Description of Business and

Basis of Presentation

Founded in

1959,

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

Over the years, the Company has executed a number of acquisitions that support its strategic plan (as discussed in Item

of its Annual Report on Form

-K for the year ended

December 31, 2017).

A summary of acquisitions affecting the reporting periods presented include:

●

June 2018,

the Company acquired Selmec Equipos Industriales, S.A. de C.V. (Selmec), headquartered in Mexico City, Mexico. Selmec is a designer and manufacturer of industrial generators ranging from

10kW

2,750kW.

Selmec offers a market-leading service platform and specialized engineering capabilities, together with robust integration, project management and remote monitoring services.

●

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 primarily to European gas-engine manufacturers and to aftermarket customers around the world.

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 consolidated balance sheets as of

September 30, 2018

and

December 31, 2017,

the condensed consolidated statements of comprehensive income for the

three

and

nine

months ended

September 30, 2018

and

2017,

and the condensed consolidated statements of cash flows for the

nine

months ended

September 30, 2018

and

2017

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 Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

New Accounting Standards

Not

Yet Adopted

February 2016,

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

2016

02,

Leases. This guidance was issued to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet 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.

The Company has developed a comprehensive project plan and established a cross-functional implementation team to evaluate the impact of the standard. The project plan includes evaluating the Company’s lease portfolio, analyzing the standard’s impact on the Company’s various types of lease contracts and identifying the reporting requirements of the standard. While the Company does

not

anticipate the impact to the statement of comprehensive income to be material, it is still calculating the impact the lease asset and lease liability will have on the balance sheet.

August 2017,

the FASB issued ASU

2017

12,

Derivatives

and Hedging – Targeted Improvements to Accounting for Hedging Activities

. This guidance was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of the hedge accounting guidance. The standard 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 2018,

the FASB issued ASU

2018

15,

Intangibles – Goodwill and Other – Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

This guidance was issued to address the diversity in practice related to the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption, and is effective for the Company in

2020.

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

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 accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

Recently Adopted

Accounting Standards

January 1, 2018,

the Company adopted ASU

2017

07,

Improving the Presentation of Net Periodic Pension Cost and Net

Periodic

Postretirement Benefit Cost

. The new standard requires presentation of certain components of net periodic pension cost as non-operating expense. The adoption of this new standard did

not

have a significant impact on the Company’s financial statements. The changes in presentation of the components of net periodic pension cost were applied retrospectively to all periods presented.

January 1, 2018,

the Company adopted ASU

2016

15,

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

. The changes in presentation of the proceeds from beneficial interests in securitization transactions were applied retrospectively to all periods presented.

January 1, 2018,

the Company adopted ASU

2014

09,

Revenue from Contracts with Customers

, and all related amendments (the “new revenue recognition standard”) using the full retrospective method, which requires application to all periods presented.

The impact of adopting the above standards on the Company’s previously reported condensed consolidated financial statements is as follows:

Condensed Consolidated Balance Sheets	September 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Accounts receivable	$	320,626	$	(4,207	)	$	316,419
Inventories		349,023		7,359			356,382
Other accrued liabilities		109,362		5,584			114,946
Deferred income taxes		49,528		(3,367	)		46,161
Other long-term liabilities		69,556		6,178			75,734
Retained earnings	$	535,172	$	(5,243	)	$	529,929

	December 31, 2017
	As Reported		Impact of Adoption			As Adjusted

Accounts receivable	$	280,002	$	(708	)	$	279,294
Inventories		380,341		6,708			387,049
Other accrued liabilities		105,067		7,551			112,618
Deferred income taxes		43,789		(1,937	)		41,852
Other long-term liabilities		76,995		5,898			82,893
Retained earnings	$	616,347	$	(5,513	)	$	610,835

Condensed Consolidated Statements of Comprehensive Income	Three Months Ended September 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Net sales	$	457,253	$	(1,414	)	$	455,839
Cost of goods sold		299,784		(176	)		299,608
Selling and service expenses		44,402		(939	)		43,463
Research and development expenses		10,864		(14	)		10,850
General and administrative expenses		22,102		26			22,128
Other, net		1,570		140			1,710
Provision for income taxes		20,581		(177	)		20,404
Net income attributable to Generac Holdings Inc.	$	39,709	$	(274	)	$	39,435

Earnings per share
Basic	$	0.64	$	-		$	0.64
Diluted	$	0.64	$	(0.01	)	$	0.63

Comprehensive income attributable to Generac Holdings Inc.	$	43,213	$	(274	)	$	42,939

	Nine Months Ended September 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Net sales	$	1,184,443	$	(3,244	)	$	1,181,199
Cost of goods sold		782,028		1,219			783,247
Selling and service expenses		127,702		(2,762	)		124,940
Research and development expenses		31,732		(42	)		31,690
General and administrative expenses		64,436		72			64,508
Other, net		3,105		420			3,525
Provision for income taxes		42,946		(841	)		42,105
Net income attributable to Generac Holdings Inc.	$	78,211	$	(1,310	)	$	76,901

Earnings per share
Basic	$	1.27	$	(0.02	)	$	1.25
Diluted	$	1.26	$	(0.02	)	$	1.24

Comprehensive income attributable to Generac Holdings Inc.	$	92,177	$	(1,310	)	$	90,867

Condensed Consolidated Statement of Cash Flows	Nine Months Ended September 30, 2017
	As Reported			Impact of Adoption			As Adjusted

Net income	$	78,644		$	(1,310	)	$	77,334
Deferred income taxes		28,703			(3,367	)		25,336
Accounts receivable		(70,108	)		2,105			(68,003	)
Inventories		16,738			(7,359	)		9,379
Other accrued liabilities		17,319			7,829			25,148
Net cash provided by operating activities	$	122,719		$	(2,102	)	$	120,617

Proceeds from beneficial interests in securitization transactions	$	-		$	2,102		$	2,102
Net cash used in investing activities	$	(15,324	)	$	2,102		$	(13,222	)