Generac Holdings (GNRC) 10-K risk factor changes: FY2015 vs FY2014

These risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by [removed: us or on our behalf.][added: us.]

[removed: _Demand] [added: _Demand] for [added: the majority of] our products is significantly affected by unpredictable power-outage activity that can lead to substantial variations in, and uncertainties regarding, our financial results from period to [removed: period._][added: period._]

Sales of our products are subject to consumer buying patterns, and demand for [added: the majority of] our products is affected by power outage events caused by thunderstorms, hurricanes, ice storms, blackouts and other power grid reliability issues.

[removed: In addition, there] [added: There] are smaller, more localized power outages that occur frequently that drive a baseline level of demand for back-up power solutions.

[removed: _Demand] [added: _Demand] for our products is significantly affected by durable goods spending by consumers and businesses, and other macroeconomic [removed: conditions._][added: conditions._]

Typically, we do not have contracts with our customers which call for committed volume, and we cannot guarantee that our current customers will continue to purchase our [removed: products.][added: products at the same level, if at all.]

[removed: _Decreases] [added: _Decreases] in the availability and quality, or increases in the cost, of raw materials and key components we use could materially reduce our [removed: earnings._][added: earnings._]

[removed: _The] [added: _The] industry in which we compete is highly competitive, and our failure to compete [removed: successfully_ _could] [added: successfully_ _could] adversely affect our results of operations and financial [removed: condition._][added: condition._]

Some of our competitors have established brands and are larger in size or are divisions of large diversified companies [removed: and] [added: which] have substantially greater financial [removed: resources.][added: resources than we do.]

[removed: _Our] [added: _Our] industry is subject to [removed: te__chnological] [added: te__chnological] change, and our failure to continue developing new and improved products and to bring these products rapidly to market could have an adverse impact on our [removed: business._][added: business._]

New products, or refinements and improvements of existing products, may have technical failures, [removed: their introduction may be delayed, they may have] [added: delayed introductions,] higher [removed: production costs] than [removed: originally] expected [added: production costs] or [removed: they] may not be [added: well] accepted by our customers.

[removed: _We] [added: _We] rely on independent dealers and distribution partners, and the loss of these dealers and distribution partners, or of any of our sales arrangements with significant private label, telecommunications, retail or equipment rental customers, would adversely affect our [removed: business._][added: business._]

Our distribution agreements and any contracts we have with large telecommunications, retail and other customers are typically not exclusive, and many of the distributors [removed: and customers] with whom we do business offer [added: competitors’] products and [removed: services of our competitors.][added: services.]

[removed: _Our] [added: _Our] business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property [removed: rights._][added: rights._]

We [removed: seek to protect] [added: consider] our intellectual property rights [added: to be important assets, and seek to protect them] through a combination of patent, trademark, copyright and trade secret laws, as well as licensing and confidentiality agreements.

Not only are intellectual property-related proceedings burdensome and costly, but they could span years to resolve and we [removed: may] [added: might] not ultimately prevail.

[removed: _Our] [added: _Our] operations are subject to various environmental, health and safety laws and regulations, and non-compliance with or liabilities under such laws and regulations could result in substantial costs, fines, sanctions and [removed: claims._][added: claims._]

[removed: _Our] [added: _Our] products are subject to substantial government [removed: regulation._][added: regulation._]

While we have been able to meet previous [removed: deadlines,] [added: deadlines and requirements,] failure to comply with other existing and future regulatory standards could adversely affect our position in the markets we serve.

[removed: _W__e] [added: _W__e] may incur costs and liabilities as a result of product liability [removed: claims._][added: claims._]

[removed: _The] [added: _The] loss of any key members of our senior management team or key employees could disrupt our operations and harm our [removed: business._][added: business._]

[removed: _Disruptions] [added: _Disruptions] caused by labor [removed: dis__putes] [added: dis__putes] or organized labor activities could harm our [removed: business._][added: business._]

[removed: _We] [added: _We] may experience material disruptions to our manufacturing [removed: operations._][added: operations._]

In addition, [removed: the majority] [added: a significant portion] of our manufacturing and production facilities are located in Wisconsin within a 100-mile radius of each other.

[removed: _A] [added: _A] significant portion of our purchased components are sourced in foreign countries, exposing us to additional risks that may not exist in the United [removed: States._][added: States._]

[removed: _We] [added: _We] are vulnerable to supply disruptions from single-sourced [removed: suppliers._][added: suppliers._]

[removed: _As] [added: _As] a U.S. corporation that conducts business in a variety of foreign countries including, but not limited to, [removed: Mexico__, Italy_ _and] [added: Mexico__, Italy_ _and] Brazil, we are subject to the Foreign Corrupt [removed: Practice__s] [added: Practice__s] Act and a variety of anti-corruption laws worldwide.

A determination that we violated any of these laws may affect our business and operations [removed: adversely._][added: adversely._]

[removed: _Our] [added: _Our] total assets include goodwill and other indefinite-lived intangibles.

If we determine these have become [removed: impaired in the future,] [added: impaired,] net income could be materially adversely [removed: affected._][added: affected._]

In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350-20, _Intangibles [removed: -] [added: –] Goodwill and Other_, goodwill and indefinite lived intangibles are reviewed at least annually for impairment and [removed: definite-lived] [added: finite-lived] intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

See “Item 7—Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations” for further information on the Company’s impairment tests and at-risk goodwill for the Ottomotores reporting unit, and see] [added: Operations,”] Note 2, “Significant Accounting Policies,” [added: and Note 8, “Goodwill and Intangible Assets,”] to the consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K for further [removed: details.][added: information on the Company’s impairment tests and the impairment of certain tradenames as a result of a new brand strategy and the impairment of the goodwill of the Ottomotores reporting unit both recorded in the fourth quarter of 2015.]

[removed: _We] [added: _We] are unable to determine the specific impact of changes in selling prices or changes in volumes of our products on our net [removed: sales._][added: sales._]

[removed: _We] [added: _We] may not realize all of the anticipated benefits of our acquisitions or those benefits may take longer to realize than expected.

We may also encounter significant unexpected difficulties in integrating acquired [removed: businesses._][added: businesses._]

The integration process may disrupt our business and, if implemented ineffectively, [removed: would] [added: could] preclude realization of the full benefits expected by us.

[removed: In the ordinary course of our business,] [added: Further,] we collect and store sensitive information in our data centers and on our networks.

[removed: _If] [added: _If] securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, our common stock price and trading volume could [removed: decline._][added: decline._]

[removed: _Anti-takeover] [added: _Anti-takeover] provisions in our amended and restated certificate of incorporation and by-laws could prohibit a change of control that our stockholders may favor and could negatively affect our stock [removed: price._][added: price._]

| | ● | provide that only one-third of the members of the board [added: of directors] are elected at each stockholders meeting and prohibit removal without cause; |

We could also be subject to a recall action by regulatory authorities.

At December 31, 2015, goodwill and other indefinite-lived intangibles totaled $798.0 million.

_We may encounter difficulties in implementing or operating a new enterprise resource planning (ERP) system, which may adversely affect our operations and financial reportin__g._

In January 2016, we implemented a new ERP system for a majority of our business as part of our ongoing efforts to improve and strengthen our operational and financial processes and our reporting systems.

The ERP system may not provide the benefits anticipated, could add costs and complications to ongoing operations, and may impact our ability to process transactions accurately and efficiently, all of which may have a material adverse effect on the Company’s business and results of operations.

_Failures or security breaches of our networks or information technology systems could have an adverse effect on our business._

We rely heavily on information technology (IT) both in our products and services for customers and in our IT systems.

Government agencies and security experts have warned about growing risks of hackers, cyber-criminals, malicious insiders and other actors targeting confidential information and all types of IT systems.

These actors may engage in fraudulent activities, theft of confidential or proprietary information and sabotage.

Our IT systems and our confidential information may be vulnerable to damage or intrusion from a variety of attacks including computer viruses, worms or other malicious software programs.

These attacks pose a risk to the security of the products, systems and networks of our customers, suppliers and third-party service providers, as well to the confidentiality of our information and the integrity and availability of our data.

While we attempt to mitigate these risks through controls, due diligence, training, surveillance and other measures, we remain vulnerable to information security threats.

Despite the precautions we take, an intrusion or infection of our systems could result in the disruption of our business, loss of proprietary or confidential information, or injuries to people or property.

Similarly, an attack on our IT systems could result in theft or disclosure of trade secrets or other intellectual property or a breach of confidential customer or employee information.

Any such events could have an adverse impact on sales, harm our reputation and cause us to incur legal liability and increased costs to address such events and related security concerns.

As the threats evolve and become more potent, we may incur additional costs to secure the products that we sell, as well as our data and infrastructure of networks and devices.

We view our intellectual property rights as very important assets.

Furthermore, in connection with our sale of Generac Portable Products to a private equity firm in 1998, we granted the private equity firm an exclusive perpetual license for the use of the “Generac Portable Products” trademark in connection with the manufacture and sale of certain engine driven consumer products.

This perpetual license was eventually transferred to another company when the private equity firm sold that business.

Currently, this trademark is not being used in commerce and, as such, there is a rebuttable presumption that the trademark has been abandoned.

However, in the event that this trademark is used in the future, we could suffer competitive confusion and our business could be negatively impacted.

For example_,_ we were required to modify our spark-ignited air-cooled gaseous engines to comply with the 2011 EPA and CARB regulations, as well as the continued implementation of Tier 4 nonroad diesel engine changes associated with acquisitions serving the mobile product markets.

As a U.S. corporation that conducts business in a variety of foreign countries including, but not limited to, Mexico, Italy and Brazil, we are subject to the regulations imposed by a variety of anti-corruption laws worldwide.

At December 31, 2014, goodwill and other indefinite-lived intangibles totaled $818.2 million, most of which arose from the CCMP Transaction.

_Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer._

The secure processing, maintenance and transmission of this information is critical to our operations.

Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.

Any such breach could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, regulatory penalties, disrupt our operations and damage our reputation, which could adversely affect our business.

On May 31, 2013, we amended and restated our term loan credit agreement, pursuant to which we incurred $1,200 million of a senior secured term loan, which matures in 2020, to replace our prior $900 million term loan facility.

The following discussion and analysis of our financial condition and results of operations should be read together with “Item 1 – Business,” “Item 6 - Selected Financial Data” and the consolidated financial statements and the related notes thereto [removed: included] in Item 8 of this Annual Report on Form 10-K.

Power generation is our primary focus, which differentiates us from our primary competitors that also have broad operations outside of the [removed: generator] [added: power equipment] market.

As the only significant market participant focused predominantly on these products, we [removed: have one of the leading] [added: are a] market [removed: positions] [added: leader] in the power equipment market in North America and [added: have] an expanding presence internationally.

Other engine powered products that we design and manufacture include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters used in the oil & gas, construction and other industrial markets; and a broad product line of [added: outdoor] power [removed: washers] [added: equipment] for residential and commercial use.

A summary of these acquisitions can be found in Note 1, “Description of Business,” to the consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K.

[removed: _Business] [added: _Business] Drivers and [removed: Trends_][added: Trends_]

Our performance is affected by the demand for reliable power generation [removed: and other] [added: products,] mobile product solutions [added: and other engine powered products] by our customer base.

The decision to purchase backup power for many light-commercial buildings such as convenience stores, restaurants and gas stations is more return-on-investment [removed: (ROI)] 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 [removed: accelerate] [added: increase] the penetration of standby generators in the light-commercial market.

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 [added: following a major power outage event] for standby generators.

In addition, there are smaller, more localized power outages that occur frequently across the [removed: U.S.] [added: United States] that drive the baseline level of demand for back-up power solutions.

The level of baseline power outage activity occurring across the [removed: U.S.] [added: United States] can also fluctuate, and may cause our financial results to fluctuate from year to year.

Trends in the new housing market highlighted by residential housing starts can also impact demand for our residential [removed: products.][added: generators.]

[removed: _F__actors_ _Affecting] [added: _F__actors_ _Affecting] Results of [removed: O__perations_][added: O__perations_]

Our results are also influenced by changes in fuel prices in the form of freight rates, which in some cases are [removed: borne] [added: accepted] by our customers and in other cases are paid by us.

[removed: _Seasonalit__y._] [added: _Seasonalit__y__._] Although there is demand for our products throughout the year, in each of the past three years approximately 23% to 27% of our net sales occurred in the first quarter, [removed: 20%] [added: 22%] to 25% in the second quarter, 24% to [removed: 26%] [added: 27%] in the third quarter and 25% to [removed: 29%] [added: 28%] in the fourth quarter, with different seasonality depending on the presence, timing and severity of major power outage activity in each year.

_Factors influencing interest expense_ _and cash interest expense__._ Interest expense can be impacted by a variety of factors, including market fluctuations in LIBOR, interest rate election periods, interest rate swap [removed: agreements] [added: agreements, credit agreement pricing grids,] and repayments [added: or borrowings] of indebtedness.

Refer to Note [removed: 11,] [added: 10,] “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional [removed: details.][added: information.]

_Factors influencing provision for income taxes and [removed: cash_ _income_ _taxes] [added: cash income taxes] paid._ We had approximately [removed: $837] [added: $715] million of tax-deductible goodwill and intangible asset amortization remaining as of December 31, [removed: 2014] [added: 2015] related to our acquisition by CCMP in 2006 that we expect to generate [added: aggregate] cash tax savings of approximately [removed: $326] [added: $279] million through 2021, assuming continued profitability and a 39% tax rate.

As a result of the asset acquisition of the Magnum business in the fourth quarter of 2011, we had approximately [removed: $45.5] [added: $42.0] million of incremental tax deductible goodwill and intangible assets remaining as of December 31, [removed: 2014.][added: 2015.]

We expect these assets to generate [added: aggregate] cash tax savings of [removed: $17.8] [added: $16.4] million through 2026 assuming continued profitability and a 39% tax rate.

[removed: _Net_ _S__ales_][added: _Net_ _S__ales_]

Substantially all of our net sales are generated through the sale of our [removed: generators] [added: power generator equipment] and other engine powered products [removed: for] [added: to] the residential, light commercial, industrial, oil & gas, and construction markets.

During [removed: 2014,] [added: 2015,] our net sales were affected primarily by the U.S. market as sales outside of the United States represented approximately [removed: 16%] [added: 15%] of total net sales.

We are not dependent on any one channel or customer for our net sales, with no single customer representing more than [removed: 8%] [added: 7%] of our [removed: sales for the year ended December 31, 2014] [added: sales,] and our top ten customers representing less than [removed: 26%] [added: 25%] of our [added: total] sales for the [removed: same period.][added: year ended December 31, 2015.]

[removed: _Costs] [added: _Costs] of Goods [removed: S__old_][added: S__old_]

Component parts and raw materials comprised [removed: over 85%] [added: approximately 84%] of costs of goods sold for the year ended December 31, [removed: 2014.][added: 2015.]

We design and manufacture air-cooled engines for certain of our [removed: products] [added: generators] up to 22kW.

We source engines for certain of our smaller products and all of our [removed: products larger than 22kW.][added: diesel products.]

We design [removed: all] [added: many of] the alternators for our units and [added: either] manufacture [added: or source] alternators for certain of our units.

[removed: _Operating E__xpenses_][added: _Operating E__xpenses_]

Our operating expenses consist of costs incurred to support our sales, marketing, distribution, service parts, engineering, information systems, human resources, finance, risk management, legal and tax [removed: functions.][added: functions, among others.]

_General and administrative._ Our general and administrative expenses include personnel costs for general and administrative [removed: employees, accounting and] [added: employees; accounting,] legal [added: and] professional services [removed: fees,] [added: fees;] information technology [removed: costs, insurance,] [added: costs; insurance;] travel and entertainment [removed: expense] [added: expense;] and other corporate [removed: expense.][added: expenses.]

_Amortization of intangibles._ Our amortization of intangibles [removed: expenses include] [added: expense includes] the straight-line amortization of [removed: definite-lived] [added: finite-lived tradenames,] customer lists, patents and other intangibles assets.

[removed: _Other] [added: _Other] Income [removed: (E__xpense)_][added: (E__xpense)_]

Other income (expense) includes the interest expense on our outstanding borrowings, amortization of debt financing costs and original issue [removed: discount as well as] [added: discount, and] expenses related to interest rate swap agreements.

Other income (expense) also includes other financial items such as [removed: loss] [added: losses] on extinguishment of debt, [removed: a gain] [added: gains (losses)] on change in contractual interest rate, interest income earned on our cash and cash equivalents, and costs related to acquisitions.

[removed: _Costs related to acquisition__s__._] In 2014, the other expenses include [removed: one-time] transaction-related expenses related to the acquisitions of Powermate and MAC.

In 2013, other expenses include [removed: one-time] transaction-related expenses related to the acquisitions of Tower Light and Baldor.

[removed: _Year] [added: _Year] ended December 31, [removed: 201__4_ _compared_ _to] [added: 201__4_ _compared_ _to] year ended December 31, [removed: 2013_][added: 2013_]

Demand for outdoor power equipment is also impacted by several of these factors, as well as weather precipitation patterns.

Cash interest expense decreased during 2015 compared to 2014, primarily due to voluntary prepayments of Term Loan principal and the lower interest rate on our Amended ABL Facility borrowings.

For certain natural gas engines, we source the base engine block, and then add a significant amount of value engineering, sub-systems and other content to the point that we are recognized as the OEM of those engines.

We are committed to research and development, and rely on a combination of patents and trademarks to establish and protect our proprietary rights.

_Costs related to acquisitions._ In 2015, the other expenses include transaction-related expenses related to the acquisitions of CHP and Pramac.

See Note 3, “Acquisitions” and Note 20, “Subsequent Events” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on the Company’s recent acquisitions and the announced acquisition of Pramac.

| (U.S. Dollars in thousands) | | 2015 | | | | 2014 | | |

| Net sales | | $ | 1,317,299 | | | $ | 1,460,919 | |

| Costs of goods sold | | | 857,349 | | | | 944,700 | |

| Gross profit | | | 459,950 | | | | 516,219 | |

| Selling and service | | | 130,242 | | | | 120,408 | |

| Amortization of intangibles | | | 23,591 | | | | 21,024 | |

| Tradename and goodwill impairment | | | 40,687 | | | | \- | |

| Gain on remeasurement of contingent consideration | | | \- | | | | (4,877 | ) |

| Total operating expenses | | | 280,389 | | | | 222,844 | |

| Income from operations | | | 179,561 | | | | 293,375 | |

| Income before provision for income taxes | | | 122,983 | | | | 258,362 | |

| (U.S. Dollars in thousands) | | 2015 | | | | 2014 | | |

| Residential products | | $ | 673,764 | | | $ | 722,206 | |

| Commercial & Industrial products | | | 548,440 | | | | 652,216 | |

| Other | | | 95,095 | | | | 86,497 | |

| Net sales | | $ | 1,317,299 | | | $ | 1,460,919 | |

The contribution from non-annualized recent acquisitions to the year ended December 31, 2015 was $62.8 million.

Residential product sales decreased 6.7% to $673.8 million in 2015 from $722.2 million for the comparable period in 2014, primarily due to lower demand of home standby generators as a result of the significant decline in the power outage severity environment during 2015, partially offset by the contribution from recent acquisitions.

C&I product sales decreased 15.9% to $548.4 million in 2015 from $652.2 million for the comparable period in 2014, primarily due to a significant reduction in shipments into oil & gas and general rental markets and, to a lesser extent, reduced shipments to telecom national account customers and the negative impact of foreign currency, partially offset by the contribution from recent acquisitions.

The decline in gross margin was primarily due to unfavorable absorption of manufacturing overhead-related costs, partially offset by the favorable impact of lower commodity costs and overseas sourcing benefits from a stronger U.S. dollar.

The current year operating expenses include a non-cash $36.1 million impairment charge relating to tradenames as a result of a new brand strategy to transition and consolidate various brands to the Generac® tradename, and a non-cash $4.6 million impairment charge relating to the write-down of the goodwill of the Ottomotores reporting unit.

Additionally, the prior year operating expenses include a $4.9 million gain relating to a remeasurement of a contingent earn-out obligation from an acquisition.

Excluding the impact of these items, operating expenses increased $12.0 million primarily due to the addition of recurring operating expenses associated with recent acquisitions, increased marketing and advertising expenses, and a $2.6 million increase in the amortization of intangible assets.

This was partially offset by reductions in variable operating expenses on lower sales volumes

The increase was primarily due to a prior year $16.0 million non-cash gain relating to a 25 basis point reduction in borrowing costs as a result of our net debt leverage ratio falling below 3.0 times at March 31, 2014, and a current year $2.4 million non-cash loss relating to a 25 basis point increase in borrowing costs as a result of our net debt leverage ratio moving back above 3.0 times at June 30, 2015.

Additionally, $150.0 million of voluntary prepayments of Term Loan debt were made in the current year, resulting in a non-cash $4.8 million loss on extinguishment of debt compared to voluntary prepayments of Term Loan debt of $87.0 million in the prior year, which resulted in a non-cash $2.1 million loss on extinguishment of debt.

The debt repayments resulted in a year-over-year decrease in interest expense of $4.4 million.

The effective tax rate for 2015 was 36.8% as compared to 32.4% for 2014.

The increase in income tax rate was primarily attributable to a decrease in the Company’s federal domestic production activity deduction due to lower pre-tax income.

The following table sets forth our consolidated statement of operations data for the periods indicated:

| | | Year Ended December 31, | | | | | | |

The contribution from non-annualized recent acquisitions to the year ended December 31, 2014 was $108.0 million.

The Company’s net debt leverage ratio as of December 31, 2015 was above 3.00 to 1.00.

As of December 31, 2015, the Company is in compliance with all covenants of the Term Loan.

Cash interest expense decreased during 2014 compared to 2013, primarily due to a reduction in interest rate from the credit agreement refinancing completed in May 2013 and the 25 basis point reduction in borrowing costs during the second quarter of 2014 as a result of our net debt leverage ratio, as defined in our New Term Loan Credit Agreement, falling below 3.0 times.

In the second quarter of 2013, the dividend recapitalization discussed under “Liquidity and Financial Position” was completed.

After considering the increased debt and related interest expense, the Company believes it will still generate sufficient taxable income to fully utilize the tax attributes discussed above.

Transactions with CCMP

In November 2006, affiliates of CCMP, together with certain other investors and members of our management, purchased an aggregate of $689 million of our equity capital.

In addition, on November 10, 2006, Generac Power Systems borrowed an aggregate of $1.38 billion, consisting of an initial drawdown of $950 million under a $1.1 billion first lien secured credit facility and $430 million under a $430 million second lien secured credit facility.

With the proceeds from these equity and debt financings, together with cash on hand at Generac Power Systems, we (1) acquired all of the capital stock of Generac Power Systems and repaid certain pre-transaction indebtedness of Generac Power Systems for $2.0 billion, (2) paid $66 million in transaction costs related to the transaction and (3) retained $3 million for general corporate purposes.

Subsequently, during 2007, 2008 and 2009, affiliates of CCMP acquired approximately $249.2 million of second lien term loans and $9.9 million of first lien term loans for approximately $155.9 million.

CCMP’s affiliates then exchanged this debt for additional shares of then-existing Class B Common Stock and Series A Preferred Stock, which were subsequently converted into the same class of our common stock through a corporate reorganization in conjunction with the IPO in February 2010.

In August 2013, CCMP completed the last of a series of sale transactions that began in November 2012 by which it sold substantially all of the shares of common stock that it owned as of the IPO.

Initial Public Offering

On February 17, 2010, the Company completed its IPO of 18,750,000 shares of its common stock at a price of $13.00 per share.

In addition, the underwriters exercised their option and purchased an additional 1,950,500 shares of the Company’s common stock from the Company on March 18, 2010.

We received a total of approximately $247.9 million in net proceeds from the initial public offering and underwriters’ option exercise, after deducting the underwriting discounts and expenses.

All shares sold in this offering were primary shares.

Immediately following the IPO and underwriters’ option exercise, we had 67,529,290 total shares of common stock outstanding.

For natural gas engines, we are recognized as the OEM.

Our commitment to research and development has resulted in a significant portfolio of over 170 U.S. and international patents and patent applications.

In 2012, other expenses include one-time transaction-related expenses related to the acquisition of the Ottomotores businesses.

| Net sales | | $ | 1,485,765 | | | $ | 1,176,306 | |

| Costs of goods sold | | | 916,205 | | | | 735,906 | |

| Gross profit | | | 569,560 | | | | 440,400 | |

| Selling and service | | | 107,515 | | | | 101,448 | |

| Amortization of intangibles | | | 25,819 | | | | 45,867 | |

| Total operating expenses | | | 218,095 | | | | 216,845 | |

| Income from operations | | | 351,465 | | | | 223,555 | |

| Income before provision for income taxes | | | 278,716 | | | | 156,352 | |

| Residential power products | | $ | 843,727 | | | $ | 705,444 | |

| Commercial & Industrial power products | | | 569,890 | | | | 410,341 | |

| Other | | | 72,148 | | | | 60,521 | |

| Net sales | | $ | 1,485,765 | | | $ | 1,176,306 | |

Residential product sales increased 19.6% to $843.7 million from $705.4 million for the comparable period in 2012.

The increase in residential product sales was primarily driven by increases in shipments for home standby generators due to a combination of factors including the additional awareness and adoption of our products created by major power outages in recent years, including Superstorm Sandy in 2012, the Company’s expanded distribution, increased sales and marketing initiatives, overall strong operational execution and an improving environment for residential investment.

The strength in home standby generators was partially offset by a decline in shipments of portable generators due to less severe power outage events relative to the prior year.

In addition, increased revenue from power washer products contributed to the year-over-year sales growth in residential products.

C&I product sales increased 38.9% to $569.9 million from $410.3 million for the comparable period in 2012.

The increase was driven by the impact of recent acquisitions along with strong organic growth for stationary and mobile generators.

The increase in organic revenues was primarily driven by strong shipments to national account customers and increased sales of natural gas generators used in light commercial applications.

This gross margin improvement reflects improved product mix, improved pricing and a moderation in product costs due to lower commodity prices and execution of cost reduction initiatives.

These margin improvements were partially offset by the mix impact from recent acquisitions.

To reduce the risk from [removed: changes in certain foreign currency exchange rates, commodity prices and interest rates,] [added: these changes,] we use financial instruments from time to time.

Contracts typically have maturities of [removed: one year] [added: twelve months] or less.

As of December 31, [removed: 2014,] [added: 2015,] we had the following foreign currency contracts outstanding (in thousands):

| GBP | [removed: July 24, 2014 |] October [removed: 1, 2014] [added: 23, 2015] | [added: December 15, 2015 |] 1,000 | [removed: 0.7983] [added: 0.7259] | March [removed: 2, 2015] [added: 29, 2016] |

| GBP | October [removed: 31, 2014] [added: 23, 2015] | [removed: November 4, 2014] [added: February 1, 2016] | 1,000 | [removed: 0.7900] [added: 0.7232] | May [removed: 29, 2015] [added: 26, 2016] |

| GBP | October [removed: 31, 2014] [added: 23, 2015] | [removed: February 26,] [added: October 23,] 2015 | 1,000 | [removed: 0.7918] [added: 0.7267] | April [removed: 28, 2015] [added: 22, 2016] |

| GBP | November [removed: 3, 2014] [added: 4, 2015] | January [removed: 15, 2015] [added: 18, 2016] | 1,000 | [removed: 0.7885] [added: 0.7107] | [removed: April 28, 2015] [added: May 26, 2016] |

Depending on the supplier, these market prices may reset on a periodic basis based on negotiated [removed: lags.][added: lags and calculations.]

[removed: The primary objectives of these] [added: Periodically, we engage in certain commodity risk management] activities [removed: are] to [removed: understand and] mitigate the impact of potential price fluctuations [added: of these commodities] on our financial results.

As of December 31, [removed: 2014,] [added: 2015,] we had the following commodity forward [removed: contracts] [added: contract] outstanding (in thousands):

| Hedged Item | Trade Date | Effective Date | [removed: |] Notional Amount | [removed: | | |] Fixed [removed: Price (per LB) | |] [added: Price] | Expiration Date |

For additional information on the Company’s commodity forward contracts, including amounts charged to the statement of comprehensive income during [removed: 2014,] [added: 2015,] see Note 4, “Derivative Instruments and Hedging Activity,” to the consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K.

As of December 31, [removed: 2014,] [added: 2015,] all of the outstanding debt under our [removed: term loan] [added: Term Loan] was subject to floating interest rate risk.

As of December 31, [removed: 2014,] [added: 2015,] we had the following interest rate swap contracts outstanding (in thousands):

| Hedged Item | Contract Date | Effective Date | [removed: |] Notional Amount | [removed: | | |] Fixed LIBOR Rate | [removed: | |] Expiration Date |

| Interest rate | October 23, 2013 | July 1, 2014 | [removed: | $ | 100,000 | | | | 1.7420] [added: $100,000] | [removed: %] [added: 1.7420%] | July 1, 2018 |

| Interest rate | October 23, 2013 | July 1, 2014 | [removed: | $ | 100,000 | | | | 1.7370] [added: $100,000] | [removed: %] [added: 1.7370%] | July 1, 2018 |

| Interest rate | May 19, 2014 | July 1, 2014 | [removed: | $ | 100,000 | | | | 1.6195] [added: $100,000] | [removed: %] [added: 1.6195%] | July 1, 2018 |

At December 31, [removed: 2014,] [added: 2015,] the fair value of [removed: the] [added: these interest rate] swaps was a liability of [removed: $1.0] [added: $2.6] million.

For additional information on the Company’s interest rate swaps, including amounts charged to the statement of comprehensive income during [removed: 2014,] [added: 2015,] see Note 4, “Derivative Instruments and Hedging Activities,” and [removed: “Note] [added: Note] 6, [removed: Accumulated] [added: “Accumulated] Other Comprehensive Loss,” to our consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K.

Even after giving effect to these swaps, we are exposed to risks due to changes in interest rates with respect to the portion of our [removed: term loans] [added: Term Loan] that [removed: are] [added: is] not covered by the swaps.

A hypothetical change in the LIBOR interest rate of 100 basis points would have changed annual cash interest expense by approximately [removed: $4.1] [added: $5.6] million (or, without the swaps in place, [removed: $5.6] [added: $8.2] million) in [removed: 2014.][added: 2015.]

The existence of a 0.75% LIBOR floor provision in our [removed: New] Term [removed: Loan Credit Agreement,] [added: Loan,] effective May 31, 2013, limits the impact of a hypothetical 100 basis point change in LIBOR at current December 31, [removed: 2014] [added: 2015] LIBOR rates.

| GBP | November 11, 2015 | January 4, 2016 | 1,000 | 0.7126 | June 28, 2016 |

| GBP | November 17, 2015 | June 30, 2016 | 500 | 0.7097 | July 5, 2016 |

These derivatives typically have maturities of less than eighteen months.

| --- | --- | --- | --- | --- | --- |

| | | | | | |

| Copper | November 12, 2015 | December 1, 2015 | $968 | $2.196 per LB | March 31, 2016 |

| --- | --- | --- | --- | --- | --- |

| | | | | | |

| GBP | September 17, 2014 | December 15, 2014 | 500 | 0.8011 | March 31, 2015 |

| GBP | September 17, 2014 | December 15, 2014 | 500 | 0.8030 | March 27, 2015 |

Periodically, we engage in certain commodity risk management activities.

Generally, these risk management transactions will involve the use of commodity derivatives to protect against exposure resulting from significant price fluctuations.

We primarily utilize commodity contracts with maturities of less than eighteen months.

These contracts are intended to offset the effect of price fluctuations on actual inventory purchases and to mitigate the impact on our financial results.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | |

| Copper | October 2, 2014 | October 1, 2014 | | $ | 4,960 | | | $ | 3.000 | | December 31, 2015 |

| Copper | October 15, 2014 | November 1, 2014 | | $ | 4,637 | | | $ | 3.005 | | December 31, 2015 |

| Copper | December 1, 2014 | December 1, 2014 | | $ | 8,232 | | | $ | 2.872 | | December 31, 2015 |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | |

As the only significant market participant focused predominantly on these products, we [removed: have one of the leading] [added: are a] market [removed: positions] [added: leader] in the power [removed: equipment] [added: generation] market in North America and [added: have] an expanding presence internationally.

Other engine powered products that we design and manufacture include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters used in the oil & gas, construction and other industrial markets; and a broad product line of [added: outdoor] power [removed: washers] [added: equipment] for residential and commercial use.

Our products are available primarily across the [removed: U.S] [added: United States] and Canada, with an expanding presence internationally in Latin America, Europe, the Middle East, Africa and Asia/Pacific regions.

Products are sold into these regions through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies under [removed: the Generac®, MagnumTM, OttomotoresTM, Tower LightTM, Powermate®, Dewalt®, MACTM and Honeywell®] [added: a variety of] brand names.

We also sell direct to certain national and regional account [removed: customers] [added: customers, as well as to individual consumers,] that are the end users of our products.

We have a significant market share in the residential and light commercial [removed: generator markets,] [added: markets for automatic standby generators,] which we believe [removed: are currently under penetrated.][added: remain under-penetrated.]

We believe that our leading market position is largely attributable to our strategy of providing a broad product line of high-quality, innovative and affordable products through our extensive and multi-layered distribution network to whom we offer [removed: the most] comprehensive support and programs from the factory.

In addition, through recent acquisitions, we are also a leading provider of light towers, mobile [removed: generators and] [added: generators,] flameless heaters, [removed: as well as a supplier of] [added: outdoor power equipment and] industrial diesel generators ranging in sizes up to 3,250kW.

Generac [added: Holdings Inc. (the Company or Generac) is a Delaware corporation, which] was founded in 1959 to market a line of affordable portable generators that offered superior performance and features.

Through innovation and focus, we have grown to be a leading provider of power generation equipment to the residential, [removed: light commercial,] [added: light-commercial,] industrial, oil & gas and construction markets.

| | ● | [removed: We introduced our first residential standby generator in 1989, and] [added: During the 1990’s, we] expanded our industrial product development and global distribution [removed: system in the 1990s,] [added: system,] forming a series of alliances that tripled our [removed: higher output] [added: higher-output] generator sales. |

| | ● | In 1998, we sold our Generac® portable products business (which included portable generator and [removed: pressure] [added: power] washer product lines) to a private equity firm who eventually sold this business to another company. |

| | ● | Our growth accelerated in 2000 as we expanded our [added: purpose-built line of] residential automatic standby [removed: generator product offering,] [added: generators and] implemented our multi-layered distribution [removed: philosophy, and introduced our quiet-running QT Series generators in 2005, accelerating our penetration in the commercial market.] [added: philosophy.] |

We [removed: design and manufacture stationary, portable and mobile generators with single-engine outputs ranging between 800W and 3,250kW, with] [added: have] the ability to expand the power range for certain stationary generator solutions to much larger multi-megawatt systems through [removed: our Modular Power Systems (MPS),] an integrated paralleling [removed: configuration.][added: configuration called Modular Power Systems (MPS).]

Other engine powered products that we design and manufacture include light towers, mobile heaters, power washers and [removed: pumps.][added: water pumps, along with a broad line of outdoor power equipment including trimmer & brush mowers, log splitters, lawn & leaf vacuums, and chipper shredders.]

We also provide a cellular-based remote monitoring system for home standby generators called _Mobile_ _Link_™, which allows our customers to check the status of their generator conveniently from a desktop PC, tablet computer or smartphone and also provides the capability to receive maintenance [removed: or] [added: and] service alerts.

We provide a broad product line of portable generators that are fueled predominantly by gasoline, with certain models running on [removed: propane,] [added: propane and diesel fuel,] which range in size from 800W to 17,500W.

Our portable generators are targeted at homeowners, with price points ranging between the consumer value end of the market through the premium homeowner [removed: market,] [added: market;] at professional contractors, starting at the value end through the premium contractor [removed: segment, as well as] [added: segment; and] inverter generators targeted [removed: for] [added: at] the recreational market.

Our portable generators are offered under the Generac®, Powermate®, Dewalt® and Honeywell® brand [removed: names][added: names.]

We also provide a broad product line of engine driven power [removed: washers, which are] [added: washers for residential and commercial use,] fueled by gasoline, [removed: that] [added: which] range in [removed: PSI] [added: pressure] from [removed: 2,000] [added: 2,500] to 4,200 [removed: that are used for residential and commercial use.][added: PSI.]

[removed: We recently introduced] [added: Additionally, we offer] a product line of water pumps built to meet the water removal needs of homeowners, farmers, construction crews and other end-user applications.

Residential [removed: power] products comprised [removed: 49.5%, 56.8%] [added: 51.2%, 49.5%] and [removed: 60.0%,] [added: 56.8%,] respectively, of total net sales in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012.][added: 2013.]

[removed: Ranging from 10kW up to 3,250kW, we] [added: We] believe we have one of the broadest product offerings in the [removed: industry.][added: industry with power outputs ranging from 10kW up to 3,250kW.]

We also manufacture a broad line of standard and configured stationary [removed: standby] generators and related transfer switches for [added: various] industrial [added: standby, continuous-duty and prime rated] applications.

Our single-engine industrial generators range in output from 10kW up to 3,250kW, [added: which includes stationary and containerized packages,] with our MPS technology extending our product range up to much larger multi-megawatt systems through an integrated paralleling configuration.

[removed: Our] [added: We provide a broad line of] light towers, mobile generators and mobile [removed: heaters] [added: heaters, which] provide temporary lighting, power and heat for various end markets, such as road and commercial construction, energy, mining, military and special events.

C&I [removed: power] products comprised [removed: 44.6%, 38.4%] [added: 41.6%, 44.6%] and [removed: 34.9%] [added: 38.4%] respectively, of total net sales in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012.][added: 2013.]

[removed: We sell] [added: Our “Other Products” category includes] aftermarket service parts to our dealers and proprietary engines to third-party original equipment manufacturers (OEMs).

Other power products comprised [removed: 5.9%, 4.8%] [added: 7.2%, 5.9%] and [removed: 5.1%,] [added: 4.8%,] respectively, of total net sales in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012.][added: 2013.]

We also sell direct to certain national and regional account [removed: customers] [added: customers, as well as to individual consumers,] that are the end users of our products.

We believe our distribution network is a competitive advantage that has strengthened over the last decade as a result of [removed: adding and] [added: adding,] expanding [added: and developing] the various distribution channels through which we sell our products.

Our network is well balanced with no customer providing more than [removed: 8%] [added: 7%] of our sales in [removed: 2014.][added: 2015.]

Our industrial network consists of a combination of primary distributors as well as a support network of dealers serving the [removed: U.S.] [added: United States] and Canada.

This network primarily sells our residential standby, portable and light-commercial [removed: generators] [added: generators,] as well as our [removed: power washers.][added: other engine powered tools.]

Our wholesaler network distributes our residential and light-commercial [removed: generators] [added: generators,] and consists of selling branches of both national and local distribution houses for electrical and HVAC products.

[removed: _Growing] [added: _Growing] the residential standby generator [removed: market._] [added: market._] As the leader in the home standby generator [removed: category,] [added: market,] it is incumbent upon us to continue to drive growth and increase the penetration rate of these products in households across the United States and Canada.

With only approximately 3.5% penetration of the addressable market of [removed: U.S.] homes [added: in the United States] (which we define as single-family detached, owner-occupied households with a home value of over $100,000, as defined by the U.S. Census Bureau's 2013 American Housing Survey for the United States), we believe there are opportunities to further penetrate the residential standby generator market.

Much of this diversification has been achieved with our strategic [removed: acquisitions over the last four years.][added: acquisitions, which gave access to several new products, markets and customers.]

As a result of these acquisitions, we now have access to a [removed: broader] [added: broad] lineup of mobile power [removed: products and] [added: products,] higher-output [removed: generators,] [added: generators and other engine powered tools,] including products that serve the oil & gas and other infrastructure power markets.

We are now a more balanced company relative to our residential product sales as compared to only [removed: four] [added: five] years ago, as revenues for our C&I products have expanded from 31.0% of total net sales in 2010 to [removed: 44.6%] [added: 41.6%] in [removed: 2014.][added: 2015.]

We also have a leading market position for portable generators used in residential, light construction and recreational applications.

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| | ● | In 2005, we introduced our quiet-running QT Series generators, accelerating our penetration in the commercial market. |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

We design and manufacture stationary, portable and mobile generators with single-engine outputs ranging between 800W and 3,250kW.

In 2015, we introduced a new inverter generator called the iQ2000, which includes state-of-the-art sound mitigation technology coupled with advanced electronics that greatly reduces noise while also improving fuel consumption and ease of operation.

The acquisition of Country Home Products (CHP) in August 2015 provides a broad product line of chore-related specialty outdoor power equipment that includes trimmer & brush mowers, log splitters, lawn & leaf vacuums, and chipper shredders for the property maintenance needs of larger-acreage residences, light commercial properties, municipalities and farms.

These products are largely sold in North America through catalogs and outdoor power equipment dealers primarily under the DR® brand name.

We introduced several new C&I products during 2015, including a number of stationary and mobile natural gas generators that further expand our broad natural gas product range.

We began shipping our new 400 kilowatt power node earlier in the year at an industry leading price point, and toward the end of the year we announced a new 500 kilowatt natural gas generator, the largest gas unit in our industrial generator line.

Both of these units are ideal for large standby power applications such as office buildings, mission-critical data centers and healthcare facilities.

Recently, we also introduced the new MGG450 mobile generator that operates on natural gas, wellhead gas or liquid propane, and offers superior power density making it ideal for powering large equipment under continuous operation in remote field locations.

Additionally, a portion of our portable generators and other engine powered tools are sold direct to individual consumers, who are the end users of the product.

We have been executing on our “Powering Ahead” strategic plan, which serves as the framework for the significant investments we have made to capitalize on the long-term growth prospects of Generac.

We intend to continue to supplement these key growth drivers by focusing on a variety of strategic initiatives targeted toward generating more sales leads, improving close rates and reducing the total overall cost of a home standby system.

Key to this objective are efforts to leverage our expanding platform of diesel and natural gas offerings by better optimizing our industrial distribution partners’ capabilities to market, sell and support these products.

Specifically, we continue to pursue certain initiatives to expand our distributors interactions with engineering firms and electrical contractors responsible for specifying and selecting our products within C&I power generation applications.

We are also committed to a number of initiatives to improve the overall specification rates for our products which should increase quoting activity and close rates for our industrial distributors.

_Residential products_ – Kohler, Briggs & Stratton, Cummins, Honda, Champion, Techtronics International, FNA Group, Mi-T-M, Karcher, Swisher, MTD, Husqvarna, Ariens and Ardisam, along with a number of smaller domestic and foreign competitors; certain of which also have broad operations in other manufacturing businesses.

Executive Officers

| Patrick Forsythe | | 48 | | Executive Vice President, Global Engineering |

Patrick Forsythe has served as our Executive Vice President of Global Engineering since July 2015.

Prior to re-joining Generac, Mr. Forsythe was Vice President, Global Engineering & Technology of Hayward Industries from 2008 to 2015, Vice President, Global Engineering at Ingersoll Rand Company (and the acquired Doosan Infracore International) from 2004 to 2008, and Director of Engineering at Ingersoll Rand Company from 2002 to 2004.

Prior to 2002, Mr. Forsythe worked in various engineering management capacities with Generac from 1995 to 2002.

Mr. Forsythe holds a Higher National Diploma (HND) in Mechanical Engineering from the University of Ulster (United Kingdom), a B.S. in Mechanical Engineering, and an M.S. in Manufacturing Management & Technology from The Open University (United Kingdom).

Generac Holdings Inc. (the Company) is a Delaware corporation whose principal operating subsidiary is Generac Power Systems, Inc., (collectively Generac).

Today, we design and manufacture a full line of power generation equipment and other engine powered products for a wide variety of applications and markets.

We have demonstrated a long track record of achieving significant revenue growth through product innovation, expanded distribution and increased awareness of our products.

Our success is built on engineering expertise, manufacturing & sourcing excellence and our innovative approaches to the market.

In 2014, we introduced a new 22kW air-cooled engine standby generator which provides the highest output for an air-cooled generator currently available in the marketplace.

Another new product introduction during 2014 was the Guardian Synergy, the industry’s first variable-speed residential standby generator and is a best-in-class, much quieter, more fuel-efficient generator with exceptionally clean power output.

Also during 2014, we launched the industry’s most cost-effective automatic home standby generator called the PowerPact, which combines all the benefits of automatic operation with many of the features found in Generac’s market-leading Guardian series, with the 7kW unit starting at an affordable $1,899 at retail.

The acquisition of Baldor Generators in November 2013 enabled us to offer single-engine industrial generators larger than 600kW within the U.S. and Canada.

The Baldor Generators product offering includes stationary and containerized packages up to 2,500kW that can be used in standby applications and in certain configurations in prime or continuous-duty power applications.

The addition of these products significantly expanded our industrial product offering and the addressable domestic market that our distribution partners can serve.

We introduced several new commercial and industrial products in 2014.

We further expanded our broad line up of natural gas generators with the introduction of a new 400kW power node at an industry leading price point.

In addition to new stationary products, we also introduced a new vertical-mast light tower called the MLT6S, which provides the most compact footprint in the industry, improved ease of use, transportation, run time and serviceability.

We believe our growth over the last several years is due in part to the development and execution of our "Powering Ahead” strategy.

Since shortly after our initial public offering in 2010, this strategic plan has served as the framework for the significant investments we have made to drive the growth of Generac.

We intend to continue to supplement these key growth drivers by further optimizing our innovative sales and marketing techniques introduced in recent years to further extend the awareness of home standby generators.

Key to this objective are our efforts to develop and improve our industrial distribution, further increase our addressable market with new products and increase the rate at which our products are specified in C&I power generation applications.

We also believe there is an opportunity to provide smaller, more cost effective generators marketed aggressively towards the underpenetrated “optional” standby generator market which includes smaller footprint commercial buildings.

We now have access to several new products, new markets and new customers through the purchase of Magnum in October 2011, Ottomotores in December 2012, Tower Light in August 2013, Baldor Generators in November 2013 and MAC in October 2014.

Additionally, our re-entry into the market for power washers in 2011 allowed us to further diversify our company with the addition of this platform.

Our commitment to research and development has resulted in a portfolio of over 170 U.S. and international patents and patent applications.

Newly issued U.S. patents generally have a life of 20 years from the date the patent application is initially filed.

U.S. and international trademark registrations generally have a perpetual duration if they are properly maintained and renewed.

_Residential standby generators_ _-_ Kohler, Briggs & Stratton and Cummins, each of which also have broad operations in other manufacturing businesses.

_Portable generators_ - Honda, Briggs & Stratton, Champion and Techtronics International (TTI), along with a number of smaller domestic and foreign competitors.

_Power washers_ - Briggs & Stratton, TTI, FNA Group, Mi-T-M and Karcher.

_Mobile generators_ - Doosan, Wacker and MultiQuip

_Light towers_ - Terex, Briggs & Stratton (Allmand), Wacker and Atlas Copco

_Mobile_ _h__eaters_ - Wacker, Briggs & Stratton (Allmand), Flagro and Frost Fighter

New regulations could require us to redesign our products and could affect market growth for our products.

Executive Officers

| Terrence J. Dolan | | 49 | | Executive Vice President, Mobile Products |

Terrence J.

Dolan began serving as our Executive Vice President, Mobile Products in September 2014.

Prior to this appointment he served as SVP Sales from January 2010 to October 2011, EVP Industrial Products from October 2011 to December 2013 and Executive Vice President, Global Commercial & Industrial Products from January to May 2014.

Prior to joining Generac, Mr. Dolan was Senior Vice President of Business Development and Marketing at Boart Longyear from 2007 to 2008, Vice President of Sales and Marketing at Ingersoll Rand from 2002 to 2007, and Director of Strategic Accounts at Case Corporation from 1991 to 2001.

Mr. Dolan holds a B.A. in Management and Communications from Concordia University.

As of December 31, [removed: 2014,] [added: 2015,] we believe that there is no litigation pending that would have a material effect on our results of operations or financial condition.

10-K 1 [removed: gnrc20141231_10k.htm] [added: gnrc20151231_10k.htm] FORM 10-K [Table Of Contents](#TOC)

| For the fiscal year ended December 31, [removed: 2014] [added: 2015] Or | |

| S45 W29290 [removed: Hwy.] [added: Hwy] 59, Waukesha, WI (Address of principal executive offices) | 53189 (Zip Code) |

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, [removed: 2014,] [added: 2015,] the last business day of the registrant’s most recently completed second fiscal quarter, was approximately [removed: $3,302,158,395] [added: $2,707,473,704] based upon the closing price reported for such date on the New York Stock Exchange.

As of February [removed: 20, 2015, 69,093,775] [added: 19, 2016, 66,366,949] shares of registrant's common stock were outstanding.

Portions of the registrant’s Annual Report to [removed: Shareholders] [added: Stockholders] for the year ended December 31, [removed: 2014] [added: 2015] furnished to the Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K.

Portions of the registrant’s Proxy Statement for the [removed: 2015] [added: 2016] Annual Meeting of Stockholders (the [removed: “2015] [added: “2016] Proxy Statement”), which will be filed by the registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, [removed: 2014,] [added: 2015,] are incorporated by reference into Part III of this Form 10-K.

[removed: 2014] [added: 2015] FORM 10-K ANNUAL REPORT

[removed: TABLE OF] [added: TABLE OF] CONTENTS

| Item 1. | [removed: [Business](#BKMK340)] [added: [Business](#BKMK6138)] | 1 |

| Item 1A. | [Risk [removed: Factors](#BKMK341)] [added: Factors](#BKMK6139)] | 9 |

| Item 1B. | [Unresolved Staff [removed: Comments](#BKMK342)] [added: Comments](#BKMK6140)] | 16 |

| Item 2. | [removed: [Properties](#BKMK343)] [added: [Properties](#BKMK6141)] | 16 |

| Item 3. | [Legal [removed: Proceedings](#BKMK344)] [added: Proceedings](#BKMK6142)] | 17 |

| Item 4. | [Mine Safety [removed: Disclosures](#BKMK345)] [added: Disclosures](#BKMK6143)] | 17 |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#BKMK346)] [added: Securities](#BKMK6144)] | 17 |

| Item 6. | [Selected Financial [removed: Data](#BKMK347)] [added: Data](#BKMK6145)] | 19 |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#BKMK348)] [added: Operations](#BKMK6146)] | 24 |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#BKMK349)] [added: Risk](#BKMK6147)] | 36 |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#BKMK350)] [added: Data](#BKMK6148)] | [removed: 39] [added: 38] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#BKMK351)] [added: Disclosure](#BKMK6149)] | [removed: 69] [added: 66] |

| Item 9A. | [Controls and [removed: Procedures](#BKMK352)] [added: Procedures](#BKMK6150)] | [removed: 69] [added: 66] |

| Item 9B. | [Other [removed: Information](#BKMK353)] [added: Information](#BKMK6152)] | [removed: 70] [added: 67] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#BKMK354)] [added: Governance](#BKMK6153)] | [removed: 70] [added: 67] |

| Item 11. | [Executive [removed: Compensation](#BKMK355)] [added: Compensation](#BKMK6154)] | [removed: 70] [added: 67] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#BKMK356)] [added: Matters](#BKMK6155)] | [removed: 70] [added: 67] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#BKMK357)] [added: Independence](#BKMK6156)] | [removed: 70] [added: 67] |

| Item 14. | [Principal Accountant Fees and [removed: Services](#BKMK358)] [added: Services](#BKMK6157)] | [removed: 70] [added: 67] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#BKMK359)] [added: Schedules](#BKMK6158)] | [removed: 71] [added: 68] |

| | ● | [added: frequency and duration of power outages impacting] demand for our products; |

| | ● | increase in product and other liability [removed: claims;] [added: claims or recalls;] and |

Stockholders, potential investors and other readers should consider these factors carefully in evaluating the forward-looking statements.

| | |

| | |

| | |

| | |

| --- | --- | --- |

| | ● | frequency and duration of power outages; |

We own, operate or lease manufacturing and distribution facilities located principally in the United States, Mexico, [removed: Italy and] [added: Italy,] Brazil [added: and the United Kingdom] totaling over [removed: 3.5] [added: three] million square feet.

| Location | | Owned/ Leased | | [removed: Square Footage |] [added: Square Footage] | | Activities |

| Waukesha, WI | | Owned | | 307,000 | | [removed: |] Corporate headquarters, manufacturing, storage, research and development, service parts distribution |

| Eagle, WI | | Owned | | 242,000 | | [removed: |] Manufacturing, office, training |

| Whitewater, WI | | Owned | | 491,000 | | [removed: |] Manufacturing, office, distribution |

| Oshkosh, WI | | Owned | | [removed: 255,000 |] [added: 240,000] | | Manufacturing, storage, research and development |

| Berlin, WI | | Owned | | 129,000 | | [removed: |] Manufacturing, office |

| Berlin, WI | | Leased | | 192,500 | | [removed: | Storage] [added: Manufacturing, storage, research and development] |

| [removed: Fort Atkinson,] [added: Edgerton,] WI | | Leased | | [removed: 85,000 |] [added: 235,000] | | Storage |

| [removed: Edgerton,] [added: Jefferson,] WI | | Leased | | [removed: 235,000 |] [added: 589,000] | | Storage |

| Jefferson, WI | | Owned | | 253,000 | | [removed: |] Manufacturing, distribution |

| Maquoketa, IA | | Owned | | 137,000 | | [removed: |] Storage, rental property |

| Bismarck, ND | | Owned | | 50,000 | | [removed: |] Manufacturing and office |

| [removed: Marietta, GA] [added: Mexico City, Mexico] | | Leased | | [removed: 49,000 |] [added: 71,000] | | Office, [removed: distribution] [added: storage] and warehouse |

| [removed: Kearney, NE] [added: Curitiba, Brazil] | | Leased | | [removed: 160,000 |] [added: 24,000] | | Manufacturing, [removed: office,] [added: sales,] distribution, [removed: warehouse] [added: storage, office] |

| Mexico City, Mexico | | Owned | | 180,000 | | [removed: |] Manufacturing, sales, distribution, storage, office |

| [removed: Curitiba, Brazil] [added: Milan, Italy] | | Leased | | [removed: 26,000 |] [added: 91,000] | | Manufacturing, sales, distribution, storage, office |

| [removed: Milan, Italy] [added: Milton Keynes, England] | | Leased | | [removed: 91,000 |] [added: 9,000] | | [removed: Manufacturing, sales,] [added: Sales,] distribution, storage, office |

As of December 31, [removed: 2014,] [added: 2015,] substantially all of our owned properties are subject to collateral provisions under our senior secured credit facilities.

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| Vergennes, VT | | Leased | | 66,000 | | Office |

| Winooski, VT | | Leased | | 104,000 | | Manufacturing |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | |

| Jefferson, WI | | Leased | | 556,000 | | | Storage |

| Glenburn, ND | | Owned | | 20,000 | | | Manufacturing and office |

| Mexico City, Mexico | | Leased | | 71,000 | | | Storage and warehouse |

| Milton Keynes, England | | Leased | | 9,000 | | | Sales, distribution, storage, office |

Shares of our common stock are traded on the New York Stock Exchange (NYSE) under the symbol “GNRC.” The following table sets forth the high and low sales prices reported on the NYSE for our common stock by fiscal quarter during [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] respectively.

| [removed: 2014 |] [added: 2015] | High | [removed: | | |] Low | [removed: | |]

| [removed: 2013 |] [added: 2014] | High | [removed: | | |] Low | [removed: | |]

The following table summarizes the stock repurchase activity for the three months ended December 31, [removed: 2014,] [added: 2015,] which consisted of the withholding of shares upon the vesting of restricted stock awards to pay withholding [removed: taxes:][added: taxes on behalf of the recipient and shares repurchased under the Company’s $200.0 million stock repurchase program:]

| | | [removed: | |] Total Number of [removed: Shares Purchased] [added: Shares Purchased] | | | | Average Price Paid per Share | | | [added: |] Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs | [added: | | |] Approximate [removed: Dollar Value] [added: Dollar Value] Of Shares That May Yet [removed: Be Purchased Under The] [added: Be Purchased Under The] Plans Or Programs | [added: | |]

For equity compensation plan information, please refer to Note 15, “Share Plans,” to the consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K.

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard & Poor’s S&P 500 Index, the S&P 500 Industrials Index and the Russell 2000 Index for the [removed: approximate] five-year period ended December 31, [removed: 2014.][added: 2015.]

The graph and table assume that $100 was invested on [removed: February 11,] [added: December 31,] 2010 [removed: (first day of trading)] in each of our common stock, the S&P 500 Index, the S&P 500 Industrials [removed: Index,] [added: Index and] the Russell 2000 Index, and that all dividends were reinvested.

[removed: ][added: ]

| Company / Market / Peer Group | | [removed: 2/11/2010 | | | |] 12/31/2010 | | | | 12/31/2011 | | | | 12/31/2012 | | | | 12/31/2013 | | | | 12/31/2014 | | | [added: | 12/31/2015 | | |]

As of February [removed: 20, 2015,] [added: 19, 2016,] there were approximately [removed: 169] [added: 222] registered holders of record of Generac’s common stock.

A substantially greater number of holders of Generac common stock are “street name” or beneficial holders, whose shares are held of record by banks, [removed: brokers,] [added: brokers] and other financial institutions.

On June 21, 2013, the Company used a portion of the proceeds from the May 31, 2013 debt refinancing (see Note [removed: 11,] [added: 10,] “Credit Agreements,” to the consolidated financial statements [removed: included] in Item 8 of this Annual Report on Form 10-K) to pay a special cash dividend of $5.00 per share on its common stock, resulting in payments totaling $340.8 million to [removed: stockholders.][added: stockholders on that date.]

However, in the future, subject to factors such as general economic and business conditions, our financial condition and results of operations, our capital requirements, our future liquidity and [removed: capitalization] [added: capitalization,] and [removed: such] other [added: such] factors that our board of directors may deem relevant, we may change this policy and choose to pay dividends.

Dividends from, and cash generated by our subsidiaries will be our principal sources of cash to repay indebtedness, fund [removed: operations] [added: operations, repurchase shares of common stock] and pay dividends.

| --- | --- | --- |

| Fourth Quarter | $32.53 | $26.88 |

| Third Quarter | $39.78 | $27.16 |

| Second Quarter | $49.35 | $39.62 |

| First Quarter | $50.41 | $43.74 |

| --- | --- | --- |

| Fourth Quarter | $48.00 | $38.85 |

| Third Quarter | $48.02 | $40.54 |

| Second Quarter | $60.36 | $46.27 |

| First Quarter | $61.17 | $45.72 |

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | |

| 10/01/15 - 10/31/15 | | | 112 | | | $ | 31.57 | | | | \- | | | | 135,621,708 | |

| 11/01/15 - 11/30/15 | | | 681,148 | | | | 30.65 | | | | 680,000 | | | | 114,781,696 | |

| 12/01/15 - 12/31/15 | | | 473,500 | | | | 31.10 | | | | 473,500 | | | | 100,057,756 | |

| Total | | | 1,154,760 | | | $ | 30.83 | | | | | | | | | |

| Generac Holdings Inc. | | $ | 100.00 | | | $ | 173.35 | | | $ | 273.48 | | | $ | 513.40 | | | $ | 423.84 | | | $ | 269.84 | |

| S&P 500 Index - Total Returns | | | 100.00 | | | | 102.11 | | | | 118.45 | | | | 156.82 | | | | 178.28 | | | | 180.75 | |

| S&P 500 Industrials Index | | | 100.00 | | | | 99.41 | | | | 114.67 | | | | 161.31 | | | | 177.16 | | | | 172.67 | |

| Russell 2000 Index | | | 100.00 | | | | 95.82 | | | | 111.49 | | | | 154.78 | | | | 162.35 | | | | 155.18 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Fourth Quarter | | $ | 48.00 | | | $ | 38.85 | |

| Third Quarter | | $ | 48.02 | | | $ | 40.54 | |

| Second Quarter | | $ | 60.36 | | | $ | 46.27 | |

| First Quarter | | $ | 61.17 | | | $ | 45.72 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Fourth Quarter | | $ | 57.05 | | | $ | 39.01 | |

| Third Quarter | | $ | 44.30 | | | $ | 37.11 | |

| Second Quarter | | $ | 41.48 | | | $ | 32.41 | |

| First Quarter | | $ | 41.40 | | | $ | 32.72 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | |

| 10/01/14 | \- | 10/31/14 | | | 615 | | | $ | 44.25 | | N/A | N/A |

| 11/01/14 | \- | 11/30/14 | | | 6,185 | | | $ | 41.52 | | N/A | N/A |

| 12/01/14 | \- | 12/31/14 | | | 122 | | | $ | 41.93 | | N/A | N/A |

| Total | | | | | 6,922 | | | $ | 41.77 | | | |

| Generac Holdings Inc. | | $ | 100.00 | | | $ | 125.93 | | | $ | 218.30 | | | $ | 344.40 | | | $ | 646.54 | | | $ | 533.76 | |

| S&P 500 Index - Total Returns | | | 100.00 | | | | 118.71 | | | | 121.22 | | | | 140.62 | | | | 186.16 | | | | 211.65 | |

| S&P 500 Industrials Index | | | 100.00 | | | | 126.65 | | | | 125.90 | | | | 145.23 | | | | 204.30 | | | | 224.38 | |

| Russell 2000 Index | | | 100.00 | | | | 130.86 | | | | 125.40 | | | | 145.94 | | | | 202.61 | | | | 212.53 | |

On June 29, 2012, the Company used a portion of the proceeds from the May 30, 2012 debt refinancing (see Note 11, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K) together with cash on its balance sheet to pay a special cash dividend of $6.00 per share on its common stock, resulting in payments totaling $404.3 million to stockholders.

The selected historical consolidated financial data for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012] [added: 2013] are derived from our audited consolidated financial statements included elsewhere in this annual report.

The selected historical consolidated financial data for the years ended December 31, [removed: 2011] [added: 2012] and [removed: 2010] [added: 2011] is derived from our audited historical consolidated financial statements not included in this annual report.

This information should be read together with “Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto [removed: included] in Item 8 of this Annual Report on Form 10-K.

| [removed: (Dollars] [added: (U.S. Dollars] in thousands, except per share data) | | [removed: Year Ended December 31, 2014] [added: 2015] | | | | [removed: Year Ended December 31, 2013] [added: 2014] | | | | [removed: Year Ended December 31, 2012] [added: 2013] | | | | [removed: Year Ended December 31, 2011] [added: 2012] | | | | [removed: Year Ended December 31, 2010] [added: 2011] | | |

| Net sales | | $ | [removed: 1,460,919] [added: 1,317,299] | | | $ | [removed: 1,485,765] [added: 1,460,919] | | | $ | [removed: 1,176,306] [added: 1,485,765] | | | $ | [removed: 791,976] [added: 1,176,306] | | | $ | [removed: 592,880] [added: 791,976] | |

| Costs of goods sold | | | [removed: 944,700] [added: 857,349] | | | | [removed: 916,205] [added: 944,700] | | | | [removed: 735,906] [added: 916,205] | | | | [removed: 497,322] [added: 735,906] | | | | [removed: 355,523] [added: 497,322] | |

| Gross profit | | | [removed: 516,219] [added: 459,950] | | | | [removed: 569,560] [added: 516,219] | | | | [removed: 440,400] [added: 569,560] | | | | [removed: 294,654] [added: 440,400] | | | | [removed: 237,357] [added: 294,654] | |

| Selling and service | | | [removed: 120,408] [added: 130,242] | | | | [removed: 107,515] [added: 120,408] | | | | [removed: 101,448] [added: 107,515] | | | | [removed: 77,776] [added: 101,448] | | | | [removed: 57,954] [added: 77,776] | |

| Research and development | | | [removed: 31,494] [added: 32,922] | | | | [removed: 29,271] [added: 31,494] | | | | [removed: 23,499] [added: 29,271] | | | | [removed: 16,476] [added: 23,499] | | | | [removed: 14,700] [added: 16,476] | |

| General and administrative | | | [removed: 54,795] [added: 52,947] | | | | [removed: 55,490] [added: 54,795] | | | | [removed: 46,031] [added: 55,490] | | | | [removed: 30,012] [added: 46,031] | | | | [removed: 22,599] [added: 30,012] | |

| Amortization of intangibles (1) | | | [removed: 21,024] [added: 23,591] | | | | [removed: 25,819] [added: 21,024] | | | | [removed: 45,867] [added: 25,819] | | | | [removed: 48,020] [added: 45,867] | | | | [removed: 51,808] [added: 48,020] | |

| Gain on remeasurement of contingent consideration (3) | | | [removed: (4,877] [added: \-] | [removed: )] | | | [removed: \-] [added: (4,877] | [added: )] | | | \- | | | | \- | | | | \- | |

| Total operating expenses | | | [removed: 222,844] [added: 280,389] | | | | [removed: 218,095] [added: 222,844] | | | | [removed: 216,845] [added: 218,095] | | | | [removed: 181,673] [added: 216,845] | | | | [removed: 147,061] [added: 181,673] | |

| Income from operations | | | [removed: 293,375] [added: 179,561] | | | | [removed: 351,465] [added: 293,375] | | | | [removed: 223,555] [added: 351,465] | | | | [removed: 112,981] [added: 223,555] | | | | [removed: 90,296] [added: 112,981] | |

| Interest expense | | | [removed: (47,215] [added: (42,843] | ) | | | [removed: (54,435] [added: (47,215] | ) | | | [removed: (49,114] [added: (54,435] | ) | | | [removed: (23,718] [added: (49,114] | ) | | | [removed: (27,397] [added: (23,718] | ) |

| Investment income | | | [removed: 130] [added: 123] | | | | [removed: 91] [added: 130] | | | | [removed: 79] [added: 91] | | | | [removed: 110] [added: 79] | | | | [removed: 235] [added: 110] | |

| Loss on extinguishment of debt (4) | | | [removed: (2,084] [added: (4,795] | ) | | | [removed: (15,336] [added: (2,084] | ) | | | [removed: (14,308] [added: (15,336] | ) | | | [removed: (377] [added: (14,308] | ) | | | [removed: (4,809] [added: (377] | ) |

| Gain [added: (loss)] on change in contractual interest rate [removed: (4)] [added: (5)] | | | [removed: 16,014] [added: (2,381] | [added: )] | | | [removed: \-] [added: 16,014] | | | | \- | | | | \- | | | | \- | |

| Costs related to [removed: acquisition] [added: acquisitions] | | | [removed: (396] [added: (1,195] | ) | | | [removed: (1,086] [added: (396] | ) | | | [removed: (1,062] [added: (1,086] | ) | | | [removed: (875] [added: (1,062] | ) | | | [removed: \-] [added: (875] | [added: )] |

| Other, net | | | [removed: (1,462] [added: (5,487] | ) | | | [removed: (1,983] [added: (1,462] | ) | | | [removed: (2,798] [added: (1,983] | ) | | | [removed: (1,155] [added: (2,798] | ) | | | [removed: (1,105] [added: (1,155] | ) |

| Total other expense, net | | | [removed: (35,013] [added: (56,578] | ) | | | [removed: (72,749] [added: (35,013] | ) | | | [removed: (67,203] [added: (72,749] | ) | | | [removed: (26,015] [added: (67,203] | ) | | | [removed: (33,076] [added: (26,015] | ) |

| Income before provision for income taxes | | | [removed: 258,362] [added: 122,983] | | | | [removed: 278,716] [added: 258,362] | | | | [removed: 156,352] [added: 278,716] | | | | [removed: 86,966] [added: 156,352] | | | | [removed: 57,220] [added: 86,966] | |

| Provision (benefit) for income taxes [removed: (5)] [added: (6)] | | | [added: 45,236 | | | |] 83,749 | | | | 104,177 | | | | 63,129 | | | | (237,677 | ) | [removed: | | 307 | |]

| Net income | | $ | [removed: 174,613] [added: 77,747] | | | $ | [removed: 174,539] [added: 174,613] | | | $ | [removed: 93,223] [added: 174,539] | | | $ | [removed: 324,643] [added: 93,223] | | | $ | [removed: 56,913] [added: 324,643] | |

| Income [removed: (loss)] per share - diluted: | | | | | | | | | | | | | | | | | | | | |

| Common Stock [removed: (formerly Class A non-voting common stock) (6)] | | $ | [removed: 2.49] [added: 1.12] | | | $ | [removed: 2.51] [added: 2.49] | | | $ | [removed: 1.35] [added: 2.51] | | | $ | [removed: 4.79] [added: 1.35] | | | $ | [removed: (1.65] [added: 4.79] | [removed: )] |

| Depreciation | | $ | [removed: 13,706] [added: 16,742] | | | $ | [removed: 10,955] [added: 13,706] | | | $ | [removed: 8,293] [added: 10,955] | | | $ | [removed: 8,103] [added: 8,293] | | | $ | [removed: 7,632] [added: 8,103] | |

| Amortization of intangible assets | | | [removed: 21,024] [added: 23,591] | | | | [removed: 25,819] [added: 21,024] | | | | [removed: 45,867] [added: 25,819] | | | | [removed: 48,020] [added: 45,867] | | | | [removed: 51,808] [added: 48,020] | |

| Expenditures for property and equipment | | | [removed: (34,689] [added: (30,651] | ) | | | [removed: (30,770] [added: (34,689] | ) | | | [removed: (22,392] [added: (30,770] | ) | | | [removed: (12,060] [added: (22,392] | ) | | | [removed: (9,631] [added: (12,060] | ) |

| Adjusted EBITDA (7) | | $ | [removed: 337,283] [added: 270,816] | | | $ | [removed: 402,613] [added: 337,283] | | | $ | [removed: 289,809] [added: 402,613] | | | $ | [removed: 188,476] [added: 289,809] | | | $ | [removed: 156,249] [added: 188,476] | |

| Adjusted Net Income (8) | | | [removed: 234,165] [added: 198,436] | | | | [removed: 301,664] [added: 234,165] | | | | [removed: 220,792] [added: 301,664] | | | | [removed: 147,176] [added: 220,792] | | | | [removed: 115,954] [added: 147,176] | |

| [removed: (Dollars] [added: (U.S. Dollars] in thousands) | | As of [removed: December 31, 2014] [added: December 31, 2015] | | | | As of [removed: December 31, 2013] [added: December 31, 2014] | | | | As of [removed: December 31, 2012] [added: December 31, 2013] | | | | As of [removed: December 31, 2011] [added: December 31, 2012] | | | | As of [removed: December 31, 2010] [added: December 31, 2011] | | |

| Current assets | | $ | [removed: 730,478] [added: 661,372] | | | $ | [removed: 654,179] [added: 730,478] | | | $ | [removed: 522,553] [added: 654,179] | | | $ | [removed: 383,265] [added: 522,553] | | | $ | [removed: 272,519] [added: 383,265] | |

| Property, plant and equipment, net | | | [removed: 168,821] [added: 184,213] | | | | [removed: 146,390] [added: 168,821] | | | | [removed: 104,718] [added: 146,390] | | | | [removed: 84,384] [added: 104,718] | | | | [removed: 75,287] [added: 84,384] | |

| Goodwill | | | [removed: 635,565] [added: 669,719] | | | | [removed: 608,287] [added: 635,565] | | | | [removed: 552,943] [added: 608,287] | | | | [removed: 547,473] [added: 552,943] | | | | [removed: 527,148] [added: 547,473] | |

| Other intangibles and other assets | | | [removed: 347,678] [added: 277,512] | | | | [removed: 389,349] [added: 347,678] | | | | [removed: 423,633] [added: 389,349] | | | | [removed: 537,671] [added: 423,633] | | | | [removed: 334,929] [added: 537,671] | |

| Total assets | | $ | [removed: 1,882,542] [added: 1,792,816] | | | $ | [removed: 1,798,205] [added: 1,882,542] | | | $ | [removed: 1,603,847] [added: 1,798,205] | | | $ | [removed: 1,552,793] [added: 1,603,847] | | | $ | [removed: 1,209,883] [added: 1,552,793] | |

| Total current liabilities | | $ | [removed: 240,522] [added: 213,224] | | | $ | [removed: 250,845] [added: 240,522] | | | $ | [removed: 294,859] [added: 250,845] | | | $ | [removed: 165,390] [added: 294,859] | | | $ | [removed: 86,685] [added: 165,390] | |

| Long-term borrowings, less current portion | | | [removed: 1,082,101] [added: 1,050,097] | | | | [removed: 1,175,349] [added: 1,082,101] | | | | [removed: 799,018] [added: 1,175,349] | | | | [removed: 575,000] [added: 799,018] | | | | [removed: 657,229] [added: 575,000] | |

| Other long-term liabilities | | | [removed: 70,120] [added: 63,624] | | | | [removed: 54,940] [added: 70,120] | | | | [removed: 46,342] [added: 54,940] | | | | [removed: 43,514] [added: 46,342] | | | | [removed: 24,902] [added: 43,514] | |

| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| Tradename and goodwill impairment (2) | | | 40,687 | | | | \- | | | | \- | | | | \- | | | | 9,389 | |

(2) During the fourth quarter of 2015, our Board of Directors approved a plan to strategically transition and consolidate certain of our brands acquired through acquisitions over the past several years to the Generac® tradename.

This brand strategy change resulted in a reclassification to a two year remaining useful life for the impacted tradenames and a $36.1 million non-cash charge to write-down to net realizable value.

Additionally, during the fourth quarter of 2015, a $4.6 million goodwill impairment charge was recorded related to the write-down of the Ottomotores reporting unit goodwill.

During the fourth quarter of 2011, we decided to strategically transition certain products to the Generac® tradename, which resulted in a $9.4 million non-cash charge which primarily related to the write-down of the impacted tradename to net realizable value.

Refer to Note 2, “Significant Accounting Policies – Goodwill and Other Indefinite-Lived Intangible Assets,” and Note 8, “Goodwill and Intangible Assets,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the 2015 impairment charges.

(4) For the years ended December 31, 2015, 2014 and 2013, represents the non-cash write-off of original issue discount and capitalized debt issuances costs due to voluntary debt prepayments.

Additionally, for the year ended December 31, 2013, represents the loss on extinguishment of debt as a result of the refinancing transaction in May 2013.

For the year ended December 31, 2012, represents the loss on extinguishment of debt as a result of the refinancing transactions in February and May 2012.

For the year ended December 31, 2011, represents the non-cash write-off of capitalized debt issuance costs due to voluntary debt prepayments.

Refer to Note 10, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the losses on extinguishment of debt.

(5) For the year ended December 31, 2015, represents a non-cash loss relating to a 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio rising above 3.0 times at June 30, 2015.

For the year ended December 31, 2014, represents a non-cash gain relating to a 25 basis point reduction in borrowing costs as a result of the credit agreement leverage ratio falling below 3.0 times at March 31, 2014.

| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| Tradename and goodwill impairment (c) | | | 40,687 | | | | \- | | | | \- | | | | \- | | | | 9,389 | |

| Business optimization expenses (g) | | | 1,947 | | | | \- | | | | \- | | | | \- | | | | \- | |

(a) Represents losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts, and certain foreign currency and purchase accounting related adjustments.

| | ● | The purchase accounting adjustments represent non-cash items to reflect fair value at the date of acquisition, and therefore do not reflect our ongoing operations; and |

(c) During the fourth quarter of 2015, our Board of Directors approved a plan to strategically transition and consolidate certain of our brands acquired through acquisitions over the past several years to the Generac® tradename.

This brand strategy change resulted in a reclassification to a two year remaining useful life for the impacted tradenames and a $36.1 million non-cash charge to write-down to net realizable value.

Additionally, for the year ended December 31, 2015, represents a $4.6 million goodwill impairment charge related to the write-down of the Ottomotores reporting unit goodwill.

Refer to Note 2, “Significant Accounting Policies – Goodwill and Other Indefinite-Lived Intangible Assets,” and Note 8, “Goodwill and Intangible Assets,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the 2015 impairment charges.

(d) For the years ended December 31, 2015, 2014 and 2013, represents the non-cash write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayments.

Additionally, for the year ended December 31, 2013, represents the loss on extinguishment of debt as a result of the refinancing transaction in May 2013.

For the year ended December 31, 2012, represents the loss on extinguishment of debt as a result of the refinancing transactions in February and May 2012.

For the year ended December 31, 2011, represents the non-cash write-off of capitalized debt issuance costs due to voluntary debt prepayments.

Refer to Note 10, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the losses on extinguishment of debt.

(e) For the year ended December 31, 2015, represents a non-cash loss relating to a 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio rising above 3.0 times at June 30, 2015.

For the year ended December 31, 2014, represents a non-cash gain relating to a 25 basis point reduction in borrowing costs as a result of the credit agreement leverage ratio falling below 3.0 times at March 31, 2014.

(g) Represents severance and non-recurring restructuring charges related to the integration of acquired facilities, which represent expenses that are not from our core operations and do not reflect our ongoing operations.

| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| Tradename and goodwill impairment | | | 40,687 | | | | \- | | | | \- | | | | \- | | | | 9,389 | |

| Business optimization expenses | | | 1,947 | | | | \- | | | | \- | | | | \- | | | | \- | |

| Trade name write-down (2) | | | \- | | | | \- | | | | \- | | | | 9,389 | | | | \- | |

| Class B Common Stock (6) | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | 505.00 | |

| | | | | | | | | | | | | | | | | | | | | |

(2) During the fourth quarter of 2011, we decided to strategically transition certain products to their more widely known Generac brand.

For the years ended December 31, 2011 and 2010, represents the losses on extinguishment of debt related to the write-off of a portion of deferred financing costs related to accelerated repayments of debt.

(6) Diluted earnings per share reflects the impact of a reverse stock split which occurred immediately prior to the initial public offering (IPO).

At the time of the IPO on February 17, 2010, all shares of Class B common stock were converted into shares of Class A common stock, and the Class A common stock became the one class of outstanding common stock.

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| | ● | were eliminated following the consummation of our initial public offering. |

(a) Represents the following non-cash charges:

| | ● | for the years ended December 31, 2013 and 2012, includes loss on disposals of assets, unrealized mark-to-market adjustments on commodity contracts and adjustments to an earn-out obligation in connection with a permitted business acquisition, as defined in our credit agreement; |

| | ● | for the year ended December 31, 2011, primarily $9.4 million trade name write-down relating to the Company’s decision to strategically transition certain products to their more widely known Generac brand. Also includes loss on disposal of assets and unrealized mark-to-market adjustments on commodity contracts; |

| | ● | for the year ended December 31, 2010, primarily unrealized mark-to-market adjustments on commodity and Euro forward contracts and loss on disposal of assets; |

For the years ended December 31, 2011 and 2010, represents the losses on extinguishment of debt related to the write-off of a portion of deferred financing costs related to accelerated repayments of debt.

| | ● | pre-2011 transaction costs relating to repurchases of debt under our first and second lien credit facilities by affiliates of CCMP, who contributed the repurchased debt to our company in exchange for the issuances of securities, which repurchases we do not expect to recur; |

| Trade name write-down | | | \- | | | | \- | | | | \- | | | | 9,389 | | | | \- | |

We have audited Generac Holdings Inc.’s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the [removed: Powermate and MAC businesses,] [added: Country Home Products (CHP) business,] which [removed: are] [added: is] included in the December 31, [removed: 2014] [added: 2015] consolidated financial statements of Generac Holdings Inc., and constituted [removed: 2.2%] [added: 6.0%] and [removed: 0.1%] [added: 15.9%] of total and net assets, respectively, as of December 31, [removed: 2014] [added: 2015] and [removed: 1.6%] [added: 2.0%] and [removed: 0.4%] [added: -0.7%] of revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of Generac Holdings Inc. also did not include an evaluation of the internal control over financial reporting of [removed: Powermate and MAC.][added: CHP.]

In our opinion, Generac Holdings Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and related consolidated statements of comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2014] [added: 2015] of Generac Holdings Inc. and our report dated February [removed: 27, 2015] [added: 26, 2016] expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheets of Generac Holdings Inc. (the Company) as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2014.][added: 2015.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Generac Holdings Inc. at December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2014,] [added: 2015,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Generac Holdings Inc.’s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February [removed: 27, 2015] [added: 26, 2016] expressed an unqualified opinion thereon.

| | | [added: 2015 | | | |] 2014 | | | | 2013 | | |

| Cash and cash equivalents [added: at beginning of period] | | [removed: $] | 189,761 | | | [removed: $] | 150,147 | | [added: | | 108,023 | |]

| Accounts receivable, less allowance for doubtful accounts of [removed: $2,275] [added: $2,494] at December 31, [removed: 2014] [added: 2015] and [removed: $2,658] [added: $2,275] at December 31, [removed: 2013] [added: 2014] | | | [removed: 189,107] [added: 182,185] | | | | [removed: 164,907] [added: 189,107] | |

| Inventories | | | [removed: 319,385] [added: 325,375] | | | | [removed: 300,253] [added: 319,385] | |

| Deferred income taxes | | | [removed: 22,841] [added: 29,355] | | | | [removed: 26,869] [added: 22,841] | |

| Prepaid expenses and other assets | | | [removed: 9,384] [added: 8,600] | | | | [removed: 5,358] [added: 9,384] | |

| Total current assets | | | [removed: 730,478] [added: 661,372] | | | | [removed: 654,179] [added: 730,478] | |

| Property and equipment, net | | | [removed: 168,821] [added: 184,213] | | | | [removed: 146,390] [added: 168,821] | |

| Customer lists, net | | | [removed: 41,002] [added: 39,313] | | | | [removed: 42,764] [added: 41,002] | |

| Patents, net | | | [removed: 56,894] [added: 53,772] | | | | [removed: 62,418] [added: 56,894] | |

| Other intangible assets, net | | | [removed: 4,298] [added: 2,768] | | | | [removed: 4,447] [added: 4,298] | |

| Goodwill | | | [removed: 635,565] [added: 669,719] | | | | [removed: 608,287] [added: 635,565] | |

| Deferred financing costs, net | | | [removed: 16,243] [added: 12,965] | | | | [removed: 20,051] [added: 16,243] | |

| Deferred income taxes | | | [removed: 46,509] [added: 6,673] | | | | [removed: 85,104] [added: 46,509] | |

| Other assets | | | [removed: 48] [added: 964] | | | | [removed: 1,369] [added: 48] | |

| Total assets | | $ | [removed: 1,882,542] [added: 1,792,816] | | | $ | [removed: 1,798,205] [added: 1,882,542] | |

| Short-term borrowings | | $ | [removed: 5,359] [added: 8,594] | | | $ | [removed: 9,575] [added: 5,359] | |

| Accounts payable | | | [removed: 132,248] [added: 108,332] | | | | [removed: 109,238] [added: 132,248] | |

| Accrued wages and employee benefits | | | [removed: 17,544] [added: 13,101] | | | | [removed: 26,564] [added: 17,544] | |

| Other accrued liabilities | | | [removed: 84,814] [added: 82,540] | | | | [removed: 92,997] [added: 84,814] | |

| Current portion of long-term borrowings and capital lease obligations | | | [removed: 557] [added: 657] | | | | [removed: 12,471] [added: 557] | |

| Total current liabilities | | | [removed: 240,522] [added: 213,224] | | | | [removed: 250,845] [added: 240,522] | |

| Long-term borrowings and capital lease obligations | | | [removed: 1,082,101] [added: 1,050,097] | | | | [removed: 1,175,349] [added: 1,082,101] | |

| Other long-term liabilities | | | [removed: 70,120] [added: 57,458] | | | | [removed: 54,940] [added: 56,671] | |