Item 6. Selected Financial Data

The following table sets forth our selected historical consolidated financial data for the periods and at the dates indicated. The selected historical consolidated financial data for the years ended December 31, 2015, 2014 and 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, 2012 and 2011 is derived from our audited historical consolidated financial statements not included in this annual report.

The results indicated below and elsewhere in this annual report are not necessarily indicative of our future performance. 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 in Item 8 of this Annual Report on Form 10-K.

		Year Ended December 31,
(U.S. Dollars in thousands, except per share data)		2015				2014				2013				2012				2011
Statement of Operations Data:
Net sales		$	1,317,299			$	1,460,919			$	1,485,765			$	1,176,306			$	791,976
Costs of goods sold			857,349				944,700				916,205				735,906				497,322
Gross profit			459,950				516,219				569,560				440,400				294,654
Operating expenses:
Selling and service			130,242				120,408				107,515				101,448				77,776
Research and development			32,922				31,494				29,271				23,499				16,476
General and administrative			52,947				54,795				55,490				46,031				30,012
Amortization of intangibles (1)			23,591				21,024				25,819				45,867				48,020
Tradename and goodwill impairment (2)			40,687				-				-				-				9,389
Gain on remeasurement of contingent consideration (3)			-				(4,877	)			-				-				-
Total operating expenses			280,389				222,844				218,095				216,845				181,673
Income from operations			179,561				293,375				351,465				223,555				112,981
Other income (expense):
Interest expense			(42,843	)			(47,215	)			(54,435	)			(49,114	)			(23,718	)
Investment income			123				130				91				79				110
Loss on extinguishment of debt (4)			(4,795	)			(2,084	)			(15,336	)			(14,308	)			(377	)
Gain (loss) on change in contractual interest rate (5)			(2,381	)			16,014				-				-				-
Costs related to acquisitions			(1,195	)			(396	)			(1,086	)			(1,062	)			(875	)
Other, net			(5,487	)			(1,462	)			(1,983	)			(2,798	)			(1,155	)
Total other expense, net			(56,578	)			(35,013	)			(72,749	)			(67,203	)			(26,015	)
Income before provision for income taxes			122,983				258,362				278,716				156,352				86,966
Provision (benefit) for income taxes (6)			45,236				83,749				104,177				63,129				(237,677	)
Net income		$	77,747			$	174,613			$	174,539			$	93,223			$	324,643
Income per share - diluted:
Common Stock		$	1.12			$	2.49			$	2.51			$	1.35			$	4.79
Statement of Cash Flows data:
Depreciation		$	16,742			$	13,706			$	10,955			$	8,293			$	8,103
Amortization of intangible assets			23,591				21,024				25,819				45,867				48,020
Expenditures for property and equipment			(30,651	)			(34,689	)			(30,770	)			(22,392	)			(12,060	)
Other Financial Data:
Adjusted EBITDA (7)		$	270,816			$	337,283			$	402,613			$	289,809			$	188,476
Adjusted Net Income (8)			198,436				234,165				301,664				220,792				147,176

(U.S. Dollars in thousands)		As of December 31, 2015				As of December 31, 2014				As of December 31, 2013				As of December 31, 2012				As of December 31, 2011
Balance Sheet Data:
Current assets		$	661,372			$	730,478			$	654,179			$	522,553			$	383,265
Property, plant and equipment, net			184,213				168,821				146,390				104,718				84,384
Goodwill			669,719				635,565				608,287				552,943				547,473
Other intangibles and other assets			277,512				347,678				389,349				423,633				537,671
Total assets		$	1,792,816			$	1,882,542			$	1,798,205			$	1,603,847			$	1,552,793
Total current liabilities		$	213,224			$	240,522			$	250,845			$	294,859			$	165,390
Long-term borrowings, less current portion			1,050,097				1,082,101				1,175,349				799,018				575,000
Other long-term liabilities			63,624				70,120				54,940				46,342				43,514
Stockholders' equity			465,871				489,799				317,071				463,628				768,889
Total liabilities and stockholders' equity		$	1,792,816			$	1,882,542			$	1,798,205			$	1,603,847			$	1,552,793

(1) Our amortization of intangibles expense includes the straight-line amortization of customer lists, patents, certain tradenames and other finite-lived intangible assets.

(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.

(3) During the second quarter of 2014, we recorded a gain of $4.9 million related to an adjustment to a certain earn-out obligation in connection with a recent acquisition.

(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. 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 gains and losses on changes in the contractual interest rate.

(6) The 2011 net tax benefit of $237.7 million includes a tax benefit of $271.4 million recorded due to the reversal of valuation allowances recorded on our net deferred tax assets. Refer to Note 13, “Income Taxes,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the tax provision for the years ended December 31, 2015, 2014 and 2013.

(7) Adjusted EBITDA represents net income before interest expense, taxes, depreciation and amortization, as further adjusted for the other items reflected in the reconciliation table set forth below. The computation of adjusted EBITDA is based on the definition of EBITDA contained in the Term Loan and Amended ABL Facility (terms defined in Note 10, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K), which is substantially the same definition that was contained in the Company’s previous credit agreements.

We view Adjusted EBITDA as a key measure of our performance. We present Adjusted EBITDA not only due to its importance for purposes of our credit agreements, but also because it assists us in comparing our performance across reporting periods on a consistent basis because it excludes items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA:

	●	for planning purposes, including the preparation of our annual operating budget and developing and refining our internal projections for future periods;

	●	to allocate resources to enhance the financial performance of our business;

	●	as a benchmark for the determination of the bonus component of compensation for our senior executives under our management incentive plan, as described further in our Proxy Statement;

	●	to evaluate the effectiveness of our business strategies and as a supplemental tool in evaluating our performance against our budget for each period; and

	●	in communications with our board of directors and investors concerning our financial performance.

We believe Adjusted EBITDA is used by securities analysts, investors and other interested parties in the evaluation of the Company. Management believes the disclosure of Adjusted EBITDA offers an additional financial metric that, when coupled with results prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and the reconciliation to U.S. GAAP results, provides a more complete understanding of our results of operations and the factors and trends affecting our business. We believe Adjusted EBITDA is useful to investors for the following reasons:

	●	Adjusted EBITDA and similar non-GAAP measures are widely used by investors to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, tax jurisdictions, capital structures and the methods by which assets were acquired;

	●	investors can use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of our company, including our ability to service our debt and other cash needs; and

	●	by comparing our Adjusted EBITDA in different historical periods, our investors can evaluate our operating performance excluding the impact of items described below.

The adjustments included in the reconciliation table listed below are provided for under our Term Loan and Amended ABL Facility and also are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by our management and board of directors. These adjustments eliminate the impact of a number of items that:

	●	we do not consider indicative of our ongoing operating performance, such as non-cash write-downs and other charges, non-cash gains and write-offs relating to the retirement of debt, severance costs and other restructuring-related business optimization expenses;

	●	we believe to be akin to, or associated with, interest expense, such as administrative agent fees, revolving credit facility commitment fees and letter of credit fees; or

	●	are non-cash in nature, such as share-based compensation expense.

We explain in more detail in footnotes (a) through (g) below why we believe these adjustments are useful in calculating Adjusted EBITDA as a measure of our operating performance.

Adjusted EBITDA does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

	●	Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

	●	Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

	●	Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

	●	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

	●	several of the adjustments that we use in calculating Adjusted EBITDA, such as non-cash write-downs and other charges, while not involving cash expense, do have a negative impact on the value our assets as reflected in our consolidated balance sheet prepared in accordance with U.S. GAAP; and

	●	other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Furthermore, as noted above, one of our uses of Adjusted EBITDA is as a benchmark for determining elements of compensation for our senior executives. At the same time, some or all of these senior executives have responsibility for monitoring our financial results, generally including the items that are included as adjustments in calculating Adjusted EBITDA (subject ultimately to review by our board of directors in the context of the board's review of our financial statements). While many of the adjustments (for example, transaction costs and credit facility fees), involve mathematical application of items reflected in our financial statements, others involve a degree of judgment and discretion. While we believe that all of these adjustments are appropriate, and while the calculations are subject to review by our board of directors in the context of the board's review of our financial statements, and certification by our chief financial officer in a compliance certificate provided to the lenders under our Term Loan and Amended ABL Facility, this discretion may be viewed as an additional limitation on the use of Adjusted EBITDA as an analytical tool.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally. The following table presents a reconciliation of net income to Adjusted EBITDA:

		Year Ended December 31,
(U.S. Dollars in thousands)		2015				2014				2013				2012				2011
Net income		$	77,747			$	174,613			$	174,539			$	93,223			$	324,643
Interest expense			42,843				47,215				54,435				49,114				23,718
Depreciation and amortization			40,333				34,730				36,774				54,160				56,123
Income taxes provision (benefit)			45,236				83,749				104,177				63,129				(237,677	)
Non-cash write-down and other adjustments (a)			3,892				(3,853	)			78				247				1,011
Non-cash share-based compensation expense (b)			8,241				12,612				12,368				10,780				8,646
Tradename and goodwill impairment (c)			40,687				-				-				-				9,389
Loss on extinguishment of debt (d)			4,795				2,084				15,336				14,308				377
(Gain) loss on change in contractual interest rate (e)			2,381				(16,014	)			-				-				-
Transaction costs and credit facility fees (f)			2,249				1,851				3,863				4,117				1,719
Business optimization expenses (g)			1,947				-				-				-				-
Other			465				296				1,043				731				527
Adjusted EBITDA		$	270,816			$	337,283			$	402,613			$	289,809			$	188,476

(a) Represents losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts, and certain foreign currency and purchase accounting related adjustments. Additionally, the year ended December 31, 2014 includes a $4.9 million gain adjustment to a certain earn-out obligation in connection with an acquisition.

We believe that adjusting net income for these non-cash charges is useful for the following reasons:

	●	The losses on disposals of assets described above result from the sale of assets that are no longer useful in our business and therefore represent losses that are not from our core operations;

	●	The adjustments for unrealized mark-to-market gains and losses on commodity contracts represent non-cash items to reflect changes in the fair value of forward contracts that have not been settled or terminated. We believe it is useful to adjust net income for these items because the charges do not represent a cash outlay in the period in which the charge is incurred, although Adjusted EBITDA must always be used together with our U.S. GAAP statements of comprehensive income and cash flows to capture the full effect of these contracts on our operating performance;

	●	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

	●	The gain adjustment to a certain earn-out obligation in connection with an acquisition recorded in the year ended December 31, 2014, is a one-time charge that we believe does not reflect our ongoing operations.

(b) Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their vesting period.

(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. For the year ended December 31, 2011, represents the decision 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.

(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. 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 gains and losses on changes in contractual interest rate.

(f) Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance, or debt issuance or refinancing, together with certain fees relating to our senior secured credit facilities, such as:

	●	administrative agent fees and revolving credit facility commitment fees under our Term Loan and Amended ABL Facility, which we believe to be akin to, or associated with, interest expense and whose inclusion in Adjusted EBITDA is therefore similar to the inclusion of interest expense in that calculation;

	●	transaction costs relating to the acquisition of a business; and

	●	other financing costs incurred relating to the dividend recapitalization transactions completed in May 2012 and 2013.

(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.

(8) Adjusted Net Income is defined as net income before provision (benefit) for income taxes adjusted for the following items: cash income tax expense, amortization of intangible assets, amortization of deferred financing costs and original issue discount related to our debt, gains and losses on changes in cash flows related to our debt, intangible asset impairment charges, transaction costs, losses on extinguishment of debt, business optimization expenses, purchase accounting adjustments, and certain other non-cash gains and losses as reflected in the reconciliation table set forth below.

We believe Adjusted Net Income is used by securities analysts, investors and other interested parties in the evaluation of our company’s operations. Management believes the disclosure of Adjusted Net Income offers an additional financial metric that, when used in conjunction with U.S. GAAP results and the reconciliation to U.S. GAAP results, provides a more complete understanding of our results of operations, our cash flows, and the factors and trends affecting our business.

The adjustments included in the reconciliation table listed below are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by investors and securities analysts. Similar to the Adjusted EBITDA reconciliation, these adjustments eliminate the impact of a number of items we do not consider indicative of our ongoing operating performance or cash flows, such as amortization costs, transaction costs and write-offs relating to the retirement of debt. We also make adjustments to present cash taxes paid as a result of our favorable tax attributes.

Similar to Adjusted EBITDA, Adjusted Net Income does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

	●	Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs;

	●	although amortization is a non-cash charge, the assets being amortized may have to be replaced in the future, and Adjusted Net Income does not reflect any cash requirements for such replacements; and

	●	other companies may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.

The following table presents a reconciliation of net income to Adjusted Net Income:

		Year Ended December 31,
(U.S. Dollars in thousands)		2015				2014				2013				2012				2011
Net income		$	77,747			$	174,613			$	174,539			$	93,223			$	324,643
Provision (benefit) for income taxes			45,236				83,749				104,177				63,129				(237,677	)
Income before provision (benefit) for income taxes			122,983				258,362				278,716				156,352				86,966
Amortization of intangible assets			23,591				21,024				25,819				45,867				48,020
Amortization of deferred finance costs and original issue discount			5,429				6,615				4,772				3,759				1,986
Tradename and goodwill impairment			40,687				-				-				-				9,389
Loss on extinguishment of debt			4,795				2,084				15,336				14,308				377
(Gain) loss on change in contractual interest rate			2,381				(16,014	)			-				-				-
Transaction costs and other purchase accounting adjustments (a)			2,710				(3,623	)			2,842				3,317				875
Business optimization expenses			1,947				-				-				-				-
Adjusted net income before provision for income taxes			204,523				268,448				327,485				223,603				147,613
Cash income tax expense (b)			(6,087	)			(34,283	)			(25,821	)			(2,811	)			(437	)
Adjusted net income		$	198,436			$	234,165			$	301,664			$	220,792			$	147,176

(a) Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance or debt issuance or refinancing, and certain purchase accounting adjustments. The year ended December 31, 2014 also includes a gain adjustment to a certain earn-out obligation in connection with an acquisition ($4.9 million).

(b) Amounts are based on actual cash income taxes paid during each year.