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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 25, 2004

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: 001-16501

GLOBAL POWER EQUIPMENT GROUP INC.

(Exact name of registrant as specified in its charter)

6120 South Yale, Suite 1480, Tulsa, Oklahoma

(Address of principal executive offices)

74136

(Zip Code)

(918) 488-0828

(Registrant’s telephone number, including area code)

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  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The number of shares of the Registrant’s common stock, $0.01 par value, outstanding at November 1, 2004 was 46,366,148.

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GLOBAL POWER EQUIPMENT GROUP INC.

FORM 10-Q

September 25, 2004

INDEX

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BUSINESS AND ORGANIZATION

Global Power Equipment Group Inc. and Subsidiaries (the Company or GPEG) designs, engineers and manufactures heat recovery and auxiliary power equipment. Our products include:

The Company’s corporate headquarters are located in Tulsa, Oklahoma, with operating facilities in Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; Clinton, South Carolina; Monterrey, Mexico; Toluca, Mexico; Shanghai, China; Nanjing, China and Heerlen, Netherlands. The Clinton, South Carolina and Toluca, Mexico facilities were in the process of being closed during the third quarter of 2004.

2. INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements, in the opinion of management, includes normal recurring adjustments and reflects all adjustments which are necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 27, 2003, filed with the Securities and Exchange Commission. The quarterly results are not necessarily indicative of the actual results that may occur for the entire fiscal year.

3. GOODWILL

There were no changes in the carrying amount of goodwill during the first nine months of fiscal 2004. The Company will complete its annual impairment testing during the fourth quarter of fiscal year 2004. The balances by operating segment as of September 25, 2004 and December 27, 2003 were as follows (in thousands):

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4. EARNINGS PER SHARE

Basic and diluted earnings per common share are calculated as follows (in thousands, except share and per share data):

5. DERIVATIVE FINANCIAL INSTRUMENTS

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards requiring that certain derivative instruments be recorded on the balance sheet as either an asset or a liability measured at fair value. SFAS 133 requires that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative’s gains and losses to be deferred in other comprehensive income until the transaction occurs (“cash flow hedge”) or to offset related results on the hedged item in the income statement (“fair value hedge”). Hedge accounting requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.

Periodically, the Company uses derivative financial instruments in the management of its foreign currency exchange and interest rate exposures. As of September 25, 2004, there were foreign currency forward exchange contracts outstanding with a notional amount of approximately $3.2 million with varying amounts due through June 2005. Currently, the Company recognizes changes in fair values of the forward agreements through earnings. The changes in the fair values of unrealized gains (losses) on the forward agreements of approximately $(0.02) and $0.03 million for the three and nine months ended September 25, 2004, respectively, are included in earnings through cost of sales. As of September 27, 2003, there were no foreign currency forward exchange contracts or interest rate instruments outstanding. The Company recorded unrealized gains on the forward agreements of approximately $0 and $0.05 million for the three and nine months ended September 27, 2003, respectively.

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6. LITIGATION, COMMITMENTS AND CONTINGENCIES

Litigation

In June 2003, Stone & Webster, Inc. and Stone & Webster Purchasing, Inc. (collectively, “S&W”) commenced a lawsuit in the U.S. District Court for the Southern District of Iowa Central Division, against Deltak, L.L.C. (“Deltak”), one of the Company’s subsidiaries. The lawsuit alleged Deltak committed breach of contract and warranty and made certain intentional misrepresentations in connection with a contract to provide two heat recovery steam generators for a project in which S&W was the general contractor. S&W alleged it incurred significant cost increases and delays on the project resulting from certain design, constructability and fabrication issues related to the heat recovery steam generators provided by Deltak and sought an unspecified amount of damages for costs. Deltak filed counterclaims against S&W seeking damages from S&W for breach of contract and unjust enrichment. On March 8, 2004, this lawsuit was settled for an amount that was less than the reserve the Company had accrued for this contingency in fiscal 2003, resulting in an increase to the first nine months of 2004 pre-tax net income of $1.1 million. Under the confidential settlement agreement, all claims by the parties were mutually dismissed and the parties were mutually released from any and all damages.

The Company is involved in other legal actions which arise in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending or threatened actions will not have a material adverse effect upon the consolidated financial position or results of operations of the Company.

Warranties

Estimated costs related to product warranty are accrued and included in cost of sales as revenue is recognized. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. We manage our exposure to warranty claims by having our field service and quality assurance personnel regularly monitor our projects and maintain ongoing and regular communications with the customer.

A reconciliation of the changes to our warranty accrual for the periods indicated is as follows (in thousands):

During most of the periods presented above, the Company had changes in previous accruals due to the lapse of warranty periods and lesser than expected settlements under warranty claims. In addition, during the third quarter of 2004, the warranty accrual for the auxiliary power equipment segment was adjusted downward by $0.9 million based on its most recent review of historical warranty claims. The Company continues to review its warranty accrual policy in light of its changing business operations and settlement experience.

Contingencies

At September 25, 2004, the Company had a contingent liability for issued and outstanding stand-by letters of credit totaling $33.3 million that generally were issued to secure performance on customer contracts. Currently, there are no amounts drawn upon these letters of credit.

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Management Agreement

Under a management agreement with Harvest Partners, Inc. (Harvest), the Company is contractually committed to annual payments of certain fees for financial advisory and strategic planning services to Harvest of $1.3 million per year. The terms of the management agreement provide for automatic renewals of additional one-year periods commencing each August unless terminated for cause or by Harvest. During any subsequent renewal period of the management agreement, the management fee will decrease to $750,000 per year if the affiliates of Harvest sell more than 50% of the shares of the Company’s common stock they owned at the time of the Company’s initial public offering on May 23, 2001. The management fee will be eliminated and the management agreement will terminate, if in any subsequent renewal period the affiliates of Harvest sell more than 66.6% of the shares of the Company’s common stock they owned on May 23, 2001.

Subsequent to quarter end, the management agreement with Harvest was amended (the Second Amendment) whereby the annual fee is now comprised of two components. First, the Company pays Harvest an annual fee of $625,000. In addition, the Company will pay Harvest an additional fee of between $0 and $625,000 depending on the amount of the Company’s EBITDA as follows:

Under the Second Amendment, the management agreement terminates on February 1, 2008, subject to automatic renewals of additional one-year periods commencing on February 1, 2006, and continuing indefinitely thereafter, unless terminated for cause or by Harvest. Under the Second Amendment, the management agreement will continue to terminate in the event that the affiliates of Harvest sell more than 66.6% of the shares of the Company’s common stock they owned on May 23, 2001. Under the Second Amendment, the total management fee paid to Harvest for the 2004 “Harvest Year” (beginning on February 1, 2004 and ending on January 31, 2005) is $937,500.

7. DEBT

During the first quarter of fiscal 2004, the Company entered into two loan agreements with banks in China. The agreements allow for the Company to borrow a total of $4.8 million at a weighted average rate of 5.21%. The agreements expire April 1, 2005. As of September 25, 2004, approximately $4.4 million has been borrowed under the loan agreements. The loans are collateralized by letters of credit issued under the Company’s amended and restated senior credit facility.

The Company’s amended and restated senior credit facility:

As of September 25, 2004, the Company was in compliance with these covenants and restrictions. On October 1, 2004, the Company refinanced its indebtedness under the amended and restated senior credit facility. At September 25, 2004, the Company owed $16.6 million on the amended and restated senior credit facility, which was originally due in May 2005. Because this debt was refinanced on October 1, 2004, the Company reclassified $11.6 million of the $16.6 million to long term. The new credit facility requires the Company to make principal payments on its term loan of $5.0 million between October 1, 2004 and September 30, 2005. Thus, the $5.0 million has been presented on the balance sheet at September 25, 2004 as current. See Note 16 below for a description of the new credit agreement.

8. SEGMENT INFORMATION

The “management approach” called for by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” has been used by GPEG management to present the segment information which follows. GPEG considered the way its management team

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makes operating decisions and assesses performance and considered which components of its enterprise have discrete financial information available. Management makes decisions using a product group focus and its analysis resulted in two operating segments, Heat Recovery Equipment and Auxiliary Power Equipment. The Company evaluates performance based on net income or loss not including certain items as noted below. Intersegment revenues and transactions were not significant. Corporate assets consist primarily of cash and deferred tax assets. Interest income has not been allocated as cash management activities are handled at a corporate level. In the first quarter of 2004, the Company changed the basis by which it allocates corporate general and administrative expenses to the operating segments. This new manner of allocating corporate expenses better reflects the use of corporate resources by the operating segments. Prior year amounts were reclassified to conform to the 2004 presentation.

The following table presents information about segment income and assets (in thousands):

The following tables present information which reconciles segment information to consolidated totals (in thousands):

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The following table represents revenues by product group (in thousands):

The following table presents revenues by geographic region (in thousands):

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9. MAJOR CUSTOMERS

The Company has certain customers that represent more than 10% of consolidated revenues. The revenue for these customers, as well as corresponding accounts receivable, as a percentage of the consolidated revenues and accounts receivable balances, are as follows:

10. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in current operating items were as follows (in thousands):

During the first nine months of fiscal years 2004 and 2003, there was approximately $4.1 million and $1.7 million, respectively, of tax benefit related to stock options exercised that were reflected as an increase to paid-in capital.

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11. RECENTLY ENACTED LEGISLATION

On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act contains a number of provisions including:

The Company is determining whether or not it would receive tax benefits from the Act and the extent to which the Act would decrease its effective tax rate.

12. COMPREHENSIVE INCOME

The table below presents comprehensive income for all applicable periods (in thousands):

13. EMPLOYMENT AND OPERATIONAL RESTRUCTURING

In October 2003, the Company announced a management restructuring plan pursuant to which certain employees were offered either one-time termination or retirement benefits. Certain employees that were offered the retirement incentive packages entered into consulting agreements with the Company subsequent to their retirement. The expense of the consulting agreements will be recognized as the services are provided over the term of the agreements. In addition, retiring employees were offered the right to amend their stock option agreements to extend the date such options remain exercisable from the original period of 90 days after termination of employment to a new period extending to one year after termination of employment. In some cases, this plan also provided for the acceleration of vesting for certain unvested stock options. As required by variable plan option accounting under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company will expense the intrinsic value of the options. The Company recorded as selling and administrative expenses charges of approximately $0.2 million during the third quarter and approximately $2.5 million during the first nine months of fiscal year 2004 related to the restructuring plan.

Under the 2003 management restructuring plan, a retirement benefits agreement was entered into with the Company’s Chief Executive Officer (CEO), Larry Edwards, pursuant to which he determines his own future retirement date. At this time, the retirement date is unknown. Upon retirement, Mr. Edwards will receive a payment of approximately $1.9 million, which was expensed in 2003 and is included in other long-term liabilities as of September 25, 2004.

From the inception of the management restructuring plan through September 25, 2004, the Company has incurred costs of approximately $6.4 million related to the plan. The Company expects to incur approximately $4.9 million of restructuring charges in the future, including an estimate of $3.2 million for the expected consulting fees and variable stock option expense related to the CEO’s retirement benefits agreement.

In the second quarter of 2004, the Company merged the operations of Consolidated Fabricators, Inc. (CFI) with Braden Manufacturing, L.L.C.(Braden). The plan of merger included the closing of CFI’s manufacturing facilities in Toluca, Mexico and Clinton, South Carolina. The Toluca plant is a leased facility while the Company owns the Clinton plant. In addition, the merger plan called for Braden to assume many of CFI’s administrative and management responsibilities.

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Through September 25, 2004, the Company has incurred approximately $0.9 million of restructuring costs in connection with this merger. The $0.9 million is comprised of severance payments, early lease termination penalties, loss on disposal of fixed assets, moving expenses and plant clean up costs. The total costs of the merger are expected to be in the range of $2.0 to $3.0 million.

A reconciliation of the liability (included in other current liabilities) for the restructuring costs from December 27, 2003 to September 25, 2004 is as follows (in thousands):

The balance of $1.9 million in other long-term liabilities related to the aforementioned management restructuring costs remained unchanged from December 27, 2003 to September 25, 2004.

Approximately $1.0 million and $2.4 million of the fiscal year 2004 restructuring costs were allocated to the Heat Recovery Equipment and Auxiliary Power Equipment segments, respectively.

14. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense is recorded for stock options when granted, as option prices have historically been set at the market value of the underlying stock at the date of grant.

SFAS 123 “Accounting for Stock-Based Compensation,” requires the measurement of the fair value of options to be included in the statement of operations or disclosed in the notes to the financial statements. The Company elected the disclosure-only alternative under SFAS 123.

Had compensation cost been determined consistent with SFAS 123, the Company’s pro forma net income (loss) would have been as follows (in thousands, except per share amounts):

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The paid-in capital deficit decreased from December 27, 2003 to September 25, 2004 primarily as a result of 1,138,018 stock options that were exercised during this period. A reconciliation of the changes in the account is as follows (in thousands):

15. ACQUISITION OF A BUSINESS

On July 30, 2004, the Company purchased a 90 percent interest in Nanjing Boiler Works (NBW) from Nanjing Machinery & Electronics for approximately $10.7 million (including direct transaction costs of $0.6 million) in cash. In connection with acquisition, the Company acquired $2.2 million of cash. The purchase price of $10.7 million is preliminary and will not be finalized until the fourth quarter of 2004 when the final purchase price adjustments are computed.

NBW designs and manufactures industrial and package boilers used by domestic customers in China for various applications where steam is required. NBW has begun to manufacture heat recovery steam generating units for combined-cycle gas turbine power plants, as well as specialty boiler systems for worldwide customers of Deltak LLC based on Deltak’s design and engineering specifications. NBW is located in Jiangsu province in eastern China. As of the closing date, the Company changed NBW’s name to Deltak Power Equipment (China) Co., Ltd. (DPEC).

DPEC’s results of operations from the acquisition date through September 25, 2004 have been included in the accompanying condensed consolidated statement of income for the three and nine months ended September 25, 2004. DPEC’s results of operations for the third quarter were not significant to the condensed consolidated statement of income. Proforma information has not been presented due to the size of the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. DPEC is in the process of determining the fair values of certain assets and liabilities; therefore, the allocation of the purchase price is preliminary and subject to refinement (in thousands):