As such, a significant penetration opportunity exists for residential back-up generators. 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 over the past decade in the light-commercial market. In addition, the installed base of backup power for telecommunications infrastructure is still increasing due to a variety of factors including the impending rollout of next-generation 5G wireless networks enabling new technologies and the growing importance for critical communications being transmitted over wireless networks. We believe by expanding our distribution network, continuing to develop our product lines, and targeting our marketing efforts, we can continue to build awareness and increase penetration for our standby generators for residential, commercial and industrial purposes. Effect of large scale and baseline power disruptions. Power disruptions are an important driver of customer awareness for back-up power and have historically influenced demand for generators, both inthe 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 standby or portable generator during the immediate and subsequent period, which we believe may last for six to twelve months following a major power outage event for standby generators. For example, there have been a number of major outage events that occurred over the past decade that drove strong demand for portable and home standby generators, and the increased awareness of these products contributed to strong revenue growth in both the year they occurred along with the following subsequent year. 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 acrossthe United States that drive the baseline level of demand for back-up power solutions. The level of baseline power outage activity occurring acrossthe United States can also fluctuate, and may cause our financial results to fluctuate from year to year. Energy storage and monitoring markets developing quickly. During 2019, we entered the rapidly developing energy storage, monitoring and management markets with the acquisitions of Pika Energy and Neurio Technologies, along with the subsequent introduction ofGenerac branded products - marketed under the names PWRcellTM and PWRviewTM. We believe the electric utility landscape will undergo significant changes in the decade ahead as a result of rising utility rates, grid instability and power quality issues, environmental concerns, and the continuing performance and cost improvements in renewable energy and batteries. On-site power generation from solar, wind, geothermal, and natural gas generators is projected to become more prevalent as will the need to monitor, manage and store this power-potentially developing into a significant market opportunity as attachment rates for energy storage systems on solar installations have increased significantly over the last couple of years. The capabilities provided by Pika and Neurio have enabled us to bring an efficient and intelligent energy-savings solution to the energy storage and monitoring markets, which enabled us to quickly ramp shipments for these clean energy solutions during 2020, and which we believe will positionGenerac as a key participant going forward. Although different from the emergency backup power space, we believe this market will develop similarly as the home standby generator market has over the past two decades given both products can provide power resiliency to homeowners. We expect to further advance our growing capabilities for energy storage systems including product development, sourcing, distribution, and marketing, as we leverage our significant competencies in the residential standby generator market to accelerate our market position in the emerging residential energy storage, monitoring, and management markets. 17
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California andTexas markets for backup power increasing. Over the past two years, utilities in the state ofCalifornia have executed a number of Public Safety Power Shutoff (PSPS) events in large portions of their service areas. These events were proactive measures to prevent their equipment from potentially causing catastrophic wildfires during extreme temperatures and drought conditions. The occurrence of these events, along with the utilities warning these actions could continue in the future as they upgrade their transmission and distribution infrastructure, have resulted in significant awareness and increased demand for our generators inCalifornia , where penetration rates of home standby generators still stand at only approximately 1%. In addition, the state ofCalifornia has mandated that all wireless telecommunications infrastructure must provide for at least 72 hours of back-up power. We have a significant focus on expanding distribution inCalifornia and are working together with local regulators, inspectors, and gas utilities to increase their bandwidth and sense of urgency around approving and providing the infrastructure necessary for home standby and other backup power products. Our efforts in this part of the country will also be helpful in developing the market for energy storage and monitoring where the installed base of solar and other renewable sources of electricity are some of the highest in theU.S. , and the regulatory environment is increasingly mandating renewable energy on new construction applications. In addition, the major outages caused by a winter storm throughoutTexas in the first quarter of 2021 also resulted in significant awareness and increased demand for our generators inTexas , where penetration rates of home standby generators stand at approximately 3%. We have a significant focus on expanding distribution inTexas given the substantial size of the addressable market in this part of the country. Impact of residential investment cycle. The market for residential generators and energy storage systems 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 and energy storage systems. Trends in the new housing market, highlighted by residential housing starts, can also impact demand for these products. Demand for outdoor power equipment is also impacted by several of these factors, as well as weather precipitation patterns. Finally, the existence of renewable energy mandates and investment tax credits and other subsidies can also have an impact on the demand for energy storage systems. Impact of business capital investment and other economic 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, office, 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 various geographic regions that we serve.
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, cost control, and hedging. Certain operational and other factors that affect our business include the following: Impact of the COVID-19 pandemic. As the COVID-19 pandemic continues to evolve, we continue to work to ensure employee safety, monitor customer demand, proactively address supply chain or production challenges, and support our communities during this challenging time. We manufacture and provide essential products and services to a variety of critical infrastructure customers around the globe, and as a result, substantially all of our operations and production activities have been operational during the pandemic. We have implemented changes in our work practices, maintaining a safe working environment for production and office employees at our facilities, while enabling other employees to productively work from home. The COVID-19 pandemic has influenced various trends we are experiencing today around supply chain and operations constraints. While we are deemed an essential, critical infrastructure business and our facilities currently remain operational, this continues to be a fluid process and subject to change. We have experienced and may continue to experience increased employee absences at several of our production facilities. Additionally, we have experienced minor work stoppages at certain of our foreign manufacturers, none of which have impacted our ability to satisfy customer demand. If we were to encounter a significant work stoppage, disruption, or COVID-19 outbreak at one or more of our locations or suppliers, we may not be able to satisfy customer demand for a period of time. Additionally, the COVID-19 pandemic has disrupted the global supply chain and logistics network, and we are continually monitoring scheduled material receipts to mitigate any delays. To date, we have not experienced significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic, but this could be subject to change if one or more of our suppliers can no longer operate in this environment. We have maintained business continuity by utilizing safety stock inventory levels and executing air freight strategies. We have experienced inbound and outbound logistics delays and increased costs, however, the impact to our customers thus far has not been significant. This could change if freight carriers are delayed or not able to operate. We continue to experience a broad-based increase in demand for residential products, specifically home standby generators, created by a significant increase in the awareness, importance and need for backup power security as people are working, learning, shopping, entertaining, and spending more time at home. Additionally, as economic activity continues to recover across the globe, we are experiencing a return to growth in our domestic and international C&I products. The further extent of the impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic, our ability to operate during the pandemic, actions taken by domestic and foreign governments to contain the spread of the virus, and the related length of its impact on the global economy and our customers. Refer to the COVID-19 related risk factor disclosed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . 18
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Effect of commodity, currency, component price fluctuations, and resource availability. Industry-wide price fluctuations of key commodities, such as steel, copper and aluminum, along with other components we use in our products, as well as changes in labor costs required to produce our products, can have a material impact on our results of operations. Acquisitions over the years have further expanded our commercial and operational presence outside ofthe United States . These international acquisitions, along with our existing global supply chain, expose us to fluctuations in foreign currency exchange rates and regulatory tariffs that can also have a material impact on our results of operations. Additionally, specifically in 2021, there continue to be significant raw material and other cost pressures, ongoing logistics challenges, and various supply chain constraints, which are resulting in higher input costs of our products. We have historically attempted to mitigate the impact of any inflationary pressures 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 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 19% to 21% of our net sales occurred in the first quarter, 22% to 25% in the second quarter, 26% to 28% in the third quarter and 27% to 31% in the fourth quarter, with different seasonality depending primarily 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. During 2020, elevated power outage activity and the emergence of the "Home as a Sanctuary" trend driven by the COVID-19 pandemic led to a significant increase in demand for home standby generators. In addition, the major outages throughoutTexas in the first quarter of 2021 also drove elevated demand for back-up generators. This increased demand has resulted in extended lead times for these products, and as a result, our net sales during 2021 are expected to be more level-loaded throughout the year relative to historical seasonal patterns. Factors influencing 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, repayments or borrowings of indebtedness, and amendments to our credit agreements. In connection with our term loan amendment inDecember 2019 , language was added to the agreement to include a benchmark replacement rate, selected by the administrative agent and the borrower, as a replacement to LIBOR that would take affect at the time LIBOR ceases. Additionally, as part of our ABL Facility amendment inMay 2021 , language was added to the ABL Facility agreement to include a benchmark replacement rate, selected by the administrative agent and the borrower, as a replacement to LIBOR that would take affect at the time LIBOR ceases. During the six months endedJune 30, 2021 , interest expense decreased compared to the six months endedJune 30, 2020 , primarily due to lower LIBOR rates. Refer to Note 11, "Credit Agreements," to the condensed consolidated financial statements for further information. Factors influencing provision for income taxes and cash income taxes paid. OnMarch 27, 2020 , theU.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act) providing relief to taxpayers due to the COVID-19 pandemic. We have reviewed and implemented elements of the CARES Act based on guidance provided by theU.S. Treasury Department . However, the benefits were not material to our financial results. Despite this, we will continue to review the CARES Act and any regulations or guidance issued by theU.S. Treasury Department or by a state which may create an additional tax expense or benefit. We will update our future tax provisions based on new regulations or guidance accordingly. We are also monitoring any additional legislative changes to income tax laws that could increase our effective tax rate and related tax obligations. As ofDecember 31, 2020 , we had approximately$102 million of tax-deductible goodwill and intangible asset amortization remaining from our acquisition byCCMP Capital Advisors, LLC in 2006. This remaining balance will fully amortize in our 2021 tax return, resulting in approximately$26 million of cash tax savings during 2021. Beginning in 2022, this tax amortization will no longer exist, resulting in a higher cash tax obligation on a go-forward basis. Acquisitions. Over the years, we have executed a number of acquisitions that support our strategic plan. A summary of the recent acquisitions can be found in Note 1, "Description of Business and Basis of Presentation," to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q, and in Item 8 (Note 1, "Description of Business") of the Annual Report on Form 10-K for the year endedDecember 31, 2020 . Recent Updates The Company completed the acquisition ofDeep Sea Electronics Limited ("Deep Sea") during the second quarter of 2021. 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 space. The addition of Deep Sea helps to improve our engineering and control capabilities, which will advance and support innovation of our products to meet the dynamic needs of the evolving energy technology market and our customers. Further, Deep Sea's expertise will enhance our focus on natural gas power generation and help accelerate our growth into the distributed energy resource and microgrid markets. 19
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Table of Contents Results of Operations
Three months ended
The following table sets forth our consolidated statements of operations information for the periods indicated:
Three Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 $ Change % Change
Net sales$ 919,981 $ 546,848 $ 373,133 68.2 % Costs of goods sold 580,246 337,865 242,381 71.7 % Gross profit 339,735 208,983 130,752 62.6 % Operating expenses: Selling and service 78,777 62,526 16,251 26.0 % Research and development 25,344 19,455 5,889 30.3 % General and administrative 41,610 29,782 11,828 39.7 % Amortization of intangible assets 11,052 7,667 3,385 44.2 % Total operating expenses 156,783 119,430 37,353 31.3 % Income from operations 182,952 89,553 93,399 104.3 % Total other expense, net (8,681 ) (7,488 ) (1,193 ) 15.9 % Income before provision for income taxes 174,271 82,065 92,206 112.4 % Provision for income taxes 46,362 18,473 27,889 151.0 % Net income 127,909 63,592 64,317 101.1 % Net income (loss) attributable to noncontrolling interests 873 (2,553 ) 3,426 N/A Net income attributable to Generac Holdings Inc.$ 127,036 $ 66,145 $ 60,891 92.1 % The following table sets forth our reportable segment information for the periods indicated: Net Sales Three Months Ended June 30, (U.S. Dollars in thousands) 2021 2020 $ Change % Change Domestic$ 784,146 $ 460,774 $ 323,372 70.2 % International 135,835 86,074 49,761 57.8 % Total net sales$ 919,981 $ 546,848 $ 373,133 68.2 % Adjusted EBITDA Three Months Ended June 30, 2021 2020 $ Change % Change Domestic$ 203,931 $ 121,256 $ 82,675 68.2 % International 13,748 1,884 11,864 629.7 % Total Adjusted EBITDA$ 217,679 $ 123,140 $ 94,539 76.8 % The following table sets forth our product class information for the periods indicated: Net Sales by Product Class Three Months Ended June 30, (U.S. Dollars in thousands) 2021 2020 $ Change % Change Residential products$ 599,991 $ 341,352 $ 258,639 75.8 % Commercial & industrial products 254,295 154,890 99,405 64.2 % Other 65,695 50,606 15,089 29.8 % Total net sales$ 919,981 $ 546,848 $ 373,133 68.2 % Net sales. Domestic segment sales increased 70.2% to$784.1 million as compared to$460.8 million in the prior year quarter, with the impact of acquisitions contributing approximately$9.8 million of the revenue growth for the quarter. The current year quarter core sales growth was driven by broad-based strength across both residential and C&I products highlighted by very strong growth with home standby generators, PWRcellTM energy storage systems, telecom national account customers and C&I mobile products. International segment sales increased 57.8% to$135.8 million as compared to$86.1 million in the prior year quarter, with the impact of acquisitions and foreign currency contributing approximately$11.3 million of the revenue growth for the quarter. The core sales growth for the segment was primarily due to strength in the European and Latin American regions that are seeing a sharp increase in demand as end markets recover from the impact of the COVID-19 pandemic.
The net sales contribution from all non-annualized recent acquisitions for the
three months ended
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Gross profit. Gross profit margin for the second quarter of 2021 was 36.9% compared to 38.2% in the prior year second quarter. The gross profit margin decrease was primarily driven by higher input costs relating to raw materials, labor, logistics and plant start-up costs, which were partially offset by improved pricing and favorable overhead absorption from higher sales volumes.
Operating expenses. Operating expenses increased$37.4 million , or 31.3%, as compared to the prior year second quarter. The increase was primarily driven by higher variable expenses from the significant increase in sales volumes, higher employee costs and incentive compensation, and the impact of the Deep Sea acquisition relative to acquisition related transaction expenses, recurring operating expenses and amortization expense. Other expense. The increase in Other expense, net was driven by a$.8 million non-cash write-off of original issue discount and deferred financing costs due to a$50 million voluntary prepayment of our Term Loan which was partially offset by a reduction in interest expense due to lower LIBOR rates. Provision for income taxes. The effective income tax rates for the three months endedJune 30, 2021 and 2020 were 26.6% and 22.5%, respectively. The increase in the effective tax rate was primarily due to a discrete tax item resulting from a legislative tax rate change in a foreign jurisdiction which revalued deferred tax liabilities by$7.0 million , or approximately 4% tax rate impact, during the current year quarter. Net income attributable toGenerac Holdings Inc. Net income attributable toGenerac Holdings Inc. was$127.0 million as compared to$66.1 million in the prior year second quarter. The increase was primarily driven by increased sales volumes and other items noted above.
Adjusted EBITDA. Adjusted EBITDA for the Domestic segment in the second quarter
of 2021 was
Adjusted EBITDA for the International segment in the second quarter of 2021, before deducting for non-controlling interests, was$13.7 million , or 10.1% of net sales, as compared to$1.9 million , or 2.2% of net sales, in the prior year quarter. The improvement in margin was primarily due to improved operating leverage on the higher sales volumes and the impact of the Deep Sea acquisition. Adjusted Net Income. Adjusted Net Income of$153.2 million for the three months endedJune 30, 2021 increased 73.2% from$88.5 million for the three months endedJune 30, 2020 , due to the factors outlined above together with an increase in the cash income tax rate from approximately 17.0% in the prior year quarter to approximately 21.0% to 21.5% in the current year quarter.
See "Non-GAAP Measures" for a discussion of how we calculate Adjusted EBITDA and Adjusted Net Income and the limitations on their usefulness.
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Six months ended
The following table sets forth our consolidated statements of operations information for the periods indicated:
Six Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 $ Change % Change
Net sales $ 1,727,415 $ 1,022,763 $ 704,652 68.9 %
Costs of goods sold 1,065,866 641,460 424,406 66.2 %
Gross profit 661,549 381,303 280,246 73.5 %
Operating expenses:
Selling and service 147,201 117,665 29,536 25.1 %
Research and development 47,732 38,104 9,628 25.3 %
General and administrative 74,509 57,671 16,838 29.2 %
Amortization of intangible assets 20,031 15,448 4,583 29.7 %
Total operating expenses 289,473 228,888 60,585 26.5 %
Income from operations 372,076 152,415 219,661 144.1 %
Total other expense, net (12,492 ) (17,495 ) 5,003 -28.6 %
Income before provision for income taxes 359,584 134,920 224,664 166.5 %
Provision for income taxes 81,730 27,917 53,813 192.8 %
Net income 277,854 107,003 170,851 159.7 %
Net income (loss) attributable to
noncontrolling interests 1,825 (3,602 ) 5,427 N/A
Net income attributable to Generac
Holdings Inc. $ 276,029 $ 110,605 $ 165,424 149.6 %
The following table sets forth our reportable segment information for the
periods indicated:
Net Sales
Six Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 $ Change % Change
Domestic $ 1,476,884 $ 836,804 $ 640,080 76.5 %
International 250,531 185,959 64,572 34.7 %
Total net sales $ 1,727,415 $ 1,022,763 $ 704,652 68.9 %
Adjusted EBITDA
Six Months Ended June 30,
2021 2020 $ Change % Change
Domestic $ 411,004 $ 204,030 $ 206,974 101.4 %
International 20,869 5,134 15,735 306.5 %
Total Adjusted EBITDA $ 431,873 $ 209,164 $ 222,709 106.5 %
The following table sets forth our product class information for the periods
indicated:
Net Sales by Product Class
Six Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 $ Change % Change
Residential products $ 1,142,140 $ 598,971 $ 543,169 90.7 %
Commercial & industrial products 456,686 326,957 129,729 39.7 %
Other 128,589 96,835 31,754 32.8 %
Total net sales $ 1,727,415 $ 1,022,763 $ 704,652 68.9 %
Net sales. Domestic segment sales increased 76.5% to $1,476.9 million as
compared to $836.8 million in the prior year. The increase was primarily driven
by strong growth in shipments of residential products highlighted by home
standby and portable generators. In addition, PWRcellTM energy storage systems
experienced very robust growth as the Company continues to expand in the clean
energy market, and shipments of chore products also improved at a strong rate as
compared to the prior year. This was supplemented by a return to growth for C&I
products which was led by a substantial increase in shipments for telecom
national account customers and C&I mobile products compared to the prior year.
International segment sales increased 34.7% to $250.5 million as compared to
$186.0 million in the prior year. The growth for the segment was due to an
increase in market activity primarily in the European and Latin American regions
that are seeing a sharp increase in demand as end markets recover from the
impact of the COVID-19 pandemic. In addition, the impact of acquisitions and
foreign currency added $16.5 million of revenue growth.
The net sales contribution from all non-annualized recent acquisitions for the
six months ended
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Gross profit. Gross profit margin for the six months endedJune 30, 2021 was 38.3% compared to 37.3% in the prior year. The gross profit margin increase was primarily driven by favorable sales mix from significantly higher shipments of residential products, along with improved pricing and overhead absorption from higher sales volumes. These favorable impacts were partially offset by higher input costs primarily relating to raw materials, labor, logistics and plant start-up costs. Operating expenses. Operating expenses increased$60.6 million , or 26.5%, as compared to the prior year. The increase was primarily driven by higher variable expenses from the significant increase in sales volumes, higher employee costs and incentive compensation, and the impact of acquisitions relative to acquisition related transaction expenses, recurring operating expenses and amortization expense. Other expense. The decrease in Other expense, net was driven by a reduction in interest expense due to lower LIBOR rates, as well as a$3.9 million gain recorded on the sale of a long-term investment in the first quarter of 2021, which was partially offset by a$.8 million non-cash write-off of original issue discount and deferred financing costs due to a$50 million voluntary prepayment of our Term Loan. Provision for income taxes. The effective income tax rates for the six months endedJune 30, 2021 and 2020 were 22.7% and 20.7%, respectively. The increase in the effective tax rate was primarily due to a discrete tax item resulting from a legislative tax rate change in a foreign jurisdiction which revalued deferred tax liabilities by$7.0 million during the current year second quarter. Net income attributable toGenerac Holdings Inc. Net income attributable toGenerac Holdings Inc. was$276.0 million as compared to$110.6 million in the prior year period. The increase was primarily driven by increased sales volumes and related favorable sales mix, and other items noted above. Adjusted EBITDA. Adjusted EBITDA for the Domestic segment was$411.0 million , or 27.8% of net sales, as compared to$204.0 million , or 24.4% of net sales, in the prior year period. This margin increase was driven by favorable sales mix, improved pricing and higher operating leverage from the substantial revenue growth for the segment during the current year, which were partially offset by higher input costs. Adjusted EBITDA for the International segment, before deducting for non-controlling interests, was$20.9 million , or 8.3% of net sales, as compared to$5.1 million , or 2.8% of net sales, in the prior year period. The improvement in margin was primarily due to the combination of favorable sales mix, improved operating leverage on the higher sales volumes, lower operating expenses as a result of the restructuring activities initiated in the second quarter of 2020, and the impact of the Deep Sea acquisition. Adjusted Net Income. Adjusted Net Income of$305.9 million for the six months endedJune 30, 2021 increased 113.1% from$143.6 million for the six months endedJune 30, 2020 , due to the factors outlined above together with an increase in the cash income tax rate from approximately 17.0% in the prior year to approximately 21.0% to 21.5% in the current year.
See "Non-GAAP Measures" for a discussion of how we calculate Adjusted EBITDA and Adjusted Net Income and the limitations on their usefulness.
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Liquidity and Financial Condition
Our primary cash requirements include payment for our raw material and component supplies, salaries and benefits, facility and lease costs, operating expenses, interest and principal payments on our debt, income taxes, and capital expenditures. We finance our operations primarily through cash flow generated from operations and, if necessary, borrowings under our ABL credit facility (ABL Facility). Our credit agreements originally provided for a$1.2 billion term loan B credit facility (Term Loan) and include a$300.0 million uncommitted incremental term loan facility. As ofJune 30, 2021 , there was$780 million outstanding under the Term Loan. Following several amendments, the Term Loan matures onDecember 13, 2026 and bears interest at rates based upon either a base rate plus an applicable margin of 0.75% or adjusted LIBOR rate plus an applicable margin of 1.75%. The Term Loan does not require an Excess Cash Flow payment (as defined in our credit agreement) if our secured leverage ratio is maintained below 3.75 to 1.00 times. As ofJune 30, 2021 , our secured leverage ratio was 0.79 to 1.00 times, and we are in compliance with all covenants of the Term Loan. There are no financial maintenance covenants on the Term Loan. Our credit agreements also provide for a$500.0 million ABL Facility. The ABL Facility maturesMay 27, 2026 and bears interest at rates based upon either a base rate plus an applicable margin of 0.00% to 0.25% or adjusted LIBOR rate plus an applicable margin of 1.00% to 1.25%, in each case, based on average availability under the ABL Facility. As ofJune 30, 2021 , there was$50 million outstanding under the ABL Facility, leaving$439.5 million of availability, net of outstanding letters of credit. We are in compliance with all covenants of the ABL Facility as ofJune 30, 2021 . As ofJune 30, 2021 , we had$829.6 million of liquidity comprised of$390.1 million of cash and equivalents and$439.5 million available under our ABL Facility. Additionally, we have no maturities on our Term Loan and ABL Facility until 2026. We believe we have a strong liquidity position that allows us to execute our strategic plan and provides the flexibility to continue to invest in future growth opportunities. InSeptember 2018 , our Board of Directors approved a$250.0 million stock repurchase program, which expired inOctober 2020 . InSeptember 2020 , our Board of Directors approved another stock repurchase program, which commenced onOctober 27, 2020 , and allows for the repurchase of up to$250.0 million of our common stock over a 24-month period from time to time; in amounts and at prices we deem appropriate, subject to market conditions and other considerations. During the six months endedJune 30, 2021 and 2020, no share repurchases were made under these plans. Since the inception of all stock repurchase programs starting inAugust 2015 , we have repurchased 8,676,706 shares of our common stock for$305.5 million (an average repurchase price of$35.21 per share), all funded with cash on hand. See Note 11, "Credit Agreements," and Note 12, "Stock Repurchase Program" to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. 24
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Table of Contents Long-term Liquidity We believe that our cash flow from operations and availability under our ABL Facility and other short-term lines of credit, combined with our cash on hand, provide us with sufficient capital to continue to grow our business in the future. We may use a portion of our cash flow to pay principal on our outstanding debt, as well as to 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
Six months ended
The following table summarizes our cash flows by category for the periods
presented:
Six Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 $ Change % Change
Net cash provided by operating activities
$ 161,879 143.1 % Net cash used in investing activities (467,116 ) (24,996 ) (442,120 ) -1768.8 % Net cash used in financing activities (72,680 ) (13,016 ) (59,664 ) -458.4 %
The increase in net cash provided by operating activities was primarily due to higher sales volumes and resulting higher operating earnings in the current year, partially offset by higher income taxes paid.
Net cash used in investing activities for the six months endedJune 30, 2021 primarily represents cash payments of$419.0 million related to the acquisition of businesses and$54.2 million related to the purchase of property and equipment, which were offset by cash proceeds on sale of an investment of$4.9 million . Net cash used in investing activities for the six months endedJune 30, 2020 primarily represents cash payments of$26.3 million related to the purchase of property and equipment. Net cash used in financing activities for the six months endedJune 30, 2021 primarily represents$126.8 million of debt repayments ($73.7 million of short-term borrowings and$53.1 million of long-term borrowings and finance lease obligations),$40.0 million of taxes paid related to equity awards,$27.2 million as a purchase of additional ownership interest of Pramac, and$3.8 million of contingent consideration for acquired businesses. These cash payments were partially offset by proceeds of$57.6 million from short-term borrowings,$50.0 million from long-term borrowings and$18.6 million from the exercise of stock options. Net cash used in financing activities for the six months endedJune 30, 2020 primarily represents$128.2 million of debt repayments ($125.7 million of short-term borrowings and$2.5 million of long-term borrowings and finance lease obligations),$11.0 million of taxes paid related to equity awards, and$4.0 million of contingent consideration for acquired businesses. These cash payments were partially offset by proceeds of$122.5 million from short-term borrowings and$7.6 million from the exercise of stock options. Contractual Obligations There have been no material changes to our contractual obligations since theFebruary 23, 2021 filing of our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Off-Balance Sheet Arrangements
There have been no material changes to off-balance sheet arrangements since theFebruary 23, 2021 filing of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . See Note 15, "Commitments and Contingencies," to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for more information on our off-balance sheet arrangements. Critical Accounting Policies As discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , in preparing the financial statements in accordance withU.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, its estimates and assumptions are reasonable, adhere toU.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, prepaid expenses, product warranties and other reserves. 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; and income taxes.
There have been no material changes in our critical accounting policies since
the
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Table of Contents Non-GAAP Measures Adjusted EBITDA The computation of Adjusted EBITDA attributable toGenerac Holdings Inc. is based on the definition of EBITDA contained in our credit agreement, as amended. To supplement our condensed consolidated financial statements presented in accordance withU.S. GAAP, we provide the computation of Adjusted EBITDA attributable to the Company, taking into account certain charges and gains that were recognized during the periods presented. 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 as it excludes items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA:
• for planning purposes, including the preparation of our annual operating
budget and developing and refining our internal projections for future
periods;
• to allocate resources to enhance the financial performance of our business;
• 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 2021 Proxy Statement;
• to evaluate the effectiveness of our business strategies and as a supplemental
tool in evaluating our performance against our budget for each period; and
• 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. 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:
• 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;
• 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
• by comparing our Adjusted EBITDA in different historical periods, ourinvestors 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 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:
• we do not consider indicative of our ongoing operating performance, such as
non-cash write-downs and other charges, non-cash gains, write-offs relating to
the retirement of debt, severance costs and other restructuring-related
business optimization expenses;
• 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
• are non-cash in nature, such as share-based compensation.
We explain in more detail in footnotes (a) through (e) below why we believe these adjustments are useful in calculating Adjusted EBITDA as a measure of our operating performance.
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Adjusted EBITDA does not represent, and should not be a substitute for, net
income or cash flows from operations as determined in accordance with
• Adjusted EBITDA does not reflect our cash expenditures, or future requirements
for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
• Adjusted EBITDA does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments on our debt;
• 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;
• 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 of our assets as reflected in our
consolidated balance sheet prepared in accordance with U.S. GAAP; and
• 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 quarterly 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
quarterly calculations are subject to review by our Board of Directors in the
context of the Board's review of our quarterly financial statements and
certification by our Chief Financial Officer in a compliance certificate
provided to the lenders under our Term Loan and ABL Facility credit agreements,
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
The following table presents a reconciliation of net income to Adjusted EBITDA
attributable to
Three Months Ended June 30, Six Months Ended June 30,
(U.S. Dollars in thousands) 2021 2020 2021 2020
Net income attributable to Generac
Holdings Inc. $ 127,036 $ 66,145 $ 276,029 $ 110,605
Net (loss) income attributable to
noncontrolling interests 873 (2,553 ) 1,825 (3,602 )
Net income 127,909 63,592 277,854 107,003
Interest expense 7,721 7,932 15,444 16,985
Depreciation and amortization 21,229 16,803 39,466 32,919
Provision for income taxes 46,362 18,473 81,730 27,917
Non-cash write-down and other
adjustments (a) 1,173 (893 ) (2,695 ) 1,391
Non-cash share-based compensation
expense (b) 6,973 5,400 12,421 9,974
Loss on extinguishment of debt (c) 831 - 831 -
Transaction costs and credit facility
fees (d) 5,172 358 6,086 592
Business optimization and other charges
(e) - 11,460 159 11,972
Other 309 15 577 411
Adjusted EBITDA 217,679 123,140 431,873 209,164
Adjusted EBITDA attributable to
noncontrolling interests 2,015 132 4,207 30
Adjusted EBITDA attributable to Generac
Holdings Inc. $ 215,664 $ 123,008 $ 427,666 $ 209,134
(a) Represents the following non-cash charges, gains, and other adjustments:
gains/losses on disposals of assets and sales of certain investments, unrealized
mark-to-market adjustments on commodity contracts, and certain foreign currency
related adjustments. We believe that adjusting net income for these non-cash
charges and gains is useful for the following reasons:
? The gains/losses on disposals of assets and sales of certain investments
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; and
? 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
statements of comprehensive income and cash flows to capture the full effect
of these contracts on our operating performance.
(b) Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods.
(c) Represents the non-cash write-off of original issue discount and deferred financing costs due to voluntary prepayment of Term Loan debt.
(d) 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 administrative agent fees and credit facility commitment fees under our Term Loan and 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. (e) For the six months endedJune 30, 2021 , represents severance and other charges related to the consolidation of certain of our facilities. For the three and six months endedJune 30, 2020 , represents severance, non-cash asset write-downs, and other charges to address the impact of the COVID-19 pandemic and decline in oil prices. 27
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Table of Contents Adjusted Net Income To further supplement our condensed consolidated financial statements in accordance withU.S. GAAP, we provide the computation of Adjusted Net Income attributable to the Company, which is defined as net income before noncontrolling interest and provision for income taxes adjusted for the following items: cash income tax expense, amortization of intangible 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, as set forth in the reconciliation table below. 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 withU.S. GAAP results and the reconciliation toU.S. GAAP results, provides a more complete understanding of our ongoing 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 withU.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 underU.S. GAAP. Some of the limitations are:
• Adjusted Net Income does not reflect changes in, or cash requirements for, our
working capital needs;
• 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
• other companies may calculate Adjusted Net Income differently than we do,
limiting its usefulness as a comparative measure.
The following table presents a reconciliation of net income to Adjusted Net
Income attributable to
Three Months Ended June 30, Six Months Ended June 30,
(U.S. Dollars in thousands, except share
and per share data) 2021 2020 2021 2020
Net income attributable to Generac
Holdings Inc. $ 127,036 $ 66,145 $ 276,029 $ 110,605
Net income (loss) attributable to
noncontrolling interests 873 (2,553 ) 1,825 (3,602 )
Net income 127,909 63,592 277,854 107,003
Provision for income taxes 46,362 18,473 81,730 27,917
Income before provision for income taxes 174,271 82,065 359,584 134,920
Amortization of intangible assets 11,052 7,667 20,031 15,448
Amortization of deferred finance costs
and original issue discount 649 644 1,295 1,286
Loss on extinguishment of debt 831 - 831 -
Transaction costs and other purchase
accounting adjustments (a) 4,954 191 5,643 231
(Gain)/loss attributable to business or
asset dispositions (b) - - (3,991 ) -
Business optimization and other charges - 11,460 159 11,972
Adjusted net income before provision for
income taxes 191,757 102,027 383,552 163,857
Cash income tax expense (c) (37,406 ) (13,877 ) (75,274 ) (21,222 )
Adjusted net income 154,351 88,150 308,278 142,635
Adjusted net income (loss) attributable
to noncontrolling interests 1,121 (342 ) 2,344 (923 )
Adjusted net income attributable to
Generac Holdings Inc. $ 153,230 $ 88,492 Adjusted net income per common share attributable toGenerac Holdings Inc. - diluted: $ 2.39$ 1.40 $ 4.77 $ 2.27 Weighted average common shares outstanding - diluted: 64,088,709 63,364,253 64,097,378 63,363,721
(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.
(b) Represents gains and losses attributable to the disposition of a business or assets occurring in other than ordinary course, as defined in our credit agreement.
(c) Amount for the three and six months endedJune 30, 2021 is based on an anticipated cash income tax rate of approximately 21.0% to 21.5% for the full year endingDecember 31, 2021 . Amount for the three and six months endedJune 30, 2020 is based on an anticipated cash income tax rate at the time of approximately 17.0% for the full year endedDecember 31, 2020 . Cash income tax expense for the respective periods 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 for each respective period by applying the derived full year cash tax rate to the period's pretax income. 28
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Table of Contents New Accounting Standards Refer to Note 1, "Description of Business and Basis of Presentation," to the condensed consolidated financial statements for further information on the new accounting standards applicable to the Company.
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