●

Net sales were $357.8 million during the fourth quarter of 2015 as compared to $404.0 million in the prior-year fourth quarter, including a $14.9 million contribution from a recent acquisition.

-

Residential product sales increased 1.8% to $198.5 million as compared to $194.9 million in the prior-year quarter, which was primarily due to the contribution from a recent acquisition, mostly offset by a decline in shipments of home standby generators as a result of lower power outage activity.

-

Commercial & Industrial (C&I) product sales were $131.9 million as compared to $185.0 million in the prior-year quarter, which was primarily due to a significant decline in shipments of mobile products into oil & gas and general rental markets driven by the substantial decline in energy prices.

●

Gross profit margin during the fourth quarter improved 230 basis points over the prior-year quarter to 36.6% compared to 34.3%.

●

Net income during the fourth quarter of 2015 was $9.2 million, or $0.14 per share, as compared to net income of $49.4 million, or $0.70 per share, for the same period of 2014. The current-year net income includes the impact of $40.7 million of pre-tax, non-cash charges for the impairment of certain intangible assets with nearly the entire amount relating to tradenames as a result of a new brand strategy to transition and consolidate various brands to the Generac® tradename.

●

Adjusted net income, as defined in the accompanying reconciliation schedules, was $65.3 million, or $0.97 per share, as compared to $68.4 million, or $0.98 per share, in the fourth quarter of 2014.

●

Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $80.1 million as compared to $92.2 million in the fourth quarter last year.

●

Cash flow from operations was $111.8 million as compared to $110.5 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was a quarterly record of $101.2 million as compared to $98.5 million in the fourth quarter of 2014.

●

The Company repurchased 1.15 million shares of its common stock during the fourth quarter for $35.6 million under its previously announced $200 million share repurchase program.

●

As announced yesterday, the Company entered into an agreement to acquire a majority ownership interest of PR Industrial S.r.l and its subsidiaries (collectively Pramac), headquartered in Siena, Italy. With over 600 employees, four manufacturing plants and 14 commercial branches located around the world, Pramac is a leading global manufacturer of stationary, mobile and portable generators sold in over 150 countries through a broad distribution network. The acquisition is anticipated to close before the end of the first quarter of 2016.

●

Net sales were $1.317 billion during 2015 as compared to $1.461 billion during 2014.

-

Residential product sales were $673.8 million as compared to $722.2 million in the prior year. The decline from the prior year was 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.

-

Commercial & Industrial product sales were $548.4 million as compared to $652.2 million in the prior year. The decline was 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.

●

Net income during 2015 was $77.7 million, or $1.12 per share, as compared to $174.6 million, or $2.49 per share for 2014. Current-year net income includes the impact of $40.7 million of pre-tax, non-cash charges for the impairment of certain intangible assets as previously discussed. Net income for both years also includes the impact of changes in the contractual interest rate relating to the Company’s term loan credit agreement, resulting in a $16.0 million gain during 2014 and $2.4 million loss during 2015.

●

Adjusted EBITDA for 2015 was $270.8 million as compared to $337.3 million last year.

●

Cash flow from operations was $188.6 million as compared to $253.0 million in the prior year. Free cash flow was $158.0 million as compared to $218.3 million in 2014.

●

On August 1, 2015, the Company acquired Country Home Products and its subsidiaries, a leading manufacturer of high-quality, innovative, professional-grade engine-powered equipment used in a wide variety of property maintenance applications, which are primarily sold in North America under the DR® Power Equipment brand.

●

Uses of cash during 2015 included $30.7 million for capital expenditures, $73.8 million related to acquisitions, $50.0 million for the pre-payment of term loan debt, and approximately $100 million for stock repurchases.

●

frequency and duration of power outages impacting demand for Generac products;

●

availability, cost and quality of raw materials and key components used in producing Generac products;

●

the impact on our results of possible fluctuations in interest rates and foreign currency exchange rates;

●

the possibility that the expected synergies, efficiencies and cost savings of our acquisitions will not be realized, or will not be realized within the expected time period;

●

the risk that our acquisitions will not be integrated successfully;

●

difficulties Generac may encounter as its business expands globally;

●

competitive factors in the industry in which Generac operates;

●

Generac's dependence on its distribution network;

●

Generac's ability to invest in, develop or adapt to changing technologies and manufacturing techniques;

●

loss of key management and employees;

●

increase in product and other liability claims or recalls; and

●

changes in environmental, health and safety laws and regulations.

Three Months Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

Net sales

Costs of goods sold

Gross profit

Operating expenses:

Selling and service

Research and development

General and administrative

Amortization of intangibles

Tradename and goodwill impairment

–

–

Gain on remeasurement of contingent consideration

–

–

–

Total operating expenses

Income from operations

Other (expense) income:

Interest expense

Investment income

Loss on extinguishment of debt

–

Gain (loss) on change in contractual interest rate

–

–

Costs related to acquisition

–

Other, net

Total other expense, net

Income before provision for income taxes

Provision for income taxes

Net income

Net income per common share - basic:

Weighted average common shares outstanding - basic:

Net income per common share - diluted:

Weighted average common shares outstanding - diluted:

Other comprehensive income (loss):

Foreign currency translation adjustment

Net unrealized gain (loss) on derivatives

Pension liability adjustment

Other comprehensive income (loss)

Comprehensive income

December 31,

2015

2014

Assets

Current assets:

Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of $2,494 at December 31, 2015 and $2,275 at December 31, 2014

Inventories

Deferred income taxes

Prepaid expenses and other assets

Total current assets

Property and equipment, net

Customer lists, net

Patents, net

Other intangible assets, net

Tradenames, net

Goodwill

Deferred financing costs, net

Deferred income taxes

Other assets

Total assets

Liabilities and stockholders’ equity

Current liabilities:

Short-term borrowings

Accounts payable

Accrued wages and employee benefits

Other accrued liabilities

Current portion of long-term borrowings and capital lease obligations

Total current liabilities

Long-term borrowings and capital lease obligations

Deferred income taxes

Other long-term liabilities

Total liabilities

Stockholders’ equity:

Common stock, par value $0.01, 500,000,000 shares authorized, 69,582,669 and 69,122,271 shares issued at December 31, 2015 and 2014, respectively

Additional paid-in capital

Treasury stock, at cost, 3,567,575 and 198,312 shares at December 31, 2015 and 2014, respectively

Excess purchase price over predecessor basis

Retained earnings

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

Year Ended December 31,

2015

2014

Operating activities

Net income

Adjustment to reconcile net income to net cash provided by operating activities:

Depreciation

Amortization of intangible assets

Amortization of original issue discount

Amortization of deferred financing costs

Tradename and goodwill impairment

–

Loss on extinguishment of debt

(Gain) loss on change in contractual interest rate

Gain on remeasurement of contingent consideration

–

Provision for losses on accounts receivable

Deferred income taxes

Loss on disposal of property and equipment

Share-based compensation expense

Net changes in operating assets and liabilities:

Accounts receivable

Inventories

Other assets

Accounts payable

Accrued wages and employee benefits

Other accrued liabilities

Excess tax benefits from equity awards

Net cash provided by operating activities

Investing activities

Proceeds from sale of property and equipment

Expenditures for property and equipment

Acquisition of businesses, net of cash acquired

Net cash used in investing activities

Financing activities

Proceeds from short-term borrowings

Proceeds from long-term borrowings

–

Repayments of short-term borrowings

Repayments of long-term borrowings and capital lease obligations

Stock repurchases

–

Payment of debt issuance costs

Cash dividends paid

Taxes paid related to the net share settlement of equity awards

Excess tax benefits from equity awards

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information

Cash paid during the period

Interest

Income taxes

Net income to Adjusted EBITDA reconciliation

Three Months Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income

Interest expense

Depreciation and amortization

Income taxes provision

Non-cash write-down and other adjustments (1)

Non-cash share-based compensation expense (2)

Tradename and goodwill impairment (3)

–

–

Loss on extinguishment of debt (4)

–

(Gain) loss on change in contractual interest rate (5)

–

–

Transaction costs and credit facility fees (6)

Business optimization expenses (7)

–

–

Other

Adjusted EBITDA

(1) Includes gains/losses on disposals 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 adjustments to certain earn-out obligations in connection with acquisitions ($4.9 million). A full description of these and the other reconciliation adjustments contained in these schedules is included in Generac's SEC filings.

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

(3) Represents the impairment of certain tradenames due to a new brand strategy to transition and consolidate various brands to the Generac® tradename ($36.1 million) and the impairment of goodwill related to a prior acquisition ($4.6 million).

(4) Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayments.

(5) The amount for the year ended December 31, 2015 represents a non-cash loss relating to a 25 basis point increase in borrowing costs, effective third quarter 2015, as a result of the credit agreement leverage ratio rising above 3.0 times. The amount for the year ended December 31, 2014 represents a non-cash gain relating to a 25 basis point reduction in borrowing costs, effective second quarter 2014, as a result of the credit agreement leverage ratio falling below 3.0 times.

(6) 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.

(7) Represents severance and other non-recurring restructuring charges.

Net income to Adjusted net income reconciliation

Three Months Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income

Provision for income taxes

Income before provision for income taxes

Amortization of intangible assets

Amortization of deferred finance costs and original issue discount

Tradename and goodwill impairment (8)

–

–

Loss on extinguishment of debt (9)

–

(Gain) loss on change in contractual interest rate (10)

–

–

Transaction costs and other purchase accounting adjustments (11)

Business optimization expenses (12)

–

–

Adjusted net income before provision for income taxes

Cash income tax expense (13)

Adjusted net income

Adjusted net income per common share - diluted:

Weighted average common shares outstanding - diluted:

(8) Represents the impairment of certain tradenames due to a new brand strategy to transition and consolidate various brands to the Generac® tradename ($36.1 million) and the impairment of goodwill related to a prior acquisition ($4.6 million).

(9) Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayments.

(10) The amount for the year ended December 31, 2015 represents a non-cash loss relating to a 25 basis point increase in borrowing costs, effective third quarter 2015, as a result of the credit agreement leverage ratio rising above 3.0 times. The amount for the year ended December 31, 2014 represents a non-cash gain relating to a 25 basis point reduction in borrowing costs, effective second quarter 2014, as a result of the credit agreement leverage ratio falling below 3.0 times.

(11) 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 adjustments to certain earn-out obligations in connection with acquisitions ($4.9 million).

(12) Represents severance and other non-recurring restructuring charges.

(13) Amounts for the years ended December 31, 2015 and 2014 are based on actual cash income taxes paid during the full year ended 2015 and 2014, respectively, which equates to a cash income tax rate of 4.9% and 13.3%, respectively, for each year.

Free Cash Flow Reconciliation

Three Months Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net cash provided by operating activities

Expenditures for property and equipment

Free cash flow