Description of Business and

Basis of Presentation

Founded in

1959,

Generac Holdings Inc. (the Company) is a leading designer and manufacturer of a wide range of power generation equipment and other engine powered products serving the residential, light-commercial and industrial markets. Generac’s power products are available globally through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies, as well as sold direct to certain end user customers.

Over the years, t

he Company has executed a number of acquisitions that support its strategic plan (as discussed in Item

of the Annual Report on Form

-K for the year ended

December

31,

2016).

A summary of these acquisitions include the following:

●

October

2011,

the Company acquired substantially all of the assets of Magnum Products (Magnum), a supplier of generator powered light towers and mobile generators for a variety of industrial applications. The Magnum business is a strategic fit for the Company as it provides diversification through the introduction of new engine powered products, distribution channels and end markets.

●

December

2012,

the Company acquired the equity of Ottomotores UK and its affiliates (Ottomotores), with operations in Mexico City, Mexico and Curitiba, Brazil. Ottomotores is a leading manufacturer in the Mexican market for industrial diesel gensets and is a market participant throughout all of Latin America.

●

August

2013,

the Company acquired the equity of Tower Light SRL and its wholly-owned subsidiaries (Tower Light). Headquartered outside Milan, Italy, Tower Light is a leading developer and supplier of mobile light towers throughout Europe, the Middle East and Africa.

●

November

2013,

the Company purchased the assets of Baldor Electric Company’s generator division (Baldor Generators). Baldor Generators offers a complete line of power generation equipment throughout North America with power output up to

2.5MW,

which expands the Company’s commercial and industrial product lines.

●

September

2014,

the Company acquired the equity of Pramac America LLC (Powermate), resulting in the ownership of the Powermate trade name and the right to license the DeWalt brand name for certain residential engine powered tools. This acquisition expands Generac’s residential product portfolio in the portable generator category.

●

October

2014,

the Company acquired MAC, Inc. (MAC). MAC is a leading manufacturer of premium-grade commercial and industrial mobile heaters for the United States and Canadian markets. The acquisition expands the Company’s portfolio of mobile power products and provides increased access to the oil & gas market.

●

August

2015,

the Company acquired Country Home Products and its subsidiaries (CHP). CHP is 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. The acquisition provides an expanded product lineup and additional scale to the Company’s residential engine powered products.

●

March

2016,

the Company acquired a majority ownership interest in PR Industrial S.r.l and its subsidiaries (Pramac). Headquartered in Siena, Italy, Pramac is a leading global manufacturer of stationary, mobile and portable generators primarily sold under the Pramac® brand. Pramac products are sold in over

150

countries through a broad distribution network.

●

January

2017,

the Company acquired Motortech GmbH (Motortech), headquartered in Celle, Germany. Motortech is a leading manufacturer of gaseous-engine control systems and accessories, which are sold globally to gas-engine manufacturers and to aftermarket customers. While the Motortech acquisition was completed in

January

2017,

it was funded in the

fourth

quarter of

2016.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries

that are consolidated in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All intercompany amounts and transactions have been eliminated in consolidation.

The condensed conso

lidated balance sheet as of

March

31,

2017,

the condensed consolidated statements of comprehensive income for the

three

months ended

March

31,

2017

and

2016,

and the condensed consolidated statements of cash flows for the

three

months ended

March

31,

2017

and

2016

have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the financial position, results of operation and cash flows, have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of the

condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form

-K for the year ended

December

31,

2016.

New Accounting Standards

May

2014,

the

Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2014

09,

Revenue from Contracts with Customers

. This guidance is the culmination of the FASB’s joint project with the International Accounting Standards Board to clarify the principles for recognizing revenue. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a

five

-step process that entities should follow in order to achieve that core principal. ASU

2014

09,

as amended by ASU

2015

14,

Revenue from Contracts with Customers (Topic

606):

eferral of the Effective Date

, ASU

2016

08,

Revenue from Contracts with Customers (Topic

606):

Principal versus Agent Considerations

, ASU

2016

10,

Revenue from Contracts with Customers (Topic

606):

Identifying Performance Obligations and Licensin

ASU

2016

12,

Revenue from Contracts with Customers (Topic

606):

Narrow-Scope Improvements and Practical Expedients

, and ASU

2016

20,

Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers

, become effective for the Company in

2018.

The guidance can be applied either on a full retrospective basis or on a modified retrospective basis in which the cumulative effect of initially applying the standard is recognized at the date of initial application. While the Company is continuing to assess all potential impacts the standard

may

have on its financial statements, it believes that the adoption will not have a significant impact on its revenue related to equipment and parts sales, which represent substantially all of the revenue for the Company. The Company has not yet determined its method of adoption.

February

2016,

the FASB issued ASU

2016

02,

Leases

. This guidance is being issued to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the statement of financial position and by disclosing key information about leasing arrangements. The guidance should be applied using a modified retrospective approach and is effective for the Company in

2019,

with early adoption permitted. The Company is currently assessing the impact the adoption of this guidance will have on the Company’s results of operations and financial position.

August

2016,

the FASB issued ASU

2016

15,

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

. This guidance is being issued to decrease diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance should be applied on a retrospective basis and is effective for the Company in

2018,

with early adoption permitted. The Company does not believe that this guidance will have a significant impact on the presentation of the statement of cash flows.

January

2017,

the FASB issued ASU

2017

04,

Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment

. This guidance is being issued to simplify the subsequent measurement of goodwill by eliminating Step

of the goodwill impairment test. Under the new guidance, the recognition of a goodwill impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance should be applied on a prospective basis and is effective for the Company in

2020.

Early adoption is permitted for goodwill impairment tests performed after

January

2017.

The Company has early adopted this standard, however it does not believe that this guidance will have a significant impact on the Company’s consolidated financial statements.

In the

first

quarter of

2017,

the Company adopted ASU

2016

09,

Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting

. The primary impact of adoption is the prospective recognition of excess tax benefits or deficiencies within the provision for income taxes on the condensed consolidated statement of comprehensive income rather than within additional paid-in capital on the condensed consolidated balance sheet. Further, the Company has elected to continue to estimate forfeitures expected to occur to determine the amount of stock compensation expense recognized each period. The Company also elected to apply the presentation requirements for cash flows related to excess tax benefits or deficiencies prospectively. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any period presented on the condensed consolidated statements of cash flows as such cash flows have historically been presented as a financing activity. There were no cumulative effect adjustments made to equity as of the beginning of the fiscal period, as those provisions of ASU

2016

were not applicable or had no impact to the Company.

There are several other new accounting pronouncements issued by the FASB.

Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these other accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.