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

and Item

(Note

“Description of Business”)

of the Annual Report on Form

-K for the year ended

December 31, 2016).

A summary of recent acquisitions include the following:

●

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

June 30, 2017,

the condensed consolidated statements of comprehensive income for the

three

and

six

months ended

June 30, 2017

and

2016,

and the condensed consolidated statements of cash flows for the

six

months ended

June 30, 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 operations 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

): D

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 is currently planning to adopt the standard using the full retrospective method.

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 the adoption of 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 1, 2017.

The Company has early adopted this standard, which did

not

have a significant impact on its 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

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

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

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.